During the estimating process, direct labour hours are first calculated using estimated quantities from material take-offs and estimating labour norms like Gulf Coast, DACE or in-house. Calculated norm hours are for ideal working conditions not encountered in reality and only used as a starting point. The norm hours are then multiplied by a theoretical site specific Productivity Factor to arrive at the total on-site labour hour estimate. These site hours are then subsequently used to arrive at the total construction cost. The total site hours are also utilised for labour manpower planning and resource allocation.
The Productivity Factor is purely an estimating parameter and not something that is recorded during any project execution. It is a theoretical location / site specific factor used to convert the norm hours into estimated site hours. It generally depends on the site’s climatic conditions, soil conditions, water table level, permit control requirement etc.
As the ideal scenario, the estimating community needs location / site specific productivity factors for each standard estimating norm (Gulf Coast, DACE etc.). But productivity factors are not easy to arrive at as they could vary between contractors depending on issues like previous experience, engineering level and type, site survey quality etc.
It would be very convenient for every contractor to have their own historical databases of Productivity Factors for use in future estimates. To be able to correctly do this, contractors should have recorded the total direct labour hours actually spent on various projects along with a catalogue of the corresponding installed quantities for various equipment and bulk material. Only then a further exercise can be carried out to calculate the total norm hours based on the current estimating methodology. The actual total hours can be divided by the calculated total norm hours to arrive at the productivity factor for the historical projects to be used as a benchmark for future estimates.
However, most companies lack this kind of historical information gathering and analysis to support future estimates and even less for any specific country / region. Even if suitable historical data were available, such an exercise would involve a considerable amount of estimating effort, which may not be justifiable.
Most estimators finally end up making judgements to determine the best possible Productivity Factor to use for any particular site. As a result, when presenting to the client, any backup benchmark data is generally non-existent and both the contractor and the client teams try to convince themselves of the right factor based only on anecdotal experience.
To help create and substantiate the factor to be used in any estimate, I have created a Productivity Factor Calculation Tool in the attached file.
Productivity Factor Calculation Tool-Rev0 (free estimating resource)
This is based on factors, explanations and comments which I have collected over the years, and the product of innumerable discussions during estimate reviews with different stakeholders.
In the tool that I am offering, I have listed 27 different factors that may affect productivity. For any individual factor, the project specific effect could range between none, low, medium, high or very high. Choosing any of these will affect the proposed productivity factor by a certain value. For example, the distance of the construction site from the population centres will affect the transportation time of the local workforce thus affecting the productivity factor to be used. For longer distances the user of this tool can choose “high”, which would then assign a higher additional factor to be applied to the norm.
I have in effect chosen an arbitrary value for each of the ranges based on experience but they can be modified by individual estimator in discussion with site teams. Assigning a number, even if arbitrary, allows a systematic approach to be taken, which is a better substitute to inconclusive discussions. This approach will allow a more focussed discussion with proper reasoning allowing the team’s experience to be better used and channelized. Estimating finally requires a number to be produced, and through my years of experience, I have formulated this approach, which, although imperfect at the start, has the benefit of focussing discussion and convincing the broader team, as well as the client.
This tool could also be used to calculate different productivity factors for a greenfield or a brownfield project at the same location.
Note that this is just an example working for a typical greenfield onshore oil & gas project, and needs to be modified to suit the specific region / country / project site. This should only be used as a guide and is not considered perfect or exhaustive. Additional factors could be added if deemed suitable. The presentation and relative effects / additional factors are my own and do not have any industry standard / basis.
This working is suitable to present as a backup to any estimate and clearly tabulates all the elements included in the proposed Productivity Factor. This also helps the team to understand why the total direct hours in any particular project are higher than for example another simpler site.
This tabulation, along with any reasonable historical data that can be obtained, will help to make the estimates more transparent and generate confidence in the estimates produced.
This article was published as an opinion piece in May-2018, in the Project Control Professional which is the journal of The Association of Cost Engineers.
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