Construction industry: key elements to improve profitability

In a construction project, work deadlines and the coordination of a complex chain of resources (both human, technical, and material) can have a huge impact on economic results.

It might seem strange, but carrying out an efficient construction project (especially a large one) is like assembling a precision clock.

Essentially, a construction project involves coordinating a multitude of resources and variables, in such a way that 3 elements are always found at the right time:

• Human resources for the execution of the planned tasks.
• Materials and supplies.
• Building infrastructure ready to execute that task.

It seems simple, but it is not: if these elements are not available at the appropriate time and (especially) simultaneously, we are facing an efficiency problem: work deadlines could be optimized.

Let us then think of the costs derived from a failure in the coordination of internal processes, for example, between the Construction Manager and the Purchasing Manager, when a key material is not available on the planned date to advance with the project. 

A large number of construction costs depend, linearly, on the time the project takes (insurance, rented machinery, subcontracted workers, travel expenses, fencing, among many others).

Each delay of this nature increases the worst possible type of expense: one that does not add any kind of value for our client, but which will still be within the agreed price for the work.

This then implies a management decision that is not easy to make: lose profitability (and assume inefficiency as a cost that cannot be transferred to price), or lose relative competitiveness compared to other players in the sector that have optimized purchasing processes.

An alternative is then to buy the materials well in advance (or even at the very beginning of the work), but this generates an expense due to the immobilization of these funds: what is the profitability that could have been generated if that amount were invested in an asset that adds financial value?

And again, on whose behalf should this inefficiency be borne, by the customer of the project or by the construction company?

To these situations, we can add other complexities that can hinder the normal course of the work, even if all these factors are duly covered: we are referring to the permits and authorizations before public bodies (Municipalities, Architecture Associations, Tax, and Social Security Entities, Labor Risk Insurers, among many others).

And if these problems were not enough, we must add some important variables for our analysis:

• Administrative management is usually not physically on the construction site, so face-to-face coordination is limited, if not impossible.
• Purchasing must supply and manage more than one project simultaneously, and keep them all under control.
• It is rare for construction companies to have metrics that allow them to understand their level of unproductiveness, detect suppliers with a higher level of non-compliance, among others.

This is then where our metaphor about the assembly of the machinery of a watch takes on greater clarity: there are endless parts to coordinate, which must work in harmony to achieve a successful result. Any failure in one part, no matter how small it may seem, will affect the overall performance of our work.

Having highly optimized processes and progress visibility, achieving efficient communication between Works and Administration, and being able to measure our performance are very important to achieving excellent work results and profitability.

Information technologies and software tools can be an important ally, but only if the internal work processes have been rethought to rely on them, and not just as the incorporation of new tools.