The quote was approved with the right margin. The job started on time. Three weeks later, someone notices the team has already used almost all the hours planned, and half the work is still to do.
Nobody got the quote wrong on purpose. It's just that between what was quoted and what is being spent, nobody is watching.
Where the margin goes
Hours sit in a timesheet that is only closed at the end of the month. Materials arrive on a supplier invoice that nobody links to the right project. Travel and subcontractors go into overheads. By the time it all comes together, the project is already finished.
And the next quote is built on the same price list, which was never corrected for what the last project actually cost.
The numbers
In a company with 40 projects a year and an average value of €8,000 per project, if 60% overrun by 18% on average, that is €34,560 a year in margin that doesn't come back.
- 40projects a year
- 60%of projects overrun
- €8,000average value per project
- 18%average overrun
The ‘projects that overrun’ field is there so we don't assume they all do. Without it, the number would be €57,600: more impressive and less true.
Why it only shows up at month end
The real cost arrives in pieces, and late. The timesheet closes at the end of the month, the supplier invoice arrives thirty days later and the subcontractor bills at the end of the job. By the time the number is complete, there is nothing left to fix.
The overrun doesn't happen at month end. That's where you find out about it.
At that point, the only decision left is to accept the loss or try to pass it on to the customer, in a conversation nobody wants to have.
How to measure it
Take the last five closed projects and put what was quoted side by side with what they cost, in hours, materials and subcontractors. You don't need a new system for this, just to bring together what already exists.
Three questions to ask this week
- 1In how many of the last ten projects did the final cost go over the quote?
- 2Where was the gap biggest: hours, materials or subcontractors?
- 3At what point in the project did someone notice the overrun?
The third question matters most. If the answer is ‘at month end’, the problem isn't the quote, it's the tracking.
What changes
When hours and materials are logged against the right project as they happen, the overrun shows up while there is still time to correct it: review the scope with the customer, add people to the team or change the order of the work.
And every closed project corrects the price list for the next one. The same work gets the same price again, and that price becomes what it actually costs.
Written by
Frederico Silva · Project Management
Makes sure every project has the right deadlines, budget and team.
