Articles Written by Charles Vander Kooi

Focus on What You Can Control

By Charles Vander Kooi

The optimists say that we will start coming out of this recession in 2009. The pessimists say that a bunch of risky "Alt-A" mortgage loans will be adjusting in 09 through 10 and we will have a whole new wave of foreclosures followed by bankruptcies due to credit card debt and we are only 1/3 of the way through this mess. What is a contractor to do in these tough economic times?

I tell contractors that there are only 3 things you can control; labor, equipment, and overhead. Too many contractors only focus on overhead which is the smallest area of the 3 to find savings. The big word to focus on with labor and equipment is "waste"-wasted time, effort and hard expenses.

Labor Waste
Let's start with labor. Labor should always be estimated by production hours. This gives you the opportunity to vary labor in your bids based on the variables of each job. But, more importantly it gives you the ability to control your labor.

I have a client who lays out his work for the upcoming week by the hours he figured in his bid. If those hours total 480, he divides that by 40 to determine that he will need 12 men. If he has 13 men he lays 1 off. Now if he kept that man don't you think everyone would have still been busy and come back tired? Of course they would, but he would have paid 1 more man to do the work than they needed, which is waste.

Another labor waste is overtime premiums. One of my consultants describes overtime as "overpaid tired workers." In the above example I could have divided the 480 hours by 50 and come up with 10 men. However, those 10 men would have cost me 10% more per hour due to OT premium than the 12 men. That 10% is waste.

Now, some of you may be saying, "My men need overtime." Well, unless they have been living under a rock, they know what's happening in this country. Maybe it's time to have a meeting with them to let them know that they can have a job without OT or no job at all. I know that seems hard but these are hard times. And for that same reason, this is not a time for raises, but a time to freeze wages.

Equipment Waste
Second area of waste: Equipment. During the good times contractors often justify buying equipment by saying that they need it because of growth. If your sales are down 20% your equipment usage should be down by that much too. However, the payments and insurance on that equipment marches on.

You may lose your equity in that equipment if you sell it, but you also stop cash waste on equipment not being used. Also, you may have some equipment you bought for convenience during the good times that you're not currently using to its potential. Maybe it's time to sell your convenience equipment and do a better job of scheduling your other equipment.

I also find contractors who have hired mechanics for convenience. That way they don't have to send equipment to a shop. Maybe it's time to outsource your repairs and get rid of a company shop that does not make financial sense.

Overhead Waste
Finally, Overhead. Cutting overhead is not easy to do, but is easy to compute. If you are going to do 20%-25%-30%-35% less work you need to cut overhead by that much. The first place to look is at the number of people you have on overhead and their pay. Since a lot of overhead follows people (cell phones, vehicles, benefits, computers, etc.) some of the rest of your overhead will disappear with them.

How are you going to get everything done with less people? Well 2 ways. If you're going to have fewer sales, there should be less that overhead people need to do. Second, they are aware of the economy and should understand that everyone needs to do more for the same pay in order for the company to survive. Hold a meeting and impress this upon them.

Our estimating and bidding system gives you the tools to manage your company through this tight economy. If you haven't already done so, now is the time to invest in educational materials, seminars and consulting services. If you would like to discuss how we can help you manage through this economy call us at (303) 697-6467 or visit www.vanderkooi.com.