NARI Recertification: Labor Cost Management

Estimating a remodeling project generally involves three components: labor, materials and subcontractors/trade contractors. Of the three, labor tends to be the wild card. Labor, as a percentage of the total job cost, varies depending on the job size, the complexity of the work to be done, and how much the remodeler does in-house. That is why it is important to have a reliable process in place to control labor costs as much as possible.

“When discussing labor, it refers to the portion of work being done on an hourly basis by a remodeling company’s own employees,” explains David Callahan, CR, president of Callahan & Peters, Inc., Glenview, Ill. “It’s the hardest to estimate and the most difficult to keep track of when a project is underway.”

Callahan has come up with a seven step process for managing labor costs. He sees it as a looping series of events that continue to feed into the system and create a more reliable means of dialing in labor costs.

Managing the project

  1. Estimate: The process begins with the estimate. Most remodelers have an estimating system with varying levels of sophistication. Generally the work is broken down into job categories with man-hours assigned to each. For example: rough framing, window and door installation, interior trim, etc. The bid prices were based on an estimate of how many man-hours it should take to complete. The profit then hangs in the balance of completing the project in that time frame.
  2. Share Information: In order to make sure that tasks are being completed in the time allotted, it’s important to share with the employees doing the work how long operations should take. Some companies will even include a bonus incentive to employees if their labor comes in at or under budget as a way of controlling those costs.
  3. Collect Data: It’s important to collect labor data daily. This usually involves time cards in one form or another. To track labor, Callahan uses a paper form that his employees fill out with the task code, the time they began the task and the time they ended the task or moved on to something else. On the back of this form, all of the task codes are included for reference. These task codes correspond to his estimating system and helps his company keep track of what parts of a project labor is being applied to.
  4. Record Data: Labor forms should then be recorded into the estimating system. This will allow an up-to-data account of where the project is, where it should be and how it is pacing. This also avoids anything from slipping through the cracks, or a project from going grossly out of control in man-hours and can be reined in sooner.
  5. Feedback to Project Management: Labor information then needs to be shared with the project managers so they know what is happening on the project.
  6. React/Correct: With a daily recorded account of labor, management can now analyze that data and handle any problems that may need to be addressed. If the project is taking too long or goals are being missed, the sooner someone knows about it, the sooner it is possible for someone to take some corrective measures like providing help at a lower price or bringing in tools that will expedite the project.
  7. Job Autopsy: With the project completed a remodeler can now closely exam the job and glean something from the data. Since data was collected through the entire project, a final job cost report should be generated. The labor times, in turn, can then be applied to future projects when trying to more accurately estimate labor cost, completing the labor costs process loop.

“With the history in place, you now know just how many man-hours all of those categories took and can use that data to input into your estimating system,” adds Callahan. “Hopefully, over time, this historical data geared toward your company will produce a more accurate result so that you’ll be able to estimate more accurately and retain a bigger profit on projects as time goes on."

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