Construction Industry – Business Model

Construction Industry - Business Model

The construction industry business model tells the story of how the industry works, defines who the target customers are, how the business makes money, and what the customer values. Most construction projects originate from clients as public or private utility concepts, and are actually delivered by many industry players.

Clients provide investments, different contractors bid for the opportunity to perform the work, and finally, the project is executed and delivered. Let’s explore the business model of the construction industry.

Organizational setup and management structure

Each agency related to the construction industry has its own particular organization compatible with the nature of its workload. The details will depend on the size, geography of the area of ​​interest, the nature of the activities and the complexity of the issues it faces.

The majority of construction projects are located far from the head office and from each other. This makes it nearly impossible to provide ongoing supervision or monitoring of routine, day-to-day activities and issues at project sites. Physical distancing itself will reduce the degree of executive control and therefore increase the autonomy of the workforce. Improvisations must play an important role in many “here and now” decisions on construction sites.

It is imperative that, at the construction project site, there is a wide delegation of decision-making powers to all levels of the organization down to the operational level. This is in stark contrast to manufacturing industries where rules, procedures, and method statements can be formed and more rigorously applied to work tasks. Thus, the availability of trained and qualified human resources at all levels of management is much greater in the construction sector than in any other sector of the industry.

Construction industry players

Typically, various stakeholder groups are involved in a construction project. Each group contributes to a specific component, such as owner group, engineering group, and construction group.

The owner or the customer

The owning group provides the “need” for the project and the finances to meet that need. They are the engine of the construction industry. Their demands for housing, commercial facilities, industrial products and infrastructure are the main motivation to build. After determining the need and deciding to build, the owner is responsible for the following main tasks:

  • Develop the program and describe the needs and requirements of end users
  • Determine the quantity, scope and character of the project by defining the scope of work
  • Create the overall project budget, including land acquisition (if required), development, design and construction costs
  • Secure project financing and make periodic payments to designers and contractor
  • Customers are looking for the most economically feasible proposition
  • Customers need certainty and confirmed delivery times

The engineering group

The engineering group consists of subject matter experts such as architects, structural designers and construction managers. These subject matter experts provide project specifications, method statements, designs and schedules and provide oversight and quality control functions.

The construction group

The construction group consists of a matrix of contractors performing the different work packages.

  • Entrepreneurs seek sustainable and predictable margin
  • Entrepreneurs want to remain “competitive” in the offer
  • An evolving method to understand and quantify project risks
  • The work is done and delivered on time
  • Understand the risks in the proposed work

Intensive use of technology

The use of various new technologies and the deployment of project management strategies have made it possible to undertake large-scale projects. On its way forward, the industry must overcome a number of challenges. However, the industry still faces major challenges, including housing, disaster-resistant construction, water management and public transport.

Functions in construction

1. Design and planning

Construction planning is the specific process used by construction managers to define how they will manage and execute a construction project, from designing the structure, to ordering materials, to deploying workers and subcontractors. contractors to perform various tasks. Construction planning involves identifying all of the steps required to build a structure, breaking them down into defined activities, ordering those steps in a logical fashion, and determining materials, labor, and equipment. required.

2. Execution of the works

The construction industry depends on increased collaboration and working together between customers and the entire supply chain. Construction Execution refers to the standards, methods and practices used during the construction phase of a project to successfully deliver the object under construction. Directing the workforce, meeting all regulatory requirements, and overseeing a project from development initiation to completion are part of the execution phase. The ultimate goal of construction is to deliver the project to the full satisfaction of the client’s requirements both in terms of functionality and budget.

3. Inspection and monitoring

Inspection and supervision are necessary at every stage to ensure that the required tasks are performed to complete the construction activities. Progress is continuously monitored and changes are made accordingly. The construction project manager spends most of the time in the follow-up stage and depending on the information he obtains redirects the tasks and keeps control of the project. There are several unknown factors in any construction process that could increase the cost of projects, delay programs and compromise the quality of constructions. These two aspects that come into play around commerciality and risk, and which party incurs additional costs, often introduce an area where disputes arise between clients, consultants and contractors. Moreover, since construction work often involves large sums, the stakes are high in terms of the final bill for customers and the level of profit achieved by contractors.

4. Construction financing

The financial structure of the construction industry is also different from that of other industries. The capital requirement on a construction project is categorized below:

  • Fixed assets: Investments in permanent assets, e.g. tools, plant and equipment, formwork, machinery, centering and formwork, etc. For small projects, the capital requirement for fixed assets is low. This encourages many unserious and untrained people to enter the construction market. These entrepreneurs work on shoestring budgets with briefcase offices with virtually no spare capital for training, R&D and establishment. Their competitive advantage lies in the reduction of overhead and operational costs. Quality, safety and productivity become the natural causality in these circumstances. These companies have very little ability to absorb fiscal shocks and as a result they have a very high mortality rate and go bankrupt very quickly. The number of bankruptcies in construction is almost equal to that of new entrants into its fold.
  • Short-term finance: to meet cash requirements on construction sites; deposit and security deposits
  • Investing in the future: This includes investments for the future such as education, training. research and development of human resources and technologies
  • Overheads: General expenses in salaries and establishment expenses, advertising and public relations expenses essentially necessary for procurement, legal expenses and other specified and unspecified fund requirements
  • Loans and advances: Most often, construction is carried out on credit and mobilization advances, bank loans against securities. Some capital is still tied up in the form of earnest money, security deposits, late payment of bills, etc., which puts financial pressure on cash requirements.
  • Capital market: Recently, there is a growing trend in the country of construction companies entering the capital market and raising capital in the form of shares, debentures and venture capital

5. Human Resources and Skilled Labor

The construction industry offers many types of jobs and positions for all types of workers, those with degrees, those without, skilled workers and unskilled workers. Graduate industry professionals typically work as architects, engineers, project managers, or site managers. These professionals may also be part of sales and marketing or other jobs such as advertising, human resources, and accounting that are part of every business.

Workers without a degree or those with associate degrees or certifications may be hired as design technicians or assistants, site supervisors, customer relations or service representatives, materials coordinators, or similar positions.

Skilled workers usually have to go through formal training or an apprenticeship program and they usually focus on a specific trade like masonry, masonry or welding. Unskilled laborers are hired as laborers on construction sites to operate equipment and provide the necessary physical labor.

Until the 1960s, the management tasks associated with major construction projects were usually carried out by civil engineers. But in 1965, professors from nine universities came together in Florida to form the Associated Schools of Construction. Now they offer a standardized construction management program leading to an exciting new career choice, for which there is growing demand.

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Creation date Friday, September 25, 2020 Hits 1592