Can operational savings offset construction material cost increases?
Construction is becoming more expensive by the month. In 2021, costs reached a 40-year high, and market conditions continue to push up the price of materials in 2022. Add supply chain disruption and energy price increases into this mix, and it’s a difficult time to turn a profit; nearly 80 construction-related companies have gone into administration since February in the UK alone.
With material prices and lead times unlikely to settle down soon, construction companies are looking at ways to protect their profits and mitigate risk. And for many, improving internal efficiency is the simplest, most practical way to maximise margin.
Finding New Ways to Absorb and Offset Rising Costs
Unfortunately for the construction industry, world events have created a melting pot of problems that are pushing up costs and lengthening lead times. Just sourcing materials and getting them to site has proved a challenge – one that many construction companies have paid a premium to solve.
The pandemic’s combination of pent-up demand and compromised production/supply chain movement has affected the global flow of materials. And further disruptions such as fuel shortages, HGV driver shortages, the Russia/Ukraine war and Brexit’s ongoing logistical complexities have exacerbated the problem.
While other sectors have addressed rising costs by moving from a Just in Time (JIT) to Just in Case (JIC) model, the construction industry can’t easily stockpile materials. And with consumer confidence lower than during the 2008 recession, it’s a big risk to rely on passing price increases onto the end customer as a means of maintaining profitability.
These circumstances leave construction companies with one viable alternative: find new ways to absorb or offset rising costs internally.
Internal change makes sense; greater efficiency means lower project costs. And if companies can become more efficient by increasing their operational agility, they will also be able to manage setbacks and challenges more dynamically, minimising their impact on budget and delivery timeline.
Profitability Starts with Smart Planning Decisions
The most profitable decisions are often made during project planning, as construction companies can understand which material choices drive the best time and cost efficiencies before breaking ground. However, not all companies have the technology in place to visualise potential approaches and compare them like-for-like.
Investing in BIM software empowers construction companies to model the impact of materials, techniques and processes from the outset, and to choose an economically sensible course of action. Digital construction software also enables companies to cost load and resource load projects, so they have access to highly detailed information.
Many companies are opting for BIM software with integrated 4D modelling capabilities – as this allows them to easily show the impact of different approaches to their clients, to secure buy-in.
Already, we’re seeing the positive impact that better planning is having on project outcomes, by enabling construction companies to think outside the box. For example, when Willmott Dixon began scoping the University of Warwick’s new Interdisciplinary Biomedical Research Building, it used Powerproject by Elecosoft to pitch a modern construction methodology that involved prefabricating 50% of the building off-site.
Willmott Dixon was able to demonstrate that a pre-fabricated approach would halve the number of workers and site deliveries – enabling them to deliver a 7,000 square metre building in 118 weeks.
Maximising Margins Through Agile Planning
Even with a clearly defined plan of action, however, there are inevitable changes and unforeseen issues during construction . Without tightly coordinated, agile project management, profit margins are eroded as problems occur and timelines slip.
Often, time and money are lost through simple lack of communication. Without effective construction management software in place, it’s difficult to keep everyone on the same page and get quick feedback from stakeholders. Small setbacks can snowball into bigger, more expensive problems the longer it takes to identify and resolve them.
Investing in software that enables construction companies to share information accurately and easily, particularly if the software is mobile compatible – as JJ Rhatigan & Company can attest. The Irish construction company is using Powerproject’s Site Progress Mobile application to update tasks on-site and capture photo evidence in real-time, helping JJ Rhatigan’s planning team to track progress and identify opportunities for further improvement.
Workflow management software also enables construction companies to automate key tasks during project execution, so stakeholders can devote more time to higher value tasks and increase their overall productivity. Planning is a good example of this.
Automated reporting saves planners hundreds of hours a month while keeping colleagues and clients informed on progress. And intelligent software can also help planners to run scenarios that look at the material, time and cost consequences of every change – so they can make effective decisions and re-sequence projects as efficiently and effectively as possible.
Not only that, managing projects centrally makes it easier to circulate updated schedules to contractors and subcontractors. So projects can pivot quickly, limiting time slippage and the costs associated with it.
Continuously Improving Construction Projects
We’ve already mentioned the role that construction management software plays in making profit-driven decisions during project execution. It can also support higher level strategy to make sure the company is moving in a profitable direction; particularly for construction companies running multiple concurrent projects.
When operations are busy it can be difficult to see the bigger picture. Without a bird’s eye view of data, companies can’t easily identify which developments have the biggest margins and apply best practices from those success stories to current and future projects. Or use real-time progress reporting to manage business cash flow. Yet these two capabilities are essential to increasing company profitability.
One construction company that has already invested in high-level improvement is VINCI Construction UK, which introduced Powerproject Vision to standardise and integrate its design, procurement and construction programmes.
As Vision enables VINCI’s stakeholders to centrally view live data across all projects, the company has been able to both connect planning data with the rest of its business information, and to benchmark and maintain standards from project-to-project.
Learn more about Powerproject Vision
Creating consistency also means that key learnings can be applied from one project to the next. Successful pre-existing projects can be duplicated and used as a base model for future developments, and this base model becomes even better over time as it is constantly refined and improved by project data.
By putting consistency at the heart of project planning and execution, every decision is grounded in real insight rather than gut instinct, and profitability becomes a core metric.
The Business Case for BIM Software Continues to Grow
When material costs are rising across the board, there’s a limited amount that construction companies can do to limit the impact on their business. But that doesn’t mean that margins will inevitably be squeeze to unsustainable levels. As the points we’ve discussed demonstrate, internal innovation reveals opportunities to improve project execution, and operational savings can mitigate – even offset – the impact of external increases.
Naturally, construction companies feel reluctant to commit to new outgoings when material prices are high. But industry leaders have rapidly realised that while BIM software specifically designed for construction may seem like an expensive outlay, the value it delivers when planning and managing projects to tight budgets and timescales far outweighs initial costs.
And with market pressures unlikely to relent, the business case for investing in technology that drives smart ideas, efficient communications, rapid problem-solving and constant learning continues to grow.