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3 Big Risks in 2023 and How Construction Leaders Can Respond
What does 2023 look like for head contractors, subcontractors and developers? Know the risks and how to combat them.
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Procore’s latest research highlights three converging challenges that are keeping construction leaders up at night. What are these risks? And how can construction companies respond today to build a ‘better normal’ tomorrow? Read on to find out.
After three years of disruption, construction leaders in Australia and New Zealand are now rethinking the concept of “business of usual”. Changing market fundamentals, financial and regulatory hurdles and client expectations are all shifting rapidly.
But Procore’s 2023 Construction Forecast ANZ points to three common risks that are a ‘clear and present danger’ to construction companies on both sides of the Tasman.
Chapter 1
What are the risks?
#1: Skills shortages
Skills and labour shortages are expected to dominate boardroom discussions and construction sites throughout 2023. Infrastructure Australia's Market Capacity Report predicts labour market demand will peak at 442,000 by the end of the year – more than double the projected available supply. The Australian Bureau of Statistics, meanwhile, finds 29% of construction businesses have job vacancies – an increase from 23% the previous year. The situation in New Zealand is just as dire. According to a recent survey undertaken by Civil Contractors New Zealand, 87% of respondents can’t find the right skills.
Risk #2: Supply chain disruptions
In 2022, global supply chains faced the worst shortages in 50 years. Problems which started with the pandemic were compounded by the war in Ukraine, and the World Economic Forum suggests at least another year of low growth, high prices and bare shelves are ahead.
Risk #3: Climate change
Fires, floods and other extreme weather events in Australia and New Zealand have sharpened the focus on ESG, or environment, social and governance. With national governments now moving towards clear net zero targets, ESG has moved from niche to mainstream.
How these risks influence your company depends on where you sit in the construction value chain. So, let’s take a deep dive into what it means for developers, head contractors and subcontractors.
Each of these risks are going to have differing implications depending on your role in construction. We’ve outlined how risk can be managed for:
Chapter 2
How Developers Can Manage Risk in 2023
Risk #1: Skills shortages
Pressure points in several key trades continue to cause program delays on current projects – and headaches for developers. Some projects are taking longer to complete, and feasibilities on new projects can take much longer to materialise. When it comes to skills attraction and retention, developers and project owners must look beyond business as usual. A growing cohort of developers are embracing innovative approaches, including prefabrication and modular construction, to reduce the need for skilled labour onsite.
Risk #2: Supply chain disruptions
Supply chains have always been vulnerable to disruption. McKinsey research undertaken before the pandemic found that, on average, companies experience a disruption of one-to-two months in duration every 3.7 years. But now, developers have a new appreciation for resilient, agile supply chains – and they are turning to new tools and technology solutions for support to help them get greater visibility over the supply chain.
Risk #3: Climate change
The combined force of Australia and New Zealand has long led the real estate world’s ESG performance. The 2022 Global Real Estate Sustainability Benchmark (GRESB) assessment, which covered $13.62 trillion in real estate and infrastructure value worldwide, ranked Oceania, or Australia and New Zealand, first in the world for the twelfth consecutive year.
But when 40% of the world’s energy-related emissions are created by the construction industry, we have a tall task ahead. One smart way to cut carbon emissions is to reduce waste.
How can you take control of your construction projects at every step of the process? Learn more.
Chapter 3
How Head Contractors Can Manage Risk in 2023
Risk #1: Skills shortages
Every head contractor is in competition for the same small pool of subcontractors – and this is driving up prices and encouraging job hopping.
Leading head contractors are stepping up to the challenge with a suite of strategies.
One is to widen the pool of women in construction. Laing O’Rourke has almost doubled the number of women in senior project roles in just four years through a series of strategic moves that has transformed its culture. This approach saw Laing O’Rourke nab the NAWIC Crystal Vision Award for Advancing the Interests of Women in the Construction Industry in late 2022.
Prime Build swapped spreadsheets for Procore's Workforce Planning solution to gain a single source of truth and save around four hours of manual processing every week. The big benefit, though, was a clearer picture of how the talents of Prime Build’s people were harnessed on projects. The contractor can now be more intentional about its hiring and training.
Enhancing the productivity of your existing team is also mission critical. After Unispace, a global leader in business and commercial interior design, rolled out Procore, staff productivity shot up by 20%. Meanwhile, Auckland-based head contractor Cook Brothers Construction shaved 10% off its team’s time budget with the help of more efficient, digital processes.
Risk #2: Supply chain disruptions
Three years of supply chain disruption has forced many construction companies to rethink their procurement strategies. ‘Just in time’ purchasing is no longer possible when faced with long waits on steel, cement and timber.
New Zealand’s Fletcher Construction moved from manual drawings to Procore Project Management, Project Financials and Action Plans to manage everything from the design process to procurement. As Matthew Stanford, Fletcher Construction’s Design Interface Manager says: “Procore offers more than document control. It’s helped us manage multiple complex projects with greater efficiency and faster timeframes.”
Risk #3: Climate change
For construction companies, climate risk has multiple dimensions. There are clear physical risks. Extreme weather events can damage or destroy construction equipment. Rising temperatures can make working conditions hazardous. And changes to weather patterns can affect the timing and scheduling of construction projects. But regulatory and reputational risks can be just as costly.
Green Way, an innovative Auckland company specialising in sustainable deconstruction, connected five disparate systems into one central Procore platform. Green Way streamlined processes, reduced headcount and enhanced visibility. Best of all, Procore has helped to reinforce Green Way's professional reputation for quality and sustainability.
Do you want to manage your entire project from the palm of your hand? Find out how Procore can help.
Chapter 4
How Subcontractors Can Manage Risk in 2023
Risk #1: Skills shortages
Managing skills shortages are a big headache for subcontractors – and one that is getting bigger. Fierce competition for labour is driving up wages and making it more difficult to attract and retain qualified staff. Relying on the existing workforce can mean more hours spent on site, with quality, morale, productivity and safety the obvious casualties.
The solution? North Australian Contracting, which specialises in internal and external lining projects, traded paper for Procore's Project Management and Quality & Safety systems, elevating efficiency by 20%. NSW based company, Utech reduced rework by 70% using Procore Project Management and Quality & Safety - elevating their brand, reputation and quality has meant that they are able to use the resources they have, to their maximum and not have to hold back from scaling at the same time.
Risk #2: Supply chain disruptions
While supply chain woes no longer weigh as heavily as they did at the peak of the pandemic, subcontractors continue to navigate an era of unprecedented unpredictability. Supply chain volatility can strain relationships with clients and suppliers, who may also experience delays and disruptions.
In response, they are rolling up their sleeves to tackle supply chains from multiple angles: buying materials earlier than ever, partnering with new suppliers and investing in integrated supply chain management software.
Risk #3: Climate change
As the largest developers and project owners set net zero targets, they are turning their attention from aspiration to action – and this means subcontractors need to start reporting on their own carbon footprint.
Circular economy strategies, including re-use of demolition materials or developments that retain pre-existing building fabric, are increasingly attracting attention.
Levelling up to smarter, more sustainable systems can simultaneously improve quality, productivity outcomes on site – and that can be music to the ears of project owners and head contractors looking to demonstrate their commitment to ESG.
Can you standardise your processes in one system built especially for subcontractors? Find out how.
Chapter 5
Moving towards a better business-as-usual
While the risks are clear, the solutions aren’t always front-and-centre. Widespread adoption of “construction 4.0 technologies” – an umbrella term for everything from drones to digital twins, augmented reality to artificial intelligence – is undoubtedly transforming on-the-ground construction.
But the leaders remain separated by a long tail of laggards. RICS’ latest investigation into digitalisation in construction, for instance, found 40% of all respondents were not using digital technologies on any of their projects.
But the market is on the move. Global investment in construction technology is expected to reach US$30.54 billion by 2027 – that’s a compound growth rate of 16.20% over the next five years.
As skills shortages, supply snarls and climate change converge, construction leaders are looking for smart, systematised solutions. Digital and data transformation can address all three, helping construction leaders to navigate a better business-as-usual.