When I talk about job costing with my contractor clients, it's easy for me to convince them that, to know what their labor costs are, they need to track production time on the job. After all, if you work under a T&M contract, you need to have those hours tallied to be able to invoice the time. And if you work under a fixed-price contract, you need to be able to match actual hours against the hours you estimated when you set the price for the job. Either way, if your production workers aren't tracking their time, you could be underestimating labor and not know about it. In that case, you will perpetuate the error and wind up consistently underpricing work.
But while tracking production workers' time is a no-brainer for most company owners, many still don't track their own time. There are four main reasons for this:
1. They perform many functions. On a given day they could make a sales call, research a new product, reschedule a material delivery, estimate a job, stop by a jobsite to "show the flag" to the customer and crew, and maybe even pick up a hammer. Clearly, tracking time for that many activities is challenging.
2. Their time is split among many jobs. Production workers perform a variety of functions, but most spend all day on the same site. Not so for company owners, whose many functions may also apply to many different jobs. Keeping track of all of the functions and all of the corresponding jobs is daunting.
3. They're the owner. Rank hath its privileges. Company owners have the authority to exempt themselves from tracking their time. A corporate officer's salary check doesn't depend on hours reported. Likewise, sole proprietors, partners, and owners of LLCs take a draw instead of a paycheck, so reporting hours isn't a requirement of compensation.
4. They don't want to know. They know they're working a lot, but they really don't want to know how much, how hard, and how long. It's painful enough to admit that they're working too hard; it's more painful to admit that they're regularly working 60-plus hours per week.
Yet there are benefits to tracking the owner's time, especially if the company is growing from a one-to-three-person operation to a business with sufficient volume to justify a more complex infrastructure.
Breaking Down the 60-Hour Week
Consider this example. Let's say that Mike is a contractor with a volume of around $750,000, and he has three full-time guys in the field. Mike still spends about 30% of his time on the jobsite, but he also performs as the salesperson, estimator, production manager, and CFO. He may be directly involved in the bookkeeping as well, if he can't foist this off onto his spouse, siblings, or children.
Each week, Mike works like crazy, and stuff gets done. As his business grows, he has to do more and more. At some point, the growth of the business will be limited by his ability to continue to perform all the roles. It's just a matter of time before he will want to bring somebody else onboard to reduce his workload. The big question is, Which part of his workload? On-site production? Sales? Project management? Estimating?
This is the kind of decision for which a history of how Mike is actually spending his time can be very helpful. The time-tracking itself doesn't have to be complicated; Mike can estimate hours at the end of each day. He doesn't have to walk around with a stopwatch, clicking every time he answers the phone or checks his email or sets a nail. (See "Time-Tracking Apps," page 28).
How is this helpful? If Mike discovers that he spent just 700 hours in production annually and a full-time employee can be counted on for between 1,820 and 1,900 hours (see the blog "Do the Math—Are You Charging Enough for Labor?" at jlconline.com), then he really doesn't need a full-time production worker—at least, not yet. But this data could help Mike with some projections. How much more work might a full-time production worker produce? How might that justify increasing the volume of work Mike could sell and still produce on time?
But wait. That assumes the new worker would be producing at the same rate as Mike. If Mike is a topnotch carpenter performing with the motivation that comes with owning a company, it may well be that he's the most productive field worker out there. What happens if he hires a newbie? Training will dilute the efficiency of Mike and the other workers, but the inexperienced worker will be cheap. How does that fit into the formula? Can he find a part-time worker? Would employee leasing be an option?
What about the other things that Mike has been doing? He's spending more than 25% of his time managing projects. One question to ask is whether or not Mike is micromanaging or failing to plan? If he's spending lots of time running around picking up materials or re-explaining how to do something, then perhaps there's no process in place for handing off projects for others to complete. Or maybe Mike is finding it hard to delegate a certain level of decision-making to his workers, either because he can't trust them to make the same decision he would, or because he simply can't let go of control.
Data gives you options
By tracking how he spends his time, Mike will provide himself with hard figures that can move hiring decisions from gut or impulse to a well-considered action following a strategic plan. It becomes pretty darned easy to predict how Mike's workload would be reduced if he, say, gave up all production work and found a part-time bookkeeper.
Or maybe it makes more sense to eliminate the biggest wedge in his pie: project management. What would happen if Mike moved to a lead carpenter system in which project management is handled by a carpenter who also produces on site?
Track by Function
I generally recommend that owners track their time by categories that match up with standard job descriptions (estimator, salesperson, and so on). This encourages them to think ahead and to envision the eventual org chart for their company, and to view how they spend their time not as a series of individual tasks, but in terms of the role they happen to be playing at any given time.
There's nothing more frustrating than being ready to perform a task and realizing that you're missing a critical piece of material. It's easy to see that you can't finish framing an exterior wall if somebody doesn't order enough studs. But it's just as important, when you're contemplating the next hire, to have a clear understanding of what the company needs and how it will affect you personally, as the owner.
