Understanding how labor costs factor into project estimates is critical for efficient project management and budgeting. This article provides a comprehensive overview of labor costs, covering topics such as hourly rates, productivity, crew management, and the role of different resources in cost calculation.
Key Insights
- Labor costs for project estimates are informed by a variety of factors, including hourly rates, productivity per hour, crew size, and the required resources. These costs pertain to the installation or execution of a task rather than overhead costs.
- Proficiency in calculating labor costs requires understanding the different types of labor resources and their respective hourly rates. For instance, a journeyman and a laborer may have different hourly rates, and their combined cost per hour contributes to the total cost per linear foot in a project.
- Effective crew management can impact profitability. The size and composition of a crew must be balanced to avoid congestion and inefficiency. In some cases, having fewer journeymen and more laborers could result in more profitable and efficient work.
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Estimating labor costs. First, let's define what labor actually is. Labor is the cost to install any item or perform a task based on an hourly rate and productivity per hour.
Productivity is the amount of units that can be produced in a specific measurement of time. Let's talk about labor pricing. What we're referencing here is the cost for installation—not necessarily the overhead cost of all the people working inside the company.
If you have a cubic yard of concrete being installed on site, the labor cost is what it’s going to take to actually prepare that concrete and place it with manpower on the job site. Labor costs for estimates include multiple factors such as hourly rates, burden, productivity, crews, and resources. Labor is derived from hourly rates, crew size, and productivity per hour.
Now, this might sound pretty complicated, but we're getting granular here. This all rolls up into a much simpler labor cost, but it's good to know all the increments—all the little miscellaneous components required to come up with the total overall cost of your labor. A good example is a journeyman at $50 an hour who can frame 150 linear feet of wall in eight hours.
That equals $2.67 per linear foot. That’s $50 an hour times eight hours equals $400 per day, divided by 150 linear feet per day, which equals $2.67 per linear foot. Now, labor resources include journeymen, laborers, foremen, etc.
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These are all different types of labor costs. These are referred to as resources, and each resource typically has a different hourly rate. A journeyman at $50 an hour plus a laborer at $18 an hour can frame 250 linear feet of wall in eight hours, which equals $2.18 per linear foot.
Let’s look at the calculation for that. $50 plus $18 equals $68 an hour. Multiply that by eight hours per day, which equals $544 per day. Divide that by the 250 linear feet, and that equals $2.18 per linear foot.
Keep in mind that it’s often required that multiple labor resources are needed for a specific task. One person, for example, cannot install asphalt paving over 1,000 square feet of roadway alone. It requires a crew—it requires a team or multiple resources working simultaneously—combined into a total hourly rate. So depending on how labor resources are allocated, they can often be more profitable based on crew size and how the crew is being utilized.
Crews are composed of any combination of resources such as one foreman, one journeyman, and two laborers. That’s considered a four-man crew. Some tasks require exactly a four-man crew—no more, no less—so keep that in mind when pricing out labor on your projects.
If you have multiple journeymen working on a task, it might actually be more efficient and cost-effective to have fewer journeymen supported by additional laborers. In other words, you don’t necessarily need journeymen to haul heavy materials into the site for installation. If too many installers are working in one area at the same time, it can become congested, leaving insufficient room for the installation to take place properly.
Keep in mind there’s a balance. There’s an ebb and flow to your labor. There’s a comfort zone.
You need to find that sweet spot of what it will actually take to do the installation effectively, depending on crew size. Also keep in mind that sometimes other factors—such as time—can influence labor needs. If you need to get this job done quickly, you might be forced to provide more laborers at one time, or possibly extend work hours per mandate, which could also increase costs.
There are many factors to consider, and labor resources are a combination of all the labor costs used to install a particular component.
