Valuing time savings

By - , Build 131

Time is money. Reducing how much time is wasted can save builders significant money on house building projects.

Quicker construction provides a significant advantage to builders – it can improve their cash flow and profits. BRANZ recently carried out some research to identify the cost advantages of quicker construction.

The two main ways to reduce construction time are to:

  • use labour more efficiently – complete tasks in fewer labour hours
  • reduce the overall lapsed time on a project.

Increasing efficiency

For example, taking 1 week off a typical construction period of 18 weeks is a 6% time saving or about $2,100 on a typical 190 m² new house.

This is a worthwhile target on many projects and can be achieved with better management to reduce downtime or time wastage.

Speeding up the time taken

The overall time from start to finish on a project (the lapsed time) can be reduced by:

  • organising material deliveries, subcontractors and council inspections so minimal time is lost
  • prefabrication – this is a trade-off between the extra cost of the prefabricated component compared to site built, against the value of time saved.

The research assumed that the builder will be using their resources efficiently – labour is fully employed, perhaps by shifting to other projects when subcontractor delays occur.

POSSIBLE SAVINGS

The value of possible lapsed time savings is approximately $1,600 per week saved per house for large builders and $1,000 per week saved per house for smaller builders.

For a spec builder, potentially this could result in an earlier sale and hence less interest paid on the bank loan and land-holding costs.

For a progress payment type contract, the main advantage is the ability to sell more houses per year and hence make more profit.

For large builders (90 houses per year) with significant fixed costs, such as a sales centre, show home and advertising, the overhead is spread over more houses completed in the year, and the profit per house increases slightly.

More savings possible in boom times

Due to low demand at present, this analysis is less applicable, as many builders are under-employed and the next job is often not available. However, as the economy and building activity improves over the next 12 months, the dollar return for quicker construction will become more relevant.

Report has more details

BRANZ Study Report SR259 has the details of potential costs savings for various types of builder. It describes the contractual arrangements commonly used in the house building industry, potential time savings, cash flow advantages and the values associated with times saved.

For more

SR259 Value of time savings in new housing can be downloaded free from the BRANZ Shop at www.branz.co.nz, then publications and study reports.

Download the PDF

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Articles are correct at the time of publication but may have since become outdated.

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