Quietly Re-Thinking Out Loud

I’m putting together a Christmas/Winter reading list for 2008-9. It consists both of books I’ve reently read or am reading right now that I would recommend to other contractors and some new books I’ve just discovered and plan to read.

The first book I’ll mention comes from that last category in that I haven’t read it yet but it looked so good I just ordered it and plan to start in on it in just a couple of days. ItsHow Fit Is Your Business?: A Complete Checkup and Prescription for Better Business Health by Mark G Richardson who is President of Case Design/Remodeling , Inc. I’ve been a long time fan of Richardson’s articles and commentary in Remodeling Magazine so this one was sort of a no-brainer i my book but in reading from a preview chapter I discovered on line I spotted a passage that tells me some of the information in the book is going to be particulary apropos for me and a lot of the contractors I work with. Quote:

I’ve long been a beliver that contractors that don’t market and advertise are steering an aimless rudderless ship in terms of directing their business towards the projects they feel they are best suited for and Richardson comment illustrates another problem with the all my business comes from refereals perspective. I’m looking forward to see what else is in the book.

Next on my list is a book I ordered a month or so ago and have worked myself a little over halfway through at this point. It’s entitled Building a Successful Construction Company by Patricia W. Atallah.

While I think a lot of small shop, mom and pop contractors will find the book addresses concerns and planning that they think is beyond them I still find it full of rich ideas and concepts and highly recommend it to the more serious contractor businsess owner regardless of the size of their business.

An excerpt (the introdution) from the book is avaible on the authors website at Building A Successful Construction Company - Book Introduction and in that excerpt the author writes:

I often hear the you have to have "experience" argument being thrown around by a lot of men in the industry and I think that the author, Patricia Atallah, illustrates that business smarts are probably the most valuable asset an individula can have.

Next I’ll mention a group of books written about John Boyd. Science, Strategy and War: The Strategic Theory of John Boyd and two more biographies written about him entiled Boyd: The Fighter Pilot Who Changed the Art of War
and The Mind of War: John Boyd and American Security
.

I first turned on to learning about Boyd through a Yahoo Group Theory of Constraints discussion group I am a member of but you can read a little bit about him and his influence on business here in the Wikipedia article on him.

I found Boyd’s OODA loop based planning similar to Deming’s Plan-Do-Check-Act PDCA Cycle and Boyd’s belief that management defines objectives and strategy. Workers (soldiers, originally) decide how to carry the work out right in line with Deming’s thinking on management too. Boyd believed people are entirly capable of making intelligent decisions, provided they have the right education training and work environment to make those decisions within.

Next on my list I’m going to put a book I haven’t read but only just accidently discovered while I was looking for Mark G. Richardson’s book that I mentioned above. This one is by Mark Richardson which to the best of my knowledge is of no relation and is entitled:Zen and Now: On the Trail of Robert Pirsig and the Art of Motorcycle Maintenance.

I’m a long time fan (30 years) of Robert Pirsig’s Zen and the Art of Motorcycle Maintenance: An Inquiry into Values and consider it to be one of the most influential and seminal books in my life. I’ve only just ordered the book and so I haven’t read it yet so I can’t comment but I’m putting it on the list here for those who feel more intellectually and philosophically inclined to examine juust what is "Quality".

The Wikipedia article on Zen and the Art of Motorcycle Maintenance says ZAMM "is the first of Robert M. Pirsig’s texts in which he explores his Metaphysics of quality." (more..) One of my favorite quotes from the book that helped reawaken my interest when I heard it again a decade or so ago when it was mentioned by the business guru Tom Peters in one of his books is :

Next on the list I’ll put Run Your Business So It Doesn’t Run You
by Linda Leigh Francis

Now I’ve known about this book for a couple of years now but have never really sat down and read everything in it until this past fall and I find it so valuable I’m going to add it to my Contracting 101 Essentials list.

Run Your Business So It Doesn’t Run You teaches you the same lessons as Michael Gerber’s E-Myth books about the concept that most contracting businesses fail because the founders are technicians (trades men and women) that were inspired to start a business but don’t have the business awareness to run a successful construction business but also provides some actual plans (checklists) and management tools for you to work with in making sure you develop your own systems and don’t fall prey to the "Entrepreneurial Trap" .

Last on this particualr list (there will always be more book lists) I’ll put Reaching The Goal: How Managers Improve a Services Business Using Goldratt’s Theory of Constraints.

This book is rather technical about the practical application of the Theory of Constraints in a service business environement. I recommend it for the folks who have abasic understanding of TOC and who have already read The Goal: A Process of Ongoing Improvement
and/or Critical Chain : A Business Novel and/or Critical Chain Project Management, Second Edition.

by: Jerrald Hayes

Introduction

Through out the web you’ll find blurbs for one of the best selling books on understanding markup for contractors saying:

To succeed in a construction business, you have to price your jobs to cover all labor, material and overhead expenses, and make a decent profit. The problem is knowing what markup to use. You don’t want to lose jobs because you charge too much, and you don’t want to work for free because you’ve charged too little. If you know how to calculate markup, you can apply it to your job costs to find the right sales price for your work…(Note 1)

The problem with that is the markup method described in that book (a markup based on your Estimated Total Volume Based Markup) is it can leave you in a position where you will lose jobs because you charge too much and get plenty of jobs where you’re working for ‘free‘ because you charged too little.

This article explores just how that happens and compares that method against a Capacity Based Markup Methodology.

The Story Begins

Lets pretend we have two almost identical small solo operation contractors. They’re identical in that they have the same costs and operational goals but they are going about pricing their projects via two differing methods. One contractor, Contractor A, Aaron is going to work with a Capacity Based Markup while the second, Contractor B, Bill is going to work with an Estimated Total Volume Based Markup .

Part 1 - Labor Costs

Both contractors set about figuring the real Actual Cost for their Labor.

Without considering their compensation for owning and running a business, performing office work estimating and the like they decide that they want to pay themselves a wage of $24.00 per hour (plus some benefits like health insurance and retirement) for their time out in the field which they anticipate will be spent doing the actual work themselves but that wage will also compensate them for the time they spend supervising any subs they have hired for any particular project too. They are the owners of their own businesses and the only employees which means they are exempt from the obligation having to cover themselves with Workers Compensation however they decide to do so anyway so that they are then insured if they get hurt on the job. They plug in the costs for all those items and what they get for their estimated yearly Labor Cost appears in the chart below.

Contractor B, Bill is done with his Labor Cost figuring for the time being but Contractor A, Aaron, goes on to look at how the hours he is going to pay himself for actually break down. While he is going to actually “work” for 51 weeks in the year, 8 hours a day, 5 days a week for a total of 2040 hours he knows not all of that time is going to be productive work he can charge to his client’s project budgets. He is going to give himself 5 paid holidays and a week (5 days) of paid vacation. He also plans to compensate himself for some 16 hours of training he wants to take and he figures a budget of 52 hours (about an hour per week) for downtime where he is just chatting with clients or subs or fixing tools and can’t in his mind charge that time to his client’s project budgets. That figuring works out to 148 hours of Non-Billable time so he subtracts that from the 2040 Total Hours and comes up with an estimate of 1892 Billable Hours that he will work.

He then takes that figure he worked out earlier for his Total Yearly Labor Cost of $66,587.70 and divides that by the 1892 Billable Hours to come up with a True Hourly COST for the hours he can charge to his client’s project budgets and that works out to a labor Cost of $35.19 per hour.

Part 2 - Fixed Overhead Costs

Both Contractors then go about figuring out their Fixed Overhead Costs (the costs of doing business that they have to pay regardless of whether they do any Billable work for clients at all). They come up with estimated budget of $18,254.10 for General Office Operation & Expenses which includes their office time spent estimating and bookkeeping as well as general office operation costs such as phone service, paper, postage, and trade association dues etc. They come up with an estimated budget for Capital Equipment for the year of $7520.00 Vehicle, Tool, and Computer expenses. They develop a budget of $5370 for marketing (cards, brochure, web site, advertising etc), they budget $700 to cover the cost of meeting with an accountant or lawyer and $100 for local business taxes. The then also put in a line of $8000 for Contingency & Reserves which is to cover for any potential overruns in any of the Fixed Overhead budget items or any Job Estimating and Bidding errors.

And then just for owning an operating the business they plan to take a draw of $8000 and they plan to compensate themselves $6000 for both the successful and unsuccessful the time they spend trying to sell their jobs to clients.

The Total Overhead Cost of $54,544.10 works out to a weekly overhead expense of $1049.88 based on dividing that yearly figure by 51 weeks (the number of weeks in a year both contractors figure on working).

Part 3 - Net Profit and Determining the Selling Price for a Job

Both contractors in addition to the money they pay themselves as wages for field work or for salary for the behind the scenes office work still also want their companies to generate and earn a Net Profit. That Net Profit they can then reinvest in the company to grow it in some way or cash out with at the end.

Aaron, Contractor A:

Aaron, Contractor A, since he has chosen to use a Capacity Based Markup method then looks at what he has so far and says even if he doesn’t sell any Materials at all as part of my operation or hire any Subcontractors he still wants to make a Net profit of 10% on his Sales. Looking at that he sees the business equation of:

Total Labor Costs + Total Overhead Costs + Net Profit = Total Sales (of Labor)
$66,587.70 + $53,544.10 + Net Profit = Sales (Labor)

Figuring he wants his Net Profit to be roughly 10% of Sales he multiplies $121,521.70 (the sum of his Total Labor Costs + Total Overhead Costs) by 1.11 to give himself a number for Total Sales ($134,899) of which Net Profit ($13,367) will amount to 10% of those Sales.

Total Labor Costs + Total Overhead Costs + Net Profit = Total Sales (of Labor)
$66,587.70 + $53,544.10 + $13,367.00 = $133,498.80

So Aaron, Contractor A, then takes that Total Sales of Labor figure of $133,498.80 and then divides it by the total number of billable hours he plans to generate in a year (1892 hrs.) and he come up with $70.56 which then becomes his “Loaded” Labor Billing Rate.

Provided his estimates are relatively accurate if he works and generates 1892 hours of Billable time he will be paying himself a total compensation package of $73,460 for roughly 2750 total hours of work (2040 Total Field Work Hours plus in addition to those field hours he figures 255 of office work, 255 estimating, and 200 on sales) or $26.71 per hour (plus those benefits) for an average of 54 hours per week (2750 hours divided by 51 weeks).

While Aaron has created a “Loaded” Billing Rate or a selling price for an hour of his services ($71.30) that covers all his overhead, direct labor costs, and generates a Net Profit he hasn’t yet planned for what to do with the Materials and any Subcontracting he may need on his projects. If he wants to earn the same Net Profit ratio for Materials and Subcontracting that he does on his Labor where it is %10 of Sales then he can use the same method he used earlier and multiply the Materials and Subcontracting Costs by 1.11 to come up with a Selling Price and the difference between the Selling Price and the cost will amount to 10%.

So if Aaron lands a Labor Only job he can use the formula:

Estimated Number of Billable Hours the Project Will Take x Loaded Labor Rate = Selling Price

and for any projects that require him to provide Materials and Subcontractors he extends that formula to be:

(Estimated # of Billable Hrs x Loaded Labor Rate) + (Material Costs x 1.1) + (SubContractor Costs x 1.1) = Selling Price

Bill Contractor B:

Meanwhile Bill, Contractor B is taking a slightly different approach since he has chosen to use a an Estimated Total Volume Based Markup method. That method is simply described as:

Job Costs x Markup = Selling Price

or that same formula can be broken down into a little bit more detail as:

(Labor Cost + Material Cost + SubContracting Costs) x Markup = Selling Price

So Bill, Contractor B, knowing what his estimated Labor Cost for the year is going to be $66,587.70 (the same as Aaron) he then needs to estimate what his Material Costs, and SubContracting Costs for the year will be and having them in hand compute a Markup that will cover his Overhead Cost ( $54,934 also the same as Aaron’s) and return a Net Profit.

This is where we encounter the first real big problem with using an Estimated Total Volume Based Markup method. For the start up contractor just how do you go about estimating what your Sales Volume for your first year in business will be?

In his book Markup & Profit: A Contractor’s Guide, Michael Stone, a consultant who advocates and teaches the method suggests you talk with other contractors already in the business to “find out what volume of work they completed in the previous 12 months” (Note 2 ). Some of the problems with this kind of research method are:

1. Most contractors you will talk to are not forthcoming with this information.
2. If they do tell you what their volume is the figure they give you is probably going to be biased to make it seem like they are doing better than they really are.
3. Or the numbers are intentionally misleading so as not to help out what they view as a potential competitor.
4. They may not be performing exactly the same kind of work that you will.
5. Without knowing how employees they have to execute the volume the numbers will be misleading. And…
6. Without knowing the distribution of those sales dollars between Internal Labor, Materials, and SubContracting you have no way of knowing whether the ratio of Internal Labor to Materials to SubContracting will be the same for the kind of projects you are doing and how you decide to contract them.

While Michael Stone does acknowledge the problems with “jerks who wont tell you anything, or who might even lie to you” he says “with a little bit of experience you should be able to weed them out” (Note 3 ). I have my doubts about the effectiveness of that and besides that doesn’t deal with the items 4, 5 and 6 on my list.

Michael Stone then offers that the first year in business remodeling companies can expect to complete a volume of $150,00 to $300,000 and the problems I see with that relate both to how much SubContracting the contractor does in that a contractor who subs out all his or her work can and has to generate a larger volume of work and there are dramatic regional differences in what remodeling or contracting in general costs so those suggested volume numbers there I feel are next to meaningless.

What I would suggest to someone using this method (but I don’t really recommend using this method anyway) is instead to decide just what kind of work you will want to focus on and create a hypothetical cost estimate for that kind of project done how you would contract it and then see what the ratio of your Internal Labor to Materials to SubContracting will be. Take that ratio and then using the figure for your yearly capacity for labor hours extend out the number for Material and SubContracting Costs according to those ratios.

Doing this our hypothetical Contractor B, Bill, come up with a breakout of his Estimated Job Costs of:

Like Aaron feeling that he want to earn a 10% Net Profit on his Sales Bill then adds to that estimated figure for Total Job Costs $156,000.70 the figure for Overhead of $54,544.10 (which is the same as Aaron’s) and then multiplies their sum by 1.11 to come up with an Estimated Sales Volume for the year that includes that 10% of Sales for Net Profit which comes to Total Sales of $228,154.72.

To price his jobs Bill now needs a Markup figure he can multiply the Job Costs by to come with a Selling Price for any specific job. Taking the estimated Total Sales Volume and dividing it by the Total Job Costs for the year Bill get a figure of 1.50 ($228,154.72 / $156,000.70 = 1.501) and that then becomes his Markup.

At first glance it looks to Bill as though he has chosen the much better method. If things go according to Hoyle he will earn the same compensation as Aaron but will also have a company that will generate an estimated $23,202.82 in Net Profits to Aaron’s $13,367.39.

But in Aaron’s planning he never had to make any pro forma estimates as to what he was going to sell in the way of Materials or SubContracting but if he did since both Aaron and Bill are going into the same line of work Aaron can actually use the same projected estimates for Material and SubContracting Costs. Looking at that if Aaron generates $50,752.20 in Material Costs and applies his 1.1 markup multiplier to those costs to come up with the Selling Price for those Materials of $56,334.94 with $5,582.74 of that being Net Profit. And looking at SubContracting the same way on Costs of he generates $34,660.80 in SubContracting Costs multiplying them by 1.11 to get a Selling Price of $38,473.49 with $3,812.69 of that being Net Profit. You then take Aaron’s Net profit on Labor of $13,367 and add to that $5,582.74 and $3,812.69 you get $22,762.43 a figure virtually the same as Bill’s $22,609.93.

Part 4 - Comparing The Two Different Methods in Practice

Now w e’ll take a look at the the two different markup stategies and see how they work in three different pricing scenarios. A Project with Labor, Materials, and SubContracting in the Same Ratio That Used in the Markup Planning Process with a

Conclusions

When considering the scenarios I outlined above contractor who use the Estimated Total Volume Based Markup method that Contractor B Bill uses will rationalize and argue that while you’ll a little bit of money on some jobs (like in the Job 2 scenario) that will all balance out in the end because those losses will be offset by the surplus profit they’ve earned with the jobs they’ve gotten like are described in the Job 2 scenario. However on closer examination we see that’s really not what happens at all. In reality contractors like Bill wont get the Low Relative Cost of Labor to High Cost of Materials, and SubContracting jobs like Job 2 because they’ll be pricing themselves out of the market. The reality is the jobs they will get will fall into the standard mid range mix model like Job 1 and the High Relative Cost of Labor to Low Cost of Materials, and SubContracting jobs like Job 3 that they will do at a minimal profit or at a loss.

Meanwhile Contractor A Aaron will split the standard mid range mix model with Bill, he’ll will get the Low Relative Cost of Labor to High Cost of Materials, and SubContracting jobs like Job 2 since he is priced correctly and while he would still earn his company a decent and fair profit with the High Relative Cost of Labor to Low Cost of Materials, and SubContracting jobs like Job 3 he in all likelihood might end up losing them to Bill. While I am sure Aaron will be annoyed at losing a job to bid he knows is a loser, (what contractor doesn’t complain about that?) he should be content and secure in letting those jobs pass.

In a tight construction market like we are in now could and should Aaron drop his price to compete with Bill on those High Relative Cost of Labor to Low Cost of Materials, and SubContracting projects? We’ll examine that question in another article here in the near future but for the time being Aaron is safe and financially secure losing those jobs to Bill.

In the first chapter of his book Pricing for Profitability John L. Daly writes:

… Three things can happen when establishing prices, and two of them are bad.

1. Overprice and lose a sale that would have been profitable at a lower price.

2. Underprice and make and unprofitable sale

Only the third outcome is favorable:

3. Price appropriately and make the sale as well as a profit

Although this is an oversimplified view of a complex issue, many companies are burdened with pricing method that consistently give away profitable sales to competitors while undercutting those competitors on money-losing propositions. When these companies make a sale than actually produces a profit, it often seems to more by accident than intentional design.

Many companies believe falsely that they are competent at pricing. Many president of small companies will say, “Pricing is an art. I know that our pricing is good because I do it myself.” Pricing is not an art. However, a well-designed pricing model make be beautiful in the same way as a well-designed piece of machinery. Pricing is a science as much as the design of that machinery is a science. Knowledge is power in pricing. Although pricing for profitability allows considerable latitude for creativity in structuring a deal, pricing remains as much a science as marketing, cost accounting, business strategy, engineering, and economics—the disciplines that converge in product pricing. If the person responsible fir establishing price says, “Pricing is an art,” it is a good indication that he or she is missing much of the basic data necessary to make informed pricing decisions. (Note 5)

So if the Estimated Total Volume Based Markup method is so flawed should anybody still be using it?

In his book Running a Successful Construction Company David Gerstel writes about the potential problem using an Estimated Volume ( aka Uniform Percentage) based markup starting on page 166:

The uniform percentage method has the great appeal of simplicity. It is adequate for a construction company that does projects of fairly uniform size and type. A uniform percentage markup can work for a builder specializing in moderate-size residential additions or small retail store interiors and never straying far beyond his or her niche. However, you can run into trouble using a uniform percentage if you move away from a narrow range to a much wider range of projects–or if you experience large variations in your total volume of work.

To understand the potential problems, think of your company as a shop with “X” amount of capacity and with all of your overhead costs going to support that capacity. if you are in the early stages of your career and are working as your own project lead as well as general manager of your company, your capacity may be one job at a time. Later you may employ three lead, each of whom runs a job so you have the capacity of three jobs. For practical purposes–and here is the key point–you can generally figure that each lead uses the same amount of your overhead support, regardless of the size of job he or she is running.

As the top sidebar at right suggests, those jobs can vary greatly in terms of the direct costs of building them, yet take roughly the same length of time with the result the small one will soak up as much of your capacity–as much overhead–as the larger one. When that is the case, if you are using uniform percentage markups, the small job is recovering less than the overhead needed to support it. If you have a year packed with such jobs and you are marking up with a percentage derived from a prior year of larger jobs, you may end up falling far short of recovering your overhead, as the figures in the bottom sidebar illustrate.

Capacity Based Markup

Because of the limits of the uniform percentage method, companies doing projects of varying size and experiencing large variations in volume year to year need another method of marking up for overhead. I call this method “capacity based markup.” It works like this:

• Figure Capacity
• Figure overhead for the year
• Figure amount of overhead you need to recover weekly per job
• Figure the number of weeks a job will take
• Multiply your weekly overhead figure by the number of weeks to get get the overhead you need to charge on the job

[...]

… and it goes on with more on using a Capacity Based Markup but I don’t want to violate the fellows copyright so by the book.

While Gerstel writes “The uniform percentage method has the great appeal of simplicity” I will argue that while the formula is simple ((Labor Cost + Material Cost + SubContracting Costs) x Markup = Selling Price) working with it and monitoring it is not so simple when jobs vary in size (small job to large job) and ratios of internal labor to materials and subcontracting.

In his manual for using the PROOF markup methodology (How to Survive & Prosper in the Contracting Market) Irv Chasen writes:

“The PROOF program has stressed the importance of recovering all overhead cost as a percentage of labor cost. Labor itself is the best measure of time, and it is the lapse that generates most overhead cost. Depreciation, rent, insurance, taxes, administrative salaries, and most other major fixed-overhead items are paid weekly, monthly, or annually, and are therefore functions of time.

Since field labor is usually paid by the hour, day, or week it obviously becomes the best single measure of time within the construction or contracting industry. Further it is labor which creates all of the variable-overhead cost.”

Only after that introduction does he get around to saying:

“However, some contractors still prefer a system which which also recovers a portion of their fixed-overhead cost as a percentage of materials used and/or subcontractors employed…”

For the next three pages explain how that method works but then in the very next section called Nine or Eighty-One Combinations he illustrates one of the big problems with using that method over a PROOF (Capacity Based) methodology.

“Variations in the budgeted fixed and/or variable overhead expense can occur. Costs can remain as budgeted , or they can increase or decease. Here we have only three things that could happen. Budgeted field labor cost would also be subject to the same three possibilities; thus we have nine possibilities, considering both total overhead expense and field employment (3 x 3 =9).

When subcontracting enters the overhead recovery picture, again the same possibilities (more, less or the same) can occur with regard to achieving the budgeted goal for subcontractors employed. Now we have 27 possibilities which could occur (3 x 3 x 3 = 27).

Now if materials too are to be considered as part of the overhead recovery, these materials are also subject to the same three possibilities: the actual cost may be more than, less than or the same as the amount budgeted. The possible combination of results increase to 81 (3 x 3 x 3 x 3 = 81).

Certainly it is much easier to monitor nine possibilities, or 27 if necessary, than if we it necessary to monitor 81 by bringing material into the overhead recovery procedure…”

The reality again is if you plan to use an Estimated Volume ( aka Uniform Percentage) based markup method to price your work monitoring it to make sure it is working for you is going to be at least nine times more difficult than using a Capacity Based Markup. If our Contractor B, Bill wants to compete in the market on the same level as Aaron he will have a lot of work to do to make sure he is priced correctly to win jobs and cover his overhead and quite frankly having real all the books and articles on the subject that I can find I don’t see where the advocates of an Estimated Volume Based Markup describe just how to go about all that monitoring and tinkering.

Further Reading & Tools

Journal of Light Construction September 2002

How To Charge For Overhead
By Les Deal

An Iowa based remodeler explains how he has successfully practiced using a PROOF/Indexed/Labor Allocated Overhead methodology for over 20 years.

Tags: capacity, chasen, gerstel, markup, net profit, overhead, pricing, rohr

by: Jerrald Hayes

It should come as no real surprise to anyone that knows me that I a big Macintosh enthusiast and that perhaps what I appreciate most about the "Mac Experience" is it’s "usability" so when I spotted the article Top 10 Usability Highs Of Mac OS article this morning that Juul Coolen wrote for Smashing Magazine (a recent mac convert) you had to know I was going to post a link to it.

Smashing Magazine: Top 10 Usability Highs Of Mac OS

by: Jerrald Hayes

Wow! Benjamin Zander (co-author along with his wife Rosamund Stone Zander of the great book The Art of Possibility: Transforming Professional and Personal Life. gives us a Ted Talk! (via LifeHacker)

At 17:20 Zander gives us an amazing piece of information on Leadership:

And…

Just great stuff! Entertaining, informative, and inspiring.

by: Jerrald Hayes

Just the other day I was checking in to one of the environmental blogs I read and ran across an interesting post about “An insanely clever bike-advocacy ad from the U.K” : Do the test | Gristmill: The environmental news blog

I actually knew as soon as I saw just what the test was going to be all about in that I had seen it use before in a Discovery Channel television program that was about our brains and cognition but I still almost missed ‘it‘.

Beyond the message regarding bicycles I think the actual ‘test’ has so very interesting and poignant management implications and lessons in it.

In talk and discussions on management, notably Tom Peter’s 1986 article What Gets Measured Gets Done we often hear the expression:

“What Gets Measured Gets Done”

While that is so very true and a very valuable tool in and of itself it comes along with the caveat we see and learn about in the Cognition Test. While what’s measured sure enough does get done can we be too focused on our measurements that we miss other important data and information that is flying right in front of our noses?

by: Jerrald Hayes

I’m very happy to announce that Patrice Hanigan, PMP® has joined the Paradigm-360 team.

Patrice is a Certified Project Management Professional (PMP®) having earned her credentials from the Project Management Institute . With Paradigm-360 Patrice uses the expertise she’s gained to integrate Professional Project Management techniques and practices into the training and programs we develop for contractors and other building and remodeling professionals.

Back in college Patrice began her education as a Psychology major before switching over to Business Management & then Computer Studies. In a 26 year career working for a company with one of the one of the most widely recognized names in computer services she has worked in the realms of help desk management, information technology deployment, and most recently Patrice has spent the last eight years of her career working as a Project Management Executive in the field of Customer Relationship Management.

Patrice is also now involved with our 360 Difference line of FileMaker Pro software solutions working on our plans for a SaaS deployment (Software as a Service) and the further development of the Production and CRM modules as well as a new 360 Difference product we have in the pipeline that will allow Homeowners to better plan and track their project ideas and it’s progress.

by: Jerrald Hayes

Cleaning up and tossing some old files from the late eighties and early nineties I had stored in the basement I found this quote written on a scrap of paper at the bottom of one pile.

Even if you’re on the right track, you’ll get run over if you just sit there.

- Will Rogers

by: Jerrald Hayes

Mark Hayward from a blog article on Self Branding -

"Branding can be described as the symbolic embodiment of all the information connected to a particular product or company.

Effective branding serves to create assumptions, excitement, associations, and expectations that are ingrained in consumers and generated with the mere mention of a company and its goods or services (think GOOGLE, NIKE, Jet Blue)."

In the article I quoted from he talking self branding in a context of making money just writing a blog but the comments and ‘rules‘ of branding ring true no matter what your product is.

One of the superficial shallow things I often see in the online construction forums I sometimes frequent is the chant of branding, branding, branding, focus on you brand with little to no substance or discussion of just what a brand is or how effective branding is accomplished.

We’ll be introducing our own online forum here perhaps even sometime later this week to hopefully get the real discussion on branding underway,

by: Jerrald Hayes

In the Critical Chain Project Managment Yahoo group that I am subscribed too I just read a great post by Michael Carroll that I thought everyone here might benefit from reading. The topic his post was in response to was How common is it to have "No plans"? (The emphases placed are mine.)

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I have been helping my son train for his swim team. Most local high school teams follow a tradition of generating what you might call brute force to achieve their results by what would seem to be a wise strategy to work harder, faster, and longer than the other teams. Yet this approach is a tad bit frustrating for both the coaches and swimmers as academics standards must also be met. In each of these swim programs you will always have a few swimmers who are naturals and rise to the top and yet the rest of the team struggles. You can observe all of the other swimmers putting their might into swimming with poor technique struggling against the water going home each day discouraged because the long hours, hard work and efforts are not paying off. To make it worse the coach is sure to let all know that to be more like the top tier swimmers you must have a better work effort, more drive, and more dedication.

Why do I bring this up when talking about project plans? I do so for three reasons: Time, perspective, and tradition.

Time - The more pressure and organization has to perform a given task the more apt they are to roll up their sleeves and re double their efforts by working harder, faster, and longer. Why? Mainly because the technique has worked in the past. Yet on the other hand I think it would be fair to say business managers are wise and know that they need to think things out and generally will agree that planning is as equally important as taking immediate action. So attempts are made to plan. Often these show up as the daily stand up meetings like swimmers meeting with the coach each practice to get pumped up about how hard they are going to work, how they are going to change, and to discuss the upcoming meet. Fortunately swimming has an off season and the coaches will have a few months to create next years winning strategy. Unlike swimming teams most businesses don’t get an off season. More often then not, serious deep strategic planning is done in a shoot from the hip manner, for time pressures do not allow much of any thing else.

Perspective - Coaches study the tapes of Olympic swimmers over and over again looking to help their swimmers mimic the gold medal winning strokes. However there is a serious flaw in this. Swimmers swimming at max speed do not display perfect technique because they are swimming close to being completely out of control. Yet watch the great Alexander Popov and his practices sessions look nothing like his racing because he swims only fast enough to make his technique perfect. Yet watch most high school swimmers and they practice poor technique and swim at max effort. So when they get to race day and they push the engines hard they cross the line and the extra effort at race day only buys a minimal improvement in performance. Yet the great Popov’s muscles remember the perfect technique and allow him to stay in enough control to devastate the competition. Similarly in business, our perspective on the most successful companies is distorted because we watch the great organizations without seeing the disciplined approach to planning, training, and methodical execution. Additionally add in time pressure and inadequate training and the only thing left is the strategy of harder, faster, longer.

Tradition - Swimming has a long history of tradition and so do businesses. In fact most business leaders gained their first lessons in leadership in the sports arena. Most swimmers who make it to college level swimming are almost impossible to retrain. If they have defects in their stroke it can take years to erase because of muscle and nerve memory. The problem is even greater for men than women because of the tradition of using sheer strength to solve stroke problems. Do we not see the same thing in business?

As I apply these lessons to my own companies I am cognizant of how important disciplined project planning and execution is. It takes a conscious effort to set aside the appropriate amount of time to not only plan, but to build solid systems that allow business execution to occur not only during the slow cycles but to do so at race time when customers are knocking at the door in the up cycle and to do it without going over the edge of control.

Regards,

Michael Carroll

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by: Jerrald Hayes

Neil Patel and Internet marketing consultant very effectively visually illustrates The Difference Between Marketing, PR, Advertising, and Personal Branding .

For the past few years whenever I talk about branding with other contractors I try to emphasize something a quote I picked up on regarding Branding in a Remodeling Magazine article two years ago (Brand Aid Remodeling Magazine
October 1, 2005):

“It’s what people say about you when you’re not in the room,”

I think a lot of contractors instead confuse Branding with hype and what is in essence self-aggrandizing blatant self-promotion and the lesson we get from Neil Patel’s illustration is that your pitching that message over and over again isn’t really Branding but is instead what we call Advertising. Hyping to a client what a "great" contractor your are (a great lover) doesn’t really come off as authentic and genuine when it’s coming out of your own mouth.

However when that potential client hears that message coming from someone else it it does comes off as authentic and genuine and strikes a cord and helps build your Brand.

Tags: Advertising, Branding, Branding, Marketing, & Advertising

by: Jerrald Hayes