Indianapolis contractor Jack Baker, a former president of the Mechanical Contractors Association of America, played a major role in developing the cost-control techniques Cliff Elling used to rescue his own company from the brink of disaster. These same techniques, says Baker, can be applied by almost any small company.
* IDENTIFY COST-CENTERS. Baker says any cost-control system has to allocate expenses to individual jobs, product lines, branches, or divisions. "I know it sounds primitive," he says, "but I'm always surprised by the number of people who don't know where their costs come from."
* BREAK COSTS DOWN INTO SMALL COMPONENTS. An ideal cost component, says Baker, should be a part of a job that can be started and completed without interruption. Costs should also be logically related to each other, and usually generated in one location. "On a contracting job, for example, I wouldn't combine costs of heating and plumbing systems, or crews at different sites."
* ALWAYS MEASURE AND COUNT. "It doesn't matter whether you keep track of progress by hours, dollars, or some other unit," says Baker. "Just don't let people eyeball the job and tell you how they're doing." Breaking down jobs into small components also cuts guesswork, he adds, because at any given time most components will be either all completed or not started.
* WATCH VOLATILE COSTS MOST CAREFULLY. "In our industry," Baker says, "we know right from the beginning how many boilers and pumps we'll need, and what they cost. What we have to watch, though, are less predictable costs -- labor and bulk materials like pipes and valves. These costs sneak up awfully fast if we don't pay attention."
* UPDATE BUDGETS REGULARLY. Baker uses his cost-tracking system to create a monthly status report on every project his company is working on. "We want to know whether it will cost us more or less than we estimated to finish the job," he says. "In effect, we create a new budget, and a new gross profit projection, every month. And from that we can tell what money we'll have to cover future overhead. Without guessing."