During a recent consulting trip to the western U.S., I met with a number of landscape contractors who were having difficulty bringing in their installation projects on budget.
One company in particular comes to mind. It was doing high-end residential work in the greater San Francisco Bay area. Its maintenance division was fine.
Crews were adhering to the budgeted number of labor hours for each account and, subsequently, margins were in accordance with industry benchmarks. However, the margins on individual construction projects and, as a result, the whole division, were too low.
The office manager told me that she was so busy that job costing for installation projects often did not happen until two weeks after the projects were completed.
Diagnosing the problem.
A contractor needs to understand the concept of risk management. Ask the question, “What is it that jeopardizes the profitability on a job or division?” The answer to this question is almost always labor hours. My analysis shows that approximately 90 percent of the risk to profitability is caused by labor.
Materials, equipment, subcontractors, general and administrative overhead all contain some risk, to be sure. However, the risk they cause pales in significance to that caused by labor.
In order for you to achieve profitable installation projects (or any projects for that matter), you have to measure your risk – labor hours.
You have to plan (estimate) it and monitor (job cost) it. If your are bidding your work by factoring your material costs (material cost multiplied by two, three, etc.) or unit pricing ($500 per irrigation zone, $45 per flat of color, $18 per patio square foot, etc.), you will never be able to measure and control your risk.
You can’t measure what you don’t quantify. As Tom Peters says on in “Thriving on Chaos,” “What gets measured, gets done.”
Then print out and show crew leaders, designers, estimators and owners the results daily.
The office manager should still do a final job cost report for each job, but this won’t improve production. Job costing projects on a daily basis will do the trick.
You will be amazed at how this simple exercise will improve production and consequently, the bottom line for individual jobs and the entire division. L&LJIM HUSTON runs J.R. Huston Consulting, a green industry consulting firm. See www.jrhuston.biz; mail email@example.com.