In order to improve profit margin, speaker says planning, not volume, is more important
“It’s all in the planning process,” said Adrian, Ph.D., P.E., CPA, to a room full of attentive sheet metal contractors at SMACNA’s annual convention, held here recently. “Profit, for one thing, is how you manage labor.”
In his talk, “Implementing an Effective Scheduling and Cost Control System,” Adrian gave contractors more than a few examples of how planning is most important if one is to improve on profits.
“Bigger isn’t always better,” he said. “I’m not against volume, as this is one way to possibly make a profit. However, I believe in the ‘Let’s make the most money out of what you have’ approach. Productivity equals the money or units of work output against person hours of work input.”
Record that historical dataAdrian, who acts as advisor to many national corporations, including contractors, project owners, and designers, first zeroed in on faults made in the estimating process.
“Labor costs are the most variable and unpredictable of all construction costs,” he said. “They are often the biggest variable in the estimate and create the most risk in the construction process.
“The determination of the labor costs requires the determination of labor rates and labor productivity. Labor productivity is especially difficult to estimate in that it is dependent on many variables to include the skill of the worker, the attitude of the worker, the degree of supervision, and environmental factors such as temperature and precipitation.
“The key to estimating this cost is the collection and use of historical labor cost data.”
Too often, said Adrian, contractors think short-term, failing to keep important, historical data. To improve the estimating function, the contracting firm should review their practices in regard to preferred or benchmarked procedures. By evaluating a given firm’s practices against the weaknesses set out in a checklist, the weaknesses in the firm can be identified and addressed for improvement.
“You have to clean up your procedures, folks,” said Adrian. “Quality means consistency. Costs, unfortunately, are going up faster than productivity.”
Control project cost, timeWhen workers are standing around doing nothing, chances are they have nothing to do, said Adrian.
“The estimate is a plan or projection of cost,” he said. “Similarly, a plan or schedule is a plan for the projection of project time. There is evidence that many construction firms do not prepare adequate plans and schedules for a project. If they are prepared, they are often prepared inadequately.”
The duration for each activity for the overall project schedule must be determined, he said. And, the durations should not be determined through guessing. Again, this is where keeping accurate project records for reference sake is important.
“Controlling project cost and time are the key to construction firm profitability and the ability to complete a project on time and budget,” he said. “A control system has five key elements: In a timely manner, it compares actual to plan, with the objective of detecting a problem, and a follow-up action is taken to attempt to correct the problem.
“An effective control report for construction monitors percentage or effort or labor hours expended versus the percentage of work put in place. This comparison can be made by comparing either hours, labor costs, or unit costs.”
Six problems to addressIn Adrian’s eyes, when the percentage of effort for a work activity is greater than the percentage of work completed, there are at least six explanations or reasons.
- Â Productivity problem.
“It may be that there is one of many productivity problems occurring, for example, inadequate supervision, understaffing of the work, poor worker attitudes, etc.,” he said. “If this is the reason, the project control report identifies or ‘flags’ this and the construction firm should attempt to immediately correct the productivity problem.”
- Â Estimating problem.
“It may be that there is no on-site problem; the problem may be there was too optimistic of an estimate of labor productivity,” says Adrian. “If this is the case, the construction firm should recognize this fact and incorporate this information into future estimates.”
- Â Inadequate record keeping.
“For example, it may be that the foreman has filled out daily timecards inaccurately by charging craft hours to the wrong work code. If this is the case, the record-keeping process should be improved.”
- Â Improper method of handling change orders.
“The construction firm is often required to do additional work via a change order process,” he said. “For example, additional mechanical work may have been assigned to the construction firm. In doing this work, the construction firm would update their actual labor hours and work quantities performed.
“However, they may not have updated the estimate and, therefore, the percentages illustrated for the labor hours expended and quantity of work placed are in error. If this is the reason for the apparent lack of matching of the percentages, the change order process should be corrected; the budget and the actual hours must be updated for change orders.”
- Â Improper or bad list of work item codes.
“The job control report should be set up so that if the construction firm is 50% done with a work item and everything is going as planned, then 50% of the labor hours should have been expanded,” said Adrian. “It may be that the reason for the apparent problem with the work items is that the firm has a bad list of work items. If this is the case, the firm should redefine the work codes in the cost system.”
- Â Changed work conditions or a claim.
“It may be that the construction firm is being required to do the mechanical work under changed or unexpected work conditions,” he said. “The construction firm may be entitled to extra payment for the changed condition or a construction claim. If this is the case, this should be documented such that the claim can be negotiated. The job control report can support this with documentation.”
Bottomline: organizeIn Adrian’s estimation, to gain efficiency and accuracy in performing the estimating, scheduling, and control functions, an integrated approach should be taken. Each of the functions should be performed in conjunction with one another by using a common set of work packages. Whatever is a work item for estimating, he said this should be an activity on the project schedule and should be a cost object in the control system, too.
“The construction industry loses a considerable amount of productivity owning to the ‘waiting’ problem,” he said. “Visit a construction project on any day and you are likely to find someone waiting on something, be it material, be it equipment, be it tools, be it instructions or decisions, or be it waiting on another person or firm.
“It is unrealistic to think that all waiting can be eliminated. Some of it is an inherent part of the construction process. However, waiting is likely the worst deficit that curtails on-site construction productivity.”
To beat this, organization is the key, he said.
“Waiting can be reduced and productivity can be increased by improved and more formalized planning and scheduling,” he said. “That means working smarter, not harder.”
Sidebar: Single family of codes completedST. LOUIS, MO — With the goal of developing a single family of national model construction codes, the Building Officials and Code Administrators International (BOCA), International Conference of Building Officials (ICBO), and Southern Building Code Congress International (SBCCI) finalized the procedure at a joint annual conference held here recently.
The year 2000 codes moved through a series of steps that included public review, discussion, formal comment, and final approval. The codes are being prepared for publication early next year.
The 2000 International Building Code, International Residential Code, and International Fire Code were the final three codes completed at the annual conference. Previously developed codes, including the 1997 International Plumbing Code, 1998 International Mechanical Code, 1998 International Energy Conservation Code, and 1999 International Electrical Code, were updated to 2000 editions.
BOCA, ICBO, and SBCCI formed the International Code Council (ICC) in 1994 to create the single family of codes and promote code uniformity throughout the country.
Jon Traw, president of ICC, stated that accomplishing its objective “shows the commitment of the three model code groups to work together with one voice to improve public safety in the built environment through the production of a single, comprehensive, and coordinated family of model codes.”
For more information about the international codes, see the ICC Web site at www.intl code.org.