Engineers and contractors pride themselves on being problem solvers, often balancing disparate, competing constraints. But many firms face a challenge that defies finding an optimal, lasting resolution: productivity.
Even in so-called good years, when backlogs are full, engineering and construction firms may sense that their numbers are not as good as they could be, especially if projects are missing their cost and schedule targets. Yet, managers also may be unsure of how to start improving productivity, perhaps reluctant to compromise existing competitiveness and profits. New industry research from the international consulting firm McKinsey & Co. suggests there is room for industrywide improvement, which is needed now more than ever.
In “How Engineering and Construction Firms Can Beat the Low-Productivity Trap,” McKinsey’s authors claim that many construction management practices have not evolved with the 21st-century business environment, thereby preserving inefficiencies.
The study’s authors contend that, if engineering and construction firms update their operational practices, they can increase their margins by as much as 30% from the North American industry average of 6.4%.
Achieving these results, of course, means analyzing how U.S. engineers and contractors do business.
Maria Joao Ribeirinho, a partner in McKinsey’s Lisbon, Portugal, office and a study co-author, says flawed organizational structures, particularly in larger firms, are at the root of many problems. Those flaws can result in unclear lines of responsibility, poor talent management and limited sharing of best practices. “There is a tendency for organizations to be siloed around a project manager’s specific way of doing things, rather than standardizing processes companywide,” Ribeirinho explains.
The study also faults firms for not making full use of productivity-enhancing tools, such as 5D building information modeling and drone-based data gathering, as well as their reluctance to upgrade from legacy budget, planning and operations systems.
Jose Luis Blanco, an associate principal in McKinsey’s Philadelphia office and another study co-author, notes that, while some firms invest significantly in digital tools that enhance collaboration, “they won’t change anything unless their management approach changes.”
There are also differences in the project’s value chain, as evidenced by the structure of contracts for lead contractors and subs. “The lead firm’s priority may be meeting milestones, perhaps with an early completion bonus, while the subcontractor’s work is based on time and materials,” Ribeirinho says. “There’s no overall incentive for improvement across the entire project.”
To be sure, many other factors influence productivity, some of which are endemic to a company’s size, structure and market. Nevertheless, the McKinsey study cites several areas that, when properly studied and addressed, can be changed to improve a firm’s bottom line.
The authors offer two good places to start: clearly define goals, roles and accountability, both within project teams and firmwide, then gauge performance against specific project-execution metrics. With this data, managers can better assess results to target areas of strength and those in need of improvement.
“Digital tools make it easier to record and compare data and learn from one day to the next,” says Ribeirinho. “And they are affordable, which means small contractors can take advantage of them.”
Similarly, a single, integrated data system can help to manage the troves of data generated by both traditional management sources—overhead costs, materials use, construction progress, for example—as well as usage information from tools and machines. By integrating data collected in multiple formats, companies can identify possible causes of low productivity, such as diminishing returns beyond a certain team size, and chart a strategy for improving management processes, the authors note.
Risk management is another area for possible improvement. Blanco says the generally risk-averse cultures of engineering and construction firms tend to stymie productivity. Adopting a broader view of risk, on the other hand, may allow firm leaders to take more strategic chances because they can see how those fit into the overall risk profile. “If you always try to outsource risk to someone else,” Blanco says, “there is less incentive to innovate.”
The benefits of management modernization need not end at the firm’s front door. Cultivating long-term relationships with subcontractors and structuring contracts to emphasize shared incentives and goals helps to foster teamwide incentives to improve productivity. That could include expanding the use of BIM, component prefabrication and other lean practices.
While improving time management at all project levels will boost productivity, Blanco emphasizes that the most important factor may be the company’s own mind-set.
“Firms need patience and a willingness to explore, monitor and adjust,” Ribeirinho adds. Although getting started may sound formidable, leaders likely will find that the potential benefits more than justify the effort. “If you start looking at it,” she says, “you will never stop.”