A baseball-mad sportswriter named Thomas Boswell once wrote a book titled How Life Imitates the World Series. For me, it’s more about how remodeling imitates life. Take the scandal at the Veterans Administration as an example. There, the VA’s director—a much-honored, highly honorable former Army general—was forced from his job because of a furor that was less about the amount of time it took veterans to be treated at VA hospitals and much more about how VA employees at those facilities were fudging data so they could create good-looking performance metrics and hide their real performance.
The story inspired conversations with REMODELING's circle of experts about how remodelers all too often create warped impressions about their own performance, either because they count incorrectly the factors that would give them a true picture of how they are doing or because they fail to do any counting at all. Too often, I fear, the ugly, uncorrectable truth emerges only after an investment or hire or some other crucial move is made.
You might look with pride at your profit margins, but do your expenses include the free labor for your company that your wife puts in every day? If you want to grow your business, you eventually will need to hire someone, so it makes sense to put an equivalent salary into your expense lines now. And speaking of salaries, do you pay yourself, or do you just scrape up what’s left after you’ve paid everyone else? That’s no way to run a business—or set yourself up for retiring one day.
Consultant Shawn McCadden pointed out several other common problems. “How accurate are employee time cards for last week when they get filled out on Tuesday this week?” he asks. “Do you remember what you had for lunch or where you had lunch last week on Monday?” These errors not only screw up your payments but also creep in and corrupt your job-cost estimates.
Then there’s your truck, McCadden notes. If you've paid for it already and aren’t including its maintenance and replacement costs in your budgets, you in effect are giving those costs away to your customer for free—not to mention setting yourself up for a hurting when that truck finally conks out.
Another expert I like to rely on, Melanie Hodgdon, often gets suspicious when a contractor tells her “Yeah, that job was a mess, but at least I didn’t lose money on it.” Says Hodgdon: “What he meant was that his costs for the job were covered by what the customer paid for the job. But let’s say that the job lasted six weeks. Let’s further say that even a very modest construction or remodeling company probably has at least $52,000 in overhead per year. So that’s $1,000 per week in overhead. If the job lasted six weeks and he didn’t cover his overhead, then he just lost $6,000 on the job, to say nothing of the profit which that job should have contributed.”
Mark Twain wrote that there are three kinds of lies: lies, damned lies, and statistics. His order of magnitude makes sense because data often seems so much more trustworthy than anecdotes or gut feelings. As the VA’s director discovered, incomplete or intentionally warped statistics can give you an undue feeling of satisfaction when, in fact, alarm bells should have been ringing.