3 ways to use process data to double profits

Most builders are overestimating their productivity
(Photo: Andrey Popov | Dreamstime.com)

Your employees are probably less productive than you think. Not due to your people, but due to your processes.

According to Lean construction principles, productivity, or “value-added (VA) time,” is defined as “the share of work time spent on activities that your customer is willing to pay you to do.” Everything else is “non-value-added (NVA) time,” or waste.

In the construction process, VA time is time spent actually installing work on the building. Everything else (hauling materials, fetching tools, checking plans, measuring, rework, waiting, etc.) is NVA time. Even necessary activities like training, quality assurance and planning are considered NVA because your customer doesn’t pay you to do those things.

There’s more: The same formula applies to all your business processes, from payroll and accounting to business development and marketing. Only the activities that actually add value for the customer of that process are productive.

[Related: Hands-on training goes high-tech with virtual reality]

Are you starting to rethink your estimate of your productivity yet? I can almost guarantee you it’s much lower than you thought.

As a point of reference, I recently completed a large process productivity study of nine installation processes at multiple locations for a nationwide construction client. Their productivity rates ranged from 9.7% to 41.4%. In other words, anywhere from 60% to 90% of their total install labor time was waste!

If your process productivity rates are similar (and it’s safe to assume they are), you have a huge, urgent problem (aka, opportunity).

Data to the rescue

The good news is you can use Lean process analysis to calculate your productivity (VA time / total time), identify sources of waste and reduce them.

  1. Observe the process. Observe or record multiple repetitions of the process, if possible, to represent the typical process.
  2. Analyze the process. Study the video footage, noting the time spent on VA versus NVA activities. Divide the total VA and NVA time by the total process time to calculate the process productivity and waste rates.
  3. Improve the process. Redesign the process or the environment to minimize or eliminate unnecessary NVA activities. Review necessary NVA activities (QA/QC, training, etc.) for opportunities to make them more efficient.

Imagine if you could reduce your labor waste by even half. Since cost reductions go straight to your bottom line, and assuming labor represents 30% to 50% of your direct costs, what would that mean for your net profits?

It’s not an overnight fix. But it is absolutely possible with focus and effort. For most construction companies, net profits can be as much as doubled through this work. I’d say that’s worth the effort.

Daniel Small

Daniel Small is an experienced executive with over 20 years of background driving growth in the construction industry through innovation, process optimization, strategy, change management, and business development. Holding engineering and MBA degrees and certified as a Lean Six Sigma Black Belt, Daniel offers unique value in synthesizing the technical and commercial aspects of business, to create innovation that sells and processes that perform. He can be reached at [email protected].

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