This is a pretty common question that we hear frequently and I just heard it again last week.  We are big fans of knowing daily and weekly production rates so that action can actually be taken. 

If you can’t identify a problem immediately there is little chance of actually fixing it before the financial damage is already done. 

The next thing that comes up is that comes up is:  “Our projects perform within budgets consistently – isn’t that enough?”

Again, our answer is relatively simple here – probably more of a format of answering a question with a question:  “You are making your budgets; that is fantastic!  Are you sure that you are making as much money as you can on your projects and it is not that your budgets are just on the conservative side?”

Anyone who has come from the field and has taken an honest, objective look at field knows that there is a very wide variation between “peak production” days and other days. 

Some will consider this “just a fact” of construction but I prefer to think about the opportunity.

If you can limit the deviation between best and worst production days, share best-practices and increase average productivity just slightly then you have the ability to substantially change the profitability and competitiveness of a construction company. 

We start getting people to focus on production by discussing the four “Profit Levers” that are factors in job costs.  A common theme that comes up when talking to project teams throughout the country is that they think and talk about job costs and budgets in relatively simple terms.  

Accounting programs support this thinking by reporting on costs versus budgets and highlighting variances – that is the end result but if you don’t focus on the individual drivers in a timely manner you can’t ever hope for much improvement. 

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Method:  The method chosen for installation – for example, when trenching you could choose benching, sloping or using shoring.  You may also choose a trenchless (directional drilling) installation.  Each method has different production levels and costs associated with it.  During the estimating phase specific installation methods are chosen for each activity.  During the pre-planning of the project adjustments to these methods may be made.  Production target rates and the project budget are based on the method.  Changing methods may lower or increase costs but a change in method should not be considered the same as a production increase or decrease. 

Procurement:  The amount actually paid for a product or service.  Getting pipe for $2.50 per foot versus $3.10 per foot is an example of procurement management.  Average labor cost increases or decreases are also examples of procurement.  Though these will lower costs they are distinct from quantity or production variables.  Even if the procurement leads to securing a piece of equipment cheaper than estimated this is still not considered a production management item. 

Quantity:  This is a huge variable and feedback to the estimator is very important because variations have big effects on profitability but are also relatively simple to fix through take-off methods.  It is very dangerous to lump quantity into production.  These are two very distinct parts of the estimate process and feedback must come back separately in order to truly refine the process.  The key is looking at a task and figuring out a common unit to view as a quantity.  For some tasks such as trenching this may be simple (linear feet) but for other tasks such as electrical branch rough-in this may be more challenging because of all the different sizes and types of conduit involved.  It is on these tasks that are more difficult (such as electrical branch) that it is even more likely that the quantity take-off process can be refined to be more in-sync with operations. 

Production:  The actual rate a crew produces at.  For example getting a backhoe crew to completely install 300 feet of 4” sewer laterals in an 8 hour day is better than having the same crew installing 250 feet in the same 8 hour day.  There are a lot of variables involved in making this comparison so it is important to eliminate as many variables as possible.  The first variable we eliminate is cost variations by establishing average labor and equipment rates based on the estimate and inclusive of a standard mobilization charge spread over 5 days.  Whether this cost number is a little high or a little low it will allow comparison between days.  The second major variable is in the work complexity.  The laterals on one day may be deeper, shorter or the ground may be harder than those done on the next day.  Production tracking is the most challenging of the variables but also the one with the biggest opportunity for increased profitability (or losses.) 

When systems are put in place to monitor each of these variables separately and when your project team starts discussing these four profit levers while pre-planning the project, during construction and in the post-job review your overall profitability will increase significantly. 

Since field productivity is the biggest variable cost for contractors we will dive into these even more in future posts.  As always if you have any questions you would like addressed in future posts please email david@dbrownmanagement.com. 

This is a pretty common question that we hear frequently and I just heard it again last week. 

We are big fans of knowing daily and weekly production rates so that action can actually be taken. 

Tags: construction, job costs, productivity

This entry was posted on Monday, September 15th, 2008 at 12:00 pm and is filed under David Brown Blog. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.