Mike's Tips

10/05/10 – Positive Consequences

Serious consequences stem from estimated vs. actual cost differentials.  Here are some Basic, indisputable, Contracting-math Facts:

• Given a contract estimated at cost plus 25% mark-up, a 2% cost overrun reduces total overhead and profit (OH&P) revenue by 8%.
• Presuming overhead usurps 75% of OH&P revenue, a 2% cost overrun also causes a 32% profit reduction.
• Given the same scenario, a 6.25% cost overrun wipes out all profit.

Achieving takeoff and estimating excellence creates positive consequences:

• Effective estimators reduce the percentage of revenue that overhead usurps.
• Accurate estimates avoid unnecessary cost overruns.
• Effective, accurate estimates increase closing ratios and build profit.

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The best way to get jobs is clear: base your bids on accurate takeoffs and estimates.

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