Job Cost Variables (What Your Reports May Not Show)
Generally speaking the management of job costs involves four un-related variables - or profit levers.
Most job costing and budgeting systems show only the summary of these four levers which does not tell the whole picture nor does it provide the critical feedback between operations and estimating so that the entire system can be fine-tuned.
If the project team is only focused on the bottom-line job costs there is a huge opportunity for improvement in profitability as the entire project team begins to understand each of these levers and how they individually relate to job costs. We will dive briefly into a discussion of these four critical levers and how they relate to job costs.
Method: The method chosen for installation - for example, when trenching you could choose benching, sloping or using shoring. You may also choose a trenchless (directional drilling) installation. Each method has different production levels and costs associated with it. During the estimating phase specific installation methods are chosen for each activity. During the pre-planning of the project adjustments to these methods may be made. Production target rates and the project budget are based on the method. Changing methods may lower or increase costs but a change in method should not be considered the same as a production increase or decrease.
Procurement: The amount actually paid for a product or service. Getting pipe for $2.50 per foot versus $3.10 per foot is an example of procurement management. Average labor cost increases or decreases are also examples of procurement. Though these will lower costs they are distinct from quantity or production variables. Even if the procurement leads to securing a piece of equipment cheaper than estimated this is still not considered a production management item.
Quantity: This is a huge variable and feedback to the estimator is very important because variations have big effects on profitability but are also relatively simple to fix through take-off methods. It is very dangerous to lump quantity into production. These are two very distinct parts of the estimate process and feedback must come back separately in order to truly refine the process. The key is looking at a task and figuring out a common unit to view as a quantity. For some tasks such as trenching this may be simple (linear feet) but for other tasks such as electrical branch rough-in this may be more challenging because of all the different sizes and types of conduit involved. It is on these tasks that are more difficult (such as electrical branch) that it is even more likely that the quantity take-off process can be refined to be more in-sync with operations.
Production: The actual rate a crew produces at. For example getting a backhoe crew to completely install 300 feet of 4" sewer laterals in an 8 hour day is better than having the same crew installing 250 feet in the same 8 hour day. There are a lot of variables involved in making this comparison so it is important to eliminate as many variables as possible. The first variable we eliminate is cost variations by establishing average labor and equipment rates based on the estimate and inclusive of a standard mobilization charge spread over 5 days. Whether this cost number is a little high or a little low it will allow comparison between days. The second major variable is in the work complexity. The laterals on one day may be deeper, shorter or the ground may be harder than those done on the next day. Production tracking is the most challenging of the variables but also the one with the biggest opportunity for increased profitability (or losses.)
When systems are put in place to monitor each of these variables separately and when your project team starts discussing these four profit levers while pre-planning the project, during construction and in the post-job review your overall profitability will increase significantly.
About this author:
David Brown is president of D. Brown Management and specializes in helping contractors improve their project management and operations processes. With a "hands-on" approach based on over 17 years of experience from apprentice electrician through executive management David provides a combination of performance improving ideas that can be put into practice immediately and thought provoking ideas for the future. Learn more at www.dbrownmanagement.com
Construction Bids and Tenders Tips
Engineering consultants usually work as part of a consulting company, and come into the field after receiving an engineering degree and obtaining several years of experience in the field. They are experts at whatever field of engineering consulting they are involved in. Engineering is a very broad field, and consultants are required to have a very clear understanding of everything that a potential client may need.
One area that engineering consultants may work in is mechanical engineering. A consultant would be able to design and help implement plans for a more efficient heating and cooling system in a large building. Consultants may also be hired to assist in improving indoor air quality, processing exhaust and ventilation fumes, and designing commercial kitchens.
Engineering consultants can also work with businesses to create solutions for electrical problems. This may mean designing better lighting for a portion of the building or the parking area. They will also work on regulating energy distribution, and planning for an emergency power generator. An engineering consultant may also design a fire detection system or a security system complete with video surveillance equipment.
The plumbing system of a building is another section that an engineering consultant might be hired to work on. Waste removal, ventilation, hot and cold water distribution, and water heaters are all a part of what an engineer may work on. The sprinkler system, used to control fires, may also be designed by an engineering consultant.
An engineering consultant may also be responsible for designing an airport. He or she may also do land assessments, help with landscaping designs, and plan walkways through parks. Consultants design flood plans, making sure that there are sufficient drainage ducts to prevent costly flooding repairs. They assist with zoning decisions and planning development sites for residential, commercial, and government use.
Traffic studies are often performed by an engineering consulting firm. They plan roadways, plot traffic patterns, and create designs for new subway systems. They help to design better pavement for roadways that will last longer and require less maintenance. They also design and inspect bridges.
The work of an engineering consultant is varied. Because engineering is such a wide field, there is almost no limit to the work a consultant can perform. They perform several different types of work, for many different types of businesses. Engineering consultants find solutions that meet or exceed the needs of their clients.
There's something very odd going on in the labyrinthine world of official jobs statistics.
The latest Government construction employment figures describe an industry that few would recognise, a gently expanding sector untroubled by the credit crisis and seismic shockwaves that shook house building to its foundations.
It is laughable but, according to the number crunchers at the Office of Government Statistics, the industry employed 2,285,000 in December - a mind-boggling 47,000 more than the same time in 2007.
Did somebody in Whitehall notice something that passed the industry by or have our civil servants learned the secret of defying gravity?
Bean counters are often charged with being detached from reality, but these figures come from another planet. Anybody with a passing interest in construction knows this is simply not the case. Job creation remains the single biggest issue.
At a better time, such jobs figures would at least provide a welcome dose of light relief, if it were not for the fact that they shape Government policy and long-term strategic thinking.
In the world of Whitehall, construction looks like it is weathering the storm nicely.
In the real world 100,000 jobs disappeared in the rubble of the house building collapse, and losses continue to balloon from a steady flow of staff lose their jobs at consultancy firms, contractors and manufactures.
In such a stormy economy numbers assume real importance, but it is better to be left in the dark than misled, which is far more dangerous.
Tea trumped by coffee on British building sites
10:15 19 Nov 2008
By Roxanne Millar
Builders brew is being replaced by a contractor’s cappuccino as tradesmen swap their traditional tea for a cup of coffee.
A new poll shows six in 10 tradesmen are choosing a coffee over a cuppa thanks to an influx of younger workers and migrant workers.
And it seems toughened tradies are also concerned about their waistlines – these days they’re almost twice as likely to add skimmed milk than ever before.
The poll by a DIY chain store and reported in the Scotsman found 62% of builders now drink coffee rather than tea, rising to three in four for those aged 20 to 25.
Those aged 40 are keeping the cuppa tradition alive.
And for those coffee drinkers, a cup of instant just won’t do – seven out of 10 workers go for lattes or cappuccinos.
General Building Contractor Labels: Builders
What is a Contractor?
Most commonly, the term ‘contractor‘ is used to describe an expert in the construction industry who hires skilled and unskilled workers to actually construct a financed project. A contractor must be licensed by an examining board before he or she can bid on the project. This bid is based on the estimated cost of the building materials, the wages of subcontractors and labourers and the contractor’s fee for coordinating the project.
Although a contractor’s main concern is hiring qualified subcontractors (specialized craftsmen paid by the contractor), he or she may also perform some of the construction work as well. Most contractors develop good working relationships with other construction specialists, so they often hire the same specialized companies and workers for each contracted project. The contractor is ultimately responsible for the quality of the work performed by subcontractors, so it doesn’t always pay to hire unknown entities to cut down on expenses.
A professional contractor should also have an understanding of his or her limitations. The client works with an architect and financier long before the first shovel of dirt is removed by a contractor. During the bidding process, a contractor may have to work with the building’s architect to discuss potential problems with a design element. If the complexity of the building’s design or the potential cost overruns threaten to overwhelm a contractor’s skills, he or she needs to step back and allow other contractors to win the bid. A good contractor understands that the success of the project depends on his or her ability to hire the right independent subcontractors and follow the wishes of the client.
In a different sense, a contractor could also be anyone who agrees to perform work for a fee. This occurs frequently in businesses which cannot afford to assign or hire a new employee to perform a specific job. The job itself may not be long-term enough to justify the expenses of a new hire, or the wages may not be sufficient for established employees. Companies in this situation often hire ‘independent contractors’ to perform the job without a formal employment agreement. The pay rate is discussed with each independent contractor and a legal agreement may be produced. After completing the job, an independent contractor receives the entire amount of pay without tax deductions or other withholdings. At the end of the tax year, the company issues a federal 1099 form showing the independent contractor’s miscellaneous income earned.
