New York Breakfast Briefing Part 1: Chris Toomey

20 December 2017

Chris Toomey, Vice President of the consulting firm McKinsey & Company’s Capital Projects and Infrastructure practice kicked off GoContractor’s New York Breakfast Briefing, held in Enterprise Ireland’s New York headquarters. Toomey gave a presentation on low productivity in construction and how to reverse the trend. In the last five years, McKinsey has had 3,000 separate engagements in 1,500 mega projects with a total value of over $1 trillion. They work with owners, contractors and suppliers to optimize their capabilities in their markets. Through these activities, McKinsey get great insight into the construction industry at a global perspective and it was this insight that those in attendance were lucky enough to receive from Chris Toomey in his presentation, “Reinventing Construction: A Route to Higher Productivity”.

The information Toomey used in his presentation came from a February 2017 report on construction, done by McKinsey’s Capital Projects and Infrastructure department, in partnership with the McKinsey Global Institute, a non-profit think tank that looks at the global economy and economic challenges. Low productivity in construction is a serious concern for industry and society. Toomey made the decision to focus his presentation on qualitative statements, rather than purely data and numbers. The aim was to get across the where the construction industry is right now and where it is going.

However, he did mention and underline a couple of numbers that came from the research paper, based on a number of sources, to give everyone a sense of the state of the industry, and the challenges and opportunities available. The construction industry is a significant player in the global economy and makes up 13% of global GDP. There is a $1.6 trillion opportunity to raise construction productivity, illustrating the opportunities available for improving the current levels of low productivity in construction. McKinsey expects a 3.6% growth per annum in the industry until 2025 but the rate of productivity is only growing by 1% globally and is actually decreasing in the United States.

“Construction is a lagging industry , it is only growing at 1% and that’s globally. Here in the US, we have a decrease in compound annual growth rate (CAGR), so even though the economy has been growing at 1.6%, construction has actually decreased in its productivity by 1.7%.”

The question is how to bring the low productivity in construction back into line with other sectors of the economy. The industry has fragmented. For example, construction relating to oil and gas has a pretty good productivity growth rate, while the small shop, residential sector have a much lower, even negative rate. According to Toomey “Some of these firms have a risk of market failure.” A lot of these companies are old-fashioned and not keen on change and are running a big risk. Big companies are not perfect either, lacking integrated project delivery and a focus on money rather than value. Procurement and supply chain issues are also not at the optimum level to maximize value.

Low Productivity In Construction

Opportunities for reversing low productivity in construction

Toomey identified seven areas of improvement opportunities (or levers) that could be acted on to increase productivity. Based on Mckinsey’s research, they see a certain level of productivity increase. These can be broken down into three factors:

  • External Factors: Government intervention, Regulation
  • Industry Dynamics: Collaboration and contracting, design and engineering
  • Firm-level operational factors: Supply chain management, onsite execution, technology, capability building.

Seven Opportunities

1) Reshape regulation and raise transparency to reduce costs while enabling greater innovation and scale. 

Toomey characterised a lot of regulation in construction as being like scar tissue, where regulations are piled on top of each other in sometimes contradictory fashion. There was a good reason for every single one of the regulations and permits at the time they were implemented, but they are so rarely rescinded that they are now an onerous burden on any project. A review of regulations should try to reduce the complexity and bring down costs, while retaining the original regulatory intent.

“We should really reshape this regulation and have a really serious conversation about the regulations that are governing the industry to make sure that they’re the right regulations for the right reason so they don’t become onerous on the industry,” said Toomey.

2) Rewire the contractual framework to fix broken social contracts and foster trusting relationships.

This a pet passion of Toomey’s, who sees the current confrontational nature of the contractual framework as an area that needs to be improved upon. Are owners and contractors really working together to come up with the most productive solutions? The answer is a definitive no, according to Toomey. Integrated Project Delivery, where owners, contractors and suppliers have shared risks and shared interests, is the major way to improve the contractual process.

Toomey reference a large project he worked on with the US Army Corps of Engineers in New Orleans, in which a process very close to Integrated Project Delivery was used. The project was a success. “We achieved initial operational capability on time and it was on budget with minimum growth,” said Toomey. All parties in the industry need to look on how they do contracts, including Governments and companies in the private sector.

3) Rethink design and engineering processes and increase standardization to enable scale and value.

This does not mean that everyone should build the same building but when more things that can be standardized in design, then the whole design process becomes much more rapid. It really pays dividends to spend time up front, investing in the design upfront. “There is always this pressure to rush to construction, to show progress, get the bulldozers out there, run them around a couple of times to kick up some dust,” said Toomey. But it is so important to get the design process right at the start so everything is ironed out before starting construction. This will lead to savings and reversing the trend of low productivity in construction.

4) Improve procurement and supply-chain management to minimize cost delays.

Toomey had sharp and perceptive criticism for the procurement processes that exists at large companies. In his experience, procurement is based on what works for the firm, not the project and executing the work itself. Procurement needs to be done from the “project lens” to ensure that everything is focused on the project. It is such a key area in a large project and mistakes can lead to delays like workers having nothing to do because they’re waiting for a part to arrive.

Procurement needs to be standardized and brought into the mainstream, not considered an art that is left to the procurement officer. The process needs “clean sheeting” where a process is stripped down to its element parts and evaluated to ensure that each element is delivering what is required for a project to be as productive as possible.

Low Productivity In Construction

5) Improve onsite execution through improved planning, performance management, mobilization, and waste elimination.

This is the number one area that Toomey would advise investing money in to improve. Execution problems, lack of collaboration and poor performance management can destroy any project. There are three areas of performance management that need to be addressed: Key Performance Indicators (KPI’s) need to be implemented, there needs to a collaborative work environment and the flow and access of real time information needs to be improved.

This requires some investment but in terms of productivity is money well spent, according to Toomey as it can help reduce the levels of low productivity in construction There are many systems that can generate real time information but it is more about having the cultural mindset to demand this information from contractors and suppliers so that, “you are the position to make informed decisions about the work, and not informed decisions about the work that happened two weeks ago.”

6) Infuse digital technology, new materials and advanced automation to achieve significant productivity improvements.

There is so much technology out there that Toomey does not consider stuff like drones and Building Information Modelling (BIM) that new anymore. Most contracts these days require BIM. These devices and programs have become standard and the same is going to happen for new digital tools in the future. “Our advice to firms is to embrace it, understand it, figure out where you can get the value from a particular tool to gain a competitive advantage and go forward with it,” said Toomey.

One problem is there is a such an overwhelming array of tools on the market that how do you know which one is going to stick around? According to Toomey, if it makes a positive impact on your company and adding value, then it is going to survive on its own merits. Advanced analytics can help companies get a better sense of their successes and obstacles and make data-driven informed decisions to move towards the successes.

7) Reskill the workforce to address organizational challenges and improve efficiency.

Low Productivity In Construction

Toomey used some European Union data to illustrate how the construction industry is lagging behind others in how much it trains its workers. The data showed that construction workers received less training than workers in the wholesale and retail transport, accommodation,food service, Information and communication, financial, professional, scientific and a whole host of other industries. This should be unacceptable given the rapid change the construction industry is undergoing and how much new information needs to be imparted to the workforce.

Toomey identified four areas of “disruption” in the construction industry. These are things that McKinsey identify will markedly change the industry.

1) Demand for Infrastructure – The requirement and demand for infrastructure is through the roof. This is true not just in the United States but across the world. One of the challenges is just finding the financing for this booming demand. “Those rising requirements are going to drive a need for change,” according to Toomey. Low productivity in construction makes it difficult to keep pace with these requirements.

2) Large-scale players – Consolidation of firms means more large scale players and the internet is increasing transparency. Many firms are bringing in unique skills, especially on the technological side that will disrupt business. Toomey referenced 3D printing where, “in some emerging markets, they can put an entire house together for a couple of thousand dollars.” The question is when does that technology become applicable for projects in the US.

3) Rising wage rates and limits to migrant labor – There is not going to be the movement of people that there has been and there is going to be huge demand for more and more wages.

4) Government response – The shift of the regulatory landscape and moving towards performance orientations will be very disruptive in a very positive way. Government regulations can create transparency on cost, mandated use of BIM and make investment in human capital a requirement of a contract. Governments could help a lot by moving towards more standardization and uniformity in design.

Toomey ended his presentation by listing five trends that are going to shape construction in capital projects going forward:

1) High definition surveying. A lot of which can be done by drones, makes everything much more precise.

2) Building Information Modelling (BIM).

3) Mobile solutions.

4) Collaborative construction.

5) Internet modular systems.

Chris Toomey’s presentation was a real showcase of expertise, drawing on his own extensive experience in the construction industry, as well as the wealth of research undertaken by McKinsey & Company, the premier consulting firm in this sector. Toomey concisely presented the issues low productivity in construction and proposed solutions that, if implemented in tandem with one another, could add value of well over $1 trillion. The video is a must watch for anybody who works in construction, as well as anyone who has an interest in the future of an industry that makes up 13% of global GDP.

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Jenny Snook

Jenny Snook is content executive at GoContractor with the job of researching the latest health and safety trends in the heavy industry. Her past-experience includes the research of large museum collections such as the Louth County Museum, many from the industrial age.

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