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COST Measuring Labor Productivity, Labor Mix and Indirect Burdens + Solutions and Technology to Lower Labor Costs Presented by Steve Smith Senior Vice President, ACCO Engineered Systems, Inc. BONUS PROGRAM WEBINAR SERIES MODULE 4 May 21, 2014 Slide 2 Don Neal CEO & Founder Moderator Slide 3 Tips for This Webinar Be an active participant Ask questions anytime on the side chat bar Engage by answering the polling questions Dont feel obligated to take notes Slides and webinar will be available after the presentation at www.msca.orgwww.msca.org Share this experience with your colleagues We will be hosting a series of webinars this year (the schedule will be displayed at the end) Slide 4 Steve Smith Senior Vice President ACCO Engineered Systems, Inc. Slide 5 OBJECTIVES To provide a methodology to measure field productivity To show the impact of reducing non-billable time To increase the profitability of your business using simple metrics To show the impact on increasing profits by simplifying your paperwork system Slide 6 1.Billable Hours + Non-Billable Hours = Total Hours Paid 2.Billable Hours Total Paid Hours = Productivity % 3.List of Non-Billable Hours Truck repairs Callbacks (correcting mistakes or diagnostic failures) Warranty (caused by parts failures on earlier service work) Training (including safety) Counseling No charge sales assist (techs helping sales) Labor written off as uncollectible Field Productivity Definitions Slide 7 Why Measure Productivity? Setting the historical stage Coming off the 1980s Easy Street Early 90s Gulf War recession Gross margins and pretax profits were under downward pressure First sign of trouble went undetected Headcount went up, but billable hours per man went down Field Supervisions solution Added technicians so their total billable hours went up Three common problems Management trusted the field supervisors and technicians too much Productivity calculation was not thorough or shared Timesheets were always on time, but work orders were late with different hour amounts than timesheets Slide 8 Why Measure Productivity? Direct Labor is our largest cost component usually double the next largest cost component Is controllable Paid in small increments Requires support costs: Dispatchers Computers and software Trucks Forms How productive is your direct labor? Slide 9 What is your service organizations labor productivity percentage? A.We dont calculate this percentage. B.Greater than 92% C.Between 85% and 92% D.Less than 85% E.I dont know. Polling Question #1 Slide 10 Why Measure Productivity? Billed vs. Paid Hours (Assume 16 Techs + 1 Supervisor) Slide 11 Calculating Hourly Direct Cost Are you involved? Usually requires accounting help Should be consistent year-to-year Do not be too conservative Is critical on T&M and cost-plus jobs Three Calculations: 1.Direct costs for each labor category 2.Weighted average cost 3.Indirect labor burdens Slide 12 Calculating Hourly Direct Cost 1. Total union package (taxable) Base wage Sick/vacation/holiday 2. Fringe benefit costs Pension Health & welfare Industry fund Other 3. Payroll taxes and insurance FICA Unemployment Insurance Other Slide 13 Calculating Hourly Direct Cost 4. Truck costs Lease or depreciation Insurance Fuel/repairs/licenses 5. Small tools Use long-term average costs 6. Department expenses Dispatcher/billing personnel Nextel/cell/pager/notebook Uniform Forms Computer systems/software 7. Average Over Scale Pay Slide 14 Step 1: Direct Costs 4 Typical Categories Slide 15 Step 2: Weighted Hourly Costs Average Over Scale Pay Calculation Slide 16 Step 2: Weighted Hourly Costs Average Over Scale Pay Calculation Slide 17 Measuring Field Productivity Billed vs. Paid Hours (Assume 16 Techs + 1 Supervisor) Slide 18 Step 3: Indirect Labor Burden Billed vs. Paid Hours (Assume 16 Techs + 1 Supervisor) Slide 19 Step 3: Indirect Labor Burden General Foreman Fully Burdened Cost Slide 20 Step 3: Indirect Labor Burden So, what is a 1% improvement in productivity worth? Slide 21 Now What? Calls to Action! Use your payroll system to calculate productivity often and consistently. Share productivity results for the month and year-to- date. Share the cost of an hour with everyone (especially the techs)! Show everyone that labor is a low margin product. Educate your techs. Slide 22 The Cost of Callbacks 5% after tax profit is normal - for every $20 of sales there is $1 of profit The cost of a callback requires a new sale equal to 20x the callback cost to pay for the callback $100 callback requires a new sale of... $2,000 $400 callback requires a new sale of... $8,000 $1,000 callback requires a new sale of... $20,000 Slide 23 Does your service organization use both timesheets and work orders? A.Yes B.No Polling Question #2 Slide 24 Using Timesheets and Work Orders = BAD IDEA Whoever said you need both? Which always has more hours - the timesheet entry or the work order? Do you spend time and money reconciling timesheets to work orders? Do you have trouble getting work orders out of the field? Slide 25 Eliminating Timesheets: Improves Results Why? Either the number of hours you pay will decrease or The number of hours you bill for will increase Productivity in the field will increase Since non-billable time will be recorded on a work order instead of a timesheet, it will have very high visibility (require approval for non-billable time) Hourly costs will fall due to lower indirect burdens from the reduction in non-billable hours Productivity in the office will increase Timesheet to work order reconciliation will be eliminated More billing will get done faster Slide 26 Eliminating Timesheets: Factual Evidence In the 3 months prior to July 1995, we were paying an average of 40.25 hours per week using timesheets as the input source. Effective July 1, 1995, we accepted only original work orders as input, and the weekly average hours paid for the next 3 months was 37.50 hours. That was a savings of 2.75 hours per tech per week! Slide 27 Eliminating Timesheets: Factual Evidence With 100 techs costing approximately $60 per hour (in 1995 terms), annualized savings were approximately $792,000 per year. 2.75 Hrs. x $60/hr. x 100 Techs x 48 weeks = $792,000 Slide 28 Eliminating Timesheets: Make the Change Modify your work orders (repair and maintenance) Work orders need to have check boxes for: Continuation work order Completed work order Get the business agents on board early Know your collective bargaining agreements paperwork rules Tell them what youre going to do Slide 29 Which type of mobile device do your technicians use as a paperless work order solution? A.We dont use a mobile device. B.Smartphone C.Tablet D.Laptop E.Other handheld Polling Question #3 Slide 30 Eliminating Timesheets: Make the Change For a 2 or 3 week period, Run parallel: Have technicians turn in both original work orders and timesheets Tell them the total hours from both need to agree Recommended paperwork rules: Accept only originals (no faxes or copies) Give the remote guys $5 to send in via FedEx If a technician does not send them in on time, post 40 hours to his payroll and reverse it the next week Consider moving your payroll week end to midnight on Tuesday Slide 31 Eliminating Paper Work Orders Mobile Solutions have the following potential paybacks: 1.Reduction in days to bill from daily reported hours will speed up billing 2.Automatic check-in and check-out is achieved 3.If you send customers a work summary when time is posted to a job number, there will be no way to borrow time by charging without going to the jobsite 4.If you eliminate back-dating of work orders, you will further lower hours paid 5.You will get more done per day in the field with the same number of people Slide 32 Eliminating Paper Work Orders Mobile Solutions have the following potential paybacks: 6.Convert time spent processing payroll by the area service coordinators to billing repairs 7.Capture missed small repair sales opportunities by converting the current paperwork notification system to an email equivalent directly from tech in the field to sales 8.Tighten up control and accounting for refrigerant usage 9.Dispatching maintenance and better controlling tech movements 10.Better information for technicians = higher productivity Slide 33 Key Takeaways Engage your entire service organization in understanding non-billable time and productivity. Educate the field that we are not getting rich off their back. Get rid of timesheets to simplify your paperwork system and increase the profitability of your business. Use technology to duplicate your simplified paperwork system and further increase your profits. Slide 34 Its Your Turn Q1: Was this webinar informative and useful? A.Yes, I found this informative and useful. B.Yes, but it wasnt as informative and useful as I expected. C.No, this was not informative or useful. Q2: Did the speaker present the material in a clear and concise manner? A.Yes B.No Q3: Will you download this webinar, and share it with others in your company? A.Yes B.No Slide 35 Join us for the next webinar on September 10! To register, go to https://msca.webex.comhttps://msca.webex.com September 10: Labor Force Presented by Kip Bagley and Jim Leslie October 22: Efficiency Presented by Mike Star and Devon Hubbard December 3: New Business Opportunities Presented by Jaimi Lomas and Adam Wallenstein Slide 36 Reminder The PowerPoint will be available on the homepage of the MSCA website immediately after the webinar at www.msca.org.www.msca.org The archived webinar will be accessible from the MSCA website within 24-48 hours. Slide 37 For Additional Information or Questions, Contact: Steve Smith Senior Vice President ACCO Engineered Systems, Inc. (818) 244-6571 ssmith@accoservice.com Barbara Dolim Executive Director Mechanical Service Contractors of America (301) 990-2210 bdolim@mcaa.org