McKinsey on High Performing PMs
One of the reports covered in the
recent post on construction productivity came from the McKinsey Global
Institute, the think tank for the management consultancy.
McKinsey argues that productivity is a major issue for the construction industry, with delays, blown budgets, and quality issues common. In their 2016 infrastructure report they claim “Cost overruns for large projects average 20 to 45%. We often see cost differences of 50 to 100% in similar projects carried out by different countries, even those in similar income levels. If countries apply the best practices that have already been proven effective elsewhere, they can achieve remarkable results.”
Interestingly, McKinsey seems to argue that while these variations are endemic to the construction industry, their causes can be addressed on individual projects. A key factor is the quality of the project manager, who can determine outcomes. Their research “across thousands of projects indicates that top quartile project managers consistently deliver projects ahead of time and below cost, whereas the opposite is true for the bottom quartile”. Their argument is that project management capabilities are the key to success, as shown below.
McKinsey argues that productivity is a major issue for the construction industry, with delays, blown budgets, and quality issues common. In their 2016 infrastructure report they claim “Cost overruns for large projects average 20 to 45%. We often see cost differences of 50 to 100% in similar projects carried out by different countries, even those in similar income levels. If countries apply the best practices that have already been proven effective elsewhere, they can achieve remarkable results.”
Interestingly, McKinsey seems to argue that while these variations are endemic to the construction industry, their causes can be addressed on individual projects. A key factor is the quality of the project manager, who can determine outcomes. Their research “across thousands of projects indicates that top quartile project managers consistently deliver projects ahead of time and below cost, whereas the opposite is true for the bottom quartile”. Their argument is that project management capabilities are the key to success, as shown below.
They identify ten contributions to weak construction
productivity growth, and suggest these are broadly understood yet hard to
measure:
- Fragmentation. The construction industry has many small-scale players. For example, about half of construction output in the United States is produced by firms with fewer than 50 employees.
- Skills. Research shows that educational attainment has decreased over the years for the average US construction worker at age 30. This has implications for sector performance. The skill level of supervisors and project managers is critical for good on-site productivity, but it can vary greatly among employees across the same firm. Skill gaps also limit the introduction of new technology.
- Insufficient planning and design. Large projects typically require more than 5 percent of total investment during the planning phase to run smoothly. This up-front investment is often not made, resulting in time-consuming problems and change orders.
- Ineffective procurement processes and contracts. One-round lowest-price bidding processes, for instance, can encourage firms to use changes and claims as a core revenue stream.
- Workflow split. The differing skill sets and working styles of architects and engineers affect the way they work with contractors and can prevent the right degree of cooperation and overlap needed for optimizing the design-build process.
- Limited use of industrialized construction techniques. Approaches such as lean construction, the use of big data-driven building information modelling (BIM) systems, full prefabrication methodologies, and construction flow balancing (that is, the full optimization of material flow and team rebalancing to eliminate downtime) are often not applied to their full potential.
- Limited use of technology. The sector is perceived as being slow to innovate—in fact, most construction work looks just like it did 50 years ago. Recent MGI research found that the construction sector lagged behind most other parts of the US economy in the intensity of digital assets, usage, and labor.
- Risk aversion. Construction is typically a low-margin business. This tends to create a preference for proven technologies and approaches, since there is an insufficient financial buffer to support experimentation and innovation. Furthermore, failures tend to be highly visible, with direct impact on future business, as well as being costly and hard to correct.
- Significant dispersion of performance. There is a wide gap between frontier firms and the average firm in the construction sector—and there are enormous gaps across geographies.
- Uniqueness of projects and project mindset of companies. There is a tendency to approach each project as a unique case. Even if that stems from a desire to provide the client with craftsmanship or personalized service, it has the unfortunate effect of limiting standardization of designs and construction modules or prefabrication. It also discourages contractors.
