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Managing Break out Pricing
The trick with itemizing budgets to work within a lump sum will be in making your pricing balance out to the purchase order total.

When projects are bid as a lump sum, items that are amortized into the body of the quote will need to be itemized.


For example, costs for shop detail drawings, inspections, handling and shipping may now need to be priced individually.

If individual pricing is unavailable, creating a percentage allowance based on weight or labor hours may suffice.

The goal is to create a target within which the managers can work. If exact figures are not workable, then a close approximate will be acceptable as long as the final numbers balance.

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Some days it does not pay to chew off the restraints.

You have just sold another big job and you begin to think that you finally get to relax a little bit. Visions of quitting work on time and getting weekends off dance in your head. You actually play with the prospect of taking a vacation. Life is good and getting better, or so you think.

At the project review meeting the customer discloses their plan is award only a small portion of the work. The rest of the job will be released as financing allows the owner to do so. Elation turns to depression almost immediately, but you keep your happy face on!

Upon leaving the customer's office with their congratulations and a promise for more paperwork forthcoming, you begin to realize that estimating this project will not be completed until the last piece of fabricated steel is shipped. Relax? There will be no opportunity for relaxing. The real work is about to begin. Your daily work load will be driven by project management and accounting needs for the entire length of the job.
 
Already you can see the potential for material cost and labor hour over runs. Lump sum budgets do not provide enough itemized information that the project manager will need to facilitate a successful outcome. With no guideline mechanism by which to manage the job, it will quickly become a cost accounting nightmare. Everyone will blame you for that in the end.

What can you do at this stage to help minimize your future pricing requirements? You will have to re-work your bid pricing to be in line with the proposed delivery schedule from the customer. These isolated budgets will need to be inclusive of all factors required for completing the work. By providing this information will help others to maintain the intended budget.

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Itemizing Bid Costs for working budgets
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January
  2012
A single moment of understanding can flood a whole life with meaning.
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