Customers are placing a higher priority on time than money, and it seems that nearly all projects are now “fast track.” Managing money is easier than managing time, and every electrical contracting company struggles with waste, inaccurate records, or even time theft. You can tolerate lost time—or look for ways to decrease the waste.
Start with the source documents in your accounting system. What kinds of errors are you looking for in your job-cost reports? The most common are allocating time to the wrong job, burying wasted time and postponing recordkeeping.
Is your reporting system outdated and clumsy? Can time records be submitted electronically, or does each electrician handwrite the card, call in the weekly time, and have it keystroked by the support staff? Magnetic encoding that transfers information instantly and accurately to computerized accounting systems will reduce errors and overhead costs enough to pay for your investment in such a system.
On most projects, the variance between budgeted and actual material costs is less than 5 percent. Labor cost determines project profitability. Remember that labor costs are recorded by people who want to do electrical work, not paperwork.
It is difficult to tell whether errors are accidental, or deliberate attempts to hide information. Time slippage may be caused by the employee, or by someone else. But time theft is on the increase, and it is no different from stealing materials or cash.
Reducing wasted time requires awareness, arithmetic and attitude. You must identify the pattern of wasted time, demonstrate how it translates into lost dollars, and get employees to care enough to improve.
Productivity studies in construction have shown that as much as 30 to 50 percent of field time is non-productive. The two main causes are waiting (for instructions, clarifications, materials, equipment and access), and slippage in break time (including late starts and early quits). Each of these can comprise 25 percent of the work day. Start tracking “wait time,” and have someone walk around occasionally with a stopwatch and clipboard, taking notes.
Once you have an idea how much time is being wasted, translate that into the sales dollars required to make up for it. Here’s a simple formula: (Lost Time x Labor Cost)/Net Profit = Sales Needed to Recover Cost of Lost Time.
For example, you have a crew of 10 people, and each one wastes 5 minutes per day.
o 10 people @ 5 minutes = 50 minutes/day (.833 hours)
o .833 hours/day x 5 days = 4.165 hours/week
o 4.165 hours/week x 50 average weeks per year = 208.25 hours per year
o 208.25 hours per year @$60/hour = $12,495 in lost dollars
If your net profit is 2 percent, then $12,495/.02 = $624,750 in sales revenue the company needs to make up for the lost time. You can do the same for a ruined tool, a postage stamp or a salaried estimator. The “carrying cost” in sales dollars is a real eye-opener for most employees.
Another timewaster is unnecessary material handling. Ideally, material would be shipped directly to the job site, unloaded adjacent to the installation area, and immediately installed.
Track the cost of unloading, warehousing, delivery to the site, storage, transfer to the installation area, and retransfer when customers change your work flow, and the waste is obvious. Material is handled an average of 3.2 times. Even small improvements, such as just-in-time delivery directly to the site, or negotiating more convenient storage areas, will save money.
For example, your sales revenue for the year is $3 million, and your labor cost is 45 percent of that, or $1.35 million. Your net profit is 2 percent, or $60,000. A 1-percent labor savings in material handling equals $13,500. That increases net profit by 22.5 percent ($13,500/$60,000) to $73,500, or 2.45 percent of sales!
Most of the improvements in productivity result from identifying and removing waste, so your employees must want to be more efficient, and know how to improve. The primary influences on employee attitudes include:
o Believing their work and opinions matter
o Having a stake in a successful result
o Being part of the team
o Receiving rewards for performance
Show people how the value of their time affects the company’s future, and reward them for suggesting ways to improve. You will see a reduction in wasted time.
Now, what about the time thieves? You get the behavior you tolerate, so take a hard look at where you’ve set the bar, and raise it. Get rid of those who won’t make the effort to jump a little higher. Then you’re free to enjoy watching small savings turn into larger profits, and reward the un-apathetic majority for their efforts. EC
NORBERG-JOHNSON is a former subcontractor and past president of two national construction associations. She may be reached at email@example.com.