5 Ways to Maximize Integrator ProfitsBy: Carlton Purvis, Published on Sep 30, 2013
Declining margins are one of the biggest problems for integrators. Nadim Sawaya [link no longer available], the creator of the Certified Security Project Manager program, says he has found a formula for integrators that will both maximize profits and increase success rate. We recently talked with him about this formula and other things such as:
- Maximizing Profits Can Be Counter Intuitive
- The Key Challenge of Coordination
- The Critical Thing Most Integrators Are Bad At
- Who is Bad At Managing
Sawaya says the best way to maximize profits coming out is to manage the costs going in. The difference between a well organized, clearly defined project and one lacking the key fundamentals can be as much as 10 percent margin slip in unexpected changes or failure to estimate labor hours (PM, Eng, Installation) correctly.
Maximizing profits is actually more about minimizing expenses, Sawaya says. “Project managers control costs. They don’t really have a direct an impact on gross margin. But if their jobs go over budget, it does come out of the bottom line,” he said. Unsuccessful projects always have a few things in common, and all of those mistakes eat away at a company’s profit margin on a project.
For example, for smaller jobs, companies will often forego putting engineering plans down on paper, he says. “You’re saving from one end on engineering, but you’re going over on installation hours because you’re asking your installers to design the system on site.”
Companies struggle to get this part right, he says. “They say ‘If I put engineering hours on the job, then I’ll lose the job and I can’t compete’ and this is one of their biggest challenges, but then you’re sending out your field technicians and subcontractors with no documentation. Then they put the wrong stuff in or use the wrong equipment, and it will cost twice."
Most unsuccessful jobs are unsuccessful because the client, the sales person and the project manager are not on the same page. Integrators should validate the scope of the project with the client and the exact expectations of the project should be clear from the offset. Expectations should be set firm and early on. When they are not set, it makes it that much harder when you have to do change orders, which can also lead to more work that may not have been budgeted in, Sawaya says. With that in mind, estimates should be accurate and well defined and have to match your sales proposal, he said. “It should be capturing the correct costs it takes to do the job," he said.
The Critical Thing Most Integrators are Bad At
“What I’ve noticed is that the big challenge for system integrators is getting work done and trying to capture all the changes. I would say 90 percent of security integrators aren’t really good at documenting and pursuing change orders. You can see a 10 percent profit spread between what you’ve booked and what you have done at the end.” he said.
"The scope needs to be defined and validated early on with the customer" he said. This will establish a baseline to negotiate change orders (which should be regularly documented).
Run Projects Like a Small Business
Engineers don't make good project managers because they are very much about making sure something is perfect and don't pay attention to money and deadlines. "The best project manager is someone who used to own their own business. It's a balancing act. If someone has run their own business, even if it's a flower shop, they are going to be a better project manager," he said. Technical skills are second to business sense when it comes to project management.
Project Managers Should Be Involved during the Sales Process
It is important to involve the project manger early on, and the project manager should see their role as more than just oversight of the execution phase, but contributing as needed during the sales process. Project management starts way before a project is sold, he says. From the first lead, to preparing and estimate and the initial site survey, the project manager should be involved. Project managers should have a role along the way to help provide accurate estimates on installation, engineering and making sure a job is going to be the same on paper as it is on site. After the sale, however, he says complete control should go to the project manager.
“For some companies sales people are paid sales commission on the actual job margin at completion instead of getting paid when the job is accepted by the project manager. When you pay a sales person commission based on the margin of the job at completion, they feel they have to protect their margin. They feel like they have to make sure the project manager is doing his/her job because they want to protect their margin. That gives the sales person a stake in the project and then you have two ‘project managers’ and that doesn’t work. So someone should be looking at the compensation plan and how sales people are paid,” he said.
"Many times we promise customers an over aggressive timeline, but when you rush these jobs, you aren't taking time to plan them out and design them. Don't promise a job unless its a small job and give enough time to review the estimate, sit down with the project manager, do a sales to operations turnover, do a block diagram and validate the scope with the customer.
"Allow the project manger to plan the job. And don't try to manage customer expectation. Allow enough time for the pm to review it. People often react, and they order without confirmation then they have everything they need for the job. If you do all of this, you will have [at least] 75% success for future jobs."