How do you avoid failure costs (and increase margins)?

Geschreven door:

Demi-Jo Smith, December 21, 2022

In construction, an estimated €5 billion is spent annually on rectifying mistakes. This is according to research by ABN AMRO. Expressed as a percentage, the average construction company spends more on failure costs (5%) than there is margin on projects (2-3% on average). Reason enough to do something about it. Everyone understands that ‘paying even more attention’ and ‘keeping track of things’ helps, but how do you prevent your failure costs from skyrocketing?

building under construction collapsing, causing failure costs for builders.

Increase margins by reducing failure costs, and make your customers happier

Reducing failure costs increases margins, and makes customers happier. Yet construction companies tend to see failure costs as something ‘that just comes with the job’. Why? Because your people do not want to do double work, your customers are not happy with repair works (or delays) and you would rather increase your margins. Therefore, address failure costs. Nobody works without error, but with modern tools you can reduce that 5%. Every percent less, is one percent more margin. 

Bring all relevant data together in one place

Some failure costs occur even before a project has started. Everyone knows the problems concerning the translation between what the client asks, what the architect draws and how the builder builds it. Design changes, estimation errors regarding budget and overenthusiasm about the time required, all lead to higher costs. This can largely be overcome by making sure everyone is working with the right data. Bring all relevant documents together in one place and ensure proper version control. Whether you are talking about permit applications, construction drawings, BIM files or anything else, everyone works with the same data (and the right version).

Read all about document management here.

Deploy collaboration software to avoid failure costs

Bringing data together alone, won’t get you there. Collaboration software ensures that your solution itself does not become a problem. For construction projects, you need software that meets some very specific requirements. Besides central storage of files (and search capabilities), you want to be able to control who is allowed to view, modify, delete, approve, reject and so on. For example, the plumber (to name but one) should not be allowed to access your budget forecast, even if that file is linked to the relevant project and centrally available.

In case you have version control available in your solution, you can be sure that everyone is working with the latest version of the drawing.

Streamline communication with version control

The average construction drawing is a large file, that changes frequently. Use a collaborative solution in which you can share large files directly and add an expiry date. The expiry date gives you the option of linking responses to time (deadlines). If your solution also includes version management, you can be sure that everyone works with the latest version of the drawing. By streamlining communication in this way, you take the first big step towards reducing failure costs.

Keep a close eye on the execution phase

By containing errors in the design and preparation phase, you tackle the cause of 32% of all failure costs, according to the ABN AMRO report. That is a great start. But 54% of the problems arise in the execution phase. This comes as no surprise. This is where expensive building materials and different (interdependent) parties come together. If the plasterer is on site before the masons and roofer, it costs money due to the lost time of the plasterer. But what happens to the bags of plaster, when they are delivered assuming they could be stored inside, but there’s still no roof to put them under? Before you know it, costs get even further out of hand.

You make it easier for everyone to report in the right way and make sure all the information can be processed automatically.

Digital forms make it easier to keep track

Mistakes like this are (partly) avoidable by paying (even) more attention. But we all know that already. We also know how many parties are involved in an average construction project. You could use some help keeping an overview. Do so by making sure everyone communicates in the same place, and in the same way. Standard digital forms simplify this. You make it easier for everyone to report correctly and ensure that the information can be processed automatically.

Provide automatic alerts

Having everyone submit information in the same way, makes it easier to see what’s going on. This is useful in itself, but there is a bigger benefit behind it. By supplying information in the same way, you are able to automate it. If one party reports via an app when their work is finished, and another shares it through an email, a computer can’t do much more than display the messages to you. If everyone fills in the completion date in a form, then your management software knows it’s the completion date and you can (for example) automatically display it in a shared calendar, or use it to receive alerts. For instance when something is (or should be) finished. 

Read all about digitisation here.

Invest in construction support

Failure costs take a big bite out of potential profits on construction projects. That is why it makes sense to invest in construction support; eventually it will pay for itself. Of course, you cannot prevent everything, but with a good software solution, you can take targeted action and increase your margin. The best software solutions are tailored to your needs, without costly customisation. Use it to your advantage.