(Mis)Estimating Labor Hours

Thursday, February 1, 2007

When putting together estimates, many integrators do not account for labor hours. Even once they realize accounting for them is possible by using industry-specific business-management and accounting software, applying the correct amount of labor hours is still an extremely tricky aspect of the estimate.
A large chunk of integrators and dealers are losing money on projects today because they ignore or mis-estimate labor on jobs. On the other side, if you charge too much for labor, you are not competitive.
There is a fine balance to managing labor hours on estimates and through our 35 years of research of integrators and dealers, we have come up with a few tips:

Attaching labor hours to items
In order to create a better system for attaching labor hours, industry-specific business-management and accounting software packages allow you to attach labor hours to items. For example, every time you pick up a control panel and attach it to the job, the software automatically attaches two labor hours for the job. This way, when you have attached all your items, the software would automatically enable you to see approximately how many labor hours are required for the job and you can assign it accordingly.

Travel time
Travel time to and from the service location of a job is one aspect of labor hours that is completely ignored by a majority of integrators today. At times, traveling to a job site will take half an hour to an hour one way.
If a job is estimated to be complete in 16 hours and the travel time required one way is one hour, you would most likely need four hours travel time to complete the job. The total labor hour estimate should be 20 hours and built in just like your fuel surcharges.
On a job-by-job basis, you can determine how you want to bill for these things. You can bill them out at full rate, a travel time rate, or not at all. But the key is to be aware of the costs ahead of time so you are not caught with any surprises when it comes to job costing.
Such calculations are easy to set up in industry-specific software that allows you to estimate labor hours and travel time individually on the same quote and calculates the job costing accordingly.

Difficulty factor
No two installations will ever take the same amount of time, even if they call for the same equipment. Integrators often forget this while calculating labor hours.
A job with three CCTV cameras and a DVR on a new construction may take you 20 hours of labor, including wiring, trim-out, configuration and training. And most integrators would always put down 20 hours. However, take the same equipment, but change one thing: now it's a retro-fit on a concrete construction building. Would you logically estimate 20 hours now? That is why, in addition to adding default labor hours on items, it is necessary to incorporate the difficulty factor of jobs to change the hours accordingly. This will mean that for every job, an equation is created to assign the labor on a different level based on the difficulty.

Rewards of labor hour estimating
In addition to increased profitability, calculating labor hours on your estimates with software created specifically for our industry to manage your estimates will allow you the ability to generate reports for labor hours on all types of past jobs, making your future estimates more accurate.
It will also give you a strong idea of your technician's strengths and capabilities. After having a track record of the estimated hours and the actual hours spent by a technician, you will know the strengths and weaknesses of your technicians. You will also be able to hold them accountable more easily if similar jobs take longer to complete.