It takes a lot of building to create a building
Labor cost, we are all aware it is a big expense, but do you take the time to really understand where productivity is costing you money or jobs?
From a construction standpoint, far too often, we focus on the cost of materials, after all, it is an assembly of materials when we are done, a product, commodity, an asset. If we really look at construction, and many other industries, the cost of assembly is the real cost of construction. We, as a country, focused on this when we had assembly lines and could easily watch productivity, but it seems to get lost in construction when things are busy all around us. Construction materials account for 20-35% of the building cost the rest is direct and management labor, overhead, and profit. The effectiveness of that labor can be a major business driver since it represents a huge majority of the cost. It can’t be eliminated but good management can make it more cost-effective.
Construction materials account for 20-35% of the building cost
Processes not people, for the most part, there are some bad apples, need management. For example, I once asked a laborer to run over to the other side of the project and grab a couple of 4X4’s I had seen laying against the foundation. I neglected to mention the location of the 4X4’s assuming he would spot them. To my surprise, he returned with the project sign, which had been installed on 4x4’s. He had done exactly as I had asked, this was my fault, poor management, unclear direction. This is a simple example but can be multiplied 1,000 times over during of a job and at what cost. Ask someone to dig a ditch and don’t provide them with a shovel, poor management.
Processes start at the beginning with the end game in mind, estimating codes to a specific category which goes to project management for buy out, understand where the money is allocated, which then goes to accounting for billing and receivables, all tracked under the same code. The same thing applies to contracts, the estimate is based on a specific set of documents for a specific sum of money, vendors are purchased based on the same information and the allocated budget and the vendor now has a scope of work in alignment with the requirements of the original contract.
If the flow is not streamlined and consistent the number of man-hours spent putting the puzzle together is endless and unnecessary. Subs will arrive in the field unclear as to their role and the site superintendent will not be able to manage the project effectively. Unclear information regarding changes can lead to work needlessly completed twice. Not enough framing materials delays the framer, then the mechanical trades, drywall, etc. All over a few 2x4’s; poor process management leads to downtime, schedule impacts and loss of moral and ultimately the loss of money. If your office staff had to run to the store for paper every time they needed to run copies you would soon stock up or hire an office manager to make sure supplies were at hand, the same thing applies in the field. Materials in relation to labor costs have gotten cheaper, during the depression the reverse was true, labor was cheap, but those days are past and the focus on process and productivity at every level is the fastest way to increase profitability or be more competitive.
This is relevant for the business owner but holds true for the client with a cost-plus agreement, time is money and the pretty Gant chart on the trailer office wall, they can’t read, is how the money is to be spent. A good Construction Consultant will understand and review it fully, looking for gaps and ways to reach the end in the most productive manner possible. The Consultant is not an expense, but your project COO for improved productivity, cost analysis and advise on the best way forward.