Understanding Lost Productivity or Inefficiency in Construction
For contractors, profitability is the utmost concern on most, if not all, projects. Whether or not a contractor is profitable, and just how profitable they are, depends on how they perform in comparison to their bid. One of the most significant portions of a contractor’s bid involves the amount of manhours and, if applicable, equipment hours necessary to complete its scope of work for the project.
To estimate the number of manhours and/or equipment hours that are necessary to complete its scope of work, a contractor must first determine the planned rate of production it believes it is able to achieve. This requires the contractor to calculate how many manhours and/or equipment hours that it needs to expend to complete a specific quantity of work. The contractor will then multiply its planned rate of production across the quantity of work in its scope for the particular project, in order to calculate its budgeted manhours and/or equipment hours to complete said scope of work.
For example, a contractor is building a 200’ long, 4’ high CMU retaining wall. Assuming standard 8”x16” block is being used, the contractor knows that they need at least 900 blocks to construct the wall. The project also requires that the wall be built in 3 workdays. Therefore, the contractor knows it must lay at least 300 blocks per day to accomplish the scope within the project time period. Using this information, the contractor knows the project will require two masons each laying 150 blocks per day for the 3-day duration of the project. Therefore, the contractor can assume in its bid that it will require 48 manhours (2 masons x 3 days x 8 hours/day) to complete the project. This also means that for the contractor to be profitable on this project, it must achieve or beat its planned rate of production of laying 300 blocks per day. Should the contractor achieve a production rate of only 200 blocks per day, or 100 blocks per day per mason, the project will take an extra day and a half to complete. This means an extra 24 manhours (1.5 days x 2 masons x 8 hours/day) that the contractor did not include in its bid.
This simple example highlights just how important whether or not a contractor achieves, beats, or misses its planned rate of production is in determining a project’s profitability. However, once work begins, there are many factors that can, and do, affect a contractor’s ability to meet or exceed its planned rate of production. Common factors that can affect the planned production rates of contractors include but are not limited to: extended periods of overtime and shift work; adverse weather conditions; labor shortages and availability of resources; sequence of work and trade congestion; and crew size and composition.
Because production rates are directly tied to the amount and quality of labor a contractor expends on a project, failure to meet its productivity can negatively affect the contractor’s profitability on the job. Therefore, it is crucial for contractors and owners both to understand what productivity is, how to measure it, and how to identify when productivity is less efficient than what a contractor has achieved, or planned to achieve, on a project.
Measuring Productivity and Inefficiency
As briefly explained above, productivity, as it relates to construction, is a measurement of the units of work performed by the resources expended to perform that work. Common examples of units of work in construction include cubic yards of concrete poured, linear feet of pipe laid, square feet of flooring installed, and similar examples of resources expended in construction, including manhours and crew days. A production rate is simply the quantity of work performed over the resources expended to perform that work, such as cubic yards of concrete poured per crew day, linear feet of pipe laid per manhour, etc.
Data needed for the measurement of production rates can be accounted for in several ways in the field. Often, this data can be accumulated from the contemporaneous project documentation such as daily reports, inspectors’ logs, certified payroll, or specific recording mechanisms put in place by the contractor to specifically measure this information. Once this information has been captured, it is simply a matter of identifying what production rate is most applicable to the work being performed.
Once we’ve established production rates on a project, we can then determine if there was a reduction in productivity that resulted from a particular impact, and quantify just how inefficient that work was by comparing productivities from before and after that impact.
Whereas productivity is a comparison of the quantity of work completed and the resources expended to complete that quantity of work, efficiency is a comparison of productivities in different time periods. Therefore, to measure inefficiency, we use a simple formula that compares a contractor’s achieved productivity in unimpacted and impacted periods. This formula calculates what we call an inefficiency factor and is depicted below:
As discussed, a contractor’s operation can be less efficient if it fails to achieve its planned productivity, and as such, will negatively affect its profitability. In the series of blogs that follow, we will describe the various methods of calculating inefficiency, the pros and cons of each, and provide an example calculation of each using this formula.
If you have any interest or questions about this topic, please feel free to contact me at bill.haydt@traunerconsulting.com.
