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This newsletter series will give you insights and techniques to help you build a better business no matter how large or small yours is. I always say that success comes from working on your business as opposed to in your business. I want to share with you the systems and philosophies that have been successful for me over the years.
This is newsletter #31 in the series. If you have missed prior newsletters, and are enjoying the series, we encourage you to purchase the program. More information can be found by clicking on the coupon at the bottom of this page.
The calculation of labor-units is based on the assumption that a skilled and motivated contractor is completing the task under standard installation conditions with the proper tools. A labor-unit is comprised of six major components. They include:
- Installation 50%
- Job Layout 15%
- Material handling and cleanup 10%
- Nonproductive labor 5%
- Supervision 10%
- Tool handling 10%
Estimating with labor-units is both a science and an art form. It’s a science in the sense that the labor required to complete a task is a function of the materials to be installed and their quantities. If you know the quantity of each material required for a job, you can easily determine the labor required. It’s also an art form in the sense that you need to become creative in making some adjustments to the labor-units for the specific job conditions.
For many contractors, determining the labor for a job is often very intimidating, so before you actually estimate a job, you need to gain confidence in how to determine the expected labor. There are two methods of estimating the labor for a job; one is using your experience from previous jobs, and the second is labor-units. Using your experience is fine as long as you have sufficient experience, but the most accurate and fastest way of estimating labor on a job is through the use of labor-units. With labor-units, you have a fixed base to work from (unlike experience), which is subject to mood or perception.
A labor-unit represents the total cost of labor to install an item or assembly. In the estimating take-off, you count the quantity of each item, and by multiplying by the labor-unit for that item, you come up with the labor cost to install that number of units.
When you calculate the labor-unit, the installation time is only part of it. To this figure you add the time requirement for traveling to and from jobsite, material handling and cleanup, job layout, record keeping, tool setup, plus other time-consuming activities. Consider the time spent by the supervisor for these duties and for ordering supplies, coordinating work with other trades, and time for the builder and inspector to do their jobs. Include the cost of employee’s benefits.
It doesn’t help you to know the labor-units of your competitors—they’re not yours! To be competitive, you must develop your own labor-units and you must have information (historical data) on past labor performance of similar jobs. Track job hours and compare them against the job’s budgeted hours. After a while you’ll gain the knowledge necessary to adjust your labor for the next job. In addition, past job performance is useful for bid analysis. If you’re not accustomed to using labor- units, determine if the learning time to accustom yourself to this new method warrants the time.
There is not one set of labor-units that can be applied to all jobs. They must be increased or decreased to accommodate varying job conditions. There are many variable factors that must be taken into consideration on a per job basis: things such as weather, repetitive jobs, obstacles in work areas, rate of progress, forced interruptions, lack of materials or tools on the jobsite, delays by other contractors, the complexity of the system being installed, and mismanagement in general. Allocate a percentage of time to wasted time due to these factors.
Much time can be eliminated that would otherwise be wasted by proper training, proper ordering of materials, researching the work habits of other contractors, knowing your inspectors, etc. With experience and historical data, you‘ll develop techniques to help you adjust the labor-units to represent your productivity with specific job conditions.
Although it would appear that a great deal of time is spent researching the information to determine labor-units, the time is well spent. It can prevent needless delays and miscalculations in determining the labor-units and also serve to make your future bids more accurate, competitive, and profitable. The return received time and again from job to job makes the investment a very attractive one over the long term.
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The above content is extracted from Mike Holt's Business Management Skills Program.
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