- Newsletter Article -
Industry Expert Recommends Standard Production Rates
By Marcus vandeVliet
It would be very difficult to effectively manage a business without measurement. Labor measurement is a critical gauge of your company's production effectiveness. Labor is also the largest variable not only in estimating but also in production, due to many different sites conditions. Unfortunately many business owners and managers do not think in terms of man-hours, but rather in terms of dollars. The focus tends to be on developing a selling price not determining the cost of a project to the company. Managers, supervisors and foremen need to shift their focus on understanding to controlling man-hours
It is important to establish baseline production rates for your company, which can be used as a benchmark for all production crews. These production rates should be used in the estimating system to determine project costs. The man-hours per function can be used to set up assemblies or kits for common production functions. Using kits in your estimating process will reduce the estimating time and provide a more consistent estimate, especially if multiple persons are completing estimates. Kits can be used for all types of production functions.
Although there are many books listing standard production rates, these usually do not reflect the times for your company. These rates are usually very conservative and do not account for local conditions and variables. It would be best to determine standard production rates (SPR) using one of the following methods:
- Company consensus.
- Time motion studies.
- Job tracking.
Consensus Method
I would recommend the company consensus method, because it is a quick and efficient method to get started. Set up a meeting with production, estimating and sales employees in attendance. It is important to share the purpose of the meeting and to review how the information will be used. The scope of work for each function must be clearly defined and understood by all. For example the general conditions are typically not part of the SPR. General conditions include items such as mobilization, cleanup, site conditions, load and unload etc. The general conditions should be accounted for on each project, based on the variables for that project. The standard production rates for a function will remain constant on a project, while the general conditions will vary due to project specific differences.
Begin with the most common functions in your company. For example if your company provides hardscaping services then pavers would be a good starting point. Defining the scope would include: the type of paver, the depth and type of sub base, the paver pattern, the border, edge restraint, fabric and jointing material. Use an average size as a test quantity to standardize the discussion. An average paver patio for example might be 500ft.². I would initially not recommend breaking the labor down into too many different functions or operation codes. The labor function breakdown can be increased in detail at a later date. For pavers I would recommend excavation, sub base, pavers and edging. Have each person build the patio in their mind, and write down each labor breakdown. These times should be compiled and discussed. A consensus should be reached on the average time to install this patio.
The next step would be to test these time frames using a cost-based estimating method to generate the sales price. This sales price must be similar to the existing sales price or what the marketplace will bear. There will often be a difference in opinion between the sales and production employees with regards to these time frames. It is important that both agree on the standard production rates. Time and motion studies as described below should be used to compare actual field performance to the meeting time frames.
Time and Motion Studies
The second method to obtain standard production rates would be time and motion studies. Each function should be timed under typical working and site conditions. Multiple crews should be timed and evaluated to determine an average for the company. It is important to recognize that because the crews know they're being timed, production rates may differ from normal production. Time and motion studies should be conducted using single and multiple installations. For example: installing one # 3 shrub should be timed, and 25 # 3 shrubs should also be timed to determine average time frames.
Job Tracking
Job tracking can also provide a good source of standard production rate information. This is only helpful if the functions have been separated into different tasks. The different tasks used in the estimate would allow tracking of the standard production rates on an ongoing basis. Special tasks should be selected when different ideal scenarios present themselves. For example: the installation of 100 #3 shrubs. The installation of the shrubs would be tracked as a specific task only on this project. I would not recommend trying to track too many different standards labor functions on each project. The job tracking information will not be accurate and the foreman will resist implementation.
If standard production rates need to be adjusted, both sales and production should agree on the changes. This would typically occur if there is a difference between estimated and actual hours for a particular function.
Labor is typically your biggest single cost and also the largest variable on most projects. Using standard production rates will provide you with a more consistent estimating method. As your company continues to grow, standard production rates will improve both consistency and accountability.
Marcus vandeVliet is the owner of M.V. Consulting, a company that offers Consulting and Strategic Planning services primarily to the Construction Industry. He works with companies committed to achieving their desired goals, developing long term mutually beneficial relationships and providing services based on real world experience. He has also provided presentations for many State and National Trade Associations throughout the USA & Canada.
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