PORTORO\Ž, 17.04.2018.

Overlooking short, medium and long-term changes to businesses

Productivity boost in construction

Copyri

ght

© 2

018 b

y T

he B

ost

on C

onsu

ltin

g G

roup,

Inc.

All r

ights

rese

rved.

1

Six main issues the industry is facing

Poor workforce

coordination

Low profitability

Budget and timeline

overruns

Low innovation Low productivity

Source: BCG Analysis; The Economist

Weak reporting &

low transparency

Copyri

ght

© 2

018 b

y T

he B

ost

on C

onsu

ltin

g G

roup,

Inc.

All r

ights

rese

rved.

2

Construction industry lagging behind in productivity vs. the rest of the economy and barely changed over time

1. Peer set based on US companies with ECS-related

SIC codes. Financials are inflation-adjusted and

indexed to 1964

Source: Global Vantage; Compustat; Bloomberg;

www.aecbytes.com/viewpoint/2013/issue_67.html;

www.nber.org/papers/w1555.pdf; S&P Capital IQ;

BCG ValueScience Center

0

100

200

300

1964

2012

2008

2004

2000

1996

1992

1988

1984

1980

1976

1972

1968

+1.95%

US labor productivity index1

Non-farm businesslabor productivity

Construction labor productivity

+153%

-19%-0.43%

3 Copyri

ght

© 2

018 b

y T

he B

ost

on C

onsu

ltin

g G

roup,

Inc.

All r

ights

rese

rved.

1960s Today

Limited technology

Labor-intensive

Drawing board models

Fragmented industry

Little optimization

Labor-intensive

Some new technologies

Limited adoption of lean

Few digital models used

Fragmented industry

=

=

Copyri

ght

© 2

018 b

y T

he B

ost

on C

onsu

ltin

g G

roup,

Inc.

All r

ights

rese

rved.

4

Two pragmatic levers for productivity and innovation boost

Text

Lean Construction

Optimizing internal processes

to achieve continuous

improvement in productivity

Digital Transformation

Increasing productivity by

using tomorrow's digital tools

5 Copyri

ght

© 2

018 b

y T

he B

ost

on C

onsu

ltin

g G

roup,

Inc.

All r

ights

rese

rved.

Overarching Lean construction objective is increase in productivity

Standardize planning

Measure performance

Visualize plan and target production

Anticipate problems and speed up solution

development

Increase plan stability

Lean Construction

6 Copyri

ght

© 2

018 b

y T

he B

ost

on C

onsu

ltin

g G

roup,

Inc.

All r

ights

rese

rved.

Improvements are aimed at diminishing waste, increasing plan robustness and achieving defined milestones

• Maximize

feasibility of

planned activities

• Increase

productivity

• Complete work

on time,

according to

identified

milestones

• Increase output

quality

• Ensure

transparency

• Deliver sense of

urgency

• Ensure

transparency

among site,

central functions,

and

subcontractors

• Empower key

employees

• Gain awareness

on milestones

• Assess suppliers

• Increase

productivity

• Increase

synchronization

between sites

and central

functions

• Simplify reporting

• Ensure "Lean new

way of working"

Standardize

planning

Measure

performance

Visualize plan and

target production

Anticipate problems

& speed up solution

development

Increase plan

stability

Lean Construction

7 Copyri

ght

© 2

018 b

y T

he B

ost

on C

onsu

ltin

g G

roup,

Inc.

All r

ights

rese

rved.

Lean construction can generate up to 24% productivity increase, resulting in ca. 15% saving on manpower costs

Lean Construction

Weekly site

planning

• Planning site activities

• Understanding reasons for losses

• Ensure feasibility of next weeks' plan

Involves: Site Manager (lead), Area Planner, Site

Engineer, Foreman /supervisor

• Share progress update

• Root causes analysis + internal problem solving

• Weekly target setting

Involves: Area Construction Manager (lead), Sites

managers, Area Planner

• Action list review with supporting functions

• Prioritization of actions, status update

Involves: Area Construction Manager (lead),

Technical Office Manager, Area Planner

Joint Operations

Center

Problem Solving

(internal & external)

Copyri

ght

© 2

018 b

y T

he B

ost

on C

onsu

ltin

g G

roup,

Inc.

All r

ights

rese

rved.

8

Two pragmatic levers for productivity and innovation boost

Text

Lean Construction

Optimizing internal processes

to achieve continuous

improvement in productivity

Digital Transformation

Increasing productivity by

using tomorrow's digital tools

9

1.3 Data-

driven

design

1.2 Virtual

migration of

physical

structures

1.5 Iterative

design &

engineering

2.3 Enabled

new ways of

fabrication

2.2 Data-

driven

construction

planning and

lean

execution

1.4 Simulation

and rapid

prototyping

3.3 Smart

operations &

maintenance

2.4 Automated

& autonomous

construction

3.4 Condition

monitoring and

predictive

maintenance

Life-

cycle

BIM

2.5 Rigorous

construction

monitoring &

surveillance

3.5 Fast

renovation

decisions and

efficient

termination

3.2 Virtual

hand-over and

commis-

sioning

1.1 Parallel and robust

design & engineering

2.1 Real-time data sharing, integration,

and coordination across stakeholders

3.1 BIM-enhanced operations

& maintenance

New use cases are enabled by digital technologies

Digital Transformation

Source: BCG analysis

Design & Engineering Construction OperationsPlanning

User

interfaces &

applications

Software

platform &

control

Sensors &

equipment

Digital/

physical

integration

layer

10 Copyri

ght

© 2

018 b

y T

he B

ost

on C

onsu

ltin

g G

roup,

Inc.

All r

ights

rese

rved.

Power plantIII

Digital technologies with potential impact of 15% in costs and 30% in lead times for construction projects

Digital Transformation

Impact on total life cycle cost

Impact on construction time

Category

Design & Engineering cost

Construction cost

Operations cost

Life cycle

LCC1

Construction time

Office buildingI

-15%

±0%

-30%

-12%

-18%

Commercial constr. ("vertical")

• Low complexity

• 30 years

• $49M

• 14 months

-16%

±0%

-23%

-19%

-10%

Infrastructure constr. ("horizontal")

• Medium complexity

• 35 years

• $285M

Long-distance highwayII

• 42 months

-12%

-5%

-15%

-14%

-10%

Industrial

• High complexity

• 25 years

• $540M

• 20 months

1. Inflation-adjusted (discount rate: 4%) NPV of life cycle cost (LCC). Excluding cost of equipment (e.g., gas turbines in power plant) and non-building related operations cost (e.g., fuel for

gas turbines in power plant)

Note: Efficiency gains estimated based on a systematic evaluation of 50+ technology reports and demonstration studies, and verified in 10+ expert interviews.

11 Copyri

ght

© 2

018 b

y T

he B

ost

on C

onsu

ltin

g G

roup,

Inc.

All r

ights

rese

rved.

9 Key Success Factors to drive (digital) innovation in E&C

Digital Transformation

Succeeding in

the market

1

Turning ideas

into reality

Stimulating

innovations

1

2

3

4

5

6

7

8

9

Develop a vision and instill a culture of innovation that challenges the

construction industry's status quo

Create multi-disciplinary teams and devise an agile organization to

accelerate innovation

Take a customer-centric approach to devising use digital use cases, starting

with pain points for construction clients & asset end-users

Establish product platforms rather than an individual-project perspective in

order to create the business case for digital use cases

Develop pilot projects and prototypes to demonstrate potential and provide

proof of value

Nurture the broader ecosystem needed to implement the use case by

developing the (local) supply chain and partnerships

Embrace business-model innovation alongside technological innovation in E&C

Advocate new contracting methods which enable effective collaboration with

project owners from Day 1

Shape the regulatory environment proactively to enable and promote

adoption of the innovation

12 Copyri

ght

© 2

018 b

y T

he B

ost

on C

onsu

ltin

g G

roup,

Inc.

All r

ights

rese

rved.

Selected Examples

13 Copyri

ght

© 2

018 b

y T

he B

ost

on C

onsu

ltin

g G

roup,

Inc.

All r

ights

rese

rved.

Bringing innovations from the semiconductor industry to the design of infrastructures

Example 1 New approach to designing and constructing complex buildings

• A proprietary Aditazz Realization Platform integrates operations, design,

technology and manufacturing functions into a single platform

• The software platform enables simultaneous, interactive and efficient design,

engineering and construction processes which boost flexibility and the speed of

construction

• Stakeholders can virtually operate a building while still in the design stage to

evaluate which design options achieve the best overall solution under

different circumstances

• Innovating in manufacturing by using a proprietary library of building parts to

be manufactured offsite and assembled onsite (like aircraft and automotive

assembly)

Big Data &

analytics

Cloud Real-time

comms &

tracking

SimulationMobile

& AR

Source: Aditazz; Press Research; BCG analysis

As a company born in Silicon Valley, we don't

just use technology, we synthesize

technology. It's in our DNA.

1

14 Copyri

ght

© 2

018 b

y T

he B

ost

on C

onsu

ltin

g G

roup,

Inc.

All r

ights

rese

rved.

GE Digital Plant leveraging "the power of the digital twin"

Example 2 GE has included "the digital power plant" as part of their power

generation offering

• Building on GE's company-wide Predix cloud & data analytics platform and edge

computing & connectivity offering

• Claims to build a Digital Twin simulation of power plants (lift, anomalies,

thermal, transient) generating up to $2M in additional revenue from thermal

optimization alone

• Offers modular applications for plant optimizations, including mobile

applications and a focus on UI

– Asset optimization (predictive maintenance)

– Operations optimization (e.g., thermal performance)

– Business optimization (market pricing)

Big Data &

analytics

Cloud Real-time

comms &

tracking

SimulationMobile

& AR

Source: Aditazz; Press Research; BCG analysis

2

Sensors

15 Copyri

ght

© 2

018 b

y T

he B

ost

on C

onsu

ltin

g G

roup,

Inc.

All r

ights

rese

rved.

A leading EPC is using advanced analytics toimprove prediction and anticipate project crises

Example 3 Leading EPC working alongside an analytics company to predict project

crises based on historical project data

• Integrates data from hundreds of projects, including project budgets, actual

cost data, schedule data and further unstructured data sources (e.g.,

contracts, site records, engineering documents)

• Identifies patterns in past projects that lead to project crises (e.g., schedule

delays, overspending, HSE issues)

• Feeds in 'live' data from actual projects into dashboards and alerts

management if similar project patterns are spotted

• Impact: Reduced project risk and simplified reporting via a real-time project

dashboard

• Requirement: Collect and integrate data from a wide range of sources

Big Data &

analytics

Cloud Real-time

comms &

trackingSource: Aditazz; Press Research; BCG analysis

3

16 Copyri

ght

© 2

018 b

y T

he B

ost

on C

onsu

ltin

g G

roup,

Inc.

All r

ights

rese

rved.

London's Crossrailrepresents a $21 billion test with integrated information modeling (BIM)

Example 4 Quantum Black, Arup & Atikins developed AIM, a web-based data analysis

tool for information gathered via monitoring points

• Uses fiber-optic sensor systems (unprecedented in rail tunnels) and predictive

analytics technologies, together with visual interpretation solutions, to

increase efficiencies during project construction, throughout the lifecycle and

to optimize future designs based on data collected (e.g., temperature or

ground movement)

• Data is compared to expected performance to detect discrepancies (for

maintenance and risk management) and to avoid the same gaps in future

installations

• BIM: Crossrail integrates information from

+25 design contracts, +30 advanced work contracts and +60 logistics and main

construction works contracts, as well as information on the urban environment

• Working in a collaborative 3D environment was a contractual requirement for

all design contracts

Big Data &

analytics

Cloud Real-time

comms &

tracking

SimulationMobile

& AR

Source: Aditazz; Press Research; BCG analysis

4

Sensors

Copyri

ght

© 2

018 b

y T

he B

ost

on C

onsu

ltin

g G

roup,

Inc.

All r

ights

rese

rved.

17

Thank you

18

The services and materials provided by The Boston Consulting Group (BCG) are subject to BCG's Standard Terms

(a copy of which is available upon request) or such other agreement as may have been previously executed by BCG.

BCG does not provide legal, accounting, or tax advice. The Client is responsible for obtaining independent advice

concerning these matters. This advice may affect the guidance given by BCG. Further, BCG has made no undertaking

to update these materials after the date hereof, notwithstanding that such information may become outdated

or inaccurate.

The materials contained in this presentation are designed for the sole use by the board of directors or senior

management of the Client and solely for the limited purposes described in the presentation. The materials shall not be

copied or given to any person or entity other than the Client (“Third Party”) without the prior written consent of BCG.

These materials serve only as the focus for discussion; they are incomplete without the accompanying oral commentary

and may not be relied on as a stand-alone document. Further, Third Parties may not, and it is unreasonable for any

Third Party to, rely on these materials for any purpose whatsoever. To the fullest extent permitted by law (and except

to the extent otherwise agreed in a signed writing by BCG), BCG shall have no liability whatsoever to any Third Party,

and any Third Party hereby waives any rights and claims it may have at any time against BCG with regard to the

services, this presentation, or other materials, including the accuracy or completeness thereof. Receipt and review of

this document shall be deemed agreement with and consideration for the foregoing.

BCG does not provide fairness opinions or valuations of market transactions, and these materials should not be relied on

or construed as such. Further, the financial evaluations, projected market and financial information, and conclusions

contained in these materials are based upon standard valuation methodologies, are not definitive forecasts, and are not

guaranteed by BCG. BCG has used public and/or confidential data and assumptions provided to BCG by the Client.

BCG has not independently verified the data and assumptions used in these analyses. Changes in the underlying data or

operating assumptions will clearly impact the analyses and conclusions.

Copyri

ght

© 2

018 b

y T

he B

ost

on C

onsu

ltin

g G

roup,

Inc.

All r

ights

rese

rved.

bcg.com