Improving construction productivity
Updated: Apr 4
A McKinsey report found that the construction industry has an intractable productivity problem. While sectors such as retail and manufacturing have reinvented themselves, construction seems stuck in a time warp. Global labor-productivity growth in construction has averaged only 1 percent a year over the past two decades, compared with growth of 2.8 percent for the total world economy and 3.6 percent in manufacturing.
The report confirmed many reasons for this persistently poor performance, including stringent regulations and dependence on public-sector demand, informality and sometimes corruption, industry fragmentation, and mismatches in risk allocations and rewards. In addition, project owners reported that it can be hard to navigate the opaque construction marketplace—particularly when they do not frequently manage major projects. This struggle often results in subpar project management and execution, inadequate design processes, and underinvestment in skills development, R&D, and innovation.
We identified seven ways that innovators are successfully addressing current market failures and improving productivity. With the widespread adoption of all seven, we estimate that the sector’s productivity could increase by up to 60 percent.
1. Reshape regulation and raise transparency
Governments can help reshape regulatory environments by streamlining permitting and approvals processes, reducing informality and corruption, and encouraging transparency on cost and performance by prescribing means and methods of delivery or requiring the use of certain technologies.
2. Rewire the contractual framework
To align interests, the industry must move away from the hostile contracting environment that characterizes many construction projects to a system focused on collaboration and problem-solving.
3. Rethink design and engineering processes
Nearly everyone agrees that change will only be achieved if owners and contractors alike can shift mindsets from custom scopes for each project to more standardization and repeatability.
4. Improve procurement and supply-chain management
The construction sector ranks in the lower range of sophistication, suggesting ample room for improvement. A combination of best practices seen in other industries and innovative, digitally enabled approaches can improve reliability and predictability.
Digitizing procurement and supply-chain workflows will enable more sophisticated logistics management and just-in-time delivery.
5. Improve on-site execution
To truly transform on-site execution, owners must implement change across all three aspects of a project: management systems, technical systems, and mindsets. Tracecost helps you fulfill all requirements.
6. Infuse digital technology, new materials, and advanced automation
Construction lags significantly behind other sectors in its use of digital tools and is slow to adopt new materials, methods, and technology. Significant advances being deployed or prototyped today can transform the effectiveness and efficiency of construction in three areas: digital technologies, advanced materials, and construction automation.
7. Reskill the workforce
Collaboration is key; funders, educators, and public officials who run workforce-training programs should collaborate with contractors and trades to ensure skills programs match the industry’s needs. Megaprojects should be seen as long-term catalysts to work with local workforce boards or nonprofits and develop regional training programs.