Labour: Your Bottom Line’s Greatest Resource

Becoming a great contractor – while a great goal to have – shouldn’t be your only goal. What we really want is to become great contractors, socially responsible contractors, as well as profitable contractors. Because without the latter we simply can’t keep the business going. So today, let’s look at how to get the best out of your greatest resource: labour.

In my last article we looked at a lot of variables that are both within and outside of our control. And we talked about how important it is to decide what elements of business you control and how you go about it.??

When it comes to running and operating a viable business as a construciton contractor, we not only need to control those variables we deem important, but we have another crucial focus: managing resources. Successful construction managers are guns at managing resources.???

Manage your resources like you’d manager your mother-in-law

I have previously looked at a whole bunch of changes that had occurred in the industry over the last few decades, and many of those brought with them new management challenges for the average contractor – we’re talking minimal margins, higher competition, higher customer expectations, and shorter deadlines.

But we may want to do a little bit better than the average contractor. Why? Because if you’re like us, we’re always building a construction company with a view to long term success and growth, one that makes a difference in our communities. So we think that you should manage your resources like you’d manage your mother-in-law; with wisdom and delicate (yet determined) precision.?

How? By using tools and technologies to help you gather, analyze and track information in real time – not just at the end of a quarter or a financial year. That’s right – we’re not winging it anymore. That doesn’t mean the old Chippy’s pencil and piece of off-cut goes out the window. Not at all. But whatever you choose to use, it’s worth taking some time to ensure your tools and technologies work best for your needs and processes, so you can get your calloused hands on data that will help you manage your resources right down to a T.

We’ll look at these tools and technologies a bit more in a future article. But for now, let’s focus on managing your most crucial resource – labour.?

Your greatest resource: Labour

If you’ve been turning a blind eye to your labour productivity, prepare to have your eyes opened.??

Labour shortages and productivity have been splashed about in the news a lot since the covid pandemic. But it has started earlier than this and only become more and more challenging as time goes on. In 2019, the Reserve Bank of Australia reported that labour productivity on the construction industry had turned negative for the first time in 25 years. In 2020, the labour productivity index (LPI) of the Australian construction industry continued dropped to 96.92 – after a steady decent from 2013’s peak of 118.35.

Around 90% of construction project cost overruns are attributed to labour costs, and wasted labour hours account for around 30% of the total hours spent on a project.?

It doesn’t take a genius to see that there is great risk in failing to manage labour costs, and yet there’s also opportunity here – managing your labour productivity well is one of the few ways you can really get ahead of your competition. It’s one of the few areas you have some room to play if you get it right.

If you’re an independent contractor or sole trader, a big chunk of your projects’ costs will be labour. So there’s very practical and very obvious reasons for managing this closely. But the same is true for larger construction firms. Many forms of labour make up a project’s workforce and this needs to be managed not only for financial but also logistical reasons. The better your company manages labour, the more likely top-quality subcontractors are going to want to work with you. They’ll potentially even be a bit more flexible and competitive with their own labour quoting if they know it’s going to be a relatively accurate estimate of time spent on the job.

On the flipside, if you’re a subcontractor tendering for a larger project with a client, consider the client’s reputation when estimating; if the company has a reputation for being unorganised when it comes to their projects – and yet you still decide it’s worth bidding for the work – factor this into your labour costs.

Boosting your productivity?

So if efficiently managing labour is our best means of making a profit, how do we go about improving productivity? We’ve all heard the phrase “work smarter, not harder” and this is especially relevant to this age-old construction conundrum. Let’s look at some examples of how you can get your team’s productivity on par with your goals to have projects finished on time and within budget – if not, ahead of time and below budget.

Get your team on board?

It’s often assumed that your team share your vision to get projects done on time and within budget. You may even put on your rose-coloured safety glasses and daydream about them working away with your bottom line at the forefront of their minds. And hey, maybe you have some great guys who will do just that, unprompted. But as for the rest – how will they know what those goals are if you don’t share them? Sharing your goals for each project and your bigger picture visions with your team is the first step to getting them on board – if worded and presented well. After all, they’re the ones that make the day-to-day magic happen.

Educate, educate, educate!?

Educate your team on productivity.?Showing them how much time and money is lost in unproductive hours in the industry in general will give them some perspective. Comparing your own business’ productivity numbers to those industry benchmarks can either provide motivation to do better or instil a sense of pride in your crew if they’re beating those figures. Whether or not you use reward-type incentives to motivate your crew is up to you, but getting them emotionally invested is the foundation of better productivity. After all, science tells us that intrinsic motivation trumps reward-based incentive. But tools like bonuses and other tokens of appreciation are still there in your tool bag should you wish to use them.

Next up,?educate your team on the controllable versus the uncontrollable,?as we discussed in our last video. Time spent worrying about changes to the project or unexpected weather and other aspects out of our control is wasted labour time. Instead, get your guys trained up and focused on planning, estimating, scheduling, minimising waste, communication, and recording data – to name a few of the things that are within our control and in our best interests to do so.

And finally,?educate those team members who are crucial to key business processes. Too often contractors make the mistake of assuming that supervisors, foreman, project managers, estimators, and the like have all arrived at their first day on site or in the office with a fully developed sense of telepathy. Meaning, we assume that – despite everyone learning the ropes from someone else as an apprentice or in a university classroom – all of our staff come to us with “the right way” of doing things in mind. This couldn’t be further from the truth. It’s YOUR responsibility as a business owner to train your staff in your business’ processes. Train them and retrain them and refresh them if you must, but keeping them on point is your best bet at keeping things rolling smoothly with minimal lost time and money.

Communication is key

So you see, there’s a theme here: communication. Your people are your greatest asset. Your processes are your peoples’ greatest tools. But none of it comes together with poor communication. Make time to communicate to your team, and they will make time to get the job done right. And at the very least, communication will afford you earlier alarm bells if someone isn’t the right fit for your business, than would be the case if you didn’t check in with your team at all.?

And don’t forget, none of this matters if you don’t keep track of your cycle, your progress and any need for improvement here. As I discussed in my second article?– it’s all about cycles. Boosting productivity can be viewed as a cycle also:

1. Planning and preparation – Get those involved in these aspects of the project (and indeed, the business) trained up and focused. At this stage, communicate to your team your goals for both individual projects and for the business in general.
2. Keeping track – Keep track of your efforts to boost productivity as well as labour productivity itself. What are the results? What works? What doesn’t??
3. Review and improve – Make adjustments to your approach, processes, and people if needed. Give open feedback and – most importantly – ASK for feedback. By now the cycle returns to the planning and preparation stage.

This is a cycle or process that can be applied to improving productivity in your business in general, and improving the productivity on each project individually. The most important thing here is that you follow the cycle or path, to keep you and your team on track. After all, it’s your bottom line and your reputation that stands to lose or gain from the outcomes.

There you have it – managing one of your greatest resources comes down to education and communication. Glamourous? No. Rocket Science? No! But smart? Yes. And part of the journey from in building your successful construction business is all about working smarter, not harder.?