Solving the “Skill Shortage” in Construction

[A discussion on Hiring and/or Building Competency]

Everyone seems to be complaining that there are simply not enough skilled people in the construction industry, to deliver current work, or for future growth. (as if skilled people would be sitting around just waiting to be hired). Hiring people is an expensive and risky business. One reason companies have a 6-month probation period, is that it typically takes that long to establish whether a new hire, has the skills required to carry out their work, and make a valuable contribution to the business. Or, if you are a smart business, you use this early period to properly assess and equip people to be the type of people you want in the business. But the discussion here, is whether to hire, or whether to build competency amongst existing staff. Or maybe it is a combination of both?

 Let’s take a simple example of a small business with 10 people and an average salary across the business of €45,000/year. There is probably at least 30% “overhead” costs to the business associated with those 10 people. So the people cost €585,000 per year (€450,000 salaries + €135,000 overhead). Let’s say the company does a turnover of €735,000 with 20% profit (€147,000). (obviously you can adjust all these figures to suit your business or market).

 HIRING

You decide you want to increase your capacity for work by 10%. One way is to hire one new staff member (assuming you can find someone in a market which reports a skills shortage, or poach someone from another company). The additional cost to the business by hiring one new person is €58,500/year (salary + overhead). Although, you may find after 6-months (and a cost of €29,250), that the person isn’t suitable for the business, and have to let them go, and try again. But assuming it works out well, you increase your turnover to €805,000 and your costs to €643,500, and profits to €161,500 (20%). So you invest €58,500/year, you get a 10% increase in capacity and turnover, which is an additional €14,500 in profit per year (which isn’t bad, as it is a 25% return on investment in the first year).

 BUILDING COMPETENCY

An alternative way to increase capacity, is to invest in the competency and capability of the existing people who work for the company (who you already know and trust, without the risk of taking on additional cost and risk of someone who may be unsuitable or the business). If you could improve the competency, proficiency, efficiency and productivity of the people by 10%, by providing training, and new tools and processes (hardware/software etc), you could increase capacity by 10%, but without increasing the staff costs and overheads. (please note, this option isn't suggesting people work harder - it is suggesting people work smarter). So you would save €58,500/year. Of course, you would have to invest some of that saving into the upskilling and equipping current staff, to get the productivity gain. Maybe you make the bold decision to invest the full €58,500 saving in the first year into upskilling and equipping your current staff. You still get a 10% increase in capacity and turnover, and the additional €14,500 in profit in the first year. But, the big difference, is that your ongoing costs after the first year are still for 10 people, not 11 people, and in the second year, your business becomes more profitable. (and maybe more competitive, agile and resilient). Plus, you have happier staff who appreciate your commitment and investment into their careers.

 If you took this approach, how might you invest the €58,500 saving in the first year?

• Hardware upgrades €400 per person (assuming 4-year lifespan)
• Software upgrades €2,800 per person
• Training €400 per person
• Incentives/Rewards (5% increase in salary) €2,250 per person
• Total €5,850 per person, or €58,500 for 10 people.

 WHICH APPROACH IS BETTER?

There are some open questions. Is it really possible to increase the capacity, competency, proficiency, efficiency and productivity of people by 10%, with the investments into upskilling and re-tooling? Is trying to upskill and re-tool your current workforce a more risky strategy than taking on a new hire and increasing your costs? Will incentivizing and supporting your current staff with better tools and skills provide better results than taking on new staff? Will staff appreciate your commitment and support of their career? Is a business with a smaller, but more competent team, better than a larger business with a less competent team? (“better” meaning more competitive, profitable, and more agile/resilient etc). Of course, there are no easy answers to these questions. These are the questions all organizations need to carefully consider. At some stage companies will need to take on new staff. But clearly, not investing in the development of your current staff can also be highly detrimental to business (as they may get frustrated and leave).

 What if the current competency of your staff could be easily measured (assessed), and a definitive development plan put in place to increase competency, over a defined period of time? And you provided the tools and training necessary to increase competency, and the increase could also be easily measured (assessed) at the end of that period? What if “incentives” (rewards, or increase in salary etc), could be linked to the increase in competency? (ie reward those who are willing to put in the effort). Would this encourage staff to advance their career, or would staff resent you for trying to help them become better at what they do, or to be rewarded in the process?

 Read more about Building Competency in the Digital AEC Economy or find out more about our online learning and knowledge management platform here: https://www.arcdox.com/pinnacle-series