Often I work with a contractor who does a lot best-in-class work, but the company's profits don't seem to rise above the average. I hear a certain level of frustration as he tells me of success at selling the company as a value-added contractor. They negotiate a substantial share of their work; hire, train, and retain hardworking field employees; develop and communicate a sound business strategy; and have effective safety programs. In short, they score high in almost every measurable area. What is often missing, however, is the critical need to train field managers on the economics of the construction business. What is missing is productivity awareness—an understanding of how productivity affects the profitability of every project—and working smarter rather than harder.
For years, FMI has surveyed field managers to learn their estimate of their company's profitability. The answers are usually largely over-estimated. While field managers or superintendents do not have to know specifically how your company is performing, they must understand just how low the profits are in this industry and some of the basic factors that affect profitability. Try the following exercise: Ask one of your field managers to consider the impact that each of the following changes will have on the basic income statement for “Typical Contracting Company.”
- How does a 10% improvement in labor productivity impact net profit?
- What happens to net profit if overhead decreases by 10%?
- What happens to net profit if sales increase 10%?
- What happens to net profit if labor productivity decreases 10%?
Once your field managers understand the bottom-line impact of improving labor productivity, ask them to help develop and implement productivity improvement processes. Work with them to develop a time frame and schedule for implementing these processes and remove the inevitable roadblocks. Instill productivity awareness into every aspect of the company culture. Educating field managers is not enough; top management must commit for the long term and must drive these changes throughout the firm.
Help your field managers develop the habits followed by the most productive companies:
Involvement in pre-job planning—The single biggest opportunity to impact productivity is before the job begins. Require a pre-job planning checklist that covers all key areas and discuss any undocumented requirements. Field manager and estimator must discuss the approach that was considered when the estimate was created.
Documenting and communicating a short interval or weekly plan—This is the key to minimizing resource-related delays. The more the project is likely to change, the more important the plan becomes.
Conducting a daily huddle to set production goals and solicit opportunities for improvement from the crew—Three to five minutes of planning and communicating with the crew at the beginning of every day ensures that the team knows what is expected. Involvement in setting targets helps ensure buy-in to actually achieve the goal. The field manager's No. 1 priority must be to ensure that every person on every crew knows what is expected every day.
Communicating and sharing accurate performance or production feedback with his or her crew—Everyone has a desire to “light up the scoreboard.” Sharing performance against goals allows the crew that opportunity. Remember to keep it simple and easy to understand. Use charts and graphs that clearly display the crew's performance.
Report accurate cost information back to the office —The first step in determining the job status includes daily reports (such as timesheets and productivity logs). The reports must be legible, complete, and accurate. Field managers must understand that accurate cost information from today's job is essential to winning profitable work in the future.
While, these few habits alone will not ensure productivity, they are a few of the more important characteristics of the highly effective field manager. This is the foundation for improving field productivity, and it is the key to unlocking profit for any labor-intensive contractor. Contrary to popular belief, the key to unlocking profits through productivity improvements is an understanding by top management that this is an important management and leadership issue. Cultural change for improving productivity requires a formal approach in order to achieve a sustainable advantage and higher profits.
—Brian Moore is a senior consultant with FMI. He can be reached at 919-785-9269 or by e-mail at email@example.com