Knowing how to effectively calculate man-hour productivity rates is a key factor in accurate cost estimates, here's a few tips...
In construction, measuring productivity can be a challenge. After all, it’s sometimes difficult to determine how much an employee or team can get done within a given time. While it’s easy to say that an ideal hour should accomplish a given amount of work, there are many factors which can cause varied results. For instance, bad weather can make putting on a roof more difficult, and freezing weather sometimes makes you postpone pouring the foundation. Fortunately, there are still ways to estimate both man-hours and the productivity of those man-hours. In a nutshell, you must first determine how long it will take. Then, you need to extract the value per hour.
Arguably, calculating the time needed for a task can be a challenge. Especially if you’re a beginning contractor, you might be used to sending out a crew with the intention of getting certain things done. Then, you find out at day’s end what was actually accomplished. Unfortunately, this is a very rough way of estimating man hours, and it can cause you to lose a lot of money. Here are some tips for calculating the necessary hours.
Before sending in an estimate or conducting an analysis, you need to determine how many man-hours are required to complete the task. In this case, total man-hours is the number of hours you are paying employees or contractors to work on the project. So, if you are building a deck and it will take a crew of three workers twelve hours total, then you are paying 36 man-hours.
Generally speaking, there are several ways to get a close estimate of necessary man-hours. If you have been in business long enough, and have completed similar projects before, then timecards are your best friend. To use timecards, take a look at your payroll records. The last time your crew built a deck, how many hours did you pay for? If conditions are similar, then past performance is a great indicator. If the project will be more difficult this time, then add extra.
Another source of data for expected man-hours is industry publications. Each year, contractor’s associations publish books with up-to-date construction data. Chances are that you can find one which gives the expected completion time for each type of task. Regional differences are noted, as well. This data is typically in man-hours already.
If you want even more localized data, talk to other contractors or the local construction industry associations. This will give you word-of-mouth information that is more recent. In other words, if a hurricane has hit the area and now the local dirt is harder to excavate than usual, this information will be reflected. They’ll also tell you if government regulations are affecting work time before this shows in publications.
Now that you have a preliminary man-hour total, it’s time to make some adjustments. Arguably, the biggest factor in overall efficiency is crew experience. Ask yourself: Based on crew experience while working with your company, as well as prior experience, how often have they done each task? As the saying goes, practice makes perfect. This translates into your employee being able to do something faster and more accurately. In concrete terms, if the crew you will send to build a deck has done it ten times before, then they will do it more quickly than if it’s their first time.
Of course, there’s a good chance you will have a mixture of experience levels on your team. The foreman might have built ten decks and is supervising a new hire that’s never done it. If you have a third person who has built more decks than the new hire but fewer than the foreman, then you’ll have an independent worker who can keep things going while the foreman supervises the rookie.
All of this is to say that you ultimately will need to adjust for experience level and workload. When adding the levels together, you will get a total number of man-hours that is more accurate than before. If you are doing a performance review in addition to the estimate or takeoff, then individual numbers matter more.
Finally, you need to consider man-hours that are expended in other areas of the worksite or your business in general. For instance, most larger contractors will have some office staff that complete clerical jobs. Some of them might draw up estimates, others answer the phone or complete payroll. In addition, you may have different worksite supervision requirements. For instance, you might have a member of the crew who is in training. Here, there will be a lot of supervisor time required. Or, someone might have to ensure that a gated community will let your crew in. All of these tasks add up.
While estimates should always leave room for adjustments, you need the numbers to be close. Clients get upset when there are cost overruns or major production delays. Cost overruns can be caused by mundane items like defective parts, which would then have to be replaced. Or, a member of the team winds up sick or injured, which can force everyone else to work longer hours. Storms and other poor weather conditions can force your crew to sit in the truck for a while, or even cause them to clock out early.
In order to account for these differentials, you’ll need to add a percentage of man-hours for contingencies. On estimates, these should be listed as such. Production schedules also need to have extra time built in for the unexpected. This way, everyone is prepared for things to go differently than planned. You’ll lose some productivity numbers in the short term but doing better than expected is always nice.
Once you have determined the man-hours needed to complete a project, it’s time to calculate their productivity. In this case, we’re defining productivity as the amount of monetary value produced by each hour of work. Fortunately, this is somewhat easier to do than calculating the base man-hours, but you must take everything into account.
Depending on the construction schedule and other factors, it might be necessary to pay overtime. In most situations, the cash cost of overtime is 1.5 times the worker’s pay. Generally, you’ll want to pass this cost on to your customer, but in a few situations this might not be possible. In particular, warranty work or fixing a mistake can cost you. Dealing with the aftereffects of a downpour or late delivery can be passed on to the client.
Another consideration is what experts call the “labor burden.” These are expenses related to having an employee that aren’t paid directly to your laborers. Labor burden, therefore, include payroll and FICA taxes, unemployment insurance, workman’s compensation, liability insurance, PPE, uniforms, and benefits. While some costs are required by law, others are determined by your business policies and local conditions. They might also vary from one employee to another depending on tenure or level of expertise.
Knowing your labor burden is important to calculating both your labor costs and man-hour productivity. This is because you need to add that money to your costs. To do this, add up all of the expenses for this employee. Ideally, you will do this on an annual basis at first. Then, you will divide it by the number of hours each employee works during the year. Finally, add the hourly labor burden to your hourly wages to get the total cost of each man-hour.
Finally, we can determine the value of each man-hour. Man-hour productivity is the amount of work done over the course of each paid hour compared to how much it costs. Let’s go back to the deck project at the beginning of this article. Takeoff estimates determined that 36 man-hours would be needed to complete the project. If each man-hour costs $30, then your labor cost is $1,080. Assuming that the materials costs are the same, you’re spending $2,160 to build the deck. On an hourly basis, the work is costing $60 per man hour.
Now that you have a complete cost of each man-hour, it’s time to consider the value of the work. With an overall markup of 10%, you are billing the client $66 per hour. This means that your project is profitable for the company, with a productivity rate of 110%. In construction, this is a relatively healthy number because profit margins are often thin. However, it’s also a number which you can manipulate by hiring more efficient employees or saving cash on materials.
Especially if you are a new general contractor, calculating man-hour productivity can seem daunting. However, it is a critical method of figuring out if your business is going to be profitable. In addition, you can use productivity rates to determine which employees are more efficient than others. Over time, making these calculations will come naturally.