(prō'dŭk-tĭv'ĭ-tē, prŏd'ək-) n.
The rate at which goods or services are produced especially output per unit cost of labor. Or if you prefer how much does it cost to install a unit.
For subcontractors this is a very critical item since the majority of our profit is dependent on the productivity rate. It is also much more difficult in construction since the units and the ability to measure are not static, like they would be on an assembly line floor.
Enough about what it is, the big question is how do we improve it? There are four specific recommendations that I have seen work and should be part of any program to improve productivity.
- Track the Productivity
- Create incentives for production folks that match improvement in productivity
- Review costs
- Empower a single productivity manager or czar if you will to improve and be held accountable for productivity
In an article
I wrote earlier, I discussed in depth tracking productivity. I know this sounds like a no brainer, but there is no way to understand and improve something you are not measuring. You would be amazed at the number of contractors that do not measure productivity in a measurable and accountable way. Sure most of us understand if we used more total labor on a project than was budgeted, but that is not actionable data. You need figure out good units to measure and measure them religiously. Without tracking you have nothing. Without tracking you are telling your production employees that it is not important to you. You can gain so much by tracking the information and sharing it throughout the company.
Incentives matter. We are only human and when we are rewarded for behavior we repeat it as predictably as Pavlov's dog. Notice that I did not mention good behavior? Any behavior we reward will most likely be repeated, therefore the challenge becomes creating programs that isolated good behavior. Some of the easiest ways to do this with production is paying employees by the unit. This has a distinct relationship between output and payment, but it excludes things like safety, quality, and customer satisfaction. I am not here to discuss the benefits of one type of program over another, but you must recognize that any program must take into account all of the behaviors you want to affect and there is more to contracting than making money.
A well crafted incentive program will yield results and remember that incentives are not always money. As humans we are looking for recognition, appreciation, and "perks". Great programs involve all aspects of the human condition to create a win-win for the employee-employer.
Production is not just a labor hour to unit installed math. As a business it is about total installed costs, including all indirect costs. There is definitely a lot of waste in construction even for the companies that track production religiously. Since we typically just track the hour to unit installed costs this does not tell much about true production. If it takes an employee who makes twice as much the same time to install a unit as someone who makes half as much, our production rates are off by a factor of 2. Or if we rent lifts to install duct work at the same rate as off of ladders, our production will suffer. There are lots of costs that can be trimmed or modified for each particular install that will improve production. This review might include raising costs. If you pay your workers $1/hr and the production improves by 100%, you have won.
Appoint Productivity Czar
It is very difficult to make improvements and create accountability without having someone in charge. For most companies with over 30 employees there should be someone that is dedicated to this position. Much like a Safety Manager, this person should be living and breathing the production rate of the company. This person could do more for your financial and business success than anyone else in the organization. Ensure that they think outside the box and that their main motivation is to be an innovator.
With the difficult economy production has improved, but to be a world class contractor you need to be the best. Our customers look for production since it lowers our prices and it improves our schedules. A 10% improvement in the production rate for most of us would yield a 5% reduction in the cost of the production. In good times that means a doubling of the net profit per project, but in this economy it may mean the difference in making a profit at all. I estimate that there is easily 30-40% waste in construction, so finding only a third of that and improving should be relatively easy if we are committed to it.