Prediction 1: The number of construction companies that deliver service and maintenance to increase to 50% by 2025. (Contractors need to become Total Asset Lifecycle Service Providers)
Fast and friendly service is more commonly attributed to a waiter in your favourite restaurant than a worker on a construction site. However, an increasing number of asset owners are seeking to outsource service and maintenance contracts for their assets putting contractors who focus on the entire asset lifecycle at a significant advantage.
A survey of current IFS construction customers shows that 25% now include service, maintenance and facilities management as part of their offering, and this is expected to increase to 50% by 2025.
Typically, these contracts are usually awarded to asset management specialists, however given the contract value for service and maintenance can typically be 120% – 200% greater than value of the actual construction contract alone; if service and maintenance is also secured by the same contractor this can not only increase their revenue margins but also provide a more predictable and reliable revenue stream – which provides a platform for growth, innovation and long-term success.
This trend is more commonly called Asset Lifecycle Servitization: The New Business Revenue Model For The Construction Sector – It’s an opportunity for constructors and manufacturers to gain visibility into their future performance and as such significantly grow their business, so it’s no coincidence a recent report by McKinsey estimates that construction sector disrupters could share the industries $265 billion annual profit pool.
However, winning these coveted service and maintenance contracts and delivering the full asset lifecycle, requires construction companies to become more customer centric and change their outlook. This starts with a desire to increase build quality and remain focused on delivering the final asset on time and most importantly on budget.
The operating model also makes construction companies design the asset from a total asset lifecycle cost and performance perspective – changing their mindset to think more about what outcome the asset delivers. For many this is a significant change and will require them to support a much wider set of business processes than they have been used to in the past which could include an opportunity to bring in new skilled labor. In short, the next generation of construction contractor will have to see themselves as a Total Asset Lifecycle Service Provider.
Prediction 2: Modern Methods of Construction techniques to be used in 85% of projects by end of 2022.
As construction methods continue to evolve, so is the reliance on modern methods of construction. With practices like offsite and modular construction continuing to become a method of choice due to their ability to reduce the construction time and improve quality – all whilst helping to lower costs, and reduce the ECO footprint, it makes sense then that this trend will continue to be a differentiating factor for many.
There is a common misconception, though, that modern methods of construction are only about moving some of the work into a manufacturing facility. This is certainly part of the story but, it’s much greater than that – with the main aim being to do more with less. It is about rethinking the whole project process, for example, designing the asset with a view to it being built using modular and offsite principles Construction companies must think about standardisation of materials and components (Lego and configuration principles. They must consider logistics, shipping and storage requirements when designing the asset to make sure it is practical, low cost and ECO friendly. And as part of this respect best practice material and inventory management principles. Finally, constructors need to have a more structured approach to managing and executing construction work packages for erection, installation and construction tasks moving towards a final assembly mindset.
A long-term outlook will eventually result in 80% of the work being done offsite and 20% onsite so the winners will be the companies who can optimise this new way of working. Approximately 85% of all construction projects are predicted to use modern methods of construction in some capacity by the end of 2022. It’s therefore vital that construction companies ensure their business system architecture can support this trend. With many legacy systems unable to support modern methods, advancing construction techniques, logistics and shipping and engineer to order manufacturing processes – a radical rethink is required. In short, the next generation contractor will be a hybrid business – contractor and logistics company and sometimes a manufacturer as well.
Prediction 3: Integrated project planning will be a must have by the end of 2022
In an industry which faces constant disruptions, battles disconnected jobsites and unpredictable environments– planning has never been so important. This has become hugely apparent throughout 2021, with the ongoing challenges around the diminishing labor pool still raging now combining with the equally troubling situation of raw material price increases and lengthening material supply lead times adding an uneasy lack of predictability. Demonstrated by the likes of steel increasing by 70% and timber prices tracking 23% higher than in 2020, raw material inflation is a major concern to many construction companies – especially given the extremely tight profit margins many already operate on.
Unfortunately, these challenges do not look like they’ll be easing anytime soon. It is therefore crucial that engineering and construction companies who want to grow and deliver projects successfully develop a more integrated planning process that starts from the initial project inception. The industry has traditionally managed with a reactive fire-fighting approach but the resource constraints that the industry now faces means that this approach is no longer sustainable. Most industries have been driving to become lean by having fewer preferred suppliers and just in time deliveries. The resource shortage challenges are making it a necessity to think more about a “Just in Case” strategy to make sure projects can be delivered on time. The result is that planning excellence is now a MUST HAVE rather than a NICE TO HAVE.
Most engineering and construction companies use project planning tools such as Primavera, MS Project and Asta to navigate the planning minefield and the use of these tools is likely to increase – but they’ll need to develop in line with requirements.
Many project plans today are too high level, with resource requirements not included or not containing accurate dependency logic and in extreme cases potential risks going unflagged. At IFS, we describe this as the pretty picture approach – a Gantt chart on the wall that depicts project deliverables, ultimately the reality is that each department currently has their own departmental plans, often managed in Excel.
The implication of these plans therefore not being in sync with the master project plan can cause inevitable resource shortages, can lead to plant and rental equipment sitting idle incurring unnecessary costs or worst of all projects halting all together. This can’t continue. The new world needs a single master project plan with one version of the truth that integrates with all sub-plans. Only then will different departments like engineering, procurement, plant and equipment, manufacturing and installation and construction all be in sync. 4D BIM scheduling tools also need to be integrated and together provide the capability to generate time phased resource requirements and provide active availability monitoring, not just produce a Gantt chart with a timeline.
For most companies this transition requires a shift in mindset, processes and business systems and a move to a more integrated world where being able to plan for every scenario in a rigorous and reliable fashion that allows engineering and construction companies to manage risk and always be in control of their operations; that is when they will meet delivery performance goals resulting in projects being delivered – on time, on budget and at high quality and with the customer in mind
It’s time for the industry to shine with servitization at the helm.
With 2020 and 2021 playing havoc for so many construction companies, 2022 is the year for the industry to shine. With many central governments firmly setting their recovery plans on infrastructure projects the wheels are already in motion, and this creates a huge opportunity for the entire industry to meet industry demands and stimulate a global bounce back. To do this, though, construction companies will need to focus beyond the here and now, turning their attention to what matters most – their customers and ensuring their long-term future.
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