Value Engineering University, Part 1: Pride, Productivity and Profit
I have been giving advice to my employees, subcontractors, architects, engineers and customers, as well as my own family and friends for more than 60 years. People just seem to ask for my opinion. At a recent convention, a group of contractors asked me where and how I learned all of those profit-producing management methods that really make more money.
I explained my penny-pinching attitude came from my Pap when we worked through America’s Great Depression. We needed to save every cent with everything we did just to survive! Thank God I never lost that determination.
That is also the period when I actually began learning. I was working with experienced craftsmen who appreciated my extra efforts to help them. They, in turn, willingly shared their knowledge and ability. In addition, I was made well aware of the management responsibilities from Pap, who was a contractor and my boss. He taught me to watch what everyone did. I copied anything that was better and avoided anything that was not profitable.
Because of my diligent efforts and willingness to help others, my Pap put me in charge of whatever crew I would be working with. Naturally, that led to a lot of questions and profit-producing answers.
In time, I finally ended my personal learning experiences with what we today call value engineering. There is always a better way - and one’s success depends on finding and doing it.
School is in sessionOne of those contractors laughed and interrupted me with, “Why don’t you just call your continuing education the Value Engineering University?” That was a pretty good suggestion. To begin with:
Since we had only a short lunch break between sessions, the contractors asked if I would highlight some of the biggest wastes of our money and also some of the most effective profit-producers.
We started with these Dirty Dozen money wasters (which I’ll discuss in more depth in the next four parts of this series):
1. The biggest ongoing waste of company profits and the easiest to stop - most craftsmen are working only an average of six hours per day and receiving an eight-hour paycheck.
We will discuss simple solutions in Part 3.
2. Our next waster does not occur as often but it is very expensive. It’s called turnover or losing a good employee. This cost is more than $100,000 and can be prevented or minimized. We will discuss solutions in Parts 2 and 3.
3. Our next big money waster occurs at bid time. Many contractors or their estimators do not take enough time to carefully read and question the entire set of bid documents. This includes reading the entire set of specifications, alternates and addenda. Any questions should receive RFIs for clarification. You must clarify your scope of work. We will discuss bid time in Part 2.
4. Many construction dollars are lost due to a lack of documentation and collection of change orders or extra work. We will discuss change orders in Parts 2 and 3.
5. About 90 percent of contractors never learned how to determine individual employee wages. You would be surprised how many actually forbid their payroll clerk or their employees to discuss or compare wages. This is a major factor in employee dissatisfaction and even turnover. Unbelievable as it sounds, the worst scenario is overpaying. We will discuss wages in Parts 2 and 3.
6. Another major dollar waster is the use of skilled journeymen or indentured apprentices for performing unskilled labor and grunt work. Think about paying journeyman or even foreman wages for unloading a truckload of materials, digging or backfilling a ditch, chopping holes in masonry or concrete walls, etc.
Your apprentices suffer a low wage for their learning period. What can they learn doing grunt work for the craftsmen assigned as their mentors? We will discuss work assignment in Part 3.
7. Possibly the most effective but the most neglected value-engineering rule is upward communication, which comes from your employees. They have good ideas and experience that could save you thousands of dollars and produce a faster and better job. We will discuss this in Parts 2 and 3.
8. Many costly mistakes occur because a jobsite foreman is not aware of your scope of work, shop drawing information and weekly critical path schedules. Project managers attend meetings and make commitments but fail to inform their foreman. This leads to costly rework and embarrassing punch lists. We will discuss this in Part 3.
9. You can greatly increase your profit-producing power by reading Plumbing & Mechanical and other trade publications. It is far better to read about one of your competitor’s costly wasters than to experience it in your own company. Within these magazines are news articles relating to our trade, editorials, advice and advertising of new tools, materials and installation methods. It is extremely critical to pass them on to your entire management team and interested journeymen. We will discuss this in Part 4.
10. Other great sources of value engineering are industry trade associations. You can become a member, attend local meetings, and go to conventions and seminars, as well as meet and form beneficial relationships with members. You will be surprised how many contractors share the same problems and are delighted to discuss solutions with you. We will discuss these in Part 5.
11. If you are not already utilizing flex time to accommodate individual employees or unusual job conditions, you will be delighted at the dollar-producing results. Flex time is also very cost-effective for service techs. We will discuss this in Part 4.
12. Our last neglected profit maker is team building. Too many contractors hire employees and assume they already know how to build or will simply learn as they go. We will look at after-hours training, utilizing a salvage center, role reversal, a database skills inventory and promoting from within in Part 4.
This cost-savings advice is critical in today’s economy, but it is also very effective when business is booming.
There is always a better way. The best way for you is to ensure that all of that wasted money goes into your bank account.