In terms of amount of work, construction is performing well – but look at the all-important productivity data and it’s clear resources are still being managed inefficiently
How to be more productive – or ACHIEVE more with the same resources – is a major preoccupation of chief executives, whatever industry they operate in. Construction is no exception. Because of its macro-economic importance, productivity is a much researched and analysed subject, although sector-by-sector studies of productivity and data at the level of individual companies are less common.
The DTI-funded Constructing Excellence in the Built Environment organisation is therefore blazing something of a trail with its key performance indicator studies. Its 2004 progress report shows a steady rise in contractor productivity (using the measure of value added per employee) over five years. Cause for celebration? Not in my view.
The construction of many large projects is still massively inefficient. The Egan report Rethinking Construction quoted studies from the UK, USA and Scandinavia suggesting that up to 30% of construction is “rework”, that labour is used at only 40-50% of potential efficiency and at least 10% of materials are wasted.
On this evidence, there is clearly much that can still be done to improve matters. Optimising supply chain and logistics functions, as has been done in other sectors such as retailing and automotive, is one of the priority areas. A recent survey by The Economist found only 15% of manufacturing executives believe their company’s information on the movements of materials was accurate, and an even smaller proportion thought it was as timely as it could be. As the road transport sector’s partial opt-out from the European Union’s Working Time Directive expired in March, with estimates putting the shortage of heavy goods vehicle drivers at 120,000 by the end of 2006, the transport function is a case for special attention.
Annual studies of organisational productivity, supported by independent opinion polls of senior management, show that weakness in management and supervisory skills is another priority area. Add to this the skills crisis already evident in many building trades, and the arrival of hundreds of thousands of new industry entrants required over the next five years, and it’s indisputable that tackling people management and management processes will be critical in any drive for productivity improvement.
My firm recently studied a major UK housebuilder seeking ways to reduce costs, streamline its tools for managing subcontractors and minimise waste. An audit of the company identified a catalogue of chronic management problems that needed addressing. These included business-critical issues such as project scheduling and tracking, accurate forecasting, purchasing efficiency, time management, budgeting, resource planning and poor communication. The company had no real identification of cost-reduction levers, and its managers were spending a considerable amount of available time in reactive, fire-fighting mode.
2004 figures show a rise in contractor productivity. Cause for celebration? Not in my view
Whether they are working in banking or building, people intuitively know when things are overly time-consuming. As a first step to improving planning and measurement, it is essential to step back, talk to employees and understand what the root causes are, whether it is an inefficient process, poor communication or something else.
Once the underlying problem is identified and a solution implemented, it’s essential to ensure that this is visible to employees. Any effective planning process has to be broken down into its key elements. For example, using whiteboards with visual flow charts can highlight changes and help people understand how their measures of success relate to the overall prosperity of the business.
Success is certainly what the industry as a whole is enjoying. But strong, short-term optimism and buoyant public-sector spending cannot mask the fact that profit margins are being squeezed by rising costs in operations and raw materials. In this context, maximising productivity will require review and improvement of all of the resources within a company’s control, whether it’s machinery or plant, people or purchasing, finance or manufacturing.
Only by taking a holistic approach to productivity improvement and effective management of the resultant changes can significant results be achieved. When a client needs a new headquarters building, it rightly turns to a contractor with specialist expertise, and probably one with skills honed by many similar projects. The big question for construction, as in so many other sectors, is, does senior management have the knowledge and capability to make major, productivity-boosting change happen, or the wit to know when to ask for help?
Kevin Parry is chairman of Proudfoot Consulting, a specialist in operational productivity improvement. For more information, see www.proudfootconsulting.com