Construction productivity can be boosted by 50% to 60%, says McKinsey Global Institute

PETALING JAYA (March 8): The global construction industry’s productivity has been relatively poor due to multiple reasons, but productivity can be improved as much as 50% to 60% .

McKinsey Global Institute (MGI), the business and economics research arm of McKinsey, in its recent report entitled “Reinventing construction: A route to higher productivity” discussed the critical need for the overall global construction industry to be more productive and how this can become a reality.

The construction sector is one of the largest in the world economy, with about $10 trillion spent on construction-related goods and services every year.

However, the global construction sector labour-productivity only grew an average 1% a year over the past 20 years, compared with 2.8% for the total world economy and 3.6% for manufacturing.

The industry’s productivity has trailed that of other sectors for decades, and there is a $1.6 trillion opportunity to close the gap, it said.

“This not only represents a lost opportunity for the industry but costs the world economy.”

The report identified 10 causes of low productivity and market failures in the construction industry.

(1) Increasing project and site complexities

(2) Extensive regulation, land fragmentation and the cyclical nature of public investment

(3) Informality and potential for corruption distort the market

(4) Construction industry is opaque and highly fragmented

(5) Contractual structures and incentives are misaligned

(6) Bespoke or suboptimal owner requirements

(7) Design processes and investments are inadequate

(8) Poor project management and execution basics

(9) Insufficiently skilled labour at frontline and supervisory level

(10) Industry underinvests in digitisation, innovation, and capital.

At the same time, MGI has identified seven ways innovative companies and regions are addressing current market failures and improving productivity — as well as cost and schedule reliability — in the construction industry.

They are:

(1) Reshape regulation and raise transparency

(2) Rewire the contractual framework to reshape industry dynamics

(3) Rethink design and engineering processes

(4) Improve procurement and supply-chain management

(5) Improve onsite execution

(6) Infuse digital technology, new materials, and advanced automation

(7) Reskill the workforce.

Addressing these seven areas can boost productivity on projects by some 50% to 60%, the report read.

If the construction sector is to depart from entirely project-based approaches to a more consistent manufacturing-like system of mass production with much more standardisation and manufacturing of modules and parts in factories offsite, the productivity boost could be of greater magnitude.

The report cited firms like Barcelona Housing Systems, which builds replicable four-storey multifamily buildings. It aims to have a full production system in place in 2018 that can build five to 10 times more units than traditional construction with the same amount of labour.

The shift to a production system will not be possible for the entire sector. For some parts of the industry, the answer is a more effective and efficient project-based system, but there are many players who could embrace a much more radical approach, it said.