The labor rates in your estimate are years old
Compare your estimate's hours per unit to posted hours, then reset them.
The rates in your estimate came from a book, an old estimator, or a job you did five years ago. Wages have gone up, crews have changed, and the work itself is different. Your estimator still plugs in the same hours per unit, so the bids look sharp and the jobs lose money on labor. You won't see it until the job is done, and by then you've bid three more the same way.
Three moves, in order
What CFOS does about it
In CFOS field time is entered by crew members and approved, and it's posted to the job by cost code. Labor burden is calculated by class, so the cost of an hour includes burden. The estimate imports as the job budget by cost code, so you can look at the hours and the cost on each code against what was estimated. Dailies record the foreman's crew and the work done, which tells you why a crew was slower on a specific job.
Who owns this: Owner.
At $7M, a few low labor rates on your three most common items cost more than any single bad job. The estimator won't see it. The job cost will.
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Step 04: Estimating system
The estimate maps one to one onto the job cost codes, so variance means something the day it appears.
Other problems step 04 solves
Other things that go wrong
What owners ask
Labor productivity rates estimating?
Compare your estimate's hours per unit to posted hours, then reset them. The rates in your estimate came from a book, an old estimator, or a job you did five years ago. Wages have gone up, crews have changed, and the work itself is different. Your estimator still plugs in the same hours per unit, so the bids look sharp and the jobs lose money on labor. You won't see it until the job is done, and by then you've bid three more the same way.
Which part of the system fixes this?
The step is number 04, estimating system. The estimate maps one to one onto the job cost codes, so variance means something the day it appears. It's drawn from chapter 4 of CONTROL: C.F.O.S. Construction Financial Operating System.
Is this normal for my trade?
Across the 48 trades that publish a figure, net profit at $1M to $5M averages 7% before taxes. If you're well under that and this page describes your month, the two are usually the same story. The published average tells you where the pack is, and your own job costing tells you where you are, which is the number that pays payroll.
Where do I start?
Pull the hours posted by cost code on your last ten finished jobs and divide them by the quantities installed.
How often should I update my labor rates?
Review them at least once a year, and again after any large change in your wages or crews. A better habit is to check the rates every time a job closes. That way the estimate improves a little with every job.
What if a crew was slow on one job for a good reason?
Then one job shouldn't set your rate. Look at several jobs and use the daily notes to throw out ones with unusual conditions. If the same item is over on most jobs, the rate was wrong.
Can I fix this without touching anything else?
You can try, and it doesn't hold. Step 04 depends on step 01, job cost structure and step 03, overhead calculation. Install it ahead of those and it produces numbers the field won't trust, which is worse than the problem you started with.
Wrote CONTROL, the 8 step system behind these figures. More about the author.