Imagining constructions

digital future
Capital Projects and Infrastructure June 2016
McKinsey Productivity Sciences Center, Singapore

Rajat Agarwal
Shankar Chandrasekaran
Mukund Sridhar
 Imagining constructions digital future

The industry needs to change; heres how to manage it.

The construction industry is ripe for disruption. The industry has not yet embraced new digital
Large projects across asset classes typically technologies that need up-front investment, even
take 20 percent longer to finish than scheduled if the long-term benefits are significant (Exhibit 3).
and are up to 80 percent over budget (Exhibit 1). R&D spending in construction runs well behind
Construction productivity has actually declined that of other industries: less than 1 percent of
in some markets since the 1990s (Exhibit 2); revenues, versus 3.5 to 4.5 percent for the auto and
financial returns for contractors are often aerospace sectors. This is also true for spending on
relatively lowand volatile. information technology, which accounts for less
than 1 percent of revenues for construction, even
While the construction sector has been slow to though a number of new software solutions have
adopt process and technology innovations, there been developed for the industry.
is also a continuing challenge when it comes to
fixing the basics. Project planning, for example, Technical challenges specific to the construction
CDP 2016
remains uncoordinated between the office and the sector have a role in the slow pace of digitization.
The digital future of construction
field and is often done on paper. Contracts do not Rolling out solutions across construction sites
Exhibit 1 of 9
include incentives for risk sharing and innovation; for multiple sectors that are geographically
performance management is inadequate, and dispersedcompare an oil pipeline, say, with an
supply-chain practices are still unsophisticated. airportis no easy task. And given the varying

Exhibit 1 Cost and schedule overruns are the norm in the construction sector.

Estimated overrun in capital expenditure, Mining Infrastructure Oil and gas

% of original quoted capital expenditure

Average: 20 months
650

150

100

Average: 80%

50

0
0.5 0 0.5 1.0 1.5 2.0 4.0 6.0 9.0

Delay beyond original schedule, years

Source: Global Projects Database, IHS Herold, Nov 19, 2013, herold.com; McKinsey analysis

2
Exhibit 2 Construction labor productivity has not kept pace with overall economic productivity.

Labor productivity, gross value added per hour worked, constant prices,1 index: 100 = 1995

Total economy
130 Germany
United
Kingdom
120

110 United
Kingdom
Germany
100
Construction
CDP 2016
The0 digital future of construction
Exhibit 3 of1997
1995 1996 9 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
1 Based on 2010 prices.

Source: Organisation for Economic Co-operation and Development

Exhibit 3 The construction industry is among the least digitized.

McKinsey Global Institute industry digitization index; Relatively low Relatively high
digitization digitization
2015 or latest available data
Digital leaders within relatively undigitized sectors

Assets Usage Labor

Ov itizat

Dig ndin

Dig et st

Tra

Int

Bu cess

Ma

Dig ork

Dig en

Dig rk
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ati
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on
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pit
ak
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s

Sector din
s

al
1

ing

g
ICT2
Media
Professional services
Finance and insurance
Wholesale trade
Advanced manufacturing
Oil and gas
Utilities
Chemicals and pharmaceuticals
Basic goods manufacturing
Mining
Real estate
Transportation and warehousing
Education
Retail trade
Entertainment and recreation
Personal and local services
Government
Healthcare
Hospitality
Construction
Agriculture and hunting

1Based on a set of metrics to assess digitization of assets (8 metrics), usage (11 metrics), and labor (8 metrics).
2Information and communications technology.
Source: AppBrain; Bluewolf; Computer Economics; eMarketer; Gartner; IDC Research; LiveChat; US Bureau of Economic Analysis;
US Bureau of Labor Statistics; US Census Bureau; McKinsey Global Institute analysis

3
 sophistication levels of smaller construction firms in the construction industry to identify solutions
that often function as subcontractors, building to transform productivity and project delivery
new capabilities at scale is another challenge. through new technologies and improved practices.

However, none of this is going to get easier. Projects In this report, we consider five ways the industry
are ever more complex and larger in scale. The can transform itself over the next five years.
growing demand for environmentally sensitive
construction means traditional practices must Disrupting construction: Five big ideas
change. And the shortage of skilled labor and None of these five ideas is futuristic or even
supervisory staff will only get worse. These are implausible. All are grounded in innovations that
deep issues that require new ways of thinking and are applicable to the construction sector and that are
working. Traditionally, the sector has tended to either being deployed or prototyped. In short, they are
focus on making incremental improvements, in practical and relevant. Moreover, they are designed
part because many believe that each project is to work together to deliver greater impact (Exhibit 4).
unique, that it is not possible to scale up new ideas,
CDPthat
and embracing new technologies is impractical.
2016 Higher-definition surveying and geolocation
The digital future of construction Geological surprises are a major reason that projects
The McKinsey
Exhibit 4 of 9Global Institute estimates that are delayed and go over budget. Discrepancies
the world will need to spend $57 trillion on between ground conditions and early survey
infrastructure by 2030 to keep up with global estimates can require costly last-minute changes
GDP growth.1 This is a massive incentive for players to project scope and design. New techniques that

Exhibit 4 Five trends will shape construction and capital projects.

1
Higher-definition
surveying and
geolocation
Rapid digital mapping
and estimating

5 2
Future-proof Next-generation
design and Digital 5-D building
construction information
Designing with construction modeling
materials and methods
of the future
organization Design platform for
the future
Developing next generation of
digital-native leaders to deliver
projects of the future

4 3
The Internet of Digital collaboration
Things and and mobility
advanced analytics Moving to paperless
Intelligent asset management projects, from the office
and decision making to the workforce

Source: McKinsey analysis

4
 integrate high-definition photography, 3-D laser to be overlaid. This information can then be uploaded
scanning, and geographic information systems, to other analytical and visualization systems for use
enabled by recent improvements in drone and in project planning and construction.
unmanned-aerial-vehicle (UAV) technology, can
dramatically improve accuracy and speed. Two or more survey techniques are often used
together to save time and money. For example, for
Photogrammetry, for example, provides high-quality, a survey of river sites for minihydropower plants
high-definition images of survey areas but takes in Southeast Asia, surveyors used lidar maps for
time to be converted into a usable format. Light- general terrain information and drone-mounted
detection-and-ranging (lidar) technology is much high-definition cameras to focus on specific areas.
faster than conventional technologies and provides
high-quality 3-D images that can be integrated Modern survey technology is more accessible than
with project-planning tools, such as building ever because costs have come down substantially.
information modeling (BIM), as Exhibit 5 shows. Lidar and real-time kinematic GPS are now
available for about $10,000. High-resolution
Used in conjunction with ground-penetrating cameras are small and light enough to be mounted
radar, magnetometers, and other equipment, on standard industrial drones; this is faster and
lidar can generate above-ground and underground cheaper than using helicopter-mounted cameras for
3-D images of project sites. This is particularly aerial surveys. Specialized technology providers
important in dense, environmentally sensitive, offer cost-efficient survey packages, including
or historical project sites, where disturbance drone and UAV equipment, data uploading, and
CDP 2016
needs to be minimized. processing services, as well as software to manage
The digital future of construction
drone flights, data capture, and dashboards to
Exhibit 5 of 9
These advanced survey techniques are complemented visualize information. Some government agencies
by geographic information systems that allow maps, and nongovernmental organizations have started
images, distance measurements, and GPS positions providing free lidar maps.

Exhibit 5 Lidar represents an evolution in surveying; added mobility from drones and handheld
technology is a breakthrough.

Overview of technology commonly used in site surveys

Electronic distance Light detection and

measurement GPS Photogrammetry ranging (lidar)

Most commonly deployed Uses GPS coordinates Uses high-resolution images Uses optical lasers to
Requires on-site personnel Ineffective when blocked Requires postprocessing detect thousands of points
Best used for on-site (eg, by tall buildings time to convert to per second, with native
rechecks prior to work or clouds) usable data 3-D output
Best used when theres Best used when theres May have issues with some
a need for high accuracy a need for high accuracy terrain, such as steep slopes
in small open sites in large sites

While lidar has existed for some time, there has been a breakthrough in its use via drones/unmanned aerial
vehicles (UAVs) and handheld platforms

Handheld 3-D laser scanners

Mounted on mobile platforms
Some lidar systems are now under 10 kg and can be deployed with drones/UAVs

Source: McKinsey analysis

5
 Next-generation 5-D building information modeling identify risks earlier and thus to make better
In the 1970s, major aerospace companies decisions. For example, project planners can
pioneered computer-aided 3-D modeling. This visualize and estimate the impact of a proposed
transformed the way aircraft were designed and change in design on project costs and schedule.
built and helped to improve sector productivity by
up to ten times. One study found that 75 percent of those that
adopted BIM reported a positive return on
The construction industry, however, has yet to their investment. They also reported shorter
adopt an integrated platform that spans project project life cycles and savings on paperwork and
planning, design, construction, operations, and material costs. Given these benefits, a number of
maintenance. Instead, the industry still relies on governments, including those in Britain, Finland,
bespoke software tools. In addition, project owners and Singapore, mandate the use of BIM for public
and contractors often use different platforms that infrastructure projects.
do not sync with one another. As a result, there is
no single source that provides an integrated, real- The use of 5-D BIM technology will be further
time view of project design, cost, and schedule. enhanced through augmented-reality technology
via wearable devices. For example, a wearable,
Next-generation 5-D BIM is a five-dimensional self-contained device with a see-through,
representation of the physical and functional holographic display and advanced sensors can
characteristics of any project. It considers a map the physical environment. Companies are
projects cost and schedule in addition to the developing BIM-like design and construction
standard spatial design parameters in 3-D. It solutions for these platforms. In this mixed
also includes such details such as geometry, reality environment, users can pin holograms
specifications,
CDP 2016 aesthetics, thermal, and acoustic to physical objects and interact with data using
properties.
The digitalA future
5-D BIMof platform allows owners and
construction gesture, gaze, and voice commands.
contractors to
Exhibit 6 of 9 identify, analyze, and record the
impact of changes on project costs and scheduling Combining 5-D BIM and augmented-reality
(Exhibit 6). The visual and intuitive nature of devices will transform construction, maintenance,
5-D BIM gives contractors a better chance to and operations. To get the full benefit of

Exhibit 6 5-D functionality can integrate design, cost, and schedule in a 3-D output.

Building information modeling (BIM) is a digital representation ofthe physical and functional characteristics of a project,
forming a reliable basis for decisions during the projects life cycle.

Elements of a 3-D model

are linked to the
Schedule execution schedule
(4-D)

Information that can be

embedded in 3-D model:
Geometry
5-D
Spatial data (from BIM
geographic information Design Budget
systems/lidar) (3-D) (5-D)
Specifications
Aesthetics (eg, color) Elements of the 3-D model are
Thermal properties used to develop budget and
Acoustic properties linked to cost heads

Source: McKinsey analysis

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 BIM technology, project owners and contractors may not be universal. Owners and contractors
need to incorporate its use right from the therefore often work from different versions
design stage, and all stakeholders need to adopt of reality. The use of paper makes it difficult to
standardized design and data-reporting formats capture and analyze data; that matters because
compatible with BIM. In addition, owners and in procurement and contracting, historical
contractors need to dedicate resources for BIM performance analytics can lead to better outcomes
implementation and invest in capability building. and risk management. Mismanaged paper trails
also routinely spur disagreements between owners
Digital collaboration and mobility and contractors on such matters as construction
Process digitization means moving away from progress, change orders, and claims management.
paper and toward online, real-time sharing Finally, paper trails simply take more time.
of information to ensure transparency and
collaboration, timely progress and risk assessment, Owners and contractors are beginning to deploy
quality control, and, eventually, better and more digital-collaboration and field-mobility solutions
reliable outcomes. (Exhibit 7). A large global construction firm
recently announced a joint development agreement
One reason for the industrys poor productivity with a software provider to develop a cloud-based,
record is that it still relies mainly on paper to mobile-enabled field-supervision platform that
CDP 2016
manage its processes and deliverables such as integrates project planning, engineering, physical
The digital future of construction
blueprints, design drawings, procurement and control, budgeting, and document management
Exhibit 7 of 9
supply-chain orders, equipment logs, daily for large projects. Several large project developers
progress reports, and punch lists. Due to the lack have already successfully digitized their project-
of digitization, information sharing is delayed and management work flows.

Exhibit 7 Digital solutions for construction need to deliver a seamless, real-time experience
across eight use cases.

Design management Scheduling Materials management Crew tracking

Visualize drawings and Create, assign, and Identify, track, and locate Provide real-time status
3-D models on-site, using prioritize tasks in real time materials, spools, and updates on total crew
mobile platforms Track progress online equipment across the deployed across work
Update blueprints in Immediately push work entire supply chain, fronts, number of active
the field with markups, plan and schedule to stores, and work front working hours, entry into
annotations, and all workers unauthorized areas,
hyperlinks Issue mobile notifications and so on
to all subcontractors

Quality control Contract management Performance management Document management

Offer remote site inspection Update and track Monitor progress and Upload and distribute
using pictures and tags contract-compliance performance across documents for reviewing,
shared through app checklists teams and work areas editing, and recording
Update and track live Maintain standardized Provide automated all decisions
punch lists across communication checklists dashboards created Allow universal project
projects to expedite Provide updated record of from field data search across any phase
project closure all client and contractor Offer staffing updates and
communications past reports generated on
handheld devices

Source: McKinsey analysis

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 Digitizing work flows has substantial benefits. In updates. These are commercially viable for
an American tunnel project that involved almost contractors and project owners of all sizes.
600 vendors, the contractor developed a single
platform solution for bidding, tendering, and In fact, the digital-collaboration and mobility-
contract management. This saved the team more solutions segment has attracted close to
than 20 hours of staff time per week, cut down the 60 percent of all venture funding in the
time to generate reports by 75 percent, and sped up construction-technology sector. One start-up
document transmittals by 90 percent. In another has developed apps for tablets and smartphones
case, a $5 billion rail project saved more than that allow changes in construction blueprints and
$110 million and boosted productivity by using plans to be relayed in real time to on-site crews;
automated work flows for reviews and approvals. site photos can be hyperlinked to construction
plans. This solution maintains a master set of
Crew-mobility solutions will have a similar documents with automatic version control and
catalytic effect on productivity (Exhibit 8). Its cloud-based access. Other companies offer mobile
long been difficult for central-planning teams and timekeeping, real-time cost coding, geolocation of
on-site construction teams to connect and share workers, and issue logging and tracking.
information about progress in real time. Several
problems have limited the adoption of such tools by As frontline users such as project managers,
field crews: compatibility issues between mobility tradespeople, and operators adopt real-time
solutions and central-planning solutions, a lack of crew-mobility apps, they could change the way
reliable and high-speed broadband connectivity, the industry does everything from work- and
and nonintuitive designs and user interfaces. change-order management, time and material
CDP 2016 tracking, dispatching, scheduling, productivity
The digital future
The availability of construction
of low-cost mobile connectivity, measurement, and incident reporting.
Exhibit
including8via
of tablets
9 and handheld devices, has
ushered in a new generation of mobile first cloud- The Internet of Things and advanced analytics
based crew-mobility apps that can be deployed, By measures such as the number of people, the
even on remote construction sites, with real-time profusion of construction equipment, and the

Exhibit 8 Crew-mobility solutions aspire to talk to design platforms and master-planning programs.

Requirements Must-have functionalities

Compatible with all Mobile project- Planning and tracking

project-management management Deploy daily and weekly planning and tracking

software software at crew level

Offer tablet and
Portable on all smartphone versions Progress reporting
mobile communi- for various roles (eg, Offer daily reports on progress for quantities installed
cation devices supervisors, foremen) and resources planned

User-friendly for Planning and tracking

field workers Provide real-time availability of dashboard of key per-
formance indicators at supervisor/foremen/worker level

Access to expertise
Collaborate with experts and study best
practices remotely

Source: McKinsey analysis

8
amount of work going on at the same time, project One popular form of NFC technology is radio-
sites are getting denser. They now generate vast frequency identification (RFID). This is used
amounts of data, a majority of which is not even extensively in logistics, retail, and manufacturing
captured, let alone measured and processed. environments to collect precise information about
a product, place, time, and transaction. Since
The Internet of Things is a reality in many other the 1990s, construction has begun to use RFID
sectors; sensors and wireless technologies enable for applications such as tracking materials and
equipment and assets to become intelligent equipment and developing automated time sheets.
by connecting them with one another. On a
construction site, the Internet of Things would And NFC technology is evolving. Soon, tags will
allow construction machinery, equipment, be able to include information on specifications,
materials, structures, and even formwork dates, defects, vendors and original-equipment
to talk to a central data platform to capture manufacturers, maintenance records, operating
critical performance parameters. Sensors, near- parameters, and other applications. Costs of RFID
field-communication (NFC) devices, and other equipment, including scanners, receivers, and tags,
technologies can help monitor productivity and are falling, and new applications are emerging.
reliability of both staff and assets. There are A British construction company, for example, is
several potential uses: using RFID to monitor truck inspection, track tool
usage, and train workers at construction sites.
Equipment monitoring and repair. Advanced
sensors can enable machinery to detect and In addition to the opportunities from the Internet
communicate maintenance requirements, send of Things, the greater use of digitization in
automated alerts for preventive maintenance, the construction-planning process and on the
and compile usage and maintenance data. construction site itself is enabling firms to capture
data that paper could not. The insights gained
Inventory management and ordering. through the adoption of advanced analytics
Connected systems can forecast and alert site in construction projects can help to improve
managers when stocks are running short and efficiency, timelines, and risk management.
when orders need to be made. NFC tagging and
tracking of materials can also pinpoint their Advanced analytics helped a major London
location and movement and help reconcile infrastructure project save time and money
physical and electronic inventory. when project leaders worked with a data-
analytics company to produce a web-based
Quality assessment. Smart structures that adaptive-instrumentation-and-monitoring
use vibration sensors to test the strength system. The system absorbed field-sensor data,
and reliability of a structure during the construction-progress data, and workforce and
construction stage can detect deficiencies and vehicle movements. Statistical analysis based
then correct them early. on this information helped project teams detect
anomalies and identify potential riskscritical
Energy efficiency. Sensors that monitor ambient information for a dense and historically sensitive
conditions and fuel consumption for assets and city like London.
equipment can foster on-site energy efficiency.
Other examples abound. For instance, insights
Safety. Wearable bands can send alerts if from advanced analytics helped an oil and gas
drivers and operators are falling asleep or if a giant improve the productivity of its engineering
vehicle or asset is stationary or nonoperational function by 20 to 25 percent by pairing the right
for a given window of time during shift hours. teams, appointing appropriate team leads, and

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 modifying their work flows to minimize waste Off-site construction. Assembling lighter,
and improve efficiency. In another case, a large easier-to-handle materials off-site can
Middle Eastern construction firm worked improve project efficiency, address on-site
with a software company to build a predictive space constraints, and create the conditions
analytics engine to prevent equipment for crews to improve their skills.
breakdowns on-site for its fleet of construction
vehicles. This saved millions of dollars in There has been a wave of innovation in
downtime, fuel costs, and maintenance construction materials over the past few
expenses. And event simulations, coupled with decades, developed with specific uses in
optimization algorithms, have also helped ship mind. There are dozens; here are a few that
builders optimize construction planning. are particularly interesting:

Future-proof design and construction Self-healing concrete. This uses bacteria as a

New building materials, such as self-healing healing agent to close cracks on concrete; it is
concrete, aerogels, and nanomaterials, as well as currently at the proof-of-concept stage.
innovative construction approaches, such as 3-D
printing and preassembled modules, can lower Concrete canvas. Take a layer of concrete
costs and speed up construction while improving cloth, then add water and allow to set. This
quality and safety. innovation typically is used for drains,
channels, and passages, and it is now
Building materials represent a $1 trillion global available commercially.
industry; materials usually account for more
than half the total cost of projects. Traditional Topmix permeable. This is a cement
materials such as concrete, cement, and asphalt alternative that can absorb 4,000 liters of
make up most of this demand. But new and water a minute. It is in the early-adoption stage.
better construction materials are also required
due to several trends: Aerogel. This supertransparent, super-
insulating material is 99.98 percent air;
Green construction. There is an immense it is available commercially.
push to adopt materials and technologies
with lower carbon footprints. Nanomaterials. These superstrong,
ultralightweight materials may eventually
Cost efficiency. Given substantial cost be a substitute for steel reinforcement in
pressures, there is a need for structural structures and foundations, though they are
change in the choice of materials, in addition still in the research stage.
to incremental lean efforts.
Some of these materials of the future could
Supply-chain agility. Transporting heavy redefine how projects are conceptualized,
materials and equipment has massive designed, and executed. However, adoption
implications on supply-chain costs and time, has been slow due to a lack of awareness and
especially because many new projects are familiarity within the design and engineering
located in remote or dense areas. community, a limited supply chain and a lack
of availability at scale, and risk aversion among
Improved durability and strength. With project owners and contractors.
capital costs rising and land growing scarce
in many markets, owners are insisting that Despite being available for more than 30 years,
projects have longer commercial lives. for example, ethylene tetrafluoroethylene (ETFE)

10
 only gained widespread adoption after it was used into a manufacturing system. The result: greater
to build part of the aquatic building for the Beijing efficiency, less waste, and improved safety. In
Olympics in 2008. ETFE weighed less than addition, materials such as cross-laminated
1 percent of an equivalent glass panel and costs timber (CLT) are emerging in response to the
24 to 70 percent less to install. need for greener construction options. In the
United Kingdom, an 80-story timber skyscraper
About 80 percent of all construction work is still done recently received preliminary approval.
on-site, but many project developers and contractors
are deploying new off-site approaches that help them Companies are responding. A Singaporean
improve predictability, consistency, and repeatability. property developer is using PPVC for several
This is especially critical given the realities of new residential-building projects, after the
shrinking work space, labor shortages, and more government conducted successful pilots
exacting safety and environmental standards. The (Exhibit 9). And given the success of a CLT-
industry needs to move beyond precasting and based residential project, an Australian
prefabricating structures to the next generation of property developer recently announced
techniques. Several techniques show potential: plans to open a factory in Sydney dedicated
to manufacturing prefabricated building
Preassembly. Relatively simple structures, components for future developments.
such as factories and covered yards, can use
in-factory or in-yard assembly for a complete 3-D printing. Printing submodules or complete
building envelope. This technique can also concrete structures before assembly and
be adapted for modular buildings, such as internal work could transform the industry
hotels and budget condominiums. Complete with respect to design, cost, and time. However,
submodules of a larger building are put 3-D printing is still in the early stages of its
CDP 2016 in a factory or nearby yard before final
together development and cannot yet be deployed at the
Theassembly
digital future of construction
at the construction site. scale and speed required for large projects.
Exhibit 9 of 9
Techniques such as prefabricated, prefinished Robot-assembled construction.
volumetric construction (PPVC) integrate off-site Construction projects are inherently
capabilities to transform the construction site unstructured and often unpredictable;

Exhibit 9 Singapore is pioneering a new model of construction.

Concept
In prefabricated, prefinished volumetric
construction (PPVC), complete flats or modules
made of multiple units complete with internal
finishes, fixtures, and fittings are manufactured in
factories; they are then transported to site to be
erected in a modular manner
Typically relevant for hotels, hostels, budget
condominiums, and other facilities with standard
shapes and designs

Impact
Productivity improvement of up to 50% with
respect to staffing and time savings
Minimal dust and noise pollution
Improved site safety
Photo credit: Singapore Building and Construction Authority

Source: Building and Construction Authority of Singapore; McKinsey analysis

11
 they can also be sited in difficult terrains risks as the project developer, protected by a
and environments. For these reasons, comprehensive insurance policy. Instead of
the use of robots has been limited so far. a traditional clientcontractor relationship,
However, robots are now being selectively Heathrow treated the different partners
used for repetitive and predictable activities, like team members. It invited them to work
such as tiling, bricklaying, welding together to solve complex issues and to find
and spool fabrication, demolition, and the technical solutions that worked best for the
concrete recycling. whole project. This allowed all parties to focus
on keeping the project on track.
Companies that have successfully implemented
these approaches have had to dramatically change Return-on-investment orientation. Measuring
their internal planning, design, procurement, and communicating how new technology
and construction processes. They will also need will improve constructionfor example,
to invest in automation and an effective supply- through the positive effects on cost, schedule,
chain backbone to ensure smooth and on-time and risk optimizationis the surest way to
transportation of materials from factory to site to build a compelling case for adoption. One
use. Finally, companies that decide to vertically oil and gas major measures, documents, and
integrate their supply chains will need to plan for communicates productivity-related savings
manufacturing-related investments. as a result of the deployment of an advanced-
analytics and visualization solution for its
Recommendations for action deepwater platforms. This proves the positive
Given the construction industrys poor track financial impact and generates pull from
record on innovation and the adoption of new other projects.
technologies, tools, and approaches, project
owners and contractors need to adopt a new mind- Simplicity and intuitiveness in the design
set. Owners often believe that their responsibility of new solutions. At the front end, user
ends when they award contracts, forgetting that interfaces need to be foreman friendly to
they pay the economic costs of delay. For their part, encourage usage. At the back end, building in
contractors often do only the minimum required compatibility with existing enterprise solutions
to meet contractual terms, leaving substantial mitigates the need to spend more on upgrading
value on the table. For the industry to do better, existing platforms.
it needs to embrace four principles:
Change management. To move away from
Transparency and risk sharing in contracts. business as usual, organizations need
Habits are tough to change, and one habit is a clear change story; top management
to see contracts as adversarial opportunities needs to communicate why these changes
to hand off risks. Instead, contracts need are important and what that means for
to be seen as tools that allow fair sharing of organizational structure, capabilities, and
risks and rewards and that help both sides resourcing. Organizations that do not invest
succeed. This will happen if contracts clearly in change management will face the same
outline responsibilities and allow owners and resistance encountered during previous
contractors to share equitably the benefits that waves of technology deployment and are
arise from the adoption of technological and more likely to fail.
process innovations.
All major stakeholders share the responsibility for
During the construction of Terminal 5, for the transition to digital technology and innovation.
example, Heathrow Airport held all the The imperatives for each are different.

12
Project owners and developers need to mandate grants, bonuses, or subsidies to nudge owners
and measure. That starts with mandating adoption and contractors toward using digital solutions
of digital technologies in contracts and perhaps and help them educate and train the next
capitalizing the cost of digitization and technology generation. They can also encourage the adoption
when setting project budgets. To manage risks, of digital technologies, such as 5-D BIM, in public
owners should coinvest in technology pilots with projects, as well as set productivity norms, such
contractors and share rewards proportionately. Our as the use of prefabricated components. On the
experience indicates that megaprojects are often not investment side, some industry bodies have
the best candidates for big technology deployments; established venture-capital funds to help the
instead, starting small and developing capabilities best start-ups scale up and to connect them to
with midsize projects can build confidence. In developers and contractors.
addition, owners should measure and reward
technology adoption across their projects.

It is essential for engineering and construction Other industries have shown that first movers
contractors to reimagine and rewire. To do can build a sustainable competitive advantage.
so, they need to develop digital road maps that In the construction sector, this is also likely to
identify obvious no-regret moves as well as riskier, be the case. Over the next decade, these winners
bigger bets. Organizational resources need to of tomorrow will take the lead in technology
be reallocated by appointing a chief technology innovation and digitization. Resisting change is
officer or chief innovation officer whose mandate no longer an option.
is to think boldly about the digital agenda and to
lead the simplification and digitization of internal
1
For more, see Infrastructure productivity: How to save
processes. Companies should also consider
$1 trillion a year, McKinsey Global Institute, January 2013,
acquiring or partnering with technology firms. on McKinsey.com.
Of course, its important to ensure that project
teams have the budgets and authority they need to Rajat Agarwal is an associate principal in
pilot new technologies. And its essential to build McKinseys Singapore office, where Mukund
the capabilities of project managers so that they Sridhar is a partner; Shankar Chandrasekaran
become digitally adept. is an associate principal in the Mumbai office.

This work was made possible by the insights that

Industry bodies and regulators should invest
experts from the industry and governments around
and create incentives. They can play a helpful role, the world generously shared. The authors also wish
for example, by working with contractors, owners, to thank their McKinsey colleaguesIvan Jelic, Olivier
and technology players to define new standards Legrand, Azam Mohammad, Frank von Willert, and
for emerging technologies, develop pilot projects, Simon Williams, and McKinsey alumna Farida Heyder
and showcase success stories. They can create for their contributions.

13
June 2016
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