Labor productivity is a vital aspect of each construction project both to allow the builders to accurately and profitably bid on a project and to allow for appropriate measurement of damages in the event of change orders or claims for damages predicated on impact and acceleration.
This will begin a series of articles on craft labor productivity. The objective of these articles will be to outline an approach to labor productivity measurement that can be utilized to measure damages claimed on a project in the event of dispute and even can be adopted by general and specialty contractors on residential, commercial and industrial projects. The principals will be equally applicable to contractors who have a productivity measurement system or those who need a simple, inexpensive measurement approach. The approach will focus on the measurement for labor-intensive construction activities at the crew level.
Considering the importance of labor productivity analysis in both project management and dispute resolution, one would expect to find a large body of well developed and easily accessible information describing how to recognize and quantify productivity problems and offering proven remedies. However, relatively little reliable information exists on what affects productivity and, perhaps more importantly, by how much. Generic and broad guidelines have been prepared by the Business Roundtable and various trade organizations such as CII, but construction experts prefer to analyze specific project circumstances to determine the specific factors affecting productivity. Experts prefer to focus on the way in which projects are planned, bid, organized, managed and executed. Most agree that productivity must be measured and managed before it can be improved.
This article, and the ones following it on the same topic, will seek to analyze fully this vital area of inquiry.
The approach to be described is not restricted to any particular project size or type. The techniques can be applied equally well to lump sum, unit price, time and material, and cost reimbursable contracts, and can be used by owners, general contractors and specialty contractors.
Attorneys often learn productivity basics through client representation, but few have hands-on expertise in labor productivity measurement systems. Nevertheless, it is attorneys who are usually the judges or arbitrators who determine appropriate damages thus the analysis below, based on relatively objective analysis, is important to master so as to allow convincing measurement of damages in those forums.
BARRIERS TO MONITORING PRODUCTIVITY
Remarkably, even today, many contractors do not measure or monitor construction productivity. Common justifications for not doing so include:
1. I've never really monitored productivity, 2. I don't know how to properly measure productivity, 3. A productivity control system would be too expensive for me to maintain, 4. My competitors don't measure productivity, so why should I?, 5. Productivity can't be controlled, 6. Productivity measurement will not tell me anything about my project that I don't already know, and 7. Most of my jobs are cost reimbursable, so I don’t have to monitor labor productivity as I would on fixed price work.
The first two reasons cited above are a reflection of past practices where productivity measurement was not a necessity. However, increasing competition for projects, moderate inflation rates, increased project complexity and greater exposure to legal and financial risks are beginning to change this situation. Productivity measurement has emerged as an inexpensive way to control one of the more important contractor risks - craft labor costs and proof in dispute resolution or litigation .
ORIGINS OF MEASUREMENT SYSTEMS
Historically, the most widely known productivity measurement systems have emerged from the industrial construction sectors. Here, firms such as Fluor, M.W. Kellogg, Bechtel, Ralph Parsons and others have treated productivity control as a companion to estimating, cost accounting and cost engineering systems. Understandably, many smaller contractors have been discouraged by the apparent complexity and the expense of operating a large, complex cost control system. The prevailing attitude seems to have been that productivity measurement must be a part of a complex and expensive cost system. In reality, however, the two functions of productivity control and cost control can be separated, and, in doing so, productivity measurement and control can be made simple, inexpensive, effective, and timely.
The last few barriers to using productivity measurement can be considered together. Studies have consistently shown that certain problems result from the way projects are designed, organized, planned, and managed, and that these conditions exist on large, small, commercial, industrial, union and merit shop projects. A growing body of knowledge says that productivity can be measured and controlled at relatively little cost to the contractor. And if litigation ensues, it is often a critical measurement of damages. See our article on Impact and acceleration. Thus, if such analysis is already in use by the builder, both the project and the litigation are enhanced.
CAUSES OF LOST PRODUCTIVITY
The following are a few of the more commonly reoccurring causes of poor productivity that are often within the control of the contractor:
1. Crews are too large, especially at the beginning and end of an activity,
2. Stockpile and storage areas are poorly organized or not adjacent to the work,
3. Materials are inadequately marked or not organized for efficient retrieval,
4. Housekeeping practices are poor,
5. The contractor is unable to maintain continuity or momentum because crews are reassigned to different work or locations,
6. Work of one crew interferes with that of another,
7. Sequencing and control of the work are poor, and
9. Material deliveries are untimely.
This list could easily be expanded, but the important point is that these causes exist to varying degrees on all construction projects. Many of them are subtle and appear gradually. Some exist, but are never noticed. Often, by the time a problem is noticed, the damage has already been done. In other cases, corrective action is perceived to cost more than it would save.
Other causes of productivity loss that manifest themselves on impacted jobs and lead to claims are often beyond the contractor's control such as:
2. Out-of-sequence work
3. Schedule Acceleration
4. Owner Changes
5. Extended Overtime
6. Defective contract documents
7. Trade stacking and congestion, and
ROLE OF PRODUCTIVITY MEASUREMENT
In view of the controllable and uncontrollable factors affecting productivity, what then is the contemporaneous role of productivity measurement and performance evaluation systems? At a minimum, they should:
1. Provide early warning signals before the problem is serious or unmanageable,
2. Provide answers the questions: How serious is the problem(s) and why is it occurring?,
3. Provide the basis for measuring the financial impact of alternatives and,
4. Provide a means of quantifying impacts.
The following terms and definitions are relevant to productivity measurement and will be part of future articles:
Account - A record or identification scheme used to categorize information about a specific work item or activity. An account represents a discrete part or category of the work to be performed. For example, an account may contain the man-hours used in the erection of formwork for elevated slabs.
Control Account - A control account consists of a grouping of related accounts or activities where each account contains a unique degree of difficulty or level of effort required. For example, the accounts for wall, and slab formwork may be grouped into a single control account entitled formwork.
Control Budget - The base estimate of man-hours, quantities, and productivity for an activity or account, the control budget is used for comparative purposes to evaluate performance.
Earned Value - This technique is used for calculating the percent complete of a control account. It often uses a weighted average approach in which the weight assigned to each individual account in the control account is based on the initial man-hour estimate for the account compared to the sum of the initial estimated man-hours for all accounts included in the control account.
Forecasting - The process of projecting the total man-hours or cost required to complete an account or activity is called forecasting. Forecasting is a part of performance evaluation.
Performance Evaluation - This process involves the comparison of the actual progress and productivity to the control budget. It includes the comparison of quantity installation rates and man-hour consumption rates.
Performance Factor - A measure of construction efficiency, which equals the planned productivity divided by the actual productivity. This ratio is sometimes called a PF value or a rate ratio. A ratio greater than 1.0 signifies better-than-planned performance.
Productivity - Man-hours required per unit of work, productivity is the input divided by the output and is usually calculated for a finite time interval. It is also commonly referred to as a Unit Rate.
Productivity Measurement - This process of quantifying the man-hours and quantities associated with an activity or account provides the measurements used in productivity calculations and performance evaluations.
The next part of this series shall begin to apply the above definitions for practical applications.