The Cost of Rework
James Hanley, PE
Global Director | Professional Engineer | Mentor and Coach | Husband and Father
The term rework covers any activity which needs to be redone during a project. Rework could be caused by making mistakes, changing direction from the team, or poor communication. Every time a plan needs to be redrawn, a calculation restarted, or a piece of equipment reselected, rework is incurred. Does this sound familiar? It happens all the time!
Some statistics highlight the prevalence of rework in the construction industry. Autodesk studies show that 30% of all work done by construction companies ends up getting reworked. Of that rework, 70% is “design induced.” When considering both direct and indirect factors, rework accounts for 9% of total construction project cost.
Rework uses up people’s time and does not add any value for the customer. Further, if rework needs to be done after customer delivery, it damages the relationship with the customer, increased customer costs and could lead to legal action. So, what is the cost to engineering firms?
Let’s illustrate rework cost with an example. Consider a project with a $10,000 fee. Of that $10,000, $9,000 may be planned to cover costs (salaries, contingency), resulting in $1,000 profit. Should this project incur just 5% rework, the cost increases to $9,450 ($9,000*1.05), and the profitability is reduced to $550. Just 5% rework leads to a 45% reduction in profitability. For an industry with high technical requirements and low margins, huge losses in profitability like this can lead to insolvency.
The lost profit will damage the employee experience as well. Rework costs will reduce or eliminate company events, lunches, raises, or bonuses. But rework has many trickle-down effects on the company beyond lost profit. Whenever one team member needs to do extra work on one project, another project falls behind and requires further resources to get it completed. The team becomes frustrated with going back into their work again and then needing to work extra to finish their next assignment. Burnout, reduced performance and increased turnover rates can be expected for a company who does a lot of rework.
So where does rework occur? Simply, it could occur everywhere and all the time. It can be caused by designers making mistakes. Or it can be attributed to poor QAQC procedures. Poor communication of project needs and failure to accurately account for existing conditions are two additional sources of rework. Plans may not be coordinated or not all the system components may be shown. Schedule or resourcing shortages cause teams to rush and make more mistakes. Anytime anyone puts pen to paper, rework could be created.
What’s an engineer to do? Reducing rework requires that support of the organization and the individuals within. For the organization, training, resourcing, and lessons learned are three ways you can dramatically reduce rework. Make sure your staff are appropriately trained for their roles. Better yet, begin training them for their next role before they even get promoted, so they might do their work more effectively today. Reduced turnover can be considered an added bonus here as well.
While you are looking at your projects, ensure you have sufficient staff to complete the work. Don’t just look at the number of people, look at the skill distribution. You want a 1+1=3 effect with your teams, and that happens based on matching the right skills. Finally, implement a robust lesson learned program. Keep written records of project lessons learned and update them frequently. When you have similar lessons learned from two different projects, merge them together. Keep a lesson learned log and have your staff review those lessons regularly.
Here are some ways you can help your organization perform more effectively:
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