Fix the comparison boundary before calculating
Records and assumptions to align
- Define one accepted output: completed units, milestones or jobs that meet the same quality boundary. (not complete)
- Reconcile internal paid hours, productive hours, loaded cost and incremental supervision. (not complete)
- Record the subcontract quote, inclusions, exclusions, coordination time and non-duplicative risk allowance. (not complete)
- Put both scenarios on the same currency, indirect-tax and delivery-period basis. (not complete)
- Keep classification and compliance assessment outside the economic model. (not complete)
| Field | Required unit | Preferred evidence |
|---|---|---|
| accepted contract revenue | CU/job | current scope and quote |
| delivery labour or subcontract cost | CU/job | time/payroll record or dated subcontract quote |
| incremental coordination | CU/job | time record or explicit scenario |
Build a reproducible scenario
delivery contribution = accepted contract revenue - direct materials - delivery labour or subcontract cost - incremental coordination - other named variable delivery costs
- accepted contract revenue
- Revenue for the matched accepted output (CU/job) — current scope and quote
- delivery labour or subcontract cost
- Loaded internal crew cost or current subcontract quote for the same boundary (CU/job) — time/payroll record or dated subcontract quote
- incremental coordination
- Supervision, procurement and rework effort caused by the scenario (CU/job) — time record or explicit scenario
Do not add a generic subcontractor markup and a duplicated risk allowance. Keep unused internal capacity visible rather than allocating it away.
Fictional matched-job comparison
A job earns 12,000 CU and uses 3,000 CU of materials. Only the delivery-resource structure changes.
| Case | Declared inputs | Substitution | Result |
|---|---|---|---|
| Internal crew | 12,000 revenue; 3,000 materials; 5,200 loaded crew; 300 incremental supervision | 12,000 - 3,000 - 5,200 - 300 | 3,500 CU contribution |
| Subcontractor | 12,000 revenue; 3,000 materials; 5,600 quote; 500 coordination | 12,000 - 3,000 - 5,600 - 500 | 2,900 CU contribution |
| Capacity interpretation | Internal crew would displace 2,000 CU contribution from another accepted job | 3,500 - 2,000 opportunity scenario | 1,500 CU after named displacement |
Stress-test the uncertain inputs
| Variable | Lower case | Higher case | What it tests |
|---|---|---|---|
| Internal productive hours | Fewer accepted hours | More accepted hours | Tests loaded-cost recovery and completion risk |
| Subcontract quote/coordination | Lower current quote | Higher quote or supervision | Tests whether variability is worth its coordination cost |
| Displaced work | No displaced contribution | Accepted job is displaced | Tests the capacity opportunity cost |
Stop and review when
- The two scenarios do not promise the same accepted output or delivery window. (not complete)
- Worker classification or compliance is uncertain. (not complete)
- Coordination, rework or unused-capacity costs cannot be separated. (not complete)
Turn the scenario into a controlled decision
- Reconcile the baseline to current records and name the evidence owner.
- Run the base case, then change one uncertain input at a time.
- Record the chosen response, approval limit, review date and stop trigger.
- Compare actual results with the original boundary before reusing the assumption.
Avoid these mistakes
- Comparing a subcontract invoice with an internal wage rate rather than loaded delivery cost. (not complete)
- Treating employee and contractor labels as an economic choice rather than a legal/factual assessment. (not complete)
- Hiding displaced contribution or unused paid capacity. (not complete)
Questions to resolve before approval
- Does the higher contribution case automatically win?
- No. Check cash timing, delivery reliability, quality, strategic capability and downside before approving a resource model.
- Can this comparison determine whether a worker is an employee?
- No. Classification depends on local law and the real relationship, not the label or this arithmetic.
Methodology and source boundary
- Labour Recovery Rate methodology — Margin101: Product-owned loaded labour and productive-hour boundary.
- Subcontractor Markup methodology — Margin101: Product-owned subcontract quote, coordination and non-duplicative risk boundary.
- Outsource vs Hire methodology — Margin101: Product-owned fixed/variable capacity comparison; no classification conclusion.