May 2019
Transparent Project Management
02/05/19 17:02
I run my projects transparently. It means my clients know how much the materials cost, and how much I spent each day. It means my clients know how much time I spent each day and whether I think the project is on track or whether it is falling behind, and why. Transparency means there is no big surprise at the end of the project, neither in its cost nor in what was delivered. Transparency means the project doesn’t begin until there is a shared vision of success. Transparency means my clients can ask about any aspect of the project and I’ll have a good answer for them.
To achieve transparency I create detailed project estimates and send a detailed status report every day I work for a client. From the first estimate through the final invoice it is my goal to provide excellent transparency in my business, because I believe it brings out the best in all parties and it maintains the sense of fairness to both parties in the transaction.
But, in fact, the transparency I’ve been providing to my clients has only be a part of the whole story of a project. It has been about the main portion of their project, but not the whole project because in fact the rest of the story is what it takes for me to deliver the high-quality service that I do. Providing that service requires a lot, lot more than what has historically appeared on the invoice at the end of my fence and gate projects.
What else does it take to make the business work? Quite a lot. More than I realized it would take. In 2018 I purchased almost $7,000 in tools, bits, blades, gloves, bags, tarps, brushes & painting gear, prescription safety glasses and on and on. In short, these were the indirect supplies for the business to operate. Only some of the tools last multiple years, the rest has been at least somewhat consumed already.
I also maintain a car mostly for the business. It has been modified extensively to suit my needs in moving lumber and tools and debris. It has a special cargo carrier on the back and a platform on top. Inside I built a mini-truck bed and built-in storage slots for toolboxes. It eats gas so that I can transport myself, tools and materials to and from my clients homes, and to take debris to the Berkeley Transfer Station.
So, the material requirements including tools and my car and much more is significant, working out to about $125/client project. Thus far my clients have never paid for that part of the project. The cost of all of that came out of the gross income from my business.
There are also non-material requirements. They include:
The non-material requirements are usually creative or managerial or logistical tasks that are important and must be done well or the project will not run smoothly. The project takes longer and therefore costs more if it does not run smoothly, so providing these non-materials requirements is important to my clients. It affects the cost of the project. They would notice if these requirements were not met.
I spend more than an hour preparing an estimate and about one hour per day of the project on communication and planning for the next day. Sometimes that means taking some tools and materials out of my vehicle and putting others in, because of what I expect to work on that day. The final project summary and the accompanying invoice and accounting take about an hour. So a three day project probably involves almost five hours of non-material overhead. A one day project requires about three hours of non-materials overhead.
I had about 56 projects in 2018 and worked 171 days on projects, for an average of very close to three days per project. So, figure five hours times 56 projects is 280 hours of non-material requirements per year. At my hourly rate of $60/hr that works out to a whopping $16,800/year that is uncompensated. On a per project basis that works out to about $300 for the time.
Combining the material requirements ($125/project) and the non-material requirements ($300/project) means I am missing a way to cover the cost of about $425. That amount simply has come from my income, and based on history. My income from a project is based on my labor. I don’t mark up materials. I sell them to my client for the same price I buy them. Dividing my income by the number of projects I ran, I make less than $1000/project in labor on average. So foregoing $425 is actually letting go of over ⅓ of my income. And, that has turned out to matter a lot. It turns out that that missing income is the difference between my fence business failing or succeeding and allowing me to live in my Oakland home. If I can’t afford to live here then I can’t make fences for people here. So, there is some shared interest.
In fact my labor is usually approximately equal to the cost of materials (+/- 20% or so). So including a $425 project management charge in a project that cost about $2200 total would be less than 20%. Of course, it isn’t fair to charge the same for small and large projects. The management fee should be a percentage of the project cost, not a fixed cost applied to each project. Larger projects naturally have more project management involved and mistakes cost more.
General contractors sometimes charge a project management fee between 15% and 20% for their projects and I believe it covers some of the same kinds of project management tasks. Although, I imagine my commitment to radical transparency throughout the project is not typical of General Contractors.
So going forward I plan to charge a 15% project management fee applied to total cost of the project, including all materials and labor. I will list this project management fee as a line item at the bottom of the estimate. I’ll provide a link to this blog post for clients who want to understand what goes into the fee.
To achieve transparency I create detailed project estimates and send a detailed status report every day I work for a client. From the first estimate through the final invoice it is my goal to provide excellent transparency in my business, because I believe it brings out the best in all parties and it maintains the sense of fairness to both parties in the transaction.
But, in fact, the transparency I’ve been providing to my clients has only be a part of the whole story of a project. It has been about the main portion of their project, but not the whole project because in fact the rest of the story is what it takes for me to deliver the high-quality service that I do. Providing that service requires a lot, lot more than what has historically appeared on the invoice at the end of my fence and gate projects.
What else does it take to make the business work? Quite a lot. More than I realized it would take. In 2018 I purchased almost $7,000 in tools, bits, blades, gloves, bags, tarps, brushes & painting gear, prescription safety glasses and on and on. In short, these were the indirect supplies for the business to operate. Only some of the tools last multiple years, the rest has been at least somewhat consumed already.
I also maintain a car mostly for the business. It has been modified extensively to suit my needs in moving lumber and tools and debris. It has a special cargo carrier on the back and a platform on top. Inside I built a mini-truck bed and built-in storage slots for toolboxes. It eats gas so that I can transport myself, tools and materials to and from my clients homes, and to take debris to the Berkeley Transfer Station.
So, the material requirements including tools and my car and much more is significant, working out to about $125/client project. Thus far my clients have never paid for that part of the project. The cost of all of that came out of the gross income from my business.
There are also non-material requirements. They include:
- Meeting to learn about the project through a discovery process
- Making an estimate, usually including an original Google drawing and a detailed list of all expected material components and labor steps
- Gaining consensus with my client and sometimes their neighbors
- Conducting the project and coordinating the availability of materials and tools during the different phases of the project
- Writing daily status reports, asking and answering questions
- Summarizing the project in a final invoice with complete transparency about all costs
The non-material requirements are usually creative or managerial or logistical tasks that are important and must be done well or the project will not run smoothly. The project takes longer and therefore costs more if it does not run smoothly, so providing these non-materials requirements is important to my clients. It affects the cost of the project. They would notice if these requirements were not met.
I spend more than an hour preparing an estimate and about one hour per day of the project on communication and planning for the next day. Sometimes that means taking some tools and materials out of my vehicle and putting others in, because of what I expect to work on that day. The final project summary and the accompanying invoice and accounting take about an hour. So a three day project probably involves almost five hours of non-material overhead. A one day project requires about three hours of non-materials overhead.
I had about 56 projects in 2018 and worked 171 days on projects, for an average of very close to three days per project. So, figure five hours times 56 projects is 280 hours of non-material requirements per year. At my hourly rate of $60/hr that works out to a whopping $16,800/year that is uncompensated. On a per project basis that works out to about $300 for the time.
Combining the material requirements ($125/project) and the non-material requirements ($300/project) means I am missing a way to cover the cost of about $425. That amount simply has come from my income, and based on history. My income from a project is based on my labor. I don’t mark up materials. I sell them to my client for the same price I buy them. Dividing my income by the number of projects I ran, I make less than $1000/project in labor on average. So foregoing $425 is actually letting go of over ⅓ of my income. And, that has turned out to matter a lot. It turns out that that missing income is the difference between my fence business failing or succeeding and allowing me to live in my Oakland home. If I can’t afford to live here then I can’t make fences for people here. So, there is some shared interest.
In fact my labor is usually approximately equal to the cost of materials (+/- 20% or so). So including a $425 project management charge in a project that cost about $2200 total would be less than 20%. Of course, it isn’t fair to charge the same for small and large projects. The management fee should be a percentage of the project cost, not a fixed cost applied to each project. Larger projects naturally have more project management involved and mistakes cost more.
General contractors sometimes charge a project management fee between 15% and 20% for their projects and I believe it covers some of the same kinds of project management tasks. Although, I imagine my commitment to radical transparency throughout the project is not typical of General Contractors.
So going forward I plan to charge a 15% project management fee applied to total cost of the project, including all materials and labor. I will list this project management fee as a line item at the bottom of the estimate. I’ll provide a link to this blog post for clients who want to understand what goes into the fee.
