Home Reports Business and Finance Content

Poor management means expensive buildings

23.05.2007

SINTEF Building and Infrastructure has carried out a five-year R & D project called “Productivity in the Construction Industry”. The aim of the project was to estimate the efficiency of the Norwegian construction industry and identify “best practice”. Given that annual production in this sector is more than NOK 200 billion, there is much to learn and major savings to be made.

“Until now, the usual thing has been to look at the price of a building project per square metre, without taking into account differences among projects – such as quality and standard,” says Thorbjørn Ingvaldsen, a researcher at SINTEF Building and Infrastructure. “Our aim has been to develop better ways of making comparisons, so we have taken a more scientific approach to the topic.”

In the course of the project, the scientists have also developed a method of finding out what the most efficient construction projects do differently from the others, and what companies in this sector ought to be trying to do, (or to avoid doing) in order to be among the winners.

Enormous potential for improvement: The scientists looked at 122 relatively similar apartment block projects that were carried out in Norway between 2000 and 2005, and measured the productivity of each project in order to identify the “best practice” projects. Relative project efficiency was estimated statistically.

The analysis revealed that the projects, which had a total production cost of NOK 10 billion, had an average efficiency of 79 percent relative to the best practice figure of 100 percent. This suggests that there is a 21 percent potential for improvement.

“If we start out from an annual production of NOK 200 billion, and assume that the average efficiency throughout the sector is the same as in our study, this means that the construction industry is potentially capable of saving around NOK 40 billion a year”, says Ingvaldsen.

Of course, 100 percent efficiency throughout the sector is utopian thinking, according to the SINTEF scientist. But even an improvement in efficiency of one percent would mean savings of two billion kroner a year.

Project management: Experienced representatives of this sector have previously claimed that the most important cause of differences in the performance of similar projects is differences between project managers.

When SINTEF Building and Infrastructure applied its analytical tools to this selection of 122 apartment projects it found support for this way of thinking.

“Eight of the 14 parameters that explain high vs. low productivity are measures that directly or indirectly describe project managers’ priorities as far as time and attention are concerned. Statistical analyses thus suggest that the management of a project has a great deal of influence on cost efficiency. More than 60 percent, in fact”, says Thorbjørn Ingvaldsen.

Individual reporting: This major research project was thus capable of measuring efficiency and identifying what apartment block builders and project managers should try to do and to avoid doing. The project also drew up a six-page template for individual reporting back to each of the 122 project managers who took part. Companies that had more than one project in the study received individual reports.

Thorbjørn Ingvaldsen regards these special reports as a decisive factor in enabling companies to learn from experience – and to implement their newly acquired knowledge with a view to improving competitiveness.

Performance indicators: the R & D project has given the sector a new performance indicator, which is capable of telling us something about the relative performance of construction projects with greater accuracy than other well-known indicators.

“However, the efficiency figures still do not tell us everything about performance and the processes involved. Since the construction industry has a long tradition of steering its own processes with the aid of various “key figures”, we used data from the 122 apartment block projects to set up 50 examples of key figures for apartment block production. These will give the sector examples of average values of “favourite” indicators from 38 competing companies. These can be used as a backcloth for evaluations of performance in one’s own projects”, says Ingvaldsen.

The project has recently come to an end, and the main report is on the point of being published.