ClaudioVentrella/iStock/ Getty Images Plus
Ecmweb 25209 Future Proof Construction Pr
Ecmweb 25209 Future Proof Construction Pr
Ecmweb 25209 Future Proof Construction Pr
Ecmweb 25209 Future Proof Construction Pr
Ecmweb 25209 Future Proof Construction Pr

Four Ways to Future-Proof Your Construction Business

July 17, 2019
Learn how to leverage the latest business models, tools, and technologies to neutralize threats and thrive.

Very few contractors these days enjoy profit margins much beyond 3% — even during times of strong economic growth. Oftentimes, large contractors find themselves just one failed project or market dip away from insolvency. To understand what causes this volatility, you need to know where to look for potential threats.

Factors Beyond Your Control

A construction enterprise must be able to fund proactive growth to expand into new markets or invest in disruptive technologies; otherwise, it will find it difficult to compete in today’s economic landscape. In recent years, however, economic growth has slowed, and the World Bank has forecast a downturn in all major advanced economies, including the United States, eurozone, and Japan. This situation is compounded by the fact that the cost of commonly used construction materials in the United States has increased by 7.4% over the past year, according to analysis by the Associated General Contractors of America and new Bureau of Labor Statistics data, while years of expansionist trade policy have put project capital at a premium. This increase is due in part to a tight labor market — another challenge contractors must contend with as the cost of their other inputs also creep up.

If the global economy were not enough of an existential threat to construction contractors, ignoring technology innovations can surely precipitate hitting the self-destruct button. Leading-edge technologies will be the determining factor that makes some contractors more competitive not only on price, but also in the degree to which they can drive value for project owners and expand into the lifecycle of the built asset for stable, recession-proof revenue streams.

The good news is that while individual contracting businesses can’t really influence geopolitics or what technologies large disruptors invest in, they can make key improvements to their own technological readiness and business models to prep for and better withstand harsh economic conditions.

BIM Plus ERP ― Stronger Together

Digital transformation tools, such as building information modeling (BIM) and enterprise resource planning (ERP) software, can provide a platform for management teams to stand on during uncertain times and adopt higher-margin business models — making them winners in their regional or global market. But these technologies will not be able to transform the business significantly if operations aren’t built around a consistent, agile, and complete software backbone. Most midsize and large construction contractors have implemented some form of ERP software. Oftentimes, however, they have only implemented financial and human resources modules — in part because the rest of a typical application suite is a poor fit for the business. This could be harming their profits without anyone even realizing.

ERP’s power for construction companies is that it allows management to get control of their business by providing an accurate set of management information that enables predictable project performance and provides strong governance of their business. It enables projects to be delivered at lower cost, on time, at a high quality, and with minimum risk — but it needs data to make this happen.

The end goal is to integrate the digital asset data held in the BIM models with the integrated ERP processes. In 2019, I believe we’ll see construction companies take their first step into discussing how to merge and build on the strengths of combining the two systems: BIM and ERP.

Critical Revenue Benefits of Servitization

While downward price pressure has kept the margin on new construction around 3%, margin on service contracting can be as high as 14%. When contractors make intelligent use of all the data they have on the assets they deliver to a project owner, as required by BIM, they can sell maintenance and service contracts, becoming a strong strategic partner and gaining critical revenue and margin.

To realize these profits, the contracting business must have the systems and processes in place to manage entire asset lifecycles and treat the initial construction and maintenance contracts holistically. As the contractor moves into more complex servitized arrangements — and becomes a full at-risk business partner with the project owner — this will further require intelligent application of transformational technologies, including the Internet of Things (IoT) to drive compensation based on usage of the finished asset. By tracking performance on sensored equipment, IoT can help contractors capture hours of usage against a contract, eliminating manual accounting and enabling them to get the maximum out of the asset.

Weather the Storm with Off-Site Construction

Over the years, there’s been an increase in off-site fabrication for commercial and residential construction, and it’s not hard to see why. Better use of labor will help address the shortage of skilled workers in the industry globally, not to mention a lower total cost and compressed project timelines. Work completed off-site, using manufacturing processes, is also not affected by inclement weather and can benefit from standard quality management and quality assurance processes common in a manufacturing setting. But processes and software used in construction and manufacturing are vastly different, so contractors will require software environments that can encompass both disciplines seamlessly. Adopting a project-driven manufacturing solution can be a great way to overcome some of these limitations.

…and Benefit From Standardized Parts

Off-site construction may help drive another crucial change in the way construction takes place: standardization of parts and materials. As the industry has not made significant moves toward a business model where a contractor has standard parts and components to design around, estimating in a construction environment typically takes place against a specification from the project owner. Project-driven manufacturing software can drive significant efficiencies here, by enabling contractors to work with owners to create unique projects that rely on standard components while also handling construction centric business processes and the time and resource constraints of site-based work.

The Role of Transformational Technologies

As artificial intelligence (AI), robotics, and IoT become more commercially available, contractors can and should explore how these headline-grabbing technologies can help them change the way they do business. Construction scheduling software, such as 4D scheduling with AI algorithms, can solve complex problems in real time that might be too complex for humans to handle. Leveraging IoT for projects may result in construction equipment being remotely operated in hazardous environments or when skilled operating engineers are in short supply.

But the greatest potential for IoT will come after project completion, when it can monitor electrical and mechanical systems and project integrity to support high-margin warranty and service and maintenance contracts. IoT sensors can also automatically update the databases that underpin BIM. And as the industry adopts predictive maintenance practices in the future, data from these sensors can also be run past algorithms that can predict system failure, enabling a contractor to ensure the performance of an asset over its lifecycle.

Now Your Construction Business Can Fly

Although times are uncertain, there is no uncertainty about the crucial role that modern business practices and digital transformation tools will play in determining which construction businesses thrive and which fall by the wayside.

Transformational technologies hold the potential to help construction contractors offer disruptive new services and even standardized products. To make the most of them, contractors must implement enterprise-wide software infrastructures that can connect them to the way value and cost flow through the business.    

Ingram is a global industry director for construction at IFS. He can be reached at [email protected].

Voice your opinion!

To join the conversation, and become an exclusive member of EC&M, create an account today!

Sponsored Recommendations

Electrical Conduit Comparison Chart

CHAMPION FIBERGLASS electrical conduit is a lightweight, durable option that provides lasting savings when compared to other materials. Compare electrical conduit types including...

Fiberglass Electrical Conduit Chemical Resistance Chart

This information is provided solely as a guide since it is impossible to anticipate all individual site conditions. For specific applications which are not covered in this guide...

Considerations for Direct Burial Conduit

Installation type plays a key role in the type of conduit selected for electrical systems in industrial construction projects. Above ground, below ground, direct buried, encased...

How to Calculate Labor Costs

Most important to accurately estimating labor costs is knowing the approximate hours required for project completion. Learn how to calculate electrical labor cost.