Inefficient Tools Eroding Profits?

Last week I published an article “What is your pain tolerance?” where a client had accepted considerable cost and inefficiencies in their organization. They were not willing to acknowledge that their lack of tools and systems were costing them approximately $75,000 annually. If an organization is not willing to improve something so visible, what else could be eroding profits?

Most processes within organizations have a reliance on those upstream. In many cases the upstream processes and data that is produced does not consider the impact to those downstream. In the drive to complete work, employees are typically measured on their ability to complete their own / departments tasks, seldomly does an organization measure an employee on their ability to improve efficiencies for downstream teams.

Consider the entry of field time sheet data on a construction project. The below illustrates the number of processes that would rely on a single crew time sheet.

• Foreperson entry of crew time
• Timekeeper entering time for payroll
• Creating a daily LEMS
• Utilizing the incurred hours for productivity calculations
• Break out of extra work charges (client billing or vendor back charge)
• Safety statistics
• Reporting by special interest groups
• Reporting of local content
• Progress billing & invoice back up
• Evaluation of actual vs estimated rates of placement
• Post project evaluations / lessons learned

That single data element that started with the field timesheet is used for the life of a project and high performing organizations will use that data in evaluations for years to come.

When considering the simple act of entering a single piece of data, does your organization have the processes, systems and tools to enable the entry of the data to be efficiently consumed by all downstream parties?

Installing and removing a piece of structural steel, pipe or cable multiple times on a construction project is deemed unproductive. When will we start to treat data the same way? There are numerous KPIs to measure field productivity, however none that I am aware of that measure staff / overhead productivity.

I have witnessed organizations that employed individuals to manually consolidate the time sheet data to support each of the downstream reports / processes. Conversely, with the correct foresight and understanding of the downstream requirements I have also been involved with organizations that have implemented tools and systems that perform these steps without manual intervention. While manual processes eventually get the job done, there is typically a high resource requirement and, in many cases, errors are introduced through human intervention. To improve accuracy and efficiencies, limiting manual intervention is recommended.

Establishing the requirements of the downstream processes establishes the correct elements and format for data entry. Effective processes, systems and tools enable the automation and / or push-button generation of information within minutes of the time sheet entry being completed.

For years our industry has been experiencing cost challenges when executing projects. There have been many improvements in strategies to reduce field execution costs. However, in my experience, at the same time there has been an increase in indirect/staff costs. There have certainly been justified increases in staff costs due to the implementation of improved planning, estimating and work packaging that have greatly reduced field execution costs. Unfortunately, a similar review of staff workflows has not been performed with the same rigor as that of field execution. Why is that?

It is not uncommon to hear project management teams discount the cost of staff on a project as an embedded cost or a minimal cost compared to others. The challenge is that scope creep for staff is never challenged. However, over the life of a project this scope creep usually increases staff count and ultimately profit erosion.

Consider the true impact of cost increases to an organization executing a $10M project at 10% margin.

$10M Project

10% Profit = $1M Profit

Based on a 10% profit $10,000 in unplanned costs would require an additional $100,000 in revenue to maintain the $1M profit for the business. Imagine if the project was bid at 5% margin.

While it is sometimes hard to control unplanned costs on a project, it can be said that any costs that were not planned in the original budget will erode profit.

In my opinion, like unplanned costs, inefficient processes have a huge impact on an organization’s profitability. Unfortunately, most organizations are so used to their current practices they are unaware that there is a better way.

Circling back to the example at the beginning of this article, saving $75,000 as a result of inefficient processes would have enabled the organization to reduce net revenue by $500,000 - $750,000 and still maintain the same profit and value to the shareholders.

While the $75,000 inefficiency seems extreme, there are numerous other processes in every organization that together can have a huge impact. Have another look at the example of field time sheets. How many times have you witnessed data being manually transferred between departments in emails, dumped from various systems and transferred between different spreadsheets and reports? Not only are there inefficiencies, these methods are also prone to error and outdated information.

Embarking on the road to improved processes, tools & systems is very challenging for most organization. However, history has proven that change at some point is both required and inevitable. The first step is to start, but if I can add one piece of advice, start with the end in mind. Look at every process, system and tool with the understanding of its impact of ALL downstream processes and departments. Executed correctly there is usually a redistribution of effort in the workflow which may add minutes to an upstream process but could save hours for those downstream.

The change management process takes effort and determination. However, the outcomes are usually overshadowed by improved long term employee satisfaction, efficiencies and profitability.

Which is easier - controlling cost through efficiency improvements, or increasing revenue? In my opinion there is no reason to pick one over the other - but in our current environment, it seems that focusing on increasing revenue may not be the easiest option.

Good luck on your journey!

As always if I can be of assistance, I am always #opentoreferrals and willing to connect.