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Digging into the roots of Construction’s Productivity Challenge

September 28, 2019

 

 

The construction sector is projected to grow to $15.5 trillion globally by 2030. There are huge opportunities to take advantage of, in this sector, in the coming years. It is projected that 70% of the world’s population will live in cities by 2050. It is also estimated that a $56 trillion investment is required globally over the next decade to keep up with the global GDP growth. We need to solve tough challenges including fixing aging infrastructure in developed countries, including the United States. While in the developing world, much needs to be done in terms of providing adequate infrastructure, and basic needs such as access to clean water. 

 

However, productivity in construction has lagged behind. Over the last couple of decades, while productivity in manufacturing has doubled, the same for construction has stagnated and even declined. According to McKinsey, lagging construction productivity costs the global economy $1.6 trillion a year, fixing which would add about 2% to the global economy.  One third of this opportunity is in the US. 

 

Those who read construction reports will be familiar with the oft-quoted fact that construction projects take 20% longer to finish than scheduled and are up to 80% over budget. One of the top reasons for this is the lack of concrete data regarding day-to-day operations on job sites, especially in large projects with multiple sites and crews working in parallel. This data is traditionally collected by surveyors and site managers, which is expensive and inadequate. Traditional sensors are limited in cognitive capacity, and cannot measure unstructured operations like a site manager can. As a result, over 70% of the tasks are invisible to analytics, leading to poor decisions, inadequate short term planning and poor resource management.

 

McKinsey Global Institute’s Survey points to other reasons for the issue as well. Heavy regulations in construction hamper growth. Another is the fragmented nature of construction with a large number of smaller players. It is estimated that the US alone has over 700,000 E&C companies with 80% having 10 or fewer workers. Risk allocations and rewards in contracts are sometimes arbitrary and not based on scientific evidence or concrete data. On a similar note, less experienced owners and buyers find it hard to make decisions in the absence of decisioning tools that can help them navigate based on previous project data. All this leads to poor project management and execution, which is exacerbated by the lack of investment in R&D and innovation. 

 

Fortunately, this is changing. Going by our recent conversations with many giants in the construction space, there is growing awareness of the problem. Many construction companies are taking active initiative to change the status quo. They are starting to work internally and in collaboration with external agencies and startups. According to AutoDesk CEO Andrew Anagnost, construction is ready technologically, demand-wise and product-wise to go through the digitization that manufacturing went through a few decades ago. Construction is most definitely ripe for innovation and disruption  !

 

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