A cautionary tale about the cost of politeness

Our tale begins with a second trip to the work site. An extra man for half a day.  A part nobody read into the original scope, supplied because the job needed it and the argument was not worth having.

Your foreman handled it. The work went out the door.  The client is happy and will call you again.

None of it was written up.

Writing up a change feels like picking a fight with somebody you want to keep working for. So most of it gets quietly absorbed by people making a reasonable call in the moment.

Here is the part that costs you. No report in most contracting businesses totals what that came to.  Deciding whether to write up a change is the foreman’s judgment.  Adding those decisions up is nobody’s job.  So the money leaves without ever appearing as a number, and a problem with no number attached never survives a budget meeting.

Two denominators

Guess what share of contract value went out last year as work nobody invoiced. You will not have a measurement.  An honest guess is enough for what comes next.

Say it is 2%.

Against revenue, 2% is a rounding error. It is the sort of figure that gets waved off in a meeting, and it is waved off correctly because, as a share of revenue, it is small.

I submit that it indicates one of many revenue leaks in your operations. To illustrate, what if you divide it by your net margin?

Run 6% net, and that 2% is a third of your profit for the year.

Same money. Two denominators. One of them makes it invisible, and the other makes it the largest single item on your desk.

The margin does the damage

Change one number and watch what happens.

2% of contract value on a 12% margin costs you a sixth of the year’s profit. Therefore, the same 2% on a 4% margin costs you half of it! 

The leak did not change. The business it happened in did.

That is why nobody else’s figure is worth anything to you here. Thin-margin work punishes absorbed scope in ways that thicker work does not, and the shops running the thinnest are usually the ones under the most pressure to keep a client comfortable.

The check

Pull your last four closed jobs. For each one, sit down with the foreman and ask a single question: what did we do on this job that never got written up?

He will remember. Foremen always remember. They can name the trip, the day, the material, usually to the hour.

Put a rate against the hours and a cost against the material. Total the four. Divide by the contract value of those four jobs. That is your percentage, measured instead of guessed.

Then divide it by your net margin, and you have the number that matters.

What it usually shows

Two things, in my experience.

The first is that the guess was low. It is almost always low because the absorbed items were small, taken one at a time, which is exactly why they were absorbed.

The second is that nobody was hiding anything. These are competent people who made sensible calls each time, with no way to see the total they were building. The measurement was never assigned to anyone, so it never happened.

I urge you not to fix it by telling supervisors to be less accommodating. Accommodating is why the client calls back.  You fix it by making the write-up a record rather than a confrontation.  It gets logged whether or not anybody decides to bill for it, and the decision to absorb it becomes yours, made with the total in front of you, instead of his, made alone on a Tuesday afternoon.

To be clear, politeness is not the problem. But free politeness is.

So one question before the next job closes. In your business, whose job is it to add it up?