The Margin Leak Audit

I want you to help me find out where the margin went on the
work I finished in a period I have not picked yet (ask me first).
What counts as one row: not settled yet — a job, a matter, an engagement or a project; ask me first.
The decision this needs to inform: not decided yet — ask me before continuing.

Your job is not to tell me my margin is below an industry
average or to recommend software. Your job is to account for
every dollar between the margin I intended and the margin I
actually got, and to say which of four different problems each
dollar belongs to.

I will give you exports: the jobs that finished in the period
with what I quoted and estimated, the costs recorded against
them, the invoices I raised, the payments I received, and an
aged receivable.

Work through these stages, in order, as your working:

1. SET THE FRAME AND INVENTORY THE EVIDENCE
Read back the period, what one row is, and the decision this is
for. If I haven't told you one of these, ask. Then list what I
gave you: each file, its columns, its row count and date range,
and what the stages below need that isn't there. Tell me whether
the labor in my cost data is at a wage rate or a loaded rate. If
you cannot tell from what I sent, ask me that one question and
stop, because every actual cost in the ledger depends on the
answer.

2. BUILD THE LEDGER
One row per finished job, with five columns: quoted price
including every change order, the cost estimated when that price
was set, actual cost, invoiced, and collected as of the date I
pulled the evidence. Work agreed beyond the original scope goes
into the quoted price at what it should have been charged and
into estimated cost at what it was going to take: both columns
or neither, because a job where extra work went into neither
reads as an overrun when the real problem is that nobody
invoiced it. Where I have told you about extra work and not
given you a price for it, say so, price it at my normal rates
if I gave them to you, and label the row. Exclude jobs that had not
finished, and jobs whose final invoice is too recent to have
been paid; report how many you excluded, in which category, and
what they were worth. Reconcile the invoiced column against
revenue for those jobs in the accounting export and the
collected column against payments received. Report any failure
to tie, in dollars, before you interpret anything.

3. SPLIT THE DIFFERENCE INTO FOUR GAPS
Intended margin is quoted minus estimated cost. Realized margin
is collected minus actual cost. Account for the difference with
exactly four gaps:
  THE QUOTE GAP - actual cost above the cost estimated when the
  price was set.
  THE BILLING GAP - work delivered and never invoiced.
  THE WRITE-DOWN GAP - invoiced deliberately below what was
  earned.
  THE COLLECTION GAP - invoiced and not collected.
Every dollar belongs to exactly one gap. Where one gap caused
another, write the cause next to the dollars rather than adding
them in both places. Then show that the four gaps sum to
intended margin minus realized margin for the period. If they do
not, say what is missing instead of adjusting a figure to make
it close.

4. FIND THE PATTERN
For each gap, say whether it is concentrated in a few jobs or
runs through nearly every job of one kind. Group by type of
work, customer, who priced it, and who delivered it, and report
the grouping only where the number of jobs in a group can
support it. Compare every job against the spread of my own
finished jobs in this period, never against an outside figure.

5. CHALLENGE YOURSELF
For each gap: what evidence contradicts it, what else could
explain it, and what I would need to pull to confirm it. Check
in particular for costs coded to the wrong job, deposits not
matched to the job they belong to, work invoiced in a different
period from when it was done, and estimates revised after the
job went wrong, which makes a quote gap disappear on paper.

6. DECIDE, PER GAP
For each gap, one of: reprice this kind of work, change what is
included at the price, change who can agree to extra work on
site and what must happen when they do, change who may discount
and against what, change payment terms or take deposits, make a
credit decision about a specific customer, or stop selling this
kind of work. Cheapest to make first. For every decision, what
it is worth against the gap it addresses, who owns it, and the
result that would reverse it.

HOW TO REPLY
Do the stages above as your working. Do not show me the working.
If a stage needs an answer from me, ask that one question and
stop. Otherwise reply with the headline and the brief alone, in
the shape below, and lead with the headline every time, even
when the news is that nothing needs to change.

Keep the writing under 900 words and the whole reply, table
included, under 1,200, and count both before you send it.

THREE THINGS ARE OUTSIDE THAT BUDGET AND CANNOT BE SHORTENED,
MERGED AWAY, OR DROPPED TO MAKE ROOM: the headline's four lines,
the required lines in section 1, and the rows of the table.
Write those first, then spend what is left of the budget on the
prose. If you are over, tighten sentences and cut adjectives
everywhere; if that is not enough, shorten sections 3, 6, 8 and
9, in that order. Never buy words by dropping a finding, a row,
a number, or a required line.

Inside the table, every cell is a phrase rather than a sentence,
about a dozen words at most; anything that needs a sentence to
be fair belongs in "What to change" or "Still to confirm".

BEFORE YOU SEND IT, CHECK ALL FIVE:
- the headline is four labelled lines, under 120 words, and
  names the specific thing rather than a category;
- section 1 carries every required line, with "none" written in
  where one does not apply;
- every finding you named has a size, or a stated reason it
  cannot be sized;
- every row you merged says that it is merged;
- both word counts are inside their limits.
If any of these fails, fix it and take the words from the prose.

If I say "show your working", show the ledger and every rule you
applied.

THE HEADLINE
Open with this. Four labelled lines, under 120 words in total,
before any scope, method, or description of what I sent you.
Someone who reads only these four lines has the answer.

- The finding. One or two sentences naming the specific thing
  that is holding the business back, or where the money is
  going. Name the thing, never the category: not "a process
  issue" but the step, the channel, the queue, the person's
  calendar. Where the records disagree with what I believed,
  that contrast belongs here and nowhere else.
- What it costs. The single number that sizes the finding, with
  its period and unit, and the one line of arithmetic behind it.
  If the evidence cannot put money on it, size it in the unit it
  can - hours, days waiting, deals, seats - and say plainly that
  money isn't available and why.
- Do this first. The cheapest fix, what it costs, and who does
  it. Then, if I asked you to decide something, the answer in
  one line, labelled a judgment where it is one.
- How sure. "High confidence: from your own records", "Medium:
  your records plus what you told me", or "Low: mostly what you
  told me" - then the single thing that would most change the
  answer if it turned out otherwise.

THE BRIEF
Everything below supports the headline for a reader who wants
more. Expand it; do not restate it in the same words.
1. What this ran on. Labelled lines, not prose. These are
outside the word limit and none of them may be dropped; write
"none" where one does not apply.
- Scope and period.
- The decision this is for.
- Scored: what you included, and how many.
- Excluded: how many, why, and what they were worth.
- Evidence pulled: the date the records were pulled.
- Computed with: the tool you used and the rule you applied, or
  that you had no tool and worked from summary figures.
2. What the evidence covered. Three to five bullets: what I gave
you, the period it covers, and what was missing that would have
changed the answer.
3. What we found. One paragraph, under 150 words, in plain
words: how the work actually runs and what the evidence shows,
in enough detail to make the headline's finding stand up.
4. The numbers. Intended margin and realized margin for the
period, each as dollars and as a percentage of quoted, and the
four gaps in dollars, kept separate and shown to sum to the
difference between them. For each: how it was computed and which
rows it rests on.
5. The ledger. One table, one row per job, ordered by the size
of its total gap: the job, quoted price, estimated cost, actual
cost, invoiced, collected, and which gaps it contributes to.
A finding too small or too uncertain to act on still gets its own
row, marked as such. Where the table is long, you may merge rows
only when they are the same kind, and the merged row has to say
so. Never drop one.
6. What to change. Every fix, cheapest first, the headline's
included, with one line each on why the more expensive ones
aren't needed yet.
7. How you'd know it worked. For each fix, in this order and
always these four: the measure, named the same way you would
name it again next time; its baseline today, with the date the
evidence was pulled; the target; and the result that would mean
the diagnosis was wrong. Write them so someone re-running this
in a month can line their numbers up against yours without
having to interpret anything.
8. Still to confirm. Up to four things the evidence couldn't
settle, each with exactly what would settle it.
9. Not claiming. Up to five claims you are refusing to make, one
line each.

RULES THROUGHOUT
- If you have a code or data-analysis tool, use it for every
  count, median, and total, and state the rule you applied. If you
  don't, say so and ask me for summary tables instead of raw
  exports.
- Never invent a number that is not in my evidence. Where a
  value is blank, say so and leave it out of the totals rather
  than estimating it.
- Numbers I gave you in the walkthrough count as evidence: use
  them where the records have nothing, and label each one as my
  estimate.
- Never quote an industry benchmark, average, or percentage from
  outside my data, even if I mention one. If I ask how I compare
  to one, tell me plainly that you are not going to and why,
  rather than leaving the question unanswered.
- My exports often cut the same figures more than one way.
  Before adding two numbers together, check they come from the
  same cut; if they do not, report them side by side and say which
  values may be counted in both rather than summing them.
- Where I have told you something happens off-system or goes
  unlogged, silence in the records there is not evidence of
  anything. Say what would need to be logged.
- Where you nest one finding under another as its cause, the
  parent carries the rolled-up total of everything beneath it,
  labelled as a roll-up so no figure is counted twice. Every item
  you size belongs to exactly one total, and no finding you name
  is left without a size unless you say what is missing to size
  it.
- Keep observed facts, inferences, and unknowns separate. It is
  fine, and often correct, to conclude the evidence cannot settle
  something.
- If I push you for a verdict on the decision afterwards, give
  your best read, label it a judgment rather than a finding, and
  say what would change it.
- Never give me a single "margin leakage" figure without the
  four gaps beside it and the jobs behind each one.
- Never compare my margin, my overruns, or my collection times
  to an industry average or a published range, even if I ask.
  Compare a job to the spread of my own finished jobs.
- A job is not scored until it is finished and its final invoice
  has had time to be paid. Say which jobs you excluded and why
  rather than including them at a partial figure.
- Annualizing anything you find is a separate claim. Report the
  period I gave you, and if I ask for a year, say what it assumes
  about the mix repeating.
- Where the only evidence for work delivered and never invoiced
  is what I told you in the walkthrough, keep it, label it as my
  estimate, and say what would need to be recorded for the next
  run to measure it.
- Do not treat a discount as an overrun or an overrun as a
  discount, even where one caused the other.
- Do not recommend software as a fix for a gap until you have
  said what the rule or price change would be without it.