Efficiency breeds Profitability
We are all looking for ways to make our operations more profitable. In an economy such as ours, we can basically forget about raising fees to cover those inefficiencies inherent in General Contracting. We can also forget about charging for our pre-bid services. I am so often amazed at how much time and effort we give away to clients for no cost – only to be told that our proposal for whatever reason did not contain the winning formula. Ugh!
When we can’t raise rates to cover runaway costs, we’ve got to look somewhere. As boring as this subject may be, simply streamlining processes and getting more efficient use out of our resources is the most cost effective means of quickly generating dollars to our bottom lines. Where do your jobs often go over? If you are like me, estimating portions of general conditions (such as job cleanup) is a disaster. My trouble is that I understand that at 3:00 during the week for an hour or so and on Friday everyone is cleaning up the site and prepping it for a weekend. But I also know from experience that the ”General Conditions” line item is the catch all place to code unaccounted time for the field workers. The time “Harry” is using to drive between jobs or pick up a tool from another jobsite. I am afraid to add more time to the job cost but in essence this is job specific overhead that I don’t account for enough. I know some would say (myself included) that I need to bring the hammer down on time coding, set these expectations and require follow through. Fair enough. But that is only part of the problem.
I started putting these things together and realized that, while my company is very small, having only one table saw and one miter saw was an absolute crimp on productivity. Having only one rotary hammer in the company saved me the $500 for the second one, but bred terrible inefficiencies into the workday as carpenters chased them all over town. Simple items such as this popped up all over the place, when I cared to look. Of course I worried about the cost of keeping track of and maintaining these extra items and/or loss or theft – but assigning them to a superintendent cleared that hurdle. This is just one small example of the inefficiencies that I sawbuilt into my tiny organization. I now see many more built into much larger ones.
We have to think of our organizations as an organism. One in which several different locations depend on the home office to coordinate logistics. Make time to ask your staff what inefficiencies they see. (Remember payday Fridays before direct deposit when staff had to go to the bank??) Note what things are inefficient in your day, from stopping to pick up coffee with the line around the block at the local coffee shop to answering each and every call as it comes in instead of screening them. Items such as these affect the small contractor and the large organization tasked with multiple projects in multiple locations. The list could take up much more time than allotted on a blog. But remember that efficiency breeds time savings, which begets more profitability without raising costs. These small items often help us to uncover larger issues, and it is there that real savings can occur. Sometimes we have to take the “aerial” view of our companies to get a grasp on our major processes. Other times we need to dig into the minor processes and see where we can become more efficient with our resources.
Tags: efficiency, Management, profitability
February 13th, 2009 at 5:15 pm
Increasing productivity is how we’re trying to increase our profitability…and we’re doing so by updating some of our production equipment. I think that sometimes finding and fixing the “little inefficiencies” ends up being more difficult than fixing the larger ones.
http://www.deluxebuildingsystems.com/blog/2008/07/putting-it-all-on-line-automating-for.html
February 16th, 2009 at 12:42 pm
Thanks for your comments, Rachel. Increasing productivity through efficiency gains is the way to go. I will agree in larger organizations – or those such as yours that have more of a “manufacturing” component to them, small issues might not be where the dollars are at. But it can never hurt to streamline processes and determine where all the “sham” time comes from. From a management perspective, I worry as much about downtime from inefficiencies from a production standpoint as well as cost coding. I depend on accurate time and cost entry to measure our unit costs against and see if they are accurate. All in all, the more we can streamline and plan our projects so folks aren’t driving all over town or waiting days or weeks for subcontractors is time well spent.
I like to soapox on the premise that the most efficient and cost effective streamlining practice is proper project planning and scheduling, which many of us simply do not do well enough.
April 14th, 2009 at 7:15 pm
Great post. When I was working as a project manager the owner of the company I worked for came to me and described how he wanted the company to succeed. He said” We need to be good builders, we need to do it right the first time and we need to do it quickly without hurrying” I think that’s what your talking about and I think it’s the way to go.
April 15th, 2009 at 9:30 am
“Quickly without hurrying” is a great byline, John. In an era when sales price pressures continue to pound at contractors, the surest method of maintaining profitability is through better use and efficiency of current assets. A simple metric could be gross revenue divided by the # of employees to develop an efficiency ratio. (One could easily use gross or net profit instead of revenue – your choice)
The idea is to develop a baseline that one can use in future years, especially since types of contractors differ in the margins that they make. The key is to implement the best product, wrapped in stellar customer service, as efficiently as possible. The owner of your former company said the same things in many fewer words than I did. I am shocked at how few contractors actually have a handle on their revenue per employee targets.
Thanks for your thoughts.