Replies

1. 
   Flathead | Jun 04, 2003 03:54pm | #1

   Big T,

   Its a tough deal. No one wants to hire a talented man only to let him go in a short period of time. Its not fair to the employee and it makes the other guys feel uneasy.

   About being sent home early, have you tried to expand your range of skills?

   WAHD

   View Image

2. 
   ProBozo | Jun 04, 2003 04:42pm | #2

   Look at it this way...does he really need grunts at all?  Whoa, wait a minnit, put that down!

   He works thru subs, how much work is going that way?  He has the field super to keep the subs on-line.  Many of the the GC's around here have that setup...boss is design/sales, wife or whoever does books, field guy runs the subs.  No carpenter/laborer emps, all is subbed out.

3. 
   r_ignacki | Jun 04, 2003 11:37pm | #3

   last year el diablo (the boss) did 5.2 million, with a staff of approx 35.  Out of the 35, 7 are office people. There are long days and short days, nobody complains about a shortage of work/hours.
4. 
   JerraldHayes | Jun 05, 2003 12:57am | #4

   MrT I'm in ProBozo's camp. To me "high end remodeling firm" and a configuration of one real experienced carpenter and 2 younger carps in their late 20's) plus a High school voc.-ed kid doens't quite jive. That's kind of an oxymoron. The next problem I have is with the ratio of volume to production staff. Admittedly I'm in suburban NY where the costs are amongst the highest in the nation but that sounds ridiculously low. Did that 300 to 500 K include the subs contribution to volume? If it did that sounds really really wrong.

   "I feel we need more talent in the field, but I doubt the boss will pay a good man what he deserves, so we will probably end up with 1 or 2 more young guys to mold into proper woodbutchers." I just wish I could get some young people myself but having more lower echelon trade personnel than skilled just doesn't make any real sense unless the work your company does generates tons of repetitive task and/or menial labor type work. Move up the unskilled too fast and you'll pay for it in the end with rework.

   I like to see companies with a rough production worker ratio of skilled:semi-skilled:helper of around 4:2:1 and it's been my experience that the ones I do see like that are the ones that are really doing things well. That one "field supervisor" should be able to coordinate and supervise those 7 production employees and the subs if he/she is worth their salt and the company has a legitimate working infrastructure.

   "currently we have 6 or 7 jobs running but guys have been sent home early!!?? go figure." That would have me really bothered and to me it reveals a dangerous underlying problem or set of problems. In another online forum a while back I wrote about the Cost Of Schedule Overruns citing something I read in the book Critical Chain (the most valuable book out there on project management) where it said:

   "…

   We invest in a project in order to get something that will bring us benefits…Therefore, it must be that the penalty of not finishing on time is related to the delay in getting the expected benefits."

   I then wrote:

   Applying that (thinking) to the internal viewpoint of the contractor the loss is a day of revenue. If there are 260 days in a year where a company can earn money and over the cost of the year the company loses 7 days due to falling behind schedule, the company loses that 7 days of revenue and it’s accompanying profit. The company lost those 7 days of opportunity to earn a profit.

   On the one hand some people can find it sort of easy to dismiss and blow that off by saying, "well it’s not that bad in that just means we just didn’t earn as much money as we expected." It’s sort of a "paper" loss and the idea that it was an "opportunity missed" doesn’t hit home real hard.

   But there is another loss associated with a day lost falling behind schedule that is cold hard cash spent and wasted. Everyday of the year that a company is in business it spends or invests X amount a day in operating expense. AKA Overhead. That money is spent regardless of whether or not the company is earning any money that day.

   So in much the same way that it doesn’t make sense that we would pay our employees to stand around and do nothing all day, when we fall behind schedule a day we are essentially paying our Company (via overhead) to stand around and do nothing. Does that make sense? The ratio of revenue earned to overhead spent drops.

   In that hypothetical company model I mentioned that I been looking at I’ve got it optimally earning just about 1.1million dollars per year.

   With Direct Job Costs $742,200 it spends $256,200 per year on overhead (23.29%) and it’s earning a Net Profit of $101,599 (9.24%) for a combined Gross Profit Total of $357,799 (32.53%).

   Saying that there are 260 workdays in a year available in a year for the company to earn money that works out to $985.38 in Overhead a day!

   So for this "Million-Dollar-A-Year-Company" each day that it is late it is spending $985 on nothing (a hard cash loss) while also losing the opportunity to earn $390 in Profit (the paper loss).

   The Harvard Joint Center for Housing reported in 1994 that seven out of ten remodeling contractors reported revenues of less than $250,000. So maybe I can by extension and inference I can say each day the average contractor today doing $250,000 a year in volume is late it costs them $246 cash plus a paper loss of profit opportunity of $97.

   If my assumptions are correct those are some pretty hard numbers to swallow.

   If your company's projects are sitting idle while people are being sent home early something dangerous is going on. I've seen some contractors do just that to drag out a projects length just so they "could keep their people working until the next project came along" (which I don't think is good proactive either) but if you have 6 or 7 projects running the problem is something else and I'd be very worried that the problems were related to cash flow and they needed another new job so that they would have the cash to finish the outstanding work.

   One of the very worst things you can do as a contractor is to have a dangerously high volume of work-in-progress relative to his production capability (which is essentially equivalent to unsold inventory from manufacturer point of view).

   "The bosses current favorite "explanations" are growing pains and the uncertainty of remodeling. " Huh? 'Not to sure about that. The growing pain your company feels might be that it doesn't have a real growth strategy and it now finds itself overextended. I have recently been working on an article I hope to get published somewhere regarding contractor failure and the top reason that I've seen most often mentioned in my research is "Growing too fast."

   My list (so far):

   1. Growing too fast.
   2. Poor cash flow
   3. Dramatic increase in single job size
   4. Obtaining new types of work. (diversification can be dangerous)
   5. High employee turnover ( the hard and soft costs of recruiting hiring and training new staff is enormous! not to mention the losses in productivity)
   6. Poor estimating and job costing
   7. A poor accounting system
   8. Buying Dumb Stuff (ego purchases like a Hummer for a work vehicle or a digital shaper to make $500 worth of molding)
   9. Obtaining work in a new geographic region (working in Manhattan is nothing like working in suburbs)
   10. Inadequate capitalization
   11. Poor scheduling

   "the uncertainty of remodeling. " phrase has me wondering too. Does he mean the uncertainty of getting work? I dunno, this is a pretty robust market we're in nowadays. While there are some real soft spots around the country the building and remodeling sector has been doing more than it's fair share to hold up the economy. When people talk about "the uncertainty of getting work" what they are reacting to is the fickle peak-and-valley nature of word-of-mouth referrals. that's why I think no company should rely solely on word-of-mouth unless they have a year of signed and contracted backlog. The boss should be marketing (adverting) the business to fill in the valleys and get a steady flow of projects.

   Hey it might not be all that bad and I've certainly stressed the worst cases here but given the high industry failure rate it all worth considering and you did ask for some insight.

   ---

   View Image

   "Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it's the only thing that ever has." - Margaret Mead

1. 
   xMikeSmith | Jun 05, 2003 04:50am | #5

   good post jerrald... now if i could act like eisenhower to his staff..

    "give that to me in one paragraph"

   Mike Smith   Rhode Island : Design / Build / Repair / Restore

1. 
   skipj | Jun 05, 2003 05:13am | #7

   Mike,

   Your post reminded me of my favorite executive memo ever.

   It's from Winston Churchill, his first after being elected Prime Mininster after the start of WW2. At the time #### subs and ships we're decimating English merchant shipping, which England, as an island, was dependent upon for it's very survival.

   (Forgive any memory lapses, causing me to paraphrase)

   Lord of the Admiraltry,

   Pray state, this day, on one side of one sheet of paper current British tonnage, and  the past few month's losses. Also, scheduled completion dates of new ships currently being constructed, and their tonnage.

   Winston

   Winnie wanted to perform a very simple math problem. How long can we survive? No kidding, no politics, no bulls***...

   skipj

    

   Edited 6/4/2003 10:27:02 PM ET by skipj

2. 
   JerraldHayes | Jun 05, 2003 05:28am | #9

   Funny Mike your post also jolted me and reminded me of my favorite Esinhower quote:

   "In preparing for battle I have always found that plans are useless, but planning is indispensable. "

   View Image

   "Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it's the only thing that ever has." - Margaret Mead

2. 
   skipj | Jun 05, 2003 04:53am | #6

   Jerrald,

   Outstanding points, and I must say, rather well written,

   That said, don't you think that Mr. T should make a serious effort to get that paycheck to the (owner's) bank and cash it before the rest of the employees, vendors and subs? It sure feels that way to me.

   skipj

1. 
   JerraldHayes | Jun 05, 2003 05:26am | #8

   Thanks fellas ( I have been writing a lot lately so I'm in pretty good shape for that but I couldn't drive a nail straight even if it was pneumatic right now) Come to think of it I actually had a job for a company like that when I was younger ('85). I would have fit the "younger carpenter in the late 20's" profile at the time. When I got pulled off of one job one day and sent to another venue with another carpenter to build a new set of stairs for a deck I was sort of perturbed when I got there and there weren't any materials at all. When we couldn't reach the big boss to find out was was going on and what we should do (which was typical). Finally I just left a phone message for the boss saying to call me at home when things got straightened out and left to work on some of my own side project stuff.

   He never did call. I'm still waiting.

   View Image

   "Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it's the only thing that ever has." - Margaret Mead