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What’s behind the construction industry’s productivity problem?


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The construction industry has a productivity problem. That is, according to a McKinsey Global Institute report

The report “Reinventing Construction: A Route to Higher Productivity,” released in February 2017, found that the construction industry’s global labor-productivity growth was only 1% per year over the past two decades—much lower than other industries such as manufacturing (3.6%), and the  total world economy (2.8%).

Industry fragmentation, strict regulations, informality, and dependence on public-sector demands are some of the reasons that the MGI report lists as affecting the productivity of the construction industry. The report also suggests that the productivity issues can lead to inferior project management and execution and lack of investment in skills development, research and development, and innovation. 

“To disrupt its own way of thinking, working, and building, the construction industry can learn from successes in other industries, as well as from pockets of excellence within subsectors of the construction industry and around the world,” the report said. “Change is under way, but many approaches that have been discussed for years have yet to be adopted at the scale needed to transform the industry.”

“Change is under way, but many approaches that have been discussed for years have yet to be adopted at the scale needed to transform the industry.” 

The MGI research found that if construction’s productivity lag could catch up with the total economy, the industry sector’s value added could increase by as much as $1.6 trillion, which would add about 2% to the global economy. 

Philip Barnard, senior vice president and construction and engineering expert at Interface Consulting International, a Houston-based construction-consulting firm, agrees that the construction industry struggles with productivity. When it comes to individual projects, he says change orders can be the biggest issue. 

“If change orders accumulate throughout the project, they can start interfering with current work,” he explains. “Normally, what we try to say is a change order on projects should be no more than a 10% value. In other words, if it's a $100 million project, if you get change orders over $10 million, we are starting to get into a problem.”

“If change orders accumulate throughout the project, they can start interfering with current work,” he explains.  

“Stacking the trades” is another area that creates productivity issues, Barnard says. He explains this occurs when multiple contractors or subcontractors are attempting to work in one area. Learning curve issues can also come up when workers have to constantly switch to different project areas or go between projects. 

“They have to start retraining and changing their normal sequence,” he says. “For a contractor to have a successful project, first of all, the drawings need to be well prepared. The changes need to be managed properly. The weather conditions need to be understood. The contractor needs to be able to staff his crews accordingly so he needs to know the availability of crews. To schedule crews efficiently, you have to have the materials available. You have to have the equipment available.” 

If any part of the process doesn’t run like it should, a project can get off schedule. It interferes with a builder’s critical path of the project and also can affect the leadership and overall organization of the build.  

Labor can be another productivity issue, Barnard points out. Not only is there a general worker shortage across all sectors of the construction industry, but absenteeism, training, fatigue, turnover, and poor performance can affect a construction project. 

The MGI report outlines seven strategies for improving productivity in construction, which some in the industry are already putting into practice. The research estimates that widespread adoption could increase the industry’s productivity by as much as 60%. 

The research estimates that widespread adoption could increase the industry’s productivity by as much as 60%.  

The strategies for innovation and improved productivity include reshaping regulations and increasing transparency, better aligning contractual interests and goals, reorganizing design and engineering processes, improving procurement and management, improving on-site execution, retraining the workforce, and introducing more technology and advanced automation. 

Compared to other industry sectors, construction has been one of the slowest to embrace new technology. While many in construction have turned to computer software solutions to create more efficient business-related processes, Barnard says he’s not convinced technology is a major factor affecting overall productivity.  

“There’s no computer way to build a building,” he says. “It’s all done by hand and by machine. If you can three dimensionally make a component, that's one thing, but you might as well order it early enough to where someone else can build it. So, I'm not sure that technology is a big factor.”  

“There’s no computer way to build a building,” he says. “It’s all done by hand and by machine." 

With the many productivity issues plaguing the construction industry, Barnard doesn’t expect major improvements. But, he emphasizes that this view is realistic, rather than negative. Building projects are simply becoming more and more complex. 

“The industry in the 1900s is the same industry in the 2000s,” he says “Projects are just getting bigger and better, and there’s bigger and better equipment. I think those are progressing. But I don't know anybody that can look at those factors of productivity loss and control them 100%.” 

If you liked this article, here are a few eBooks you may enjoy: 

Master Your Budget, Protect Your Profit Margins

Project Management Guide: Part 2- Scheduling

3 Major Qualities of a Successful Task-analysis Approach

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