The options for job site technology is growing every day. This makes it easier than ever to pay more attention to your biggest financial risk on the job site - labor.
You've heard us talk before about using SOP's to improve efficiency and being innovative in construction. Job site labor is no exception. Like we've said - ANY other contractor out there can buy the same trucks and use the same tools. But what sets companies apart is their team; the people who manage and build the work. That's where the rubber meets the road. That's there the money is made (or lost).
Why don't we pay more attention to our labor costs and compare hours back to the estimate?
Tracking labor costs can be a project all on it's own. There are some preeeeeetty intense spreadsheets out there that will get it done. And there are some majorly complex software systems out there that will do it, too. No matter what you choose, it has to be done. Depending on your comfort level, there is software out there that will get your headed in the right direction.
My personal favorite? Rhumbix (no, this is not a paid advertisement, although maybe it should be?).
It's simple, powerful, and pumps out reports that you can bank on. If you're playing catch-up, read the post about technology for the job site. Rhumbix is a winning combo.
Tracking labor costs, comparing them to an estimate or other benchmark and getting it into a clean, legible report is a monstrous task. There are different hourly rates, overtime, double-time, shift rates, vacation days, unit rates for different operations, a bazillion cost codes, and estimated hourly rate, etc. The list can go on and on.
Know Your Starting Point
In order to know what the labor productivity goals are, you need to start with the estimate. If you're on the job site running crews and don't know what your estimated labor installation rates are, stop everything and go talk to your estimator.
We lose and incredible amount of information when a project moves from the 'pursuit' column over to the 'executed contract' column. We'll cover more on that later, but just remember this: You make or lose money before you sign the contract.
For starters, there are two major items you need to get from your estimators:
- Estimated labor composite rate ($$ per man hour)
- Estimated production units (man hours per each widget)
And if you're really getting into this and want some bonus points, get the estimate schedule (hopefully this exists!).
Any good plan has a solid starting point. In construction, a good labor productivity plan doesn't exist without understanding the estimate.
Actual Labor Productivity
To make sure we're on the right path, we have to keep an eye on two other job-to-date metrics:
- Daily composite rate
- Daily man hours per operation
DAILY?! Yes, daily. If that stresses your out, go back up to the top and click on that link to Rhumbix. They've done a great job creating a product that makes it easy to capture these numbers.
The reason we need daily numbers is because it's easy to roll those up to get weekly, monthly, and job-to-date numbers. It all starts with daily productivity.
If you're not seeing hours per operation on your timecards already, stop reading this and go make it happen.
What to do with it
Knowing these numbers will push you heads above your competition. I'm SHOCKED at how many contractors out there aren't paying attention to the money going out the door. We're all here for one reason, folks: TO MAKE MONEY. In order to make money, you need to know where the money is leaving, and where it's coming in.
There's power in these number. This is your dashboard that will allow management to course-correct on the fly. So here's what we do:
Step 1: If it's not already part of the way you do business, find a way to get daily man hours and cost.
Step 2: Look at it, at an absolute minimum, every week. Make it a thing. Get the team involved, buy some pizza and talk about the gains, losses, and changes being made.
Step 3: Watch for trends. If there's always a losing operation, it's time to get creative to fix the problem. And don't forget to study the winning codes. Talk about what's going well and how it can translate to other operations.
Step 4: Keep doing this, every week, every month, every quarter, every year. If you don't start to see your profit margin go up, call me. These numbers represent the heartbeat of the project. Knowing them will tell you if you're about to have a heart attack or if you're ready to run a marathon.
And to give you something to ponder, I'm going to close this post with a question:
What percent of your annual expenses are construction labor? Are you giving it the attention it deserves?