Efficiency: Construction Overruns and Delays Hindering Competitiveness

Approximately 60% of construction projects come in over budget or behind schedule, said GO Productivity’s Matt Knight, a speaker at the Vancouver Regional Construction
Association (VCRA) Construction Leadership Forum May 8–9, tailored for middle managers from across the industry. Knight is the managing director of growth services for the innovative Alberta company set up to look at ways to make Canadian companies, including the construction industry, more efficient.

That 60% figure doesn’t exactly resonate well for the North American construction industry as it heads into a productivity foot race with many other countries. But the acknowledgment that productivity is not what it should be is becoming a rallying call for the construction industry to do better. And that acknowledgment is not just in Canada. 

“I’m currently reading the book Broken Buildings, Busted Budgets,” said Knight. The publication also nails down the message that the U.S. construction industry isn’t as productive as it should be. The University of Chicago Press-published text claims the trillion-dollar industry in the U.S. wastes $120 billion annually. Although the book is not new and was released just as the U.S. real estate market crashed, it remains topical as author and prominent construction attorney Barry B. LePatner argues for change in an industry rooted in a 200-year-old traditional operating mindset.

A study by universities in Australia and Denmark called Delusion and Deception in Large Infrastructure Projects: Two Models for Explaining and Preventing Executive Disaster was published in the California Management Review in winter 2009. The report cites The Economist’s projection that infrastructure spending – reported at $22 trillion – over the next decade internationally is the “largest investment boom in history.” But it is again an industry riddled with inefficiencies and cost overruns in construction.

“Cost overruns and benefit shortfalls of 50% are common: cost overruns above 100% were not uncommon. For example, in one study of major projects in 20 countries, nine out of 10 projects had cost overruns,” the report said. That growing international awareness that the industry is not performing well is causing not-for-profit companies, such as GO Productivity, to look for solutions for the Canadian market and the construction industry to take serious note. Knight has conducted seminars for the VRCA on how to increase construction productivity and will be a panelist at this year’s leadership forum at the session titled “Normal is broken – a case for collaboration.”

“We are talking about how what is normal today is broken and what are some of the better options – such as collaboration,” he said. “There is a lack of collaboration in the industry and people have always accepted that as part of the industry.” 

It is a characteristic of the industry, he contends, and compares it to ordering a meal in a restaurant under the same conditions. The kitchen interprets the order according to how it sees it; there is only an estimated price of the meal; the price is tallied at the end and the client is expected to pay the price – plus the meal arrives an hour late. “No one would stand for that,” said Knight. 

A core difficulty in the construction industry, according to Knight, is that construction contracts are parcelled out. “There are so many parties involved and they are just not communicating and collaborating,” he said. As one party finishes a portion of the work – which has been executed to increase that party’s revenue and decrease its risk – it is then passed to the next party without any consideration for that party’s needs. Each link in the chain is working to maximize its own strength without consideration of other links and the overall strength of the chain.

Knight said there are companies that are starting to see the rationale behind change – the ability to bring in contracts on time and on budget. “If you can build buildings quicker and on budget, you can build more buildings,” he said. That translates into more business and profits for the company.

GO Productivity started as Productivity Alberta and was founded by the Alberta government to help the province’s construction and manufacturing sectors become more productive, competitive and profitable. It transitioned into a not-for-profit corporation in October 2011, and in November 2014 it took a national scope with the new national company called GO Productivity. GO Productivity helps companies identify gaps in productivity and then find ways to address them.

Knight said there is also a growing awareness that other countries are focusing on increasing productivity as well, and if Canadian companies do not perform at their optimum efficiencies, then foreign companies will outbid them as they move into Canada.

“No one wants to be part of an industry that is not getting more productive. Most companies realize there is the ability to save on overtime and also not to come in over budget,” he said. Both VRCA members and non-members are invited to attend the Whistler forum. Visit the VRCA website to register for the conference in Whistler, May 8–9. 

Republished, with permission, from the April 14-20, 2015 edition of Business in Vancouver Magazine.  Author: Jean Sorensen

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