Measuring Construction Efficiency & Productivity
According to data published by The US Bureau of Labor Statistic in 2014, labor productivity in the construction industry has been declining over the past several decades while it has been growing in other major industries at an annualized rate of about 3%.
Leaving aside the question of why the trend is negative, one cannot stop wondering why the productivity growth in the construction industry pales in comparison to that of other industries. The reasons cited include everything from the tighter labor regulations to insufficient investments in information technology.
One of the reasons cited is the lack of objective methods for measuring efficiency and productivity in the industry. After all, how can you improve something that can’t even be measured well?
Productivity is measured in terms of output per unit of input. For example, a manufacturer of goods may measure labor productivity in terms of the number of goods produced per unit labor.
A key difference between the construction industry and the most of other industries is that, in construction, the outputs are anything but identical. Unlike in manufacturing where similarities between production output are often held to a high standard of six-sigma, construction outputs are far from being similar to each other.
Making the matter worse, unlike other industries, construction cannot even count on its input being consistent. As a firm moves from one project to another project, it often has to work with a new set of labor, subcontractors, vendors, geography, regulations, and weather, all of which factor into its productivity. These points beg an important question: How can one measure efficiency and productivity in a consistent and repeatable manner when both the inputs and outputs are not consistent.
One answer is to measure efficiencies and productivities of activities that are consistent across the organization even though the total sum of their outputs vary from one project to another. There are two ways of looking at such activities: subunit production activities and process activities.
Subunit production activities are the set of activities that produce subunits of a final product. A subunit production activity may be as complex as erecting the structure of a building or as simple as installing window blinds. Two buildings may be different, but the subunits that constitute them, the inputs that go into producing them, and the activities that produce them are more similar to each other than the buildings.
Process activities are the set of activities that relate to business processes that are consistent across an entire organization but do not by themselves produce any unit of production. For instance, communication (emails), submittal process, change orders, and RFI are examples of process activities. Such activities may not directly produce a tangible product but represent some of the key activities that drive the efficiency of an organization.
There are two ways such measurements can help a firm. For activities that are consistent and well defined, they provide precise benchmarks for measuring and improving their efficiencies. For activities that are not consistent, the variability in these measurements indicates the degree of their inconsistencies and perhaps their inefficiencies. In either way, measuring these two types of activities can provide a strong foundation for construction firms to measure and improve their efficiencies and productivities.