Two Trends Impacting Capital Effectiveness in 2018Posted on Jan 30, 2018 12:36:10 PM by Day & Zimmermann
As 2018 begins there is plenty of reason for optimism for asset owners in the process and industrial markets. One in three construction firms in the manufacturing sector predict available dollar volume of projects to increase in the year to come. That’s according to the latest survey results from the Associated General Contractors of America. More specifically, according to a report from Petrochemical Update, capital spending is expected to increase 6% for the chemical processing industry.
Despite this growth, owners and operators still face considerable headwinds in finishing projects on-time and under budget. In order to turn all of that new investment into a return, plant owners must understand a few of the most critical challenges facing their industry in 2018. More importantly, they must develop a plan for how to address them.
1. Combatting workforce shortages
Eight in 10 firms told the AGCA it will either become harder, or remain difficult to recruit and hire qualified workers in 2018, up from 76 percent last year. Contractors are tackling this challenge in different ways. One solution is to bump up workers’ pay and create other incentives. About 60 percent of firms plan to do just that this year. It’s an effective and often necessary way to recruit top talent, but in addition to adding costs to a project, it creates a potential negative cycle of workers migrating from one project to another, chasing higher wages
One approach we use at Day & Zimmermann is to improve and streamline training. We are not the only one to identify this opportunity – a majority of firms surveyed said they will increase investments in training and development in the year to come.
Improved training doesn’t just solve manpower issues for the current job. It creates new skills for workers. Studies show it improves retention. It drives productivity increases that the industry needs. Workers with better skills and a better understanding of the job can be more efficient and stick to – or even improve – established processes. I see this potential for greater investment in workers paying off in addressing potential workforce shortages in the year to come and in creating effectiveness on projects of all size. Owners should be cognizant of their contractors’ abilities to effectively train and recruit talent, in order to have more than just escalating wages as an attraction to field a workforce.
2. Integrating New Technology
Another area poised to impact capital effectiveness in a big way is technology. With the promise of a productive year to come, the firms with superior technology and solutions will have a big competitive advantage going forward.
Shrewd tech investments are a lynchpin of capital effectiveness. Yet the construction industry is one of the least digitized, according to McKinsey data. The report points to five tech trends that will have the biggest impact on the construction industry in the years to come. Two areas in particular are likely to have a big impact on capital effectiveness and completing projects within target parameters.
- Digital collaboration and mobility – Creating transparency through technology will help contractors and operators work more seamlessly together. The result is more efficient project management on the current job that can minimize downtime and generate stronger lessons learned for future projects. Technology, however, is not a complete substitute for understanding sound capital project execution methods. Owners and contractors have to have the ability to openly discuss project issues from a knowledge base of best practices.
- The Internet of Things and advanced analytics – From equipment that notifies you when it’s about to break down to wearables that literally prevent a worker from unsafe lifting, connected devices will change the way work gets done on a site. The cost for this kind of equipment is dropping fast, making the up-front investment easier to justify.
Construction Uptick Means Opportunity
With increased growth and competition, capital effectiveness will play an important role in this uptick. I specifically say use “effectiveness” as we have to select the right projects then execute efficiently. A capital project with marginal business returns executed efficiently still has marginal business returns. The right project executed efficiently brings the returns expected by shareholders. How the industry tackles workforce shortages will have a major impact. And I’m excited by the rapid advances in technology that are redefining how construction operations function and how systems communicate. I look forward to keeping an eye on these two deeply connected issues that will drive how projects are handled and ultimately if they are done on time and within budget.