The construction industry in times of recession – Analysis and Outlook
Analysis of how the building sector needs to face these times of struggling economy
Times of recession always affect every industry, and the construction world never stops -along with healthcare the only two main areas that kept working during the pandemic times, so we need also to be able to adapt to these situations resiliently.
After the global economic crisis of 2007, a period of general recession impacted the building industry and, on top of destroying many jobs, avoid the development and transformation that this field needs from a long time ago.
Once that period is gone, the end of the second decade of the century brought another global crisis with the COVID-19 pandemic and we are still getting through the recession aftermath, which is now enhanced due to the Russian invasion of Ukraine and the rise of transportation and prime materials which are a critical factor in building prices.
We can say that the ‘opportunity missed’ back then at the beginning of the second decade of this century is now back in our hands again, yes, a second chance in life! We, the AEC sector, can take this opportunity to finally make an impact and change for real our industry, accepting and embracing all the changes that we denied and avoided for years.
Hard economic times push creativity and new ideas to innovate and make something to gain what you have lost during those moments. Now, the only way out of this recession time with continuous price raising, fluctuation, inflation, and instability is to face the inevitable way of digital transformation.
But I am not here to talk to you about economics and history, so, let’s ask ourselves how can the building sector respond to these times.
Further read about the future of the construction industry: 9 key trends in the construction industry
Facing a digital transformation at recession times
New technologies need investment and we all know that these times are hard to invest in, but once again, the right decision does not seem easy. Maybe it does not seem the best moment to put everything upside down but if you analyze the market, recession times are not the most profitable ones, so maybe if you need to take a risk to change something it is the time you expose your company to fewer losses. Different angle, different feelings, right?
We need to be brave and bet when conditions do not seem ideal because there is no perfect time for a change!
The existing gap between construction and other industries in terms of digitalization and automatization of processes is huge, so this can be seen as an advantage as there are a lot of paths and alternatives to take to close that gap. The starting point will be definitely to digitize, but what is digitize?
Digitize is the process of converting any type of information into machine-readable data, it is, usable data for a computer to process. Many people take this wrong by thinking “Oh, so just sending a PDF will be sending the information digitally”. No. A PDF document, even if it is a digital file, it is not machine-readable so putting the information into a PDF is not digitizing the information. To make the data machine readable we need to use a .csv or .xml file for example if we talk in open formats. It won’t be the sexiest way to transfer your information but for computers, it is the most attractive one as they will be able to extract the data from there, do calculations, simulations and present the best results after their analysis.
As we spoke in our BIM Café with Iván Gómez, (full interview here) “companies which have no data digitally will be out of competition very soon. It is undeniable that digitizing your product data will be the minimum request to be a tangible candidate in a construction project, either you are a supplier or contractor”. Amen to all Iván said here.
And the use of digital data in construction is linked to the BIM methodology, making us able to use that data to provide better designs with more accuracy, higher efficiency, and less cost in both, time and money.h
Cost reduction with a higher productivity
Talking about the cost in a recession time, it is clear that profit margins would be squeezed as contractors would see themselves being forced to fight more fiercely for jobs. And we already know how tight is the margin in the building world, where the difference between the amount of money and the margins is the highest compared with other commercial activities, due to the low rate of productivity.
In another of our interviews with Igansi Pérez Arnal at our BIM Café (watch the full talk here), Ignasi clearly says “public administrations start to understand the need of using BIM as they see as a way to save money, and that is what they are interested in, to reduce cost and use the public budget in many other projects”. Ignasi even talked about projects with “zero budget”, and that is in fact projects which were able to run with the money saved from others, and that is because the use of BIM on the construction design and execution, avoiding costing mistakes and forecasting better and closer results in time and money.
More focused to increase productivity is the concept of industrialization in the construction industry. Another sector automotive is industrialized up to the point where manual work is barely needed, so they can focus on other tasks for innovation. This change hasn’t arrived yet to the construction and it is a very exciting path to explore which we will talk about it for sure. Interested? Send us your comment and we will write articles about it!
Nothing is easy in recession times but if we see this as an opportunity to change, evolve, and innovate with lower risk, the scope and expectations are different.
The change needs to come now, and this is the moment to completely shit the wheel in the construction world and start to close the gap with other sectors where digital transformation started to happen years ago. The road is long and we are just at the beginning… If you read up here you are probably as excited to be part of this unique moment as us, so do not hesitate to share with us that excitement I am sure we can make great things for the building industry in the coming years.
Author: Enrique Nadales Clavero, Tequma & Tylko Advisors