Digitalization Disruption! Staying on Top and Increasing Margins in Civil Construction

by Terry D. Bennett
- May 16 2016 - 5 min read
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Brandon Au

Just like Uber “disrupted” the taxi industry, civil construction is ripe for an upending of its existing business model. That’s because firms in civil construction are in hot competition over profit margins versus value engineering (enhanced results at reduced life-cycle costs).

Infrastructure design and construction is a tough business that impacts everyone’s lives and is under ever-increasing scrutiny. It’s complex and difficult, and it’s only getting more so. In today’s digital world, every infrastructure project—regardless of size—is coming into the everyday person’s living room, through social media and other channels, long before construction begins.

The firms that work in this sector are constantly struggling with how to increase margins when their bottom line is affected by tactics like suicide bidding and the boom-and-bust cycle and when investors are wary to invest in infrastructure due to risk of project cost-and-schedule overruns during construction.

civil construction living room
Brandon Au

When coupled with the unproven performance of an unfinished infrastructure asset—such as a road, bridge, or water main—that will cost tens to hundreds of billions of dollars and impact as many as hundreds of millions of people, investment concerns are well-founded. With more than $218 trillion worth of existing infrastructure assets requiring care and upkeep in the world’s top 32 countries, the need to do things differently is critical. In fact, the cost of not repairing infrastructure is an issue that the American Society of Civil Engineers (ASCE) says could cause a $3.1 trillion loss in gross domestic product (PDF) by 2020 in the U.S. alone. The question becomes, “Are there solutions to drive better margins in infrastructure for designers, engineers, contractors, and owners?” The answer is yes.

Defining Digitalization. Digitalization includes using things like BIM modeling tools during engineering, planning, design, and construction efforts in the office. In the field, it involves robotics; giant 3D printers; and automated and GPS-equipped machinery such as excavators, bulldozers, and compactors linked to the 3D model. Then there are resources like drones, augmented reality, virtual reality, and 3D laser scanning used for reality capture to monitor construction progress.

McGraw Hill’s 2012 Smart Market Report, “The Business Value of BIM for Infrastructure” (PDF), noted that 67 percent of the BIM users surveyed reported a positive ROI with BIM—and in fact, it led to lower project risk and better predictability of project outcomes.

That’s a good start, but change has to go well beyond design and into the construction handoff. What about starting in planning and going all the way into operations digitally, widening the impact and return? By increasing digitalization and a value-engineering approach, there’s potential to save more money—with fewer change orders and schedule delays, for example—and increase margins for everyone while still delivering a better product more predictably and at a cheaper price.

civil construction social networking
Brandon Au

The rapid advancement of technology, and related convergence of connected devices into social-networking tools, is starting to have a major impact on planning, design, construction, and operations. These disruptive changes can seem scary and costly but can also dramatically change people’s personal and professional lives in ways they couldn’t imagine, creating many avenues of new opportunity.

It’s All Connected. This Era of Connection is about building applications that connect not only a community of people to a 3D model but also applications and systems to each other with the ability to pass information back and forth.

This paradigm shift around the connected era of infrastructure—with cloud-based collaboration and interaction among people, digital models, and big-data analytics—will unearth insights to improve project predictability, long-term life-cycle understanding, quality, safety, and costs.

The Boston Consulting Group recently released a report that states, “Full-scale digitalization in nonresidential construction will lead to annual global cost savings of $0.7 trillion to $1.2 trillion (13 percent to 21 percent) in the engineering and construction phases and $0.3 trillion to $0.5 trillion (10 percent to 17 percent) in the operations phase.” Imagine taking even 4 to 5 percent of those savings and turning them into a firm’s margins. Everybody wins.

Given the velocity of technology development today, infrastructure planners, designers, and contractors need to overcome their aversion to risk and new technology to avoid being blindsided by those who are willing to take advantage of digitalization.

civil construction BIM
Brandon Au

If infrastructure executives don’t take time to understand and embrace these disruptive innovations and, more important, perform an internal audit of their firms’ digital capability compared to the standard of technology now available, they may get passed over by the firms that do. Now that’s a risk to avoid in construction.

A Boom for BIM. So what does this mean for infrastructure engineering and construction execs?

  • A sustainable and predictable margin that reflects the level of skill and professionalism they bring to the table and the risk they take off that table.
  • A greater resiliency throughout the sector, affording insulation from the extremes of the boom-and-bust cycle and the inefficiencies and uncertainties imposed by discrete procurement (where construction-procurement services are separated from other architectural or engineering services).
  • Agility to grow and transform to take advantage of new markets, relationships, and business opportunities; counter new competitors with a strong brand; and achieve these outcomes against a backdrop of restricted investment capital.

But a few things need to happen to get designers and contractors on a path to creating those higher margins. They need to be better connected with project teams that have different business interests, software, and IT systems. They need to have access to shared insight to help them make better decisions across the life cycle of infrastructure systems and assets. They need to create optimal designs for the lowest cost at the highest return, at a fraction of the time. And they need to integrate the iterative feedback loop of the design-make-use process.

As the construction industry moves forward into the Era of Connection, embracing collaboration among teams, processes, and systems and then translating BIM data to design, construct, and operate will become the norm. This focus on collaborating rather than competing on margins will bring better and more predictable end results, higher margins, and lower overall project costs. More important, it will benefit both the owners and consumers who operate and ultimately use the roads, bridges, and other vital infrastructure assets around the world.

This week’s Redshift content is dedicated to Infrastructure Week around the U.S. #infrastructurematters

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