Pandemic repercussions, logistical issues, and geopolitical uncertainties have exposed construction supply chain vulnerabilities. As a result, the industry has contracted by 2.5% this year.
However, it’s expected to increase to an annual growth rate of 5.3% between 2025 and 2027, fuelled by investment in adjacent transportation, housing, energy, and manufacturing industries.
These ebbs and flows prompt the question: Can you improve operational efficiency to maximize profits in a rebounding market? Will you be ready to capitalize on the next boom?
Improving construction site efficiency in an industry with tight budgets and deadlines will give your company an edge over its competition and increase profits. As one of the leading construction consulting companies, we’ve offered 15 steps below to position your businesses for future success.
What Is Operational Efficiency in Construction Projects?
Operational efficiency measures the relationship between the input needed to keep your construction company going vs the output it provides. The concept covers all aspects of construction, from planning and design to procurement, construction, and project management.
When operational efficiency is optimal, your company produces high-quality goods and services at a scale with as few resources as possible. In other words, it keeps construction process costs low and revenue high while maintaining high-quality standards.
Typical inputs are:
- Money (cost)
- People (FTE)
- Time and effort
Typical outputs are:
- Money (revenue, margin, cash)
- New customers
- Customer loyalty
You can use this formula to calculate operational efficiency for your construction company:
- Operational Efficiency Ratio = (Operating Expenses + Cost of Goods Sold) / Net Sales
The calculation determines the percentage of net sales absorbed by your operating expenses and the cost of goods sold or services rendered. The lower the operational efficiency ratio, the less you spend to generate income.
Bear in mind that operational efficiency is affected by the performance of construction project managers, resource allocation, supply chain management, workforce skill level, and sustainable construction practices.
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Ways to Improve Construction Efficiency
From effective project planning and communication to adopting innovative technologies and strategies, here’s how to improve efficiency in construction.
1. Improve the Planning Process
As the saying goes, “Failing to plan is planning to fail.” Prioritize collaboration and thoroughly plan for the required resources, personnel, procedures, equipment, and materials before construction begins to prevent delays and cost overruns.
At the same time, you must effectively manage and approve change orders during the project to avoid conflicts or disruptions. Support and agreement from all parties are crucial at the planning stage to execute a successful construction project.
2. Make Cost Estimates
Cost estimation provides a baseline for measuring variances from initial costs. We recommend adding 10% to 15% leeway for unexpected expenses and market fluctuation. Creating detailed estimates, schedules, and construction plans will help you:
- Set prices that cover costs and generate profits;
- Create realistic budgets;
- Identify areas where you can improve efficiency;
- Make informed decisions about investing in new products, services, or technologies.
Tips to improve your cost estimation:
- Divide your costs into fixed and variable categories: Fixed costs include office rent and salaries, while variable costs include inventory, supplies, and day-to-day expenses.
- Consider economies of scale: The cost of producing a product or service decreases as the volume increases, which can significantly impact your bottom line. Modular construction is a good example of this.
- Factor in inflation: Adjust your estimates accordingly to ensure accuracy.
3. Enhance Documentation
BIM software is a 3D modeling tool architects, engineers, and construction professionals use to create and manage digital representations of buildings. This software reduces documentation errors, allows for better building visualization, and automates quantity take-off and clash detection tasks.
It also produces accurate and detailed documentation, realistic visualizations, improved collaboration, and, thus, time and cost efficiency. Such benefits make BIM software like Revit and ArchiCAD essential to improving efficiency in construction during the pre-build stage.
4. Implement Modular Construction
Are you aware moving various building processes from conventional construction sites to factory settings with production methods similar to manufacturing saves builders 10% to 14% on costs?
Advancements in digital tools have greatly transformed the modular construction approach, allowing for efficient design and delivery logistics. The perception of prefabricated housing is also shifting as innovative material choices enhance the aesthetic appeal of prefab structures.
Moreover, McKinsey predicts on-site construction will eventually become a “smaller and more commoditized part of the value chain .” Therefore, preempting the modular construction trend may well future-proof your construction business.
5. Build Strong Communication
There are three things you can do to improve communication:
- Use a centralized communication platform. This could be a cloud-based project management software or a team communication app to reduce confusion and missed messages.
- Establish clear communication protocols. This includes setting expectations for how and when to communicate and what information should be included in each communication.
- Use real-time communication tools. Instant messaging, video conferences, and walk-talkies resolve issues quickly and efficiently and build stronger relationships between team members.
6. Train Your Team
When employees master critical skills, they are not only more efficient in carrying out tasks but can also safeguard themselves, their colleagues, and visitors at the worksite from potential hazards or mishaps during construction.
But, more than that, training and education improve work standard quality and productivity, especially since the cost of construction rework is generally between 5% to 9% of the total contract value. Trained construction workers will run your company smoothly and securely without requiring your constant presence on-site. This freedom allows your business to thrive.
7. Centralize Team Management
Centralized management structures enable swift decision-making from the top as executive management calls the shots and transmits them to lower-level managers. By creating a consistent way for executives to share information, your employees can easily learn new information and work more efficiently. A clear chain of command allows workers to seek guidance or raise concerns to higher-level managers and executives.
8. Set Realistic Goals
Adopt SMART (Specific, Measurable, Achievable, Relevant, Time-bound) goals that provide a clear and structured framework for setting and accomplishing objectives. Implementing SMART goals ensures efficient and effective task prioritization, preventing wasted resources on irrelevant or low-priority projects.
These time-bound goals also promote a sense of urgency and accountability, resulting in increased productivity and the timely completion of projects – a crucial factor in an industry where time and budget constraints are key.
9. Establish Performance Accountability
Achieving success depends on several factors, including adhering to strict timelines and budgets and meeting performance goals. Unfortunately, without defined key performance indicators (KPIs), workers may not fully understand their responsibilities, and project performance can suffer.
Hence, it is crucial to establish performance measurements for employees to follow, considering project duration, budget, and required skills. Utilizing a construction-specific software program aids in automating KPI reports, thus enabling swift and accurate data collection on vital metrics like cycle times.
10. Update Construction Management Software
Good construction management software reduces paperwork and removes data silos, reducing time-consuming tasks for construction managers. Construction software assists in handling bid management, invoicing, billing, contractor management, document management, daily reports, incident reporting, timekeeping, and job scheduling.
Depending on your preference, you can utilize an all-in-one platform or a combination of top-of-the-line integrated solutions. Mobile apps are also available to connect the field and office seamlessly for added convenience and efficiency.
11. Go All-Digital
Despite being historically slow in embracing digital advancements, the construction sector is making significant efforts to integrate emerging technologies. Companies within the industry recognize digital innovations’ potential to expand their business opportunities and drive profit growth.
This emphasizes the sector’s focus on harnessing digital technologies to enhance visibility and efficiency, providing a sense of resilience amidst ongoing disruptions. By incorporating tools such as visual intelligence, sensors, IoT devices, robotics, immersive collaboration, and drones, your business can lower costs in the long run and improve project execution.
12. Enhance Safety
Operational efficiency relies greatly on safety, as any lack can result in project delays, increased expenses, and decreased productivity. Due to the high level of potential danger, it is crucial to prioritize safety measures on the worksite.
You must continuously provide safety training for all workers as it is not a one-time event but rather an investment with a significant return. By increasing awareness and knowledge of safety hazards, the number of accidents in the workplace can be greatly reduced.
13. Maintain Inventory
Informed construction equipment management enhances overall construction productivity. Ensure regular maintenance and upkeep for efficient asset management. These machines are a significant financial investment and play a vital role in completing essential construction tasks such as excavation, loading, transportation, and hauling.
14. Equip the Construction Site
Enhancing the efficiency and precision of construction work begins with proper equipment setup. By ensuring all tools and equipment are readily available, workers can avoid wasted time and maximize productivity on the job site. Additionally, utilizing up-to-date and well-maintained equipment greatly improves the accuracy and precision of construction projects, particularly those that involve intricate tasks.
15. Encourage Staff Feedback
Your employees are the backbone of your operation. As such, they are often the first to spot discrepancies or areas for improvement. Their experience and expertise position them to recognize potential shortcomings in your strategy well before you do. We encourage you to involve seasoned workers in the planning phase to identify and mitigate any possible challenges and to maintain open communication throughout the project.
Improve Your Construction Operational Efficiency with Expert Consultants
As your construction business competes for materials, talent, and business sustainability, operational efficiency should remain a top priority. At the end of the day, your approach to construction efficiency determines how your business differentiates itself in the market.
Our business process consultants vast experience in the construction industry makes us well-equipped to offer a one-of-a-kind consulting service that improves your business’s operation efficiency. Did you know Cultivate Advisors provide a 43% average increase in top-line revenue growth for clients? Schedule a consultation today for customized solutions that drive business growth!
Achieve Operational Excellence with Cultivate Advisors
Transform your business processes with the expertise of Cultivate Advisors, the leader in process improvement consulting. Take the first step towards efficiency and growth. Contact us today!