Monthly Archives: July 2011

Two Heads Are Better Than None!

Take Time To Plan Your Strategy

Imagine yourself stranded on a tiny island trying to make a strategic decision how to get off the island quickly and safely before you run out of food and die. Without any input, advice, or ideas from other people or outside advisors, it would be very difficult to decide what to do next or the best way to get off the island. Now imagine an entrepreneur or business owner sitting in their office alone trying to make all the decisions how to run their company. These scenarios are similar. Without input from others, making decisions based solely on what you know and your experiences are no guarantee you’ll choose the right path to take. Your chances are less than fifty percent, or twenty percent, or perhaps ZERO! Not good odds when your future is at stake.

Do you continually struggle with big decisions that shape the course of your potential success:

“What should my organizational chart look like?”
“Do I have the right people in place to grow my company?”
“What type of new business should we go after?”
“How can I cut or control overhead expenses?”
“Who should I fire to balance our budget?’
“Should I promote from within or hire a trained manager?”
“How can we make more money in the field?”
“How can I make my managers more responsible and accountable?”
“What financial reports should I be getting?”
“How much money should I be making?”
“How should I give out incentives and bonuses?
“How can I get my people more motivated?
“Where am I losing the most money?”
“What’s working and what’s not?”
“How can I get my company to go where I want it to?

 It’s Lonely At The Top!
With the fun and excitement of owning and running a company comes much stress and strain. Overwhelmed with tough questions, no easy answers, and difficult decisions, frustrated business owners delay deciding what to do about their direction, management team, customers, equipment, marketing, profits, financial reporting, investments, and growth. When you delay or postpone necessary key strategic decisions, you continue living with mediocre employees, poor results, inadequate organizational systems, and continually struggle to keep everything moving in the right direction. Eventually you come to the realization you can’t do it all yourself and need to seek some help. Unfortunately most never get off the treadmill to look for professional advisers and make time to improve their companies. This is kind of like postponing a trip to the doctor even though you know that nagging pain in your chest must be attended to before it’s too late and you have a heart attack.

We all know that two heads are better than one. Guess what? Two heads are better than NONE too. You can’t do it alone. You might as well be stranded on an island. The odds are less than one in five or ten you’ll make the right decisions when you do it alone. And when you ask your managers or key employees for advice, they only give you their perspective on what’s best for them, not you or your company.

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The 5% Factor: 5% Faster jobs = More profit! (part 3 of 3)

How can you make your jobs finish only five or ten percent faster? Many of these critical scheduling factors can cause major delays:

– permits
– procurement
– submittals
– approvals
– material selections
– long lead items
– probable delays
– potential problems
– anticipated conflicts
– critical decisions
– phasing issues

 Time is easy money!
Those major factors can cause your projects to take longer. But we are looking for the little things that really cost you money. When you don’t focus on faster, it doesn’t happen and you let your crews go with the flow. When you focus on speed, you get the whole team moving faster and becoming more efficient. When you start every project, get the easy money flowing by getting your supervisor and crew together. Explain the projected and budgeted schedule. And then ask them to brainstorm ideas how they can improve the schedule by a minimum 5% to 10%. Explain to them how 5% faster will translate into dollars and will keep your company competitive in the tougher

 Squish the Schedule 5% or more!

Total projected sch. = 100 crew days
Total bud. @ $3,000 /day = $300,000
Beat the sch. by 5% = Save 5 days
Total crew savings = $15,000
Beat the sch. by 10% = Save 10 days
Total crew savings = $30,000

In addition to saving on your crew labor budget, the overall project will finish faster as well. You will save even more money concurrently on general conditions, equipment, clean-up, temporary facilities, and supervision costs. This money adds up fast!

Miracles can happen!
Years ago in July, I was on a job-site meeting with my superintendent and concrete foreman. I asked them when they were going to erect and tilt-up the exterior concrete wall panels on a large warehouse project. They both told me they were planning on tilting-up on November 15th. That seemed too long a schedule to me for our 20 man crew to get the work done. So I asked them how they arrived at that date. They told me they met with the crane company and thought that date was ‘doable’ and they could easily make it happen.

I didn’t like their answer so I asked if they could finish a few weeks faster. They both squirmed and didn’t want to answer or commit. Then I asked if they could finish by October 25th if I offered them each a $1,000 incentive. In less than ten seconds, they both said they could make the faster October 25th date. A miraculous change of mind by two veterans. And they made the new date. It cost me $2,000 and saved me 15 days for 20 men. You do the math.

Sometimes we have to get creative to get the results we want. When we go with the flow, we don’t push our people, and it costs us real money. When you compete, you run a little faster. When I used to swim in high school, I always went faster in the meets than in practice. Competition makes people go faster. Challenges make people work harder. So do games where you keep score and can declare a winner. I like to say: ‘No score, no game!’ What incentives can you offer to get your crew excited about beating the schedule?

Annual Savings @ 5% Faster

20 Crew @ 200 days @ $35 /hr
Labor savs. w/5% faster sch.
Equip. costs saved – 4 pcs @ $50/hr
Costs saved 4 jobs @ $1,000/day
Tot. Annual Savings = More Profit

Trash your old tools!
Another consideration is the working condition of your tools and equipment, and their overall effect on your crew efficiency. When is the last time you did a tool inventory or a detailed equipment analysis? Some you should keep, trash, replace, or upgrade. Field workers tend to use old, broken, or bandaged tools and equipment rather than admit to the boss that they might be broken or worn out. How much money are old unproductive tools or broken down equipment costing you?

The added benefits of having quality tools and great equipment will be increased crew teamwork, improved morale, more pride of workmanship, better quality, less mistakes, safer projects, and more efficiency. This will translate into even faster jobs and more bottom-line profits for your company.

Poor Production = Poor Profits!
Do you think your crew wastes at least 3 to 6 minutes per hour? Those few minutes are costing you a ton of money.

20 Person Crew 5% Time Lost
Time lost /person = 3 minutes /hr
Time lost /day /crew = 8 hours /day
Total hours lost = 1,600 hrs /yr
Crew labor rate @ $35.00 /hr
Annual Prod. Lab. LOST = $ 56,000 /yr

There are many ways to improve crew efficiency and finish your jobs faster. Start by taking a hard look at your start time, break time, lunch time, and quitting time. Does stop working at 3:30 pm mean start rolling up at 3:00 pm or 3:10 pm or 3:30 pm? For a 20 person crew, every minute you lose per day costs you as much as $2,500 per year or more.

Double your Profits!
Call an all crew team meeting and discuss ways to improve your schedule, save a few minutes every hour, define your exact hours for production expected, create meaningful incentives, improve your tools and equipment, increase efficiency, and strive to implement the 5% factor to get more everyday from everyone.

Construction Risk Is a 5 Letter Word! (part 2 of 3)

The biggest risk and opportunity to make or lose money is… LABOR! Let’s look at a typical job breakdown to see what happens if labor runs over budget by 5%.

Typical Construction Contract Budget

Labor $40,000
Materials $40,000
Equipment $10,000
Subcontractors $10,000
Subtotal $100,000
Overhead @ 10% $10,000
Profit @ 5% $5000
Contract Amount  $115,000

The 5% Factor = 100% More Net Profit!
Most construction companies only make an average annual net profit between 2% to 3%. If you can IMPROVE your LABOR costs by only 5%, you can IMPROVE your net profit amount to 4% to 5%. This can be as much as a 100% increase in your bottom-line!

If you can improve your labor by 5% in the example above, your net profit will increase to $7,000, or from 5% to 7% net profit. And if you improve your labor by 10%, your net profit will increase to $9,000, or from 5% to 9% net profit. This is real money and will put you far ahead of your competition and give you some breathing room to invest back into your company.

But, if you overrun labor by a small 5% amount, you’ll spend $2,000 more than your labor budget and reduce your profit margin to only $3,000, or to 3% net profit. If you overrun you labor by 10%, your net profit will be reduced to only $1,000, and 1% net profit.

Is your crew working efficiently?
Consider how productive your crew is everyday out in the field. Studies of typical construction field crews show revealing facts and much room for improvement. Field employees spend some of their time planning the work. Then they produce the work. Some of the time they support the work doing layout, seeking information, fixing equipment, looking for tools, repairing tools, locating the right material, and asking questions. And of course some of the time is wasted goofing off, standing around, starting late, quitting early, extending their breaks, smoking, making personal cell phone calls, waiting deliveries, running out of materials, or taking care of their dogs loose on the jobsite.

Typical Construction Field Productivity

2% Planning work 0.2 hrs /day
40% Producing work  3.2 hrs /day
25% Support  work 2.0 hrs /day
33% Wasting time 2.6 hrs /day

Do these results shock you? Go out to any job site and look around for a few hours or days. Just sit and watch what really goes on. You will be under-impressed and appalled. So where do you start to improve productivity? It starts with identifying the areas that take away form your crew’s efficiency. Look for things that slow down production, create down time, or allow them to be less than productive. Some things that hurt your field productivity include:

– When the superint./foreman leaves site
– 5 trips to hardware store per day
– Run out of materials or small supplies
– Tools break or don’t work properly
– Wrong equipment for the job
– Waiting for right equipment to show
– Smoking while working
– Cell phone calls
– Dogs running wild
– Not starting on time
– Quitting early
– Breaks and lunch time extended
– Bad attitude employees

Win the race!
NASCAR is a good model to follow. At each pit stop, there is no time to waste, as every second counts and can cost the team millions of dollars if they loose any time. How can you get your crew to win the race and become:
– super efficient
– super fast
– super productive
– super organized

Focus on the 5% factor!
The dilemma for most contractors is a downward spiral and never ending treadmill. When you try to do it all yourself, you aren’t focused on field productivity. You get too busy taking care of small tasks that need to be done but don’t make you money. When you’re too busy to meet with your supervisors regularly to help them plan properly, problems continually happen. You only have enough time to react and fight fires. This causes your crews to stand around and wait for you to get them answers or needed materials.

You know you are losing money and your crews are inefficient as they waaste more time than they should. But you don’t have enough time to stay out on the jobsite all day to tell them what to do and keep them working faster. So you rely on untrained foreman to get the work done. These supervisors have no incentive to work at a high productivity rate, so they do what they feel is fast enough based on their experiences over the years. Besides, what’s the worse that could happen to them? You come out a few times a year and tell them they’re over budget and try to get everyone working a little faster. Not much of a productivity improvement program.