Most of us can agree that businesses in the construction industry don't make big enough profits! In the software industry, margins are often 20%. In the construction industry margins of 3% are more typical. No-one involved in the industry can be happy about this situation. Construction needs profits to provide quality in projects; to pay decent wages; and to invest in better ways of doing things. Unless the situation improves, capital will flow from construction to other, more profitable, sectors that promise greater returns.

Frankly, lack of investment shows in the lack of progress in the construction industry. The improvements seen over the past 40 years in manufacturing industry simply have not been matched in the construction industry. If you compare today's auto with a 1960's auto you will see better fuel economy, much better quality and many more features. Today, the average worker needs to work for fewer hours than in the 60's to pay for a greatly improved product. The same is not true for a new home today, compared with the 60's. The cost to heat and cool the home has barely changed in real terms, despite better knowledge of, and materials for, insulation. There are too many snags, short life materials and niggling little design faults that make homes more costly to maintain. New features in homes are more about style than substance. I won't mention on-time delivery.

Home buyers don't have much scope to act collectively but the biggest clients for construction world wide have similar problems when they commission roads and bridges, office and retail developments. They also worry about lack of progress in the construction industry and these clients do have power. Four years ago, the British Government decided to obtain a client's view of how efficiency and quality could be improved the UK construction industry, already benchmarked as one of the most efficient in the world. They commissioned the former head of the Jaguar car business, John Egan, who had introduced lean manufacturing into the UK automotive industry.

The Egan report Rethinking Construction http://www.rethinkingconstruction.org told the industry that it was under-achieving. Ironically, much of the blame is placed on clients. Too many are undiscriminating and don't differentiate between best value and lowest first price. The government that commissioned the report was viewed as a major culprit in this respect. None the less the report did identify many business initiatives based on best practices that would lead to increased efficiencies. It suggested a set of measurements as key performance indicators and continuous improvement targets

Since then, Rethinking Construction developed into a self help organisation to implement these ideas. It monitors 12 key performance indicators both for the overall industry and for the comparative performance of about 150 demonstration projects where members are committed to implement Egan recommended business initiatives. One of the key performance indicators measures labour productivity in terms of revenue per employee. This shows that the demonstration projects have 21% better performance.

One of the business initiatives called for in Egan is to invest more in information technology. This is to enable a much more integrated process for construction. Typically, construction companies spend about 1.5% of revenue on information technology compared with manufacturing companies who spend about 3%.

Manufacturing companies have squeezed out waste and inefficiency over the last decade by using enterprise applications. Enterprise Resource Planning systems such as SAP, Peoplesoft, JD Edwards, and Oracle Applications have been implemented at considerable cost. However, they do provide a return on those investments. They give managers one view of all the financial and operational data, with one set of business rules accessing one dataset. Consistency of the data has improved decision making dramatically. No more time wasted in meetings arguing about who's figures are right!

Of course, Enterprise Resource Planning systems only keep the score. Managers are employed to improve the score. These systems don't make optimum decisions but they do let managers see issues more clearly and quicker. Unnecessary processes and materials can't be hidden any more. Managers can react as soon as the variance between plan and actual starts to show.

In the recent downturn, manufacturing companies reacted quicker than in the previous economic cycle. As demand slowed they reduced capacity protecting profits and cash. Some enterprises used the better quality information to identify design, manufacturing and logistics tasks that could be economically sub-contracted or outsourced, sometimes to lower cost overseas locations. Regulated capitalism is a self correcting system and soon demand returned in new sectors. Manufacturers were able to react quickly and invest to supply the changed demand. Traditional manufacturing's ability to quickly adjust capacity stopped excessive stock building and better used the remaining capacity. These factors probably reduced both the length and depth of the downturn. Managers' ability to use information from enterprise systems to support decision making should get some of credit for this softer landing in the economy.

The take up of packaged software Enterprise Resource Planning applications in construction has been very limited. Our research suggests that the major barrier to adoption is middle and senior management attitudes. The fighting unit in most construction companies is the project rather than the enterprise. Management's philosophy is simple, "if all our projects make money then the enterprise makes money". Empowering project managers probably is a good business initiative but how do we measure them? Focus on short term project profitability often leads to "beggar my neighbour" business methods. The real issue is to make sure that construction projects benefit all the stakeholders: - the client and the instant consortium that forms to execute his project. In the 2002 report of progress against Egan's targets, 27% of clients are still dissatisfied. In any case, the risks of one large project going bad can bankrupt even the largest construction company.

Construction's top priority is to get consistency from project to project. This starts in design and continues as the information flows through to construction and building use. This in turn will lead to savings from exploiting the project by project synergies. Egan points out that up to 80% of inputs into buildings are repeated and that 40% of on-site man-power can be wasted. When information systems make this waste visible to project and enterprise managers they will begin to act.

Not all the barriers to better information management come from managers. Data collection in dispersed design offices and on remote building sites is highly problematical. Lawyers may be able to manage to fill in timesheets in six minute time slots but construction professionals will find it harder to account for their time as they are forced to undertake a multiple activities. Many tasks happen away from a desk with a computer. The planned tasks have to be rescheduled constantly because materials and labour "go missing". There's waiting time, weather delays, the bar codes on materials delivered to site can't be read because they are covered in muck, and the list goes on.

Construction has not really embraced packaged software products for enterprise applications. Of course, construction uses computers and software packages for all kinds of applications: corporate accounting; personnel management; project management as well as for Computer Aided Design and Drafting. There are many construction disciplines: surveying; architecture; steelwork erection, mechanical services; and there are many computer systems to address and automate individual tasks and disciplines. But few systems help integrate those tasks into processes. This was the situation in manufacturing industry before the adoption of Enterprise Resource Planning systems in the early 90s. In construction this has not happened.

Many larger firms continue with in-house developed systems for each department. Smaller firms tend to have a series of un-integrated systems running as task point solutions. In neither case do managers receive the integrated information needed to generate improvement on the key performance indicators and to better manage the abundance of activities, materials and sub-contracts in construction.

There is a barrier created by the information technology professionals and packaged software vendors themselves. Most of the in-house written systems and Enterprise Resource Planning systems don't cope well with the dynamic consortium nature of most construction projects. If we want to make the whole chain visible to senior managers we must make life easier for the workers and first line managers whom we would like to input the real world information. Different enterprises need to share the single data view. They have to be confident that information won't be used against them. Of course any human input costs money and new mobile technologies like Personal Digital Assistants and RFID tags on material delivered to the site will help. However, the big Enterprise Resource Planning vendors have been slow to link in these devices as standard. Yes, it can all be done but it costs more and takes longer in an already frightening deployment.

With all these issues, attitudes and barriers I don't think a generic Enterprise Resource Planning application will stick anytime soon. It will need to be industry specific and it will probably need co-operation with the construction industry businesses to get the specification right. It will require considerable investment. Manufacturing enterprises made considerable investments in information technology but construction businesses don't make as good profit margins. Funding the development is another challenge.

Obviously, this is as much of an Inter-Enterprise Resource Planning system as an Enterprise one. There will have to be many functions related to the management of logistics and the supply chain. Also, to get the full benefit and synergies will require a great deal of the project design to be captured.

A key Egan observation is "One area in which we know new technology to be a very useful tool is in the design of buildings and their components, and in the exchange of design information throughout the construction team. There are enormous benefits to be gained, in terms of eliminating waste and rework for example, from using modern CAD technology to prototype buildings and by rapidly exchanging information on design changes. Redesign should take place on computer, not on the construction site." Other studies show that 30% of design can be re-used.

I feel an application that integrates a construction enterprise must combine design and business tasks. Currently, Autodesk, Bentley, Graphisoft and Nemetschek all offer to create a building model. They fight shy of integration with logistics and financial systems or even project management systems to use that model downstream. Why can't they work with Enterprise Application vendors to provide a combined offer that lets us really begin to improve the construction industry client satisfaction indices?

Mike Evans

First appeared in A-E-C October 2003

Other articles from Cambashi:

Engineering Applications in 2003 - boom or gloom?

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