Problem Solver or Crisis Manager?
By Gene Kause
There are three types of managers The crisis manager is constantly acting as a fireman, running with a fire hose from one crisis to the next. He jumps on whatever issue is the hottest (usually whoever is screaming the loudest), but is too busy fighting the fire to see what the problem is.
The second type of manager, the problem solver, not only fights the fire but also understands the heart of the problem and works on solving it.The third type of manager, the problem preventor, not only fights the fire and solves the problem, but then takes steps to ensure that the problem doesn't occur again.
Here's an example of the three management styles at work: It is Friday afternoon and the plumbing contractor comes into the office expecting to pick up a check. The accounting department says it does not have a check this week for the plumber. The plumber is hot and bothered and states that his company will not be back to finish the job they were working on until they get paid. The job is really behind schedule, and the builder needs the plumber to work on it on Saturday. Here comes the crisis manager; he has the accounting department immediately write a check to the plumber. The manager is happy because the crisis is over, and the plumber will be on the job as planned.
But why did the plumber expect a check on Friday afternoon? The company has a policy that trade contractors are required to meet with the superintendent on Monday and present their invoices, which will be paid on Friday. The problem solver finds out that the plumber did follow the procedures. He met with the superintendent on Monday and presented the invoice. The cause of the problem is that the superintendent never got the invoice into the office. The problem solver not only wrote the check but found out why the problem occurred.
The problem preventor goes one step further. He finds out that the superintendent never got the invoice into the office because he put it in his pants pocket. At the end of the day, he forgot to take the invoice out of his pocket, and that evening his pants, along with the invoice, were washed and unknown to the superintendent the invoice was destroyed. The problem preventor takes the next step and develops a system that will prevent this problem from occurring again. The superintendent is given an envelope, which is kept on the dashboard of his truck, where he can put all of the invoices he receives. A procedure is established whereby the superintendent brings the envelope with invoices into the office every Tuesday. The problem preventor solves the problem and then takes the next step to implement systems so that the problem does not reoccur. Systems are the key to the problem preventor's success.
One of the keys to success in a custom home building business is to establish and adhere to systems for all aspects of the business. Within sales and marketing, you can establish systems for lead generation and tracking to determine if you are getting the best return for your marketing dollars. Look at the last time you lost a job and become a problem preventor. Identify why the client didn't sign with you and make the necessary changes to prevent this from happening again.
Within estimating you can develop procedures and checklists to make sure that you are including all items in your estimate. Look at the last time you left something out of your estimate and develop a system to make sure that you do not make the same mistake again.
Production management is another area where systems can be implemented. Procedures and checklists can be established for everything from verifying the receipt of material to making sure your subcontractors complete all activities. Issue purchase orders and work orders that are coded with the appropriate job cost category to minimize posting errors.
Develop written procedures for processing invoices that include matching the invoice to the purchase order or work order and receiving ticket. Provide your trades and suppliers with written procedures as to how and when you process their invoices and implement systems that adhere to these procedures.
Within financial management, you can establish systems that encompass budgeting through developing and reviewing financial reports. Review your financial reports in a systematic format. The best way to analyze your income statement is to start with the top section, where overall revenue, costs, and gross profit earned from your jobs are reported. To understand what these numbers are telling you, you will need more detailed information from supporting reports that include detailed job cost reports that agree with the revenue, costs, and gross profits reported on the income statement.
Start by looking at your overall results for the period broken out by open and closed jobs. Is your current work in process more profitable than projects you have completed? Next, examine margins by the type of project you are doing. Did margins on your custom homes on the buyer's land come in according to plan? How about your remodeling work and custom homes on your lot? Were they completed within your budget?
After identifying the areas of major concern, you need to start reviewing variances on the project that make up the major area of concern. For example, ABC Custom Builders planned on a margin of 20%. Margins on completed jobs were reported at 19.5%, while jobs in progress only showed an overall gross profit of 15%. In order to identify where this slippage is occurring, ABC reviewed its margins by project type and noticed that remodeling projects were on target but custom homes on the buyer's lot were showing a major variance from plan. Looking further, ABC identified the Smith house as one with a major variance. The crisis manager identifies this and jumps on the superintendent on the Smith job. The problem solver will dig deeper by reviewing the detailed job cost reports on the Smith project to identify the source of the problem.
In reviewing the Smith job cost report, ABC Custom Builders noticed that framing appeared to be going over budget. The problem solver will investigate the cause of this variance. Does the variance relate to needing more lumber due to the fact that the framer cut the 2x4's differently than planned? Or was additional material needed because the lumber that was dropped on the job “had legs” or was damaged by weather or was necessary because the owner decided to make changes to the plans? Did the lumber supplier charge more for the 2x4's than the unit price that is in the estimating database? Did the framer charge more for his labor? Did the additional charge relate to poor supervision, extra time spent on the job waiting for material, not getting a firm price from the framer up front? The problem solver will dig until he finds the cause of the problem.
Once the reason for the problem has been identified, the problem preventor steps in and asks, “What can I do about it?” The problem preventor looks at the existing systems to determine what changes need to be made to modify the system so he won't have the same problem next time. If, for example, he finds that the framer cut the 2x4's differently than planned, he can either discuss this issue with the framer or add a waste factor into his estimate. If there's a theft problem on a job, he can develop better security procedures.
Within job cost management, you can establish procedures for collecting and analyzing job costs as well as handling change orders and extras. Make sure your accounting system is tracking job costs in the same categories as your estimate. For example, if you estimate labor dollars using an hourly rate that includes burden, make sure that your accounting system posts both gross pay and labor burden to the job.
Systems can also be established to manage cash receipts and disbursements as well as forecasting cash flow. Understanding and systematizing your business management systems will lead to higher profitability and a more smoothly running organization, moving you from a crisis manager to problem solver to problem preventor.
About the Author
|Gene Kause, Allen Marine Inc.|
Pleasanton, CA 94566
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