John Wanamaker, the pioneering US department store magnate, once remarked: “Half the money I spend on advertising is wasted. The trouble is, I don't know which half.”
Does your industrial company share Mr. Wanamaker’s problem when it comes to managing shutdowns, turnarounds, outages, other major projects, and even routine maintenance that involve thousands of contractors, months of disruption and tens of millions of dollars?
If you have a large contractor workforce, and if your company is typical, you may be overpaying your contractors by roughly 15% each year. But unlike Mr. Wanamaker, you can discover how—and then do something about it.
The Importance of Project Metrics
You can only manage what you measure. If you need to manage your costs for contractor-owned labor, materials and equipment, you must establish Key Performance Indicators (KPIs) that reveal the level of success or failure of each project.
You must establish your KPIs because the cost of failure is high. Projects in the industrial sector (oil & gas, metals & mining, pulp & paper, chemicals, utilities, manufacturing) are large. Shutdowns, turnarounds and outages typically last 60 days and can cost around $50 million to complete. Not to mention the added costs of missing your targets. McKinsey & Company estimates that construction projects are typically completed 80% over budget and take 20% longer than forecast.
These projects require an increase in contractor headcount coming into your worksite to complete the project. If there are thousands of workers on your site and you aren’t tracking project completion at the work level, then your projects will get out of hand rapidly. You will blow your budget and your timeline—and be forced to find more money and extend the project timeline.
What Kinds of Project Metrics Should You Track?
As you know, planning a major project takes years, and involves estimating totals for everything that comes with a cost, particularly labor. You estimate, for example, how many hours need to be worked on each part of your plant or site, such as 1,000 hours of welding, 600 hours of pipefitting and 200 hours of electrical.
But the key to monitoring and managing the success of your project isn’t just to establish metrics. The key is to regularly compare estimates with actuals.
You must compare:
- Actual Work Hours versus Estimated Work Hours
- Actual Costs versus Estimated Costs
- Actual Completion Rates versus Estimated Completion Rates
You should also change the way you collect data when calculating Earned Value Management (EVM). Most companies use EVM to uncover variances in projects by comparing work performed with work planned. But their major challenge is consolidating project-progress data from multiple systems at regular intervals.
Inconsistent and untimely data leads to errors in reporting, and also leads to false conclusions about project performance. The solution is to use a system that gathers the data automatically. This eliminates manual data entry, makes the collection process consistent, and improves the accuracy of EVM calculations.
How to Master Your Metrics
The key to mastering your metrics is real-time insights, increased transparency and time-saving automation.
Real-Time Insights
The problem that many industrial companies face is that they use multiple tools or spreadsheets to track and forecast projects. These tools and spreadsheets don’t talk to each other, so they don’t deliver the real-time insights that companies need. The solution is to use an integrated contractor management solution that provides daily updates on contractor performance, cost control and compliance.
Increased Transparency
The next challenge that industrial firms face is that their estimated “actuals” are inaccurate. Plus, they receive this information after the fact. For example, the welders only worked 80 hours today but they were supposed to work 150 hours. But the project controls group won’t know this until next week because of the manual processes of submitting timesheets and invoices. The solution is contractor management software that delivers visibility, transparency and velocity into your daily contractors’ spend.
Time-Saving Automation
The final challenge that industrial firms have when managing thousands of contract workers over multiple months is manually reconciling thousands of invoices against contracts. This is why some turnaround managers need six months to close out their projects. This is why contractor audits take 12 months. The solution is automation.
Today’s contractor management software tracks labor, materials and equipment automatically. Automated collection of contractor work activity ensures accuracy and delivers controls. Automating the contractor payment process significantly reduces audit and reconciliation time. Automation helps you control, manage and reduce contractor labor, equipment and materials spend.
Case Study
A Fortune® Global 5 refinery asked Management Controls to analyze three contractor labor invoices for a 45-day period during their Spring Turnaround.
Using our TRACK® Software, we calculated the net time for all the contract employees and compared it to the invoices the refinery paid. We automated the contract terms and conditions for each contractor, imported the access control system in/out events and applied the same skills and schedules that were used during the turnaround.
TRACK identified a significant difference between the calculated net time and the actual invoice. TRACK discovered $2.1 million in labor savings for the six weeks evaluated.
More
Learn how a global mining leader with 35% of total spending allocated to labor wages saved more than 12% on their annual contractor spend through automating contract compliance and gaining real-time visibility and control of daily operations. Read the case study.
