Critical Construction Industry Trends Influencing Process and Profitability Harvey M. Bernstein, F.ASCE, LEED AP Vice President, Industry Insights & Alliances McGraw Hill Construction
Agenda General Industry Trends Construction Industry Confidence Index (CICI) Green Healthier Buildings Process and Efficiency Trends BIM Lean Construction Project Delivery Managing Uncertainty Takeaways 18
General Industry Trends
BIM CICI CICI: Firms Positive About Current Market Percent of Industry Reporting an Improving Market (by Firm Type) 64% 59% 52% 58% 47% 60% 32% 32% 31% Reported 2013 Q3 Current (Reported 2014 Q3) Next 12 to 18 Months Design Firms GCs/Construction Managers Subcontractors Source: ENR Construction Industry Confidence Index survey, Q3 2013 and Q3 2014, McGraw Hill Construction
80 70 60 50 40 30 20 10 25 Construction Industry Confidence Index (CICI) (2009-2014) 0 (Declining) 50 (Stable) 100 (Improving) Construction Industry Confidence Index Scale 51 46 41 43 42 37 30 32 31 33 33 58 56 50 50 72 69 67 69 64 76 77 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 2009 2010 2011 2012 2013 2014 Source: ENR Construction Industry Confidence Index survey, Q1 2009 through Q3 2014, McGraw Hill Construction
Sustainability/ Green Building Green Building Is Major Part of U.S. Nonresidential Starts = Nonresidential Market $172 billion $212B = Green Market $220B $191B $154B $171B $148B $158B $146B $248B $3 billion 2% of market $25B 12% $48B 31% $61B 41% $63B 43% $69B 44% $81B 47.5% $89B $94B 46%-49% $104B $112B 47%-51% $119B $134B 48%-54% of market 2005 2008 2010 2011 2012 2013 2014 2015 2016 2017 Source: Green Market Size: McGraw Hill Construction Dodge, 2014; base value of construction market from McGraw Hill Construction Dodge Market Forecast, as of November 2014
Share of Green Building in Commercial Construction OFFICE 30% $8 B 2008 56% $12 B 2013 2014 60% $16 B RETAIL 2011 2014 2014 HOTEL 2012 28% $4 B 35% $6 B 38% $2 B 43% $5 B Source: Green Market Size: McGraw Hill Construction Dodge, 2014; base value of construction market from McGraw Hill Construction Dodge Market Forecast, as of August 2014
Share of Green Building in Institutional Construction EDUCATION 15% 30% $9 B $8 billion 2008 2013 2014 51% $19 B 51% $20 B HEALTHCARE 2008 2013 2014 13% $4 B 40% $9 B 36% $8 B Source: Green Market Size: McGraw Hill Construction Dodge, 2014; base value of construction market from McGraw Hill Construction Dodge Market Forecast, as of August 2014
Green Building Is Major Part of U.S. Residential Single Family Starts = Residential Market = Green Market $315 billion $122B $100B $97B $159B $126B $165B $245B $7 billion 2% of market $25B 12% $14B 14% $17B 18% $25B 20% $37B 23% $40B $45B 24%-27% $64B $81B 26%-33% of market 2005 2008 2010 2011 2012 2013 2014 2016 Source: Green Market Size: McGraw Hill Construction Dodge, 2014; base value of construction market from McGraw Hill Construction Dodge Market Forecast, as of August 2014
Focus on Green Continues to Increase Steadily for Builders of Multifamily Projects 69% Less than 16% of projects green More than 90% of projects green 61% 90% of projects green 16% 60% of projects green 79% 9% 79% 18% 46% 54% 6% 24% 24% 31% 6% 6% 19% 17% 31% 21% 46% 21% 37% 2011 2013 2015 2018 Source: Green Multifamily and Single Family Homes SmartMarket Report, McGraw Hill Construction, 2014
Use of Renewables Expected to Rise in Next Three Years According to Residential Builders SINGLE FAMILY BUILDERS MULTIFAMILY BUILDERS Solar Photovoltaic Panels Solar Thermal Groundsource Heat Exchange Wind 2013 2016 Solar Photovoltaic Panels Solar Thermal Groundsource Heat Exchange Wind Source: Green Multifamily and Single Family Homes SmartMarket Report, McGraw Hill Construction, 2014
Healthier Buildings 59% 68% Focus on Occupant Health Included in Design and Construction Decisions % REPORTING HIGH IMPACT OF 75% 77% 63% 63% 55% 83% OCCUPANT HEALTH Current Current Greener Firms 63% 63% 53% 41% OWNERS Commercial Residential Architect/ Architect Interior Designer DESIGNERS Residential Interior Designer Source: The Drive Toward Healthier Buildings SmartMarket Report, McGraw Hill Construction, 2014 Contractor BUILDERS Home Builder
Benefits Reported by Owners on Impact of Specific Design/Construction Decisions on Occupant Health HEALTHCARE COSTS $ 47% of owners report cost reductions ranging anywhere from less than 1% to over 5%, but many (52%) don t know exactly EMPLOYEE SATISFACTION/ ENGAGEMENT 66% of owners report improvement, with over 34% reporting a high level of improvement OCCUPANT PRODUCTIVITY 21% of owners report improvements of 1% or more, but most (56%) don t know the impact exactly ABSENTEEISM 56% of owners report reductions at varying ranges of employee absenteeism Source: The Drive Toward Healthier Buildings SmartMarket Report, McGraw Hill Construction, 2014
Some Top Products Being Used to Address Health in Buildings and Homes BUILDINGS HOMES Greener Firms (More Than 60% of Work Green) Greener Firms (More Than 15% of Work Green) Source: The Drive Toward Healthier Buildings SmartMarket Report, McGraw Hill Construction, 2014
Relative Importance of ROI Benefits of Healthy Building Investments Reported by Owner s HR Executives 91% 44%-53% 12% Greater Worker Productivity However, most owners don t know how to measure these impacts Lower Absenteeism Reduced Health Care Costs for the Company Improved Employee Satisfaction Improved Employee Engagement Source: The Drive Toward Healthier Buildings SmartMarket Report, McGraw Hill Construction, 2014 Ability to Attract New Talent
Process & Efficiency Trends
BIM Contractors with >30% BIM projects (by region) Source: The Business Value of BIM for Construction in Major Global Markets SmartMarket Report, McGraw Hill Construction, 2014
Contractors Top BIM Benefits (all regions) Source: The Business Value of BIM for Construction in Major Global Markets SmartMarket Report, McGraw Hill Construction, 2014
Owners BIM Benefits Better Understanding of Design From BIM Visualization 76% 98% Beneficial Impact on Project Schedule 68% 85% Fewer Problems Related to Design Errors, Coordination Issues or Construction Errors 68% 85% US: Very High BIM Involvement (>75% of Projects) UK: All Owners Source: The Business Value of BIM for Owners SmartMarket Report, McGraw Hill Construction, 2014
BIM Lean Familiarity with Lean Construction and Specific Practices (Eliminating Waste) Not Familiar With Familiar With Implemented Lean Construction 48% 29% 23% Pull Planning Last Planner System 70% 73% 15% 15% 18% 9% Developed for the Construction Industry Just-In-Time 54% 31% 15% Toyota Way 66% 24% 10% Developed for Manufacturing Six Sigma 58% 38% 4% Source: Lean Construction SmartMarket Report, McGraw Hill Construction, 2013
Top Benefits of Using Lean Practices According to Lean Practitioners Higher Quality Construction 84% Greater Customer Satisfaction 80% Improved Safety 77% Greater Productivity 77% Reduced Project Schedule 75% Source: McGraw Hill Construction, Lean Construction SmartMarket Report, 2013
Quantifiable Benefits from Lean Reported by Lean Experts Consistent Margins: Reliability of Outcome: Reduced Project Schedule: 4 to 5 % Our margins have improved to expectation, we re taking the job at four or five percent, and we re making four or five percent. Reliability of outcome has changed from about 20% to about 80%- 85% The first project I worked on We did it in 4.5 months [instead of 6 months] without any overtime. Source: McGraw Hill Construction, Lean Construction SmartMarket Report, 2013
BIM Delivery Systems Delivery Systems: Usage (2014) & Forecast (2017) Use of Delivery Systems (Current and Forecasted) on Their Companies Projects % Who Expect Industry-Wide Use of Specific Delivery Systems to Grow Usage (2014) Forecast (2017) Design-Bid- Build 60% 37% 31% 54% DBB Owners 23% Architects 10% Contractors 20% Design-Build 17% 25% 20% 30% DB Owners 63% Architects 56% Contractors 68% CM-at-Risk 14% 24% 16% 25% CM at Risk Owners 50% Architects 40% Contractors 50% Only DBB has a large percentage who expect industry to use it less Source: McGraw Hill Construction, Project Delivery Systems SmartMarket Report, 2014
Key Project Benefits by Delivery System Design-Bid-Build Design-Build CM-at-Risk Owners Budget Owners Budget Owners Budget Cost 27% Under/ 67% On Budget Architects Contractors 23% Under/ 67% On Budget Architects Contractors 33% Under/ 60% On Budget Architects Contractors Owners Schedule Owners Schedule Owners Schedule Schedule 13% Ahead/ 67% on Time Architects Contractors 20% Ahead/ 73% on Time Architects Contractors 7% Ahead/ 77% on Time Architects Contractors Owner Satisfaction Owners Satisfaction 40% Very Satisfied Architects Contractors Owners Satisfaction 37% Very Satisfied Architects Contractors Owners Satisfaction 60% Very Satisfied Architects Contractors Best Delivery System to Achieve Result for Architects & Contractors 30% or More 20% to 29% Less Than 20% Source: McGraw Hill Construction, Project Delivery Systems SmartMarket Report, 2014
Managing Uncertainty Expectation of Perfection Are Perfect Construction Documents Possible, According to Owners, Architects and Contractors? 2% 88% 10% Possible Impossible Don't Know Is It Reasonable to Expect Perfect Construction Documents, According to Owners? 3% 75% 21% Yes No Don't Know Source: McGraw Hill Construction, Managing Uncertainty and Expectations in Building Design and Construction SmartMarket Report, 2014
Top Factors That Cause Uncertainty Unforeseen Site or Construction Issues 47% 45% 56% Design Errors 21% 41% 49% Design Omissions 15% 41% 55% Owner Program or Design Changes 35% 51% 63% Accelerated Schedule 35% 55% 54% Source: McGraw Hill Construction, Managing Uncertainty and Expectations in Building Design and Construction SmartMarket Report, 2014
Communication is Selected as Top Factor for Mitigating Causes of Uncertainty COMMUNICATION HAS HIGH/VERY HIGH MITIGATION IMPACT ON PROBLEMS CAUSED BY: 96% 94% 88% 79% Accelerated Schedule Design Errors Owner Driven Changes Unforeseen Conditions Source: McGraw Hill Construction, Managing Uncertainty and Expectations in Building Design and Construction SmartMarket Report, 2014
Owner Process to Establish a Contingency Do you have a standard risk assessment process to help determine the level of contingency necessary on a project by project basis? Typical Examples: Project type Complexity of work Problem/risk analysis Potential risk items Age of building (for renovation) Typical contingencies range between: 5% 9% based on project delivery system 6% 9% based on building type Source: McGraw Hill Construction, Managing Uncertainty and Expectations in Building Design and Construction SmartMarket Report, 2014
Takeaways
Takeaways Mature green market in several industry sectors may get a new push by emphasis on healthy buildings Companies using strategies to improve processes (BIM/Lean) see major benefits Delivery system selection impacts project results, but there is no magic bullet Better communication is the single most important factor for all project players to reducing project uncertainty
Green Residential Healthier Buildings Global BIM BIM for Owners DOWNLOAD FREE SMARTMARKET REPORTS Visit analyticsstore.construction.com 47 Lean Delivery Systems Managing Uncertainty