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Construction has many variables, including the operating costs of construction projects. More than many other industries, operational costs can vary greatly in construction. Whether it’s inclement weather, capricious clients or a host of other possible factors, cost-related uncertainty is a mainstay of the industry.

That uncertainty is all the more reason for any construction executive team to harness operational savings wherever possible. This is especially relevant considering the rising construction costs, with input prices rising by 1.3% in April 2021 compared to the previous month, and a whopping 19.7% up from a year ago.

The Usual Suspects: Operational Costs in Construction

Operational costs in the construction industry, sometimes referred to as revenue account expenditure, come in various guises. They can be considered the day-to-day costs of a construction project and can include:

  • Labor costs;
  • Raw materials;
  • Rentals of space and structures;
  • Utilities;
  • Equipment rentals;
  • Fuel;
  • Equipment maintenance and repairs; and
  • Supervisory and administrative expenses.

In turn, these ongoing costs or overhead expenses can be either direct or indirect, with the former being applicable to a specific project, while the latter applies to costs across the organization. There is a reason why labor was placed first on the above list—those costs are often among the highest for a given project, not to mention unpredictable.

A Smart Labor Force

If labor is such a significant operating cost on any construction site, then it’s even more important to note that up to 90% of incidents in the workplace are due to human error. Those errors can be due to many different factors, as seen in the diagram below.

 

Courtesy: Department of Mechanical and Industrial Engineering Technology, University of Johannesburg

Of the 10 factors cited in the diagram, only two (equipment design and environmental) are not directly due to human inputs or the lack thereof. One thing is patently clear: Management has a direct hand in whether or not human error is a huge risk factor on any given project. 

A smart labor force is needed. Training is one of the most proactive solutions to reactive issues, such as lack of skills or incompetence on a construction site. The return on investment of formal training can be immense, with studies showing it can reach 30% or more. Smart employees also understand relevant policies, procedures and work instructions applicable to the worksite; appreciate the risk minimization of good housekeeping; and know the cost of non-compliance to safety and other standards, financial and human.

The bottom line is sound communication saves money.

The Cost Value of Maintenance

React to maintenance issues, and operation costs will soar. Be proactive about them, and cost savings follow. Proper maintenance, particularly of equipment and machinery, needs to be considered both operationally and strategically (i.e., as both a daily, on-site issue and as part of a greater strategy to ensure a cost-effective, efficient project).

The best approach is a mix of maintenance strategies, with a focus on preventative and predictive maintenance. A holistic maintenance regime will include a fully inclusive planned maintenance schedule, strict adherence to manufacturer guidelines and inclusion in an internal system audit. A software approach with a computerized maintenance management system can greatly assist with maintenance management, including the tracking of work orders, as well as overall asset management.

Other Ways To Cut Construction Operational Costs

Technology can play a significant role in reducing operation costs. According to McKinsey, integrated digital solutions in the construction industry should span three so-called “case clusters,” namely:

  1. those in the field;
  2. those that foster team collaborations; and
  3. office-based solutions. 

It’s what McKinsey calls ‘“constellations” of connected solutions, where greater project efficiencies should translate into cost savings.

According to McKinsey, these are the five digital trends that will shape the construction industry in the coming years:

 

Other operation cost-saving initiatives that a construction company can consider may include:

  • Tightening inventory management, and digitizing it where possible, thereby allowing a company to have full, real-time control of all equipment, machinery, materials, and other inventory on a site.
  • Keeping sustainability in mind at all times. Efficient use of machinery and limited fuel use are two ways to reduce energy costs, as is considering all post-construction waste as potentially recyclable and, therefore, income-generating.
  • Adopting a Lean Construction approach, in which a sharp focus on process-flow and continuous improvement throughout a project’s life cycle should minimize ‘waste’ and, consequently, costs.

What is needed for any construction company to reduce operating costs is a smart, strategic approach. It also requires courage—the courage to invest in workers and systems of work that make a real, sustainable difference.

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