Financial awareness for employees
IF YOU THINK THAT IT IS ENOUGH for you and your managers to understand your cost structure and financial statements, then you may want to consider sharing this information with your entire staff. Most employees have no idea how profitable an electrical contracting company is, how wasted time accumulates and affects the profit, or what they really cost their company. If employees appear cavalier about an extended bathroom break, waste supplies or are too casual about maintaining tools and equipment, it might be the result of ignorance rather than apathy.
It may surprise you to learn that many employees think electrical contracting is a highly profitable venture. For that matter, so do many customers. As a contractor, I found that our tradespeople lacked the simplest understanding of how the cost of their labor and material use translated to the cost of finished products. Their concept of their cost to the company was based on the net amount of their paychecks, not the total impact of their compensation package. I expected them to care about productivity and profitability, while most of the pertinent information remained hidden from them.
Sharing a few pieces of financial information caused a company-wide shift in awareness and attitude. Without spending a great deal of time or money, we showed each of them how much they actually cost the company, gave them simple examples of how cost decisions were analyzed, and made sure they understood how basic financial statements were generated.
For a union employer, exposing any part of our cost structure was unsettling, since the traditional adversarial relationship necessitated secrecy. Revealing any part of our financial status had the potential to weaken our position in future contract negotiations, so we started with a simple annual report given to each individual employee, showing our total investment in compensation. Each individual report provided not only net pay but also the taxes, matching FICA, health and other benefits costs. It also included “invisible” financial impacts from paid vacation, training on company time and overhead allocation.
Another opportunity resulted from a decision to outsource a particular assembly we had previously made in-house. Our tradespeople were astounded to see the figures showing what it cost us to do the work compared to the supplier price we would be paying. Instead of hearing complaints about taking work away from them, we were able to reinvest the savings into areas that directly benefited them.
The half hour it took to present this example also produced a snowball effect. Tradespeople who had previously been reluctant to offer suggestions about fieldwork were motivated to find ways to free up more cash to provide other rewards to them. Our tradespeople became a larger part of our initial plan review and helped improve the accuracy of our estimating as well as our ability to offer value-added improvements to the design on most projects.
Reviewing and debriefing jobs is another way to educate employees, especially regarding the impact of errors and rework. The cost of rework is usually obvious, but often field people, and even supervisors and project managers, fail to consider the true costs involved. They need to understand that the total cost includes the original work, the tear out, the rework and opportunity cost (failure to use the time to perform other jobs). Even the affect on morale and productivity that results from fixing mistakes—especially if they are someone else’s—is a factor, so the true cost of errors can be four or five times the original project cost of the work.
Providing some basic training in reading financial statements does not require you to open your books to every employee. A neutral example using a “typical” electrical contracting company is sufficient to make the point. Sharing financial information on a small scale—as well as creating a total work force with the financial sophistication to understand basic financial statements—opens channels of communication. Employees gain ownership in the success of the company, become more aware of how small inefficiencies add up over time and are better able to understand the larger view of how management makes decisions.
When my father first told me that he had calculated the cost of a tradesman’s two-minute bathroom break at $2, I was amazed, not only that he had thought to do this, but that he had not shared the information. Most of his workers probably never considered this cost, much less the significant impact of these unscheduled breaks over the course of a year. Many employers believe their workers know and simply do not care. We found out differently.
It will shock most of your employees to realize how thin profit margins can be, how much you actually invest in them, and how their actions and errors affect the total financial health of the business. At the very least, sharing financial information will make everyone more appreciative of the complexity of financial decisions. At best, the entire culture of your company will change. EC
NORBERG-JOHNSON is a former subcontractor and past president of two national construction associations. She may be reached via e-mail at firstname.lastname@example.org.