Turning the Tide on Increasing Labor Productivity Losses
Skilled construction professionals have mastered the art of balancing Construction’s 4 M’s – money, manpower, machines, and materials. Despite advances in capital management, machines, and materials, managing construction labor is still a people problem. This industry depends on manpower to turn blueprints into tangible structures, operate machines, and interpret documents. Losses due to labor inefficiencies is the largest source of recurring waste on construction projects, and its significance is increasing.
Decline in Labor Productivity Trends
Labor productivity, crucial for the financial health of labor-intensive contractors, appears to be worsening. A University of Chicago examination of Bureau of Economic Analysis data found the value that each additional worker added to construction was 40% lower in 2020 than in 1970. Polls support this concerning trend: nearly 50% of construction professionals believe labor productivity has declined in the last decade.
This decline signifies a deeper malaise within the industry, pointing towards systemic issues in planning, communication, and collaboration – factors that are critical for efficient project execution. Furthermore, an overwhelming 79% of contractors believe that they could enhance labor productivity by at least 6% with better management practices. This improvement in productivity, surprisingly, could lead to an average increase of 50% in profitability, highlighting the direct correlation between effective labor management and financial success.
The Alarming Cost of Labor Productivity Losses
The construction industry is confronting a staggering annual loss of $30 to $40 billion due to labor inefficiencies according to FMI’s labor productivity study. This loss is not just a minor dent in the industry’s profitability but a significant hemorrhage affecting the entire construction ecosystem. Considering the $900 billion in labor-intensive construction put in place during 2022, the annual labor cost was $270 billion according to FMI. Of this, approximately $40 billion was wasted due to inefficiencies. At an individual contractor level, these losses translate to significant eroded project margins.
This also provides a massive opportunity for improvement. FMI estimates that a 10% increase in labor productivity adds more than 3% to a company’s bottom line, increasing profitability by 100%. Let that sink in – improving labor productivity by just 10% can double profit margins.
What’s Causing These Losses?
The drivers of productivity losses vary by firm, as well as by internal or external factors. Internally, the four most critical factors affecting productivity are planning, communication, collaboration, and utilization. A significant number of contractors attribute inefficiencies to poor planning and communication by field and project management, subpar project team collaboration, and inadequate site logistics. These issues, stemming from organizational practices, significantly hinder the efficient execution of construction projects.
Externally, contractors face challenges with low-quality design and construction documents, outdated and unrealistic schedules, lack of coordination with general contractors, and inefficiencies in handling change orders. Additionally, the industry is grappling with a skilled labor shortage, with many contractors citing the lack of qualified craft labor as a major internal factor impacting productivity. These external factors, often beyond the direct control of individual contractors, exacerbate labor inefficiencies and contribute to the overall decline in productivity within the construction sector. Addressing these challenges requires a multifaceted approach, involving improved management practices, enhanced communication, and better collaboration both within organizations and with external partners.
Unlocking Your Productivity Gains
FMI estimates that $25 billion could be saved through enhanced management practices. This opportunity for improvement is immense, considering that construction remains a labor-intensive business despite advances in technology. We grouped recommendations into four categories: improving planning and management, using technology, developing the workforce, and implementing productivity systems.
Improving Planning and Management
Enhanced Planning and Pre-Construction Efforts: Contractors should optimize planning and pre-construction activities. This involves detailed project planning, risk assessment, and resource allocation before the project begins. Effective planning can identify potential bottlenecks early and ensure smoother execution.
Improved Communication and Collaboration: Establishing clear and consistent communication channels within the project team and with external stakeholders is crucial. This includes transparent sharing of information and collaborative decision-making processes between the field and office to ensure everyone is aligned and working towards common goals.
Addressing Supply Chain and Vendor Management: Efficient management of the supply chain and vendor relationships can reduce delays and cost overruns. This involves strategic sourcing, maintaining good relationships with suppliers, and effective inventory management.
Strategic Use of Prefabrication and Off-Site Construction: Where applicable, shifting to prefabrication and modular construction can reduce waste, improve quality control, and speed up construction timelines.
Using Technology
Adoption of Technology and Digital Tools: Leveraging modern technology can significantly improve productivity. This includes project management software, collaboration tools such as Building Information Modeling (BIM), project tools such as TrunkText and TrunkPerform, and other digital tools for better design coordination, scheduling, incentives management, and real-time monitoring of project progress.
Developing the Workforce
Focus on Workforce Development and Training: Developing a skilled workforce through continuous training and development programs is essential. Training should cover not only technical skills, but how to use digital technology and implement internal management and communication processes which are critical for effective teamwork and project execution.
Strengthening Field Management Practices: Field managers should be empowered and equipped with the necessary tools and information to make informed decisions on-site. This includes better resource planning, site logistics management, incentive management, field management tools, and proactive problem-solving. AI tools such as TrunkText can help the field with this.
Implementing Productivity Systems
Regular Productivity Tracking and Feedback: Tracking labor productivity and providing feedback to the workforce can help in identifying areas for improvement and making timely adjustments. Platforms such as TrunkPerform by Trunk Tools are designed to help contractors to easily implement these programs.
Implementation of Lean Construction Principles: Adopting lean construction methods can streamline processes, reduce waste, and improve efficiency. This involves practices like just-in-time delivery of materials, efficient workflow design, effective labor employment, and continuous improvement processes. It also includes experimenting with new business processes such as incentive management platforms and other labor utilization strategies.