One afternoon years ago, I was working as the CFO for our concrete construction company just sitting in the office fulfilling my duties and I got this idea to play a prank on the field supervision. This was long before we had smart phones or the internet. The technology was PAGERS! Yes, you had finally made it to management if you got to wear one of these high-tech devices on your belt. Well, the prank I came up with was sending a pager message to all the superintendents/foremen using a new feature called group messaging and it read as follows:
Cellular One is having a contest!
If you can unscramble the following word:
You will win 50 bucks!
Within a short time, the calls started coming in. They had correctly guessed the answer. I told them I was unaware of any contest and they proceeded to call the carrier of the pagers and shortly discovered they had been pranked.
I’ve never been forgiven for that prank, but it did open our eyes to how effective incentives could be. With the right measuring system, we could create focus on the drivers of profit by using incentives. Over the years, we tried and failed with many ideas but the one that finally found success was PCBucks named after our company Precision Concrete. You can click the link to read a detailed article describing how it worked. We found that the less subjective it was and the more it was based on facts, the more positive the results. The facts were based on the collection of four data points, as follows;
- Estimated Quantity (Every cost code needs a unit of measure – square feet, linear feet, tons, weeks, etc.)
- Estimated Man Hours
- Actual to Date Quantity
- Actual to Date Man Hours
With the collection of these data points the following calculations will give you the running production;
- Divide the Estimated Quantity by the Estimated Man Hours = Estimated Production
- Divide the Actual Quantity by the Actual Man Hours = Actual to Date Production
The difference between these two production numbers is how far off we are in accomplishing our goals. Most construction accounting systems have these data points built into them. But of the four data points the quantities are rarely used. If you are not using them you should consider building them into your daily processes. An incentive plan that’s based on these facts will give you a competitive edge that very few in the construction industry realize. The difficulty is getting an estimate on every cost/phase code including hours and quantity. This would include your overhead codes like supervision, layout, mobilization, and so on.
With any incentive, the goal is to collect accurate information so be careful on how you incentivize. Many times, an incentive can drive people to falsely report data just to hit incentives. Balancing the incentive across all cost/phase codes of a job or project is one way to ensure factual reporting. Remember that the data being collected will be used for future bids that can establish realistic goals from these historical performances. Another key item is that you need to provide daily feedback of the numbers so they can see them and make decisions from them.
The greatest impact seen from production measurements was crew size. Before we started this, supervisors or foremen were always asking for additional men on their crews each day. With production rates the concept of how much more quantity had to be completed with each additional man added was introduced (see figure below). Many times, the need was not there and the labor savings from our first year was remarkable!
What I have learned is that it’s a journey in building a culture that has this kind of focus. I guarantee once you start, you will see the financial benefits and more importantly the reduction of risk in growing your business.
Thank you for reading and if you know the scrambled word please comment below!