Failure costs in construction is not something the industry likes to dwell on. Nevertheless, it is an issue that gives many a business owner a headache. These additional expenses gnaw away at the profit margins of construction companies, making almost every project less profitable than expected. So the key is to reduce these failure costs to the maximum extent possible.
What are Failure Costs?
Failure costs are unnecessary costs that usually only become apparent during execution. However, their cause can often be found in the preliminary process: during the design, development and planning phases of a construction project.
How do failure costs occur in construction?
Failure costs are costs incurred by such things as:
Mistakes made in:
het ontwerp,
de constructietekeningen,
de planning,
de inkoop,
de leveringen,
Inadequate materials management,
Inadequate inventory management,
Delayed deliveries,
Inadequate risk management of construction processes,
A shortage of knowledgeable and experienced personnel,
Internal and external communication errors,
Controllers' omissions,
Materials not meeting specifications,
Repair costs following acknowledged customer complaints.
Billions of euros of damage
According to a survey published by ABN AMRO, nearly four in 10 construction companies face failure costs that amount to 5 percent or more of the total budget.
With an average profit margin of 4.1%, this is a big dent in profits. The resulting damage amounts to many billions of euros and affects the profit margins of the construction industry in the Benelux.
However, it does not stop at financial loss. After all, there is a real chance that reputational damage will also occur, threatening your competitive position. As a result, profitable contracts slip through your fingers and the damage resulting from failure costs continues to accumulate.
Organizational challenge
A corporate culture with loose organization, business processes with gaps and inadequate management of construction information increase the risk of wrong decisions, omissions and miscommunications.
The logical consequence is a flood of problems, human errors and failure costs in construction projects. The introduction of proper data management is already an important first step in avoiding and correcting this.
Reduce failure costs in construction? Not a pipe dream!
In these times of cut-throat competition, you have no other choice. Anyone who wants to keep his/her business healthy must minimize failure costs. Especially in the construction industry, it is precisely these costs that nibble at (already small) profit margins and make the project loss-making. Fortunately, this is not a losing battle! On the contrary, there are several ways to reduce or even eliminate failure costs.
Risk analysis in construction as key to success
Risk is inherent in construction projects. A lot of different people are involved, and human error can never be completely eliminated. It's a challenge that requires the right approach and corporate culture. First and foremost, working safely, accurately and efficiently must be an absolute priority in all business processes.
Everything starts with setting an example by implementing adequate risk management in construction. It is imperative that all processes undergo continuous risk analysis. Make adjustments based on the results where necessary. Provide optimal communication channels, standardized methods, a common data environment and integrated management to achieve the hoped-for results.
Platform for data exchange
Anyone who wants to avoid failure costs in construction should make sure that the various parties to a project have access to adequate and up-to-date data. By uniting everything and everyone on the same software platform, the term "collaboration" takes on a completely new meaning. After all, all communication and data exchange takes place through a single channel.
Result? Everyone works within one version of the truth and has continuous visibility of who is doing what and when.
Only benefits
This way of working is more pleasant and efficient because there are fewer misunderstandings, errors, wasted time and conflicts. This in turn leads to lower failure costs, and thus higher customer satisfaction and profitability. As icing on the cake, the communication platform continues to add value from design to end of project life.
The WKB is coming
Adequate quality assurance is also necessary to reduce failure costs. Especially in the construction sector, which is becoming increasingly complex in terms of techniques, materials and regulations. Even the legislature is convinced of this.
For example, in the Dutch construction sector, the new Quality Assurance Act (WKB) will be implemented step by step on Jan. 1, 2024. The intention is to reduce the number of defects in new construction and renovation and to better protect consumers. Verification of the building requirements of a structure is no longer the task of the municipality, but is performed by an independent party, the so-called quality assurance agency.
WKB requires new processes
That the WKB will bring about many changes in construction processes, liability and accountability is putting it lightly. For example, the various parties within a construction project will have an additional obligation on top of this: they will have to demonstrate upon completion of each construction project that they have strictly complied with the regulations in all areas. Logically, a central data and communication platform is the perfect tool to help them meet these requirements and expectations.
More efficient in the office and on site
With a unique document management system , Trimble is helping the construction industry move toward digitization and increase construction companies' profit margins. This is done in a highly secure manner where unauthorized persons cannot access the stored data and data traffic.
Thanks to specific functionalities, the various parties are given the opportunity to optimize risk management in construction as well as the processes of a construction project. A direct consequence is that failure costs are immediately reduced to a minimum.
With Viewpoint For Projects™, Trimble provides the construction professional with a powerful management tool that meets the ISO19650 standard for project data management, planning and delivery.
The Viewpoint Field View™ offline mobile solution replaces pen and paper on site with an offline mobile solution. Indeed, this tool allows project, quality and safety managers to collect and digitize information on site, allowing them to work more appropriately.
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