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Leveraging Technology to Improve Profitability

Rising material and labor costs, coupled with an increasingly competitive landscape, means tight margins for construction firms and very little room for error when it comes to delivering construction projects. A 2020 Deloitte Engineering and Construction Industry Outlook report noted that most engineering and construction firms “continue to experience low profitability and margins…The industry’s traditionally low margins, combined with increasing project complexity, fierce competition from Asian companies, and supply chain constraints, will likely continue to put extra pressure on US companies’ profitability in 2020.”

In this environment, many construction firms are struggling to grow and achieve business goals. Leveraging technology in project design, building, and managing can help firms remain competitive and improve profitability.

Design

A design-assist approach, which brings together key construction team stakeholders with design professionals early in the design phase, is a collaborative approach that helps address complexity in construction projects. Advances in technology are helping facilitate this approach connecting architects, contractors, engineers, and key subcontractors to develop a shared understanding of the project early in the process. This can help make projects more profitable by minimizing RFIs and change orders, saving time and money.

The time it takes to manage and answer RFIs can be costly. A higher quantity of RFIs to answer is not necessarily the core problem on its own, but a lack of proper tracking and communication can heighten risk and cause issues. 

Firms are using cloud-based construction software to break down the communication silos that add time and cost to RFI responses and wreak havoc with project timelines. Cloud-based project management technology streamlines communication and provides anytime, anywhere access to project information. An added benefit of the technology is real-time information which keeps all project stakeholders on the same page and the project on-track.

Building

The way firms execute projects has a major impact on profitability. Productivity and jobsite efficiency are key drivers for controlling costs and keeping a project on schedule. Factors such as scheduling mishaps, supply chain issues, and rework can derail productivity and decrease profit margins.

A report released by FMI and Plangrid revealed that construction professionals spend 35% of their time on non-optimal activities, such as, looking for project information and data, conflict resolution, and dealing with mistakes and rework. This non-optimal activity accounts for $177.5 billion in labor costs per year in the U.S. alone.

Rework, in particular, is one of the issues which has a major impact on project profitability. The same report estimated that $31.3 billion of rework in the U.S. in 2018 was caused by poor data and miscommunication.

Construction project management platforms can reduce rework by connecting cross-functional and distributed teams ensuring a “single source” of truth with a central repository of the most accurate and up-to-date information on project drawings, markups, RFIs and change orders. This streamlines communication and improves productivity and workflows, minimizing rework, which is often considered one of the most inefficient activities on a construction site. 

The boost in productivity, efficiency, resource, and time savings that result from reducing the incidence of rework translates to more profitable projects. 

Managing

To protect the profitability of projects, construction firms need to stay on top of risk management. This involves tracking all of the resources, assets, and activities that impact productivity. 

Managing financial resources is foundational to achieving better profitability. This process starts with creating detailed, accurate estimates that factor in the real costs associated with overhead, risk, and job costs. 

Technology that simplifies estimating and integrates accounting into project management can help construction firms accurately assess how job progress and profitability stack up against real-time revenue recognition – the barometer for measuring job profitability, cash flow, and working capital efficiency.

Project management platforms further help firms mitigate risk through document management. The complexity of construction projects generates thousands of documents firms must track through the lifecycle of a project. Proper documentation and collection can help construction firms more quickly settle disputes that can adversely impact profitability. 

Disputes and litigation are costly. According to the 2019 Arcadis Global Construction Disputes Report, during 2018 in North America alone, the average dispute cost $16.3 million and lasted more than 15 months. The report noted that “projects fail because they are unable to adequately manage uncertainty and expectations. The plans are either too optimistic (i.e. the budget and schedule are based on the wrong assumptions), or external events and risks impact the plan’s objectives, often giving rise to construction claims and disputes.”

Cloud-based technology provides access to updated real-time information from the office to the field or anywhere in between. Centralizing document management and tracking can help firms easily access information to avoid disputes and litigation and protect project profitability. 

Visibility into project data provided by project management technology can also help manage risk. Deloitte’s 2020 engineering and construction industry outlook report highlighted the importance of digital technology and real-time data for helping “project managers make better-informed decisions around scheduling labor & materials and this type of project monitoring is moving beyond documenting cost overruns and construction delays to include more forward-looking insights.”

In an environment of increasing competition and labor & material costs, project management technology can give construction firms a competitive edge. Construction firms that embrace the use of technology in all phases of projects can better collaborate, execute, and manage projects from preconstruction to closeout. This maximizes productivity and minimizes RFIs, rework, and other risk factors to boost profitability.

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