Calculate and optimize the cost of labor in construction

Understanding and optimizing labor costs is necessary to prepare a quote or analyze a completed project. This article shows you how to do that. You will find practical advice for more precise management and better profitability of your operations.

The calculation of the labor price can be done before and/or after a construction site

Calculating the cost of labor allows not only to prepare more accurate quotes but also ofassess the profitability of projects once completed. Here are some explanations.

Why calculate the cost of labour before the construction site?

The costing of a construction site is based on a rigorous analysis of expenses, in particular direct and indirect labour costs. They can in fact represent more than 30% of a construction project (source: The Construction Labor Market Analyzer).

In particular, direct labour costs are used to calculate the Dry payout. Properly quantify a construction site allows you to break down each element to establish a quote that reflects The real cost of work. When drawing up the quotation, the design office technician must determine prices that ensure profitability and are competitive enough to win the contract.

Why calculate the cost of labour after the construction site?

Post-project analysis is just as important. It is not limited to verifying the conformity of actual expenses with forecasts: it is also used to refine your costing methodologies for future projects.

This step requires:

• A detailed assessment of the differences,
• Identifying the underlying causes,
• Integrating these elements into your costing processes.

The use of digital tools makes it possible to obtain more accurate analytical data. They make it possible to optimize estimates and to improve the profitability of the site.

How do you estimate the cost of labor before the construction site?

Here is the process to accurately calculate the cost of labor before the start of a construction site.

Data to be taken into account for the calculation

The estimated direct wage cost

Direct labor costs are the wages that you pay to your workers according to their activity. This includes what is often referred to as the base rate.

These costs are related to the actual working time of employees and to their production. They do not include benefits or other forms of indirect compensation.

The estimated indirect wage cost

Indirect wage costs represent expenses associated with an employee that go beyond their base salary. They include:

• Social charges,
• The insurances,
• Paid vacation,
• Sickness benefits,
• Training,
• Other social benefits.

These expenses are spread over all the projects and activities of the company.

Estimated indirect expenses

An employee's salary does not reflect all of what it costs a business. To get a complete picture, you have to add up all the fixed expenses that are not not directly related to a specific activity, such as the rent of premises, electricity bills, Internet access, telephone subscriptions, or even insurance.

Calculate the labor price

To calculate the labor price accurately, you can follow these steps. They incorporate the elements mentioned above:

1- Calculate the total wage cost

To get the total wage cost, you need to add up:

• Direct wage cost (base rate): So these are the wages paid to employees according to their working time and production. This represents direct remuneration for the work done.

• Indirect wage costs: It includes expenses related to the employee that are not included in the base salary.

2- Add up indirect expenses

Determine fixed costs such as rent, electricity, Internet, telephones and insurance. In principle, these elements are communicated by the accounting department.

Total wage cost = direct labor cost + indirect labor cost + indirect expenses.

3- Calculate billable hours

Evaluate how many hours each employee can devote to productive activities (and billable) on an annual basis.

To do this, calculate the Total hours worked In the year of the employees concerned, subtract absences such as holidays and holidays. Subtract about 10% of the time considered non-billable (time spent in training, meetings, etc.).

4- Determine the cost of production per billable hour

The hourly cost is obtained by dividing the total wage cost by the total number of billable hours.

This allows reduce the overall cost of labour to an hourly value. This makes it easier to manage costs on a specific site.

Hourly cost = total wage cost/total number of billable hours.

You thus obtain an accurate estimate of the labor price, which takes into account all the costs associated with the employment of your employees. This method helps you set competitive rates while ensuring the profitability of a project.

How do you know the labour costs afterwards?

To measure the cost of labor once a construction site is completed, it is necessary to compare actual costs and initial estimates to identify discrepancies.

Two complementary approaches can be used: manual calculation and assistance using numerical tools.

Do the math by hand

Manual calculation is still an option, but it includes Risk of errors and involves administrative burdens important.

Traditional spreadsheets can quickly become difficult to manage for large-scale projects. The absence of a real centralized database makes it difficult to analyze history and capitalize from one project to another.

The disadvantages

• The lack of traceability of data entered manually,
• The complexity of grouping scattered data from multiple media (paper reports, separate spreadsheets, etc.),
• The difficulty of drawing analyses and lessons from it for future projects.

Turning to digital solutions is now becoming obvious.

Use Alobees to do the math

A digital tool like Alobees allows optimized monitoring of labor costs. Here are some of its advantages:

• Simplified field entry: construction workers enter their hours directly on the application, even in a construction site situation. No more risks of mistakes and back and forth between offices.
• Specific assignment: each worker assigns his hours to the tasks carried out and to the site concerned. No more vagueness on the distribution of costs between the various positions.
• Numerical analysis: all activity data is automatically combined into a single database. A reliable overview in real time.

With this tool, you optimize the effectiveness of field monitoring and obtain total visibility on the profitability of each operation. Enough to manage your projects in full awareness of costs. Especially since the application combines other functions such as planning, the centralization of documents, the assignment and monitoring of site tasks, or the sharing of information with teams.

How to optimize labor costs?

Here are some tips for optimizing labor costs without sacrificing quality. They revolve around three axes.

Analysis of current costs

The first step is to get a clear and accurate picture of current labor costs. A tool like Alobees can simplify this task:

• Real-time monitoring of the hours of companions and tasks carried out,
• Comparison with costing to identify discrepancies.

Identifying the sources of time loss

With data collected, the next step is identifying where and how inefficiencies are happening.

• Review processes to identify redundant or non-essential activities
• A collection of field feedback from the teams, their experience is rich in lessons.

Optimization of site planning and logistics

Operational efficiency is the guarantee of controlled costs.

• Timely planning of deadlines, resources and tasks with a tool like Alobees,
• Adequacy of skills with the needs of each profession,
• Optimized logistics to limit waiting times.

The combination of a precise vision of the field, continuous improvement of processes and effective foresight helps to reduce labor costs.

Continuing education: investing in skills to optimize costs

The efficiency and competence of each worker also weigh in the profitability of a construction site. Investing in the continuing education of the workforce can be a powerful lever to improve productivity and, therefore, optimize labor costs. Here's why:

• Reduction in errors and delays : well-trained employees are less likely to make mistakes that can be costly in materials and time. A better understanding of techniques and processes can speed up the execution of tasks.
• Reduction in work accidents: training in safety standards reduces the risk of accidents on construction sites. This has a direct impact on reducing the costs associated with work stoppages, compensation and lost productivity.
• Adaptation to new technologies: Continuing education makes it easier for teams to stay up to date, adopt innovations more easily, and make the most of them to increase efficiency.
• Attracting and retaining talent: offering training and professional development opportunities makes your business more attractive. It also helps to retain employees and thus reduces recruitment costs.

A continuing education strategy can enable construction companies to not only improve the quality of their work, but also achieve significant savings over the long term. This represents an initial investment that subsequently results in an increase in profitability and a better competitive position on the market.

Conclusion on the price of labour in the construction industry

In the demanding construction sector, controlling labor costs is therefore an imperative to remain competitive. As we have seen, this involves a rigorous approach at all stages : from initial costing to post-site analyses, including field monitoring.

While manual methods have been sufficient in the past, They are now showing their limits in the face of the complexity of projects, the needs of businesses, and greater competition. The risk of errors, the lack of traceability and the absence of an overall vision are all obstacles to profitability.

The digitalization of workforce management is becoming a necessity: with an adapted tool like Alobees, construction companies have access to a new level of control and optimization :

• Plan your work accurate construction to optimize the use of your resources (Learn more).
• Follow the activity of your teams directly to effectively control labor costs (Learn more).
• Simplify salary processing thanks to direct access to the variable data on your employee payslips (Learn more).

The digital transition thus allows real savings on payroll without sacrificing the quality of achievements. A real competitive advantage in a fiercely contested market.

Businesses that make the switch to digitalization have a decisive head start. Do you want to check it out for yourself? Try Alobees free for 14 days and see the difference.