Wrap rate, also referred to as the direct labor “multiplier,” is a fully burdened labor rate – the rate at which an organization must bill out its direct labor units to cover its direct and indirect costs; before any profit is made.
Wrapping your mind around your wrap rate can be complicated and getting it wrong can be very costly, so using a couple of handy tips and tricks each time will save you more than just money. It all boils down to controlling your costs by eliminating unnecessary expenditures and mitigating nasty surprises. Having quality systems and software is helpful but mastering the human element is the most important aspect because rubbish in equals rubbish out.
Having a central repository for data is imperative and so is having a universally-accepted means of entering that data into the central repository. Ensuring your process is efficient and intuitive will make it more likely to be adopted by all of your staff. Empowering your staff to offer suggestions for enhancing your data entry process will inevitably improve your process and also make it more likely to be utilized every single time. Empowerment begins by addressing suggestions with respect and an open mind; public discussions can lead to collaborative brainstorming that not only praises contributions but also leads to creative solutions.
Dual control of data entry will help catch minor mistakes that could lead to major problems. It only works if it is done every single time with every single staff member participating. Establishing an environment in which dual control is not seen as a means of micromanagement but rather quality control for the protection of everyone. It protects a person from himself or herself; we are all human and every single one of us is due for a mistake eventually. Even a Major League Baseball Gold Glove winner makes a fielding error in a season.
No matter how many tips and tricks you use to ensure the integrity of your wrap rate items will be missed either as result of unanticipated complications or a lapse of judgment. In either case building in a healthy buffer will protect your budget in the long run. The consequence of this practice will be the inability to undertake certain jobs. It will require your staff to be more diligent in the triage process when determining which projects are more urgent than others. “Healthy” is a relative term so one way for determining what that should mean for your business is to examine the overage percent on previous projects.
Wrap rates are unique to each business and project, so you will develop your own tips and tricks over time. Compiling your own tips and tricks is another good tip. If you’re looking for more helpful ways to control your costs and increase profitability please contact us so we can put our experience to work for you.
(To read another blog about wrap rate, go here.)
