Situation: A company is transitioning from a time and materials to a fixed price bid model. Estimators and project leads find this transition difficult. We need them to think like business managers. How do you help managers to see and think in terms of the big picture?
Advice from the 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 generate more consistency in bids and final gross margins per project.
- Next, teach managers and employees industry and company standards within your new model.
- Do post-mortems on all projects. Did we make or lose money versus 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 this information to improve your estimating process over time.
- You 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. Establish range and averages within each category.
- Look for key variables among the project categories: scope of project, learning curves, efficiency of team members.
- Work through known costs and outcomes on past projects as examples to teach the process.
- For new projects, calculate best, medium and worst case hours and costs. Bid based on your worst case as you develop your learning curve.
- Make sure to include a project management fee on top of your T&M estimates. Eventually you want to develop an overhead percentage to cover project management.
- Team your estimator with the project lead both for project input, and performance against the bid.
- Evaluate and compensate both based on project outcome.
- The critical measure will be gross margin generated versus gross margin estimated on the project.
Key Words: Leadership, Project, Time and Materials, Fixed Price, Bid, Framework, Consistency, Standards, Variables, Estimator, Lead, Incentive