Production Reporting and Estimating
When you provide an estimate to your clients what do you include? The obvious items would be labor, equipment, materials, and your overhead and profit. These items by themselves are sometimes difficult to provide if you don’t have an idea of how long each “whatever” takes and how much each “whatever” costs. This article will focus in on how we get the cost of the “whatevers”.
What I’m calling a “whatever” is a unit of measure. This could be a square foot, linear foot, a cubic yard, etc. Essentially it’s a unit of something that we can associate a price and a duration to. For example, we can produce, or install, a square foot of drywall every .012 hours and at a cost of $0.50 of labor. We would then add in what a square foot of drywall costs at current prices to the total amount of drywall we have come up with from our quantity take off. Now that we know “what” we are bidding we need to see how fast we can produce it.
How do we come up with a rate of production? Where does it come from? We’re certainly not going to come up with this in the office – we need to ask the field for our production rate. The field is who actually produces, or installs, the materials. So how do we get this information from the field into the office? My suggestion is production reporting.
There are 2 pieces to reporting. The first piece would be labor. The best conduit for reporting labor is through a time card. We need timecards anyway so why don’t we add a few more columns to it to give the office the necessary information they need to accurately estimate future projects?
The next piece of reporting would be the production of work. This is how many “whatevers” we produced in a given time (day, week, or hour).
What do you see differently in this timecard from a typical timecard? Maybe nothing (which is good) and maybe a lot. Probably the biggest difference would be the Cost Code column and maybe the Work Type. I know the time card I had when I worked for other companies only had the weekdays and a place for hours. So what benefit do those 2 columns provide for us?
The main thing it does is gives us a unique accounting code which enables us to track (very important term) the hours and units produced across many different projects. This is the beginning of our estimating system – historic data of labor charges.
NOTE: Wanted to put in a note here regarding the cost accounting system you use. Your system of tracking cost and production data must be mandatory for all people involved in your organization for any system to work for the life of your company. If one superintendent doesn’t use it the system has lost it’s overall purpose. The purpose is to give your estimating department the ability to track all costs associated with a project and report to the company how quickly and how costly you can produce “activities”. Each activity needs to be seperated into an assembly (i.e. 2×6 wall framing or 2×6 wall framing with 1/2″ exterior sheathing). You need this detail or you will end up lumping 2 different types of activities together which will throw the production and labor rates off. The cost codes are what allow you to quickly decipher what assembly or material is being tracked. The estimating department should use this number, the field should use this number, and purchasing should use the number – all costs for that activity will be in one place.
The next requirement for tracking is production. We know what the cost is to produce X feet of forming – now we need to track the units of production.
Have you seen something similar to this? This would be a daily, weekly, or monthly report depending on volume and the nature of your business. For a residential general contractor I would consider a weekly report sufficient enough to track production. What this report gives us is the total money spent from our timecards and the total units produced. The calculation on the right (Column H) is the cost divided by the total units produced (297.50 / 260 = $1.14 / LF). Now we have a labor cost associated with a unique activity per unit. Also derived from this form is a production rate (need to add total manhours to form), which is the total hours from all timecards divided by the number of units (17 hours to produce 260 LF = .065 hr/LF). Track this data on many jobs and you end up with a pretty even average that accounts for weather days, good days, materials delays, etc. With that information we can say, with very little doubt, what our production rate and labor cost is for each of the units. This is exactly what our estimators require to accurately bid projects.
The article is not a cure all for tracking problems but hopefully will give you ideas when you are developing or revamping your cost tracking system. I must reiterate – any system you develop needs to be adopted by all personnel or it will not be effective for your company. Do not waste your time on trying to implement this half-heartedly – go all in. Bottom line is – to keep your company successful, productive, and efficient you need to track your costs. Further articles will be written on estimating and accounting with these methods in the near future.