In February 2009, I wrote a column about how remodelers hard hit by the recession might be able to get some work in the insurance restoration industry. The gist was that since many restoration contractors don’t have the resources to handle reconstruction work, a remodeler might want to pursue this as a subcontracting opportunity. I concluded, “After all, fires and burst pipes don’t care about the economy.”
Here we are almost two years later, and the remodeling market isn’t what anyone would call robust. While my original advice still holds true, there’s another opportunity to consider: Become a restoration contractor. Now, on the face of it, this contradicts my original argument. I had discouraged remodelers from jumping into restoration work because it’s an entirely different business from remodeling, with different technical skills, pricing methodology, equipment requirements and marketing tactics. Given these differences, it would be highly risky for a remodeler with no prior insurance industry experience to make the attempt – without a lot of guidance.
There happens to be an established model for guiding people through a business start-up in an unfamiliar industry. It’s called franchising. As a former executive of a remodeling franchise, I can argue both the merits and the disadvantages of franchising as a business strategy – it’s not for everyone. But in the right circumstances for both the franchisee and the franchisor, it is an excellent option.
There are a number of national insurance restoration franchise organizations serving various segments of the insurance restoration industry: water mitigation, fire damage, catastrophic loss (hurricanes, earthquakes, etc.), carpet and upholstery cleaning, laundry and dry cleaning, and so on. The logical opportunity for a remodeler would be with organizations that work mostly in water mitigation and fire damage, which frequently involve reconstruction work. A downside, though, is that the big players in these markets have pretty much reached market saturation–there aren’t a lot of open territories remaining. Another issue is that, by and large, their target profile for a franchisee is an existing independent restoration contractor or cleaning contractor.
One franchise organization, though, has made the strategic decision to target remodeling contractors. First General Services (FGS), based in Orlando FL, has a business strategy centered on the belief that a remodeler can easily be trained to do water mitigation and fire restoration work; but there isn’t enough classroom time for a cleaning contractor to learn the building skills that a remodeler has spent a career acquiring.
When asked how becoming a franchisee would be a growth opportunity for a remodeler, FGS’s president Joel Dagenais says, “There’s a steady stream of work after you get on the carriers’ lists and develop good relationships with adjusters and agents. Margins should be better than in remodeling with this economy because you’re not competing against the pickup truck contractors–most established competition comes from larger, high-overhead operations. And with insurance work, you know that the money will always be there, because insurance companies are footing the bill; so collections are less of an issue. There’s also less marketing to do after developing the relationships, because you have a recurring relationship with just a few companies and people.”
This is all well and good, as long as the contractor can develop those relationships. This is where Dagenais believes remodelers bring a competitive advantage to the game. “After years of doing things the old way, carriers are pulling back,” he says. Many established restoration contractors have gotten a little too comfortable being treated generously by insurance carriers, and have grown high-overhead companies that don’t run as lean as a typical remodeling company. Dagenais believes that since remodelers have had to develop lean organizations because of the economy, they have a competitive edge over existing restoration contractors who've become used to the old way of doing things.
Most seasoned remodelers remember the expensive mistakes they made in the early days, and would advise any startup to have a mentor to help them develop the skills necessary to run a viable enterprise. Dagenais recognizes this, which is why FGS’s goal is to provide the training and support to replace the first three years of the learning curve. Nothing is guaranteed in this world, but for remodelers facing an uncertain future, a little research into the world of insurance restoration might be worth the effort.
Thursday, November 4, 2010
Thursday, October 7, 2010
Both Sides of the Satisfaction Equation
Jim and Mary Finlay believe in more than just delivering a high-quality project for their customers; their business philosophy is driven by personal values, and they’re compensated in ways that aren’t only measured in dollars and cents. For the past 18 years, Archadeck of Suburban Boston has earned a loyal following of repeat customers, and this is a case study of how that is done.
About ten years ago, the Finlays built a pressure-treated deck for Sarah. After completion Sarah gushed in praise of the workmanship, causing Jim no small amount of embarrassment. When it came time to replace her old curved-glass bumpout off the kitchen with a stick-built room – but save the existing blue tile floor – she had Archadeck of Suburban Boston do the work. And she was just as thrilled with that project.
A couple of years later, Sarah’s boyfriend Frank moved in with her. They decided to build a large addition with a great room, basement, garage, workshop area, and office. The addition was to match the home’s contemporary roof lines, with 4” x 14” exposed fir beams and structural insulated panels. It was a substantial project, and Sarah’s loyalty to the Finlays resulted in a no-bid contract.
Archadeck had a construction manager who was self-sufficient and able to solve problems without any direction. He was also a good carpenter and able to jump in and work if needed, so there was no hesitation on Jim’s part to delegate this size of project to him. What Jim hadn’t known at the time, though, was that the construction manager occasionally let his personal feelings affect his work – if he didn’t like a customer, he wouldn’t go out of his way to please them.
About three-fourths of the way through the job they had a progress meeting, and Frank asked Jim to take over project management. He complained a little about the construction manager’s attitude, and there were some timing issues with the subs, but Jim didn’t hear the complaint as an ultimatum. And since he was overwhelmed with other obligations at the time, Jim politely explained why he couldn’t comply with the request.
Toward the end of the project they had an early walk-through, where Sarah and Frank had a lengthy punchlist. While reviewing it, Jim came to learn that Frank was paying for the project as a way to earn equity in the house. And when Jim thought about it, he realized that Sarah had given Archadeck her unqualified endorsement; yet they hadn’t lived up to those expectations, which might have caused some friction between the couple. It wasn’t until then that Jim recognized the depth of the problem Frank had addressed in the earlier meeting. At the end of the walk-through Frank looked at Jim and said, “You know how much we’ve been inconvenienced. What are you going to do to make this up to us?” Jim said “Let me think about that.” And he did.
He returned for the last meeting to close out the paperwork and resolve the final payment. Jim had recognized that simply giving a cash rebate would have a minor immediate effect, but wouldn’t change the negative emotions that had accrued during the job. So he said, “You asked me what I’m going to do. Here are brochures for three upscale resorts. We’re paying for you to spend a weekend together at the one of your choice.” The idea was to repay them in kind – for their inconvenience, apprehension and stress. They were delighted and Sarah chose one she had always wanted to go to but could never afford. Flowers were waiting in their room when they arrived.
Later, Jim and Mary learned that on that weekend Frank had proposed to Sarah. Goodwill that had been lost during the job was regained in a way that established a unique, unforgettable connection to their customer. Jim says, “Money is probably the least effective form of apology, and I wanted a way to relieve the stress we’d created. But it’s not just that - what’s just as important is the satisfaction I feel in being able to do that. I almost lost a friendship, but was able to save it”
About ten years ago, the Finlays built a pressure-treated deck for Sarah. After completion Sarah gushed in praise of the workmanship, causing Jim no small amount of embarrassment. When it came time to replace her old curved-glass bumpout off the kitchen with a stick-built room – but save the existing blue tile floor – she had Archadeck of Suburban Boston do the work. And she was just as thrilled with that project.
A couple of years later, Sarah’s boyfriend Frank moved in with her. They decided to build a large addition with a great room, basement, garage, workshop area, and office. The addition was to match the home’s contemporary roof lines, with 4” x 14” exposed fir beams and structural insulated panels. It was a substantial project, and Sarah’s loyalty to the Finlays resulted in a no-bid contract.
Archadeck had a construction manager who was self-sufficient and able to solve problems without any direction. He was also a good carpenter and able to jump in and work if needed, so there was no hesitation on Jim’s part to delegate this size of project to him. What Jim hadn’t known at the time, though, was that the construction manager occasionally let his personal feelings affect his work – if he didn’t like a customer, he wouldn’t go out of his way to please them.
About three-fourths of the way through the job they had a progress meeting, and Frank asked Jim to take over project management. He complained a little about the construction manager’s attitude, and there were some timing issues with the subs, but Jim didn’t hear the complaint as an ultimatum. And since he was overwhelmed with other obligations at the time, Jim politely explained why he couldn’t comply with the request.
Toward the end of the project they had an early walk-through, where Sarah and Frank had a lengthy punchlist. While reviewing it, Jim came to learn that Frank was paying for the project as a way to earn equity in the house. And when Jim thought about it, he realized that Sarah had given Archadeck her unqualified endorsement; yet they hadn’t lived up to those expectations, which might have caused some friction between the couple. It wasn’t until then that Jim recognized the depth of the problem Frank had addressed in the earlier meeting. At the end of the walk-through Frank looked at Jim and said, “You know how much we’ve been inconvenienced. What are you going to do to make this up to us?” Jim said “Let me think about that.” And he did.
He returned for the last meeting to close out the paperwork and resolve the final payment. Jim had recognized that simply giving a cash rebate would have a minor immediate effect, but wouldn’t change the negative emotions that had accrued during the job. So he said, “You asked me what I’m going to do. Here are brochures for three upscale resorts. We’re paying for you to spend a weekend together at the one of your choice.” The idea was to repay them in kind – for their inconvenience, apprehension and stress. They were delighted and Sarah chose one she had always wanted to go to but could never afford. Flowers were waiting in their room when they arrived.
Later, Jim and Mary learned that on that weekend Frank had proposed to Sarah. Goodwill that had been lost during the job was regained in a way that established a unique, unforgettable connection to their customer. Jim says, “Money is probably the least effective form of apology, and I wanted a way to relieve the stress we’d created. But it’s not just that - what’s just as important is the satisfaction I feel in being able to do that. I almost lost a friendship, but was able to save it”
Thursday, September 2, 2010
Weather or Not
The Weatherization Assistance Program (WAP) has been around since 1976: a federally-funded program designed to reduce energy consumption in lower-income housing. According to the U.S. Department of Energy, over 6.2 million homes have been weatherized since the inception of the program. Along came the Great Recession, and Congress responded with the American Recovery and Reinvestment Act (ARRA). Included in ARRA was $5 billion of additional funding for WAP, with the intent to kick start job creation in the construction industry.
The first installment occurred in March of 2009, with the goal of using at least half of the $5 billion by June 17, 2009. To quote a U.S. Department of Energy announcement about the weatherization program, “Special consideration will be given to projects that promote and enhance the objectives of the Act, especially job creation, preservation and economic recovery, in an expeditious manner.” This is why ARRA was nicknamed “the stimulus.”
The Department of Energy recently announced that $2.6 billion, or about 52% of the funds had been expended as of August 20, 2010, or 14 months after the target date – more of a push start than a kickstart. It’s fair to say that the goal of creating jobs in an expeditious manner was not achieved (blamed on the lack of infrastructure to process the increased funding, which is now in place). The good news is that a large amount of funds remain. This provides an opportunity for contractors that could still use some stimulation, and who are capable of bidding and delivering low-margin volume work and carrying receivables for 30 days or more. Some conditions of working under this program include:
- Reporting, tracking and segregation of incurred costs;
- Reporting on job creation and preservation;
- Access to records by Inspectors General and the Government Accountability Office;
- Ensuring that manufactured goods are produced in the United States;
- Certification and registration;
- Ensuring that wage rates are comparable to those prevailing on projects of a similar character.
This last condition comes from applying the Davis-Bacon Act requirements to ARRA-funded projects, and will be the first time it’s been required in the 34-year-old weatherization program. While these requirements are common in federally-funded construction projects like highways (which are heavily unionized), they’re not typically applied to residential work. Depending on the region, Davis-Bacon wages may be higher than a given company’s pay scale (see Wage Determination by State), which would put pressure on margins and could introduce some dissonance among employees that are paid less on typical company jobs. Also, compliance can be cumbersome for a small contractor, which argues for outsourcing payroll to an expert – adding another cost to overheads.
One billion dollars of the $5 billion enhancement to WAP is set aside for funding technical assistance and training at both the state and national levels. The goal is to “help form the foundation for a sustainable energy efficiency industry in America that can extend to the more than 100 million middle-class homes that stand to benefit from weatherization.” If this fits in your strategic plans, you should utilize the resources.
An additional $3 billion of ARRA funds above the $5 billion for WAP have been allocated to the State Energy Program (SEP), which is primarily intended for developing and implementing comprehensive state energy conservation plans (technical assistance, training, education, etc.) and not for construction projects. However, it will fund rebates to consumers for home energy audits, which is another opportunity for contractors that are positioned to provide that service.
The states deliver federal WAP funds through a network of local community action agencies, non-profit organizations and local governments, which may perform the work themselves or put it out to bid (for a list of agencies, see your state’s department of housing and community affairs). More information on the weatherization program can be found at ARRA and WAP and WAP Online.
Various estimates of the number of new jobs created by the additional $5 billion put the cost of each job at between $37,000 and $57,000. Perhaps this could be one way of making your tax dollars work for you.
The first installment occurred in March of 2009, with the goal of using at least half of the $5 billion by June 17, 2009. To quote a U.S. Department of Energy announcement about the weatherization program, “Special consideration will be given to projects that promote and enhance the objectives of the Act, especially job creation, preservation and economic recovery, in an expeditious manner.” This is why ARRA was nicknamed “the stimulus.”
The Department of Energy recently announced that $2.6 billion, or about 52% of the funds had been expended as of August 20, 2010, or 14 months after the target date – more of a push start than a kickstart. It’s fair to say that the goal of creating jobs in an expeditious manner was not achieved (blamed on the lack of infrastructure to process the increased funding, which is now in place). The good news is that a large amount of funds remain. This provides an opportunity for contractors that could still use some stimulation, and who are capable of bidding and delivering low-margin volume work and carrying receivables for 30 days or more. Some conditions of working under this program include:
- Reporting, tracking and segregation of incurred costs;
- Reporting on job creation and preservation;
- Access to records by Inspectors General and the Government Accountability Office;
- Ensuring that manufactured goods are produced in the United States;
- Certification and registration;
- Ensuring that wage rates are comparable to those prevailing on projects of a similar character.
This last condition comes from applying the Davis-Bacon Act requirements to ARRA-funded projects, and will be the first time it’s been required in the 34-year-old weatherization program. While these requirements are common in federally-funded construction projects like highways (which are heavily unionized), they’re not typically applied to residential work. Depending on the region, Davis-Bacon wages may be higher than a given company’s pay scale (see Wage Determination by State), which would put pressure on margins and could introduce some dissonance among employees that are paid less on typical company jobs. Also, compliance can be cumbersome for a small contractor, which argues for outsourcing payroll to an expert – adding another cost to overheads.
One billion dollars of the $5 billion enhancement to WAP is set aside for funding technical assistance and training at both the state and national levels. The goal is to “help form the foundation for a sustainable energy efficiency industry in America that can extend to the more than 100 million middle-class homes that stand to benefit from weatherization.” If this fits in your strategic plans, you should utilize the resources.
An additional $3 billion of ARRA funds above the $5 billion for WAP have been allocated to the State Energy Program (SEP), which is primarily intended for developing and implementing comprehensive state energy conservation plans (technical assistance, training, education, etc.) and not for construction projects. However, it will fund rebates to consumers for home energy audits, which is another opportunity for contractors that are positioned to provide that service.
The states deliver federal WAP funds through a network of local community action agencies, non-profit organizations and local governments, which may perform the work themselves or put it out to bid (for a list of agencies, see your state’s department of housing and community affairs). More information on the weatherization program can be found at ARRA and WAP and WAP Online.
Various estimates of the number of new jobs created by the additional $5 billion put the cost of each job at between $37,000 and $57,000. Perhaps this could be one way of making your tax dollars work for you.
Friday, August 13, 2010
Connecting the Dots: Safety and Profitability
The most efficient weight-loss book would have only two chapters, each with one sentence: Chapter One – “Eat less.” Chapter Two – “Exercise more.” There’d be a similar book for improving your company’s health: Chapter One – “Reduce costs.” Chapter Two – “Increase revenues.” This article hopes to make a case for the financial benefits of implementing a rigorous safety culture – a commitment that can both reduce costs and increase revenues.
The first and most obvious area where cost savings can be achieved is with Workers Compensation insurance. Many business owners don’t realize how much control they have over their experience modification rate (EMR or Mod Rate), which is used to adjust the “book rate” for Workers Comp premiums. A company’s EMR is based on how its claims experience compares to industry averages in its classifications, with a 1.0 rating representing the average. “Insurance costs are controllable costs – they’re not a fixed expense,” says Mark Oldham, CSP, an executive consultant in risk management for Fireman’s Fund. Insurance is a significant percentage of the overall cost of business (just add up your Workers Comp, liability, automobile, property, inland marine, umbrella, professional liability, and employee benefits). “It’ll have a disproportionate impact when costs can be lowered,” states Oldham. “Insurance trades fixed costs for unknown costs, and premiums are directly influenced by prior experience and control over operations.”
In fact, Workers Comp operates like a line of credit, where the insurer spreads the cost of a company’s predicted future losses over time, meaning that premiums are in essence just a way of financing a company’s cost of accidents and injuries. So, obviously if a company can reduce its claims over time, it will reduce its cost of business. This can translate to a measurable effect on the bottom line. The example below illustrates the difference in premiums between a .80 EMR and a 1.20 EMR for just one of a contractor’s job classifications:
Modifiers are also applied to a company’s general liability and auto insurance, but the EMR is a key indicator of a company’s performance. Oldham says, “It’s used as a litmus test of how you run your business. If you can’t work safely, you can’t produce a quality product.” Many insurance carriers will meet with a prospective client before offering a quote, and perform a loss control survey to gather information on its operations. This will assist the underwriters in understanding what the company does and how well it does it, and can have a direct bearing on cost. Underwriters make empirical decisions based on these tangible factors to determine debits and credits against the book rate. The carriers will also advise the client on how to control losses, identify risks, and develop appropriate action plans and follow up properly.
Fireman’s Fund also provides its clients with post-loss consulting services if warranted. They will help prepare a mutual action plan with specific objectives and timelines for the risk consultant and the client – then execute the plan in concert. At the conclusion, the desired reduction in hazards and risk factors should be clear enough for the client to give an “as a result” statement. If it can’t, the plan was merely a series of activities rather than a strategic effort.
For those contractors that don’t have a full-time safety department (or even those that do), Oldham suggests taking advantage of the many services that insurance carriers offer, such as subscriber-only content on their web sites with training programs, educational resources, topics for safety meetings, and so on.
Oldham emphasizes that successful companies are engaged. There’s an awareness of the true costs of risk, an understanding of what drives risk, and mechanisms to control the cost of risk (such as diligent hiring practices, strong training programs, aggressive injury investigation and correction efforts, and claims management like bringing injured employees back to work ASAP). When Fireman’s Fund performs a loss control survey, Oldham says that they look for employers who “get it.” These are companies that don’t just focus on the cost of insurance premiums. They understand that accidents and injuries affect their other business costs (such as the state unemployment compensation billing, which increases with the turnover rate); and they understand why.
Creating and keeping a safety culture
Some contractors look to incentive programs as a way to reduce injuries and accidents. But, according to Dianna Wiggins, an independent loss control consultant, “There’s a place for safety incentives after you’ve changed the safety culture – by developing a really good safety program.” First, stop the injuries and accidents by implementing a good program with excellent training and management. And a prerequisite to culture change is a genuine, highly visible, unwavering commitment from the very top of the organization. Because good safety practices can be perceived as slowing productivity, there is a natural tendency for line employees to view them as arbitrary and annoying rules that are imposed by “the office.” This isolates the safety personnel, who are peers, putting them in the role of “safety police” (with all the associated avoidance behaviors that accompany that mindset). A key part of the visibility shown by management is active and vocal support for the safety staff.
“After the accidents stop, employees can get complacent,” states Wiggins. “Two to three years after instituting culture change, safety incentives can help sustain the performance.” In a previous position as Safety Manager for a medium-sized manufacturing company, Wiggins implemented a highly-successful safety program that helped reduce the company’s EMR to .76. This reduced the Workers Comp premiums by almost 60%, which translated to hundreds of thousands of dollars saved per year. Once that was achieved, she maintained that level of performance with clever incentive programs (costing only around $10,000 per year), and the company won over 30 national safety awards.
Wiggins also advocates for an early return-to-work policy, which can help reduce the cost of Workers Comp. This policy allows injured employees to return to work in a light or modified work position until they’re fully recovered and can resume normal work duties. Everything that can be done to reduce the claim cost and get the employee back will have a positive impact on the employer’s cost of business. Justin Cremers, a Safety Coordinator for SMI, a safety consulting firm, counsels his clients on the benefits of an early return-to-work policy. “The type of claims experienced and what’s done to control the cost of claims has a significant effect on Mod Rates,” says Cremers. Claims for medical treatment only are usually less severe and are reduced by 70% before they’re applied to the formula. Cremers urges his clients to take advantage of this by ensuring that injured employees return to work as soon as possible. “This is where an effective claims management and return-to-work program can have a dramatic effect,” he says.
“It’s critical that a job description should include what kind of physical demands are placed on the employee,” emphasizes Wiggins. That document should be given to the doctor so (s)he’ll know what light-duty or modified work the injured employee can perform while recuperating, which will make it more likely that (s)he’ll approve a quick return rather than keeping the employee off work. (A key point to remember is that the employee must have signed the policy.) “You can even get your employees to work at a not-for-profit location, and write it off as a charitable contribution,” she suggests.
Another factor affecting costs can be the OSHA 300 log and 301 Incident Report. Wiggins says that many companies have a high incident rate because they’re recording things that they shouldn’t – they don’t realize that first aid, visits to a doctor for x-rays or blood tests, and even drilling a fingernail or toenail to relieve pressure are not recordable. “The effect of that,” she points out, “can be losing business with companies that don’t allow contractors with an incident rate higher than the national average.”
Similarly, opportunities to perform work for the government and large companies that have rigorous safety standards exist only if a company’s EMR is below 1.0; and the chances improve the lower the Mod Rate gets. But this is only part of the equation. If your firm becomes noted for safety excellence, your customer base is much more likely to increase and repeat – which is exactly what happened during Wiggins’ tenure.
Actions, when allowed to repeat, become behaviors; and behaviors develop into cultures. “A culture of safe work practices and intelligent/informed risk-taking is the strongest operational mindset any employer can ever hope to have,” says Oldham. Companies that "get it" focus on the actions of their employees to protect and nourish a safe-work culture – not just "Can we do it at a profit?" but "Can we do it at a profit, safely?"
The first and most obvious area where cost savings can be achieved is with Workers Compensation insurance. Many business owners don’t realize how much control they have over their experience modification rate (EMR or Mod Rate), which is used to adjust the “book rate” for Workers Comp premiums. A company’s EMR is based on how its claims experience compares to industry averages in its classifications, with a 1.0 rating representing the average. “Insurance costs are controllable costs – they’re not a fixed expense,” says Mark Oldham, CSP, an executive consultant in risk management for Fireman’s Fund. Insurance is a significant percentage of the overall cost of business (just add up your Workers Comp, liability, automobile, property, inland marine, umbrella, professional liability, and employee benefits). “It’ll have a disproportionate impact when costs can be lowered,” states Oldham. “Insurance trades fixed costs for unknown costs, and premiums are directly influenced by prior experience and control over operations.”
In fact, Workers Comp operates like a line of credit, where the insurer spreads the cost of a company’s predicted future losses over time, meaning that premiums are in essence just a way of financing a company’s cost of accidents and injuries. So, obviously if a company can reduce its claims over time, it will reduce its cost of business. This can translate to a measurable effect on the bottom line. The example below illustrates the difference in premiums between a .80 EMR and a 1.20 EMR for just one of a contractor’s job classifications:
Modifiers are also applied to a company’s general liability and auto insurance, but the EMR is a key indicator of a company’s performance. Oldham says, “It’s used as a litmus test of how you run your business. If you can’t work safely, you can’t produce a quality product.” Many insurance carriers will meet with a prospective client before offering a quote, and perform a loss control survey to gather information on its operations. This will assist the underwriters in understanding what the company does and how well it does it, and can have a direct bearing on cost. Underwriters make empirical decisions based on these tangible factors to determine debits and credits against the book rate. The carriers will also advise the client on how to control losses, identify risks, and develop appropriate action plans and follow up properly.
Fireman’s Fund also provides its clients with post-loss consulting services if warranted. They will help prepare a mutual action plan with specific objectives and timelines for the risk consultant and the client – then execute the plan in concert. At the conclusion, the desired reduction in hazards and risk factors should be clear enough for the client to give an “as a result” statement. If it can’t, the plan was merely a series of activities rather than a strategic effort.
For those contractors that don’t have a full-time safety department (or even those that do), Oldham suggests taking advantage of the many services that insurance carriers offer, such as subscriber-only content on their web sites with training programs, educational resources, topics for safety meetings, and so on.
Oldham emphasizes that successful companies are engaged. There’s an awareness of the true costs of risk, an understanding of what drives risk, and mechanisms to control the cost of risk (such as diligent hiring practices, strong training programs, aggressive injury investigation and correction efforts, and claims management like bringing injured employees back to work ASAP). When Fireman’s Fund performs a loss control survey, Oldham says that they look for employers who “get it.” These are companies that don’t just focus on the cost of insurance premiums. They understand that accidents and injuries affect their other business costs (such as the state unemployment compensation billing, which increases with the turnover rate); and they understand why.
Creating and keeping a safety culture
Some contractors look to incentive programs as a way to reduce injuries and accidents. But, according to Dianna Wiggins, an independent loss control consultant, “There’s a place for safety incentives after you’ve changed the safety culture – by developing a really good safety program.” First, stop the injuries and accidents by implementing a good program with excellent training and management. And a prerequisite to culture change is a genuine, highly visible, unwavering commitment from the very top of the organization. Because good safety practices can be perceived as slowing productivity, there is a natural tendency for line employees to view them as arbitrary and annoying rules that are imposed by “the office.” This isolates the safety personnel, who are peers, putting them in the role of “safety police” (with all the associated avoidance behaviors that accompany that mindset). A key part of the visibility shown by management is active and vocal support for the safety staff.
“After the accidents stop, employees can get complacent,” states Wiggins. “Two to three years after instituting culture change, safety incentives can help sustain the performance.” In a previous position as Safety Manager for a medium-sized manufacturing company, Wiggins implemented a highly-successful safety program that helped reduce the company’s EMR to .76. This reduced the Workers Comp premiums by almost 60%, which translated to hundreds of thousands of dollars saved per year. Once that was achieved, she maintained that level of performance with clever incentive programs (costing only around $10,000 per year), and the company won over 30 national safety awards.
Wiggins also advocates for an early return-to-work policy, which can help reduce the cost of Workers Comp. This policy allows injured employees to return to work in a light or modified work position until they’re fully recovered and can resume normal work duties. Everything that can be done to reduce the claim cost and get the employee back will have a positive impact on the employer’s cost of business. Justin Cremers, a Safety Coordinator for SMI, a safety consulting firm, counsels his clients on the benefits of an early return-to-work policy. “The type of claims experienced and what’s done to control the cost of claims has a significant effect on Mod Rates,” says Cremers. Claims for medical treatment only are usually less severe and are reduced by 70% before they’re applied to the formula. Cremers urges his clients to take advantage of this by ensuring that injured employees return to work as soon as possible. “This is where an effective claims management and return-to-work program can have a dramatic effect,” he says.
“It’s critical that a job description should include what kind of physical demands are placed on the employee,” emphasizes Wiggins. That document should be given to the doctor so (s)he’ll know what light-duty or modified work the injured employee can perform while recuperating, which will make it more likely that (s)he’ll approve a quick return rather than keeping the employee off work. (A key point to remember is that the employee must have signed the policy.) “You can even get your employees to work at a not-for-profit location, and write it off as a charitable contribution,” she suggests.
Another factor affecting costs can be the OSHA 300 log and 301 Incident Report. Wiggins says that many companies have a high incident rate because they’re recording things that they shouldn’t – they don’t realize that first aid, visits to a doctor for x-rays or blood tests, and even drilling a fingernail or toenail to relieve pressure are not recordable. “The effect of that,” she points out, “can be losing business with companies that don’t allow contractors with an incident rate higher than the national average.”
Similarly, opportunities to perform work for the government and large companies that have rigorous safety standards exist only if a company’s EMR is below 1.0; and the chances improve the lower the Mod Rate gets. But this is only part of the equation. If your firm becomes noted for safety excellence, your customer base is much more likely to increase and repeat – which is exactly what happened during Wiggins’ tenure.
Actions, when allowed to repeat, become behaviors; and behaviors develop into cultures. “A culture of safe work practices and intelligent/informed risk-taking is the strongest operational mindset any employer can ever hope to have,” says Oldham. Companies that "get it" focus on the actions of their employees to protect and nourish a safe-work culture – not just "Can we do it at a profit?" but "Can we do it at a profit, safely?"
Monday, August 9, 2010
You Can Get There From Here
In an old joke the great classical pianist Arthur Rubinstein is asked, "Pardon me, sir, how do I get to Carnegie Hall?" He replies, "Practice, practice, practice." This advice would be well-taken by anyone wondering how they can reach their goals, whether personal or business.
For one member of Remodeling’s Big50 class of 2010, his journey in life and work confirmed the truth in Rubenstein’s apocryphal wisdom. Chris Wright, the owner of WrightWorks in Indianapolis, spent years accruing the skills for success and then building a business that is now swamped with repeat work and referrals; a business that has won three regional and one national CotY awards, and two Chrysalis awards this year… sort of the remodeler’s version of getting to Carnegie Hall.
Before he started WrightWorks in 1998, Wright benefitted from a series of powerful role models: His grandfather and father, who instilled a competitive fire and an expectation of excellence in him; his first manager at Federal Express, an ex-Marine and police officer who was a strong and principled leader; a martial arts instructor who helped him understand how to be the best person he could be, and who also hired him as the school’s program director. Here Wright learned the connection between belief in what you’re selling and the success of your sales process.
After leaving the martial arts school Wright partnered with his cousin, renovating older homes for sale to low-income families. This is where he learned to love the process of revealing the beauty of an old, neglected house. While working on the low-income projects, Wright met a designer who was starting his own business. This was the impetus for launching WrightWorks, and together they did small projects like kitchens and bathrooms. Today they collaborate on large six-figure projects.
Like many startups, Chris felt that “It was all about the craft – if it’s perfect when I’m done, I’ll be successful.” Business realities got in the way, though. “I got beat up. If there’s a mistake to be made in the business, I’ve made it.” He floundered because he didn’t have a strong financial background and had no frame of reference for pricing his work – so he’d just shoot in the dark, with unpredictable results.
Over time, he’s come to believe that business skill is equally important to the craft. “I have a deep respect for the people who have put in the time and effort to systemize every part of their businesses,” he states. As he matured, he realized that “If I build it right but don’t make money, my clients aren’t going to care.” In other words, a great reputation wouldn’t matter if he was out of business. Today his mantra is that “it’s either going to work for all of us, or it’s not going to work.”
“The relationship with the client has to have balance. There has to be mutual respect and appreciation. Problems usually happen when there’s an imbalance in the relationship.” Wright has grown very sensitive to that, and “when an imbalance starts to creep in, I know when to step in and try to bring it back to where it needs to be.”
Wright is also sensitive to the fact that the home is a very primal thing. “Your home is your cave…it’s an extension of who you are.” And when a contractor comes into your home and “tears the guts out, they’re kind of tearing away part of who you are.” Being sensitive to that fact is “very, very important to my success,” Wright believes. It’s equally important to develop a team of people that share this view, and Wright is quick to credit his team – which includes his vendors – for their contribution to the success of his company.
At the core of WrightWorks is a set of values that enshrines hard work and personal accountability. In a way these were the “directions” Wright followed that led him through each stage of his career to the present – a highly-regarded company that thrives even in a weak economy… a path worth following if you’re just starting your career.
For one member of Remodeling’s Big50 class of 2010, his journey in life and work confirmed the truth in Rubenstein’s apocryphal wisdom. Chris Wright, the owner of WrightWorks in Indianapolis, spent years accruing the skills for success and then building a business that is now swamped with repeat work and referrals; a business that has won three regional and one national CotY awards, and two Chrysalis awards this year… sort of the remodeler’s version of getting to Carnegie Hall.
Before he started WrightWorks in 1998, Wright benefitted from a series of powerful role models: His grandfather and father, who instilled a competitive fire and an expectation of excellence in him; his first manager at Federal Express, an ex-Marine and police officer who was a strong and principled leader; a martial arts instructor who helped him understand how to be the best person he could be, and who also hired him as the school’s program director. Here Wright learned the connection between belief in what you’re selling and the success of your sales process.
After leaving the martial arts school Wright partnered with his cousin, renovating older homes for sale to low-income families. This is where he learned to love the process of revealing the beauty of an old, neglected house. While working on the low-income projects, Wright met a designer who was starting his own business. This was the impetus for launching WrightWorks, and together they did small projects like kitchens and bathrooms. Today they collaborate on large six-figure projects.
Like many startups, Chris felt that “It was all about the craft – if it’s perfect when I’m done, I’ll be successful.” Business realities got in the way, though. “I got beat up. If there’s a mistake to be made in the business, I’ve made it.” He floundered because he didn’t have a strong financial background and had no frame of reference for pricing his work – so he’d just shoot in the dark, with unpredictable results.
Over time, he’s come to believe that business skill is equally important to the craft. “I have a deep respect for the people who have put in the time and effort to systemize every part of their businesses,” he states. As he matured, he realized that “If I build it right but don’t make money, my clients aren’t going to care.” In other words, a great reputation wouldn’t matter if he was out of business. Today his mantra is that “it’s either going to work for all of us, or it’s not going to work.”
“The relationship with the client has to have balance. There has to be mutual respect and appreciation. Problems usually happen when there’s an imbalance in the relationship.” Wright has grown very sensitive to that, and “when an imbalance starts to creep in, I know when to step in and try to bring it back to where it needs to be.”
Wright is also sensitive to the fact that the home is a very primal thing. “Your home is your cave…it’s an extension of who you are.” And when a contractor comes into your home and “tears the guts out, they’re kind of tearing away part of who you are.” Being sensitive to that fact is “very, very important to my success,” Wright believes. It’s equally important to develop a team of people that share this view, and Wright is quick to credit his team – which includes his vendors – for their contribution to the success of his company.
At the core of WrightWorks is a set of values that enshrines hard work and personal accountability. In a way these were the “directions” Wright followed that led him through each stage of his career to the present – a highly-regarded company that thrives even in a weak economy… a path worth following if you’re just starting your career.
Monday, July 12, 2010
Independent Contractors…or Employees?
On June 17, Department of Labor (DOL) deputy secretary Seth Harris testified in a Senate hearing about a proposed rule that would impose additional recordkeeping and notification requirements for employers. The text of this testimony can be found here. Reading all 4,465 words is enlightening.
Mr. Harris’ testimony was directed at “worker misclassification,” which occurs when a worker who is legally an employee is treated as an independent contractor. He cited five industries where misclassification is most prevalent, and construction was first on his list.
The testimony was in support of proposed legislation (the Employee Misclassification Prevention Act) that would make misclassification a violation of the Fair Labor Standards Act (FLSA); providing the DOL with additional tools for enforcement, such as monetary penalties for recordkeeping violations. This legislation would also establish a legal presumption that a worker is an employee and “put the burden of proof on the employer” to demonstrate that the worker is an independent contractor. Given the political opposition, the odds of the bill passing this year is not high. But Mr. Harris made it clear that the DOL nonetheless intends pursue the same ends with “new tools to detect and prevent worker misclassification” in pursuit of its “good jobs for everyone” mission.
Specifically, the DOL wants to implement “a broad strategy that requires employers to understand [emphasis added] that the burden is on them to obey the law.” But whether or not a worker is an employee depends on which law is applicable. Mr. Harris favors the FLSA’s “economic realities” test, which is broader than the common law test used by the IRS.
Mr. Harris went on to state, “We call this compliance strategy ‘plan/prevent/protect.’” This new strategy will require employers to:
1. Create a plan for identifying and remediating risks of employment law violations and make the plans available to workers so they can participate in their creation, fully understand them, and help to monitor their implementation.
2. Implement the plan in a manner that prevents legal violations.
3. Ensure that the plan’s objectives are met so it actually protects workers from violations of their workplace rights.
“One way in which ‘plan/prevent/protect’ will be implemented is by increasing transparency in employers’ recordkeeping requirements under the FLSA,” stated Mr. Harris. To achieve this transparency, the DOL’s Wage and Hour Division (WHD) proposes that employers perform a written analysis – applying the FLSA’s “economic realities” test – before declaring that a worker is an independent contractor; and that they disclose the analysis to the affected worker and keep a record of it in case of a WHD investigation. Because “plan/prevent/protect” is a department-wide initiative, OSHA will be considering similar rules.
Also, the WHD has launched a campaign called “We Can Help,” focused on the construction and other targeted industries “tailored to inform low wage, vulnerable workers of their rights and benefits, how to get help if they believe those rights are violated, and to assure them that their complaint is confidential.” A cynic might call this a snitch campaign.
These efforts, which Harris calls “regulatory innovations,” are part of a broader effort that includes “close cooperation with our partners in the…IRS…to address worker misclassification.” Before that chill runs all the way down your spine, there’s more good news. The DOL has also drafted legislation for Congress called the “Unemployment Compensation Integrity Act,” which contains provisions that would “enable states to retain a percentage of delinquent employer UI taxes.” This essentially provides states with an incentive to target misclassification as part of their tax compliance efforts.
Coming so closely on the heels of OSHA’s “administrative enhancements” and the EPA’s flawless rollout of the RRP Rule, this is not good news for contractors already dealing with additional compliance burdens (echoing the EPA’s cost estimates for the RRP Rule, Harris stated that compliance would be “simpler” under the DOL’s innovative new scheme). Of course employers – especially contractors – try to minimize their fixed costs, particularly in an economy that leaves no margin of error; and there will always be those who abuse the system. But this seems to punish the class for the behavior of a few students.
Harris attempts to quantify the scope of the misclassification problem, but his key allegations are so tempered with qualifications like “some employers,” “many workers,” “often exploited” and the like, that it’s questionable whether the problem truly warrants such an aggressive response from the DOL. Our cynic might imagine other motives for this, such as the pursuit of additional sources of revenue, the expansion of governmental control, and the fact that you can’t unionize independent contractors.
Mr. Harris’ testimony was directed at “worker misclassification,” which occurs when a worker who is legally an employee is treated as an independent contractor. He cited five industries where misclassification is most prevalent, and construction was first on his list.
The testimony was in support of proposed legislation (the Employee Misclassification Prevention Act) that would make misclassification a violation of the Fair Labor Standards Act (FLSA); providing the DOL with additional tools for enforcement, such as monetary penalties for recordkeeping violations. This legislation would also establish a legal presumption that a worker is an employee and “put the burden of proof on the employer” to demonstrate that the worker is an independent contractor. Given the political opposition, the odds of the bill passing this year is not high. But Mr. Harris made it clear that the DOL nonetheless intends pursue the same ends with “new tools to detect and prevent worker misclassification” in pursuit of its “good jobs for everyone” mission.
Specifically, the DOL wants to implement “a broad strategy that requires employers to understand [emphasis added] that the burden is on them to obey the law.” But whether or not a worker is an employee depends on which law is applicable. Mr. Harris favors the FLSA’s “economic realities” test, which is broader than the common law test used by the IRS.
Mr. Harris went on to state, “We call this compliance strategy ‘plan/prevent/protect.’” This new strategy will require employers to:
1. Create a plan for identifying and remediating risks of employment law violations and make the plans available to workers so they can participate in their creation, fully understand them, and help to monitor their implementation.
2. Implement the plan in a manner that prevents legal violations.
3. Ensure that the plan’s objectives are met so it actually protects workers from violations of their workplace rights.
“One way in which ‘plan/prevent/protect’ will be implemented is by increasing transparency in employers’ recordkeeping requirements under the FLSA,” stated Mr. Harris. To achieve this transparency, the DOL’s Wage and Hour Division (WHD) proposes that employers perform a written analysis – applying the FLSA’s “economic realities” test – before declaring that a worker is an independent contractor; and that they disclose the analysis to the affected worker and keep a record of it in case of a WHD investigation. Because “plan/prevent/protect” is a department-wide initiative, OSHA will be considering similar rules.
Also, the WHD has launched a campaign called “We Can Help,” focused on the construction and other targeted industries “tailored to inform low wage, vulnerable workers of their rights and benefits, how to get help if they believe those rights are violated, and to assure them that their complaint is confidential.” A cynic might call this a snitch campaign.
These efforts, which Harris calls “regulatory innovations,” are part of a broader effort that includes “close cooperation with our partners in the…IRS…to address worker misclassification.” Before that chill runs all the way down your spine, there’s more good news. The DOL has also drafted legislation for Congress called the “Unemployment Compensation Integrity Act,” which contains provisions that would “enable states to retain a percentage of delinquent employer UI taxes.” This essentially provides states with an incentive to target misclassification as part of their tax compliance efforts.
Coming so closely on the heels of OSHA’s “administrative enhancements” and the EPA’s flawless rollout of the RRP Rule, this is not good news for contractors already dealing with additional compliance burdens (echoing the EPA’s cost estimates for the RRP Rule, Harris stated that compliance would be “simpler” under the DOL’s innovative new scheme). Of course employers – especially contractors – try to minimize their fixed costs, particularly in an economy that leaves no margin of error; and there will always be those who abuse the system. But this seems to punish the class for the behavior of a few students.
Harris attempts to quantify the scope of the misclassification problem, but his key allegations are so tempered with qualifications like “some employers,” “many workers,” “often exploited” and the like, that it’s questionable whether the problem truly warrants such an aggressive response from the DOL. Our cynic might imagine other motives for this, such as the pursuit of additional sources of revenue, the expansion of governmental control, and the fact that you can’t unionize independent contractors.
Monday, July 5, 2010
Talking About Hazards
One day a young man named Bill came by the offices of a cleaning & restoration contractor to apply for work. Tom, the general manager, was impressed with Bill’s carpet cleaning experience, and was glad to get his application. Bill said he didn’t have time to complete the application on the spot and asked if he could fill it out at home and bring it in later. They scheduled a full interview for the following morning. At the interview, Bill answered all the questions, demonstrating that he had sufficient knowledge to qualify for a position. Tom assigned him to work with the lead technician for two or three weeks to get on the job training. The reports back from the lead tech were positive – enough to put Bill on his own. Customers were delighted with Bill’s performance, overlooking the fact that he may have shown up a little late; but they praised him for his “great work.” Tom had one criticism, though, which was Bill’s productivity: If he was given a work order of four jobs, he might only complete two or three in a day.
During a temporary work slowdown, Tom sent his lead tech out on his own without a helper and assigned Bill to the office so he could see how successful the OTJ training had been. Tom and Bill met in the office and went back to the stockroom. Tom asked Bill to tell him what traffic lane cleaner was used for and what the dilution rate was. Bill picked up a bottle and held it in front of him for a long moment, all the while moving his lips slightly. Bill got it half right and missed the dilution ratio. Then Tom handed Bill a bottle of browning treatment and asked him what it was used for. Before he could be stopped, Bill opened the bottle and sniffed it. With his sinuses suddenly burned from the vapors, he abruptly dropped the bottle and ran to the bathroom to flush his sinuses out. Bill came out of the bathroom with his eyes watering, nose running and in obvious discomfort.
Afterwards, Tom asked Bill the obvious question: “Can you read?” He claimed that he could, but “not too well.” Tom asked him about his high school education and Bill produced a laminated miniature of his diploma out of his wallet. So Bill had been able to perform the correct steps in the spotting process, based on memorizing what he had seen others do; but when presented with an unfamiliar label his only recourse was his sense of smell. Even though Bill had graduated from a public high school, it is doubtful that he could read even at a 5th grade level. After further discussion, it was discovered that the application that Tom had received weeks earlier had actually been filled out by Bill’s wife.
Because Bill’s field performance was so good, Tom decided to keep him on the payroll, but only working under direct supervision. Tom went a step further and arranged for Bill to attend a remedial reading class, even allowing him to attend class while on the clock. But Bill never showed up for the first class, and never came back to work again.
This is an unfortunate story – for the employee, of course. He was a responsible person who cared about doing a good job for his customers. What employer doesn’t want people like that on his team? But it’s also unfortunate for the company, which learned that its hiring and training practices were inadequate… at least in this case.
You don’t know what you don’t know, so sometimes experience is the only teacher. Does Tom now make sure that every prospective employee can read before making a hiring decision? One would think so. But before that experience with Bill, why would he have thought about making sure that a job applicant isn’t functionally illiterate? What other possible negatives are you supposed to anticipate? This is why OSHA regulations are so dogmatic and absolute – they have to cover the unanticipated exceptions to the rule.
And that’s why OSHA’s Hazard Communication Standard (29 CFR 1910.1200) requires every employer to translate the information contained on the MSDS into any understandable format (which would have been the spoken word with Bill); and that employees are trained about the hazards they’re exposed to in the workplace… before they’re exposed.
In the case of browning treatment, the hazard identification for inhalation is “May cause irritation of the upper respiratory tract,” and the risk level is low. But what if it had been a highly toxic substance that Bill had sniffed? Inhaled substances enter the bloodstream by way of the lungs, and can have damaging effects on the liver, the kidneys or other organs. Acute effects are an obvious danger of course, but almost any substance is toxic at some concentration or dosage; so even lower doses of a moderately hazardous substance can be problematic if repeated exposure occurs over long periods of time. Hazardous substances aren’t just found in drums with diamond-shaped symbols – they include paints, solvents, fuels, and even dust.
This is why every employer must establish a written hazard communication program (HazCom) in all workplaces where their employees are exposed to hazardous chemicals. A HazCom program must include a list of all hazardous chemicals that are present in the workplace, the person who’s responsible for the program, where written information about safe handling procedures can be found, and a description of requirements and information about labels, MSDS’s and employee training.
Does your company have this?
During a temporary work slowdown, Tom sent his lead tech out on his own without a helper and assigned Bill to the office so he could see how successful the OTJ training had been. Tom and Bill met in the office and went back to the stockroom. Tom asked Bill to tell him what traffic lane cleaner was used for and what the dilution rate was. Bill picked up a bottle and held it in front of him for a long moment, all the while moving his lips slightly. Bill got it half right and missed the dilution ratio. Then Tom handed Bill a bottle of browning treatment and asked him what it was used for. Before he could be stopped, Bill opened the bottle and sniffed it. With his sinuses suddenly burned from the vapors, he abruptly dropped the bottle and ran to the bathroom to flush his sinuses out. Bill came out of the bathroom with his eyes watering, nose running and in obvious discomfort.
Afterwards, Tom asked Bill the obvious question: “Can you read?” He claimed that he could, but “not too well.” Tom asked him about his high school education and Bill produced a laminated miniature of his diploma out of his wallet. So Bill had been able to perform the correct steps in the spotting process, based on memorizing what he had seen others do; but when presented with an unfamiliar label his only recourse was his sense of smell. Even though Bill had graduated from a public high school, it is doubtful that he could read even at a 5th grade level. After further discussion, it was discovered that the application that Tom had received weeks earlier had actually been filled out by Bill’s wife.
Because Bill’s field performance was so good, Tom decided to keep him on the payroll, but only working under direct supervision. Tom went a step further and arranged for Bill to attend a remedial reading class, even allowing him to attend class while on the clock. But Bill never showed up for the first class, and never came back to work again.
This is an unfortunate story – for the employee, of course. He was a responsible person who cared about doing a good job for his customers. What employer doesn’t want people like that on his team? But it’s also unfortunate for the company, which learned that its hiring and training practices were inadequate… at least in this case.
You don’t know what you don’t know, so sometimes experience is the only teacher. Does Tom now make sure that every prospective employee can read before making a hiring decision? One would think so. But before that experience with Bill, why would he have thought about making sure that a job applicant isn’t functionally illiterate? What other possible negatives are you supposed to anticipate? This is why OSHA regulations are so dogmatic and absolute – they have to cover the unanticipated exceptions to the rule.
And that’s why OSHA’s Hazard Communication Standard (29 CFR 1910.1200) requires every employer to translate the information contained on the MSDS into any understandable format (which would have been the spoken word with Bill); and that employees are trained about the hazards they’re exposed to in the workplace… before they’re exposed.
In the case of browning treatment, the hazard identification for inhalation is “May cause irritation of the upper respiratory tract,” and the risk level is low. But what if it had been a highly toxic substance that Bill had sniffed? Inhaled substances enter the bloodstream by way of the lungs, and can have damaging effects on the liver, the kidneys or other organs. Acute effects are an obvious danger of course, but almost any substance is toxic at some concentration or dosage; so even lower doses of a moderately hazardous substance can be problematic if repeated exposure occurs over long periods of time. Hazardous substances aren’t just found in drums with diamond-shaped symbols – they include paints, solvents, fuels, and even dust.
This is why every employer must establish a written hazard communication program (HazCom) in all workplaces where their employees are exposed to hazardous chemicals. A HazCom program must include a list of all hazardous chemicals that are present in the workplace, the person who’s responsible for the program, where written information about safe handling procedures can be found, and a description of requirements and information about labels, MSDS’s and employee training.
Does your company have this?
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