1.13.21 – CI – Adam Forziati
System integrators’ business models should avoid these pitfalls to profitability at all costs during any given project.
Solid AV project planning and execution are ultimately what make integrator firms profitable. The National Systems Contractors Association (NSCA) recently held a webinar focusing on best practices to avoid potential landmines to project profitability.
Randy Stearns, founder of one of the nation’s largest systems integration firms and current CEO of D-Tools, spent 20 years as systems integrator, always looking for ways that business wasn’t doing as well as it could.
“Something I always think about is managing the cost of goods, which doesn’t necessarily mean ‘cheaper products,’” he says. “It’s all about finding ways you can streamline processes to come in on time and on budget.”
In his webinar titled “Profit Pitfalls and How to Avoid Them,” Stearns shared several keys to improving AV integrator profitability.
Pro AV profit pitfalls and their solutions
1 – Incomplete, inaccurate, or poorly documented scope of work
“Clients will exploit anything not nailed-down in a scope of work document. Internal teams often end up giving things away or doing things incorrectly,” explains Stearns.
He likened it to a golf analogy:
“Sometimes, I come to a hole where there’s something in the way and I can’t see the pin. I don’t know what club to use and end up hitting in a general direction. Projects are often similar if there’s a poorly-documented scope of work.”
How to solve it:
- Create an accurate, comprehensive scope of work
- Whatever time spent documenting will pay for itself in the end – the loss of time in back end will be at least 10x if not documented properly upfront
- Important to go even as far as system functionality, performance expectations, etc. – these are sometimes hard to quantify, but an effort should be made
- Exact equipment placement, style, color, any information is good information
- In addition to what’s included, state whatever is excluded in this project
2 – Underestimating labor
“For some reason, labor isn’t valued as much as equipment in this industry. Actually, labor is where profit is either made or lost on a project. It’s easier to charge for labor because clients don’t understand it as well as price of equipment.”
How to solve it:
- Include engineering time, project management, programming, warrantee, etc. – you can charge for all of this
- Ask about site conditions with site visits, what’s going on there which may impact the project’s timeframe
- Parking? shuttle to job site? these costs need to be included
- Meeting requirements – are all subcontractors expected to be at hours-long meetings every week? this should be charged for
- Projects often have additional documentation requirements and that time needs to be charged for
- Scour the plans for “gotchas” – things which impact wire path, routing, etc.
3 – Failing to understand “other” costs –
Are there any travel or “other” responsibilities involved?
How to solve it:
- Consider freight charges, scaffolding, storage, travel, rental equipment, etc.
- These are highly legitimate and common costs, so it is rare that a complaint will be launched against them
- With freight, set a percentage of equipment total like 3%; others are line items
4 – Design oversight and omissions
Many projects include change orders you cannot charge for, such as staff errors.
How to solve it:
- If you’re estimating and need a bill of materials without taking time to document design with schematics, you’re going to miss things
- Take the time upfront to document the system fully and make sure everything is included
- Utilize any tools in your AV business software to auto-attach accessories
5 – Lack of project execution planning/documentations
A “ship without a rudder;” a project that wasn’t mapped out as well as it needed to be.
How to solve it:
- Ideally, develop a chart that outlines timelines, dependencies, potential scheduling conflicts while taking into account long lead time items ordered ahead of time
- Skill sets required to complete project and if those resources readily available
- Power and cooling requirements needed for subs doing the work
6 – Unanticipated circumstances
Many industries have insurance against illness, weather anomalies, etc. Liability insurance doesn’t quite cover it for AV firms.
How to solve it:
- Develop risk mitigation strategies for various situations
- What’s Plan B if a specific subcontractor goes out of business – who is your number two?
- Replacement plan for critical products
- Product spares for items you’ve seen failures on
7 – Undocumented/poorly-documented change orders
Similar to scope of work in point 1, costs of goods increase without associated revenue.
How to solve it:
- Important to charge for all change orders, period
- Nothing wrong with being unapologetic with change orders no matter how small – they happen
- Clients will expect them generally
8 – Poor QC testing, incomplete punch list, and ineffective punch list management
What’s the worst part about this particular roadblock to AV integrator profitability? It upsets the client, Stearns says, because they’re often the ones finding issues and having to call you back.
How to solve it:
- Bring in a service manager because the service department takes over the project once complete
- Let them thoroughly document a punch list and review it by the project manager – efficient and thorough
9 – Failing to put a stake in the ground at the end of the project
It keeps going on and on…and on…
How to solve it:
- Conduct a formal closeout meeting with all stakeholders
- Important to put a final, formal completion point to the project