McKinsey Report Construction June2016 PDF
McKinsey Report Construction June2016 PDF
McKinsey Report Construction June2016 PDF
Article
June 2016
T
he construction industry is ripe for disruption. Large projects across
asset classes typically take 20 percent longer to finish than scheduled and
are up to 80 percent over budget (Exhibit 1). Construction productivity has
actually declined in some markets since the 1990s (Exhibit 2); financial returns
for contractors are often relatively low—and volatile.
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Exhibit 1
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Exhibit 2
While the construction sector has been slow to adopt process and technology
innovations, there is also a continuing challenge when it comes to fixing the
basics. Project planning, for example, remains uncoordinated between the office
and the field and is often done on paper. Contracts do not include incentives for
risk sharing and innovation; performance management is inadequate, and
supply-chain practices are still unsophisticated. The industry has not yet
embraced new digital technologies that need up-front investment, even if the
long-term benefits are significant (Exhibit 3). R&D spending in construction
runs well behind that of other industries: less than 1 percent of revenues, versus
3.5 to 4.5 percent for the auto and aerospace sectors. This is also true for
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Exhibit 3
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Technical challenges specific to the construction sector have a role in the slow
pace of digitization. Rolling out solutions across construction sites for multiple
sectors that are geographically dispersed—compare an oil pipeline, say, with an
airport—is no easy task. And given the varying sophistication levels of smaller
construction firms that often function as subcontractors, building new
capabilities at scale is another challenge.
However, none of this is going to get easier. Projects are ever more complex and
larger in scale. The growing demand for environmentally sensitive construction
means traditional practices must change. And the shortage of skilled labor and
supervisory staff will only get worse. These are deep issues that require new ways
of thinking and working. Traditionally, the sector has tended to focus on making
incremental improvements, in part because many believe that each project is
unique, that it is not possible to scale up new ideas, and that embracing new
technologies is impractical.
The McKinsey Global Institute estimates that the world will need to spend $57
trillion on infrastructure by 2030 to keep up with global GDP growth.1 This is a
massive incentive for players in the construction industry to identify solutions to
transform productivity and project delivery through new technologies and
improved practices.
In this report, we consider five ways the industry can transform itself over the
next five years.
None of these five ideas is futuristic or even implausible. All are grounded in
innovations that are applicable to the construction sector and that are either
being deployed or prototyped. In short, they are practical and relevant.
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Moreover, they are designed to work together to deliver greater impact (Exhibit
4).
Exhibit 4
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Geological surprises are a major reason that projects are delayed and go over
budget. Discrepancies between ground conditions and early survey estimates
can require costly last-minute changes to project scope and design. New
techniques that integrate high-definition photography, 3-D laser scanning, and
geographic information systems, enabled by recent improvements in drone and
unmanned-aerial-vehicle (UAV) technology, can dramatically improve accuracy
and speed.
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Exhibit 5
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Two or more survey techniques are often used together to save time and money.
For example, for a survey of river sites for minihydropower plants in Southeast
Asia, surveyors used lidar maps for general terrain information and drone-
mounted high-definition cameras to focus on specific areas.
Modern survey technology is more accessible than ever because costs have come
down substantially. Lidar and real-time kinematic GPS are now available for
about $10,000. High-resolution cameras are small and light enough to be
mounted on standard industrial drones; this is faster and cheaper than using
helicopter-mounted cameras for aerial surveys. Specialized technology
providers offer cost-efficient survey packages, including drone and UAV
equipment, data uploading, and processing services, as well as software to
manage drone flights, data capture, and dashboards to visualize information.
Some government agencies and nongovernmental organizations have started
providing free lidar maps.
The construction industry, however, has yet to adopt an integrated platform that
spans project planning, design, construction, operations, and maintenance.
Instead, the industry still relies on bespoke software tools. In addition, project
owners and contractors often use different platforms that do not sync with one
another. As a result, there is no single source that provides an integrated, real-
time view of project design, cost, and schedule.
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contractors a better chance to identify risks earlier and thus to make better
decisions. For example, project planners can visualize and estimate the impact of
a proposed change in design on project costs and schedule.
Exhibit 6
One study found that 75 percent of those that adopted BIM reported a positive
return on their investment. They also reported shorter project life cycles and
savings on paperwork and material costs. Given these benefits, a number of
governments, including those in Britain, Finland, and Singapore, mandate the
use of BIM for public infrastructure projects.
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The use of 5-D BIM technology will be further enhanced through augmented-
reality technology via wearable devices. For example, a wearable, self-contained
device with a see-through, holographic display and advanced sensors can map
the physical environment. Companies are developing BIM-like design and
construction solutions for these platforms. In this “mixed reality” environment,
users can pin holograms to physical objects and interact with data using gesture,
gaze, and voice commands.
Process digitization means moving away from paper and toward online, real-
time sharing of information to ensure transparency and collaboration, timely
progress and risk assessment, quality control, and, eventually, better and more
reliable outcomes.
One reason for the industry’s poor productivity record is that it still relies mainly
on paper to manage its processes and deliverables such as blueprints, design
drawings, procurement and supply-chain orders, equipment logs, daily progress
reports, and punch lists. Due to the lack of digitization, information sharing is
delayed and may not be universal. Owners and contractors therefore often work
from different versions of reality. The use of paper makes it difficult to capture
and analyze data; that matters because in procurement and contracting,
historical performance analytics can lead to better outcomes and risk
management. Mismanaged paper trails also routinely spur disagreements
between owners and contractors on such matters as construction progress,
change orders, and claims management. Finally, paper trails simply take more
time.
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Exhibit 7
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more than 20 hours of staff time per week, cut down the time to generate reports
by 75 percent, and sped up document transmittals by 90 percent. In another
case, a $5 billion rail project saved more than $110 million and boosted
productivity by using automated work flows for reviews and approvals.
Exhibit 8
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The Internet of Things is a reality in many other sectors; sensors and wireless
technologies enable equipment and assets to become “intelligent” by connecting
them with one another. On a construction site, the Internet of Things would
allow construction machinery, equipment, materials, structures, and even
formwork to “talk” to a central data platform to capture critical performance
parameters. Sensors, near-field-communication (NFC) devices, and other
technologies can help monitor productivity and reliability of both staff and
assets. There are several potential uses:
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Safety. Wearable bands can send alerts if drivers and operators are
falling asleep or if a vehicle or asset is stationary or nonoperational for
a given window of time during shift hours.
And NFC technology is evolving. Soon, tags will be able to include information on
specifications, dates, defects, vendors and original-equipment manufacturers,
maintenance records, operating parameters, and other applications. Costs of
RFID equipment, including scanners, receivers, and tags, are falling, and new
applications are emerging. A British construction company, for example, is using
RFID to monitor truck inspection, track tool usage, and train workers at
construction sites.
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In addition to the opportunities from the Internet of Things, the greater use of
digitization in the construction-planning process and on the construction site
itself is enabling firms to capture data that paper could not. The insights gained
through the adoption of advanced analytics in construction projects can help to
improve efficiency, timelines, and risk management.
Advanced analytics helped a major London infrastructure project save time and
money when project leaders worked with a data-analytics company to produce a
web-based adaptive-instrumentation-and-monitoring system. The system
absorbed field-sensor data, construction-progress data, and workforce and
vehicle movements. Statistical analysis based on this information helped project
teams detect anomalies and identify potential risks—critical information for a
dense and historically sensitive city like London.
Other examples abound. For instance, insights from advanced analytics helped
an oil and gas giant improve the productivity of its engineering function by 20 to
25 percent by pairing the right teams, appointing appropriate team leads, and
modifying their work flows to minimize waste and improve efficiency. In another
case, a large Middle Eastern construction firm worked with a software company
to build a predictive analytics engine to prevent equipment breakdowns on-site
for its fleet of construction vehicles. This saved millions of dollars in downtime,
fuel costs, and maintenance expenses. And event simulations, coupled with
optimization algorithms, have also helped ship builders optimize construction
planning.
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Improved durability and strength. With capital costs rising and land
growing scarce in many markets, owners are insisting that projects
have longer commercial lives.
There has been a wave of innovation in construction materials over the past few
decades, developed with specific uses in mind. There are dozens; here are a few
that are particularly interesting:
Concrete canvas. Take a layer of “concrete cloth,” then add water and
allow to set. This innovation typically is used for drains, channels, and
passages, and it is now available commercially.
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Some of these “materials of the future” could redefine how projects are
conceptualized, designed, and executed. However, adoption has been slow due to
a lack of awareness and familiarity within the design and engineering
community, a limited supply chain and a lack of availability at scale, and risk
aversion among project owners and contractors.
Despite being available for more than 30 years, for example, ethylene
tetrafluoroethylene (ETFE) only gained widespread adoption after it was used to
build part of the aquatic building for the Beijing Olympics in 2008. ETFE weighed
less than 1 percent of an equivalent glass panel and costs 24 to 70 percent less to
install.
About 80 percent of all construction work is still done on-site, but many project
developers and contractors are deploying new off-site approaches that help
them improve predictability, consistency, and repeatability. This is especially
critical given the realities of shrinking work space, labor shortages, and more
exacting safety and environmental standards. The industry needs to move
beyond precasting and prefabricating structures to the next generation of
techniques. Several techniques show potential:
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Exhibit 9
Given the construction industry’s poor track record on innovation and the
adoption of new technologies, tools, and approaches, project owners and
contractors need to adopt a new mindset. Owners often believe that their
responsibility ends when they award contracts, forgetting that they pay the
economic costs of delay. For their part, contractors often do only the minimum
required to meet contractual terms, leaving substantial value on the table. For
the industry to do better, it needs to embrace four principles:
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All major stakeholders share the responsibility for the transition to digital
technology and innovation. The imperatives for each are different.
Project owners and developers need to mandate and measure. That starts with
mandating adoption of digital technologies in contracts and perhaps capitalizing
the cost of digitization and technology when setting project budgets. To manage
risks, owners should coinvest in technology pilots with contractors and share
rewards proportionately. Our experience indicates that megaprojects are often
not the best candidates for big technology deployments; instead, starting small
and developing capabilities with midsize projects can build confidence. In
addition, owners should measure and reward technology adoption across their
projects.
Industry bodies and regulators should invest and create incentives. They can play
a helpful role, for example, by working with contractors, owners, and technology
players to define new standards for emerging technologies, develop pilot
projects, and showcase success stories. They can create grants, bonuses, or
subsidies to nudge owners and contractors toward using digital solutions and
help them educate and train the next generation. They can also encourage the
adoption of digital technologies, such as 5-D BIM, in public projects, as well as set
productivity norms, such as the use of prefabricated components. On the
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Other industries have shown that first movers can build a sustainable
competitive advantage. In the construction sector, this is also likely to be the
case. Over the next decade, these winners of tomorrow will take the lead in
technology innovation and digitization. Resisting change is no longer an option.
This work was made possible by the insights that experts from the industry and
governments around the world generously shared. The authors also wish to
thank their McKinsey colleagues—Ivan Jelic, Olivier Legrand, Azam Mohammad,
Frank von Willert, and Simon Williams, and McKinsey alumna Farida Heyder—
for their contributions.
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