Underestimating costs can be a challenge for any business. For construction industry businesses, the most commonly underestimated costs are labour costs. Labour costs are one of the main reasons why projects go over budget.

Not understanding or not calculating the true cost of labour will undermine your understanding of cashflow and performance and quickly eat into the profitability of your projects.

Prevail can help you to overcome the challenge of underestimating labour costs.

How can Prevail help?

With our support, you can overcome the challenge of underestimating labour costs.

  • With the right financial analysis, you can fully understand and account for your labour costs. Delays, rework and poor scheduling or a lack of scheduling are some of the reasons why labour costs are frequently underestimated.
  • Another key reason is miscalculation. The fact that we pay an employee £18 per hour does not mean that they cost us £18 per hour. In fact, that hourly cost must also include holiday pay entitlement, non-labour hours, employer national insurance. When we take these costs into consideration, the actual hourly cost is typically closer to £25.
  • By failing to include these associated costs and calculating the true cost per hour, you quickly run into trouble. Around thirty percent of the total cost of labour is not being accounted for! Could your margin of safety absorb those unaccounted costs without tipping into unprofitability?
  • At the same time, even a day’s delay can cause labour costs to mount. A week’s delay on a project with ten people on site is the equivalent of 400 hours of unaccounted labour costs – unless you are building sufficient contingency time into your project plan.
  • What does this look like? It will depend on the characteristics of the site, the season, the scope of the project… Accurate information and project planning experience will help to create realistic schedules.
  • Prevail will help you to calculate the correct labour cost per individual. We’ve developed a spreadsheet that will enable you to accurately allocate project hours and correctly distribute labour costs in your accounting system. We can train your team on the process, the time allocation and preparing a payroll journal. We can even recommend payroll systems, if you need one, explain how they integrate with your accounting software and define your management reporting processes.
  • We can also help you to create and track KPIs that track employee efficiency rates. This metric is crucial if you want to get a really good understanding of your profitability overall and per project. It will help you to track the time and cost in real time for every project – underpinning your project success.

Get in touch!

We can help you overcome challenges commonly faced by construction inWe can help you overcome challenges commonly faced by construction industry businesses, including:

For specific understanding about how we can help you address these challenges, please visit the relevant page.

Alternatively, you can contact our team to discuss the challenges you are facing within your own operation.

Call us on: 01706 550 825