View from the Field Part 4 - Labor Productivity Management - Prospective

View from the Field is a series of blog posts providing a practitioner’s view of the management processes and challenges associated with construction megaprojects as well as large and complex projects. Addressed by both Edward W. Merrow of Independent Project Analysis, Inc. (IPA) and construction lawyer Andy Ness at a recent ABA Forum on Construction Law conference, their high-level perspectives are elaborated. This multi-part series has and will expand upon some practical aspects of the many challenges facing managers as well as highlight suggestions for implementation by inside or outside counsel.

Summary – Prospective Labor Productivity Management

Labor productivity issues and challenges in the construction industry have been studied, analyzed and chronicled for decades. Highly respected sources of strategic and managerial thinking such as McKinsey & Company have offered extensive macro-level perspectives on labor productivity in the construction industry. This practitioner-level review and analysis offers a micro-level perspective with an emphasis on managerial pragmatism. Even further, labor productivity can be bifurcated into prospective and retrospective considerations. This first offering is prospective – with managerial tools and techniques that can be implemented promptly with potential for significant benefits for the direct hire contractor. For the direct hire contractor, Labor Productivity can be your Competitive Edge or your Curse. This is your tool kit to achieve Competitive Edge.

Part 5 of this series will address Retrospective Labor Productivity Managerial Options.

Labor Productivity Management – Elevated Importance

In many industries, the project delivery contracting strategy has shifted from Design/Build (D/B) or Engineer, Procure, Construct (EPC) to Design-Bid-Build (DBB). IPA’s recommended strategy for large and complex projects is DBB. For the construction contractors (subcontractors), DBB places heavy reliance on the management of direct labor, hence labor productivity. 

For the direct hire contractor, the risk profile of the individual project/contract can be quite high. When direct labor costs are a high percentage of the contractor’s direct cost pool, labor overruns can have serious consequences. Schedule-centric managerial approaches, such as Lean Construction, Advanced Work Packaging (AWP), Installation Work Packing (IWP) and others must be combined with labor productivity management techniques. Together, this combination optimizes the time/duration to perform the work as well as sizing of the labor crew. This harmonizes time and related schedule management with labor productivity management. Thus, direct labor-related costs.

Finally, craft labor shortages in the construction industry are well recognized and highly problematic. Improving the labor productivity of existing direct hire workforce serves to mitigate shortfalls as well as to enhance the competitiveness of the contractor’s construction business. 

Direct Hire Contractor Management Recommendations

Key Performance Indicators (KPI’s)

KPI is the best leading indicator of project conformance with or variance from the project baseline. Measure your actual field labor productivity weekly. Productivity KPI’s can be calculated using “Earned over Burned” (Earned Work Hours / Actual Work Hours). Since Actual Work Hours are determined weekly for payroll, weekly assessment or calculation of earned value (e.g., billing quantities) or related Earned Work Hours budgeted is all that is needed. Weekly assessment of labor productivity on the path of construction provides a “leading indicator” of project success or problems. McLaughlin & McLaughlin has managed projects with serious labor productivity issues and found that they can be resolved efficiently during erection and/or resolved with greater certainty when using dispute resolution processes.

Peak Labor Reduction

In times of construction craft labor shortages and individual skill shortfalls, the direct hire contractor can achieve a competitive edge by managing to achieve a reduction in the contractor’s peak labor count on the job. For example, a job budgeted at 100,000 direct labor hours over one year duration would have a peak labor force of approximately 72 workers. If labor productivity (PR) was .75 (worse than 1.0), the peak would be approximately 89 workers. However, enlightened management could improve this PR to 1.15. If done, the peak labor would be reduced to approximately 61. This reduction in crew size (89-61=28) reduces the demand for additional workers. In times of labor shortages and supervisor challenges, this serves to lower costs and supervision complexity.

Path of Construction

Use an execution strategy that is focused on labor productivity on or near the Path of Construction. Apply this focus and the rest of the job will almost take care of itself. Use Workface Planning coupled with Lean Construction, in some blend or fashion, on the Path of Construction. Coupled with a sound productivity management concept and plan for site logistics, the direct hire contractor will enjoy the benefits of effective field labor productivity management. Use a weekly Key Performance Indicator (KPI) of “Earned over Burned” (Earned Hours / Actual Hours). This leading indicator will give supervisors and managers positive control of the productivity. 

Lean Construction

Lean Construction has achieved richly deserved popularity in the industry. The Lean Construction Institute’s mission is “…to transform the fragmented design and construction industry through lean thinking, tools and technology.” Advocates Joe Donarumo and Keyan Zandy offer workshops and have authored The Lean Builder, A Builder’s Guide to Applying Lean Tools in the Field.  “Hoots on the Ground” is highly informative.  While very popular and apparently highly effective, a complimentary management tool is still needed to address field labor productivity. Just as the Last Planner System^TM uses Key Performance Indicator (KPI) “Percent Plan Complete,” a labor productivity management plan and KPI is needed. Weekly Productivity Ratio (PR) is simple, efficient and effective. “Earned over Burned” is easily implemented and is compatible with Last Planner System^TM.  All direct hire contractors and trade partners should incorporate a Labor Productivity KPI into their managerial tool bag.

Advanced Work Packaging (AWP) and all

Advanced Work Packaging (AWP), Workface Planning, Installation Work Package(ing) (IWP), Construction Work Package(ing) (CWP) and other related schedule-centric managerial approaches have considerable value in managing labor productivity. Construction Industry Institute (CII) offers publications that cover these approaches. Using this managerial process is a strong option with planning as the key.

Acceleration

During project planning and execution, the project / construction management teams are often confronted with requests or demands to accelerate performance. Whether using specific methods or performance-based approaches, the acceleration requirement, virtually without exception, degrades or reduces field labor productivity. Regardless of the rationale for acceleration, the contractor should choose an approach that minimizes the negative impact on the contractor’s field labor productivity. Prolonged scheduled overtime (more work hours per week than planned) rapidly degrades field labor productivity. Avoid widespread use of this choice. If necessary and feasible, apply scheduled overtime to the path of construction, not the entire site. Rotate the specific personnel. A better choice is shift work where a second shift can be implemented on or near the path of construction. Use proven techniques for planning and managing this second shift. Above all, manage acceleration involving field labor with great care.

Single Source of Truth (SSOT) 

The data management associated with field labor productivity is a key consideration. Define the productivity-related data in the Project Execution Plan. Gather the data on a contemporaneous basis (needed regardless), and control access to the editing or changing of this data. This ensures availability if claims for additional compensation for productivity-related losses become desirable.

Modularization

Likely, the most commonly suggested managerial option to labor productivity management is to fabricate or erect modules (portions of the total scope of work) using an offsite fabrication facility. A legitimate discussion of a modular erection strategy would require a dedicated post. Suffice to say that the strategy has merit, given the right circumstances. Like AWP, advanced planning of work packages is needed. Further, logistics planning associated with transportation of the module(s) from fabrication facility to the job site work front is a must and requires substantial skill.

Conclusions (Part 4)

Proactive management focused on field labor productivity can have many positive impacts:

• Offsets Labor Shortages – reduces the number of field labor, mitigates the impact of shortages and reduces the complexity of the related supervision.

• Reduces Risk – reduces the risk of cost overruns by managing the smaller total labor force at the site and the need for new hires.

• Facilitates timeliness – identification of negative events and variances, when recovery options are still available.

• Creates Acceleration Options – Allows management of the productivity-related negative impacts of acceleration situations.

• Enhanced Profitability – The direct hire contractor can reliably operate at or beneath the contractor’s cost and labor estimate baseline.

For the direct hire contractor, this becomes the Competitive Edge not a Curse.

View from the Field – Retrospective Labor Productivity Managerial Options (Part 5)

Having discussed Prospective Labor Productivity Management, Part 5 of this series will address the challenges of Retrospective Labor Productivity Managerial Options.

Author George T. McLaughlin PMP CCM has worked worldwide in this industrial marketplace since the early 1980’s. He serves Owners, Prime Contractors, and Subcontractors. For the most part, Mr. McLaughlin’s work is performed on-location where the relevant work is being performed hence the title “View from the Field.” Mr. McLaughlin is a principal of McLaughlin & McLaughlin out of Austin, Texas.