Tag Archives: productivity

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.

The 5% Factor: Produce More To Make More (part 1 of 3)

In the good old days, construction companies were owned and run by builders. These proud, tough, hard working men (and women) learned their trade in the field, had years of practical experience, and knew what it took to get their projects finished on-time. If they didn’t produce quality workmanship, they didn’t last long. Back then it was all about getting the work done no matter what it took to meet their obligations. It was about delivering solid structures with unsurpassed craftsmanship. The contracts were negotiated face to face and enacted with handshakes based on integrity, reputation, trust, one’s word, and doing what’s right. It was all about building a project the contractor could remember, be proud of, and then rely on their customers for recommendations and new work.

Fast forward to today. Now successful construction companies are run by professional managers, engineers, and accountants. These business leaders are focused on the bottom-line and following what is only required by the contract. These managers have college degrees and little or no construction field experience. It’s now about paperwork, documentation, notices, claims, and tracking systems. Building the project isn’t as important as getting the work, doing the paperwork, and getting paid, even if it involves litigation.

Combine this lack of real field construction experience at the top of many companies today with the lower and lower profit margins. Years ago there was not enough qualified construction companies to handle all the work available in the marketplace. Under this business climate, contractors could afford to always do a little extra to insure a perfect project and still make a good profit.

More demands = less profits!
But over the last 40 years, the number of contractors has tripled while the total amount of construction has stayed relatively flat (adjusted for inflation). Therefore now there are more contractors than needed to do all the work required by the market. This has created a price squeeze and reduced contractor’s ability to do more than the minimum required by their contract. In addition, with increasing competition, construction customers are now demanding more than ever before. They now demand faster schedules, safer projects, better quality, more communications, better technology, all at much lower prices.

These added customer demands on contractors who are willing to sign contracts for less than they should, have killed the construction business as it once was. Add to these demands poor architectural plans, problematic engineering, incomplete specifications, conflicting contract documents, material shortages, price fluxuations, more regulations, added paperwork, lender’s requirements, third party inspections, construction managers, and red tape, has all but eliminated a fair profit for the risk contractors take.

It’s time to refocus on the field!
These issues have put pressure on contractors to save more and more money in the field. The average crew size has increased, while the number of experienced field workers on the crews have decreased. Training is a thing of the past as most employers have eliminated it as an unnecessary expense. Superintendents and foreman are younger than ever which also translates into less experienced field leadership and less efficient crews. This has resulted in poor or flat field productivity improvements over the last twenty years. Consider your challenges fighting against competitors who charge less than they should, have inexperienced and untrained field crews, and building projects that now require more paperwork and increased risk. A need now emerges for contractors to refocus on improving field productivity as their only viable solution to compete and improve their profit margins.

Construction profitability is about reducing risk. Contracts require contractors to assume more risk than ever today. Have you considered what’s at stake?

Types Of Construction Business Risk:

– Project Loc. & Access – Project Type & Sz
– Project Sch. & Duration – Constructability
– Customer – Architect, Eng. & Consultants
– Contract Terms – Financial , Funding & Pymt.
– Regs & Inspections – Subcontractors & Suppliers
– Material Costs & Aval. – Plans & Specifications
– Approvals & Acceptance – Project Management
– Supervision & Coord. – Manpower, Prod. & Safety
– Quality & Workmanship – Estimate & Budget
– Factors Beyond Control

So how do you reduce risk and increase your bottom-line? Your choices are many. But consider which will give you the biggest return on your time, energy, and money. In other words, where can your company gain the biggest advantage over your competitors?

– Lower Material Costs
– Better Subs. Costs
– Better Equipment
– Better Supervision
– Better Project Mgmt.
– Labor Productivity

Change = Growth = Improvement!

Remember when you learned something new like ride a bike or learn the computer? It was hard and caused you some pain. But with training and diligence, you succeeded. And now these tasks are like second nature and easy. Change is good and allows for growth and improvement. Without change, nothing new happens, you stay put, and go backwards.

Do you have to change? The old way still works, doesn’t it? YES you have to change! I know you don’t like to change. You want the economy to go back to its’ old steady ways. But I’m sure your goal is not to strive for stability. Today, change is the norm. Change is not something that happens to you. Change is what you must do to continue to make a profit, grow your business, and expand your customer base.

In the old days, you only had to make one or two changes every few years. Like buying a new adding machine, upgrading your typewriter to an electric model, buying a fax machine, changing from a yellow pad and pencil to a computer spreadsheet, changing from a dot matrix to laser printer, moving from Lotus 123 to Excel, buying a new pickup truck, adding a laser screed to your concrete tools, or attempting to use email to communicate.

As a part of your ongoing business management role, what do you do to plan for change, make change happen, and force change to happen? The companies who wait for something to happen die off. Look at Sears. The leaders never thought their business model would ever need to change. They hoped Wal-Mart would never catch on. To date, they still struggle to get back the market share and customers they lost while waiting and doing nothing new or different. How would you have liked to be a steel golf spike manufacturer hoping soft-spikes didn’t sell? You would now be broke and without a company.

The second part of changing how you do business is to have a pro-active plan to stay ahead of your competition and abandon your old ways of doing business. Ask yourself: “What leadership decisions should you make, but you won’t? Why not? What are you waiting for?” You have some tough calls you need to make right now:

– Do you have a customer you need to fire?
– Where are you wasting money?
– How can you be more efficient?
– What improvements are needed with your staff?
– Is there a faster way to complete your projects?
– What can you delegate or let go of?
– What should you stop doing?
– What should you start doing differently?
– What areas should you improve now?

– customers -personnel
– mgmt. team -training
– qty workmanship -service
– scheduling -sales & marketing
– estimating -technology
– subcontractors -suppliers
– productivity -financial systems
– ops systems -field systems
– project mgmt. -equipment
– banking -bonding
– insurance -your paycheck