This newsletter is, broadly, about how the construction industry fits together, and why it’s so hard to improve its efficiency. The reason for this focus is that while many industries, such as agriculture or manufacturing, have seen sustained productivity improvements over long periods of time, construction has not. The amount of productivity growth in construction is difficult to pin down due to measurement difficulties, but it has been very low,
The retail / restaurant industries have the most of the same diseconomies of scale you talk about, but they at least seem to do ok in terms of productivity growth. They have to produce everything on site in small quantities, lots of variation in local demand, lots of different local regulations. McDonalds centralizes a lot of the marketing and R&D but different restaurants in different countries have their own menu items and operate as autonomous franchises. Amazon is more centralized and has developed stores where you can skip checkout.
It does seem harder to use microchips to improve productivity in construction than in retail or restaurants, where you can replace people with cameras and kiosks. But maybe not.
Coming at this as an outsider with no familiarity with construction, my first reaction would be to ask why there is no McDonalds of construction that centralizes whatever can be centralized? Or maybe there is?
The transport costs issue makes me wonder if heavy lift airships could make a difference to the economics of construction if they ever actually go mainstream. There are a number of companies working on them but it's one of those technologies that always seems to be 5-10 years away from real commercialization.
The problem is of course anyone who tries something new in construction bears all the learning costs, which oftentime outweighs the initial improvements in efficiency. We can think of George Mitchell in shale, he spent 15 years and hundreds of millions of dollars to develop the horizontal fracture technology which was probably value destructive form his company, although it unlocked hundreds of billions for the rest of the oil and gas industry. Most industries do not have such billionaires with massive patience to revolutionise them like this. In addition investors prefer low variance projects rather than high expected value but high variance ones. But having said all this, one area where I think you could introduce innovation in the home construction area is in the self building community. Self builders have somewhat different incentives to professional companies building large tracts; they are ultimately the owner so tradeoffs between risk and cost directly concern them, a professional builder has to appeal to the most common denominator, whereas a home builder might accept a more quirky non standard design if there was a cost advantage. Self builders tend to be labour constrained so are more interested in low manpower solutions, including manufactured systems that can be quickly assembled. The industry serving them however tends to be small and doesn’t yet have economy of scale. My proposal would be to try to increase the size of the self build industry, by having local and state governments identify and prepare areas dedicated to self builders, perhaps allocating plots via lotteries to local young people. This I believe would help to address the problem of low housing ownership in the young and help keep younger people in the local community, and maybe help with the Nimby problem since boomers would like to see their kids on the property ladder. The plots would come with all permits and standards pre approved.
Consistently one of the most insightful reads I get on construction efficiency. Was so glad to have stumbled upon this as a share from Farnam Street.
It seems to me that, outside of a select few GCs, the industry is largely missing the point on how to manage costs better. Whether it is with materials or labor, most contractors are conditioned to using "control" as a mechanism. As you point out, while prefabrication seems like it could be effective, there are still too many variables around labor, equipment and other materials that impact project profitability.
There are also some that feel that "lean construction" is THE way to better manage these variables on the jobsite. I would submit it is just ONE WAY or method to do so. The key resource to understanding variances and predicting potential problems with a schedule and delivery really lies in understanding the data being created daily on the jobsite. Structure and harness this data at the point of creation, you can have better visibility into bottlenecks and problems and minimize rework. This would also eliminate the problem of weak, short term teams you mention.
Change and variability is going to happen to matter what you do. Instead of trying to turn the jobsite into a controlled manufacturing process, perhaps GCs and owners should focus more of their efforts on leveraging tools that help them predict and prescribe solutions to potential labor, materials/equipment, health and safety and quality issues that cause variances to the schedule. What do you think?
I would say that from Spain -I'm based in Barcelona and director of Rebuildexpo Congress and the European BIM Summit-, I'm more optimistic.
There is a rush from O&D (Owners and Developers) in Spain trying to fix costs and final budgets. And they are betting on a new kind of construction, far from traditional methodologies to design, estimate and build.
Avintia is creating a 2D concrete panels new factory.
Exsitu is increasing the folder of projects too.
FINSA has created Xilonor, a CLT factory to better work 2D wood structures and floor slabs.
We can show other examples from steel frame, as Stalart or WES.
Etc., etc.
So I think that if we focus on making better projects, having better communication, and leading the possibility to fabricate (more than to build) we will achieve a real change. The seed to industrialized the unique sector that cannot be considered as an industrial one.
Please, keep in touch if you want to create a research group on that topic. I will participate for sure.
The bulk construction of planned communities of nearly identical homes seems like the main way in which any economies of scale have actually been successfully achieved in the US. That said, the basic methods and constraints are unchanged in that model.
An excellent read and categorisation of the different influences and interactions. I work mainly in manufacturing software CAD/CAM & simulation and these categorizations would largely apply there.
Going back to comparisons with other industries, it is the construction industry which has provided the safe, standardised environment used by other industries. Construction costs could be accounted for in the productivity calculations for these other industries, as part of their supply chain, rather than thinking of construction as a separate "problem" industry. Then construction clients would be among the ones facing the criticisms and might have to start thinking more creatively about their relationship with construction. I don't see how we tackle this without client leadership, and the first step towards that is making clients accountable for the failings of their construction supply chains.
A really comprehensive summary of the problems, and so interesting. I've long been frustrated at the issues and lack of progress in improving things. You've neatly summed up why we are where we are. I'm always interested in the people side of things and can't help thinking that more open, genuine and altruistic collaboration is what's needed. But maybe I'm being naive. Maybe integrated project delivery and contracts will help, I'd love to be involved in helping business in construction understand all of this better.
This is great.
The retail / restaurant industries have the most of the same diseconomies of scale you talk about, but they at least seem to do ok in terms of productivity growth. They have to produce everything on site in small quantities, lots of variation in local demand, lots of different local regulations. McDonalds centralizes a lot of the marketing and R&D but different restaurants in different countries have their own menu items and operate as autonomous franchises. Amazon is more centralized and has developed stores where you can skip checkout.
It does seem harder to use microchips to improve productivity in construction than in retail or restaurants, where you can replace people with cameras and kiosks. But maybe not.
Coming at this as an outsider with no familiarity with construction, my first reaction would be to ask why there is no McDonalds of construction that centralizes whatever can be centralized? Or maybe there is?
The transport costs issue makes me wonder if heavy lift airships could make a difference to the economics of construction if they ever actually go mainstream. There are a number of companies working on them but it's one of those technologies that always seems to be 5-10 years away from real commercialization.
This article talks about some of the companies developing these vehicles: https://www.bbc.com/future/article/20191107-how-airships-could-return-to-our-crowded-skies
The problem is of course anyone who tries something new in construction bears all the learning costs, which oftentime outweighs the initial improvements in efficiency. We can think of George Mitchell in shale, he spent 15 years and hundreds of millions of dollars to develop the horizontal fracture technology which was probably value destructive form his company, although it unlocked hundreds of billions for the rest of the oil and gas industry. Most industries do not have such billionaires with massive patience to revolutionise them like this. In addition investors prefer low variance projects rather than high expected value but high variance ones. But having said all this, one area where I think you could introduce innovation in the home construction area is in the self building community. Self builders have somewhat different incentives to professional companies building large tracts; they are ultimately the owner so tradeoffs between risk and cost directly concern them, a professional builder has to appeal to the most common denominator, whereas a home builder might accept a more quirky non standard design if there was a cost advantage. Self builders tend to be labour constrained so are more interested in low manpower solutions, including manufactured systems that can be quickly assembled. The industry serving them however tends to be small and doesn’t yet have economy of scale. My proposal would be to try to increase the size of the self build industry, by having local and state governments identify and prepare areas dedicated to self builders, perhaps allocating plots via lotteries to local young people. This I believe would help to address the problem of low housing ownership in the young and help keep younger people in the local community, and maybe help with the Nimby problem since boomers would like to see their kids on the property ladder. The plots would come with all permits and standards pre approved.
Consistently one of the most insightful reads I get on construction efficiency. Was so glad to have stumbled upon this as a share from Farnam Street.
It seems to me that, outside of a select few GCs, the industry is largely missing the point on how to manage costs better. Whether it is with materials or labor, most contractors are conditioned to using "control" as a mechanism. As you point out, while prefabrication seems like it could be effective, there are still too many variables around labor, equipment and other materials that impact project profitability.
There are also some that feel that "lean construction" is THE way to better manage these variables on the jobsite. I would submit it is just ONE WAY or method to do so. The key resource to understanding variances and predicting potential problems with a schedule and delivery really lies in understanding the data being created daily on the jobsite. Structure and harness this data at the point of creation, you can have better visibility into bottlenecks and problems and minimize rework. This would also eliminate the problem of weak, short term teams you mention.
Change and variability is going to happen to matter what you do. Instead of trying to turn the jobsite into a controlled manufacturing process, perhaps GCs and owners should focus more of their efforts on leveraging tools that help them predict and prescribe solutions to potential labor, materials/equipment, health and safety and quality issues that cause variances to the schedule. What do you think?
Thank you for your inspiring articles, Brian.
I would say that from Spain -I'm based in Barcelona and director of Rebuildexpo Congress and the European BIM Summit-, I'm more optimistic.
There is a rush from O&D (Owners and Developers) in Spain trying to fix costs and final budgets. And they are betting on a new kind of construction, far from traditional methodologies to design, estimate and build.
Avintia is creating a 2D concrete panels new factory.
Exsitu is increasing the folder of projects too.
FINSA has created Xilonor, a CLT factory to better work 2D wood structures and floor slabs.
We can show other examples from steel frame, as Stalart or WES.
Etc., etc.
So I think that if we focus on making better projects, having better communication, and leading the possibility to fabricate (more than to build) we will achieve a real change. The seed to industrialized the unique sector that cannot be considered as an industrial one.
Please, keep in touch if you want to create a research group on that topic. I will participate for sure.
My email is:
ignasiperezarnal@bimacademy.es
Best regards
The bulk construction of planned communities of nearly identical homes seems like the main way in which any economies of scale have actually been successfully achieved in the US. That said, the basic methods and constraints are unchanged in that model.
An excellent read and categorisation of the different influences and interactions. I work mainly in manufacturing software CAD/CAM & simulation and these categorizations would largely apply there.
Superb article.
Going back to comparisons with other industries, it is the construction industry which has provided the safe, standardised environment used by other industries. Construction costs could be accounted for in the productivity calculations for these other industries, as part of their supply chain, rather than thinking of construction as a separate "problem" industry. Then construction clients would be among the ones facing the criticisms and might have to start thinking more creatively about their relationship with construction. I don't see how we tackle this without client leadership, and the first step towards that is making clients accountable for the failings of their construction supply chains.
A really comprehensive summary of the problems, and so interesting. I've long been frustrated at the issues and lack of progress in improving things. You've neatly summed up why we are where we are. I'm always interested in the people side of things and can't help thinking that more open, genuine and altruistic collaboration is what's needed. But maybe I'm being naive. Maybe integrated project delivery and contracts will help, I'd love to be involved in helping business in construction understand all of this better.
Construction 3D Printing (c3Dp) may be the way for achieving construction efficiency