Productivity Equals Profit

In today’s stressed-out economy, contractors bid work very competitively, resulting in low profit margins. It’s a risky strategy because small problems on a jobsite can wipe out whatever profits there might have been. Material costs are close to the same for everyone so productivity in the office and field is what differentiates one company from another.

As owners get ever lower prices for their projects, contractors must find ways to improve productivity to gain a little profit. Bill Klorman, president of Klorman Construction, Woodland Hills, Calif., says, “Creating as little as 0.25% additional profit on a multimillion dollar project by increasing productivity a little can become a substantial amount of money—maybe the only profit you will realize.” In the field, productivity rests in the hands of your supervisors. In the office, the focus on productivity involves better planning, moving cost accounting in the direction of real-time costing, and using the latest technologies to increase efficiency.

Productivity defined

First, let’s talk about what productivity is not: It’s not dollars but rather hours. It’s focused completely on the time spent by a worker or crew to perform a task. High productivity is not necessarily even profitable. Productivity is simply units of output per person hour of input. That could be cubic yards of concrete placed per hour or square feet of finished flatwork per hour. So if you bought an expensive laser screed and used it to place driveways, you could achieve high productivity and still go broke paying for the machine.

“There are two ways concrete contractors can make money,” says Jim Adrian, professor in civil engineering and construction at Bradley University, Peoria, Ill., president of Adrian International, and one of the World of Concrete’s most popular speakers on productivity. “One is being more efficient with labor and the other is being more efficient with equipment. Our industry is one of taking labor and equipment and turning material into a different form, such as concrete buildings or concrete roads. So we are manufacturers of a product and manufacturers have two tools to use: labor and equipment. So if they are more efficient with equipment it will improve productivity, but the equipment isn’t directly in the equation.”

So productivity is labor, but not necessarily a single person. Productivity can be measured for one worker, a crew, or for the whole company or project. The most revealing measure for a concrete contractor, though, is probably a crew of 5 to 10 workers and a supervisor.

Controlling productivity

There are three primary categories that dictate productivity on a project or for a crew, according to Adrian.

Within each of these categories, there are many individual decisions that can impact productivity, but the No. 1 thing the contractor can control is his own actions.

“The profits or losses of concrete contractors are made in the field,” says Adrian. “It’s the supervisor out there running a productive crew, in my opinion based on working with hundreds of contractors. I hold out that weather doesn’t dictate your profits, designers don’t dictate your profits, labor unions don’t dictate your profits. Your supervisor dictates your profits. The biggest overruns or under-runs are in the action or nonaction of the supervisor.”

Productivity in the office

Gains can be made in an office environment where focus is placed on better planning, improved accounting, and technology that increases efficiency.

Office staff. Increased stress is more common among office personnel now, especially when company profits are low. People worry about layoffs and struggle under the weight of increased responsibilities. However, most contractors have fewer projects in progress at any one time, so less help is needed. Klorman thinks it’s important to bolster staff morale; they are worn out and stressed about expectations.

Estimating. Bidding projects based on low-bid is risky because many profit items are given away. More attention must be given to the estimating process and many companies are increasing their estimating departments. Greater emphasis on extracting cost accounting information can improve estimating. The goal is to provide productivity numbers as close to real-time as possible to improve estimating accuracy. In this, consistency may be more important than higher productivity numbers.

Companies that use building information modeling (BIM) software selectively develop project models to assist them with estimating and selling the job to owners. Klorman, who might be more devoted to BIM than any other concrete contractor in the U.S., says whenever possible it conducts BIM presentations to impress owners with how much thought they have given their projects. This also gives owners a first look at what the building looks like inside and out. “As a result, we occasionally get the job,” he adds.

Although BIM plays a role, there are reasons it’s not getting rapidly adopted by contractors (see “Pushing the Technology Envelope,” October 2011 CC). “BIM and administrative efficiency are good and necessary,” says Adrian. “BIM has a lot of positives in coordinating the design and construction, and results in fewer conflicts between parties. But that’s going to ultimately help the project’s owner more than the contractor because any savings from fewer conflicts go to the project owner. For the concrete contractor, fewer conflicts help them plan better, but in terms of productivity, the difference between a good job and a bad job when it comes to concrete is still a field operation.”

Cost accounting and cost control. Most software companies are developing apps, allowing jobsite personnel direct access to log labor hours and other jobsite expenses. Cell phone apps can do the input work, alleviating the need for computers on the jobsite. The ultimate goal is real-time jobsite informtion shared with the office.

External factors

Unexpected events can indeed have a big impact on productivity—weather, union issues, and even lack of response by the designer. The nature of concrete construction leaves it susceptible to damage from temperature extremes and rain, resulting in extra work for protection and reduced productivity.

“But the things a contractor can do to control these factors is to better plan and schedule,” says Adrian. “Sure he doesn’t know for sure if it’s going to rain but he can certainly plan, schedule, and forecast when there is likely to be bad weather. You have to make sure you have interior or dry work in the winter and outside work in the summer. You can’t control the weather, but you can plan and then revise your plans.

“One of my concepts in planning is that you need to shorten the cycle of planning because if you plan a month ahead, weather patterns can change. You need to shorten the fuse so you aren’t just reacting but you are trying to combat the weather. Construction is basically a gaming theory. You’ve got a project and you’ve got all these little darts flying at you and you have to knock them down, and one is weather. And the way you knock them down in construction is to plan around them.

“Also, you need to have a backup plan. One of my pet peeves in planning is that contractors have a good plan every morning. But if something goes wrong, like rain at 10 a.m., do they have a backup plan or do they just stand there and say it’s raining? Having a secondary plan is a key component.”

And backup planning is not limited to just the supervisor. “With the ratio of supervisors to workers on a job, the supervisor can’t stand over each worker. So each worker has to have a backup plan, too. A big component of nonproductive time is workers waiting for an assignment. The workers are told what to do, they don’t go looking for work—you have to give them a plot of their own. What they do when it rains or when they are out of work might be the difference between a good concrete job and a bad concrete job.”

Safety

Ensuring workers are trained properly in safety procedures and perform them to remain safe is crucial, but consumes time and can reduce productivity.

“Obviously safety issues add labor hours that take away from placing concrete,” says Adrian. “But on the other hand, there’s nothing worse than the lost hours related to an accident. I think we have to be on record as saying that safety helps productivity. I argue that a safe job and a productive job are the same thing.

“One of my pet peeves is when guys work overtime. In that situation, they need more safety focus and more supervision, because when guys work overtime, they are tired and more likely to get hurt. Most people only think about overtime in its effect on productivity but overtime also affects safety so you have to be careful not to trade one off for the other. I’ve seen articles that say safety regulations add 5% more hours to a project, but it might have saved 10% related to accidents. We should always err on the side of safety.”

Consistent formwork productivity

Formwork is one of the most time-consuming tasks on any concrete job. Of the three steps, setting forms, placing rebar, and pouring concrete, setting the forms takes the most time.

“Contractors make or lose money on the forming operation,” says Adrian. “Too often there are a bunch of supervisors out there when they are placing the concrete and they are pretty close to the estimate—they don’t have huge overruns or under-runs. But if you look at forming, they have big over- and under-runs. The ability to organize all the materials and crews in a process and being able to find those parts is where you make money or lose money. The productivity varies so much because it depends on the skills of the crew, on the supervision, and on the method they are using. Forming is the key.”

The newer forming systems, although more expensive, can help significantly with productivity, but Adrian argues that it’s the consistency you get that is even more important. This allows better bidding and perhaps cheaper labor.

“One of the arguments for a modular form versus a job-built form is that you can hire five workers off the street who have never built forms before and they are likely to get the same productivity with the modular forms as an experienced crew. So it’s not just a question of getting more productivity, it’s a question of getting more predictable productivity, meaning that five different crews will get the same square footage per hour as opposed to job-built forms where the crews might vary more widely.”

Construction automation

Increasing construction productivity is never going to be easy. We’ll never have the automation and modularization of other industries with the one-off nature of the work, but it’s a battle that sends money directly to the bottom line.

“Construction is at a disadvantage measured against industries like manufacturing,” says Adrian. “When they automate and put in a machine that replaces a worker, even if they don’t make more cars, productivity goes up. But in construction, because we can’t industrialize much—have robots placing concrete—we’re always going to look bad in terms of increasing productivity since the denominator only has labor in it.” The best weapons are training and educating crews, especially supervisors. Most workers want to be productive, so give them the direction to do that.

Adrian says, “We have to get the supervisor transitioned from being a worker to being a foreman. It’s a different set of skills. He goes from working with his hands to trying to manage six guys and plan, and that’s a different thing. Training him is the difference between good and bad productivity much more than how hard a person is working.”

The diagonal lines represent the relationship between input (labor) and output (such as cubic yards placed)—or, productivity. At the first time, with input at P1 and productivity represented by line 1, the resulting output is T1. At some second time (T2), the input (man-hours) has increased to P2 (such as employees working overtime). If productivity has increased to line 2, the resulting output rises to T2a, some due to increased labor on the job (increased from P1 to P2) and some as a result of the increase in productivity (from line 1 to line 2). But if at T2, the productivity relationship (input versus output) actually has decreased to line 3 (for example if the overtime work slowed each person’s individual productivity), then the increase in output represented by line T2b would only be due to the increased input volume (more hours worked).