Managing Labor Related Profit Risks on Job Sites

There are dozens of issues that can eat away at profitability on a construction site. The most common and, arguably, preventable are those involving workers.

People are risky. And unpredictable. We get sick. We get hurt. And all too often, we leave other people with nothing to do, thanks to poor planning or any number of factors caused by, well, risky choices.

Keeping workers productive is critical to profitability. To better understand its impact, think of productivity as the total output per unit of input. The more you get out of a unit of input, the higher its productivity. Inefficiencies at the job site reduce output, driving productivity rates downward. And, unlike the cost of broken or failed equipment, the money lost is lost for good.

There are many reasons workers waste time. Often, they literally end up standing around. This downtime can be due to late delivery trucks, delays to refuel vehicles, unprepared job sites, equipment failure, late supervisors or coworkers – you name it. Stuff happens.

As a mechanical, electrical or plumbing contractor, you know the big delays – the ones that span hours – are relatively easy to quantify. If three workers sit for one hour at $20 per hour; well, you can do the math. And you probably have.

The problem is, much of the profit lost to worker downtime accrues in smaller increments. These can be tough to track and easy to overlook.

One study showed time lost varies by area of specialty. Electricians, for instance, typically waste around 45 minutes per day just waiting for materials, looking for things they need or waiting for other subcontractors. On average, plumbers watch more than 80 precious minutes leak away daily due to similar issues.

Those minutes add up. The larger the company, the more projects in the pipeline, the more significant the losses.

Make Your Risks Part of Your SOW.

One way to protect profits is to include some of the risky labor factors in the original scope of work (SOW). First, consider the full range of predictable issues that can impact labor productivity. Those could include:

• Site conditions
• Site access
• Weather and climate
• Seasonal changes
• Manpower and labor issues unique to the region
• Issues with local utilities
• Regulatory requirements
• The sources for materials
• Proximity to transportation and logistics

You can also make a list of the not-so-easy-to-predict factors that could affect the SOW and timeline. Granted, by nature they are unpredictable. But you can help plan labor costs by keeping issues such as these on your radar:

• Unusual weather
• Unplanned errors and omissions
• Work stoppages
• Worker attitude issues
• Behavior of an unfamiliar owner

Calculate Your Loss Before it’s a Loss.

For MEP contractors, the difference between a good year and a great year (or an average year and a lousy one) can be just a handful of jobs. It’s important to manage risks on every project and to do so at the very beginning. By conducting a robust project risk assessment during the pre-bid phase, you can create a risk register prior to placing a bid.

To keep abreast of the labor-related productivity drain throughout the year, you can simply compare the productivity of workers during a current project with a similar, previous project. Or use the Measured Mile method, which establishes a baseline to predict what labor productivity (and final labor man-hour and cost budgets) should have been had losses not occurred.

Here’s how to use the Measured Mile method:

• Calculate worker productivity over a time period in which everything is going well and there’s no impact from inefficiencies.
• Calculate productivity over the same period of time, when problems occurred and workers were inefficient.
• Subtract productivity with inefficiency from productivity with no inefficiency. That difference shows the potential productivity loss.

Embrace Technology.

But Remember the Human Factor.

The industry is embracing new technologies and processes that reduce the risk of time lost due to work productivity––or, more appropriately, lack of it. With Building Information Management (BIM), for example, MEP contractors can become involved at a relatively early stage in a project, and point out areas of concern that might otherwise lead to delays on the job site.

However, there are some people issues contractors need to also keep in mind. For one thing, there’s the matter of long workdays. To put it bluntly: they don’t work. According to research, if you work past eight hours each day or more than 40 hours per week, your productivity doesn’t go up. It drops. Pushing a group of workers beyond those levels leads to mental and physical fatigue, boosts the likelihood of mistakes or injuries and can seriously damage morale.

Of course, there are times when a job demands overtime. Just don’t make it a habit. The impact of worker fatigue becomes more dramatic as time goes on. A study by the National Electrical Contractors Association tracked a 65% decline in performance after one prolonged–16 weeks–of extended work.

And about trade stacking, which is the seemingly efficient practice of putting multiple trades in the same space at the same time. That doesn’t help productivity, either. In fact, the Mechanical Contractors Association of America (MCAA) has said that it can reduce productivity as much as 30% thanks to:

• Congestion in a relatively small area
• Tool loss or the inability to quickly find tools
• Safety hazards
• Limits to the crew size
• Increased number of visitors

It Comes Down to Management.

Experts agree that while inefficient workers are a significant risk to profits, there are a number of ways good leadership can reduce those risks.

By developing a weekly schedule, everyone involved can begin each day with the right tools, mindset, and resources. Daily huddles, kept short, keep everyone focused and on task. Also, staging the job site the night before puts the right trucks, tools, supplies, and people in place when work gets rolling again the next morning.

It’s important to involve workers in the risk-reducing process. Before the project begins, give clear directions and review areas of concern. Then include individuals in determining the most-efficient ways for them to get their jobs done.

Don’t forget to manage yourself and other leadership at the job site. Consider techniques you can implement to make the most of your time, and suggestions you can offer to others.

Oh, and stay in touch with your team. All too often contractors and supervisors become disconnected from life at a particular job site. By giving each worker a laminated card with important phone numbers, and telling them to call you when issues come up, you can keep workers working. In the end, that could have a big impact on your bottom line.