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22 MARCH 2017 COATINGSPROMAG.COM Money Matters F or coatings contractors, as well as other companies working in the construction industry, much of the risk in profitability comes not from materials but from labor. In other words, when a job is not profitable, it is often because labor costs, not material costs, were higher than anticipated. If employ- ees (full-time or otherwise) are not managed properly, then they aren't being used effectively and, therefore, efficiently. W hen looking to increase profit- ability with labor, then, there are a couple of important items to consider: 1. Understanding labor efficiency/ utilization; 2. Managing labor productivity; 3. Changing labor efficiency. What Is Labor Efficiency? Labor efficiency, also referred to as labor utilization, is the proportion of time that you're paying an employee that is billable versus unbillable. How much are you utilizing your labor so that it is billable? To calculate an employee's billable percentage, take the total number of hours that he or she billed to specific projects, and divide the total number of hours that you paid him or her. For example, if the worker billed for 1,600 hours in 2016, and you paid him/her for 2,000 hours, his labor efficiency is 80 percent. at percentage might sound low, but if you consider all of the time that you pay your employees that isn't associated with a particular job, it makes more sense. is may include production meetings, safety meetings, time spent stocking trucks, conferences, training sessions, travel time from one job to another, and vacation/holiday/sick time. Did you pay an employee for picking up for materials but they didn't charge that time to a particular job? Do you know if that's where his or her time has gone? ere's a lot of down time that people pay for in the contracting world that isn't tracked very well. But what would happen if you tracked it better? Managing Labor Efficiency To start, look at your habits and do the math. Make sure you have an understanding of how your company currently stands regarding productiv- ity. Take a look at all of the different numbers that you have, and see what your average efficiency percentage was last year. Figure out what the actual positive highest percentage is that you can get with your current workforce and, on the f lip side, what the lowest percentage is that you're willing to put up with. At many construction-related companies, the goal for labor efficiency is often as low as 65‒75 percent. If your company holds one-hour production meetings each week, you' ll have 52 hours right there unbill- able for the year. Maybe you have a quarterly company review that takes two hours. That' ll be another unbill- able eight hours each year. Even if someone bills all their time to a job, there's still ty pically about 200 hours that aren't. You're going to be paying for this time, so you might as well get the money for it! Take stock of your crew's productivity. Making Changes Making a few changes to how you manage your jobs can help to achieve an improved productivity number. The key will be a change in the productivity itself. If you can improve your crew's productivity, it shouldn't cost you more, but it can really add to the bottom line. In other words, if you can pay the same amount of money to your employees but bill for more time, you' ll be improving the profitability. Once you've taken stock of your company's current habits, you can start to make some changes. Having fewer production meetings or making them shorter might help make more time for billable tasks. A lso, making sure that meetings start and end on time might make a big difference. Meetings, such as toolbox talks, are usually inevitable with coatings projects, especially so that you don't trade safety for productivity, but they can be completed efficiently. For other unbillable tasks, such as conferences, make sure you're assessing the benefit of each event individually. If the employee is more efficient, safer, faster, etc., after attending the training session or conference, then the eight hours of unbillable time might be seen as worthwhile. If the session doesn't help improve the employee's productivity, you may want to reconsider sending him or her next time. Take a look at how material procurement is handled. Do your workers need to leave the jobsite because they don't have the materi- als or tools they need? Planning the material needs for the day — or better yet, the week — can keep your Better Bottom Line… Same Labor Force By Leslie Shiner, Owner of e ShinerGroup