Until 2010, crews at Gothic Landscape approached labor on most jobs the same way. Typically it didn’t matter if a project would be complete in a few weeks or take several months to finish. The company would be awarded a contract, often start the job within days and begin to learn several weeks into the job how the labor crews were performing compared to the estimate. On large projects it was not unusual to find direct labor hours exceeding budget estimates without early warnings.
“At the time, we were doing a lot of large projects, especially prevailing wage jobs where the governing agency dictates wage rates that can be three to four times greater than employee private wages,” says Nick Arena, vice president, administration for Gothic Landscape, based in Valencia, Calif. “As a landscape contractor, you never want to have a bust in your labor, but if it’s a private wage job, you may be able to offset the additional cost, reduce your margin or absorb a loss on the job. On large prevailing wage jobs, a 1,000 hour labor bust and excessive overtime could noticeably impact branch profitability.”
It was the late Gothic owner, Mike Georgio, who recognized the need for a labor management system (LMS). He tasked Brian Rasmussen, vice president of operations, and Arena to develop a system that would improve labor management. The system had to provide for scheduling and production reporting of labor tasks as estimated in the project budget. It was required that the system identify labor problems and success on a daily basis to allow managers to respond quickly.
Gothic started the process of creating its own labor management system software application to track labor tasks and budgeted hours. Rasmussen provided Arena an understanding of Gothic processes and tasks that would be needed to manage crews and accurately track labor costs. “Gothic had done some labor management using Excel spreadsheets,” Arena says.
“We made some changes that made were big improvements managing prevailing wage jobs at the time. That’s when we decided it was worth moving ahead and creating a true software application.” Arena was able to create screenshots for project setup, scheduling, production reporting and management reports.
Rasmussen and Arena reviewed the screen shots to verify they were intuitive and to specify the functionality needed to accomplish the software goals. With screenshots and functionality in hand, Gothic found a developer who created the software application.
Now, Gothic doesn’t wait weeks or months to learn how labor is performing on a project. “If we have a job that will take six months to a year, we know in the first week and throughout the project how we’re doing on labor,” says Arena. “In the past, a large labor budget would make it difficult to know exactly how well we were performing on the job. Today, the LMS will throw up red flags if we have a labor problem and we can tell every day whether we were successful or not.”
Arena uses the example of planting 30 trees budgeted at 3.5 hours each. “In the past, the crew would go out and excavate for 30 trees and we were not sure if the labor production was good or bad for the excavation activity.”
The planting of a tree is now broken down into actual labor tasks and the company allocates hours accordingly – maybe 15 percent of budgeted time for excavation, 45 percent toward planting the tree and the remaining 40 percent to staking and pruning. “So after the LMS setup, we know we have 32 minutes per tree to lay out and excavate,” Arena says.
“So, if we’re excavating 30 trees today, we know the excavation should take almost 16 hours and should only require two men. If a four-man crew is on the job, they will need to plant an additional 10 trees to achieve the budgeted labor tasks for 32 hours of labor.”
The LMS allows superintendents to schedule work in advance by matching labor tasks with crew size. This allows for clearly defined work goals and avoids sending more labor to the project than there are work tasks available to complete. “The crux of the LMS system is being able to take bigger units of labor, break them down into sub-tasks, determine what work is available to complete on the job, apply the right amount of labor to the scheduled work and measure performance by entering daily production reports,” Arena says.
“The bottom line is at the end of the day we know the task hours that were budgeted for the completed work and the labor hours that were used on the job.”
Everyone who has a need for the system can check it every day. The operations manager can see if the crews are performing at budgeted production rates for the tasks completed, and the superintendent can add comments to document events occurring on the project.
“So, from a management perspective, you could learn about the job on a daily basis,” Arena says. “You could also use the system to go back and determine if there were certain areas of work where you need to improve.”
Save time and money.
During the last three years since implementation of LMS, Arena estimates Gothic has avoided several hundreds of thousands of dollars in losses. Part of that savings, he says, is due to the company being more disciplined on prevailing wage jobs and using the LMS program. Even though overall labor costs are typically less on private jobs, Gothic uses the LMS on larger private jobs and realizes similar benefits.
To evaluate performance, Gothic monitors “labor efficiency” that is calculated by dividing the budgeted task hours by the actual labor hours. Gothic has improved labor efficiency by five to eight percentage points and today is typically above 95 percent on most projects.
“Now, we recognize quickly when things aren’t going well and jump in to figure it out,” Arena says. “Often, the result is a change that brings our efficiency up or we realize we are performing extra work that may not be in the budget or contract negotiated with the client. Before the LMS, the red flags did not always come up early so they could be addressed timely
All in all, the system proves the old saying, “If you can’t measure it, you can’t manage it.” Labor efficiency is measurable, and when the crews can see the goals they find better ways to be successful. “When you have the ability to set goals that are realistic and meaningful in regards to the budget, the guys can accomplish them,” he says.
“With our system, that’s what we’re able to do. On a daily, weekly or monthly basis, people can get feedback on how they’re performing. We have excellent foremen, but when they go out there without a measurement tool, they do their best but they may not know they’re at 90 percent labor efficiency. When you give them the opportunity to see what it means to get to 100 percent, it’s amazing how they can find a way to step up and get 3, 5 or 10 percent more.”
The author is a freelance writer based in Cleveland.