Labor costs are a large portion of the budget on construction projects. No matter how good your crew is, large construction projects seem to deliberately find ways to spawn inefficiency. You need to know how that inefficiency impacts labor productivity and be able to document it and plan for it in order to succeed in this industry.
Productivity is defined as the rate at which work is performed. It is the total output per unit per unit of total input. How much comes out of what you put in? The more you can get out of a unit of input, the higher productivity will be.
In construction, you measure this as the cost of labor or man-hours, and the “units” are weight, length, or volume.
Inefficiencies within the project can add up to billions of dollars; it is crucial to consider and track labor factors in the original scope of work (SOW) as completely and accurately as possible.
Predictable conditions impacting scope of work and timelines
Some factors are predictable:
- Site conditions – includes soil, drainage, etc.
- Prevailing weather conditions
- Seasonal changes
- Manpower and labor conditions in a specific region
- Site access
- Source of utilities
- Regulatory requirements
- Materials sources
- Proximity to transportation and logistics
We live and work in a dynamic world; not everything can be foreseen. From unusual weather to unplanned errors and omissions, work stoppages to worker attitude, none of these can be predicted with any accuracy.
Something, or rather, someone who can cause unpredictable delays is the owner. Unless you have worked with an owner in the past, there is little way of knowing what may be changed in midstream.
Determining and documenting the amount of inefficiency occurring during the course of construction can minimize the financial loss created by labor and material cost overruns. You can try to see ahead of time by comparing this new project with a similar project you have done before. A better way is a common method called the Measured Mile.
The Measured Mile doesn’t compare the current project to a past one; it uses efficiency established entirely within the current project.
You determine the productivity over a time period where there was no impact from inefficiency. Then you calculate efficiency over the same amount of time where inefficiencies were experienced. Subtract productivity with inefficiency from productivity with no inefficiency; use the difference to show loss.
Other ways to measure include, as we said before, by comparing the upcoming project with a past one or to other, similar projects. Other ways to measure include:
- Comparison of actual productivity to your bid, estimate, and plan
- Using published inefficiency factors or studies from the Bureau of Labor Statistics or a business roundtable. Industry associations often have inefficiency measures
- Practical exercises and case studies
Build an inefficiency table using authoritative sources and use it for planning and to support or defend construction claims from delays.
Typical loss claims
The Independent Project Analysis Group found an average of over 35% of all construction projects will experience a major change that can translate into a negative productivity impact. This group found that:
- 25% of all considered projects will slip by over 20%
- 25% of all projects grow past scope in the field by over 30%
To make matters worse, owners will often insist on the completion date originally contracted despite changes and added scope. The need for added materials, imposition of new or larger constraints, increased man-hours, and other needs caused by a change order is not taken into consideration. In the meantime, the project sequence, duration, and scheduling of work packages is wrecked.
Labor impacts on efficiency
Labor has a huge impact on efficiency. There is a long list of issues that can occur to make the labor situation inefficient.
Extended work days or weeks don’t increase productivity. Studies have shown that when someone must work past eight hours a day or routinely puts in more than a 40 hour week, he becomes less productive. Continuously requiring overtime causes both physical fatigue and poor attitude. Morale goes into the dumpster.
An NECA study showed a 65% decline in performance after 16 weeks of extended work.
It may seem more efficient to have different trades work at the same time but if not well planned can result in lower productivity instead due to:
- Congestion within a physically limited space
- Increased tool loss or the inability to quickly find tools
- Additional safety hazards
- Prevention of optimal crew size
- Increased number of visitors to the area
The MCAA Labor Factor table shows that trade stacking can have a 10% to 30% impact on productivity.
Joint occupancy and beneficial occupancy is much like trade stacking and can cause many of the same problems as can concurrent operations. In addition, these practices can come with additional restraints such as noise limitations, dust mitigation, and increased hazardous risk. Access is often more highly restricted.
Absenteeism, turnover, mobilization/demobilization, late crew build-up
Absenteeism and turnover are often the result of poor working conditions, including excessive overtime and extreme weather. Awaiting replacements and getting them up to speed can take its toll on productivity typically four days of lost work per worker.
Mobilization and demobilization cause disruption to the workflow through moving materials and people. Reassigning crew to different areas can have the same effect as can breaks for holidays, work stoppages, and other breaks in the schedule.
Late crew build-up can have an impact on productivity in excess of 10%. If labor is scarce or there is some other shortage of resources, you could have problems finding all the workers you need. On the other hand, you don’t want to overman and create cost overruns by hiring ahead of time. It’s a balancing act in these situations.
Also, more crew does not automatically mean higher productivity. Crowded working conditions and limited tools and equipment can negate any expected boost.
Through no fault of your crew, productivity can be thrown off because of poor material handling or procurement practices. You have no control of owner furnished materials which can also create disruptions. When daylight hours are reduced, poor logistics just piles on another delay.
The MCAA Table of Labor Productivity factors shows logistics has the biggest potential impact on productivity, as much as 50% or more.
To recoup losses from inefficiency caused by change orders and other owner-caused delays, you need to be able to prove the inefficiency occurred.
- Establish two things. Both must be established, not just one or the other:
- Establish entitlement: does the contract support the recovery of additional costs due to owner directed change?
- Establish direct cause and effect relationships between the change and the reported inefficiency.
- Measure the impact using a method such as Measured Mile.
- Quantify the damages: how much more did it cost than the agreed amount?
To do this, it is critical to keep meticulous records.
Labor productivity is the linchpin of a profitable construction company. By understanding the effects of labor practices on workers and documenting owner caused delays, you can avoid many of the cost overruns that have pushed others out of business.