Improving Project Efficiency in the New Year

Increase productivity, lower costs + reduce waste

High inflation and labor shortages is a major challenge for many industries, and no more so than in the construction & engineering sector, where productivity has historically always been low. Should you increase revenue? Difficult, especially in a competitive bidding environment. So, can you reduce costs? Kenny Ingram, vice president of construction and engineering, IFS, argues that C&E firms can improve project efficiency by increasing productivity, lowering costs and reducing waste. And it’s not all just about tackling labor issues – that’s just one interrelated issue, as he explains.

The construction industry has lagged behind the manufacturing industry in terms of productivity gains in recent decades. This is due to several factors, including fixed and repeatable processes, use of automation and standardized materials that are common in manufacturing but not in construction.

Construction projects, by their very nature, are often unique and complex, making it difficult to develop standardized processes and automate tasks. The industry is also highly fragmented, with many small and medium-sized businesses, which can make it difficult to implement industry-wide initiatives to improve productivity. And if that wasn’t enough, two further issues have to be factored in. The construction industry faces a shortage of skilled workers and is often subject to weather delays, which can disrupt schedules and impact productivity.

According to recent metrics from the Becker Friedman Institute for Economics at the University of Chicago, “The productivity struggle within the construction sector is real, and not a result of measurement error. Given its place in the economy, this productivity decline has real effects. Had construction labor productivity grown over the last five decades at the (relatively modest) rate of 1% per year, annual aggregate labor productivity growth would have been roughly .18% higher, resulting in about 10% higher aggregate labor productivity (and, plausibly, income per capita) today.”

Working smarter – away from the construction site
There are certainly lessons to learn from the manufacturing industry. A strong industrialized construction trend in the industry is evidence that contractors and clients see benefits in adopting new ways of working. Modular and prefabrication strategies are certainly increasing, and there is a trend toward doing less work on the construction site and doing more work offsite in production or supply hub locations.

Modular work can be performed more efficiently, at a lower cost and at a higher quality. Shop environments let the same number of people perform more work, so as the aging skilled workforce retires, modular will be attractive for human capital management purposes. It is no wonder more contractors, house builders and engineering firms are pushing the use of shop-based construction and more project owners are seeing the value.

The bottleneck is not always the labor pool
If you consider where the cost comes from in a construction project, it is typically dominated by four types of costs: labor, material, subcontractor and equipment such as cranes, excavators, etc.

There is a tendency to focus on labor productivity, but for some, labor costs can be as little as 10% of the project costs. Therefore, depending on the project, it may not necessarily be the right area to prioritize. Let’s look at the composition of total project costs.

The make-up of the project costs will differ based on factors such as your role – are you a main/general contractor, a specialty contractor or a material/equipment supplier? Also, whether you’re following a self-perform or sub-contract construction model. This means the focus on where to reduce costs will vary across different organizations and projects.

Looking at the big picture
Perhaps the real answer lies in not focusing on these four resource types as four independent areas, but instead recognizing that minimizing project costs requires a synchronized approach. There are many reasons for poor productivity, from bad planning and scheduling, too many scope or design changes, inexperienced labor, bad weather etc. So, there is a huge opportunity to improve and reduce costs here.

For example, when we measure labor productivity and witness workers standing around on a construction site not doing productive work, the question is why? In most cases, it is not their knowledge, skill or willingness to work hard that is the issue, but the fact that they are stopped because the other resources are not available – such as materials or equipment – or because they are waiting for another work package to finish before they can start or continue their work. This is possibly the main reason why manufacturing work can be executed at a lower cost and with more reliable completion dates.

If you accept this argument, then the focus for the industry is to have integrated project and resource planning with structured work packages that can be planned and synchronized to eliminate waste and increase total resource productivity. This will also improve project delivery performance and increase project margins.

Subcontractors add an extra layer of complexity
Most contractors deliver projects using a mix of self-perform and subcontract models. It is essential that subcontract packages are efficiently managed. Stats form the National Association of Homebuilders show it takes 24 subcontractors on average to build a single home. It is therefore critical to have effective business processes in place to ensure subcontractors deliver work on time and to a high quality.

Successful management of subcontractors relies on the collaboration of multiple key roles within a project, and the transparency of data, ensuring the main contractor is working from a single source of truth. Any supporting construction software tool must provide a platform with one source of truth, where the data is real-world, live, accurate and protected from manipulation – allowing contract and project managers to evolve away from struggling to handle hundreds of different static excel spreadsheets at any one time.

Equipment management – sweat the assets
Now let’s look at the equipment – another place where project costs can be reduced is by improving management of assets and equipment. Most construction companies have equipment sitting idle for long periods of time, which means the project is incurring unnecessary costs that directly hit the bottom line. Better planning and tracking of equipment can significantly reduce equipment costs.

Many construction and engineering companies operate multiple business units, some of which are not project-centric – for example, service or facilities management to offer asset operations and maintenance services or an offsite manufacturing plant, or they may own equipment that they rent or hire to internal/external construction contractors.

For these business units, optimizing resources is just as important to maximize business unit performance. As an example, a maintenance service provider can significantly cut down costs by utilizing intelligent AI-based resource planning and scheduling software to plan and schedule work in the most efficient manner. This smart AI technology can also be implemented in various types of businesses for similar benefits.

Restructuring construction productivity
In all of this, it’s key to focus on reducing project costs in a synchronized manner. I am optimistic the construction industry can overcome its challenges and improve its productivity levels. By adopting new technologies and ways of working, the industry can become more efficient and profitable as a whole.

This means looking at all the factors that contribute to costs; labor is one but materials, subcontractors and equipment are three important and related cost and pain points. By using integrated project and resource planning, construction companies can identify and eliminate wasted time and resources – and improve overall productivity.