We have recently concluded 2019 – a forgettable year from the standpoint of various stakeholders of the Construction and Infrastructure industry in India. There is no denying the fact that the projected growth of this sector and its contribution to the overall economy in years to come is quite encouraging; however, the deep-rooted challenges which have shown several symptoms of their existence this year need to be addressed with due attention, implementation and action. With the rising number of projects failing on the delivery timelines, construction process hung due to arbitration or financing issues, and many renowned real estate and construction companies filing for insolvency, concerns regarding the future of the industry have been rising. Factors such as payment delays to the contractor, conflicts between co-owners and/or agencies, slow decision-making process, regular change orders during construction, lack of communication and coordination, failure in the timely provisioning of the site to the contractor, and suspension of work have been plaguing the industry for a long time now.
Much of what we perceive as the end-result failure can be attributed to a flawed strategy formulated at a stage when the project hasn’t even started. Strategic failure can be the outcome of several factors which may be operational, technical, financial, environmental, legal, political or cultural in nature. Let us now take a deep dive into some of the major challenges and understand their impact on the industry dynamics:
A. Planning Issues
Poor planning in project management is, at most times, the principal cause of project failure. If the start of something is inadequate, it is often over-optimistic to assume that the desired end will be achieved. Poor execution is a direct outcome of poor planning. Risks are usually high during the execution phase when insufficient time and effort is put during the planning phase of the project. Lack of review and limited understanding of the plans, specifications, scope of work and project objectives lead to inefficiencies in execution. At most times, the client, architect, subcontractors and suppliers fail to establish cohesive coordination and consequently construction schedules and project milestones are not well-defined.
Failure in conducting a risk assessment and/or formulation of a mitigation and governance strategy, establishing site-specific safety plans, site logistics and lining up the delivery of materials and equipment as well as developing contingency plans has been leading to project failures at industrial levels. Poor communication between key stakeholders have also been leading to delays, accidents, costly rework, and unhappy project owners. The pattern of communication impacts the progress of a construction project. Challenges and delays emerge when the responses to enquiries are not received and information is not shared adequately. Projects run smoothly and are delivered in time and budget when the decision-makers and the staff is communicating and collaborating effectively.
B. Scope Creep and Change Orders
Scope creep refers to the frequent extension or changes in the project’s original scope beyond what was intended during initiation. Poorly defined scope, indecisive project owners, half-baked plans, flawed estimations, ill-defined specifications and poor administration especially with regard to change orders are some of the major factors that lead to scope creep. Scope creeps cost tremendous amount of money, time, and often personnel availability and project reputation. While it may not be practically possible to completely avoid scope creeps and change orders, it must be ensured that the construction contract clearly states how any work outside of the initial scope should be requested, documented and administered.
C. Lack of Skilled Manpower and Productivity Issues
The construction industry has been heavily plagued by the shortage of skilled labor especially since the global recession between 2007 and 2011 when millions of construction workers were laid off. We haven’t been able to recover from the loss of skilled labor since then. Productivity of projects has taken a hit over the last decade owing to the lack of skilled labor and manpower. Consequently, novices are being hired on projects who obviously do not possess the skills, expertise or confidence to complete the jobs in the required timelines. A thorough cognizance of the capabilities of the workmen becomes crucial in establishing project estimations and schedules.
Besides, in countries like India where frequent festivals and holidays are major components of the cultural design, the number of working days per year gets reduced significantly. Such factors adversely impact the project schedules that are based on productivity expectations. Different tasks require a certain number of man-hours to be completed and the unavailability of competent workers for a considerable amount of time delays the project completion. When workers don’t show up, get injured or falter on the allocated tasks, it reduces productivity causing delays and the entire schedule goes for a toss. Such situations enforce the inclusion of additional workers or outsourcing of more work which in turn lowers the profit margins.
D. Permits and approvals
Building permits and approvals are the essential elements of any construction project. However, procuring these permits have proven to be extremely costly and time consuming for project owners. An undue delay in obtaining the permits can compel project owners to run the construction without proper permits due to financial stress. This puts a heavy liability on the owners of the projects, and makes them vulnerable to legal consequences of grave nature. As a result of the long waiting period for project approvals in the residential real estate sector, the housing delivery system gets badly impacted causing an ongoing surge in housing deficits in many regions on an annual basis.
Delays in planning permissions and approvals have been causing many obstacles which result in uncertainty, risk and unsafe development. Without appropriate prudence in planning, procurement of a building permit can be challenging, stressful, and absolutely menacing. Adequate measures will be needed from the policy makers to obliterate bureaucracy in the permit issuance process, while on the other hand, project owners will need to be more conscious of the requirements and smarter in projection of the timelines of obtaining the permit, and must seek assistance of reputed project managers right from the initial stage to effectively combat procedural impediments.
E. Decision Making
A series of decisions guide the entire management process in the construction business. The decisions influence the final form of the edifice, whereas the ramifications of these decisions often emerge many years later when the established structure becomes operational. Often, delays and dilemmas in the decision-making act by the project owners and/or the designated authorities lead to irreversible consequences for all stakeholders involved in the project. Challenges in decision-making can arise across different stages of construction right from choosing the location to planning, designing, technological adoption and integration, sourcing of structures and materials, risk management, project governance and quality control. And in each of these stages, prompt yet well-informed decision-making is imperative for the project success, and unfortunately, in many instances we do not see this being actualized, and disaster is there for everyone to see.
In a lot of cases, decision making is focused only around cost considerations or financial profits, and non-economic parameters are completely ignored. Such myopic approach leads process inefficiencies, backtracks, abortive costs, repetition of tasks, and project delays because the holistic scenario is not considered and the way decisions are made on projects is not structured, analyzed, ordered and controlled.
F. Overlooking Alarms and Red Flags
The smooth flow of operation on any project may make it convenient for project owners and contractors to ignore early warning signs of potential threats. Small elements of risk can, at times, snowball into major issues if ignored, and failure in timely addressing these can cause projects to fail. The failure on part of the personnel to report issues or monitor projects closely may adversely affect the project on multiple levels.
Prioritization of issues along with corresponding actions to address them on a timely basis can go a long way in establishing a successful project. Project managers should be on-boarded to be able to analyze and troubleshoot issues at early stages in order to avoid delays. Spontaneous thinking and prompt decision-making bring the difference that lies between good and great projects.
G. Weather
Climate change has acquainted us with the new reality of high risks of weather unpredictability. For an industry like construction which is extremely vulnerable to weather events, this is probably not the best news to know. It has become increasingly important for construction companies to build comprehensive resilience strategies.
The issue of labor shortage aggravates under poor weather conditions primarily due to increased risks to safety. Project performance, timelines and costs are also getting impacted due to equipment damage and impairment caused by extreme weather conditions. The shift in weather paradigms has also rendered it more difficult to source and procure construction materials. Environmental events such as drought, flooding and storms have been causing scarcity of supplies, therefore resulting in an unforeseen rise in costs.
H. Funding
Construction firms, today, have enormous daily as well as long-term expenditures typically ranging from suspended or delayed construction projects to maintenance costs and incidentals. Construction enterprises are facing major problems in sustaining their businesses primarily due to slow client payments and steep interest fees on bank loans. Addressing economic issues before they assume untamable proportions has become an imperative to stay operational and avoid bankruptcy.
Construction projects are usually exorbitant investments for facility owners. And more often than not, project owners do not have enough funds handy to be able completely pay for a project in one go. Slow client payments have been posing financing challenges for the project contractors, who then end up having a negative cash balance. These contractors usually do not possess large capital assets, and hence the banks and loan companies identify them as credit risks. Consequently, higher interest charges are required to be paid by the contractor on the loans. Larger the construction project, greater is the risk and higher the interest. Steep interest charges, at times, eventually result in financial handicap and aggravation of the company’s debts. Additionally, unpredicted events can lead to expensive delays, cost overruns beyond the original estimate and ultimately tremendous economic losses for the firm.
Besides, when the national economy is not at its prime and the GDP’s standing is below par, several political and governance moves have the potential to put the industry under a lot of uncertainties in terms of financial support. Cuts in government spending in the construction sector due to economic slowdown eventually results in production cuts in the equipment industry, slow-down in the projects awarding activity, deferral of payments to contractors, and decline in market demand. At most times, upcoming elections would also mean slowdown in the industry not due to the lack of orders or projects, but because of the funding getting diverted.
The firms willing to get stalled or new construction projects off the ground would need liquidity and capital to meet materials, labor, insurance, dispute resolution and other operational costs, and the lawmakers and financial institutions must take adequate measures to ensure ease of credit for these contractors for their courage, if nothing else, to bring the industry back on track in such volatile economic times.
Way Forward
While the construction industry may be sailing on turbulent waters currently, we are more than assured with the government’s recognition of the need for rapid growth as well as the acknowledgment of the risks that pose. An optimum level of intervention is what the government needs to find in order to maintain proper standards while also ensuring that over-regulation, bureaucracy, and budget deficit do not curb innovation, interest, and investments in the sector.
As the construction industry experiences radical transformation, the need of the hour is to channelize our young talent pool in a manner that is befitting of their potential and interests. The youth must be mentored and coached based on the incredible possibilities that the industry has to offer. This is the one of the effective measures that can contain the dropout ratio and ensure that requisite skilled workforce enters the construction industry, thereby accelerating economic growth and spurring national progress.
Indeed, some of the factors affecting the growth of the construction sector may be out control, reach and influence of the major stakeholders, but that makes it all the more crucial for the industry to collectively work on and strengthen other elements in favor of its progress. One of the best ways is to collaborate with reputed Project Management firms (e.g. Turner Project Management India) which have the experience of handling complex construction projects and can build resilience and improve the efficiency of individual firm’s planning, decision-making and communication procedures. That way, when adversities arise, the organization is organized enough to deal with the emergency effectively.
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