The Impact of Variation on Electrical Contractor Profitability

Reduction of variation (or six-sigma operation) has helped many industries lower cost and improve productivity. By controlling variation in many aspects of their work, numerous industries have been able to stay competitive against international low-cost producers. At the same time, variation and its impact on Electrical Contracting (EC) are not as well understood or practiced. Other industries have learned that variation affects all aspects of operation; from office work to field support, from labor management to project management, from material management to supplier relationship and from foreman to foreman. By monitoring and controlling variation in a few small areas of their business, Electrical Contractors, like those in other industries, can reduce their costs and become competitive, low-cost producers.

This investigation has developed:

  1. An in-depth understanding of categories of variation
  2. An operational model for reduction of variation
  3. Workshop material for training


This research has shown that variation, even in small aspects of the ECs work, can impact the profitability of the entire operation. Six significant sources of variation are:

  • Change orders
  • Timing/Schedule
  • Overtime
  • Labor Quality
  • Initial Estimation
  • Material Handling


As a result of this research, methods for controlling variation in key aspects of the work of Electrical Contractors are now better understood and will be explained. Any kind of variation throughout the company’s operation will be reflected in labor productivity. This does not mean labor is the source of variation. In fact, productivity of the labor is the direct result of a company’s ability to manage the six previously mentioned controllable driving factors of variation. The highest impact on EC’s profits is mismanagement of these six factors, which will reflect in unpredictability of the labor usage. It is the management of the causal factors of the variation that is uncertain and not the labor. In addition, if the usage of the labor resource is not measured and made visible its causes of variation will not be understood. The objective of this project was to investigate the factors contributing to variation in electrical contracting companies. This project examined variation in factors including but not limited to:

  • Jobs
  • Project managers
  • Operational processes
  • Material handling
  • Office support
  • Planning and scheduling


This study introduces a methodology which will enable the contractor to measure; track and root cause the labor variation from the operator’s perspective. This method has been successfully used and the results are reflected in more predictable labor. With this methodology, it is up to the contractor to recognize, visualize and manage the causes of labor variation and, ultimately, the unpredictable nature of their profits.



Eric A. Budd
Perry Daneshgari


MCA Inc.
University of Michigan Flint

Publication Date:

February 2004

Format & Size:

Soft cover; viii and 47 pages

Index Number:


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