Is the Industry too focused on Bargain Price Tags?
“A cynic was once defined as somebody who knows the price of everything and the value of nothing. And, as we’ve all experienced, nobody stands in the way of progress more effectively than the cynic whose default position is: ‘that’ll never work’, or ‘it won’t be worth doing.’
Focusing on cost rather than value is an endemic problem in our industry. It affects innovation, quality and increases whole life costs and holds back efforts to create a more inclusive workforce, which we badly need.
And if you believe that cost is the primary driver in your customers’ mind, there’s a strong pull towards sticking with what you know. Is that dangerous?
Where has this brought us? It could be argued that our industry is mired in stagnating productivity and outdated methods, where most major contractors struggle to make a profit, and with a looming skills crisis even before the knock-on from Brexit.
What is ‘value’?
In Value Analysis terms, value = function / whole life cost.
To understand and calculate value you have to include all of the benefits derived from the project. You also have to use the whole life cost of the asset rather than just the immediate cost of building it. Yet most procurement and post project analysis is focused on a tight specification and immediate build costs.
Learning to Trust Each Other
Lack of trust is a major issue. Contractual relationships become adversarial and restrictive when the overriding priorities are to limit cost exposure on one side, and an imperative to deliver ‘to the spec and no more’ on the other.
We can only break out of this cycle if we wake up and focus on value rather than cost. Alongside this we need contracts that engender greater sharing of risk and reward. We also need more understanding of longer term priorities on both sides.
Change must happen at all levels, starting with the Government. Industrial policy, skills strategies, training, the economic impact of Brexit, housing, infrastructure; these are all linked. There are major challenges that we cannot solve by focusing on cost.
As an industry we must continue to focus on retaining the value of innovation. Currently we give too much away too cheaply, which is hardly an incentive to do more of it. Continuing to focus on cost is driving us down a dead-end. But it’s not too late to change direction and adopt more enlightened ways of doing business. The benefits of this change of thinking will be enormous and far reaching.”
Mike Todd is the Lead Business Development Manager for Infrastructure at Osborne.