Construction CEOs - how your competition is beating you...

The key to their success is 5D integrated IT systems that significantly reduce the cost of building projects and appeal to prospective building owner/developers. The why and how are below...

The criteria for which owners are selecting construction companies to build buildings are changing rapidly. Cost is still the number one factor in why companies win new business. The second is the owners' belief that the construction company can effectively apply IT technology to projects in order to reduce cost and stay on schedule. Within three years, every major construction company will have all major processes integrated by IT. The interesting thing is that many CEOs of these companies don't even know it yet.

According to the FMI/CMAA Fifth Annual Survey of Owners, the time taken to complete key phases of construction runs 20-50% longer than planned. In addition, the top reasons for cost overruns are:

• Incomplete drawings
• Poor pre-planning process
• Escalating cost of materials
• Lack of timely decisions by the owner
• Excessive change orders

With the exception of material costs, most of these items are controllable.

Two things to consider about the construction industry:

Waste is rampant - The statistics are everywhere so it's hardly worth reciting them. Sir John Egan, Chief Executive of BAA, lead the Construction Task Force in the U.K. Their 2002 report, Rethinking Construction , suggests that the industry is inefficient with wastage running at 25-30%. According the an Economist Magazine study, some 30% of construction is rework, 60% of labor effort is squandered and 10% is lost due to wasted materials. In North America, construction is the only industry that has seen a consistent decline in productivity over the past 40 years (U.S. Department of Commerce, Bureau of Labor statistics).

IT adoption is dysfunctional - The following chart speaks for itself. To put it simply, high and to the right is good and low and to the left is bad. Yes, the construction industry is VERY low and to the left. So, besides agriculture, there is no other industry that has done a worse job in applying software to drive productivity.

The integration key

Although nearly 80% of the owners surveyed in the FMI/CMAA document say interoperability of software products is important, about 65% also say they are not satisfied with Vendors' efforts in this direction to date.

So what is going to be integrated? All the core processes required to successfully deliver projects to completion. The tasks of estimating, scheduling, procurement and site management have previously been separate processes that had no connection with each other. Like the development of ERP, strategic construction processes will be connected in firms with a database-driven approach. Of course, processes will change and change for the better.

The main areas of change will include:

• Model-based construction - The building model provides the only logical connection point for cost and time. With a model-based approach, changes to the design (e.g. lengthening a wall) can immediately determine the impact on cost and, to some extent, the schedule. By guiding the creation of a model that is accurate for construction analysis, many of the errors common in construction projects can be eliminated during the design phase. Models are overcoming the issues often cited by owners which are derived from poor-quality drawings. On one ₤75 million project in Cambridge, England, Kajima Construction saved approximately ₤250,000 by eliminating constructability issues due to the construction model they built.
  
  Cambridge project with interferences, courtesy of Kajima Corporation
  For the George Lucas' new corporate campus in the Presidio, at the foot of the Golden Gate Bridge in San Francisco, a construction model was created from a set of 2D drawings to help communicate to the general contractor and subcontractors precisely what was needed to be built. How successful has it been? To quote Tom Brady, who is the Construction Manager and spoke at the ASC Construction Management Conference, "I believe that in five years, every major project will employ a building model". So expect the building model to be the foundation for all of the downstream processes and have a dramatic impact on driving profitability and client satisfaction.

• Knowledge base - This is something that you don't hear many construction companies talking about today. Building a knowledge base of estimating recipes, "process knowledge", durations and procurement knowledge is something that only the most leading-edge construction companies are just starting to attack. Today, most knowledge is buried within individuals and not the organization as a whole. People learn, evolve, and move on - leaving the construction company no better off than when they first started. Additionally, individuals are only able to develop deep experience on a limited number of projects during their career. Although, the construction company completes hundreds or even thousands of projects per year, the individuals must make decisions based on experience gained in a dozen projects. The concept of a knowledge base allows the company to leverage the massive amount of expertise that exists across the organization. The result is that the organization, not just the individuals, evolves and becomes more efficient with every project.

• Estimating - Estimating is go ing from a manual process which is slow and error-prone to one that is model-based. Accurate and fast estimating is possible by extracting information from the model. Even more importantly, design changes and alternatives can be estimated in a fraction of the time required by existing processes, often by differences of an order of magnitude or more. This new capability effectively changes estimating and value engineering from a sequential to a parallel process.

  Slab value-engineering

  Eric McKinney, the CIO of Chong Partners Architecture des-cribes architecture as "looking at where you want to go, putting on a blindfold, and driving for twenty minutes." This "driving blind-folded" is due to the inability to quickly obtain accurate information on the cost and time impact of design decisions. Today's process of conducting the project estimating every four to six months leads to wasted time and bad decisions that building owner will have to live with for decades. Transforming estimating and value engineering to parallel processes will fundamentally change the industry. Finally, estimators benefit from the ability to easily mine historical information on past project costs and from the self-learning capabilities of the system to compare estimated versus actual costs. YIT for example, a near €3 billion construction company, achieves up to 99.5% accuracy on the Bill of Quantities and can perform significantly more work with the same amount of estimating resources because of the model-based estimating approach.

Line-of-Balance view

• Scheduling planning and production control - A new breed of location-based scheduling systems are appearing on to the market. These systems with their Line-of-Balance views are specifically designed for the needs of construction and easily manage how construction crews move from location to location to complete a project. They solve the "interference problem" between crews, thus directly reducing labor costs and shrinking schedules. Instead of guessing durations, the scheduling system automatically calculates accurate durations based on the quantitiesderived from the estimating system and crew productivity rates. Also, Monte Carlo risk simulation has moved from something studied in school and never used, to a daily tool for managing risk. Furthermore, production control allows better monitoring of productivity rates and forecasting the future impact of a project's current productivity. Problem correction is happening much earlier in the process. In Finland where Line-of-Balance has been used over the past few years, construction company profitability on average has risen to over 6%.

• Procurement - Procurement activities will easily be tied to the project schedule and Bill of Quantities. Quantities of materials to be procured can be viewed within the schedules. Lead times can be dynamically calculated for each location enabling Just-in-Time delivery planning. As the project schedule changes, users can see their impact on procurement requirements.

• RFID for workforce control on major Dubai project

  Site Management - this is the area that is one of the most overlooked when applying IT technology. With a combination of next generation production control techniques to continually re-plan the schedule based on actual productivity rates, laser measuring to ensure that the construction is truly following the design model and RFID to manage the flow of material and labor through the site, delivering projects faster with less cost will undoubtedly be the outcome.

If you are the CEO of a construction company, you need to be taking inventory in your company.

• If you have processes that are not "linked together", you are going to lose.
• If you have managers who are happy with doing it the same old way because "that's the way we do it", you are going to lose.
• If you have not made IT a strategic weapon to take cost out of projects for your customers, you are going to lose.

The only question will be how long the market will allow you to continue to move along with processes which have not changed much over the past 20 years.

Dominic Gallello
CEO, Graphisoft