Why Maximizing Productivity Is the Key to Long-Term Construction Cost Savings
Oops, you did it again. You were moving forward in a major construction project phase, but before you knew it, you went over budget. Cost overruns are far from an abnormal problem to have on a project. So common, in fact, that currently, 98% of projects experience some degree of budget overrun. Nonetheless, it’s never a good situation to be in where you have to explain to other project stakeholders why your project is millions or even billions over budget.
penIn each phase of a construction project, cutting costs can feel like a complicated balancing act. On the one hand, the goal is to produce a high-quality and performing project, where significant expenses are often needed. Alternatively, budgets are scrutinized more than ever, and certain costs for labor and materials are on the rise. Therefore, budget controllers need to be careful about where to and where not to spend–both of which can make a positive or negative impact on your project as a whole.
In fact, you can argue that a building’s true cost is in its lifecycle where more than 70% of a building’s cost is operational (e.g., maintenance and repairs) compared to approximately the 20% that is design and construction. Similarly, when looking at construction project phases, generally it’s wise to invest in the front end (e.g., design, planning) and cut towards the tail end of the project.
Therefore, to be truly budget conscious on a project is less about saving pennies and more about spending time and resources smarter. To learn how to save money overall, below, we’ve highlighted how construction professionals can be smarter in each construction project phase for maximum cost-effectiveness.
How to Cut Costs in Each Construction Project Phase
Before you’re expecting a line-by-line list of where to cut in each phase of construction, let’s back up a bit. Reducing overall construction costs isn’t solely about cutting costs whenever needed. It involves a more strategic approach to see the full picture of costs in a construction project. Just consider a few of the top reasons for cost overruns:
- Inaccurate project estimates
- Design errors
- Change orders
- Admin errors
- Poor site management
As you can see, most of the major reasons projects go over budget have to do with ineffective communication and management. Although minimizing expenses in certain construction project phases is certainly effective, you’ll see the most ROI if you take the time and resources to manage and control at the front end.
To learn how to cut costs on the whole, consider these tactics in the following construction project phases.
As the very first and preliminary construction project phase, initiation is a good place to start to get your project off on the right foot.
Feasibility and Business Case Study
In the initiation phase, a project’s feasibility study or the business case document are vital for setting up a project for success because they determine if the project can actually move forward as intended. Without knowing if a project is first feasible, you could end up wasting a ton of money and resources trying to make it happen in a non-realistic way. Besides from just the buildability and success of a project, a feasibility or business case study will help you understand your potential for risk. In the end, knowing exactly what you’re getting into decreases overall risk, helping you to gain greater control over your project and budget.
Although it’s more money up-front to conduct a quality feasibility study or business case document, it’s a long-term cost saving investment. But before you sign on to the first consultant or company who gives you an offer to conduct a study, seek a few estimates first. Keep in mind for these types of studies, lower doesn’t always mean better. Read their offer and proposal carefully, and choose with the firm with the right resources to do proper analysis and testing, especially if your project is large and complex.
Design and Planning
The overall goal of planning should be to produce a solid construction plan that will ultimately minimize the risk of future changes. Just consider how much the cost of change increases as a project progresses. A change is much easier, not to mention cheaper, to manage in the design or pre-construction project phase when nothing has been built compared to the construction phase where concrete or other building materials have already been installed.
The sooner the design and construction teams can collaborate, the better. No matter if you’re using the traditional design-bid-build or an integrated project delivery (IPD) method for your project, strive to work as a team whenever and wherever possible. Technology can provide a high level of collaboration that makes a serious impact on your bottom line. In fact, collaborative BIM technology has been recorded to reduce CAD drawings rework from 48% down to 2%. By implementing coordination early in the process, your project is more likely to be completed accurately and without a serious need for major rework.
Prepare for Change Orders
First and foremost, to avoid major change orders, make sure you have your detailed and completed designs, with a clear Scope of Work. Furthermore, early collaboration will ensure that all project stakeholders understand the complexities of the plan and can ask questions before construction actually begins.
Nonetheless, regardless of how well you plan, change is very likely to occur still. However, you can minimize the cost burden of these change orders by setting up a streamlined process. A great place to start streamlining the process is by creating a clause in the initial contract. Furthermore, identifying potential changes beforehand and adopting flexible planning methods to anticipate problems like bad weather, labor inefficiency or substandard quality control will help you address issues within construction faster and more cost-effectively.
Use Smarter Tools
When you think about document management software, your first thought might go to field collaboration software and something that you feel like you don’t necessarily need at the front end of the project. However, collaboration software is just as important to the beginning stages of the project, where you can get the design team, owners and contractors all on the same page and can address issues before construction.
Beyond collaboration, the right technology can save you serious time and money. During the planning construction project phase, look for tools that automate some of the more tedious aspects of the job. For instance, think about how much time and resources it takes to compile submittals. But now, innovative software is now available to automate and streamline processes like submittals, cutting down time spend from weeks to minutes.
The procurement construction project phase is a great time to get into the nitty-gritty of your budgeting with materials and supplies. In general, a solid procurement strategy should aim to balance cost, availability, speed and quality depending on the project’s specific risk and goals.
At this point, you might be thinking “ok, should I be making actual cuts at any point during a construction project phase?” The short answer is, yes–but carefully. One way to do so is through material sourcing. For construction materials, newer and shinier doesn’t always translate to better. Although there are a ton of new construction materials available, time-tested ones tend to be the most cost-effective. Nonetheless, still strive for efficiency in materials usage. If you’re applying Lean construction management to your project, you’re already on your way. If not, evaluate what exactly you will need to avoid waste and make strategic decisions. Take the time to shop around to find small cost savings on equipment and materials. Even the time of year you shop for materials can have an impact on your costs. For instance, summer is generally more expensive and if you can plan to avoid peak cost periods, the better.
While not an option for every project, you might also want to consider prefabrication if your design allows for it. With materials constructed in and shipped out from a factory in advance, you can save your project time, cost and labor once the project moves into execution.
While it’s easy to find ways to cut on materials, think about equipment and fleets more like investments. Although you can shop around for price changes in specific tools and brands, seek quality over quantity–but why? Higher-quality tools will retain their value over time. Cheap equipment and tools might save you money immediately but could end up a large cost towards the middle or end of the project if they get damaged and need repairs or replacement. Similarly, if you are buying any new vehicles, consider energy efficiency, in addition to quality, over an initial low price. Fleets that consume fewer resources like gas could save you more overhead costs throughout your project.
When you’ve finally entered the execution portion of the construction project phase, reducing costs involves more of a defensive strategy and putting out any flames before they become fires.
Secure Site and Materials
An unsecured site can cost you serious money. According to the National Insurance Crime Bureau, more than $1 billion in construction equipment and materials are stolen annually. The last thing your project needs is to suffer serious costs because your team didn’t take the time to lock up materials and equipment. Ensure you not only have a security plan but hold staff accountable for the equipment and materials they are using to further incentivize a more secure jobsite. Simple security measures will go a long way to keep your project assets where they belong.
Evaluate Site Safety
Plain and simple, safer sites have less risk to manage. Unsafe sites can not only cause damage to your physical project but could injure your staff. To increase safety on the job, make sure that all staff has the proper personal protective equipment (PPE) as well are fully trained in their job responsibilities and safety procedures. Even ensuring training and work materials are made available in the native language of your staff go a long way to keep your staff healthy and productive.
Use Field Software
We’ve mentioned the benefits of using collaboration software in the design phase, but we can’t stress enough how critical it is to use in the field when construction begins. Construction productivity software has been proven to increase ROI, benefits you can no longer afford to ignore. With the right software that provides real-time updates, project members can keep up with immediate changes and improve their efficiency. As a result, teams will complete projects faster–reducing your labor costs not to mention the need for rework.
Keep a Clean Jobsite
While a tidy workplace might seem more like a nice to have than a necessity, a clean jobsite has been proven to reduce costs. According to studies, up to 5% of construction costs can be saved from a cleaner site. The reason for this is because it actually improves worker productivity by limiting distractions and keeping things organized. With a literal clean slate, workers can be focused on timely execution.
Performance and Monitoring
The performance and monitoring construction project phase occurs somewhat simultaneously to the execution. However, while you’re focusing on the defense during execution, performance and monitoring is your chance to get analytical and optimize.
Carefully Track Your KPIs
At the planning phase of your project, you set up key performance indicators (KPIs). Now’s the time to measure and understand the current state of your project and what your team needs to do to meet your goals. Is your project paced on time? What’s your actual project cost to date? Are you adhering to your budget? What’s your current rework cost? Are your labor costs steady? Knowing where you currently are and where you need to be will help you know the adjustments to make. Keep in mind, that if you don’t see as much productivity from staff as you would like, don’t push for them to work OT. In fact, OT can lead to more unproductiveness and greater expenses in the end. If your staff appears to be less productive, find out why and look to make changes in other ways like providing them with access to new collaboration technology or higher quality equipment.
If you’re using Lean construction management, you already know that minimizing material waste during construction is a key way to reduce costs and improve efficiency. Overall, materials could cost around 50-60% of a total project cost, even up to 70% in a civil construction project. Failing to have proper insight and control on how you’re using materials could create a huge waste of resources. If you haven’t already, use technology to track, manage and control your material inventories in real-time. Even track and optimize the delivery of materials–without the right materials, at the right time, you could risk damaging or completing ruining them. A better understanding of the pace you are using materials and the timing you need to receive them will help you to make better and financially sound decisions moving forward.
Continue to Evaluate Risks
Without timely updates on your project’s risk, you could be in for serious cost overruns. Therefore, retaining a risk management strategy through all construction project phases is critical to staying ahead of potential problems and change orders. Companies who manage risk effectively from a project’s start through close, are more likely to experience financial savings from improved productivity and enhanced decision making.
As the final construction project phase, closeout can often be overlooked or rushed because everyone wants to move on and go home. But not so fast. An effective and well-planned closeout can save that last bit of money before you officially close.
Ensure All Work Is Complete
During closeout, you want to make sure every last bit of work is complete. Did you review all change orders? Have all inspections been performed? Did your punch lists get completed? Tons of items and processes need to be checked for your project to end for good. If you’re looking to make sure you’ve completed every last step of a project, download our “Ultimate Project Closeout Checklist” as a useful resource to help guide you through the final process.
Settle Your Budget
Unpaid invoices could come back to haunt you in the future–costing you more in legal battles and interest in the future. Take some time in project closeout to balance your budget, comparing the money you spent with the money you budgeted and paying any outstanding invoices.
Learn from Your Mistakes
So, you didn’t achieve all your projects goals, and you managed to still go over budget. Don’t chalk everything up to a complete failure. Consider your mistakes and shortcomings a learning opportunity–lessons to take on with you to your next project. What you learned about a major staff productivity problem you had in this project could be the key to fixing something in the next one. Make sure you take the time with your key staff to do a postmortem and use your evaluation to improve upon in the future.
Think About the Big Picture in Each Construction Project Phase
Although not easy (or normal), it is possible to stay on budget during a project. Instead of thinking when and where to cut, think about how you can spend to maximize your overall productivity–the key to big savings at the end of your project.
If you’re serious about reducing costs and improving your project productivity today, download our guide to improving construction efficiency in 7 easy steps.