In the first part of this three part series of articles we looked at why quality is much more important than cost when it comes to the profitability of your contracting business. We also looked at why measuring the quality of your estimates is essential for better decision making and essential for the survival and growth of your company. Now the question is how to implement that plan.
BID TO WIN RATIO
The simplest and one of the first numbers to look at, is the bid to win ratio.
Advantages
Simple, easy to measure and interpret. It also has less time lag as compared to other (perhaps better) tools that you can use to measure the quality of your estimating. It is quite flexible and as described in the article can be used in a variety of formats to give you more information and help you make better management and business decisions.
Disadvantages
Because of its simplicity it needs to combined or replaced by other more complex tools which you more information to give you the complete picture. It doesn’t tell you for example what profit or loss you made on the jobs you did win. In other words it does not measure the quality of your estimates directly but can only be used as a proxy measure.
Simple Bid to win ratio
The simplest form of the bid to win ratio is the number of jobs you win divided by the total number of jobs you bid for. This will tell you the percentage of jobs you win. This ratio leaves a number of questions unanswered. I’ll try to raise the most important ones during the rest of the article.
Bid to win ratio based on revenue
One possibility is that you could be winning a lot of small jobs while not winning the biggest ones. This probably is not a desirable situation. To overcome this a better ratio would be the total amount you have bid in a given period (for all jobs combined) divided by your total bid amount in jobs that you have won in that period. This will take care of the size or perhaps also the importance (if size is the only criteria) of the jobs you are winning.
Type of jobs being won
Anything else you need to know? Yes, what are the kind of jobs do you bid the best. By the calculating the bid to win ratio for different kinds of jobs you can get a fair idea of the strengths of your estimating team. There are different criteria you can use to categorize jobs.
Type of work
The type of work (e.g. low voltage) is one way to see where your strengths lie.
Which Clients?
It is also important to know who you perform best for. Do you perform better for more important or older clients. If yes, is it the relationship you have built up that leads to your better selection for the job or is it purely a better estimating performance? These are things you may want to look into.
Efforts vs Results
This a more difficult ratio to keep track of. You may use your own memory and general gut feel to get an idea of where you stand on this count. But I would recommend taking the time and effort to quantify it in some way or at least keep track of jobs that you put in more effort or less effort than normal. Then look at your success with jobs that based on the effort you put in. Were you more successful at jobs that had a more thorough checking. If yes, how much difference did it make.
Important Note
As already mentioned in the disadvantages part of the article it is but a proxy measure of the quality of your estimates and cannot be used in isolation unless other measures are not available at the moment or take too much time and effort to be calculated.