Let’s start by defining this question. Can you simply post you’re over/under billings to the GL and view/print accurate financials at any given time? This means without major adjustments, phone calls to PM/Superintendents and working to get stacks of invoices entered into the system. Yes, by just running your WIP report in your accounting system and have it automatically post the over/under billings and know it is correct!
This seemed impossible years ago when I first started doing the books for a concrete construction company. I could barely get the WIP built correctly with a spreadsheet. I finally started to get the “feel” or rhythm of the work in progress, but there were problems. One month a project was reflected with incredible profit but the next month it was losing severely. The finger pointing was escalating and blamed consistently on the following items;
Accounting reports are wrong
The estimate is wrong
The field is losing the profit
These were repeatedly used, I had no proof to show what was at fault. Everyone was looking at me for the answers! The owner I worked for at the time (Steve Garber) started a vision to measure the field daily. He wanted to see how many square feet or cubic yards they did daily. He then added the complexity by taking those total daily units of measure and wanting me to divide them by the hours spent to date daily. This would be the start of something I never dreamed could happen. At the conclusion of this article will be a link for the “State of Measurement”. These points are what pushed us past the resistance of measuring the field daily and successfully.
In the concrete subcontractor industry, labor and concrete each make up 30-40% of the direct costs. When combined that’s 80% of the total direct costs of each project! So we started with labor. What we began to see is if labor is accurately reflected then so will the rest of the cost being posted to your accounting system. The problem with labor is keeping up with the unpaid hours not posted to your accounting system and asking field employees to do paperwork. The other focus was concrete and any overages that were happening during the project. The following explains how we harnessed the 2 largest costs that had eroded at our profits.
What we needed was a way to show the field how they were doing daily towards the production goals. In 1994 we decided to build the first real-time production system in Microsoft Access. We created a paper daily sheet that collected the hours and quantities by cost code. If they properly filled out all the required information, we paid them 5 bucks per day. Any incomplete sheets or mistakes made had a negative value and was deducted from the 5 bucks. A sample of the excel spreadsheet template may be download from the link below. During this trial and error we focused on what cost codes could be collected daily from the field with the most accuracy. Before we began with this system we created our cost codes based on the detailed estimate. We had over 100 cost codes and noticed accuracy took a back seat to fear of going over the budget and getting in trouble by their supervisors. They filled the cost codes weekly with man-hours so that the project looked good until they ran out of places to hide the losses. What we discovered during this time was the right number of cost codes and how to distribute an employee’s hours daily to those cost codes. We finally had something that was accurate and real-time (daily). We printed the production report for each superintendent daily.
It was an administrative nightmare. We were double posting to Microsoft Access and the accounting system plus double checking for transposed numbers posted and other errors from this process. The problem could be solved by creating a website that could connect to our accounting system and add all the required information together and show in real-time. In 1999 our accounting system gave us the link called ODBC (Open Data Base Connectivity). This was the solution to connect to our data outside the accounting program. We created a website that pulled the information needed from the accounting systems database and added all the time tickets not posted and qualities collected from the current week(s). Next we took the second largest cost and started collecting and keeping a log on the cubic yards used and compared it weekly to the budget yardage. We adjusted weekly to overage/underage of either yards or man-hours by an internal change order.
Over the last 25 years we have found many other solutions that came from a simple process of measuring by units of measure. In 2012 we completely re-wrote the website to fully utilize the smart phones and made it mobile. We changed accounting systems in 2006 to Foundation Software because they have all the required capabilities to answer our needs to measure production on a daily basis. The largest missing component in keeping up with daily production measuring is Change Orders. Understanding that we are real-time to all the employees requires us to account for any changes that are happening and determine how to display them daily either pending or approved.
The focus on collecting the information and displaying it real-time has given our estimators a historical database of actual company production rates. They can trust that their estimates are correct and provides them credibility in how they established the project budgets when turned over for operations to execute.
In conclusion, the answer to the question or title of this blog is YES! It can be done and the culture it creates as we have proven is fun and profitable. A company can push the systems from the top down or build them from the field up. The difference is simply a change in direction, leadership and perspective. Over the last 25 years we continue to learn from that change and the benefits associated with a new perspective. We experienced a minimum 15% labor cost savings the very first year.
I would love to hear from anyone that has been on the same quest and understands the value of what I have described above. Feel free to comment, drop an email or call us to discuss.
Request either the “The State of Measure” or the Production Daily Sheet excel spreadsheet by sending email to firstname.lastname@example.org