The Key To Solving Budgets & Bottom Line Pressures? Investing In People (And Technology)
How do you create something from nothing? First, you need the initial spark: a creative vision that can predict permanence where none exists. Next, assemble a team: hard-working, trustworthy and talented individuals who can see the big picture while zeroing in on the details and daily tasks. Finally, and most essentially, you need the raw materials to execute a vision from the ground up and make it a reality.
This is the question and never-ending cycle that the construction industry faces every day, from architects to engineers to project managers and the builders themselves. Working in the construction industry requires vision, perseverance and patience to see a project through completion. While its accomplishments are physical in nature, the success of the construction industry is rooted in the people involved at each step.
Today, construction workflows and budgets are facing increased pressures from almost every angle, including supply chain issues, commodity prices and an undersupplied labor pool. But most of these pressures can be relieved by investing in people, and in the right technology that will support people throughout their construction careers.
The Challenges Facing Construction Budgets
Construction is inherently a resource-based industry, so when the price or availability of those resources shift, so does the budget and timing of projects. Construction budgets have always had flexibility baked in to ensure that materials can be acquired in time to get the job done, but the pandemic has brought about massive supply chain disruptions that have hiked the price of essential materials like steel and lumber.
Between May 2020 and May 2021 , the price of lumber skyrocketed by nearly 400% and has fluctuated since, while the benchmark price for rolled steel rose by 215% over a similar time period. Overall, the cost of all construction materials increased 23.1% in the 12-month period ending in August 2021 and are projected to rise another 5% to 11% through August 2022. These supply chain challenges are taking longer than expected to normalize, suggesting that the availability of commodities and building materials may remain a problem well into 2022, contributing to further price increases ahead.
Furthermore, the price of commodities like oil operates on a boom-and-bust cycle. The construction industry is somewhat at the whim of these cycles, and so it often may feel like these issues are out of our control. While one company alone cannot solve worldwide supply chain issues, doubling down on the challenges that are within our control and anticipating opportunities to become more flexible can help resolve budgetary pressures for large and small EPCs alike.
Another challenge brought about by the pandemic is industry-wide labor shortages. According to an analysis of construction labor supply and demand in March 2021 by the U.S. Bureau of Labor Statistics, an estimated 430,000 additional construction workers were needed in 2021 to address building demand. Another one million more construction workers will likely be needed in 2022 and 2023. However , only 18 states and the District of Columbia have added construction jobs since the months before the start of the pandemic despite an uptick in employment in most states at the end of 2021.
One reason employment is below pre-pandemic levels in many parts of the country is the lack of available workers to hire. As stay-at-home orders rolled out in the first months of the pandemic, major construction projects were put on hold and employees stopped going into work out of fear of exposure and remote or hybrid work became the norm in other industries. Although people have adjusted to the waves of the pandemic and have begun returning to work in recent months, it’s been difficult to reintroduce workers into the sector.
We can point to waning employer loyalty as companies have trimmed their overhead costs to be competitive as a reason for this. The aforementioned boom-and-bust cycles of material costs combined with the seasonality of working conditions both contribute to the cyclical nature of construction work. When employers aren’t able to provide consistent work to their workers, employees burn out, with many deciding to phase out of construction altogether in search of other work that may be more stable, remote-friendly or less risky.
Not only are employees being commoditized when budgets are considered, but once they’re hired, there’s little investment in continued education and workforce development that would contribute to worker retention. It’s also difficult to find seasoned workers with high levels of expertise due to cultural work paradigm shifts; several decades ago, it was normal to stay at a company for the length of one’s career. Today, it’s much more commonplace to switch every three or so years. As a result, the construction industry is now facing a serious constraint on resources — both material and labor — and must get creative to solve both while keeping budgets competitive.
‘Over Budget and Over Schedule’ Is The Norm
With increasing pressure to cut costs to be competitive, construction contracts have a tendency to be overambitious in their potential for delivery. But life happens, and unforeseen challenges emerge over the length of a project such as a need for more labor, increased cost of materials or site-specific issues. Contracts tend to be drafted without everyone’s best interests in mind and may over prioritize one aspect of the project team while neglecting others, leading to budget problems down the road. While “over budget and over schedule” has become the norm as projects drag on months longer than expected, a more careful approach when drafting contracts can instill trust between clients and construction players.
Solutions To These Challenges
How can construction players start to address these systemic challenges on a smaller scale? It starts with investing in people and involving stakeholders on a more personal level. There are a few ways employers can do this. Creating a standard of increased visibility in the drawing up of contracts provides complete transparency regarding project costs and allows construction managers to identify project risks, eliminate surprises, and deliver certainty. This lends itself well to competitively priced projects with fair budget allocation for all team players.
Assuming demand for construction labor does not diminish, it’s likely that employers will need to increase wage levels to attract the increased volume of workers required. Not only that, but companies that are looking towards the future should invest in their employees to ensure they stick around and can become masters of their craft. Investing in your people can look like providing continuous training resources and incentives to stay with one company, such as bonuses based on their tenure.
While the pandemic has impacted labor availability, it has also led to a surge of innovations in cloud-based and remote technology and training tools that can give employees a leg up in their roles and make them feel equipped to succeed. Another option to attract workers is increasing flexibility by offering a four-day, 10-hour workweek, instead of the typical 9 to 5. The biggest lesson here is if you invest in your workers, they’ll be more inclined to invest in you.
Last Words
Construction players are used to facing any number of unforeseen challenges throughout the course of a project that can impact the timing, cost, and overall success. The pandemic has magnified these constraints through massive disruptions in the global supply chain, swaying prices and availability of essential materials, and impacts to an already diminishing and under-resourced workforce. While some of these issues are out of our control, they have highlighted an opportunity for employers to create longevity and stability within the industry by investing in people.
Construction at its core is an act of creativity — diligent, resourceful and visionary. And what better way to spur creativity than cultivate the talent and security of those involved in its execution? By shifting priorities to investing in human capital through transparency, training, and technology, the construction industry is therefore prioritizing its long-term success.