One of the biggest challenges faced by the industry is improving business and project margins. But what steps can be taken to address this issue? When it comes to project management, you’re left with two choices: either increase the payment from your clients or cut down on project expenses. The option to increase the revenue value that the client is willing to pay would be great, but most would argue that this is extremely hard or impossible when every project involves a very competitive bidding process where the client is looking to minimize the cost of building the asset. So, perhaps the more realistic option is to reduce the project costs.
Yet, with a backdrop of high inflation and labor shortages, this is clearly a tough challenge.
Many articles have been written about low productivity in the construction industry and how it has only managed to make modest improvements in the last 30 years, so it makes you question why? Some would argue that it is simply a fact of life in the construction industry when you are executing unique, low-volume projects in a different physical location every time.
What can we learn from the manufacturing industry?
Over the last three decades, the manufacturing industry has achieved greater productivity gains compared to the construction industry. This can be attributed to the fixed and repeatable processes, use of automation, and standardized materials, which are not present in construction. Due to its unique challenges, the construction industry finds it difficult to achieve similar levels of productivity gains.
There are certainly lessons we can learn from the manufacturing industry, and the strong industrialized construction trend in the industry is evidence that contractors and clients see benefits in adopting new ways of working. Modular and pre-fabrication strategies are certainly increasing, and there is a trend towards doing less work on the construction site and doing more work offsite in production or supply hub locations.
There are some driving principles that the construction industry needs to take from manufacturing and look to implement in a practical way. These include:
- Standardization of materials – reuse the same materials (Lego principal)
- Inventory Management and Supply Chain best practices including:
- Construction and logistics site inventory location management
- Use of part numbers and lot and serial numbers for traceability
- Shortage management
- Cycle counting to drive up inventory accuracy
- Material availability checking, trial kitting, reservation, issuing
- Standardization of project processes
- Kitting and Assembly in supply hubs and on the construction site itself
- Use of structured work packages with resource availability checking
Is labor productivity the answer?
If you consider where the cost comes from in a construction project, it is typically dominated by four types of costs: labor, material, sub-contractor and equipment such as cranes, excavators, etc.
The combination of project costs will differ based on factors like your role as a main/general contractor, a specialty contractor, a material/equipment supplier, and whether you’re following a self-perform or sub-contract construction model.. This means that the focus on where to reduce costs will vary across different organizations and projects.
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.
Perhaps the real answer lies in not focussing on these four resource types as four independent areas, but instead recognizing that minimizing project costs require 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. A recent study on construction productivity stated that about 40% of a construction workers time is non-productive (waiting or idle time). So there is a huge opportunity to improve and reduce costs.
For example, when we measure labor productivity and we 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.
Another example of where project costs can be reduced is by improving the management of equipment. Most construction companies have equipment sitting idle for long periods of time, which means that the project is incurring unnecessary project costs which 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 their 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 schedule work in the most efficient manner. This smart AI technology can also be implemented in various types of businesses for similar benefits.
The IFS Cloud software solutions provide an integrated platform to manage all business unit and project resources and enable the execution of consistent, repeatable project and business processes with the goal of increasing business margins.
To gain more insight, download a free copy of our new Resource Control eBook: http://ifs.biz/o72
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