This process guidance document is to be used as a guide for builders implementing Framework Document Management. This guide discusses Framework's approach to the determination and analysis of markup/margin in sales and production estimation business processes.

Markup & Margin

It is important to initially discuss the terminology used in Framework for determining the difference between cost price of an item (excluding GST) and the sell price of the item (including GST). From industry to industry and indeed from builder to builder, the concept of profit margin (margin) can mean different things, often with an actual difference in the calculated margin value.

For this reason, Framework employs the unambiguous term Markup, as the clear monetary difference between the cost price and the sell price, excluding GST considerations. The margin is the percentage of the sell price that the markup represents.

Framework Markup Amount: Sell Price - GST - Cost Price (ex GST)
Framework Markup Percentage: Markup Amount / Cost Price (ex GST)
Framework Margin Percentage: Markup Amount / (Sell Price - GST)

Example

Consider an item with a cost price of $100 (ex GST)

The item has a Sell Price of $165 (inc GST)
The markup amount on the item is: $165 - $15 - $100 = $50 (this is displayed in Framework)
The markup percentage on the item is: $50 / $100 = 50%
The margin percentage on the item is: $50 / $150 = 33% (this is displayed in Framework)

Document Overview

Framework's Document Overview provides a summary of markup and margin information for all stages of the work flow. Markup and margin can be determined for the initial sale from the base house price, at contract stage from the production of tender documents, when going to site at the commencement of construction, at the completion of construction, and the commencement of maintenance and the completion of maintenance.

User access to view this markup/margin version of the Document Overview is controlled using Framework security.

Sales Margin

A key benefit of Framework Document Management is the ability to capture and monitor markup and margin at all stages of the sales estimation process. Sales estimators must be diligent in the recording of item cost prices, either with the Framework VPB for standard items, or entering approximate cost prices when one-off items are provided to clients. With cost prices available, internal document reports provide a complete item-level breakdown of markup and margin for the document.

As the process of creating sales estimation documents is the same in all areas on Framework, the review and approval of sales estimate margins should be done for all documents, including quotations, tenders, post contract variations, the administration final variation list, and building variations.

The review/approval process involves viewing the completed document's internal report, ensuring all items include a cost price, and that the individual item margins are of an acceptable level. The document/margin can be approved by using the approved field in Framework's document dialog.

Job Card Summary Report

Framework's Job Card Summary report provides a complete summary of all sales estimation documents and their markup/margin breakdown. The report should be run with the completion of each new document to ensure all cost price, and markup information has been correctly recorded. The report is available from Framework's document screens (Tender, Post Contract Variation, Building Variation).

The Job Card Summary report can also be further customised to include committed costs information and further markup/margin analysis during the construction stages of the work flow.

Order Margin Report (OMR)

A best-practice approach should be adopted for determining and declaring job margin prior to the release of purchase orders and the commencement of construction. With the production of purchase orders the costs for the job should be known. Total costs will be a combination of committed costs for orders going to determined suppliers and budget costs for orders to be given to suppliers who are yet to be determined (eg. tradespeople).

Framework's Ordering Overview screen includes three work flow fields for the Ordering, Receipt, and Approval of the Order Margin Report/Results. These fields should be completed by appropriate staff to ensure this process is followed and the determined markup/margin is correctly declared.

Committed Costs Integration

To aid in ongoing margin analysis once a job enters construction, Framework integrates with the accounting system to synchronise committed costs information daily. The current committed costs are available at all times, and also frozen at keys points of the work flow process for accurate review and further analysis of margin erosion. Margin is frozen at the following times:

Commencement of construction
Completion of construction
Commencement of the defect liability maintenance period (DLP Maintenance)
Completion of DLP Maintenance

Committed Costs Close Off Management

A best-practice approach should be adopted for monitoring committed costs throughout construction, not just at the end of the job where identification of significant extra orders and other cost blow outs is too late to address. Framework provides standard content for establishing a regular procedure for checking and closing off committed costs at each major stage of construction.

Framework's Ordering Overview screen includes two Committed Costs Close Off fields. The first is the Last Close Off date, which should be used to denote when the last costs close off review was done for the job. When this review is done, the staff member should record their name in the second field, Close Off By.

A standard Framework work flow report profile should be created to list jobs that have achieved a minor stage of construction (eg. base, frame, etc.) after the last close off date. This will list all jobs due for their next committed costs close off review. When the review is done and the last close off date updated, the job will be removed from the report, and will not appear until the next stage of construction is reached.

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