In This Issue
Dear
With the good weather finally here, many of you are now probably working 10-15 hours a day, 6 days per week. These long-hour days put an added emphasis on how important it is to be efficient in your tasks. Whether it be on-site management, office paperwork or client meetings, with each minute you spend, you are probably trying to figure out how you can squeeze more time out of the day to get the task done.
One place that deserves serious review is how you’ve estimated the time you'll spend on a job. Over the years, we at HomeTech have talked about this very topic with professional remodelers and contractors time and again. But after you’ve estimated the labor, materials, subcontractor and other costs, your estimate is not complete. Your job's not done until you have completed a five-part "Judgment Analysis" and added an appropriate amount or percentage to your estimate based on those factors.
We've discussed, at length, what can be referred to as "intangibles" - the things that can typically slow us down as we're working on a job. These "intangibles" can sneak up on us, but with some careful consideration and judgment, we can get pretty good at figuring how they will impact us on a job. By using our judgment, we can figure out, really, how much we estimate for the time we spend on our jobs. Read on for the highlights on how to use your "professional judgment" during the estimating process – advice that too many contractors only learn the hard way.
- Walt Stoeppelwerth, HomeTech Building Business Ideas
P.S. Treating your people fairly is critical to maintaining a workforce that is productive and who remains loyal to you. Figuring out just what this means can some times be a challenge. HomeTech’s 2007 Salary Survey has the salary and benefits information you need for setting 2007 pay rates and compensation strategies. Get your copy today: click here.
Using the Five-Part Judgment Analysis
Your experience in every day life plays out time and again. You know that if you start out in your car during rush hour, you're going to get stuck in traffic. You know that if you go to McDonald's at 12 noon, you're going to wait in line before your order is taken. Our experience with driving, going places, and conducting our everyday lives has taught us things. We can choose whether or not to deal with these things by modifying our plans or making different decisions. What HomeTech has learned over the years from speaking with thousands of remodelers and contractors, is that your professional judgment is required for each and every estimate that you put together.
Judgment Areas
The following areas are ones in which your judgment makes an impact on an estimate:
- job conditions,
- special features,
- customer requirements,
- company capabilities,
- code requirements.
We'll discuss three of these items this month (those above highlighted with links). Next month, we'll cover the other two and provide you with a bonus download to use as a checklist when you are doing your estimates.
Your previous experience in each of these areas will help guide you through an assessment for how each area should be accounted for in an estimate. For some of these items you should add a dollar amount to reflect the increased direct costs; for others a percentage of the contract amount for the increased risks and aggravation you are accepting if you get the job.
Job Conditions
From your experience, you know how long it will take you to frame and drywall a 6' x 6' closet. But if that closet is to be built in a third-floor attic accessible only via a narrow staircase, you will have to factor in additional time for cutting down the sheetrock and perhaps installing more pieces of sheetrock.
Job conditions affect the cost of an estimate based on the following:
- location (easily accessible or not),
- work area (finished or unfinished),
- environment (elemental effects of snow, rain, heat) and
- structure (a tight crawl space or open room).
Since these conditions will affect most often the efficiency - and frequently the steps involved - for what can otherwise be a simple job to complete, assessing job conditions and appropriately accounting for them is a very important step when estimating.
Customer Requirements
A basic rule of business is that 1 out of 5 customers will not allow the contractor to make a profit. Most likely, customers do not set out to live up to this rule, but some people, just by their very nature, make this the case.
Our experience in dealing with customers tips us off to look out for customers who will most likely erode our profits. A "red flag" should be raised when we meet customers who require all bids to be itemized, or who are insistent on a penalty clause for completion, or who continuously negotiate during the bidding process, or who seem to be meticulous or have an unrealistic expectations as to when work will be completed. Why? Any of these characteristics are indicative of more demands on your time, more supervision that needs to be compensated or more hours spent on a job to meet the customer demands – all of which translate into more dollars you need to spend which you need to account for in your estimate.
Code Requirements
Have you ever managed the rough electrical work for a job only to find out during the initial inspection that the amps, per code requirement, need to be upgraded from less than 60 to 100 amps or more? Such code requirements should be identified during the estimating process so bids reflect the actual work that needs to be done. If such code requirements are not identified, it can lead to miscommunication and misconstrued expectations as to who should cover the costs to meet such requirements – you, the contractor, or the person for whom you are performing the work.
By understanding the code requirements, you can judge how the requirements will affect the work that needs to be done, and account for any necessary additional work or materials when preparing your estimate.So, what's your judgment worth?
The examples above illustrate that your judgment can be worth "a lot" – in either time or material requirements which translate directly to dollars. Wondering what markup to charge to generate a gross profit of 40-43%? Find out in next month’s issue when we cover two more judgment factors you don't want to forget.
Create an Assembly from an Existing Estimate
In addition to creating Assemblies using the "Tag & Transfer" method in the Cost Books, you can also create new Assemblies from all or part of an existing estimate. Creating an Assembly from an existing estimate can be very useful when the line items used in the estimate are used in many of the projects you estimate (electrical components for an addition for example). Click here to learn more.
A new Leading Indicator of Remodeling Activity (LIRA) has been developed which tries to predict remodeling revenues over the next 6-9 months. The indicator is currently predicting a gradual decline in the growth of remodeling activity through the 3rd quarter of 2007. By that time, the indicator projects aggregate remodeling revenue will be growing at an annual rate of only 1.9% which would represent a significant decline from the double-digit increases of the last several years.
Source: Harvard University, Joint Center for Housing Studies, 2007
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