Measuring Productivity in

Construction: Improving
Business Performance

Harvey M. Bernstein
Vice President, Industry Analytics & Alliances
McGraw-Hill Construction
 Productivity as Defined Today
“…construction contract expenditures in
constant dollars (output) divided by man-
hours worked (input).”

2 McGraw-Hill Construction Confidential

 Problems Measuring Productivity
 Macro data does not provide a clear or consistent
picture of industry productivity
 Best indicator of productivity is accomplished at
the project level; but it is difficult to aggregate all
project information
 Variation by contractor and delivery approach is
significant
– Delivery approach variances up to 17% (CURT)
 Owners, AEC firms, and BPMs lack agreement on
what metrics are most important to quantify
measuring performance

3 McGraw-Hill Construction Confidential

 U.S. Productivity Gap (1964-2003)

Non-Farm

Construction

Reference: Paul Teicholz, Ph.D., Professor (Research) Emeritus,

Dept. of Civil and Environmental Engineering, Stanford University
4 McGraw-Hill Construction Confidential
 Canada Total Factor Productivity in the Business
and Construction Sectors, 1961-2001

5 McGraw-Hill Construction Confidential

 Who needs to know how to measure
productivity and have access to an Industry
Performance Rating System?

The thousands of firms who must wisely

evaluate and select GCs, Subs, AE firms, BPMs,
Products, and Distributors.

6 McGraw-Hill Construction Confidential

 Who will benefit from an Industry
Performance Rating System?
 Owners –to select the best AEC firms
 GCs and Design firms –to promote their rankings
 Distributors -to represent the best BPMs and BPMs
who want to partner with the best Distributors
 Firms -to expand thru partnering or buying Firms
 Lenders -to minimize risks of construction lending
 Insurance firms -seeking an objective, third-party
source of contractor and project ratings
 Government Agencies -for cost estimating and
project cost comparisons

7 McGraw-Hill Construction Confidential

 What about labor’s influence?
 Multiple studies show productive work (direct
work) accounts for only about 1/3 of workers time
 Work site communications are inadequate
 Material handling time has to be reduced
 Waiting time has to be reduced through better
integration/scheduling with suppliers
 Track/manage productivity at the project level to
establish a benchmark for future improvements

8 McGraw-Hill Construction Confidential

 Labor Rates

Reference: Paul Teicholz, Ph.D., Professor (Research) Emeritus,

Dept. of Civil and Environmental Engineering, Stanford University

9 McGraw-Hill Construction Confidential

 Keys to Effectiveness
 Effective use of subcontractor and labor
– Level of craft training
– Familiarity with means and methods
– Effectiveness of supervision/project
management
– Influence of wages
– Union vs Non-union
– Common work culture (safety)

10 McGraw-Hill Construction Confidential

 Safety as an example
 First items on every agenda
 Part of corporate culture
 Recognizes that a safe work site is also an efficient
work site

11 McGraw-Hill Construction Confidential

 Higher Wage Rates: Do They Drive
Productivity?
Low Wage High Wage

Average Hourly Wage $15.68 $26.34

Hours per Mile 10,276 6,991

Labor Costs Per Mile $161,128 $184,138

Total Costs Per Mile $857,965 $826,509

Source: Construction Labor Research Council, March 2004.

12 McGraw-Hill Construction Confidential

 Productivity Is Not Constant in a Complex
Industry

13 McGraw-Hill Construction Confidential

 Combining Multiple Factors in Measuring
Productivity

14 McGraw-Hill Construction Confidential

 Unit Cost Comparison

Building Type Cost/s.f. Cost/s.f. 2003 Cost 1965-2003 1966 2003 Adjusted
to Decrease
1996
Warehouse $ 4.30 $21.00 $ 3.70 (14.0%)
Retail $13.00 $63.33 $11.15 (14.3%)
Office $18.50 $91.00 $16.02 (13.4%)
Multifamily Residential $ 9.10 $45.50 $ 8.09 (11.1%)
Weighted Average (12.3%)

Source: Haskell, 2005

15 McGraw-Hill Construction Confidential

 Quality and Content Enhancements
Category 40-year Cost Impact

Fire and Life Safety 3.1%

Seismic and Windstorm Resistance 1.6%
Life-cycle Cost Expectancy, Quality 3.3%
Sustainability, Environmental Quality 2.7%
Impact Fees, Offsite Improvements 1.2%
Accessibility Compliance (ADA) 1.3%
Enhanced Security Features 1.0%
Improved Energy Efficiency 2.8%
Indoor Air Quality, Mold, Asbestos 1.6%
Total 18.6%

Source: Haskell, 2005

16 McGraw-Hill Construction Confidential

 Summary - Output Approach

Unit Cost Decrease 12.3%

Quality and Content Increase 18.6%

Total Productivity Increase 33.2%

Source: Haskell, 2005

17 McGraw-Hill Construction Confidential

 Summary - Input Approach

Labor Productivity Increase 15.3%

Materials Cost Decrease 21.1%
Capital Equipment Increase (4.0)%

Aggregate Productivity Increase 32.4%

Source: Haskell, 2005

18 McGraw-Hill Construction Confidential

 Haskell Conclusions
Output Approach 33.2%
Input Approach 32.4%
Rounded 33.0% = 0.78%/year

All other U.S. Industry = 1.75%/year

Source: Haskell, 2005

19 McGraw-Hill Construction Confidential

 Impact of CAD Activities
 CURT studies show 3D CAD provides 7 percent
(and up) improvement in labor productivity

7%

20 McGraw-Hill Construction Confidential

 Change impact management

Any deviation from construction plan

drives poor productivity


Disruption is the major impact

21 McGraw-Hill Construction Confidential

 Industry Thoughts on Measuring
Productivity
 Get industry buy-in on the criteria used.
 Find surrogates for data that will indicate
performance and enable some form of comparison.
 Measurement rankings drive performance (e.g., ENR
rankings are used by clients when viewing potential
contractors).
 Safety drives productivity and is a fundamental
indicator of quality and should be a factor in
measuring performance.
 A quality team is indispensable to good
performance and should be considered.

22 McGraw-Hill Construction Confidential

 Potential Areas for Productivity Increases
 Information Technology
 Project Delivery
 Automation and Prefabrication
 Workforce Development
 Materials

23 McGraw-Hill Construction Confidential

 Benefits of Developing a Measurement and
Performance Rating System for the
Construction Industry

• new innovative products

• improved efficiency
• Improved performance
• Improved
competitiveness
• higher profits
• increased market share

24 McGraw-Hill Construction Confidential