Deloitte Releases 2020 Mid-year Update on Construction and Engineering Industry
Houston, TX – September 14th, 2020 – World’s biggest accounting and professional services firm, Deloitte, has released the midyear update for 2020 on the Engineering and Construction Industry.
The sector saw an overall growth in 2019, despite cost pressures, preference to fixed-bid projects, and labor shortage. The growth was initially forecasted to persist into 2020 as well.
Understanding new trends in the engineering and construction sector
2020 began on a positive note for the E&C industry. The first quarter even recorded growth in the total construction spend. However, towards the end of Q1, as companies started to gauge the impact of the COVID-19 pandemic, confidence among leaders plummeted. The novel coronavirus shifted projected deadlines and caused a drop in employment and labor.
Challenges faced by the E&C industry
Most engineering and construction (E&C) firms continue experiencing low margins and profitability. On an average, global earnings before interest and tax (EBIT) from E&C activities is just 5.5% of sales. This low margin, combined with supply chain disruptions due to COVID-19, increasing project complexities, and fierce competition from Asian companies, are likely to put extra pressure on the profitability of American companies in 2020.
Due to limited supply and uncertainties in tariffs, construction and input costs for essential building materials such as steel are on the rise. Turner Building Cost Index, which measures costs in the residential building construction market in US, increased to a value of 1162 in the third quarter of 2019. This is the highest ever in its 13-year history.
Shortage of talent is another persistent challenge. According to Bureau of Labor Statistics, job openings have nearly doubled since 2014, while new hires have increased only by 14%. These constraints are forcing contractors to take measures for optimizing processes and operations for better profits and margins.
One way to accomplish this would be through partnerships that enable firms to leverage efficiencies of scale and expand their capabilities. E&C industry must turn to modularization, project management, digitalization, and smart technologies for increased profits and margins.
Trend One: Modularization and pre-fabrication
E&C firms can increase current profitability by opting for modularization and pre-fabrication of components. Modularization has the potential to significantly boost productivity. Module assembly yards incorporate cost-efficient manufacturing practices, save labor costs, increase build quality, reduce project deadlines, and bolster on-site safety.
Where to get started?
BluEntCAD offers CAD drafting solutions for pre-fabricated components and modules. These bring down rework costs and reduce project completion times.
Trend Two: Rise of smart project management processes
Project management processes have moved beyond documenting expense overruns and delays in construction. They now include project forecasts in real time through optimized operations.
This allows schedulers to take more informed decisions around scheduling materials and labor for projects. Intuitive budgeting and scheduling tools offer competitive advantage and increase productivity for on-ground processes as well.
Where to get started?
Invest in the right project management software. You can opt in for ready-made software or get custom software tailor-made for your firm.
Trend Three: Embracing technology
Internet and digital technology have had an unprecedented impact on the E&C industry. From connected job sites to robots, 2019 saw incredible applications of technology in this sector. As the world regains normalcy, the remainder of 2020 is going to be powered by technological processes that have the potential to bring efficiency, productivity, and safety breakthroughs in the E&C industry.
Robots have entered the construction industry for multiple operations.
There are autonomous rovers for boosting the efficiency and quality of site inspections. Mechanical arms automate repetitive tasks such as brick-laying and masonry, and demolition robots can demolish structural components and concrete of a building nearing its end cycle. Drones are also being used extensively for tasks such as inspection and supervision.
Artificial intelligence (AI) is also disrupting the Engineering and Construction Industry.
While predictive design, digital building processes, and augmented & virtual reality are leading the front during the project planning phase, cloud technology is making information available to every stakeholder during the construction phase.
Connected construction i.e. systems that link digital and physical assets are deemed as the future. Many builders and contractors are adopting these technologies for more efficient construction while owners are promoting them for operational convenience and data analysis.
Where to get started?
Digital capabilities will also need new skill requirements and hence, could transform engineering and construction jobs forever. Begin by developing a robot and human talent management strategy that facilitates the march towards technological growth.
Trend Four: New ventures and partnerships in the US infrastructural space
The last quarter of 2020 will likely see long-overdue upgrade initiatives in US infrastructural space – a situation that will propel the E&C industry forward with new opportunities and challenges. America’s deteriorating infrastructure – unsafe bridges, aging water and wastewater treatment plants, congested roads – are already imposing enormous expenses on the economy. According to the American Society of Civil Engineers, approximately $4 trillion will be required for repairing the present state of US infrastructure by 2025.
The federal government has agreed to spend $2 trillion in the next decade to meet these future demands and restore the competitive advantage of the country. It will invest in infrastructural upgradation of bridges, roads, broadband, water systems, and power grids. This is expected to bring significant opportunities, drive revenue and create more jobs.
The US federal budget for 2020 has allocated $200 billion for infrastructural priorities across sectors. However, this realization is subject to the impending 2020 US Presidential Elections and to whether trade tariffs shall be continued.
Additionally, private funding is expected to increase and the E&C sector has the opportunity to forge mutually beneficial public-private partnerships. Businesses in the sector could focus on choosing right partnership models for funding and delivery, along with implementing a lifecycle approach to complete the project within stipulated timelines.
Where to get started?
Intelligent roadways that aid maintenance and provide monetization opportunities (such as surge-based tolls) could be part of the build-operate-transfer model. This use case is a great example of:
Using new materials with better performance during their life cycle,
Taking a more sustainable approach in the long run, and
Preferring resources that are easy to repair and maintain.
Trend Five: Focus on smart cities
2019 saw the continued proliferation of transformational projects within smart cities on a global scale. Urban planners are looking at digital solutions and 2020 is slated to continue creating avenues for E&C firms to undertake this activity.
Many city planners and leaders are turning to smart technologies that support sustainability and focus on equitable, resilient, and sanitized communities. The collaboration between city planners and E&C firms will give way to intelligent buildings that self-optimize their operations and to robust building management systems that serve their residents better.
In the future, data generated by these digitally enabled assets could be used for analyzing trends and designing more buildings with advanced features. The insights drawn from this data could also be used by governments to promote environmental sustainability, optimize traffic, utilize public spaces, and facilitate public transportation.
As E&C firms become embedded in government projects and smart city developments, they will be expected to bring digital capabilities to the table. This will often require a partnership approach between technology providers and industry experts to create cohesive solutions.
E&C firms, when equipped with the right technological and human assets, can spearhead these trends. The early adopters who build a solid roadmap to overcome operational challenges with competitive advantage will progress significantly.
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