Managing by Exception

Jeff-Pic---current-2010by Jeffery K. Prager, Founder, Backroom Management Services LLC

I have a friend who is a trans-Pacific airline pilot.  He describes his job “as endless hours of boredom punctuated by moments of sheer terror.”  He explains that once the plane reaches it’s altitude and the course is set, the autopilot takes over and there’s noting much for the pilot to do other than monitor the dials and make sure nothing goes wrong.  If there is a problem, speed is critical, and that’s when all his skill and training kicks in.

Managing a building or contracting business is much the same as flying a 747.  When things are running smoothly, the job is easy.  It’s the exception to the rule – when problems come up or things don’t go as planned – that requires your immediate attention.  This is what I call ‘managing by exception’.

What are ‘exceptions’?
Exceptions are items that you didn’t expect or plan for, a deviation from the norm. When you get a firm bid from a supplier or subcontractor and the final price is more than the bid, that’s an exception. When the homeowner asks you to add or change something while the job is in progress, or when you discover mid-project that the wiring needs to be replaced in the home you’re remodeling (something you hadn’t included in your bid), those too are exceptions.

Exceptions are usually the things that consume your time as a manager or owner, and they can eat up your profits too – if you aren’t prepared for them and don’t have a good process for detecting and dealing with them.

Managing Exceptions
Once you uncover a problem, you’ll probably know what to do about it.  So, the first step in managing exceptions is to find them as soon as they happen, before invoices are paid and while you still have leverage to address them.    Our CASHFLO™ job costing and accounting software comes with pre-programmed alerts in the form of reports that show you immediately when exceptions occur.  Among these reports are:

Job Budget & Costs Report
This report shows Job Costs as compared to your Budget for each and every job.  So you see instantly when the numbers don’t jibe and where the problems are.

Job Profitability Report
This report gives you a snapshot of every job, or of your company as a whole.  If there are specific questions or issues, you can go to the job in question and investigate.

Job Profitability – Cash Basis Report
This shows you your current and pending billing opportunities compared with your upcoming costs and obligations, allowing you to manage your cash flow.

Job Cost Exceptions Report
This gives you an instant look at any current exceptions over all your in-progress jobs.

Since each of these reports can be generated at the click of a button, you can always know early on when and where exceptions are creeping up so you can deal with them before the begin gnawing at your profits.  These reports, over time, will even show you patterns – when a particular vendor, tradesman, or employee continues to generate specific exceptions, you’ll know you’ve got a problem and can take corrective action.

warningQuestions to ask when reviewing exceptions:

  • Why did I go over budget?
  • Do I need to back charge another vendor?
  • Do I need to issue a change order to the customer?
  • Did the vendor overcharge me?
  • Is it a problem in estimating?

It’s the exceptions that eat up your time and profits.  By uncovering them early on, you’ll gain back untold hours of time and increase your profitability and cash flow.

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Learn more about how CASHFLO™ can help you manage your entire business for increased profitability here.  Or, click here to request a private demo of the CASHFLO system.