Technology isn’t the only thing that’s shaking up the construction industry.
- Profitability and safety are among the industry’s top concerns
- Speakers see benefits in “platform” business model
- Greater use of drones, modularization anticipated
The construction industry is working to incorporate new technologies and processes into project delivery in the midst of a shifting market landscape. An outdated business model, profits, technology and safety issues were among the top concerns voiced by speakers during the “Changing Face of Construction: A New Era of Diverse, Faster, and Smarter Solutions” webinar, which was sponsored by Black & Veatch, and hosted by Icons of Infrastructure Managing Editor Carl Winfield.
To listen to the full webinar, click here.
Neil Riddle, president of Black & Veatch Construction, said that drone technology is helping to improve safety and efficiency by allowing robots to perform some of the more dangerous and time-consuming surveying tasks at job sites. He noted that, rather than sending out surveyors to a job site, companies can send drones to map out the specifics of a job site the night before.
“Using site mapping technology, engineers can start their design work so the process begins earlier and, ultimately, the project’s efficiency improves,” he said.
The panelists agreed that modularization is another area in which technology can be extremely helpful in terms of boosting profitability, productivity and efficiency.
“The biggest gain to productivity is to make sure the crew can keep on their tools all day,” Brent Burger, senior VP and director of global operations, power business at Black & Veatch said. “You need to get the craftsmen all of their materials on time when they need them so they can do their work all day instead of chasing up on materials and being shifted to different areas where materials are ready for them. You need to be able to manage the work of trades who are working on top of each other.”
Burger added that modularization can also make jobsites safer since they decrease man hours. He added that, despite safety improvements over the past decade, the safest hour remains the hour not worked.
Some panelists maintained that the outdated business model represents the biggest challenge faced by the construction industry.
Dr. Stephen Mulva, director of the Construction Industry Institute (CII) told the audience that the eight publicly traded construction, engineering and procurement firms in the Fortune 500 last year generated a combined 1.8% profit on $80 billion in revenue. He added that the stock price of publicly traded construction and engineering firms had decreased by 31% over the past five years, compared to the Dow Jones Industrial Average, which increased roughly 57% in the same period.
“Using site mapping technology, engineers can start their design work so the process begins earlier and, ultimately, the project’s efficiency improves.”
— Neil Riddle, president of Black & Veatch Construction
“Under the current model, there are 12 layers including banks, distributors, general contractors, owners, subcontractors and suppliers,” Mulva said. “This clunky, non-linear structure results in costs of 40% for transactions.”
To remedy this, Mulva suggested that the construction industry look closely at how Boeing used a platform known as Exostar to streamline costs and maximize profits as they rolled out the 787.
“Fifty tier-one suppliers used it to take 40% of the cost and one-third of the time out of the development,” he said. “It was 11% cheaper than the Airbus, against which it competes, and it took back 17% market share. This is how Boeing used the modern platform to improve their business.”
Mulva added that CII has designed a platform called Operating System 2.0, which streamlines commercial terms, financing strategy and back-office support.
Changing a business model may be necessary, but it never happens overnight. There are measures companies can take to help improve profitability.
R. Britt Freund, Ph. D, director of the Project Management Consortium at the McCombs School of Business, University of Texas at Austin, said companies need to be consistent in their decision-making processes and implementation in order to achieve more consistent, successful outcomes.
“Understand how you are going about making a decision and be rigorous with it,” Freund said. “There is no decision process where you are going to win every single hand, but you can win over time. This way, you’re going to increase your profitability because your consistent and diligent in your application.”
Freund outlined four steps for managing profitability, including:
- Train leaders in decision quality, and teach them what they need to do in order to make an effective decision
- Start thinking about a portfolio approach to project instead of approaching projects on a case-by-case basis
- Understand what people want and what the business needs
- Provide training in the use of tools that help identify risk
As much as the business continues to change, the panelists agreed that the most essential aspects of the construction industry remain the same.
“It’s still about managing people,” Riddle said.