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40 Hour Week and Construction Productivity

March 22nd, 2012 by

The “typical” workweek is one that has about 40 hours of work. Most employees see anywhere from 10-20% more work hours than this in a typical week. The following article, written by Jessica Stillman, explains why you should cut your work to about 40 hours per week.

For many in the entrepreneurship game, long hours are a badge of honor. Starting a business is tough, so all those late nights show how determined, hard working and serious about making your business work you are, right?

Wrong. According to a handful of studies, consistently clocking over 40 hours a week just makes you unproductive (and very, very tired).

That’s bad news for most workers, who typically put in at least 55 hours a week, recently wrote Sara Robinson at Salon. Robinson’s lengthy, but fascinating, article traces the origins of the idea of the 40-hour week and it’s downfall and is well worth a read in full. But the essential nugget of wisdom from her article is that working long hours for long periods is not only useless – it’s actually harmful. She wrote:

The most essential thing to know about the 40-hour work-week is that, while it was the unions that pushed it, business leaders ultimately went along with it because their own data convinced them this was a solid, hard-nosed business decision….

Evan Robinson, a software engineer with a long interest in programmer productivity (full disclosure: our shared last name is not a coincidence) summarized this history in a white paper he wrote for the International Game Developers’ Association in 2005. The original paper contains a wealth of links to studies conducted by businesses, universities, industry associations and the military that supported early-20th-century leaders as they embraced the short week. ‘Throughout the ’30s, ’40s and ’50s, these studies were apparently conducted by the hundreds,’ writes Robinson; ‘and by the 1960s, the benefits of the 40-hour week were accepted almost beyond question in corporate America. In 1962, the Chamber of Commerce even published a pamphlet extolling the productivity gains of reduced hours.’

What these studies showed, over and over, was that industrial workers have eight good, reliable hours a day in them. On average, you get no more widgets out of a 10-hour day than you do out of an eight-hour day.

Robinson does acknowledge that working overtime isn’t always a bad idea. “Research by the Business Roundtable in the 1980s found that you could get short-term gains by going to 60- or 70-hour weeks very briefly — for example, pushing extra hard for a few weeks to meet a critical production deadline,” she wrote. But Robinson stressed that “increasing a team’s hours in the office by 50 percent (from 40 to 60 hours) does not result in 50 percent more output…In fact, the numbers may typically be something closer to 25-30 percent more work in 50 percent more time.”

The clear takeaway here is to stop staying at the office so late, but getting yourself to actually go home on time may be more difficult psychologically than you imagine.

As author Laura Vanderkam has pointed out, for many of us, there’s actually a pretty strong correlation between how busy we are and how important we feel. “We live in a competitive society, and so by lamenting our overwork and sleep deprivation — even if that requires workweek inflation and claiming our worst nights are typical — we show that we are dedicated to our jobs and our families,” she wrote recently in the Wall Street Journal.

Long hours, in other, words are often more about proving something to ourselves than actually getting stuff done.

Are your 55+ hour weeks really productive and sustainable?

Why Do Contractors Fail?

March 19th, 2012 by

Most contractors are well aware that a combination of issues can create problems on any construction project.

Average rate of failure

There could be financial changes in the economy, unforeseen changes in jobsite conditions, a death or illness of a key employee, rising interest rates on a bank loan, oil and materials price increases, subcontractor problems, inclement weather …. The list goes on and on.

So how can contractors position themselves to handle those risks that cannot be controlled and avoid those risks that can? Many contractors rely on surety underwriters and professional surety bond producers for their vast experience and valuable resources to avoid extreme risks and overcome challenges.

Risky Business

Because of the interdependent nature of construction, construction companies have a higher failure rate than many other types of companies. Looking at U.S. Census data from 1989 to 2002, the average rate of failure in the U.S. construction industry is almost 14 percent, while the average rate of failure for all industries is under 12 percent.

Average Rate of Failure

Contractor default is an unfortunate and sometimes unavoidable circumstance. According to BizMiner, an industry analysis provider, of the 850,029 non-single family building, heavy/highway, industrial building, warehouses, hotel/motel, multifamily housing and specialty trade contractors operating in 2004, only 649,602 were still in business in 2006—a 23.6 percent failure rate. Construction companies that have been in business less than one year had an even higher failure rate of 36.8 percent.

Even companies that have been in business for fifty years can fail. History has proven that old companies can fail just like new ones, and even good people can experience a business failure.

According to the U.S. Census:

  • -Very small firms (1 to 4 employees) have the highest failure rate
  • -Firms with 20 to 499 employees have the lowest failure rate
  • -Firms with 500 or more employees have a failure rate that falls in between the very small and medium firms

Cost of Failure

So who pays when a contractor fails? On unbonded projects, the taxpayer, construction project owner or lender does. When a project is protected with a performance and payment bond, the surety industry pays for project completion. The Surety & Fidelity Association of America (SFAA) reports that sureties have paid more than $10 billion on contract bond claims since 1992.

Causes of Failure

There are many reasons for contractor failure, and they all boil down to risk. Grant Thornton’s report “2005 Surety Credit Survey for Construction Contractors: The Bond Producer’s Perspective” cited low profit margins, followed by slow collections and insufficient capital as the major causes of financial difficulties among contractors. Surety company executives also have named onerous contracts, unreasonable owners, bad or incomplete plans, tight completion schedules, consequential damages, delay damages, and hold-harmless obligations, higher materials prices, and a shortage of qualified and skilled workers as factors that add risk and can ultimately lead to financial difficulties and default.

Additional contractor failure risks include:

  • -Not bonding subcontractors, where the general contractor assumes he or she can  pre-qualify subs and forgo the protection of the bond
  • -Intangible or uncontrollable work environment issues such as inclement weather, unidentified poor site conditions, inflation, material and equipment shortages, and unexpected economic events such as the Gulf Coast disaster

Overexpansion, whether a change in the type or size of work performed or a move into a new geographic area, is another leading cause of contractor failure. Problems with accounting, management, personnel and performance can all turn “good growth” into unrealistic growth. Accounting and financial management problems include:

  • -Inadequate cost tracking systems, debt burden, poor cash management, undercapitalization
  • -Estimating or procurement problems
  • -A lack of adequate insurance
  • -Improper accounting practices (not adhering to the American Institute of CPAs’ Audit Guide for Construction Contractors)

The loss of loyal customers is another sign the contractor may be in trouble. When loyal customers look elsewhere, it is a sign of a decreasing reputation for the company’s ability to perform contracts on time and within budget.

When it comes to thriving in today’s booming construction market, it pays to have a good relationship with a professional surety bond producer and surety underwriter. These surety professionals are well-positioned to analyze and manage construction risks because of their close relationship with contractors. These surety professionals can be a contractor’s best ally when problems loom. The most important thing a contractor can do is keep the surety informed when problems arise. Communicate good and bad news to the professional surety bond producer and surety underwriter if or when problems begin. Many surety companies will work with the contractor to help him or her through the problem if possible.

A final word of advice:

  • -Understand the surety’s rights and responsibilities
  • -Stay within capabilities
  • -Manage growth and control overhead
  • -Learn the causes and warning signs of contractor failure

Create a Construction Organization Chart

March 14th, 2012 by

Many construction businesses reach a certain size and stop growing because the owners try to do too much work themselves. They have a difficult time delegating and deciding who to hire.

Companies cannot grow if the owner makes every decision about scheduling crews, ordering materials, buying equipment, meeting with customers, deciding which vendor or subcontractor to use, approving change orders, completing every cost estimate, determining the final markup on bids, presenting every proposal, reviewing every contract, approving all invoices, determining employee salaries, etc. You get the idea: You must allow employees to take on responsibilities and do their jobs to build your business.

Hire Smart Construction Managers

When business owners finally make the big decision to hire an experienced manager with a strong resumé, they often decide to move someone from within the company into this key position, even if the person has little or no experience in this area. After trying this approach for a short time without any luck, they resort to hiring a low-paid assistant, untrained field supervisor, junior project manager or an estimator with little experience. Some owners make a bigger mistake than this by hiring a relative or family friend who is out of work.

Business owners tend to make these poor hiring decisions to save money or avoid the time required to hire and pay for the perfect employee or manager. They hope this easy, less expensive approach will work out.

However, if you hire untrained people with little or no senior management experience because they are inexpensive, you will spend all your time answering their questions.

Design Your Chart

Most construction organizational charts show who reports to each manager, but they often do not list each person responsible for each area of the business and the tasks required to achieve the company’s strategic goals.

To organize your construction company, draft an organizational chart by listing on a flip chart all the tasks that have to be accomplished in your company. Use these headings across the top of your chart:

-Business Development

-Operations

-Finance

-Administration

-Management

Then, use a sticky note for each function required in your business. After brainstorming and completing this exercise, post these tasks beneath the headings in logical order.

For example, business development should be the project manager’s responsibility. A full-charge project manager handles procurement, negotiating subcontracts and purchase orders, writing contracts, project documentation, correspondence, customer meetings, change order management, preparing and updating job budgets, approving and updating job schedules, drafting progress payments, approving invoices, meeting contract requirements, achieving the job profit goal, meeting the project schedule goal, gaining customer satisfaction and many other responsibilities.

Delegate Responsibilities

After you complete the chart, assign employees to be responsible for each of the work tasks listed. This can be tricky. For instance, if you allow your project manager to draft the subcontracts but not make the final decision on the price or subcontractors without checking with you first, then this task needs to be broken down into two or three parts to show who will be responsible: draft contract, approve subcontractor and negotiate final contract amount.

On the accountability chart, assign the person who will be in charge of each business function.

Determine Your Role

After determining who will be responsible for each area, decide which areas you should be responsible for based on what you do best and what will help deliver the highest return on your time.

Almost always, the company owner should stay involved with the business development function. By deciding what you should do, you can then create a new job description and management position for someone to take over other responsibilities and decisions you previously handled.

Hire based on what you need to grow your company, not what will help you save the most money. If you take a risk on paying more than you are comfortable with, you may be surprised how well things turn out in the future.

Try This

To organize your company, draft an organizational chart by listing on a flip chart all the tasks and jobs that have to be accomplished in your company. Use these headings across the top of your chart:

·         -Business Development

·         -Operations

·         -Finance

·         -Administration

·         -Management

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