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Predictions Galore: Labor Productivity

With the promise of AI (artificial intelligence) comes the promise of greater productivity—something the construction industry needs in spades amid the great labor shortage. In fact, recent FMI numbers suggest labor productivity is in fact a $20 billion opportunity. As we look to the future in our ongoing blog series, we must also recognize where the risks and the opportunities lie—and this is clearly a huge opportunity.

Released in late September, the 2023 FMI Labor Study suggests contractors lost roughly $30 billion to $40 billion to labor inefficiencies in 2022. The organization says labor productivity is the central economic engine of labor-intensive, self-performing contractors that drives profitability. Thus, labor productivity deficits result in significant project and enterprise margin erosion.

The Productivity Problem

Startlingly, the research finds labor productivity is continuing to decline for almost half of respondents. Only 23% of respondents say they saw improvements in the last 12-18 months. To uncover these findings, FMI surveyed more than 250 senior leaders from labor-intensive, self-performing contractors in the summer 2023.

The research shows five big internal and external challenges to productivity. Let’s unpack each. When we look internally, we see lack of qualified craft labor does in fact top the list, followed closely by poor planning and communication by field management and poor planning and communication by project management. Coming in four and fifth internally, we also see poor project team collaboration and teamwork and poor site logistics coordination making the list. We see here three of the top four internal factors affecting productivity are related to planning, communication, and collaboration.

Looking externally, the big five challenges include low-quality design/construction documents, schedule challenges, general contractor, change order inefficiencies, and other trades topping the list.

The Productivity Solutions

So, how do we then address this? 79% of contractors could improve labor productivity by 6% or more with better management. Naturally, planning will be critical here. Additionally, field leader preparedness and detailed look-ahead planning, accuracy of cost-to-complete forecasting correlates with higher profit margins as well.

In fact, optimizing labor productivity requires good teamwork, planning, and a little bit of technology. We see this report suggests performing pre-job planning, look-ahead planning, daily goal setting, labor productivity tracking and feedback, cost-to-complete forecasting, exit strategy, and post-job review.

Perhaps, one of the most interesting questions in this survey is this one: What has had the largest positive impact on your company in the last 18 months? We see the answers are varied, but targeted. The top responses include:

  1. Implementation of technology and digital tools
  2. Enhanced pre-construction and planning efforts
  3. Leadership and communication
  4. Workforce development and training
  5. Prefabrication and off-site construction

As we move forward in a new era of work in the year ahead, ask yourself if your company is doing these things. Are you taking the step to address labor productivity and close the billion-dollar gap we are facing in the industry? The space could be the difference between a profitable year and a stagnant one.

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