When the recession hit its peak in 2007-2010 next to the call from individuals needing jobs I received calls from employers for advice on reducing labor burden, aka “Who gets let go.” Most of them had already cut back in other ways, and some even had reduced everyone’s salary. After asking many fact- finding questions, we would then review their organizational charts and the responsibilities and capabilities of their current staff.
The first to go were the ones that demanded high salaries during the peak of the market. Reduction of the higher labor costs, freed up cash flow to sustain other areas of the business. Most of the time companies were taking smaller projects with tighter margins so entirely job costing highly compensated Project Managers and Superintendents was not possible. At the same time those that performed specific tasks like scheduling, safety, accounts receivable, permitting, etc. were let go. The tasks were reassigned to individuals that could do the full accounting role, manage the field and safety, take a project from the cradle to the grave including creating and maintaining the schedules, etc.…
We could easily discuss each employee’s compensation rate, skill set, knowledge level, and current responsibility to make the for mentioned human capital reduction. Then the challenging part came who else has to go because they won’t cheerfully take on additional responsibility and recognize how fortunate they are to be still employed. Those decisions now had to be determined by the employee’s behavioral traits. Will they do what it takes to help this company succeed whether their primary responsibility or not? Will they do it with an appreciation for having a job?
The below slide shows how skill and knowledge can be measured as you can verify what a person can do. Attitudes we can see, but motives, traits, and self-image are difficult to measure or observe. Will an employee choose to give their all and be committed to their job regardless of the ever-changing environment surrounding them? Most owners personally had to look in the mirror themselves and ask the same question.
There are very few employees now that will work for a company for many years without expecting a raise. If your business is thriving, you should be experiencing growth which drives change. You may start out with an Accounting Manager that rolls up their sleeves and does everything accounting related for you. As you grow, that person may or may not be able to hire in and manage support staff. Either way from the time you hire the person as a business owner a thought action for growth and a plan for right-sizing through the ups and downs will help you ride the storms. The right accounting manager will happily go back to rolling up their sleeves and taking full cycle versus losing their job and having the leave the company that has become home to them.
Managing human capital and labor burden costs are one of the most challenging aspects of running a business. It is a fine line between having enough employees to optimize profit, but not to hire employees you don’t need. The common mistake in construction is the estimated job costed labor burden does not turn out to be the correct amount to hire the right talent to complete the project with the anticipated profit. Why too often the construction managers are good at the build and the documentation although have no idea how the project and the company are positioned to make the profit.
When we interview we listen for candidates that say things like I don’t want to go back and do something. There is no such thing as going back in construction. The top leaders in our industry not only can hands off lead a team but if times got tough can take a project from cradle to grave themselves. They know when getting in the trenches is not advantageous for the business. They move from working in the business to the whiteboard and working on the business mentoring others and improving key performance indicators.
Below we have provided you downloads to calculate labor burden costs and a checklist for estimating general conditions.
A two for one doesn’t mean you are short siding someone on salary because they can wear multiple hats within your organization and do what it takes. Employees; example to this are, the top companies hire Superintendents that can be Project Managers, but know they are in their happy place in the field and are cheerfully willing to do the administrative or help in estimating when needed to sustain their job and the company. Project Managers should be willing and able to move into estimating, scheduling or manage the build in the field directly if their employer needs them to. How qualified are you?
Employers, hire for your need, (i.e., PM, Super, Safety, etc..,) but seek those that are two for ones. They have the skillset to do more than what their specific job will be, but most importantly are willing to cheerfully rise to the occasion when needed to fill in a gap in unforeseen circumstances. Despite the current economic forecast, business will have ups and downs. How willing and able is your current team?