Author: Joe Knight, Roger Thomas, and Brad Angus

Managing subcontractors can be a draining, thankless task. How many times have you had to adjust project plans or schedules because a sub failed to deliver?

We used to burn a lot of valuable time babysitting our subs through projects. Sometimes we had to practically take over managing their tasks for them in order to prevent them from crashing the whole project.

But then, on a job that required us to use a small subcontractor we’ll call Quantum Robotics, we figured out how we could solve that problem. Roger managed the project, so we’ll let him tell it in his own words:

I knew from experience that Quantum required intense supervision to make schedule. I was also worried that the company might lose money on the project. When you contract with small subs, you need to concern yourself with their financial situation. If they go belly-up before they deliver their work, things can get messy for the whole project.

Midway through our project Quantum ran into issues that I thought might compromise their profitability. So I asked the owner, “Dave, are you making money on this project?” He said, “Relax. We’ll make up for the problems.”

At first I figured Dave was just being his usual closed-mouth self. Then I got a sinking feeling: He didn’t know the answer to my question. When I asked again, he sighed. “Honestly, I won’t know how profitable this project is until we can crunch the final numbers.”

I had grown accustomed to the weekly financial updates we do on our own projects, including metrics such as gross profit per hour. Quantum had nothing like that, which meant I’d have to babysit the company every step of the way. And then it dawned on me: If I could teach Dave a few of the methods we use to generate and track project metrics, he’d have similar data at his fingertips. So would I.

It took some coaxing, but I managed to convince him to give our metrics a shot. We took his project budget, added up hours spent and materials costs, and came up with a forecast of remaining expenditures. That allowed us to estimate his gross profit per hour for the entire project. We could see he had some challenges — but if he met them, he’d be OK. The key was for him to keep a close watch on performance so he could correct course immediately when the project metrics showed a dip in the profitability of his team’s efforts.

For the rest of the project I eased off on the babysitting. Quantum now had metrics that would highlight critical issues, so the folks there could oversee their own progress. Eventually, they completed the project on time and everyone profited from the job.

No PM likes interfering with a sub’s business, and the sub usually likes it even less. But if you can help them monitor their work accurately early on — in a way that makes sense to both parties — you won’t have to intervene nearly as much later to keep things on track.

This is the fourth post in the authors’ blog series on project management. The series draws on advice from their book Project Management for Profit.

Post #1: The Dirty Little Secret of Project Management

Post #2: When Tracking Projects, Ignore Your Accountants

Post #3: Project Managers Should Share Their Stress

Project managers tend to hold their cards pretty close to the vest. Sure, they may post or circulate some sort of general progress chart. But the telling, nitty-gritty details — percent complete, cost overruns, and so on — usually stay on a private little spreadsheet, safely tucked away in the PM’s files.

Sometimes this I’m-in-control-here approach is well intentioned. PMs feel they should shield their team members from potential bad news. Other times it’s a power trip. PMs make it plain that they’re the only ones who know the full story, so naturally they get to call the shots.

Whatever the motivation, the result is the same: acute stress. We know too many project managers with prematurely gray hair and a serious addiction to antacid pills. And no wonder. If you’re the only one responsible for results — and the only one who’s aware that the results might not be what everyone (including the customer) is hoping for — of course you’ll be stressed.

It doesn’t need to be that way.

Instead, try an open-book system: Every week, put key numbers for each project on a whiteboard to discuss at a regular team meeting. The idea here is to share not only percent complete but also detailed financial information about the project, such as gross profit per hour compared to budget. This will reveal problems lurking in the shadows, like technical inefficiencies that could be easily addressed if only people actually knew they existed.

It’ll take a little while for new hires to get used to a transparent system like this. We’ve found that, at first, they’re mystified by the sea of numbers on the whiteboard. But we walk them through it, and pretty soon they acclimate. The more experienced technicians in our plant zero in on problem areas right away. They can see at a glance when a project is being delayed, because the rate of gross profit earned per hour tells the story. And they recognize immediately when costs aren’t in line with projections. In other words, they share the PM’s stress.

Even better, they know that part of their job is to reduce that stress by coming up with ideas to fix things. On one memorable occasion at our company, a veteran member of Team B happened to take a look at Team A’s numbers, which at the time were pretty ugly but posted for all to see. He suggested that Team A change their technical approach on a tricky hydraulic problem that had stymied them for days. Members of Team A bristled at the suggestion, and a spirited discussion ensued — but the friction was productive. Soon three other techs on Team A came up with ideas of their own, and it wasn’t long before the project was back on track.

Many eyes on a problem, many brains applied to it. That’s the chief virtue of the open-book approach. But a huge side benefit is sharing the stress, which means that the PM isn’t bearing the whole burden alone — and popping antacid pills like M&Ms.

This is the third post in the authors’ blog series on project management. The series draws on advice from their book Project Management for Profit.

Post #1: The Dirty Little Secret of Project Management

Post #2: When Tracking Projects, Ignore Your Accountants

Do you get regular reports from your company’s accountants about how your projects are doing financially? Those reports should come with a big red warning label: DANGER — MAY NOT BE ACCURATE.

It isn’t the accountants’ fault. They’re just following what’s known as Generally Accepted Accounting Principles, or GAAP. But GAAP is exactly where the trouble lies. Here’s an example that shows why.

At our company, we build automation equipment. Our projects range from $100,000 to more than $10 million and take anywhere from a few months to two years to complete. Let’s say we have a $5 million project with estimated total costs of $4 million and a projected profit of $1 million, and we’re expecting it to take 18 months to complete.

After two months we have purchased all the major parts and components of the system, spending $2 million. According to GAAP we are now 50% complete, because we have spent 50% of our budget. The GAAP financial report will recognize half the revenue on the project, or $2.5 million, and half the budgeted profit, or $500,000. Yet we have barely started the job! We still have 16 months of work to do — and we don’t know yet whether we’ll come in on budget.

The disparity between appearance and reality is glaring in this simple example. In the real world the differences are usually less obvious — so project managers often take the financial reports at face value: “Wow, look at all that profit. Let’s go out and buy a new truck.”

That’s why we don’t use GAAP to run our projects. We’ve found it’s much better to track percent complete by comparing actual and budgeted labor hours. That way you always know how much you have done compared with what you’re expected to do. We also issue reports every week showing percent complete and calculating the financials accordingly. That makes it easier for the project manager and the team to take quick corrective measures if things are going off track.

We do, of course, compile our company’s financial statements according to GAAP to keep bankers and investors happy. But we don’t use the GAAP numbers for project management — they’re not an accurate indicator of progress. We want the accountants to help our PMs do their work, not to get in the way.

This is the second post in the authors’ blog series on project management. The series draws on advice from their book Project Management for Profit.

Post #1: The Dirty Little Secret of Project Management

Why don’t more project managers sound an alarm when they’re going to blow past their deadlines? Because most of them have no earthly idea when they’ll finish the job. They don’t even think it’s possible to know. Too many variables. Too much that’s out of their control.

That’s the dirty little secret of project management. As the lead developer on one big software project put it: “Everybody knows the schedule is a joke, and we pay no attention to it. It will be done when it’s done.”

It’s funny, though. Big, successful companies that manage huge projects like highways and dams and office parks have to deal with many more variables than a software development team. Yet they usually know how far along they are at any given time, and they keep their customers in the loop. That’s how they get to be big, successful companies.

Granted, they have fancy project management software to help them stay on top of the schedule. But a good project management system — one that can tell you exactly where you are in the project, when it’s likely to be done, and by how much you will overshoot or undershoot your budget — doesn’t need expensive software. At Setpoint, which builds roller coasters and factory automation systems, we used to manage multimillion-dollar projects with a whiteboard and a calculator.

The fact is, your system can be very simple as long as it helps you do the following:

Track key variables. Keep a close eye not just on milestones but also on factors that have an impact on profitability. The biggest variable to watch? Labor hours compared with budget, which gives you a pretty good idea of your percent complete at any given time. You’ll also want to track materials costs, change orders, and your subcontractors’ progress. Trouble in any of those areas can throw a project out of whack quickly, so it’s important to track them on a weekly basis.

Keep your team informed. We recommend regular weekly meetings, with the key numbers posted on a whiteboard or computer desktops so that everybody can see them. With the numbers up there, potential trouble spots surface quickly. A few years ago, we learned that one of our project managers started surreptitiously building extra time into the schedule. If we had let that continue, it would have messed up our profit projections for his projects. Team members brought the issue to our attention after the first weekly meeting — they could see that the numbers on the board didn’t square with the agreed-upon timetable.

Update your stakeholders and customers. All customers want their jobs finished on time and on budget — or preferably faster and cheaper. But if they can’t have that, and sometimes they can’t, what they really want is to be kept informed along the way. (Ditto for senior managers — they don’t like surprises, either.) Share bad news as well as good so they’re never outraged by enormous last-minute changes.

Here’s an example: Setpoint was building a small coaster for a major amusement park company. This was just one piece of a major park upgrade with a very aggressive schedule and dozens of contractors in the mix. As we got deep into our project, we ran into several issues — big (and unanticipated) coordination snags on the jobsite, changes in the specs for riders per hour, and others. We knew these issues would delay the final product by six weeks. So we immediately notified the customer and adjusted our delivery dates months ahead of time.

By the end of the project, we were behind by those six weeks. But because we had kept the customer in the loop every step of the way, we were on time as far as he was concerned. We even got an award at the end for on-time performance. The moral we took away from this? If your customer doesn’t think you’re late, then you’re not late. If you need to change the schedule, do it as early as possible and give your customer an immediate heads-up so he can adjust his expectations.

We’re not saying project management is easy. But if you have a good system, you can keep track of the difficulties and keep your customer informed and happy — even if you’re six weeks late.

This is the first post in the authors’ blog series on project management. The series draws on advice from their book Project Management for Profit.