Why transparency through digitisation is the solution for construction
The construction industry has long been criticised for its lack of innovation and slow adoption of modern business practices.
Many of which existed before the COVID-19 pandemic and Brexit, such as cash flow, supply chain disruption and problematic project management, but have only been exacerbated due to recent events. As of late, we are also seeing an increased focus on sustainability – with more scrutiny on the industry to ensure it is doing what it can to help tackle the climate crisis.
The solution to most of these problems? Industry transparency. Whilst there are efforts being made, such as the introduction of the Construction Leadership Council (CLC) and the government's BIM mandate, we are yet to see as many tangible results as anticipated, with blockers still in place for digital transformation.
A 2020 report found that construction is slower than any other industry in adopting digital processes (McKinsey's Report) – despite a RICS report that very same year, finding that 72% of construction firms worldwide would class digital transformation as a priority. Within the same RICS report, it also found that 32% of the firms surveyed invested less than 3% of annual turnover on digitisation. With two years having passed since both McKinsey and RICS published the reports, as an industry, we are still unable to say that a clear transition has taken place and work still needs to be done.
COP26 renewed the focus on sustainability in the industry, with decision-making bodies now under intense pressure to implement quotas and methods of assessing the environmental impact of a product, process or service, and companies under intense scrutiny to reach such quotas. Since April 2022, the UK Government has legally required large corporations to report on different factors that indicate their environmental impact including carbon emissions, which are now heavily monitored in all industries.
In any given project within construction, we can expect there to be different contractors, suppliers and stakeholders involved, which makes it difficult to collate information and report on the carbon emissions of a project over a length of time. However, there is an opportunity here for businesses to harness technology for good and allow for easier and more accurate reporting on carbon emissions. Using digital systems such as ISO 14001:2015, companies can report on sustainability and achieve immediate accreditation on their level of sustainability.
This is just one example of how standardisation in technology, throughout the industry and in a specific project, ensures that all levels of the supply chain are reporting and accurately in with each other, from the suppliers and contractors to the developers.
Recent events have of course disrupted the supply chain, which has had a huge global impact on many sectors, construction included. Construction is very much reliant on material supply and it is imperative that everyone involved, from material manufacturers to site managers and developers, have access to information on the source and status of supplies. ONS data recently revealed that the construction industry has seen stock levels fluctuate 5% quarter-to-quarter since 2019, as a result of Brexit, the COVID-19 pandemic and to an extent the blockage of the Suez Canal in March 2021.
Such fluctuation signals issues in ordering, supplying and invoicing – all of which can be remedied with better communication, transparency and digitisation. Currently, inventory in the UK construction industry is at the lowest point since Q4 2019, highlighting again why it is more important than ever that materials are closely tracked and monitored, avoiding easy mistakes when ordering.
As a high-risk, low-profit margin industry, it is imperative that projects are also delivering in cash flow. Digital solutions support industry transparency through real-time data transfer and faster payments. We are now seeing more industries adopt a SSOT (single source of truth) model of data management, which collates all relevant data onto one single system, allowing for better workplace efficiency and easier accessibility.
In 2019, a study in the Journal of Building Engineering found that 44% of construction projects resulted in a loss. The pandemic left lessons to be learnt, on the real importance of cash flow in the industry – with the sector coming to a standstill and businesses becoming reliant on their limited cash reserves, highlighting the importance of prompt payment.
The introduction of the Fair Payment Charter in 2016, which encourages suppliers and contractors to be transparent and ensures accountability in payment times, has further encouraged companies to adopt clearer reporting processes.
In conclusion, the big global events mentioned above have of course had a huge impact on the construction industry – however, they have pushed already existing issues into the spotlight, encouraging the sector to make real changes to ensure a brighter future. Internally, suppliers, contractors and manufacturers are becoming more transparent every day, with investments into internal technology. We must now look at how the industry can work together to tackle the climate crisis, improve cash flow and future-proof the industry.
This article originally featured in AT Journal issue 144