Targeted technology applications in the construction sector

June 2022  |  TALKINGPOINT | SECTOR ANALYSIS

Financier Worldwide Magazine

June 2022 Issue

FW discusses targeted technology applications in the construction sector with Eric M. Ottinger, Harshit Minglani and Mark Gibson at EY.

FW: To what extent is the construction industry plagued by multiple different systems and technologies which rarely talk to one another? Could you outline why the sector needs to address this problem?

Minglani: An inability to capture digitalised data across the lifecycle of a project is potentially the largest issue facing the industry today. Construction contracts are still executed manually and uploaded to project management systems which are not capable of capturing the contractual clauses in a digital format. Daily progress reports are often created using pen and paper. Payment applications are submitted manually, which can include thousands of pages of backup documentation. Most systems today do not allow for the data to be captured electronically and do not have an interface to identify gaps in the construction process. Often, the paperwork is already processed before project managers can identify gaps and take corrective action, leading to cost and schedule overruns. If data is captured in electronic form across the project, project managers can track progress in real time and ensure contractual and regulatory compliance before approving payments. Interactive technologies providing real-time insights will help ensure enhanced communication between project teams.

Ottinger: One of the main and systemic challenges in the construction industry is the disparate and siloed systems used. This issue is prevalent among companies working together on the same project, as well as within many construction companies’ internal departments. The accounting system does not integrate with the construction management software. The construction management software does not pull all of the functionality from the scheduling tool. The scheduling tool does not speak with building information modelling (BIM) or the design of the building. There are so many gaps created by these issues that continue to create the cost overruns, delays and resource constraints that are so common in this industry.

Gibson: The economic value of this issue is huge. It affects not only the profitability of the contractors and design consultants, but also the absolute cost of every aspect of engineering and construction. Some estimates put the inefficiencies in the system as high as 30 percent. Realistically, 10 to 20 percent cost reductions are entirely achievable through digitalisation and more efficient construction. This is an astonishing level of inefficiency compared to any other industry.

FW: What technologies are available to tackle the issue?

Ottinger: There are many technologies coming online that are beginning to address this issue. Unfortunately, I have not seen a catchall solution yet. Whereas there are many point solutions that do a really good job at one or two aspects of construction, there are always integration issues with other systems. Eventually, as software engineers continue to work out the bugs, we will see BIM, internet of things (IOT), digital twin, artificial intelligence (AI), machine learning (ML) and blockchain all working together in a completely integrated framework that creates a comprehensive system between the owner, designers and contractors.

Minglani: The industry requires a combination of multiple technologies to address these concerns. Interfaces between technologies like BIM, blockchain, sensors, drones, AI and ML will enable smart solutions that optimise efficiencies. In addition, people and processes need to be combined with technologies. People need to upgrade their skills, processes need to be revamped, and technology needs to be upgraded.

Gibson: There is perhaps not going to be a single disruptive technology. Twenty years ago, we said the same about retail. We said it was too fragmented, too brand driven, too diverse and too difficult to automate. And then along came online retailers – and we all said: “Well that was obvious, clearly retail was crying out for innovation, and that innovation was easy.” Perhaps with the right imagination, determination, access to capital and disruptive mindset, a tech-oriented startup might disrupt the construction industry.

FW: Could you explain how these technologies work in practice?

Ottinger: Technology should be utilised from the very start of the planning phase. As you begin design, BIM should capture all elements of the project. Unfortunately, this is about the time where most projects start to see a gap. Most practitioners that utilise BIM take it as far as designing in 3D. However, 4D scheduling through 12D tectonics, I have not seen in practice. With that said, and before we discuss these future technologies, companies should start asking themselves what technologies they already have but do not even use. How many times have you seen a construction company cost and resource-load a schedule? I have not seen this happen either, and it can be done with tools already used on a daily basis. Imagine how much more insight leadership would have if this were done. You would have an accurate picture of the number of workers onsite, helping to eliminate subcontractors working on top of each other. Transportation schedules would be defined to understand busing and parking requirements. Logistics would be optimised, cutting down on delay times. Eventually, as construction companies take on the technologies that are already at their disposal, we will see these kinds of efficiencies gained.

Minglani: Organisations can store contracts in the form of smart contracts, built on blockchain technology, to ensure 100 percent compliance by all stakeholders. Drones, sensors and wearables can capture data that can be integrated with a BIM model to evaluate progress and perform cost management. AI algorithms can identify material and labour variances, automated orders can be placed based on project progress and existing inventory levels can be evaluated while considering lead times. Finally, invoices can be reviewed comparing the contractual terms defined in smart contracts, and payments can be processed as project milestones are achieved.

Gibson: Once again, are we being confined by what we know today and how we operate today? Imagine a totally vertically integrated construction process, with many actors working seamlessly together to compile a complex machine from many parts and fulfil a consumer need. When we think of construction this way, we begin to imagine all sorts of new ways of using technology to integrate and affect how we design and construct. This industry has created complexity barriers in order to safely design and construct structures that can kill you if they fail. The industry has created contractual, emotional, physical and technological barriers to integration, and software providers have followed this pattern to mimic industry data flows. The low levels of investment inherent in the industry have deepened this spiral of despair. Maybe we should be asking not how the technologies currently work in practice, but rather how they should work in practice to create efficiency and effectiveness.

FW: What challenges and benefits does technology offer to companies in the construction sector?

Gibson: The economic benefits could be massive, not just to the industry, but to the US as a whole. Let us say just 10 percent efficiencies are achieved in this $1.2 trillion industry. That is $120bn of improvement potential. Let us say 20 percent of that improvement is captured as greater profitability – that would be an improvement of 2 percent to the bottom line of everyone in the industry. And 80 percent goes to what economists call the greater good – that would be an increase of $96bn of economic activity at the same spend levels as today. That is roughly the equivalent of the much-touted Biden administration’s infrastructure bill, and with a significant multiplier effect – approximately 2.2 – would result in $211bn of economic impact. That is enough to fund the US Department of Veteran Affairs twice over. And that is just a 10 percent efficiency add. A little more effort would yield double that. Double would be about the same as the US spends on defence every year. Next time you think that innovation and digitalisation in the industry is not worth it, think about that.

Ottinger: In addition to the challenge of many technologies not speaking to each other is the fact that this industry is one of the slowest to adopt technologies and evolve at the same speed as the tech industry. When the technology is advancing quicker than it can be implemented, construction companies are always behind and hesitant to commit financial and human resources to the next shiny object. Additionally, only 20 percent of the US construction workforce is under the age of 30. I am 36, and most 12-year-olds can navigate an iPhone quicker than me. Construction is not attracting the younger talent who have the tech skill sets required to even initiate a roadmap. So, unfortunately, the question becomes: “Why should I stop using Excel when everyone knows how to use it?” On the flip side, the benefits technology implementation can offer are game changing. Think complete visibility, comprehensive integration, optimised productivity. These features enable enhanced quality, shorter schedules and lower costs, which equal a bigger bottom line.

Minglani: Currently, the challenges often surpass the benefits these technologies provide. However, this will change with time. Given the cost of implementation, the first question leaders ask is: “How will this generate return on investment?” While construction projects operate on thin margins, it is difficult for organisations to put additional pressure on profits, especially without successful use cases. But over the long run, as technology becomes affordable and scalable, companies will begin to realise the value potential. With use of these technologies, construction companies will be able to address the issue of delayed completion with a substantial reduction in resources and cost. Standardisation and automation of operations will help ease the construction process and increase profitability.

FW: Are there any limitations to these technologies?

Minglani: If we categorise the technologies as hard and soft, we can begin to define common limitations. Hard technology, like 3D printing for instance, reduces the construction cost, but it can only be used in a limited capacity and does not offer enough structural strength for high-rise buildings. Similarly, whereas prefabricated construction offers scalability, it does not offer design flexibility and lacks customisation opportunities. On the other hand, soft technologies like BIM may not be compatible with existing systems used by multiple organisations. With multiple stakeholders involved in a project, it may require additional investment from all of the partners to be able to collaborate on a BIM model.

Gibson: Limitations are especially evident when older technologies have been reconfigured multiple times. While the point solutions are generally good at what they are designed to do, there is almost never a ‘single pane of glass’ through which to view all the correct and complete project data. This is partially due to the technologies, partially due to the structural challenges associated with the industry, partially due to contractual arrangements, and partially due to institutional mistrust that many construction practitioners are trained to have.

Ottinger: With the demand of skilled labour always outweighing supply, and the fact that construction companies compete for work with very thin margins, skill sets, bandwidth and financial capacity are often not available. If the skeleton crew is always putting out fires, they do not have time to make sure data is accurately captured or recorded for future use. Coincidingly, when systems do not speak to each other, it creates data that requires even more resources to reconcile.

FW: Are you seeing similar technologies being applied in other areas?

Ottinger: Similar technologies are applied in practically every industry every day. In manufacturing, robotics have been around for decades. In automotive, sensors are capturing billions of miles of data. In healthcare, digital twins are being utilised to understand abnormal electrical patterns of the human brain. And the progress of technology in other industries only amplifies how behind construction is. The productivity of the construction industry is less today than it was in 1964. One of the few fortunate outcomes of the pandemic has been an uptick in ConTech and PropTech adoption, simply due to the ‘new normal’ of working from home. The pandemic essentially transformed several technologies from nice-to-haves to business essentials.

Minglani: Twenty years back, who would have thought about autonomous vehicles? AI has enabled vehicles to enhance safety and operability. Technology giants use AI-powered systems for focused advertising on their platforms. Physical robots have revolutionised the manufacturing industry. The gaming industry has taken virtual reality to unprecedented levels. Facial recognition is widely used as a security measure in our mobile phones today. Industrial application of these technologies has a proven track record, but the construction industry has been slow to adopt the change. It is about time that real estate and construction embrace these evolutions and move toward a smarter future, instead of miring in the archaic processes of the past.

Gibson: The construction industry is a follower and a laggard. These technologies have been applied over and over again to disrupt other industries. As mentioned, online retailers have disrupted a similarly entrenched industry with established large retail players operating in a very mature system. We can all think of several online retailers that are now behemoths because of their ability to leverage or improve existing technologies to enhance an old business model with inherent inefficiencies.

FW: Looking ahead, what changes do you expect to see in the construction industry? What are your predictions for the adoption of technology in the future?

Ottinger: I think that construction will continue to adopt new technologies, but at a slower pace than other industries. If you compared construction versus any other industry on a graph, its starting point would be much lower, meaning years behind. Because construction is so behind, the growth curve should naturally be greater. However, we have been saying that for 30 years. To get to the point where construction productivity equals manufacturing, traditional construction will need to be replaced by industrialised construction technology, enabled with a significant change in contractual and risk arrangements.

Gibson: There are some instances of innovative companies trying to correct this situation from the outside in. For instance, a highly innovative payment and cost management solution can give complete transparency in all cost aspects of a project, with guaranteed accuracy, using AI, ML and automated data capture. This has been shown to improve profits by between 3 and 6 percent. Despite this, adoption has been rather slow, especially for a solution that can double to triple profit margins for some companies. It is just another example of why this industry is so far behind others in adopting innovative technology solutions.

Minglani: Given the fact that the construction industry operates on such thin margins, implementation of many construction technologies is not yet profitable. Scalability is an important consideration for any technology to be successfully deployed as well. With these technologies at initial stages of development, it may take decades before firms are able to realise profitably and scalability. However, growing customer demands and the need to enhance productivity have led companies to embrace change. Construction firms have begun to rethink their path forward and move toward a digital future. We are finally starting to see these technologies become a conversation point, with a popular belief they will disrupt the built environment for the foreseeable future.

Eric M. Ottinger is a manager in EY’s construction and real estate advisory services practice. He has managed or worked on over $47bn of construction projects. He has over 14 years of experience in construction programme management, including procurement, entitlements, preconstruction planning, budgeting, cost control, scheduling, execution and project closeout. He can be contacted on +1 (415) 894 4279  or by email: eric.m.ottinger@ey.com.

Harshit Minglani is a senior consultant in EY’s business consulting practice. He manages construction consulting engagements in collaboration with his US counterparts. He has over five years of experience in risk-based process reviews, internal audits, project management, construction management, business process improvements and data analytics. He has been associated with leading developers in India and advised on capital projects in the US and Middle East. He can be contacted on +91 9845 263 691 or by email: harshit.minglani@gds.ey.com.

Mark Gibson is EY’s US construction and real estate advisory leader and global leader of the PAMS-Payment Application Managed Service, an innovative robotics process automation/AI-enabled accounts payable and accounts receivable solution. Prior to EY, he worked for several consultancies and was a university professor, teaching project management for top universities. He can be contacted on +1 (949) 437 0499 or by email: mark.gibson@ey.com.

© Financier Worldwide

THE PANELLISTS

Eric M. Ottinger

Ernst & Young LLP

Harshit Minglani

EY Global Delivery Services India LLP

Mark Gibson

Ernst & Young LLP