Estimating, Accountability and Discipline for Alarm Dealers

Dec. 7, 2004
A Q&A with Larry Folsom, general manager and COO of Nevada' A-1 Security, on managing company operations, estimating and keeping a handle on profits and losses

To keep revenues up and to keep a hold on company policy, A-1 Security COO and General Manager Larry Folsom says he focuses on discipline in his company's operations. It's an important management style for company that brings in $8.3 million annually, with services split between the alarm division, the commercial locksmithing division, tract home work, apartment security, custom homes and commercial security systems.

That discipline pervades Folsom's approach to estimating. The company, especially because of its size, has to follow very strict estimating procedures so that profits and losses are easily tracked directly to a job and to the managers who signed off on a job. But good estimating doesn't stop with a contract signed by a customer, says Folsom. It continues as that job is followed-through upon, and is closely watched so that mutating jobs, whether caused by a customer who wants changes or by an estimation that didn't account for an important aspect, don't get out of hand without being corrected in the company's purchase order and margin sheets.

While this may sound like unnecessary paperwork to smaller dealer companies working in a tight-nit operation in just one market, these procedures are useful whether you're doing $50,000 in revenues per year, or $10 million. In this Q&A with, Folsom gives his thoughts on aligning sales and operations staff during estimates, working with tract home developments, and "knowing when to say when."

SIW: How important is real-time analysis to your management system?

Folsom: Companies I've worked for in the past were making decisions based on what they thought was happening, rather that what was happening, and that's a scary position.

Previously, P&L (profit and loss) statements were coming in too late; they were really just obituaries. We decided we had to make every margin sheet accurate. We have to live and die by these.

Every Thursday at 4:30 we have a divisional briefing. We talk revenue, budget, returns, labor. It's a benefit because if one of our divisions is having problems, we can look at it and solve it. Our divisions can only be as good as our estimates -- I really believe that is true.

SIW: What's the best attribute someone can have for the estimation and sales process?

Folsom: It's all about discipline. You have to have discipline to be able to pass on a job; I think you have to be brave enough to walk away. That never gets easy. If a job is wrong in terms of the estimate, we know we didn't do a god estimate; we know we missed something. A lot of the excellence in good estimating is having foresight. Estimating is still about leadership and excellence and discipline.

SIW: How does the estimating and job sign-off procedures work at A-1 Security?

FOLSOM: We created a margin sheet for every job. I have the materials, the labor costs, and I know the commission. That gives us our cost. Then that goes to the manager who has to sign off on the labor, equipment criteria, commission. Then they can go out and get the contract. We shoot for about a 35 percent margin. Once I have approved it, their credit has been pulled, and then the job will be pushed forward. The way our system works is that everybody's in it. You will have problems if sales does not meet with operations, and the result will be that the customer is not happy and the company won't get its margin.

SIW: What are the dangers of not following through on this kind of margin sheet?

FOLSOM: The biggest danger is a lack of control. Our margin sheet is the same margin sheet throughout all jobs, so we all speak the same language. If you have sales turning in sheets not approved by operations, then ops is fulfilling a project that ops can't do at a fair price.

As far as our P&L sheets, we're very open with our financials. Our managers have profit and loss responsibilities, and anyone in our company can see the margin sheet - everyone but the customer. The divisional manager must sign off on it.

SIW: This sounds very regimented. Where can flexibility exist?

FOLSOM: There are places where we can work with the margin sheets. On our commercial side, we have some sales persons with a salary. We raise our effective labor rate to make up for their salary on top of their commissions.

SIW: You noted that A-1 has worked in a lot of tract home developments. Can you give our readers some insight into doing that kind of work?

FOLSOM: In tract home work, the builders force you to compete, but really the builder market is about relationships. I do compete, but our paradigm is that we will train their sales staff, and we will be able to sell more to the customer, and support the transaction. We meet with every homeowner, so I do charge more to the builders, but the builder makes more money because we will end up selling more to the customer. We have to be the builders advocate to the new homeowners.

SIW: Sometimes jobs goes bad, no matter how well you think you've done the estimate. How does A-1 deal with those types of situations?

FOLSOM: If we have a plan that says 30 hours, and 10 hours into it, we know it's going bad, that's when I go back to the customer. That's when we have to take our lemons and figure out how to make lemonade.

If it's not on the contract, we simply don't do the work - unless there is a purchase order. You have to have the courage to look the customer in the eye in these situations and tell them, "I have to have the purchase order so I know I'll get paid." Some guys will throw labor and material at a job until it's done. You can't operate that way.

SIW: How important to the estimation process is being up-to-date on technology?

FOLSOM: We have a technologist on staff that tells us what we need. Our technologist is well trained and really likes the technology. If we don't stay up on technology, we could eat it. On the technology side, the market is changing, and the customer has more technical knowledge than before.

SIW: What's the end result of adding procedures and discipline, no matter how burdensome, to your sales and estimation processes?

FOLSOM: Our system may have too many moving pieces, but it frees up our sales guys. If ops signs off on a job, then that means I'm paying that sales guy, even if the customer goes upside down and is unhappy.

The accuracy means we can bid and win on more projects and different types of projects.

As an added benefit, Folsom, provided a simple step-by-step description of how a job goes from lead to collection at A-1 Security. While it's probably not an earth-shattering approach, Folsom's point in showing this is that if operations isn't taking responsibility for what the sales department is initially suggesting, the job can't move forward -- and if it does, it's at risk of being a threat to company margins.

  1. Sales Lead
  2. Systems are designed and a Proposal is built.
  3. Proposal is submitted to the Divisional Ops Manager
    1. The assembly of equipment and labor estimates are verified
    2. The Ops Manager signs the proposal and is taking responsibility for the accuracy of the equipment list and labor estimate
  4. Customer Signs Contract ( The Proposal becomes a Job)
  5. The Job is turned in and processed
    1. The customer is put through a credit check (625 Beacon residential, D&B for commercial)
    2. Branch Manager approves job and is taking responsibility for the jobs profitability and the Branches ability to perform the work
    3. The Account is built in Admin
  6. The Job goes to the Install Department
    1. Equipment is purchased (The approved Proposal is the equipment list)
    2. Labor is scheduled
    3. The Proposal is used as the blueprint for the jobs installation
  7. Complete Job and bill the customer.
    1. When the job is complete the estimate is compared to the actual results.
  8. Collect the Receivable.