Most remodelers will agree that if they had better control over labor costs, they would be more profitable. Materials and subcontractor costs are known quantities (punctuated occasionally by spectacular exceptions, as recent history attests), but even the most conscientious estimator will admit that nailing labor costs can sometimes be a hit-or-miss affair.
If a suspect labor price is used in the estimate, what company owners usually notice first is that the job is behind schedule. It's only much later - if ever - that they realize that time is money in the most literal sense.
Often the central issue is how much of the owner's time is considered a direct cost of the job and how much is allocated to overhead. It's common for owners of small companies to underestimate their time in overhead; owners of larger companies make the same mistake with their lead carpenters and production managers. In both cases, failure to measure labor productivity - or failure to act on the information collected - is the culprit. Let's look closely at both cases.
Standing on One Leg
If you're the owner of a small remodeling company, you probably still spend time on the jobsite. But you probably don't spend as much time banging nails as you think you will. Even though you may actually put in your hours on the job, you may be off-balance - standing with one leg in the field and one leg in the office. The time you spend supervising subcontractors, directing and troubleshooting the work of employees, and dealing with the client eats into your productive time.
Chances are good that none of this essential but non-productive activity is anywhere to be found in your estimate. Worse, it may be missing from your overhead as well. If you incorrectly assume that your time can be billed to specific jobs, then you are not allocating any of your salary (and possibly none of the associated labor burden) to overhead. Your prices may be competitive, but that's because you are essentially working for free.
The easiest solution is to allocate all of your time to overhead. If that's too much to bite off all at once, the next best thing is to allocate to overhead all of the time you spend doing anything other than direct production. To do that accurately, you need to measure how you actually spend your time. Ideally, you should fill out a time sheet every day, like everyone else in your company, but even doing a spot check for one month out of every six would be better than nothing. Tracking two categories -- productive and non-productive -- is enough, but if you're going to go to the trouble of tracking hours, it makes sense to find out how much time you spend designing, meeting with customers, working with suppliers and subs, doing payroll, and doing any of the other jobs you haven't yet delegated.
Phantom Limbs
If you own a larger company, you've probably fully delegated production. But if you're still doing the estimating, you're like an amputee who still feels the missing limb. Even though you're no longer working in the field, you may be estimating as if you were. Because owners always remember working faster and harder than any employee ever could, their labor estimates are often too low.
If you use lead carpenters, they probably have the same problem the small company owner has - they don't spend as much time actually getting the work done as you think they will. Likewise, if you use a production manager, chances are that someone on the site who you assume is banging nails all day is losing time to sub supervision, client interaction, and other necessary "distractions."
The solution is a detailed time card filled out regularly by all employees. Go over this with the leads to make sure they are realistic in where they allocate their time, and empower them to recognize that the time spent managing is valued. Once the data is collected, it's critical that you, the owner or the estimator, analyze it regularly to see if the assumptions made while estimating match up to what's actually taking place on your jobsites.
