COST
Measuring Labor Productivity, Labor Mix and Indirect
Burdens + Solutions and Technology to Lower Labor Costs
BONUS PROGRAM
WEBINAR SERIES
MODULE 4
May 21, 2014
Presented by
Steve Smith
Senior Vice President, ACCO Engineered Systems, Inc.
Moderator
Don Neal
CEO & Founder
Tips for This Webinar
 Be an active participant
• Ask questions anytime on the side chat bar
• Engage by answering the polling questions
 Don’t feel obligated to take notes
• Slides and webinar will be available after the presentation at www.msca.org
 Share this experience with your colleagues
• We will be hosting a series of webinars this year (the schedule will be
displayed at the end)
Steve Smith
Senior Vice President
ACCO Engineered Systems, Inc.
OBJECTIVES
•
•
•
•
To provide a methodology to measure field productivity
To show the impact of reducing non-billable time
To increase the profitability of your business using simple metrics
To show the impact on increasing profits by simplifying
your paperwork system
Field Productivity Definitions
1.
2.
3.
Billable Hours + Non-Billable Hours
= Total Hours Paid
Billable Hours ÷ Total Paid Hours
= Productivity %
List of Non-Billable Hours
Truck repairs
Callbacks (correcting mistakes or diagnostic failures)
Warranty (caused by parts failures on earlier service work)
Training (including safety)
Counseling
No charge sales assist (techs helping sales)
Labor written off as uncollectible
Why Measure Productivity?




Setting the historical stage
• Coming off the 1980s “Easy Street”
• Early 90s Gulf War recession
• Gross margins and pretax profits were under downward
pressure
First sign of trouble went undetected
• Headcount went up, but billable hours per man went down
Field Supervision’s solution
• Added technicians so their total billable hours went up
Three common problems
•
Management trusted the field supervisors and technicians too
much
•
Productivity calculation was not thorough or shared
•
Timesheets were always on time, but work orders were late
with different hour amounts than timesheets
Why Measure Productivity?
 Direct Labor is our largest cost component —
usually double the next largest cost component
 Is controllable
 Paid in small increments
 Requires support costs:
• Dispatchers
• Computers and software
• Trucks
• Forms
How productive is your direct labor?
Polling Question #1
What is your service organization’s labor productivity percentage?
A.
B.
C.
D.
E.
We don’t calculate this percentage.
Greater than 92%
Between 85% and 92%
Less than 85%
I don’t know.
Why Measure Productivity?
Billed vs. Paid Hours
(Assume 16 Techs + 1 Supervisor)
Total Hours Paid (17)
Spvr Time, Non-billable
Downtime Categories
Truck Repairs
Callbacks
Warranty
Training (Reg. Work Hrs.)
Counseling
No Charge Sales Assist
Subtotal Non-billable
Total Hours Billed
Productivity Percentage
Week 1 Week 2
680
646
40
24
Week 3
704
32
YTD
2,030
96
2
3
1
0
0
2
48
632
92.9%
4
6
4
24
0
2
72
632
89.8%
12
9
9
24
2
10
162
1,868
92.0%
6
0
4
0
2
6
42
604
93.5%
Calculating Hourly Direct Cost





Are you involved?
Usually requires accounting help
Should be consistent year-to-year
Do not be too conservative
Is critical on T&M and cost-plus jobs
Three Calculations:
1. Direct costs for each labor category
2. Weighted average cost
3. Indirect labor burdens
Calculating Hourly Direct Cost
1. Total union package (taxable)
• Base wage
• Sick/vacation/holiday
2. Fringe benefit costs
• Pension
• Health & welfare
• Industry fund
• Other
3. Payroll taxes and insurance
• FICA
• Unemployment
• Insurance
• Other
Calculating Hourly Direct Cost
4. Truck costs
• Lease or depreciation
• Insurance
• Fuel/repairs/licenses
5. Small tools
• Use long-term average costs
6. Department expenses
• Dispatcher/billing personnel
• Nextel/cell/pager/notebook
• Uniform
• Forms
• Computer systems/software
7. Average Over Scale Pay
Step 1: Direct Costs
4 Typical Categories
Step 2: Weighted Hourly Costs
Average Over Scale Pay Calculation
A
B
C
D
Classification/Name
Hourly
Pay at
Actual
Hourly
Pay
47.50
42.50
42.50
38.85
38.85
38.85
38.85
34.92
34.90
34.90
34.90
33.93
33.85
Over
Scale
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
General Foreman (Supv)
Foreman No. 1
Foreman No. 2
Cert. Journeyman No. 1
Cert. Journeyman No. 2
Cert. Journeyman No. 3
Cert. Journeyman No. 4
Cert. Journeyman No. 5
Cert. Journeyman No. 6
Cert. Journeyman No. 7
Cert. Journeyman No. 8
Journeyman No. 1
Journeyman No. 2
Total Over Scale
Average Over Scale Pay
Scale
42.31
39.75
39.75
33.85
33.85
33.85
33.85
33.85
33.85
33.85
33.85
32.85
32.85
Amount
$5.19
$2.75
$2.75
$5.00
$5.00
$5.00
$5.00
$1.07
$1.05
$1.05
$1.05
$1.08
$1.00
36.99
$2.85
Step 2: Weighted Hourly Costs
Average Over Scale Pay Calculation
Hourly
Classification
Headcount
General Foreman (Supv)
Foreman
Cert. Journeyman
Journeyman
MES
MEST
Apprentice 1
Apprentice 2
Apprentice 3
Apprentice 4
Apprentice 5
Total
Weighted Hourly Direct Cost
1
2
8
2
1
1
0
1
0
1
0
17
Direct
Costs
$78.85
75.30
68.74
66.69
52.34
43.78
0.00
44.78
0.00
52.72
0.00
Weighted
Total
$78.85
150.60
549.92
133.38
52.34
43.78
0.00
44.78
0.00
52.72
0.00
$1,106
$65.08
Measuring Field Productivity
Billed vs. Paid Hours
(Assume 16 Techs + 1 Supervisor)
Step 3: Indirect Labor Burden
Billed vs. Paid Hours
(Assume 16 Techs + 1 Supervisor)
Field Techs
a)
b)
c)
d)
e)
Unbilled hours - 12 months
Weighted hourly costs
Unbilled labor costs
Billable hours - 12 months
Per hour indirect labor burden
1,144
$65.08
$74,451.52
32,378
$2.30
Headquarters/Main Office
a)
b)
c)
d)
e)
Unbilled hours - 12 months
Weighted hourly costs
Unbilled labor costs
Billable hours - 12 months
Per hour indirect labor burden
Total Indirect Labor Burden
1,664
$65.08
$108,293.12
32,378
$3.34
$5.64
Step 3: Indirect Labor Burden
General Foreman – Fully Burdened Cost
Step 1 Direct Costs - Straight-time Only
Total Union Package (Taxable)
Average Over Scale Pay
Fringes
Payroll Tax & Insurance
Truck Charge
Small Tools
Department Expense
Dispatcher/Billing Personnel
Nextel/Cell phone/Pager
Uniform
Forms
Computer Systems
$42.31
$2.85
11.90
8.19
7.50
0.91
1.05
0.65
0.35
0.29
2.85
Direct Cost Subtotal
Step 3 Indirect Costs - Labor Burden
Field Techs
a) Unbilled hours - 12 months
b) Weighted hourly costs
c) Unbilled labor costs
d) Billable hours - 12 months
1,144
$65.08
$74,451.52
32,378
Per Hour Indirect Labor Burden- Part 1
Headquarters/Main Office
a) Unbilled hours - 12 months
b) Weighted hourly costs
c) Unbilled labor costs
d) Billable hours - 12 months
$2.30
1,664
$65.08
$108,293.12
32,378
Per Hour Indirect Labor Burden- Part 2
Total Indirect Labor Burden
Total Labor Costs
$78.85
$3.34
$5.64
$84.49
Step 3: Indirect Labor Burden
So, what is a 1% improvement in productivity worth?
Annualized Hours
35,187
Percent Improvement From 92% to 93%
1.0%
Hours
Weighted Average Hourly Direct Cost
Hourly Burden
Weighted Average Hourly Total Cost
Cost Impact
Markup
Additional Revenues and Profit
351.87
$ 65.08
$ 5.46
$
70.54
$ 24,820.91
25%
$ 31,026.14
Now What? Calls to Action!
 Use your payroll system to calculate productivity often and consistently.
 Share productivity results for the month and year-to-date.
 Share the cost of an hour with everyone (especially the techs)! Show everyone that
labor is a low margin product.
 Educate your techs.
The Cost of Callbacks
 5% after tax profit is normal - for every $20 of sales there is $1 of profit
 The cost of a callback requires a new sale equal to 20x the callback cost to pay for
the callback
$100 callback requires a new sale of . . . $2,000
$400 callback requires a new sale of . . . $8,000
$1,000 callback requires a new sale of . . . $20,000
Polling Question #2
Does your service organization use both timesheets and work orders?
A.
B.
Yes
No
Using Timesheets and Work Orders =
BAD IDEA




Whoever said you need both?
Which always has more hours - the timesheet entry or the work order?
Do you spend time and money reconciling timesheets to work orders?
Do you have trouble getting work orders out of the field?
Eliminating Timesheets: Improves Results


Why?
• Either the number of hours you pay will decrease – or –
• The number of hours you bill for will increase
Productivity in the field will increase
• Since non-billable time will be recorded on a work order
instead of a timesheet, it will have very high visibility
(require approval for non-billable time)
• Hourly costs will fall due to lower indirect burdens from the
reduction in non-billable hours
Productivity in the office will increase
 Timesheet to work order reconciliation will be eliminated
 More billing will get done faster
Eliminating Timesheets: Factual Evidence
In the 3 months prior to July 1995, we were paying an average of 40.25
hours per week using timesheets as the input source.
Effective July 1, 1995, we accepted only original work orders as input, and
the weekly average hours paid for the next 3 months was 37.50 hours.
That was a savings of 2.75 hours per tech per week!
Eliminating Timesheets: Factual Evidence
With 100 techs costing approximately $60 per hour (in 1995 terms),
annualized savings were approximately $792,000 per year.
2.75 Hrs. x $60/hr. x 100 Techs x 48 weeks = $792,000
Eliminating Timesheets: Make the Change
 Modify your work orders (repair and maintenance)
Work orders need to have check boxes for:
 Continuation work order
 Completed work order
 Get the business agents on board early
 Know your collective bargaining agreement’s
paperwork rules
 Tell them what you’re going to do
Polling Question #3
Which type of mobile device do your technicians use as a paperless work order solution?
A.
B.
C.
D.
E.
We don’t use a mobile device.
Smartphone
Tablet
Laptop
Other handheld
Eliminating Timesheets: Make the Change
 For a 2 or 3 week period, “Run parallel”:
 Have technicians turn in both original work orders and
timesheets
 Tell them the total hours from both need to agree
 Recommended paperwork rules:
 Accept only originals (no faxes or copies)
 Give the remote guys $5 to send in via FedEx
 If a technician does not send them in on time, post 40
hours to his payroll and reverse it the next week
 Consider moving your payroll week end to midnight on
Tuesday
Eliminating Paper Work Orders
Mobile Solutions have the following potential paybacks:
1. Reduction in “days to bill” from daily reported hours will speed up billing
2. Automatic check-in and check-out is achieved
3. If you send customers a work summary when time is posted to a job number, there
will be no way to “borrow time” by charging without going to the jobsite
4. If you eliminate back-dating of work orders, you will further lower hours paid
5. You will get more done per day in the field with the same number of people
Eliminating Paper Work Orders
Mobile Solutions have the following potential paybacks:
6.
Convert time spent processing payroll by the area service coordinators to billing
repairs
7. Capture missed small repair sales opportunities by converting the current
paperwork notification system to an email equivalent directly from tech in
the field to sales
8. Tighten up control and accounting for refrigerant usage
9. Dispatching maintenance and better controlling tech movements
10. Better information for technicians = higher productivity
Key Takeaways
 Engage your entire service organization in understanding non-billable
time and productivity.
 Educate the field that we are not “getting rich off their back.”
 Get rid of timesheets to simplify your paperwork system and increase
the profitability of your business.
 Use technology to duplicate your simplified paperwork system and
further increase your profits.
It’s Your Turn…
Q1: Was this webinar informative and useful?
A. Yes, I found this informative and useful.
B. Yes, but it wasn’t as informative and useful as I expected.
C. No, this was not informative or useful.
Q2: Did the speaker present the material in a clear and concise manner?
A. Yes
B. No
Q3: Will you download this webinar, and share it with others in your company?
A. Yes
B. No
Join us for the next webinar on September 10!
To register, go to https://msca.webex.com
September 10: Labor Force
Presented by Kip Bagley and Jim Leslie
October 22: Efficiency
Presented by Mike Star and Devon Hubbard
December 3: New Business Opportunities
Presented by Jaimi Lomas and Adam Wallenstein
Reminder
 The PowerPoint will be available on the homepage of the MSCA website
immediately after the webinar at www.msca.org.
 The archived webinar will be accessible from the MSCA website within 2448 hours.
For Additional Information or
Questions, Contact:
Steve Smith
Senior Vice President
ACCO Engineered Systems, Inc.
(818) 244-6571
ssmith@accoservice.com
Barbara Dolim
Executive Director
Mechanical Service Contractors of America
(301) 990-2210
bdolim@mcaa.org