Let’s Get More Efficient!
Updated: Jul 18, 2020
Cost overruns and schedule delays, particularly in big infrastructure projects, are endemic. That is an incredible global economic waste. Literally all these big projects, wherever they are located and of almost every type, overrun their original schedule and budget estimates by significant amounts. A 2015 McKinsey report found that 98% of megaprojects overrun their cost estimates or fail to complete on time. Indeed, in a recent 18-year- time frame, the productivity of manufacturing nearly doubled, but remained flat in construction.
Many major projects have cost overruns of over two times their original projections. This situation, unfortunately, does not seem to be improving. For example, this has been a major factor in the demise of nuclear power where schedule delays and excessive cost overruns have been pervasive. Why? The reasons are complex but include:
Flawed cost estimations due to sheer project complexity
Inefficiencies and delays in the regulatory process
Supply chain mismanagement
Confusing, disorganized, and poorly coordinated management throughout the entire development and construction paths
Poorly conceived contract formation and management
Cascading excessive costs due to the lack of incentives to minimize and control costs throughout the entire project
Many of these same cost overruns -- caused by similar issues -- occur in other types of large infrastructure projects, particularly in the transportation, water, and energy sectors, as well as in many government-sponsored projects. Again, there are many causes for these bad outcomes, and it is difficult to imagine the sheer complexity of these large project with linkages that include so many moving, inter-related parts, including:
Conception and planning
Estimating initial costs
Approvals and permissions including Local, State and Federal government approvals and/or complying with permitting and statutory requirements from multiple agencies, authorities, and officials, many of which require ongoing interface and reporting through the various stages of the project
Getting buy-in and support from corporate boards, impacted neighbors, financiers, labor unions, and various other third parties
The necessity to co-ordinate and supervise various professions including legal, finance, personnel, public relations, government, and engineering disciplines including electrical, mechanical, soils, civil, cost, safety etc.
During the construction process itself there are many things to manage. Site acquisition and preparation, labor hiring and supervision, supply and materials ordering and supply chain management, ranging from huge pieces of equipment like power turbines and generators or elevator systems, to thousands of components down to the very bolts and nuts. These come from all over the world and then are transported to the site by ocean going ships, railroads, trucks and even cargo aircraft.
One can readily see the immense complexity of all this. And we have only scratched the surface in this brief outline. There are major systems and subsystems upon subsystems. All sorts of problems can arise in such a dynamically changing set of dependent inter-relationships and so many things can go wrong and unfortunately frequently do.
It is therefore little wonder that so many projects incur large cost over-runs and do not meet their completion schedules, and that overall productivity is not up to other industries. Most other industries where productivity is improving operate in environments which exhibit much more consistency in their production requirements. In contrast, typically every construction project and every construction site is unique.
The engineering and construction professionals, at least when it comes to designing and building infrastructure, are a conservative crowd – and justifiably so. Any failures could result in a catastrophic loss of life at any time over the construction or lifespan of the infrastructure, not to mention the potentially devastating legal liabilities and damages that could result. Many massive disasters due to design errors and mistakes or inappropriate assumptions, faulty specifications, inadequate inspection of materials during manufacture or construction, mistakes in the field during construction and the like have regularly occurred over the years on more projects that one would like to think. So, change comes cautiously, slowly, and incrementally as it is thoroughly vetted and tested.
But despite all this, much can be done to improve construction productivity and performance and indeed change is now well underway. There is still far to go, but reasons for optimism include:
Data Tracking and Management Systems: Advanced development, availability and implementation of cloud-based systems can now assist in collecting, coordinating, correlating, tracking and managing complex data, supply chains, the many parties and elements involved in the process, the subsystems and interrelationships of the various activities involved in infrastructure projects, and are improving and facilitating the reporting and feedback and reactive processes.
Digital Project Models: Digital, three-dimensional, scale modeling of the complete project assists in design and engineering evaluation, finding piping, structural and other conflicts, tenant planning and understanding change management, and overall project understanding. All major projects should by now be extensively using this indispensable technology.
AI: Artificial intelligence will greatly assist the infrastructure business through collecting and analyzing the multitude of input data to help in the design process, alerting managers to issues and problems which need to be addressed across the various systems and subsystems comprising the implementation of infrastructure projects, managing workers and operating machinery during construction, and providing on a timely basis alternatives to address issues as they arise (including better leveraging of “lessons learned” from previous projects).
Robotics: Unquestioningly, robotics will increasingly replace first unskilled and then even reduce skilled labor at the job site. Many machines will be run remotely by controlling them even from off-site control centers with sophisticated image capture equipment. The hours on which active work on the site will continue will expand and in less-noise constrained environments it may even be possible around the clock.
More Factory - Less Site: Factory production will almost always be more efficient than site construction. Increasingly we expect more of the site will shift to factory and become more modular.
These and related methodologies will completely alter the way projects are executed and managed. Productivity will soar. New entrants will expand into this industry potentially from the high-tech sectors which are already developing experience, methodologies and tools in other areas which can be adapted to the construction industry.
If by such means we improve the industry’s productivity, say, to match the pace of improvement in manufacturing, we could add up to 2% to the global economy through the savings or increase in value of the construction we fund, by an estimated $1.6 trillion. Just think how many more infrastructure projects we could build with that kind of improvement. Those are important savings for a world searching to reboot and get ready for the demands of climate change, improve standards of living and restructure for an energy and technology revolution.
But I have not adequately covered perhaps the greatest factor in the productivity and efficiency malaise in infrastructure. That is the immense bureaucratic overlay of Local, State and Federal Governmental regulation, permitting and associated burdens. These are often connected with environmental laws and regulations, but all such things have jammed up the permitting and approval process for projects, more and more often causing years of delays. This is intolerable and vitiates all the steps to improve efficiency, productivity and reduce the cost of projects. The cure for this lies in the infrastructure industry educating the public and then mustering public support for greatly improving and streamlining these processes. This is an urgent requirement and an immense problem for which there are no quick answers. We might say the same about excess and burdensome litigation which holds up the projects. Obviously, many parties have an interest in these projects and should have opportunity for comment and appeal. But, again, litigation that drags on for years all too frequently either stalls, economically impairs, or kills projects in which a fair determination on the merits could have been made much more efficiently and equally fairly.
There are huge challenges but also very promising opportunities. We need to find a better path forward and get more efficient in a host of ways. What a time to be in the infrastructure business!