Executive summary:
- The construction industry has been slower to adapt to technology and digital transformation compared to other industries.
- Recognizing the need for improvement, the industry is now poised to embrace digital transformation to enhance efficiency, competitiveness, and economic growth.
- Construction productivity has fallen by 7% between 1997 and 2021, while manufacturing has seen a 126% rise in productivity during the same period.
- This lack of productivity has significant implications for economies, costing countries like Australia billions of dollars annually.
- To overcome these challenges, the industry must prioritize collaboration, embrace standardization, and leverage data-driven technologies to streamline processes and achieve successful project outcomes.
- Embracing digital transformation will be key to unlocking the industry's true potential and driving future success.
As technology and digital transformation continue to reshape various industries worldwide, the construction sector has been slower to adapt. Historically known for its hands-on approach, the construction industry has lagged in terms of productivity and embracing digital advancements. However, recognising the need for improvement, the industry is now poised to embrace digital transformation to enhance efficiency, competitiveness, and economic growth.
The sector has faced significant productivity challenges, as highlighted by a recent global survey conducted by KPMG. Between 1997 and 2021, construction productivity fell by 7%, while manufacturing witnessed a remarkable rise in productivity of 126% during the same period.1 Furthermore, the construction industry ranks as the second least digitalised globally, just ahead of agriculture.2 This lack of productivity has significant repercussions for economies, including Australia, where it is estimated to cost the country a substantial $47 billion annually.3
The cost implications for individual companies are significant. The KPMG survey revealed that 37% of respondents missed project budget and/or schedule performance targets.1 Construction projects commonly experience a 30-40% extension in their completion time compared to their initial schedule.4 To illustrate this point, consider a project with a duration of 3 years and a contract value of $50 million. If delayed by 30%, the average cost of delay would amount to approximately $15 million, bringing the total cost of the project up to $65 million.5 These cost overruns are further exacerbated by supply chain disruptions and increasing interest rates, which are contributing to the general increase in costs that the industry is currently experiencing.
The construction industry faces significant challenges stemming from its fragmented landscape and lack of standardisation, with stakeholders spread across various departments and organisations, each using different processes and tools. Teams must constantly adapt to unique project requirements, and the industry's tendency to overlook past projects' lessons learned limits productivity improvement and impedes the transfer of knowledge and best practices. Finally, navigating new regulations and compliance schemes adds complexity to project schedules. This all leads to coordination, alignment, and transparency issues, resulting in delays, rework, and inefficiencies.
To overcome these challenges, the construction industry must prioritise collaboration, embrace standardisation, and leverage data-driven technologies to streamline processes, enhance productivity, and achieve successful project outcomes. By seizing digital opportunities, companies can gain a significant competitive advantage in the coming years.
One promising solution to address the mounting project costs in the industry lies in digitising data-driven insights. Construction companies can harness the power of data to gain valuable insights into the factors impacting project budgets. This enables proactive decision-making, enhanced risk management, and improved cost control throughout the project lifecycle, leading to more efficient and cost-effective project outcomes. While the construction sector has been relatively slow in adopting technological advancements, it is now increasingly recognising the benefits of digital transformation. Tools like KPMG Origin’s Building Trustworthy Indicator, which prioritise transparency and centralises data in building construction, can play a crucial role in addressing these challenges.
By addressing productivity challenges and embracing innovative technologies that provide data-driven insights, the construction industry has the potential to revolutionise its operations, improve project outcomes, and catch up with the productivity gains witnessed in other sectors. Embracing digital transformation will be key to unlocking the industry's true potential and driving future success.
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References:
1 Familiar challenges—new approaches: 2023 Global Construction Survey | KPMG
2 Imagining construction’s digital future | McKinsey
3 Disrupt or Die - Transforming Australia's Construction Industry | Australian Constructors Association
4 The construction productivity imperative | McKinsey
5 The True Cost of Project Delay | Deltek