October 2008In the course of penning past columns, I’ve made several passing references to the impact of volume on approaches to procurement and management of commercial drywall projects. On further examination, I’d have to confess that I’ve written most of these articles coming from the perspective of an estimator/manager in the context of a mid-sized commercial operation—one that performs somewhere between $13 million and $30 million worth of work annually, that is. Incidentally, I hope that this somewhat limited point of view has not blunted my intended messages for those who deal in lesser or greater volumes of work. But I think it’s safe to say that the general nature of my chosen topics transcends the volume aspect of my own unique circumstances.
Nevertheless, none of us can afford to turn a blind eye to the obvious. Volume is a crucial factor in our business—or, more simply put, size matters. Everything from our procurement and delivery methods, number of estimators/managers, manpower levels, office overhead, and even organizational structure are all volume-sensitive protocols. Volume defines how we do business and even what degree of success we enjoy. Doors marked "economies of scale” and "volume discount,” once closed, are now opening for us as our volume increases.
But this is not to suggest that volume is some kind of extraneous sovereign power that forces our hands in our decision-making processes. When you think about it, volume presents a certain reversible cause-and-effect dynamic—that is, volume affects our management decisions and actions, just as our management decisions and actions affect the volume level of our operations. And while it is true that we must incrementally accept the hands that are dealt us, in the final analysis volume does not determine us; we determine volume.
Volume first comes to us in the form of opportunity, and it is the estimator’s role to translate this opportunity into backlog through the procurement process. How we manage opportunity helps us determine our volume and control our destiny as a business. The first approaches to managing volume come during this procurement process. Those firms that manage their volume effectively are acutely aware of the optimal workload limits that they place on their estimators and project managers, and the most effective ones monitor these quotas in terms of volume.
These workload assignments, or quotas, can actually be reduced to formulas. Of course, as is always true when discussing formulaic approaches to doing business, all other relevant factors must be considered. And again, I am writing in the context of a mid-size firm that deals in commercial projects, the drywall portion of which ranges from $50,000 to $5 million. From this perspective, each estimator should be expected to bid and budget around $30 million in volume annually. Of this $30 million, he or she should secure between 25 and 30 percent, or roughly $10 million in profitable work. This is a fair quota to set only if the estimator’s sole assignment is to bid work, and is not assigned to manage ongoing projects.
Similarly, project management can be assigned manageable levels in terms of volume based on a formula of 15—that is, the level of volume in millions plus the number of projects. In practice, it works like this: A PM can be reasonably expected to manage one $14-million job (14 + 1 = 15) or seven $1-million jobs (7 + 7 = 14) or 10 $500,000 jobs (5 + 10 = 15), and any combination that comes out close to 15. This quota formula for PMs strikes me as particularly fair and sophisticated, as it weighs the number of projects assigned equally with dollar volume.
Of course, these formulas can be combined for those firms that use the combination estimator/project manager model. Common sense dictates that expectations should be cut in half ($15 million in bid volume, plus 7.5 on the PM formula) to be reasonable.
The formulas above are useful tools to help guide us to the level of volume that we want to effectively perform as drywall businesses. Clearly, while we may sometimes be at the mercy of the fates with regard to opportunity, how we manage that opportunity can be the controlling factor in whether or not we become the big kid on the block.
And just ask the littler kids, they’ll tell you: size matters.
Vince Bailey is an estimator/operations manager for San Juan Insulation and Drywall, Durango, Colo.