Transcript IPA Labor Productivity Study

INDEPENDENT PROJECT ANALYSIS, INCORPORATED
Presented by:
Dean Findley
THE AMERICAS u THE NETHERLANDS u AUSTRALIA u CHINA
Why Labor Productivity?
• This is the second report back on a three year IBC
study of construction labor productivity
• Why worry about productivity:
– About one-quarter of all construction cost is field labor
– Labor is usually the largest non-material cost in a project
– Very little is really understood about how to best measure
field productivity or how to influence it
– In developed economies of Europe and North America
construction labor shortages will become more and more
common as the population ages
– In low wage countries, poor labor productivity is the
primary obstacle to low cost manufacturing facilities
Labor Productivity Phase II
2
INDEPENDENT PROJECT ANALYSIS
Goals of This Research
• Phase I Goals
– Develop and validate a reliable approach to measuring
labor cost and productivity
– Understand the relationships between labor
productivity and the project practices that IPA has
traditionally gathered (FEL, etc.)
• Phase II Goals
– Explore the relationship between engineering and
construction execution practices and labor productivity
in high wage countries
• Phase III Goals
– Explore the relationship between engineering and
construction execution practices and labor productivity
in low wage countries
Labor Productivity Phase II
3
INDEPENDENT PROJECT ANALYSIS
Outline
• Measuring labor productivity
• Review of first year’s work
• More Practices and Productivity
• Productivity in Europe v. North America
• Doing something about the weather
• Conclusions
Labor Productivity Phase II
4
INDEPENDENT PROJECT ANALYSIS
Labor Productivity Database
• 1185 projects in the United States and Europe
• 103 companies represented
Greater Houston
20%
Europe
27%
W. USGC
5%
E. USGC
14%
US Northeast
15%
US Midwest
US S. East
4%
10%
- Labor Productivity Phase II
5
N. Calif.
2%
S. Calif
3%
INDEPENDENT PROJECT ANALYSIS
European Labor Productivity Database
• 295 projects in Europe
• 35 companies represented
Netherlands
17%
Germany
8%
Spain
4%
United Kingdom
33%
France
34%
Belgium
4%
- Labor Productivity Phase II
6
INDEPENDENT PROJECT ANALYSIS
Labor Productivity Database
Average
Median
Range
Project Size
$36.6 MM
$12 MM
$0.054 MM $1547.07 MM
Start Year of
Construction
1995
1996
1972 - 2001
1988 USD basis
- Labor Productivity Phase II
7
INDEPENDENT PROJECT ANALYSIS
Labor Productivity Database
Greenfield/Colocated
23%
Revamp
32%
Add-on
24%
Expansion
21%
- Labor Productivity Phase II
8
INDEPENDENT PROJECT ANALYSIS
Defining Labor Cost
• Labor cost is the amount of money spent on field
construction, including
– Wages
– Benefits
– Small tools
– Subcontractor profits and fees
– Overtime premiums
• Does not include
– Construction equipment (e.g. cranes, bulldozers,
backhoes, etc.)
– Construction supervision
– Field engineering
Labor Productivity Phase II
9
INDEPENDENT PROJECT ANALYSIS
Methodology (1)
• Projects were again grouped according to
process type and project type to minimize scope
variations
• A base location was created in Europe
• Database was increased from 570 to 1100
• Both large and small projects were added
• Labor cost breakouts were available for all
projects
Labor Productivity Phase II
10
INDEPENDENT PROJECT ANALYSIS
Methodology (2)
• Each group provides a good like-for-like field work
to be performed
• Modular projects were excluded to minimize error
• Each group has good dispersal of projects
geographically
• Each group has a good sample of projects in Greater
Houston to provide a US Gulf Coast anchor
• As the methodology develops, other “anchors” will
be developed and become interchangeable
– Rotterdam has been added this year
– Singapore and São Paulo will be added next year
Labor Productivity Phase II
11
INDEPENDENT PROJECT ANALYSIS
Methodology (3)
• Effective Labor Cost Index compares the amount
of labor required within each group; groups are
then aggregated
– The Labor Cost Index measures the relative
amount of money a project spent on field labor
– Greater Houston is set equal to 1.0
• The Labor Productivity Index is created by
adjusting the all-in wages to the same US dollar
basis
– The Labor Productivity Index measures the
comparative number of labor hours that like scope
required to complete
Labor Productivity Phase II
12
INDEPENDENT PROJECT ANALYSIS
BETTER
Labor Productivity Index
1.2
Poorer Labor
Productivity
WORSE
1.4
1
0.8
Better Labor
Productivity
0.6
- Labor Productivity Phase II
13
BETTER
WORSE
Labor Productivity Index
INDEPENDENT PROJECT ANALYSIS
Outline
• Measuring labor productivity
• Review of first year’s work
• More Practices and Productivity
• Productivity in Europe v. North America
• Doing something about the weather
• Conclusions
Labor Productivity Phase II
14
INDEPENDENT PROJECT ANALYSIS
Primary Conclusions
• There is little variation in effective labor cost
from region to region
– Standard error across regions is only 7 percent
– Corrected by company standard error is 4 percent
• There is more variation in productivity from
region to region
– Standard error is 10 percent
– 7 percent corrected by company
• Variation in productivity is dampening the
variation in effective labor cost
• Labor unions on average supply considerably
more productive labor in the United States
Labor Productivity Phase II
15
INDEPENDENT PROJECT ANALYSIS
Conclusions About Regional Variation
• Very little true region-to-region variation in cost,
especially in the same general labor market
– Contradicts perceptions of many company estimators
– Because they extrapolate their company’s experiences
or listen to contractors’ whining
– Accords better with economic theory
• Average productivity differences probably driven
by differential skill levels
• Much of the regional variation is really variation
by company
Labor Productivity Phase II
16
INDEPENDENT PROJECT ANALYSIS
FEL Drives Labor Cost Index
Pr < .001
1.15
Labor Cost Index
1.10
1.05
1.00
0.95
TOO MUCH
BEST Practical
0.90
2
2.5
- Labor Productivity Phase II
3
3.5
4
4.5
GOOD
FEL
Index
5
5.5
6
17
FAIR
6.5
7
7.5
POOR
8
8.5
9
9.5
INDEPENDENT PROJECT ANALYSIS
FEL Drives Labor Productivity
• Significant components are:
– Definition of soils
– Definition of health and safety
– Engineering status
• By far the most important FEL Component for
Productivity is Execution Planning
Labor Productivity Phase II
18
INDEPENDENT PROJECT ANALYSIS
Execution Planning Drives Productivity
1.15
Labor Productivity Index
Pr <.006
1.10
8 percent better
than average
1.05
1.00
0.95
0.90
Assumed
- Labor Productivity Phase II
Preliminary
19
Definitive
INDEPENDENT PROJECT ANALYSIS
The Effects of Detailed Scheduling
All Projects
Labor Cost Index
1.10
Pr < .001
1.05
1.00
0.95
0.90
Milestone
Schedule
- Labor Productivity Phase II
Critical Path
20
Integrated
Resource-loaded
INDEPENDENT PROJECT ANALYSIS
The Effects of Detailed Scheduling
Small Projects
1.15
Resource loading is not necessary to
improve labor productivity on small
projects. (But it does produce shorter
schedules).
Labor Cost Index
1.10
1.05
1.00
0.95
0.90
Milestone
Schedule
- Labor Productivity Phase II
Critical Path
21
Integrated
Resource-loaded
INDEPENDENT PROJECT ANALYSIS
Labor Productivity and the VIPs
• Value engineering
+ 5 percent
• Predictive maintenance
+ 7 percent
• Design to Capacity
+ 9 percent
• 3D CAD
+ 7 percent (and up)
• No other relationships with VIPs, including no
relationship with Constructability Reviews!
Labor Productivity Phase II
22
INDEPENDENT PROJECT ANALYSIS
Outline
• Measuring labor productivity
• Review of first year’s work
• More Practices and Productivity
– contracting
– teams
– planning and control
– construction supervision
– use of overtime
• Productivity in Europe v. North America
• Doing something about the weather
• Conclusions
Labor Productivity Phase II
23
INDEPENDENT PROJECT ANALYSIS
Contracting and Productivity
• Union jobs are almost 17 percent more
productive on average than open/merit shop in
the USA
• Union jobs averaged a labor cost index of 0.998
versus 1.08 for non-union construction outside
the USGC
• Mixed union/non-union jobs are slightly less
(Poorer) productive than open shop and much
less productive than union jobs
• Subcontractor supplied labor is 13 percent more
productive on average than direct-hire
Labor Productivity Phase II
24
INDEPENDENT PROJECT ANALYSIS
Teams and Productivity
• Integrated team projects have 6 percent more
productive field labor
– environmental specialist involvement is important
– health & safety specialist is important
• Using an owner scheduling engineer, starting in
FEL, is associated with 7 percent better
productivity
Labor Productivity Phase II
25
INDEPENDENT PROJECT ANALYSIS
WORSE
Whose Cost/Schedule Control Plan?
1.2
1.1
1
BETTER
0.9
0.8
Owner
only
- Labor Productivity Phase II
“Integrated”
owner
contractor
26
Separate
Owner &
contractor
Contractor
only
INDEPENDENT PROJECT ANALYSIS
WORSE
Any Deviation from Construction Plan
Drives Poor Productivity
BETTER
Productivity Index
1.10
1.05
1.00
0.95
0.90
-30
-25
- Labor Productivity Phase II
-20
-15
-10
-5
0
5
10
15
20
Percent Schedule Deviation in Construction
27
INDEPENDENT PROJECT ANALYSIS
WORSE
Added Supervision
Improves Productivity
Productivity Index
1.10
1.05
1.00
Below 5-to-1, productivity rises
but labor costs increase
0.95
BETTER
0.90
0.85
5
- Labor Productivity Phase II
6
7
8
9
10
Ratio of Workers to Supervisors
28
INDEPENDENT PROJECT ANALYSIS
The Effect of Overtime on Productivity
• The use of overtime is the most common way to
recover slipped schedules and accelerate projects
that are schedule-driven
• Overtime is also sometimes used to attract labor when
shortages occur
• Overtime was used on over a third of North American
projects and a quarter of European projects
• The use of overtime is increasing
• The adverse effect of overtime on productivity is
accepted as fact despite the dearth of empirical
analysis, especially for the process industries
Labor Productivity Phase II
29
INDEPENDENT PROJECT ANALYSIS
WORSE
Productivity Declines as
Work Week Increases
Productivity Index
1.2
1.15
1.1
1.05
BETTER
1
0.95
35
- Labor Productivity Phase II
40
45
50
55
60
65
70
75
Hours/Week
30
INDEPENDENT PROJECT ANALYSIS
The Effect of Extended 50 Hour Weeks
1.4
55 hours pay for 40 hours of work equivalent
Productivity Index
1.3
55 hours pay for 46 hours of work
equivalent
1.2
1.1
Start with 8 percent loss
1.0
0.9
1
- Labor Productivity Phase II
2
3
4
Months of 50-Hour Weeks
31
5
6
INDEPENDENT PROJECT ANALYSIS
Outline
• Measuring labor productivity
• Review of first year’s work
• More Practices and Productivity
• Productivity in Europe v. North America
• Doing something about the weather
• Conclusions
Labor Productivity Phase II
32
INDEPENDENT PROJECT ANALYSIS
Europe v. North America
• Differences are generally not large
• The relationships between practices and productivity
results are virtually identical
– same effect of FEL
– same VIPs, etc.
• One interesting difference:
– Environmentally-driven projects on the USGC are
characterized by poor labor productivity (+12 percent)
– Such projects in Europe are characterized by excellent
productivity
Labor Productivity Phase II
33
INDEPENDENT PROJECT ANALYSIS
Productivity Over Time
1.4
Productivity Index
1.3
1.2
1.1
1.0
0.9
0.8
Indexed to USGC = 1
1986
1991
USGC
- Labor Productivity Phase II
1996
Europe
34
2001
Southern UK
INDEPENDENT PROJECT ANALYSIS
Regional Variation Within Europe
Region
Effective
Labor Cost
Northern UK
Southern UK
Belgium
France
West Germany
East Germany
Netherlands
Spain
1.04
1.05
0.97
1.12
1.15
1.12
1.06
0.89
Relative
Productivity
1.10+
1.12
0.97+
1.13
1.10++
1.15++
0.96
1.16
At 1 March 2002 exchange rates
+ Result is driven by a performance of single company
++One company is influential
Labor Productivity Phase II
35
INDEPENDENT PROJECT ANALYSIS
Very Little Difference in Labor Productivity
US outside GC=1.074
Europe=1.084
USGC=1
.76
1
1.24
Labor Productivity Index
- Labor Productivity Phase II
36
INDEPENDENT PROJECT ANALYSIS
Outline
• Measuring labor productivity
• Review of first year’s work
• Productivity in Europe v. North America
• More Practices and Productivity
• Doing something about the weather
• Conclusions
Labor Productivity Phase II
37
INDEPENDENT PROJECT ANALYSIS
Why Worry About the Weather?
• The weather is a significant risk factor for many
projects
• The weather is an important estimating issue
between owners and contractors and is sometimes
used by contractors to “fatten” estimates on
reimbursable or negotiated lump-sum contracts
• Therefore, establishing some quantitative data
around the effects of specific weather on
productivity should be useful
Labor Productivity Phase II
38
INDEPENDENT PROJECT ANALYSIS
Weather data
• The US National Oceanographic and Atmospheric
Administration (NOAA) keeps very detailed
records of weather at most construction locations
in the USA
• We purchased daily weather information in
electronic form for the construction periods of
approximately 50 percent US projects in our
productivity database
• We then matched weather results to productivity
Labor Productivity Phase II
39
INDEPENDENT PROJECT ANALYSIS
Weather Variables
• Temperature Variables
– temp90 - Percent of construction days with the daily high
temperature above 90 degrees Fahrenheit (32 degrees C)
– coldxx - Percent of construction days with the “cooling degree
days” measure greater than 10, 15, 20, or 25. Cooling degree days
are measured as each degree of temperature of the daily mean above
65 degrees F (18 degrees C).
– Heatxx - Percent of construction days with the “heating degree
days” measure greater than 10, 15, 20, or 25. Heating degree days
are measured as each degree of temperature of the daily mean below
65 degrees Fahrenheit.
• Precipitation Variables
– snow - Percent of construction days with 1/2 inch or more of daily
snowfall
Labor Productivity Phase II
40
INDEPENDENT PROJECT ANALYSIS
Weather Variables (cont.)
• Wind
– windxx - Percent of construction days with resultant wind speed
greater than 15, 20, or 25 miles per hour. Resultant wind speed is
calculated as the vector sum of the wind’s speed divided by the
number of observations.
• Discomfort
– Caution - Percent of construction days where combination of heat
and humidity qualified as a “caution” condition by the National
Weather Service
– Danger - Percent of construction days where combination of heat
and humidity qualified as a “Danger” condition by the National
Weather Service
Labor Productivity Phase II
41
INDEPENDENT PROJECT ANALYSIS
General Effects of Weather on Productivity
60%
50%
40%
30%
20%
10%
0%
Wind15
- Labor Productivity Phase II
Danger Cold15 Caution Temp90
42
Cold10
INDEPENDENT PROJECT ANALYSIS
Weather Effects in Warmer Regions
25%
20%
15%
10%
5%
0%
Danger
- Labor Productivity Phase II
Caution
43
Cold15
INDEPENDENT PROJECT ANALYSIS
Weather Effects in Northern US
70%
65%
60%
55%
50%
45%
40%
35%
30%
Wind20
- Labor Productivity Phase II
Snow
44
Heat25
Heat20
INDEPENDENT PROJECT ANALYSIS
Weather Conclusions
• High winds are most destructive of labor productivity
• The effects of rain are too small to detect except for
projects that involve large amounts of difficult
welding, e.g. hydroprocessing
• The effects of weather are quantifiable
• Data necessary to find averages are generally
available
• Owners might consider taking weather risks
whenever the contractor’s predicted effects are
higher than average
Labor Productivity Phase II
45
INDEPENDENT PROJECT ANALYSIS
Outline
• Measuring labor productivity
• Review of first year’s work
• Productivity in Europe v. North America
• More Practices and Productivity
• Doing something about the weather
• Conclusions
Labor Productivity Phase II
46
INDEPENDENT PROJECT ANALYSIS
Conclusions
• Overall project-to-project variation in labor
productivity is 24 percent on a single standard
deviation
• Even within highly homogeneous projects in the same
region, the variation is about 15 percent
• This means there is a substantial gain available in
improved labor productivity
• Good labor productivity does more than reduce cost
– Improves schedule
– Improves quality
Labor Productivity Phase II
47
INDEPENDENT PROJECT ANALYSIS
Keys to Better Productivity
• Detailed execution planning is the single most
important driver of better field productivity
• Execution planning has been progressively
outsourced to contractors
• But the data are clear: owner execution planning and
control are central to securing good labor productivity
• The principal role of the engineering contractor is to
provide timely, high-quality engineering documents to
construction; it is not to take the place of the owner in
the execution planning process
Labor Productivity Phase II
48
INDEPENDENT PROJECT ANALYSIS
Path Forward -- Phase III
• Work will continue on the collection of more
detailed practices in the field that may affect
productivity
• Regional focus for IBC 2003 will be Latin
America and Asia
• Main emphasis will be on low-wage, generally
lower skilled labor situations in which major
cost swings can be achieved
Labor Productivity Phase II
49
INDEPENDENT PROJECT ANALYSIS