Technology key to addressing impact of inflation
By Adam FreillConstruction Software
Inflationary pressure on labour and supply chain costs impacting North American construction, but technology can help.
The effects of heightened inflation are being felt by contractors in North America, although use of technology aligns with improved project certainty, reports construction capital project management software developer InEight in its third annual Global Capital Projects Outlook report.
The report draws insights from research conducted with 300 of the world’s largest capital project owners and contractor construction professionals across North America, Europe and APAC. Eighty per cent of respondents in North America report experiencing inflationary pressure on employee and contractor pay, while a further 80 per cent cite experiencing cost inflation in the supply chain. The impacts of inflation are evident across scope, cost, schedule, collaboration and workmanship, with delays in the supply chain also having an effect.
The construction industry continues to face challenges around effectively leveraging project funding, say the report authors, who point out that North America is falling behind its peers when it comes to project certainty. Only 42 per cent of North American projects stayed on time and 38 per cent within budget, compared to 47 per cent and 45 per cent globally.
Several findings in the report point to a somewhat slower uptake of digital technologies in North America compared to their global peers. For example, North America is the only region where non-standardized systems and processes that create inefficiencies are still among the three biggest barriers to project certainty (51 per cent versus a global average of 46 per cent). Similarly, industry benchmarks and historic project data are only being used to improve project certainty 45 per cent of the time in North America, trailing the global average of 47 per cent and 48 per cent, respectively.
“Although inflationary pressures are beginning to moderate, the last couple of years have shown how essential it is for all stakeholders to work together to identify and mitigate risks at an early stage,” stated Jake Macholtz, CEO of InEight. “Technology plays a leading role in this, helping to retire the old ways of rigid risk allocations, roles and responsibilities towards better stakeholder communication, connected data and informed decision making.”
The North American construction organizations that are using connected data say they can more astutely identify risk and balance the tradeoffs between scope, cost, and schedule. Forty-six per cent of respondents say it improves risk management, while a third say it reduces cost overruns, leads to fewer scope changes and schedule overruns. It also has a markedly positive impact on employee productivity, according to 47 per cent of respondents.
Construction organizations who complete projects within schedule over 80 per cent of the time are the most likely to use industry benchmarks (66 per cent) and historic project data (69 per cent). Conversely, those who run over budget or over schedule 80 per cent of the time were the least likely to use them.
“Those organizations that have remained committed to achieving technology sophistication are reaping the benefits, both for themselves and their clients and the results set out a strong case for all construction organizations to follow suit,” adds Macholtz.
Globally, the use of connected data varies by company size with those with the fewest capital projects most likely to report using industry benchmarks (52 per cent) and historic project data (51 per cent) while the largest portfolios are the least likely (43 per cent for benchmarks, 46 per cent for historic project data), possibly due to the greater complexity of integrating new technology software and managing greater volumes of data.
Many respondents say their organizations are using technology to understand and engage with the big picture operating environment. Globally, the use of project management or project controls software is most popular (58 per cent), while many organizations also use artificial intelligence and machine learning (50 per cent), risk-adjusted project planning software (47 per cent) and connected worksite communication (47 per cent).
“Only once we understand how the big picture impacts the fine details of a project, and how those fine details all interact with each other, can we fully optimize project decision making to drive predictable project outcomes and support long-term growth,” explained InEight’s CEO.
Despite a challenging operating environment, optimism has remained high for a third year in a row with digital technologies, economic growth/recovery, and data collection, analytics and insights identified as key areas of growth. Construction and capital project spending levels continue to trend upwards, with 83 per cent in North America reporting an increase, slightly trailing the global average at 86 per cent.
This positivity is somewhat tempered by a significant rise in concerns over labour challenges. Concerns over staff and skills shortages were identified as a risk to growth by 40 per cent. Yet, even with an intensifying skills shortage, along with disruption caused by cost inflation and supply chain delays, industry confidence remains high this year, with 93 per cent feeling somewhat or very resilient.