When you first saw the project, you thought the scope was too optimistic for the budget. But, you wanted to work with the owner, so you let the optimism take over. You started doubting your best estimate and began gradually convincing yourself it was probably too high. You signed the contract, but now, a few months into the work, you find yourself buying into the project with your own money. The money you’re losing on work that should have cost more. While it might be too late for this project, here are some strategies to keep it from happening again.
Stay Pessimistically Realistic
Optimism sinks more projects than anybody wants to admit. There is a place for realistic optimism, but only if it’s tempered by realistic pessimism. To understand why you should be pessimistic about any project, just consider the risks. You can’t control the weather. You can’t control the local zoning or approval authorities. You can’t control the material sources. You can’t even really control the labor force you’ve got. So why be exuberantly optimistic about finishing on time or coming in under budget?
But, with a realistically pessimistic outlook, you can see the risks clearly. This allows you to plan for them or mitigate them. That can get you to realistic optimism. That’s the best place to be when talking with a potential client, when estimating, and when imagining a schedule.
Be Very Thorough in Your Estimating
Don’t give “best guess” estimates, or put it in writing that the estimate is only preliminary and state clearly that it will definitely change. Don’t say “may change.” Say it will definitely change. While starting out wishy-washy might get you the contract, it also sets the tone for the rest of the project, signaling to the potential client that you are flexible on everything.
With client expectations set, go to work on the best estimate you’ve ever done. Factor the variables, account for unknowns, test the work breakdown, confirm your costs, and verify the methods. While you’re at it, try to line up alternate sources for specialized components and equipment. Finally, test your subcontractor bids against the proposed scope to confirm they are realistic and complementary to the overall project budget.
Then, put on your pessimistic hat, and ask yourself what could possibly go wrong. Adjust the estimate accordingly.
Once you have a well-defined scope, an estimate you’re confident about, and a signed contract, resist changing the scope or price without a change order or a contract change. Some clients see the budget as just a starting point, hoping for it to get lower as you get more invested. But you’re already deeply invested at this stage.
Some clients talk about doing some of the work themselves or hiring others to do it while chipping away at your portion of the scope. If you go along and adjust your price, you’re in for a rough ride. This is simply changing the contract terms without actually changing the contract. Remember that clients can also grow to expect favors.
Make sure your team knows where the contract ends and favors begin. If your sub, a crew leader, or a super starts doing favors for the client, that’s the same thing as scope creep, but you’re paying for it. Your team should know the rules of engagement so when a client goes behind your back, they can politely ask them to check with you or whoever you have in charge.
Don’t Over Promise
It might make the potential client’s eyes light up when you promise them to hit their unrealistic deadline, but it’s a foolhardy move on your part. Instead, it’s much better to work with them to adjust the scope or the deadline so the promises you make are promises you can keep.
Don’t Under Deliver
It might be tempting to cut corners once you see you’re investing your own money in the project. However, new problems show up in rework or warranty issues later on. A well-worn phrase is quite accurate: If you don’t have time to get it right the first time, where will you find the time to get it right later?
Using change orders to make up for poor management or sub-quality work creates a double-edged sword. This approach will eventually have you fighting with the client over every change, and when the project’s over, your reputation will take a hit. You’re better off figuring out creative ways to deliver what the client wants without sacrificing quality.
Can you get more efficient by adopting new or different technology? Can you improve the mix of labor so your highest-paid employees can reach maximum productivity? Can you use a different type of equipment to speed up work or to allow moving workers to better-suited jobs? Can you convince the owner to make a scope change that provides equal or better benefits while saving you cost?
There are many ways to lose money on projects. When you eliminate inadvertent investments of your own money, you open the door to better profitability.