Construction productivity problems persist

The construction sector's longstanding productivity challenges continue to threaten not just the industry, but entire economies, according to a recent report by McKinsey & Company titled Construction Productivity: A Path to Growth.

This new report builds on the findings from their 2017 study, titled Reinventing Construction: A Route to Higher Productivity, and highlights the urgent need for actionable solutions.

McKinsey predicts that the global construction industry could expand by 70% by 2040, yet there is “no evidence” that the labour market will be able to meet this increasing demand. In many regions, construction firms are already grappling with a shortage of skilled workers necessary to complete current projects.

To avoid a potential construction output shortfall of $40 trillion by 2040, McKinsey asserts that the industry must improve the economic value added per hour worked. The report states that construction productivity has stagnated, rising only 10% between 2000 and 2022. In comparison, overall economic productivity increased by 50% during the same period, while manufacturing saw a 90% boost.

McKinsey identifies seven key issues hindering productivity gains in the construction sector:

1. Slow Technology Uptake: The report highlights that construction companies typically spend less than 1% of their revenue on IT, far below the levels seen in other industries like aerospace and automotive. While investment in architecture, engineering, and construction (AEC) technologies has risen significantly since 2020, productivity has not yet improved.

2. Difficulty in Scaling Improvements: Individual project teams often develop unique working methods, making it challenging to implement improvements across entire project portfolios.

3. Passing on Productivity Gains: When companies do improve productivity, the benefits often get passed to suppliers or customers, leaving construction firms with thin profit margins. For instance, modular home customers expect quicker delivery and lower prices due to productivity enhancements.

4. Low Margins and Contractual Models: Tight profit margins discourage investments in productivity improvements. Competitive tenders lead to cost estimates that may not materialise, which constrains companies' ability to invest in better processes.

5. Increasing Project Complexity: As brownfield projects—existing sites needing renovation—become more common, the complexity and risks of projects increase, leading to mispricing and mismanagement of risks.

6. Lack of Skilled Workers: The industry faces a shortage of experienced workers, resulting in a reliance on less skilled labour, which ultimately drives down productivity.

7. Productivity Not a Priority: Construction firms often prioritise timely project delivery over productivity metrics, complicating efforts to enhance efficiency across projects.

To tackle these issues, McKinsey recommends several foundational measures, including:
- Ensuring adequate team staffing.
- Establishing robust planning and design processes.
- Minimising handover delays.
- Developing skilled apprentices through comprehensive training programmes.

For more significant productivity improvements, the report suggests adopting innovative project steering techniques similar to those in manufacturing, nurturing a supplier ecosystem, and applying technology that directly impacts productivity.

As McKinsey's report outlines, the construction industry must implement these recommendations to remain competitive and meet the growing demands of society.