May 26, 2005
Author: Matthew Stevens
Organization: Stevens Construction Institute Inc
If there is a problem with the current construction culture, it is the coordination inside and outside the office. A common complaint is that labor, and to some extent equipment, have to be someplace else. Field management may be taking and holding these resources needlessly or project managers are not communicating with the field well. Everyone is trying to do a good job, so what is the problem? It is the process.
In other areas, does it seem there is too much to bid everyday? Are you are taking on more work from your clients when you should have said "no". Contractors are some of the best entrepreneurs in taking a challenge and making it work. In the back of your mind you think, "I will figure out a way to get it done, I always have"
One of the hardest words for a contractor to say is "no". It is not in their character. They remember when work was not plentiful and it was hard to sell a job. However, these days are far different from the early 90's. Construction companies who are selective in their work are reporting excellent net profits before tax. Executives comment that they did not believe these margins were attainable until the last 10 years. Yes, these are outstanding times in most parts of the country.
Part of the process that companies attribute these higher margins to is the aggressive management of resources. Sometimes they have a point person such as production manager who is focused solely on labor. He places the right people on the jobs where they can be the most productive, while balancing the demands of the customer who would like as many people staffed on his project as possible. The production manager will negotiate with the customer and resolve any scheduling problems. Interestingly, this manager may keep this in his head or on a ledger; however he is the one that schedules a very complex challenge. A skill not easily assimilated if the production manager leaves the company.
Other companies will use a scheduling board that is posted in a visible place. A production coordinator (as they are sometimes called) does much the same thing however, he balances the demands of the field foreman for people with the limited supply of good people. The foreman interacts with the client and determines the number of people that he needs to build the job while meeting the schedule. This can be a difficult decision for the production manager. As with most professions, playing catch-up is not a desired position. No one wants to be behind the curve on this.
Both of these examples are reactive approaches to scheduling. They operate on the principle if there is no complaint there is no problem. If there is a customer or foreman need then, it is time to act. This type of process leads to stops and starts. For example, people or equipment being pulled off jobs to soothe a G.C.'s grumbling. As we have learned, people do become more productive as they continuously work on a project (up to a point). If they have to come back, it is a disruption. There is lost time as they relearn the project plans, getting reacquainted with the people and the multiple variables of the job.
Stevens Construction Institute has taken time to study forecasting and scheduling. We have made a concerted effort to make it simple and effective in our approach. Some of the principles utilized make for a long-term solution to an age-old problem.
As part of our explanation, let's define terms:
Resource - any key ingredient in the construction process. Typical ones are skilled people, key management, heavy equipment, material on allocation, or specialized tools that are between projects.
Scheduling - that activity which determines where a resource should be on a given date and time. This involves many considerations such as logistics (where it needs to come from), demands of the customer, congruence with the needs of the job and cost consequences.
Forecasting - that activity which projects needs over an extended period. It is an educated guess based on many factors: projected completion and start dates of jobs, current backlog of work, current outstanding bids, and projected construction activity of market. The same process that an estimator goes through. Again, an educated guess gleaned from various information sources. However, effective forecasting of needs helps construction companies keep from having extremely high or low work volume. It keeps them moving right along at a steady efficient pace.
When we look at Resource Forecasting, we break it down into four distinct areas:
• Work in Hand - current work that is committed by contract, letter of intent or verbal notification to mobilize and man the job.
• Outstanding Bids - these are proposals that are yet rejected or accepted by the customer. Bids still in "play".
• Outages - special demands of the resources such as planned rebuild of equipment, vacation or other leave of key personnel and material on allocation therefore scarce.
• Summary Forecast - this is where the resource demands are added together to give a picture of what the next weeks or months look like. Do we have enough people? Should we start inquiring about renting equipment? Is it time to start prefabricating extra material for an impending rush of work?
• Monthly Work Projection - this reflects the work in hand and projects the demands for the scarce resource. Each project manager forecasts his jobs. He is the best person to do this. He inputs the number needed for the resource, such as a Caterpillar D-9.
• Monthly Bid Projection - this requires the estimating group list each project bid, load with critical resources needed and the probability of winning the job.
• All open projects - this is where the company is still being considered, are updated periodically. Resource allocation should not change however, probability of winning might.
• Shop manager or other appropriate manager updates an Outage Sheet (engine rebuilds, vacation schedules, pre-fabricated material production demands). This information will help determine how the field schedules will be affected.
• The Executive Forecast Sheet gives Senior Management a street-smart view of the future. Note that bid projections (B) are separate from actual demands (A). This keeps executives from overreacting to aggressive bidding
In this example, these input sheets and the summary page are accessible via the company Intranet. We have used MS Excel software with macros. This allows real time information for senior management. As soon as input is placed then the system recalculates a new output.
We have found the following principals to be central to effective forecasting:
Principle 1 - Contractors who constantly focus on managing scarce resources will out produce their competitors who do not. Only through a structured process can consistent results be achieved.
Principle 2 - The use of common software leads to faster training and less expense than specialized software. (Contractors make money by what software does, not by owning and operating it)
Principle 3 - Production forecasting shows the product of the people closest to each component of it. That is, a) production people project current work demands, b) estimators project probabilities of winning jobs c) other appropriate managers schedule planned outages.
Principle 4 - A structured process is needed to free up people to think clearly, not just do the act of scheduling and forecasting.
The next step to adopting this approach is to implement the process:
• As in all improvements, people need training to assimilate the new process. This gives the knowledge to utilize it and the confidence to start using it.
• Care must be taken to test the process in your company. Typically, successful tests are performed on a small basis with some of your best people.
• Meetings must be held on a periodic basis to review forecasting results. These further discussions are needed to refine overall demands predicted by the template. Questions such as: How will we satisfy demand? Can we move a start either earlier or later to take out the over commitment?
Why would a company undertake such a change in their operation? There has to be compelling and lasting benefits. From our experience, we have found the following.
• This process will force communication about resource allocation thereby increase amount and quality.
• Forecasting will occur in an open environment therefore think and learn more about it. Keep in mind, charging one person to do it will become a serious operational problem when that person leaves.
• Less surprises therefore more steady and efficient use of resources on each project.
• Bidding is treated as a pipeline and therefore will be better managed.
In summary, contractors struggle with the feast or famine cycle of construction. Companies who target larger work know this intimately. The swings are enormous, sometimes on the order of hundreds of crafts people and equipment pieces. Firms that focus on smaller work feel it also, however less so.
These swings will never go away. However, taking a forecasting approach that gives you proactive information can minimize them. With this information, a manager can then move projects around to minimize disruptions. Sometimes this involves prompting the client to start and mobilizing earlier. Other times pre-fabricating material, storing on site and installing it later.
Expert Resource Forecasting does accomplish a fundamental function: keeping resources working in a steady efficient manner. Accomplishing this is the key to higher profits. Years ago, the battle was winning work. These days the question is winning the productivity battle on jobs.
Only through a thoughtful, structured process can this battle be won.
Matt Stevens is a management consultant who works only with construction contractors. He can be reached at [email protected] His firm, Stevens Construction Institute is located at stevensci.com