Articles Written by Charles Vander Kooi

Managing in a tight economy - part 3: Crew size & wages

This is the 3rd article from a new Charles Vander Kooi seminar called "Managing your company in a tight economy."

By Charles Vander Kooi

Knowing the right amount of people to put on each job is partly science and partly an art. Let's say you are at the point in a job where you will be laying pavers all day. You've determined that access and layout make 4 people the optimum crew size for laying pavers on that site: 2 people to supply the pavers to 2 people to lay them.

You send 5 field people to the job so you can speed things up. With more labor on the job you should be able to get it done quicker, right? The crew leader decides to have that 5th guy laying pavers. So now there are 2 people bringing pavers, but 3 people laying them.

Well, the 2 bringing pavers are working as hard as they can, but they can't keep up with the 3 people laying them. So those laying the pavers feel sorry for the other 2, and what do they do? They slow down.

The crew leader then tries having 3 people deliver pavers while only 2 people lay them. Then what happens? The pavers are being delivered faster than 2 guys can lay them. Now the 3 people delivering the pavers don't want the other 2 guys to feel bad because they can't keep up. So what do they do? They slow down.

At the end of the day, all 5 crew members will come off the job as dirty and worn out as ever, and feeling like they put in a good day's work. No matter. Because of the built-in inefficiency, those 5 people will not have laid any more pavers than 4 people would have.

You, however, will have to pay 1 additional person to get that same amount of work done. That's an additional 25% cost in man-hours on the day. And that's how important it is to have the right amount of people on your jobs. More people on a job does not mean more work gets done.

Optimum crew size for maximum productivity

Now, there are some jobs where a crew can be reorganized doing different tasks and still be at optimum efficiency with different numbers of crew members. Optimization is the key.

But, if the numbers don't add up for optimum productivity, you're going to have to send some people home for the day. There's no room for waste in today's market. If you send extra people out and operate with inefficient crews, you're not going to stay in business. And those you would have sent home for a day will end up staying home every day – as will everyone else in your company.

Contractors usually end up with inefficient crews because they're trying to "keep everyone busy." Trying to "keep everyone busy" also leads contractors to take jobs even though they know it will be at a loss. You're not in business to keep everyone busy. It won't be long before those you're trying to keep busy are out of a job because you're bankrupt.

Avoid cutting field wages

On to a different topic, let's discuss wages. I don't recommend cutting wages for field people in order to lower your bids. Doing that produces bad attitudes and comes back to bite you in the form of extra production hours.

Most field workers are not highly paid. They're likely living paycheck to paycheck and can't take a hit. Companies that have cut wages without negative effects, have cut them at the higher end of the scale, from management. They've left the field people alone though they certainly haven't given them raises.

You can use the fact that you have not cut wages as a motivator. Tell your field people that you want to keep wages where they are, but to do that in these tough times and not lay anyone off, you need them to produce more and hit your accelerated production rates.

Factoring in overtime

Overtime wages are also an issue. I factor overtime into my average wage, meaning that if someone works 40 hours at $13 per hour and 10 hours overtime at 1-1/2 time or $19.50 per hour, they're going to get a paycheck for 55 hours. They're getting paid for 50 hours of production plus an overtime bonus equal to 5 hours of pay.

That 5 hours is 10% of 50, so for that week they're really making $14.30 an hour ($13 plus 10%) for the 50 hours worked. That's the only way I know to properly take care of overtime compensation.

Now, I have to ask: In these lean times when it's hard to find work, why are we working overtime?

Why overtime?

In the boom times, we had lots of work and a shortage of workers so clients had trouble finding a contractor to work them in. We had to maximize our workers through overtime. When we added that extra 10% to our labor cost, people were willing to pay it.

In today's economy, we have plenty of workers and not enough work. It's a buyer's market so we need to cut out that overtime and lower our labor cost by 10% to compete. So, if labor is 20% of a particular bid, that allows you to lower your total price 2%. If you can also increase labor production 10% that's another 2%. Added together, you lower your bids 4% in a tough economy.

If you are getting a lot of work in your market, that doesn't necessarily mean you need to go back to overtime. Consider starting another crew with one of your key people and hiring more people if you can find them.

The psychology of overtime

I've always questioned the psychology of overtime. Let's say you've got somebody at $12/hour and they just worked 8 hours at their highest level of productivity. Then they start to lose productivity. When they work a 9th hour, they may be at 90% of their peak production level. And if they work a 10th hour, it drops down to 80% or even 75%.

Now imagine walking up to somebody that's making $12 per hour and saying, "Can you work another 2 hours? I know you're going to give me less production but I'm willing to give you $18/hr for those 2 hours of less production."

Let me reiterate, during the boom times when customers are beating down your door, willing to hire you at whatever price, you can build in overtime costs and even use a more conservative production rate to make up for reduced productivity during those extra hours.

But, when it is tight like it is now, avoid working any overtime. Don't put that 10% onto your average wage and price yourself out of work.

Since 1980, Vander Kooi & Associates has been helping business owners add more to the bottom line of their company's financial performance. We would be proud to help you with budgeting, estimating, high-performance management, marketing, sales, productivity and field training. Visit vanderkooi.com or call (303) 697-6467.