Construction Overtime – A Common Miscalculation
You never get full production out of all overtime hours worked. A common miscalculation when applying overtime overlooks productivity losses.
Let’s say we have a project that has 100 manweeks of productive work (100mw x 40hrs = 4000 manhours) remaining on the schedule to completion, but that we absolutely must finish the job is less time. Also, let’s say we modify the work week from 5 days 8 hours = 40 hours/wk to Overtime (OT) 6 days 10 hours = 60 hours/wk. A simple calculation indicates that if we add 50% more hours per week (60hrs vs 40hrs), we could finish the job in 1/3 less time.
- Original plan = 4000 manhours / 40 hrs/week/man = 100 manweeks
- Revised plan = 4000 manhours / 60 hrs/week/man = 67 OT manweeks
- Time saved = (100–67)/100 =33/100= 33% time saved, 33 mwks saved
- Cost added would be +20%. See example of cost calculation below.
But, unfortunately, that would not be correct. That would have to assume no OT productivity losses. You won’t get 60 productive hours out of a man in a 6-10s 60-hour OT workweek. You will get only 50 productive hours.
Productivity loss graphic from Applied Cost Engineering, Clark and Lorenzoni, Marcel Dekker, Inc., 1985.
Yes, you still pay for all hours and the man is still on the job for 60 hours, but work progress slows as workers are kept on the job for longer periods. So how much time would be saved on the schedule?
Revised plan productivity 4000 manhours work / 50 productive hrs per week per man = 80 OT manweeks to completion.
Time saved = (100 – 80) / 100 = 20/100 = 20% time reduction or 20 mwks saved, not 33.
What did we get from this application of overtime compared to the original?
- 20 mnwks LESS of normal 40hrs =20×40= 800hrs less at normal 1x rate
- 80 mnwks at 20hrs/wk at OT, 1.5x rate =80×20= 1600hrs more at 1.5x rate
- Net cost 1600 x 1.5 – 800 x 1 = 1600 equivalent extra cost hrs over base 4000.
- Time saved (100-80)/100 = 20%
- Cost increased 1600/4000 = 40%
This simple example shows the full hourly time savings is not realized due to lost productivity plus many of the hours worked are at a higher cost. Though the initial basic OT estimate forecast 33% time saved at 20% extra cost, that scenario actually saved only 20% time and added 40% cost, double the initial budget.
If this was initially a 30 month project, with approximately 35% of the cost in labor, then overtime saved 6 months time, but added 15% inflation to the total cost.
There’s a significant difference in the original un-adjusted OT estimate of time/cost versus the OT time/cost analysis for nonproductive hours. That would be a serious mistake in estimating and could have serious cost implications against the budget.
This will vary with the OT scenario selected or any other data set used, but generally the more days and longer hours worked, the higher the extra cost ratio. Of course, a better way to accomplish a tightened schedule might be to add a second shift rather than work men longer hours. However, in times of restricted labor supply that might not be feasible.
See this blog post for OT productivity loss rates Overtime Isn’t Always What It Seems – Lost Productivity Construction