Warren Buffett once remarked, “Only when the tide goes out do you discover who has been swimming naked.” He was referring to the financial crises of 2008-2009 when many Wall Street firms appeared to be financially sound but lacked internal discipline and operational control to weather an economic downturn.
Despite the pandemic, HVAC contractors today are similarly busy — especially if they are in a state where construction has been designated essential. However, whether HVAC contractors and sheet metal shops are in a position to manage difficult economic times ahead remains to be seen. One of the more effective ways to save money and manage labor — without laying anyone off — is to track the productivity of your fieldwork.
The US economy has been in growth mode since the Great Recession. Dodge Data & Analytics' recently released 2020 Dodge Construction Outlook predicts an economic slowdown that will have a broad-based impact on total U.S. construction growth; predicting that total construction starts will slip to $776 billion in 2020, a decline of 4 percent from the 2019 estimated level of activity.
“The recovery in construction starts that began during 2010 in the aftermath of the Great Recession is coming to an end,” stated Richard Branch, Chief Economist for Dodge Data & Analytics. “Easing economic growth driven by mounting trade tensions and lack of skilled labor will lead to a broad based, but orderly pullback in construction starts in 2020. After increasing 3 percent in 2018 construction starts dipped an estimated 1 percent in 2019 and will fall 4 percent in 2020.”
This year, will not be a repeat of the Great Recession. Although economic growth is slowing, it is not anticipated to contract, said Branch. Of course, this was pre-pandemic. Margins will continue to be squeezed and labor and material costs will continue to rise; however, work is available and should continue — despite potential disruptions caused by outbreaks of the coronavirus.
Key Questions HVAC Contractors Should Be Asking About Productivity
Even when the sheet metal fabrication business is robust and booming, poor planning and preparation can lead to project disruptions and overspending on labor costs. For an HVAC contractor to position their business for long-term success they should be fine-tuning the company’s operations, specifically around project performance, project controls, labor and equipment.
Key questions that should be on every HVAC contractor’s mind: Even if a project has an acceptable profit, did the project perform as estimated? Were there opportunities to potentially improve gross margin? Are your people consistently executing steady results? For the millions of dollars you’ve invested in equipment, are you realizing an acceptable return?
When things are good, companies don't want to mess with the winning formula. However, that is exactly the best time to make some changes. The right technology investment can increase your project performance by putting in place project controls and measures to better manage labor progress and productivity and hit quantifiable production goals. Don't invest while your flailing. Do this while you have room to test and make some mistakes.
A big part of increasing labor productivity is having a way to track progress. By tracking and monitoring progress early and consistently, contractors can reduce issues, forecast costs and identify any reduction the gross profit on a project earlier. By understanding what was done when, and how long did it take, will enable you to stand tall and confident, if and when the tide goes out.
What to look for in technology to track construction progress
In a recent article published on Marketwatch.com titled The construction industry has a productivity problem — and here’s how to solve it, the authors wrote, “Underinvestment in technology is one of the root cause of low productivity. There is robust evidence of the link between the level of digitization in a sector and its productivity growth. The U.S. construction industry has invested 1.5% of value -added on technology, compared with 3.3% in manufacturing, and an overall average in the economy of 3.6%. In the United States, construction is the second-least digitized sector after agriculture.” Historically construction firms have delayed implementing technology.
As the Marketwatch.com article pointed out, under investment in technology is directly tied to poor productivity. The following key elements are critical to consider when making a technology investment to track construction productivity:
- Ease of use – The single most important feature of construction software is ease of use. It facilitates user adoption, increases user satisfaction and most important increases productivity as happy people work harder.
- Built for mobility – The construction industry is entering the “Mobile Revolution,” in which apps are becoming an accepted means for workflows. Many workers have a mobile device and mobile apps are becoming a significant solution for the construction industry as they increase efficiency and save time.
- Real-time reporting – The ability to access and share project data in real time is invaluable to all project participants. It provides added productivity, better communication, and the ability to address project issues immediately as they arise.
- Low cost of entry (startup costs) – Most construction companies spend 1% of less of annual sales volume on IT. Having a low cost of entry is very important factor for technology budgets.
- Leverages 3-D BIM technologies and a digitized work site – In a McKinsey report, one study found that 75% of companies that have adopted BIM reported positive returns on their investment with shorter project life cycles and savings on paperwork and material costs.
Furthermore, in small specialty studies, BIM appears to be increasing productivity in labor. In a study involving a small contracting enterprise, the impact of BIM on labor productivity was quantified and findings demonstrated a 75 to 240 percent increase in labor productivity for modeled and prefabricated areas (Poirier, 2015) 5 Making wise technology investments to improve construction productivity makes sense and is essential in today’s competitive environment.
Technology investments are as important as good field tools to reduce project delays, adopt to project changes, improve operations cost control, safely complete tasks quicker and more efficient, and provide a quality project on time and on budget.