The construction industry is just one of many that are well poised to enjoy the benefits of decentralized technology. While it’s undeniable that most industries that handle large quantities of data can benefit from these innovations, it’s worth noting that even more practical endeavours such as managing a construction project can appreciate what decentralized technology can bring to the table.
Excellence in the construction industry tends to be defined as being able to deliver projects faster and at lower costs – hence producing high returns for firms and cheaper homes for residents. Unfortunately, the construction industry often lags behind others in a way that hurts those returns. For example, the global economy has improved overall productivity at twice the rate of the construction industry over the past couple of decades, while manufacturing boasting a productivity improvement rate of up to three times as high.
Thirty years ago, new management systems like Six Sigma and Total Quality management were brought in with the hope that they could lead to breakthrough efficiencies as in other sectors. Soon after, waves of new technology promised similar gains. Enterprise Resources planning systems, automated workflows, 3D CAD, Enterprise Asset Management (EAM) systems, Building Information Modeling (BIM) all entered the workplace promising significant improvements in efficiency. Even most recently, the Internet of Things (IoT) with RFID technology has entered some workplaces, with drone, scanning, and imaging solutions following suit.
However, all of these changes have only led to modest increases in productivity in projects, a far cry from the anticipated revolution that proponents of these technologies have promised. Below we will attempt to address some of the reasons why this is the case, specifics behind current project management doctrines, as well as how blockchain might be the crucial factor for the potential modernization of the industry.
In this article
- Project Management in Today's Era
- Factors Holding Back Productivity
- Where Blockchain Fits in Construction
- An Overview of a Blockchain-Powered Payment Process
- Clarifying The Supply Chain Problem
- Increased Project Transparency and Flexibility
- Optimizing Existing Project Management Systems (BIM)
- Final Thoughts
The Project Management Institute defines project management as “The art of directing and coordinating human and material resources using modern management techniques to achieve predetermined objectives of scope, cost, time, quality, and participating objectives.” Expanding upon this definition, project management in the construction industry involves a variety of phases, initiation, planning, execution, performance monitoring, and finally closure.
Stakeholders try to create a project charter or document that creates a map for everyone to follow (sometimes called a project management plan (PMP) that guides the execution of the project, while including aspects such as a work breakdown structure (WBS), communication plans, and a risk management plan. At the end of the project, the project manager might hold a post-mortem along with a list of items that were left undone or an evaluation of what could have been done better next time.
Unfortunately, the reality of the construction management situation tends to be more complex, and there is usually a variety of impeding factors that can grind productivity to a halt, especially in larger projects. For one, there can be a notable lack of trust between project stakeholders.Construction projects are usually bigger and more expensive then projects in other industries, and with so many different components and ways for things to go wrong, they carry a fair amount of fear and risk. Mistakes and bad decisions can cost stakeholders a tremendous amount of money and is something that they will go out of their way to mitigate to an unusual degree. In today’s day and age, the way the construction industry tends to manage these fears is through legal contracts and data hoarding, along with a slew of checklists that need to be accomplished.
For instance, a construction project trying to erect structural steel needs to have a host of questions answered before they can proceed. What kind of steel do they have and how much do they need? What’s the status of the design along with when the steel will be delivered, along with how much has been invoiced? Then the invoice needs to be checked to match the purchase order, followed by seeing if it has been approved for payment. After all this is done, project managers need to see if the crew and equipment are ready to install. If they’ve already begun, they need to keep track of how many hours it took, how much has been installed so far. Not to mention that the structure needs to be inspected before going forward, etc.
Unfortunately, stakeholders just aren’t able to get answers to these kinds of questions due to the poor flow of information and transparency between them and the actual construction process. A large project can generate tens of thousands of individual documents, and with many of them on paper, it’s easy to lose, misplace, or otherwise struggle to find the exact document you need.
Hunting down one piece of information is frustrating and needlessly time-consuming and shouldn’t need to be a problem in the 21st century. Other limitations include supply chain issues, where delays in vital materials can set projects back weeks if not months at a time, and with most project managers having little transparency in where exactly the material is in the supply chain, it’s hard to come up with contingencies.
If a project manager is aware of a supply chain bottleneck that’s holding up a particular material, they can plan in advance and switch priority to other aspects of the project. However, if they are unaware of the exact timeframe they have to work with, they don’t know whether the delay could take a couple of days or a couple of weeks.
Blockchain technology, a decentralized ledger infrastructure capable of producing peer-to-peer networks that record data, conduct transactions, execute contracts, and a variety of other functions, has become a hot topic over the past few years. One major benefit of block-chaining is that it helps prevent fraud or misrepresenting the numbers. Any changes to a particular “block” where information is stored requires the consent of every other “block” or participant on the network.
Participants on blockchains hold their own wallets, which serve the same function as a bank account.
Money can be transferred from one wallet to another, all without transaction fees or delays. In the construction world, projects typically involve an owner, architect, engineers, general contractors, subcontractors, and suppliers. Usually, the owner holds contracts with some of these participants, but not all. Businesses like subcontractors will usually hold contracts with the general contractor rather than the owner of the project themselves. What this ends up doing, however, is creating potential details and hiccups in the way these participants pay each other.
With blockchains, the owner would have a central, project wallet. The project funds are stored here and are used to pay everyone who works on the project. What’s more interesting is that payments can be tied to specific steps or metrics, so when one step of the project is complete and verified payment would automatically be transferred to the appropriate person via a smart contract (which we will gloss over later). This would serve to streamline all payments and processing, while also giving incentives to subcontractors and other companies to strive for performance metrics.
If compensation is tied directly to these perdetermined metrics as would be stipulated in a smart contract, contractors are now motivated to complete their tasks as efficiently as possible, giving themselves more free time to pursue other projects. This is in contrast to the current situation in the construction industry, where some contractors feel more motivated to bill more hours for their services and bog down the process.
How payment would work essentially boils down to roughly four steps: project modeling, smart contracts, inspection, and delivery. Just like in most initial stages for construction management, project modeling would show what the final project looks like and sets a clear path for how this is to be accomplished. From this general overview, specific, smaller goals would be drawn up that could further be broken down into smaller, billable units of work. It’s these smaller units that smart contracts would be built around.
After, a project wallet is created, with payments linked to each step in the project model. Not only does this solidify the budget, but it helps with accountability as well, as funding has already been technically allotted into each step of the project. This provides reassurance for anyone working on the project that they will be paid for their work, as opposed to worrying that their invoices might not get processed for weeks or months after concluding their work.
Using smart contracts, contractors get the satisfaction of getting paid instantaneously once their work is completed, which also is made possible from the perspective of the project, since payments can be broken down into smaller units instead of lump sums. Before this can be done, however, they would have to submit to evaluation, which in the current state of things take the form of an inspector manually inspecting the work, and verifying it’s been accomplished. If this is done, funding is released and contractors are paid immediately, without hassles, and also without any delays or transaction fees.
With the advent of IoT technologies, it could even be possible to automate some aspects of the evaluation process. Sensors built into the project site can verify that contractors fulfilled their required tasks correctly, automatically sending the information and fulfilling the smart contract without requiring a physical inspector. While this is still relatively advanced and wouldn’t be possible for every aspect of the construction process, it is a valid possibility in the future.
At the same time, suppliers would be compensated in a similar way as contractors through smart contracts. Payment is usually paid up front, and builders need to wait for their materials to ship and arrive on site. Instead, blockchain powered smart contracts can split up payment, first upon confirmation of the transaction, then after it ships, and finally when it arrives on site. This means that suppliers who have late products will not be paid until their products arrive, encouraging them to do their best to have efficient delivery systems. All the while this helps builders have more liquidity on hand.
Blockchain technology through digital IDs can help contractors find work, and from the perspective of construction management, help managers find contractors and subcontractors with reliable reputations and clearly defined credentials. Blockchain technology can become a new way for managers to source and identify construction talent, simplifying the process tremendously while also clearly illuminating the past projects and reputations of prospective contractors.
At the same time, small-time companies and even individual tradespeople would have a more meritocratic option for winning work, and with smart contracts being able to divide large projects into smaller units of work, even these small players in the industry can get experience working for large projects that otherwise wouldn’t be possible for them.
Blockchains also promise to improve the global construction supply chain radically. Since these networks automatically capture and track where project assets are at any point in time, it’s easy for construction managers to know exactly who has custody of what and where their materials are. As mentioned above, this transparency not only leads to better and more efficient payment systems for suppliers – who would be financial incentivized to take responsibility for delivering their supplies without delay – but it gives managers more information to work with.
If a construction manager knows that specific materials are delayed as well as exactly how long they’re likely to be held up, this information lets him to better make contingency plans around the project, shifting priorities to other aspects of the project and informing relative subcontractors in advance about the shifting plans. The benefits of this kind of transparency goes both up and down the supply chain, and even trickles up the final stakeholders as well.
Resolving disputes becomes faster and inventory management becomes streamlined to the point where its possible to order and receive goods as they are needed without having them waste away on the job site or a warehouse having arrived to early. This idea of “just in time” planning, powered by more precise logistical tools, can help reduce waste. All of this means that projects enjoy lowered costs and accelerated schedules.
Dedicated blockchain networks can be created specifically for the projects supply chain, and would link together individual projects themselves, suppliers, and the involve shipping companies. As mentioned previously, payments can be conducted through a dedicated cryptocurrency for the network, which would be instantaneous as well as free of fees. Additionally, every step of the products journey along the supply chain can be documented and stored for everyone to see, akin to conventional tracking for packages shipped through UPS and other providers, albeit with far more details.
Shifting to this kind of a solution would be beneficial for everyone along the supply chain and is a model that’s going to be applied to many other sectors in the coming years. In the words of Paul Brody, blockchain expert at Ernst and Young, “At its most basic level, the core logic of blockchains means that no piece of inventory can exist in the same place twice.”
This increased transparency will have the effect of mitigating many of the uncertainties that are involved with large projects. Concept, scope, resources, cost, and schedule are all based on a combination of known and unknown factors that change as the project evolves. Managing and forecasting change is arguably one of the most important attributes of a successful project.
Because data on the Blockchain is widely accessible, changes made to any aspect of the project can easily be recorded, automatically updated in existing project management models, and quickly produce estimated changes to be presented for stakeholders in a efficient manner. This can make a big difference as opposed to not being known about small changes and setbacks for days if not weeks at a time.
At the same time, decentralized technologies can completely change how existing project management systems operate, allowing them to live up to truly their potential. Building Information Modeling (BIM) is a good example of this as recent developments of how decentralized technologies such as smart contracts and blockchain promise to have a transformative effect on how BIM is used. Although at its basic level, BIM is a software solution that lets users generate and manage 3d models of construction projects, it’s potential lies in encouraging collaboration between the project’s participants. While construction projects are by nature complex and risky, this is less so when all parties are well informed and know in advance what everyone is doing, along with being summarily informed of relevant changes that take place.
A BIM model is far more complex than other CAD-based 3d models, enabling graphical representations of schematics that used to be paper-based but also allow for integration of data from various sources. Models can compute pricing information for specific components, as well as enable 4D analyses that let users run simulations of how a project’s construction is sequenced. Once compiled, these models can be continuously updated during the execution of the project. For many experts, BIM will soon become the future of construction projects, helping simplify the exchange of information and documentation among parties, as well as reducing costs.
However, BIM will likely progress to a level where all project participants will be theoretically capable of making changes to the main project model. As governments continue to encourage BIM and mandate more advances versions (level 2 and eventually level 3) of the model, maintaining information integrity will be crucial, as well as identifying which parties made any changes to the master model.
Concerns with BIM also go beyond data reliability, as having multiple project participants contributing to a unified model raises some issues regarding ownership of the information in the system. Contributors to the model will desire to maintain copyright over their contributions, with lawyers of relevant parties maintaining concerns whether a party having contributed to a design element within the model can be held responsible for any problems or issues that arise during the construction project.
Blockchain technology would allow for reliable audits of who made any changes, when they occurred, and what those changes were. Each previous version of a BIM model could be uploaded onto its own block on a separate blockchain, with each block accessible for review but impossible to change or modify. This creates a clear transparency and reliability in the system, as well as confidence that any mistakes made in regards to input can be identified and rectified, making the model easy to “unblur” the lines within the system as well as better accountability for contributors in the event something goes awry.
Blockchain and the construction industry at large are natural partners due to clear areas where they can provide improvements. By spreading this data out to several companies and computers, it makes payments clear and helps hold the various parties in question accountable. Several aspects about construction management, including payment, verification of work, transparency as well as useful data management are all things that can dramatically be improved through the advent of decentralized technologies. While blockchains are still relatively new, they are showing real progress, and newer iterations of the technology require less energy and are less intensive – soon approaching a point where it would make little sense for industries not to use blockchains of some kind. For construction managers out their wondering what the future holds for their profession, the upcoming blockchain revolution is a good place to start.