The Importance of tracking Construction Labor Costs

One of the most significant expenditures for any construction project is labor. From painters to electricians and general contractors, budgeting and planning for the cost of labor can ultimately define a project’s profitability and success. Budgeting and managing the costs of materials and equipment is relatively straightforward; however, labor costs can make or break the profitability of a project.

A productive workforce is vital for project success, while poor supervision coupled with labor delays is a formula for failure and financial disaster. Typically smaller contractors will start out wearing multiple hard hats, serving as both project manager and superintendent, and sometimes even providing labor. While there is a cost-saving in not spending additional resources on labor, it causes the contractor to be spread thin.

With growth comes the ability to hire additional crew and support staff, moving from working on single projects simultaneously to skillfully managing multiple projects concurrently.

Even with a mid-size contractor, owners typically stay involved in job-site operations to support these supervisors and help ensure project success. However, just as with the growth of smaller firms, they may continue to increase support staff, such as project managers, to help delegate responsibility as the company grows. With each phase of growth, the risk of ballooning labor costs rises.

If you fail to plan your work, you will likely extend the project timeline and ultimately exceed your labor budget.

The first part of managing the labor and workforce is to create a labor budget. Suppose the work was calculated using unit pricing (material and labor combined). In that case, material costs must be determined first, then deducted from the unit pricing to determine the overall labor budget. Once you have a labor budget value divided by the average wage rate on the project, you will have the total number of hours for the project. Let’s create a sample project to work with:

Sample Project:

• Unit pricing from estimate (materials and labor) = $60,000.
• Material costs from vendor quote = $25,000
• Labor budget = (Unit pricing – Materials) = $35,000
• Average burdened labor rate = $20/hour
• Labor hours = $35,000/$20 = 1750 hours

Your dedicated labor schedule can be a simple spreadsheet that lets you allocate labor and workforce by the day or week and preferably by task. Note that the labor schedule you create should correspond to the overall project schedule supplied by the general contractor.

Developing a labor schedule is a valuable tool. It provides a detailed map for a superintendent to determine how many workers are assigned to each week’s activity. Beyond tracking activity and scheduling, it also organizes the workforce and allocates the budget hours for the project’s life to ensure that the labor hours are within the projected budget. Furthermore, it is a quick and easy reference to ensure the project is on track and materials have been delivered on time.

Contact Allied Consultants, your premier construction consulting firm, if you would like more information on creating labor schedules or construction feasibility studies.