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Securing a sound force.

I ONCE KNEW A MAN WHO OWNED and operated a small shoe manufacturing business in a suburban community. About 90 percent of his output was sold directly to Sears Roebuck. Every year a team of Sears auditors arrived at his plant and made a financial audit of his business. My supposition was that the auditors wanted to ensure Sears was not being overcharged. In fact, the auditors were determining that my friend was making a profit. Sears would not do business with a firm that could not make money.

A security manager who organizes and pays for a security officer force can find the best service and prices only if he or she knows and understands how the service provider runs the business and prices the product. An understanding of the pricing method, restrictions, and variations makes it possible for the security manager to set out the specifications and evaluate comparable bids.

In the contract guard industry, pricing the service properly is critical. The contract provider must know what he or she is doing, and the client will be assured of better service if he or she examines and understands pricing.

Before going into pricing, the security manager should sketch out company needs in the way of guard service. The posts that the security guards will cover should be described and instructions written. Those guards expected to move around on rounds or patrols will need detailed instructions. Guards cover access control points, work with computers, operate cameras, and handle ID cards. Guards will need special instruction on company rules necessary to maintain a good relationship with the client's employees.

The time of staffing and the framework of shifts must be considered for each post and function. A front gate or entry to the plant may best be covered 24 hours a day, seven days a week. An auxiliary entry may be covered only eight hours a day, five days a week. A shift employee gate for entry and exit may be needed only for one hour at each shift change. Patrol rounds, parking lots, and garage entries should be identified in the shift structure.

Once the plan is made, the hours of coverage can be structured. The overall plan for how the guard service is performed is important to the structure of the budget. The guard service plan with scheduling is primarily the responsibility of guard operations. Once a schedule has been decided on, the budget figures will be put in place and the guard force will function on the money allocated.

The security manager must take time to meet with each viable bidder. He or she should understand how each prospective bidder arrived at the price of the bid. In the contract guard industry, pricing the service properly is critical. It is necessary to pay the guards, cover the costs of the business, and make a profit. At the same time, the bid price must be sufficiently competitive for consideration. Few clients disregard the rate charged in seeking an operator who will provide the best service.

Good pricing ensures the client will receive professional service from a stable work force that is properly supervised, paid, and managed. improperly high pricing can result in a client's paying too much and seeking out a lower bidder. If the price is too low, the contractor probably cannot meet the requirements of the job, resulting in substandard service and eventual termination. Price and rate structure are the heart of the guard business.

In a guard organization proper pricing is the responsibility of the owner or principal manager of the business. In a large company prices are often established at the corporate or regional office. Since it is difficult to discuss or negotiate with a contract branch manager who has to continually go back to the head office for modifications to the bid, the security manager who knows the financial mechanics of pricing will be in a better position to deal with the contractor.

The guard hour is the product of the contract business. Regardless of how the service i s quoted - hourly, weekly, monthly, or annually - service must be priced by the hour. In general terminology, guard service is stated by the week, and guards are paid by the hour on a weekly or biweekly check.

In bidding for most operations there are no standard rates or rate schedules. Each contract is tailor-made to fit the security requirements and financial position of the client. The contractor must do an effective job, meet costs, and make a profit.

Each pricing project must start from a calculated base rate or the price of one straight-time hour. The four components of a base price are direct pay, payroll cost, overhead, and profit.

Directpay. This is the gross amount paid to the guard. It is the amount on the guard's paycheck before deductions and personal taxes. Direct pay is first in order of consideration because it is the most important part of the price.

Payroll cost. This is composed of contributions to the insurance funds of the state and federal government and contributions for liability insurance. It is the employer's added cost for employing the guard. Payroll cost is the total of the items displayed in deductions from the guard's pay on the paycheck.

Within the category of payroll is the cost of general liability insurance, a cost that is not part of payroll deductions. Most small to midsize guard companies and some larger ones purchase their general liability insurance based on guard hours. The number of guards and hours worked helps measure the exposure to hazards and liability. The insurance company tallies up the guard hours, taking into consideration the number of guards. This number is then calculated with the cost per unit of exposure - the guard hour and that is the liability bill for the coverage.

Overhead. This is the cost of operating the business. All the money that is spent to support guard operations and administration are part of operating overhead, including all nonguard wages and salaries, automobiles, insurance for losses often than liability, medical plans, and interest.

Profit. There is no such thing as breaking even: You either make money or lose it. The guard company operator establishes a target percentage of the total cost of his or her operation as the necessary profit figure to charge.

The security manager should not hesitate to ask for any of this information when evaluating a bid proposal. The contractor may not use this simple pricing formula, but the calculations can be adjusted to include the information given.

Exhibit 1 shows three examples of the application of numbers to one hour of guard service. If the bid in the first column is submitted, with the guard pay at $7.30 per hour, the rest of the formula follows. If in the course of negotiation the security manager decides he or she does not want the guard pay to start above $6.50 per hour, it is not correct to simply drop the pay to the guard and then apply the numbers in the $7.30 column. The calculation has to rerun because payroll cost is not the same when the payroll is changed. The same result applies if the pay is raised to $7.50 per hour.

The examples shown are for one hour. To show the application for the entire contract, the pay and price can be multiplied by the number of hours contained in the contract. After all the units of coverage are worked out, there may be other matters for negotiation, such as use of vehicles or safety equipment.

The completed price bid must then be submitted to whatever internal
 Exhibit 1
 Pay (per hour) 7.30 6.50 7.50
 Payroll cost 1.37 1.22 1.40
 Overhead 1.20 1.20 1.20
 Total cost 9.87 8.92 10.10
 Profit 1.10 0.70 0.76
 Price (per
 hour) 10.96 9.62 10.86

authority the client company uses to approve contracts. It is a good idea to gather information from within the company to make an in-house guard force price comparison.

A guard force budget should serve two purposes. The first is to set up a program to see where the guard force will be operationally and financially in the future. The second is to provide a summary of where the guard force has been.

Budgeting should not create a financial straitjacket with no room for decision making. On the other hand, the budget should provide a measure of financial reality.

Budgeting is planning ahead with information based on the past and expectations of the future. With some exceptions the information from the past will apply to the future. The budget provides a guide and a point of reference. Preparing a guard force budget makes it possible for the security manager to monitor and work with the guard company manager. Knowing how prices are arrived at can help the security manager should a discrepancy arise.

For instance, if the scheduling breaks down or the employees are not properly supervised, the employees may quit. If recruiting can bring in replacements for training and assignment, the operation will be smooth. If recruiting does not keep up, the scheduler will need to assign extra shifts to the regular force and thus create overtime assignments and disrupt the cost of the payroll. The security manager who has worked out the budget with knowledge of the manner in which the guard contractor did the pricing and distributed the work force will be able to analyze what is going wrong and where. Excessive overtime that cannot be billed must be absorbed by the contractor, who may no longer be able to make a profit. And that takes us back to where we started About the Author . . . Robert R. Rockwell, CPP, is principal of Rockwell Security Consulting Services in Walnut Creek, CA. He is a member of the Guard Services Disciplinary Review Committee and ASIS.
COPYRIGHT 1991 American Society for Industrial Security
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Title Annotation:pricing in security management
Author:Rockwell, Robert R.
Publication:Security Management
Date:Mar 1, 1991
Previous Article:The big switch.
Next Article:Are security officers any different?

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