Friday, January 2, 2015

Should gross margin dollars be greater or less than than your gross margin dollar budget?

Should gross margin dollars be greater or less than than your gross margin dollar budget?
By this question, I take it to mean should gross margin dollars spent be less than your gross margin dollars budgeted.

The answer would then be yes, but only just slightly. You want to be on budget, not over budget. You do not want to be too cheap, or you will probably get what you pay for (a junky or poor quality, less durable resulting project / building / development / etc). However, you have to budget for some time and cost overruns in industries and projects where such things are common place. To determine the frequency and probability of a project budget overrun, you must conduct research into historical information involving the contractors, the materials involved, the unknown R and D costs, the track records of similar projects, and so on. In what if scenarios, contingency plans for certain project phase failures could be established, but the risks involved are sometimes difficult to estimate when even the contractor performing the development work is unable to estimate schedule times / money for some of the key components of certain project phases. Some managment personnel of the contractor may be overly optimistic or just guessing the nature of the work involved without talking to their workers who will be doing the tasks. (Has anyone ever encountered a clueless manager?)

No comments:

Post a Comment