Virtual Construction - The New Business Model

We are on the verge of the Virtual Construction Age. In our lifetime, most of us will experience it - a deep interconnection between construction and high-tech. Virtual construction marries one of the oldest businesses with one of the newest business trends. This marriage has the potential to minimize some long-lived construction problems. To be clear, computers won't build anything (people will), but they can make the process of building more efficient and safer with higher quality results.

If you grew up with computers, you are not surprised by this. For many years you suspected computers and other technology were a "solution looking for a problem." Why shouldn't you see and believe this? Computers work at the speed of light. They can collect, analyze, and transfer billions of pieces of information, and their cost continues to decrease.

Construction companies see the logic of virtual construction, and some are practicing parts of it. Everyone understands that the marriage of construction and technology is powerful. Technology integration is now a must for most construction companies, but it is a question of degree.

Some technology is a "toy." Some is necessary. Where is the line and at what cost? Construction's profit margins don't allow for grand experiments.

The new business model

 
Changes to the construction business have come in a steady stream, increasing the risk to contractors in the process. Today, in the opinion of many, risk stands at an all-time high. The construction business model has evolved into:

Work Acquisition: Where the business of construction starts.

Building Work: Where most people fall in love with construction.

Getting Paid: The largest business risk/focus of all contractors on contracts, change orders, and delays by others.

Keep Track: If you don't keep track of everything what will happen? Those activities (work acquisition, building work, getting paid) not closely tracked will get away from you. They may become unrecoverable regardless of your fire fighting skills. With risk at an all-time high, it is rational to track more, not less.

Software

 
As we look at using computer programming to proactively estimate, plan, and build construction projects, it is clear that the platform to facilitate such a huge endeavor will be a well-tenured and established firm.

I'm software neutral. I don't have a vote and don't want to vote for any one company over another. However, whoever will assume this leadership position must have substantial financial resources and see the significant value of virtual construction.

Virtual construction, at its most basic level, is the collection, analysis, and transfer of numeric, visual, and spatial information in real time.

Typical Collection:

  • Material Tracking - on-site and/or installed
  • Labor Tracking - by cost code and person
  • Equipment Tracking - by cycle time, fuel consumption, and hours used

 

Typical Analysis:

  • Daily production against budget
  • Result against schedule
  • Function against best practices

 

Typical Information Transfers:

  • Virtually detailed building plans and specifications for pricing and constructability comment
  • Extensively detailed plans and specifications for planning and scheduling
  • Real-time construction data from field operations to supervisors and executives
  • "What-if" scenarios as a way to propose solutions to schedule problems and constructability issues

 

In these areas, software will perform the calculations of time and cost as well as quality and safety. The supervisors, managers, and executives will then use that result to investigate, plan, and troubleshoot.

The computer will assume the role of clerk and do the collection, calculation, and dissemination of data (and faster than any clerk).

Real-Time Tracking. In virtual construction, as we do, we track. Having a current idea of where we are in the process allows for timely completion of tasks. As we stall in certain areas, senior leaders can step in and inject their years of wisdom. When we know the current status of processes/behaviors, cycle times, production, costs, and safety, we are able to affect them quickly before they become unrecoverable.

Senior managers continue to assert that we all must "manage by exception" in our overwhelming business. It is a constant theme among the most experienced.

Compelling business reasons

 
There has to be a compelling reason for any major new direction in a business, construction or otherwise. I have three.

All this work and investment can be justified these ways:

  • Hardwiring your business processes standardizes and assures timely monitoring of them. As a result, compliance to those predicable processes will increase, meaning greater discipline. My observation is that well disciplined firms continue to outperform their less disciplined brethren.
  • Taking labor effort out of collecting and disseminating information frees up more time for analyzing it and then acting on it. Approximately 90% of all cost overruns on projects are due to labor. The earlier we know of a problem, the better the outcome.
  • The highest and best use of any professional's time is negotiating. It has the highest monetary payoff per hour.

  • A virtual construction protocol, once set up, frees up more time for each manager, supervisor, and executive in a firm to negotiate more things. In construction, all things are negotiable. This means a higher per-hour payoff of middle managers' and executives' efforts. All this travels quickly to the bottom line.

     

    I have seen and heard proposals of up to $10,000 for a one-time set-up fee and $500 per month per employee. This can be prohibitively expensive at today's salaries and wages. Construction's end users and owners may have to help with this expense. However, in a few years, business costs will increase and the cost of technology (predictably) will decrease. The cost/benefit lines will cross.

    Further balancing this expense is the potential savings. Taking into account 30%+ wasted labor time in both the field and the office makes the economic model work better. Also, the "long tail" of safety liability adds to virtual construction's value.

    The particular financial equation must be calculated by each firm, but these are substantial potential savings.

    As qualified craftspeople and managers are harder to find, helping the existing ones be more productive is a rational plan. Virtual construction assists with that.

    I can't tell you when the age of virtual construction will happen ("Carnac the Magnificent" retired), but get ready for it. Our younger professionals can see it and older ones sense its power.

    Matt Stevens is a management consultant who works only with construction contractors. He is the author of Managing a Construction Firm on Just 24 Hours a Day, published by McGraw-Hill. His next book, The Practical Construction MBA, is due out soon. Reach him at mstevens@stevensci.com.

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