Here we go again...!

By Pieter Burghout - 1 December 2012, Build 133

As the construction industry approaches another boom, it’s worth thinking of the challenges it will bring and how best to manage them

In 2007, the building and construction industry completed $21 billion of work – the largest in New Zealand’s history. Just a few years earlier, work volumes had been down as low as $14 billion.

Over the next few years – I can’t say exactly when, let me know if you can – the industry will again hit $21 billion of work. It is currently in a gradual recovery with workloads up to $17 billion.

Those who were in the industry 5+ years ago will remember how busy things were. It was a crazy, manic period, and the industry was creaking at the edges, given the 50% increase in workloads.

Challenges ahead

For the next few years, we are predicting at least a similar increase in work. Once again, we are going to repeat the boom-bust cycle, but with the bulk of work in Christchurch and Auckland. That, too, will bring its own challenges.

And this crazy boom bust cycle – with the swings in the building and construction industry three times worse than the average of the overall economy – has far worse consequences than most of us realise. Consider these issues:

It’s impossible to invest in staff skills in a sustainable way – you might have work for someone today, but will you tomorrow? The person you train might be poached by another employer, so why train them in the first place?
There is no incentive to invest in appropriate capital – whether plant and machinery or technology. One year, there is sufficient work to justify the investment, but perhaps not the next.
Quality levels in the industry fluctuate dramatically as the industry is flooded with new entrants working in the industry for the first time, new products flood the market and everyone has multiple projects on the go.
Construction prices fluctuate as workloads vary.

Research done for BRANZ a few years ago by the New Zealand Centre for Advanced Engineering recommended, in my own words, that the industry:

should work with government to even out the worst of the peaks and troughs – the procurement work led by the Building and Construction Productivity Partnership will help us understand how this can be managed better
needs to focus better on its strategic nous to handle the business ups and downs – they’re going to happen again, and so business managers had best be ready.

More business skills training needed

The industry often discusses the need for skills training but usually targets the apprenticeship level. I think we have largely fixed that end of the skills spectrum and a considered focus should be on business skills within the industry.

Given the number of SME businesses, that won’t be easy. And, on top of that, it’s going to be super busy in the coming years. Doing more business skills training will be the last thing on the average business owner’s mind.

Regardless, I strongly encourage business owners to hone their managerial skills on an on-going basis so they can handle the upside for the next few years, while also getting ready for the next downturn.

BRANZ’s challenge

Finally, and bringing this back to BRANZ – the business I run – we have to manage those ups and downs, too, as the value of the Building Research Levy is pegged against industry work volumes. So we also have to get pretty astute at managing our business through these peaks and troughs – and we relish that challenge!