How Do You Help Managers Think Bigger?

A company is transitioning from a time and materials model to a fixed price bid model

. We need them to think like business managers. We need to get them to think like business managers. How do you help managers to see and think in terms of the big picture?

Advice from a group of CEOs:

First, set up a framework that repositions projects in a business framework. All projects are business go/no decisions with expenses, minimum profitability targets, and incentives provided for beating initial projections. This will help you to generate more consistency in your bids and the gross margins per project - both at bid and at project end.

Next, teach managers and employees both industry and company standards within your new model. Do post-mortems on all projects from this point on. Learn from your experience what works and what doesn't. Did we make or lose money vs. initial estimate? How much? How did we perform against estimated time and expense? Were client expectations met? Were they exceeded? What was good or bad about the project? Were there errors in the original estimates? Where could we have saved cost? Use the information from these post-mortems to improve your estimating process over time.

You already have a long history of T&M projects. Categorize these by project type. Look at the hours required to complete the projects - both engineering and management time - as well as other costs. See what the range and averages look like within the categories. This history can give you guidelines for constructing estimate and bid models for future projects. Look for key variables among the project categories: scope of project, learning curves, efficiency of people working on the project. As you develop your new methodology, work through known costs and outcomes on past projects as examples to teach the process. For new projects, calculate based on past history best, medium and worst case hours and costs. Bid based on your worst case as you develop your learning curve. Make sure that you add a project management fee on top of your T&M estimates. Eventually you want to develop a percentage for non-productive or overhead cost to cover the expense of managing a project.

If timelines allow, get or ask for advance time to bid on new projects. This will allow you time to develop both the scope and cost of the project.

Team your estimator with the person who will run the project both for input to the bid offered, and performance against the bid. Evaluate and compensate both based on the outcome of the project. The critical measure will be gross margin generated versus gross margin estimated on the project. One company creates an additional incentive - if a project is completed early and on budget, and to quality parameters, they give the team members some of the remaining time on the project as paid time off.

Talk to others in your industry and find out what processes they use to estimate projects, what challenges they encounter, and how they deal with these.

by: Sandy McMahon

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