I was recently at an event when a chap I was talking to said, in a good natured way, to me and a couple of other construction professionals — ‘You guys know that no one wants to work with you. They just want their building!’
I think we, as construction professionals, forget this inconvenient fact too often. I doubt there are many clients who have found the designing and building of their respective built solutions a particularly pleasurable one. They just wanted their building.
Why is that? Because we are only there to facilitate some business or personal need for our clients. If a client could click their fingers and have the building without the rigmarole of a design and construction process, I think in most instances, they’d choose that any day.
As construction professionals we should always remember when dealing with clients that we are a necessary but inconvenient complication (and expense) they would prefer not to have. We are all adding to the transaction costs of buying a building. It’s our responsibility to our clients to reduce transaction costs where possible. A good place to start is looking at the technology that helps the industry make productivity gains across the board.
Transactions costs are costs associated with buying a good or service. They can be low or high, it depends on the amount of friction in the process, and the number of interactions required between buyer and the seller to clearly establish the buyers requirement and the seller’s offer. Once the requirement and the offer are clear the two parties can agree to transact.
A simple example of low transaction costs might be buying milk.
The buyer needs milk. They arrive at the shop, find the milk they need, and purchase it. The price that the buyer pays has all the costs associated with producing and getting that milk to the shop. I’m not getting into horizontal and vertical integration in this post. For our purposes, the agreement required to transact is between the buyer and the shop.
Even in this most simple example there is friction, which isn’t explicitly represented as costs. There is a time commitment required by the buyer to go to the shop, or to order the milk online (this is the opportunity cost of our time). There is also arguably some friction around choosing the amount and type of milk the buyer wants.
In the scheme of things the transaction costs and the friction of making the purchase of milk are miniscule.
For some purchases the buyer may require intermediaries to help clarify their needs, communicate them correctly to the market of sellers and in some cases give them access to the market itself.
Job titles with agent or broker and/or fees referred to as commissions are usually clear signs of an intermediary assisting a buyer and/or seller make a transaction. The costs associated with paying for their time are transaction costs. Who pays the fees, buyer or seller, differs from market to market. Examples you’ll likely be familiar with are insurance brokers and estate agents who take a fee in return for reducing friction to a low enough point to allow the parties to transact.
There are also examples of intermediaries you may not necessarily think of as such. Take a for example a tailor. A buyer who wants a tailored suit requires the expertise of a tailor to ensure their expectations are met. The tailor helps the buyer choose the fabric, cut and style of the suit, and takes all relevant measurements. Then the materials are procured and the suit can be made.
In the case of construction the intermediaries are architects, engineers, cost managers, project managers and any other consultants that might be required to produce a building design. This design gives clarity to a client (buyer) needs so a main contractor (seller) can then provide a price to build it.
The number of specialists required to clarify client’s needs and the complexity of translating them into a coherent design mean that transaction costs in construction are very high.
The process looks a bit like this;
The visualisation shows a perfect communications plan. Data or information is given and understood, translated into the design and the product is built exactly as intended. The lines shown are not contractual links, except to say that everyone’s scope should reference a responsibility matrix.
With the best intentions, with so many parties and human nature being what it is, it’s very rare that all these interactions occur smoothly and some data is invariably lost or misunderstood in transmission. This is partly due to the complexity of the data being translated, different team members having different opinions on how to resolve an issue, simply bad communication management, and record keeping of where the level of detail the data has reached.
All these interactions have varying degrees of friction associated with them. This friction translates directly to transaction costs in the form of consultants fees and the cost of changes during the construction process.
Buildings didn’t used to be so complex but as complexity increased it became apparent that an intermediary between the client and the design team was needed. Enter the project manager. It’s a project manager’s role to orchestrate teams and allow them to collaborate effectively.
As we continue to move into this digital world of BIM and interconnected built environments, smart cities, and internet of things, construction is set to become even more complex. As new technology creates the opportunity to get more from our built environment it makes sense that construction delivery teams leverage technology to give better results to our clients by reducing the friction around interactions in the construction process and therefore the transaction costs overall.
We can do this by creating clear lines of communication, reducing misunderstandings and interaction costs, by making the process seamless, and by routing accurate information to the people that need it in a timely manner, as effortlessly as possible. This will give time back to project team members so they can focus more of their attention to higher-value adding tasks and not on managing interaction complexity.
At Keepsite our mission is to reduce the interaction costs at all stages of the construction process. This gives project teams more time to understand the client, make insightful recommendations and exceed their expectations.
For businesses that deliver multiple projects at any given point in time, this complexity is magnified across the portfolio, driving low margins and preventing such businesses from achieving the potential benefits of scale. To help with this, Keepsite helps not only to dramatically reduce industry transaction costs by reducing interaction complexity, but by integrating an organisations portfolio of projects together within one, single management system.
It will be a while before clients can avoid working with delivery teams and ‘just get their building.’ In the meantime, as an industry, we should be doing all we can to work as efficiently as possible in our role as intermediaries, to help make the experience a little more pleasant for everyone.