Control your major risk factors

Business, by its very nature, is an analytical and quantifiable enterprise. You may be providing products or services, or both, to your customers. Either way, in the end, you have to have enough margin on the products and services you sell to generate a profit. If your costs exceed your revenue, you’re upside down. If, on the other hand, your revenue exceeds your costs, you’re making money.

During my 30 years working and consulting with green industry entrepreneurs, I’ve noticed that people who are making money and improving their lot in life by doing so are generally pretty fulfilled and happy. On the other hand, people who are losing money and going broke are neither happy nor fulfilled. If you happen to know someone who is going broke and enjoying the experience, keep as far from them as possible. They’re psychotic.

In order to be profitable, providing products and services in the green industry – or any industry – you have to think about risk management. You need to identify your major risk factors and control them as much as possible. In this industry, labor comprises your greatest risk factor.

Producing it right.

In order to have enough margin to generate a profit, you have to price your products and services accurately. You have to produce them as you priced them and you have to have enough volume to cover all of your costs. In this article, we’ll concentrate on risk management and delivering your products and services on budget.

Measuring risk.

I believe that 90 percent of your risk is field labor. Just like an athletic team, labor determines if you are going to win or lose. Skid-steers and excavators don’t get drunk Saturday night and call in sick Monday morning. I have yet to see a tree smoke dope on a jobsite.

If you are a landscape contractor, I don’t have to tell you that field labor is your greatest risk. On the flip side, it’s also your greatest opportunity. Any organization that puts a team on or in the field has to primarily concern itself with managing people.

Controlling risk.

In order to control risk, you first have to identify, then quantify it. You do so by breaking labor into time units: the man-hour, crew-hour, crew-day and so forth. Next, you apply man-hour production rates to the components in a bid or service. For instance, a landscape installation project might be comprised of demolition, soil prep, an irrigation system and installing trees, shrubs, ground covers, sod and mulch. Each item would have a specific quantity of man-hours associated with it. Finally, you have to track and monitor the man-hours. It might look like the chart at the below.

You should show the budgeted man-hours to the crew foreman prior to the start of the job. Then have the foreman track the man-hours on a daily basis and debrief the project manager or owner at the end of each day. This is how you control risk. First, you identify it. Second, you make it quantifiable. Third, you (field crew leader and managers) track and monitor it on a daily basis.

Conclusion.

I used a landscape installation project for my example. I do the same thing with slight variations for my clients who have lawn maintenance or fine gardening accounts, irrigation services, tree services, chemical applications, etc.

The key is to identify your major risk factor (field labor), quantify it and measure it against a pre-determined budget, and monitor it on a daily basis. Next time, we will discuss the third of the three essential elements: volume.

Search “Control your major risk factors” on lawnandlandscape.com for an example of my field labor job cost worksheet.