The 49 Billion Dollar Opportunity

The 49 Billion Dollar Opportunity

Construction projects have the tendency to finish late and run over budget. It’s just the way it is. Why? Well, if you were to break down a large scale construction project into its separate entities/stakeholders/moving parts you would have yourself the population of a small country. Not quite, but you get the picture. It is not unusual for large projects to have around 50+ different stakeholders at work throughout the whole process. Mix these parties into an already complicated environment with multiple levels of trade, suppliers, installers and where many activities happen simultaneously and you get yourself a complex soup of construction con carne.

Managing such a huge operation is difficult and somewhere along the line it becomes quite complex. This complexity leads to the occurrence of mistakes. The likelihood for errors, omissions and poor management practices often cause neglect that can lead to quality failures, which must then be reworked. This is one of the more common results of the complex nature of construction projects.

Rework is defined as the unnecessary effort of redoing an activity that was inaccurately done the first time. In other words, mistakes made on site. Here below are some of my favorites:

Mistake? Or just a fan of Escher?

You can’t make this stuff up.

Back to the matter at hand.

Rework and wastage have become known as symptoms of complexity that have serious effects on the performance and productivity of construction projects. The construction sector is very much a project-based industry and the various complexities of dealing with those 50+ stakeholders and subsequent changes to plans are common practice. This is often unavoidable and necessary even in the most controlled and well planned out projects. However, the opinions on the cost inducing effects of rework and wastage are all the same. Something must be done.

 

 

“…the total mean rework can be as much as 10% of the contract value.”

As early as 1981, the Building Research Establishment (BRE) in the UK referenced that rework can occur during different phases of the project life cycle. They found out that 60% of these errors had their origin in the design stage and 40% in the construction stage. This research is further supported by other survey data that suggest that the total mean direct costs related to rework can be as much as 10% (!) of the contract value. The adverse consequences of rework include: reduced profit, loss of market share, damaged reputation, increased turnover of management and workforce, lower productivity, higher costs, and finally, costly litigation between participants over responsibility for overruns and delays.

Rework leads to higher costs. These costs come in 2 forms: there are direct costs, those that are easy to quantify, and indirect costs, intangibles that can often unknowingly drive costs even higher.

Direct costs include man-hours, schedule, equipment, materials and space and equate to around 10% of the contract value. The total cost of rework will undoubtedly go up when you factor in the indirect costs such as: loss of schedule and productivity, litigation and claims, and low operational efficiency.

The tricky part is that the occurrence nor cause of mistakes on site are often fully understood and hence proper strategies for its reduction are problematic.

The figure below shows the five main sources of rework and their associated root causes. Of those identified in the figure below, “Engineering and Reviews” had the highest monetary weight at approximately 60%, according to one survey, far and above any other source identified in the figure. The second highest source was “Human Resource Capability” at 21% and third highest was “Material and Equipment Supply” at 15%, although the frequency of occurrence was far greater than the Human Resource weighting. “Construction Planning and Scheduling” and “Leadership and Communications” had almost identical weighting.

The conclusion that we can draw from this is that the majority, 60%, of the rework that needs to be done on-site is due to mistakes or flaws in the design of the project/building. Late design changes, scope changes, error and omissions and poor document control are the main reasons. Poor document control is an issue that we hear about quite often. The problem with this is the fact that almost all construction sites use paper as their main way of communicating design changes. Sharing paper based plans is more time consuming than doing it electronically. This results in work being done with older versions that just end up having to be reworked.

This is one of the many reasons that on-site errors occur and, if you ask me, one that seems easy to solve. However, in practice, adopting a fully digital means of communicating design changes is far from the norm. This is changing however and I think the next coming years will see much higher levels of investment in the digitization of the construction sector. We just so happened to have written a couple of articles about this very subject. Here is part 1 and part 2.

 

 

There are certain other ways in which rework can be prevented on several fronts. These include:

1. Use BIM and Virtual Design and Construction

With features like clash detection, built in scheduling and cost modeling, BIM and VDC offers plenty of opportunity to detect possible issues before wasting money and time.

2. Stakeholder Participation Early and Often

Up front communication between all interested parties avoids confusion and possible changes.

3. Pre-Construction Design Freeze

After agreements are made, there must be a point in which no more changes can be made and the work can start without worry.

4. Review of Biddability

Any conflicting or unclear language, information, construction document elements, or scope items should be completely understood by all parties before bids are turned in.

5. Review of Constructability

Hiring an independent contractor or consultant is recommended to review all construction documents prior to start of construction.

6. Review of Operability

Gather all of the operational personnel of the site to be sure that the people actually using the building to determine potential changes that are inevitable to occur.

7. Previous Project Change Order Analysis

Many times, the best way to improve in the future is to learn from the past, which is why it’s important to review the change orders that occurred on previous projects.

 

 

Where there is a problem, there is an opportunity

A couple of days ago I watched a Ted Talk by Phil Bernstein, a former architect and now the vice president of Strategic Industry Relations at Autodesk. About 8 minutes into the talk Bernstein presents his own personal favourite construction mistakes and goes on to say that for every dollar that goes into a construction project, 35 cents goes to waste. Now, this doesn’t exactly line up with what I found in the numerous articles I have referred to above but he makes a good point. Of the 140 billion US dollars that goes into (US) construction about around 35% of that, $49 billion, goes to waste. I can only assume that the majority of the waste is produced through work that goes to plan. However, there will also be a lot of wastage linked to rework.

This is a problem, construction is one of the largest sectors there is and just so happens to be known for it’s marginal growth in productivity. Based on our research and the interviews we have had with players from the Belgian construction sector, these problems are felt on every level and the demand for change is louder than ever. In this case it would be beneficial for one to look at this huge problem as a massive opportunity.

Not only does change need to arise in the manner in which a construction project is managed but also in the choice of method or tools. When we look at the residential construction segment, the majority of on-site mistakes will happen once the structural work is complete. The issues lie in the installation of the building services, the period when a whole slew of stakeholders do their job and are often ignorant towards the work already done and the work still to be done. This is where the mistakes happen, the “What is this pipe doing here?” and the “we are going to have to break through this newly laid floor to install the wiring…” spiel.

That is kind of where we would come in. What Bao is trying to do is to introduce modular construction techniques to the interior of residential buildings. Making use of modular construction techniques means that the construction quality management is done off-site, in a controlled environment, and hence the occurrence of on-site errors is dramatically reduced. Modular construction also leaves less room for on-site improvised “bricolage” as the project is far more pre-planned and organized when using pre-made building blocks.

It’s look good though. From what I have learned in the past two years that I have been active in this sector I get the idea that modular construction really is picking up. More and more firms are adopting these techniques to remain competitive and ahead of the curve. Modular construction also rides on the same wave as the green building initiatives popping up everywhere which, I think I can speak on behalf of the whole team is very nice to see. We are excited to be part of this movement and really think that we can make a significant difference.