Construction

The construction industry has had poor performance over the last decade. The following continue to be issues in the industry:

  • Only 2.5% of construction projects globally have been defined as successful (scope, cost, and schedule).
  • Only 30% of construction projects completed within 10% of planned cost & schedule.
  • 25% to 50% waste in coordinating labor on construction projects.
  • Management inefficiency costs buyers of construction between $15.6 and $36 billion per year.
  • Rework by contractors is estimated to add 2-20% of expenses to a contractor’s bottom line.
  • An estimated $4 billion to $12 billion per year is spent to resolve disputes and claims.

For references to these studies go to: http://pbsrg.com/publications/papers/

The Construction Problem

In 1991, Dean Kashiwagi identified that the only difference between high performance and low performance in the construction industry was the ability of construction buyers to utilize the expertise of contractors. From his observations of the industry, he created the industry structure figure to explain the problem. Each of the four quadrants in the industry structure figure explain different environments in the industry. In the price based or low bid environment, risk is minimized by management, direction and control (MDC).  In the Best Value Environment, risk is minimized by the utilization of expertise.  The Best Value Environment is less expensive, transparent and more efficient.  It uses the simple approach, hire experts and let them do their job. 

The movement from the Price Based to the Best Value Environment requires the following:

  1. Minimize management, direction and control.
  2. Minimize thinking and decision making [when thinking and decision making is required, utilize expertise].
  3. Use metrics to identify what is going on, and minimize any directions on how to do the job.
  4. Hire based on expertise on the required project [how many times has the expert contractor done a similar project, what was their time and cost deviation, customer satisfactions, and what value was offered by the contractor].
  5. Minimize cost by allowing the best value contractor to preplan, create transparency and perform risk mitigation.

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Article published by Crest Publications – See full magazine

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A More Efficient Way to Procure Construction Services
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