by Tim Ayler, CPA | Partner, Director of the Construction Services Group

How did this happen? Bob the Builder just wrapped up a $1,000,000 construction job, and realized that his job netted a profit of just $10,000, or 1%!

Assuming Bob the Builder’s labor costs were about 40 cents of every dollar of revenue on the job mentioned above, did you know that if he could have found a way to increase his employees’ labor productivity by just 5%, thus lowering his labor costs, he would have tripled his net profit amount? Not all factors affecting job productivity can be controlled, such as weather, but the following are just a few ways in which you can improve the productivity on your jobs.

1. Determine what factors you can control to improve productivity. Some of the factors that lower productivity are employees waiting around for materials or instructions, employees taking extended lunches, wasting materials, accidents that could have been avoided, time spent resolving punch list items or re-doing work and the double-handling of materials. Focus in on just one or two factors that may be affecting your jobs and determine how you can track their occurrences and reduce them. Some methods of eliminating these problems may be increasing your training or better monitoring your field employees.
2. Keeping up-to-date job cost schedules is important in measuring job profitability, but you should also determine a practical way to calculate job productivity, such as feet of pipe placed per person hour, concrete blocks per person hour or revenue dollar per person/equipment hour and compare this amount to your budgeted amounts on a weekly or even daily basis. Tracking the productivity of your labor force and equipment per job on an on-going basis will enable you to spot variances from your actual to budgeted production output. Reviewing the variations will help you determine whether there is a problem so that it can be fixed before it is too late. Communication between the project managers and the accounting department, such as in weekly meetings, is vital to performing this analysis and resolving any problems that may be discovered.
3. Once you have determined how best to measure productivity, create written procedures for the project managers and accounting staff to track and communicate productivity for each job as it is in process. You may even find it helpful to reward your employees for following the proper procedures.

It will not happen overnight, but remember that just a slight increase in job productivity can lead to a large increase in job profitability.

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