Turning the Tide on a $1.6 Trillion Productivity Problem

November 22, 2018 Conley Smith

The phrase “think globally, act locally” may have its origins in encouraging people to consider the fate of the entire planet in their daily actions, but it’s also very applicable to the construction industry’s current productivity problem.

In other words, how do you get a flooring or walls and ceilings contractor to care about how construction productivity only improved by 1 percent globally in the last year and could be costing the industry $1.6 trillion in value? If you just put out ITBs on a big project, you’re way too busy chasing down subcontractors on your call sheet to worry about saving the global construction industry.

Sure, everyone needs to go faster, but it’s easier to think about productivity in terms of hustling harder and squeezing suppliers. With razor-thin profit margins, adopting new construction technology may be deemed more of a hassle than just pressuring people to finish their work on schedule and on budget.

The High Cost of Low Productivity

It’s mind-boggling to think that construction-related spending accounts for 13% of the world’s GDP. Yet, the sector’s productivity growth has only increased 1% over the past 20 years. This adds up to $1.6 trillion in additional value that could be created through higher productivity, meeting half the world’s infrastructure needs.

Last year’s McKinsey study blamed this gap on the industry’s resistance to new technology. By comparison, retail has transformed from mom-and-pop stores to large-scale retailers with global supply chains and digitized distribution systems. Another example is how manufacturing is using lean principles and automation to overhaul its industry.

Meanwhile, the construction industry has been losing ground since 1995 and has a 1% growth rate. Much of this room for improvement falls squarely on North America. Experts say failing to modernize could mean the construction industry will struggle to meet the demands of an aggressive infrastructure program or address the U.S. housing shortage.

How Do We Turn the Tide?

Because construction in the U.S. is among the least digitized in the world, it stands to reason it could also benefit the most from technology innovation. With most construction projects suffering from overruns in cost and time, McKinsey predicts that the industry could see a 50% to 60% productivity boost by embracing everything from new regulations to rethinking design.

However, underinvestment in technology is a real hurdle, especially when construction typically only invests 1.5% on value-added technology. This is stunning when compared to manufacturing, which invests 3.6%, according to McKinsey.

Specifically, McKinsey cites the potential for integrated platforms that span project planning, design, construction, operations, and maintenance. This type of technology could help project owners and contractors stay on the same page with a real-time view of project design, cost, and schedule. For example, a 5-D BIM platform allows owners and contractors to identify, analyze, and record the impact of changes on project costs and scheduling.

Some of the most promising tech involves augmented- and virtual-reality that could create seamless interactions between offices and the work site. In addition, there is much buzz about the use of prefabricated, standardized components built offsite in factories. Some firms see a productivity boost of five to 10 times using this method. For example, China’s 10,000-kilometer high-speed-rail network was mainly manufactured offsite. Using standardized components kept the costs per kilometer at about 65% lower than it would be in the U.S. and around 80% lower than in the United Kingdom.

Stop the Paper Chase

If thinking about modular construction and AR/VR is overwhelming, changing how you handle your digital collaboration is a less intimidating first step to turning around productivity in your own backyard. Real-time sharing of everything from digital estimates to equipment logs and punch lists can make for great collaboration and profits—and yes, improved productivity.

Just think about how much paper that many construction firms manage—from blueprints to design drawings to progress reports. JB Knowledge noted in 2016 that 40% of construction companies were still using paper plans on the jobs and nearly 50% manually prepare and process daily reports.

Going paperless would mean no delays in sharing information, no more working off outdated plans, or mismanaged paper trails causing arguments between owners and contractors. Imagine the time-savings from having to deal with less paper, such as invoices, change orders, and blueprints. Construction Business Owner estimates it takes 18 minutes on average to find a paper document and 70% of businesses would fail in three weeks if they had a catastrophic loss of paper due to a fire or flood.

Small Steps to Improve Productivity

Admittedly, part of the reason for low productivity and tech resistance is a result of construction being a low-margin industry. This may make it seem risky for smaller contractors to invest in technology. In fact, most construction firms invest less than 1% of their budget in technology, according to the 2017 Construction Technology Report.

Contractors who add powerful, end-to-end construction management tools are finding greater success when they use more accurate data to bid and win more profitable projects. No matter where you are on the journey to improve productivity, don’t miss our in-depth Contractor’s Suite white paper. You’ll get an up-close look at how an integrated toolset can help you bid more jobs, more accurately, and respond more quickly to changes.

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