Home Economy, Policy & Business Six post-pandemic margin-creation opportunities for construction

Six post-pandemic margin-creation opportunities for construction

Matthew Shimmin
Construction companies must change, must move into the future with optimism, and must identify opportunities to enhance their offering or risk becoming smaller or even obsolete
Partner, Construction & Utilities at Proudfoot

COVID-19 has caused global disruption across most industries, with the construction sector being particularly hard hit. And with a growing focus on environmental, social and governance (ESG), and decarbonisation means construction contractors may soon find themselves being challenged if they don’t rapidly adapt to meet changing government and consumer requirements. While penalties are not in place yet, according to the UK Government body, Department for Business, Energy and Industrial Strategy, they may be imminent.

The problem for many is that they are already operating on razor-thin margins, even at the tender award stage. With added build requirements meaning the use of lower carbon materials, which are, of course, more expensive to procure, there is even more pressure on the bottom line than before. 

Most companies in the construction sector—although mainly the main contractors—already have programmes to substantially cut costs. But here’s the main challenge – the cost cutting is either not severe enough or the pace of change is too slow to deliver the required returns to satisfy the stakeholders. By stakeholders, we primarily mean shareholders, who have been mostly patient waiting for their returns – but patience is running out!

Here are six key post-pandemic focus areas to create wider margins in the construction industry, while overcoming tough environmental obstacles.

  1. Boost information-sharing among employees

Communication is a challenge in every industry, but particularly so for sectors that use a high coordination ratio, such as the construction sector. The average house needs typically 22 contractors to finish the build; on a large construction site, there can be over 50 subcontractors all needing coordination through communication. Many organisations lack staff members who can communicate improvements across projects. From the leadership level down, everyone must be assigned to one or multiple areas of responsibility (while also trying not to overload and over-schedule someone). Leadership must understand how resources (that is, employees, equipment and materials) are allocated to optimise the build progress – and more importantly, to do that safely.

Technology is essential in improving communication and enhancing productivity. The right digital tools should be identified and staff members must be trained to use them effectively to ensure safe, efficient work practices and that any potential hurdles are eliminated before they lead to delays; it’s not the technology or the data alone – it’s what you do with the data that is provided through technology that counts!

  1. Take the lead on productivity

Without detailed planning, productivity and therefore progress will inevitably wane. In the construction sector, your people will carry on their activities in the same way they did yesterday and the day before. Leadership must set the targets, and identify which are the most appropriate work methods to achieve a productive safe operation. Just because it’s been done before doesn’t mean it’s the best option now. Always challenge current practices, share new methodologies and communicate across all department teams. Technology can be helpful here too, with real-time activity tracking that can be visualised anywhere in the company, or even with the client, giving site leaders the data they need to make informed decisions.

Consider developing a live, per-project KPI report that can be accessed and interacted with anywhere, anytime. When rolled up into an executive platform, your organisation’s leaders can easily identify what changes can—and should—influence your operational and financial performance.

  1. Streamline communication across all departments and leadership levels

Communication can be improved by installing real-time platforms that identify critical areas for success. In old-school terms, remove the bottleneck! With everyone using the same system, all projects become comparable, challenges are more readily identified, and communication is faster and far more accurate. Importantly, turn your organisation into a place where it’s okay to be wrong – learning from mistakes means you can share solutions across other projects.

A centralised system can improve your margins by implementing a data lake of all your vendors, supply chain challenges and stock levels so everything can be more easily reconciled. Once you have visibility of all the data, more informed decisions can be made and that will significantly reduce costs. One clear benefit: with all this information in one location, rather than spread across multiple systems or departments, you can easily manage, control and reduce material costs through reduced obsolesce and better vendor management practices.

  1. Use MOS and IPP

A Management Operating System (MOS) is a collection of management activities and tools that help run any business or even any department. An Integrated Planning Process (IPP) is the culmination of all plans into one central position, incorporating all processes, subcontractors and suppliers, to ensure all project elements are coordinated and aligned with one outcome: the end date of the project. Too often, project management knowledge is siloed in different departments with little coordinated consistent feedback, making it difficult to get a view of project performance (attainment to plan) or where constraints could exist in the future.

When combined, these management tools (MOS and IPP) can help construction companies take a synchronised approach throughout the project lifecycle.

  1. Prioritise equipment needs

Coordination and planning is critical to reduce equipment needs. Failure to manage your equipment planning, availability and maintenance requirements effectively can cause project delays and budget overspends. Instead, equipment should be scheduled according to the demands of all of the sites.

In addition to creating savings, the combination of the MOS and IPP also allows you to make sure you are aware of your equipment, people and lay-down area constraints. Understanding this will let you prioritise how best to utilise your assets and quickly identify where additional capacity can either be released or is required. Most importantly, it will allow you to preview where you might run into delays from any and all aspects of your construction project. Having this visibility allows you to update your plan, communicate it effectively, and minimise or eliminate the downtime of equipment, operations or contractors. 

This is why a MOS is critical: it allows your people to see the availability and location of all equipment and whether it is currently being used on a project.

  1. Start the journey for total decarbonisation

Achieving lofty ESG goals doesn’t have to be expensive. In fact, by decarbonising your business, you can shift over to more cost-effective ways of working that improve the environment and your margins.

You can start by installing resource management systems to help get more out of the energy and water used on projects. Staying local can also be an effective tool in decarbonisation – sourcing your project needs from local suppliers can reduce your carbon footprint (and your costs, too), even as far as scope 4.

Shifts in the landscape are exacerbating margin pressures for the industry more than ever. The ESG agenda, stricter government regulations, and talent shortfalls are but a few challenges. The only way out is to forge ahead with a combination of digitalisation efforts, enhanced management of subcontractors and the supply chain, and processes aimed at brutally managing costs. Critically, you want to ensure that you understand the scenarios of decarbonisation that are available to you, and you want to have the opportunity to challenge your end-to-end value chain data so that you can easily understand how to start your decarbonisation journey.

With a greener future demanded of you and regulators beginning to enforce guidelines to protect the environment, now is the time to start appreciating your potential.

All of that said, it’s critical to ensure that, in addition to the points mentioned above, all stakeholders in your operations are engaged. You want to create a community that cares deeply about the work that they are doing, the teams they are leading, and the company for which they work. Engagement will drive your MOS and IPP to success; it will ensure that all the changes, plans, communications and digital systems are successfully implemented. 

Start—or continue—transforming your organisation by putting in place operational plans to act on these six key areas of opportunity, all while engaging your people. The time to create impact is now and you can do that with the implementation of robust, agile change blueprints that consider, govern and track the results of all the elements of change, from internal and external stakeholders to operational, digital and decarbonisation solutions.

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Matthew Shimmin
Partner, Construction & Utilities at Proudfoot

Matthew is a seasoned transformation expert with over 20 years of consulting experience in the construction, utilities and transportation industries.

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