Hi Mark -
I'd second what Tyler said.
And add that with most of my clients we solved the issue by emphasizing that any large, last minute variances -- good or bad -- reflects poorly on them, because it shows they weren't on top of their costs early enough. And if possible, we trace it back to the $ or unit assumptions and what changed (the sandbagging becomes obvious then).
That assumes the variance was under their control, of course.
And we give them a forum to say -- "off WIP" -- that they might pick up significant margin closer to the when the job will close, but they're not confident enough in that to put it on the WIP yet. At a minimum, it puts the possibility on the CFO/Controller's radar, and sometimes after verbalizing it, the PM then decides to put it on the WIP officially.
Over time if the company culture is good they learn to feel OK about putting their true best CTC estimates on the WIP, once they see that they're not going to get harshly criticized if they come up short on a project sometimes.
David
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David Stern,
CCIFP
David Stern CFO, Inc.
Berkeley, CA
(510) 910-1637
david@davidsterncfo.com------------------------------
Original Message:
Sent: 01-05-2024 16:27
From: Tyler Helget
Subject: PM's "Sandbagging" Cost To Complete
Hey Mark,
Sounds like you stated the problem in your paragraph and that is your PMs are fearful of falling below the projections. Always coming above the projections seems great at the end of the day but you're not able to really dial in the issues that could help improve your company's performance when completing future projects.
I would reassure your team that it is okay if a few projects come in under the projections because then it becomes a learning experience of where the issue occurred that caused you not to hit those projections and in turn, you're able to get more accurate WIPs, cash flow, revenue, etc.
Hope that helps!
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Tyler Helget
Construction Solutions Manager
Siteline
Wichita KS
(316) 570-2232
Original Message:
Sent: 01-05-2024 16:12
From: Mark Windham
Subject: PM's "Sandbagging" Cost To Complete
We have an ongoing issue with getting true cost to complete numbers on projects. A good portion of this is PM's sandbagging their projections. Most of the time it is to the good (they inflate the CTC and we do better than projected), which is great, but it still makes it challenging to have an accurate WIP, cash flow, revenue projection, etc. They don't seem to want to be more precise for fear of falling below the projection, would rather err with better than expected profit. How have you been able to overcome this challenge with project managers?
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Mark Windham
CFO
Brasington Bailey Construction, Inc
Cartersville GA
(470) 315-4220
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