McKinsey Institute Lists Seven Ways to Improve Construction Productivity

McKinsey Institute Lists Seven Ways to Improve Construction Productivity

We’ve reported here that productivity in the construction sector is lagging dramatically behind other industries: a recent report wrote that only an average of 1% increased in productivity since the 1960s. (Compare that to the average 2.8% productivity rate in the total world economy, and 3.6% increase in manufacturing.)

McKinsey, the business consulting firm, has laid out seven points in the hopes of increasing that productivity, in their report “Reinventing Construction: A Route to Higher Productivity.” To illustrate the importance of increasing this productivity, the calculate that if construction caught up to the global average, the sector’s value could increase by $1.6 trillion.

Breaking their suggestions into seven categories:

1.     Reshape regulations and increase transparency. At one focus group, someone said “Rules and regulations are the scar tissue for past transgressions. Just like scar tissue, they eventually limit what you can do.” Now, no one is arguing for the abolishment of child labor laws or the allowing lunch breaks. But non-technical risks—political risks—are often what is stifling productivity, not technical factors. Government can help reshape the industry by streamlining approval processes and permitting, reducing informality and corruption, and encouraging transparency. Governments can also provide grants for innovation and training.

2.     Require the contractual framework. Many in the industry shared stories demonstrating that when interests are aligned and aimed at well-defined outcomes, projects are more likely to meet schedule and cost targets. The industry needs to move away from the hostile contracting environment and move it into environment that focuses on collaboration and problem solving.

3.     Rethink design and engineering processes. There is a major opportunity to improve productivity by standardizing some aspects of construction drawings. Only 50% of respondents said that they had a standard design library. Most people McKinsey spoke to said change would be changed drastically of they moved away from custom housing to more standardization and repeatability.

4.     Improve procurement and supply chain. Digitizing procurement and supply work flows will enable more sophisticated logistics management and just-in-time delivery

5.     Improve on-site execution. In the McKinsey focus groups, many brought up several challenges with on-site execution, including inconsistent use of best practices, as well as difficulty finding and keeping talented project managers. Four key approaches, well-known by unused in the industry, have not been widely adopted. First, a rigorous planning process can help ensure activities are achieved on time and budget. Second, companies should agree on Key Performance Indicators (KPI’s) and use them at regular performance meetings. Third, project managers can improve by ensuring that all paperwork, including approvals, is completed prior to the first shovelful of dirt is overturned.

6.     Infuse digital technology, new materials, and advanced automation. Construction often lags behind other significantly behind other industries in adopting new materials, methods, and technology. Only 44% of respondents said that any digital solution was being used at all (though 70% said that they plan to have some kind of digital solution implemented in the next several years.)

7.     Finally, reskill the workforce. Change cannot be achieved without investment in retooling a workforce that is undergoing major demographic shifts, from aging site managers to migrant laborers.

The time to act is now. The pressure to act is rising. Demand is soaring. The scale of players and projects is increasing, making a more productive system more viable. The price of new technology is dropping, making it more accessible and taking away any excuse for a company to institute it.

Players who don’t rethink their approaches may be left behind in what could be the world’s next great productivity story.

 

Taken from McKinsey Global Institute’s Reinventing Construction: A Route to Higher Productivity.

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