New Corporate Performance
Management Tools Can Add Value
BY ALOK AJMERA
When an economic sector is booming, companies line up at
the door to supply goods and services. However, the construction industry has been different, at least where corporate performance management (CPM) software is concerned.
While this is partly because the CPM sector has focused on
improving operations, financial management, and corporate
planning in sectors like manufacturing, it’s also partly due to
the construction industry being comparatively slow to adopt
new technologies.
No sector has greater complexity and risk, tighter margins,
or a higher likelihood that large projects will be delivered late
and/or overbudget than the construction industry. No sector
needs automated CPM systems more urgently in order to
optimize the use of expensive resources, plan and manage
immensely complex budgets and projects, and mitigate risk
while increasing productivity and profitability.
The Opportunity
Globally, construction is one of the world’s largest and fastest
growing industries. In the U.S. alone, construction creates
nearly $1.3 trillion worth of structures each year. The sector is
comprised of nearly 700,000 companies employing more than
seven million people, according to The Associated General
Contractors of America. 1
Even as construction growth slows from the heady double-digit pace seen in the middle of this decade, the demand for
new buildings and infrastructure will continue to outpace
global GDP growth. Some estimates put the construction
industry’s growth at close to 4% a year through 2030. By
2020, the construction industry will account for more than
13% of global GDP. 2 With the global population predicted to
hit nine billion by 2050 and two out of every three people
living in cities by 2050, then the outlook for construction
continues to soar. 3
The Challenges
Unfortunately, success is often a double-edged sword. An
all too-common refrain at the leadership level of mid-market
firms is that they are too busy to implement new systems
and processes that will better enable them to manage and
benefit from the sector’s growth.
At the same time, as construction opportunities are expanding, so is project complexity. In turn, this creates greater job
complexity and more stringent governance requirements
leading to a cascade of overlapping risks that put even the
largest firms in perpetual jeopardy.
The result is that companies are churning more furiously
than ever just to stay in the same place. Organizations that
don’t find ways to automate and improve corporate performance, planning, and project management become mired
in a vortex, endlessly trying to do more at a faster pace
with the same old error-prone, manual spreadsheet-based
systems. That’s like firefighters using a bucket brigade to
battle a five-alarm fire when there is a high-capacity fire
hose on their truck.
The Productivity Effect
A fundamental correlation between project complexity and
shrinking profits is productivity. A McKinsey & Company
report on labor productivity found that: “While many U.S.
sectors including agriculture and manufacturing have
increased productivity 10 to 15 times since the 1950s, the
productivity of construction remains stuck at the same level
as 80 years ago. Current measurements find that there has
been a consistent decline in the industry’s productivity since
the late 1960s.” 4
Why hasn’t productivity improved in construction the same
as other industries? “According to a Construction Owners
Association of America (COAA) study, 63% of direct labor
time on [mega] construction projects is spent waiting for
materials and equipment, traveling to the area, taking early
breaks, and planning how to do the work.” 5
The lack of productivity in the sector also applies to equipment and materials. Expensive pieces of construction equipment sitting idle and materials waiting in storage are balance
