2024 is expected to witness significant advancements in construction and engineering, driven by a need to increase business competitiveness, adopt effective digital strategies, and explore new revenue opportunities.
As the industry faces ongoing challenges such as increasing labor shortages, they are exploring the adoption of digital technologies like AI to automate and optimize their operations. To develop consistent revenue, businesses are transitioning to become total asset service lifecycle providers. Moreover, outdated and disorganized businesses will look to restructure and streamline their operations through real-time data for accurate project budgeting and forecasting.
To explore these trends further, we asked our IFS Construction and Engineering global industry directors, Kenny Ingram and Chris Knight, to share their insights and predictions for the future. From prioritizing digital technology adoption to expanding business growth opportunities, they focused on three trends which will characterize the next year in construction and engineering.
Prediction 1: 30% of construction and engineering companies will deploy AI and automation within the next 3 years.
AI and automation in construction is the use of machines and computer systems that can perform tasks that normally require human intelligence, such as design, planning, monitoring, and analysis. Examples include:
Data analytics: Using AI to collect, process, and analyze large amounts of data from various sources, such a business systems like ERP, to provide insights and predictions for construction projects, such as site conditions, project risks, forecast future project costs and margins and performance indicators.
Wearable tech: Devices that can be worn by workers to enhance their safety, productivity and communication, such as smart helmets, glasses, vests, and gloves.
BIM & AI: Integrating of building information modelling (BIM) and AI to improve the design, coordination and management of construction projects, such as generative design, construction optioneering, and data analytics.
Tool tracking technology & the Internet of Things (IoT): Using AI to monitor and track the location, usage, and status of tools, equipment, and materials, using devices such as RFID tags, GPS trackers, and smart sensors.
Planning and Scheduling Optimization: Intelligent planning and scheduling using mathematical models can improve business performance both in terms of productivity and improved project and maintenance service delivery performance. This impacts all types of resources including labor, equipment, materials and subcontracts.
For many construction and engineering companies, the consideration and adoption of AI and automation are opportunities to address a number of very traditional and long-standing challenges, such as skilled labor shortages, that will only accelerate over time.
Prediction 2: Construction and engineering companies will have >30% of their revenue coming from operational and maintenance services within 4 years.
Construction and engineering companies design and build assets as their primary focus. However, in 2024 it will become increasingly common for C&E companies to evolve to a servitized business models, also providing the services that support the operations and maintenance of an asset’s lifecycle. In fact, this servitization trend is accelerating at a rapid pace, with a goal for this revenue stream to be >50% of their total revenue.
Many sectors face the challenge of low project margins, exacerbated by macro-economic conditions that complicate investment in new capital projects. Moreover, accurately forecasting which projects contractors will secure a winning project margin on is a difficult task. These factors make it risky to operate a business that relies on a small volume and poses potentially serious implications. As a result, this can lower their stock market valuation as they are characterized as volatile investments.
To address this, companies are actively seeking to diversify their businesses and reduce the impact of large value, unpredictable, low volume projects. By offering asset operations and maintenance services, C&E companies have an effective way to grow, and foster resilience in their business.
A significant benefit of this approach is the production of recurring revenue streams. Long-term maintenance contracts with a 5-to-10-year duration are becoming more common. In fact, this business strategy accounts for over 50% of C&E companies’ revenue, with the aim of making the business more sustainable in the long term and increasing its market valuation.
There are many additional advantages to adopting this strategy that benefits the construction companies and their clients:
Aligns with asset owner’s strategy and objectives
Construction and engineering companies have detailed knowledge of the asset they build. Therefore, they are in the strongest position to understand how it should be maintained in order to maximize its performance and cost efficiency. We see this trend moving towards a “Contracting for Outcomes” model where the client asks the company to design, build, operate and maintain the asset. In IFS we describe this as transitioning from being a construction or engineering contractor to becoming a “Total Asset Lifecycle Service Provider”.
Improved Resource Utilization
Contractors have a skilled labor force that have the knowledge to construct install, repair and maintain the elements that comprise an asset. These skills will be employed by the main or speciality subcontractors. By expanding the work beyond construction and installation tasks to maintenance work offers a way to increase labor productivity,. leading to improved margins for the contractor, faster response times for the asset owner, and higher quality service.
Improved Asset Design
When contractors are involved in the day-to-day operations and maintenance activities, they have valuable insights into its performance. These insights can be fed back to the engineering function to inform future designs and improvements – a mutual benefit for both the asset owner and the contractor.
Improved Safety and Regulatory Compliance
When the contractor takes responsibility for all stages of the asset’s life, they are exposed to how the asset is performing in terms of safety and compliance. This increases their knowledge and allows for continuous improvement, again benefitting the asset owner and end user community.
Prediction 3: 90% of construction companies will simplify their business system landscape with cloud-based technology in the next 5 years
Construction and engineering companies are involved in designing, building, operating, and maintaining complex assets. To facilitate these complex business processes, companies have traditionally invested in a wide variety of specialized software applications for individual departments, and then attempted to integrate these systems together to provide efficient business processes.
Due to the complexity of integrations, implementation is almost impossible to execute. Indeed, as a result of inconsistent data structures many organizations are resorting to Excel spreadsheets to link processes and provide accurate management information.
What is driving this change?
To face these challenges head on, companies need to become more efficient, agile, and resilient. What’s holding them back? A disjointed business system landscape constrains companies and has many disadvantages, including:
- Expensive to maintain and increases business risk with unsupported software systems.
- Cannot move to a Cloud-based, open platform architecture.
- Many processes are manual and inconsistent
- Excessive use of Excel is labor-intensive, provides inaccurate data that is not real-time and can be manipulated, leading to uninformed decision-making.
- Standardized, repeatable best practice processes cannot be implemented.
- Difficult to change strategy and diversify by acquiring new businesses or offering new solutions.
- Impossible to measure performance and drive continuous improvement.
- Poor project and business performance, resulting in reduced future pipeline.
An effective digital strategy needs to be implemented, led by senior leadership. It should not be seen as an IT or even a tactical business project, but as a strategic, high-level business initiative.
This transition needs to be part of a continuous improvement plan that aligns with business goals for significant value improvements.
A phased approach is necessary and would typically be split into two overarching phases—Stage 1: Get Control, and Stage 2: Transform and Innovate.
Stage 1: Get Control
In this stage, the main objectives often include:
- Consolidate & simplify systems and processes
- Reduce business risk, siloes and the use of Excel
- Empower management through full transparency of information
- Drive more predictable revenue and margins with project financial control
Stage 2: Transform and Innovate
Here, the business can now grow and innovate without putting the business at risk.
- Grow business and make it more resilient through acquisitions or by diversifying into new business streams such as offering operations and maintenance services, asset rental, offsite manufacturing
- Innovate by adopting digital enablers such as BIM, AI, IoT, Robotics, Automation.
- Exploit new trends across industrialized construction methods
Build a Successful 2024 and Beyond
As we look ahead to 2024, it is clear that the construction and engineering industry must prioritize the integration of digital technology to create new revenue streams and streamline operations. Through the implementation of AI and automation and the adoption of a servitized business model, the industry can address challenges like the labor shortage, cut project costs, improve efficiency, and enhance customer loyalty.
Is your construction or engineering company ready to build a successful business strategy this year? See for yourself how IFS is helping companies like yours achieve their digital transformation goals.
SOURCE: Knight, K. I. &. C. (2024, January 17). C&E Industry trends and predictions. IFS Blog. https://blog.ifs.com/2024/01/ce-industry-trends-and-predictions/
