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Construction Industry
Skills shortage 'Challenge of the Decade' for Australia's construction businesses
By Christina Gulliver, Partner
8 August 2022
Recently I wrote about how to “Re-think the way we approach business in 2022.” Let’s delve deeper into that discussion and look at the challenges the industry faces meeting the demand.
Australia's economic survival in the current COVID era is firmly bound to the national construction industry, with all levels of government announcing unprecedented investment into infrastructure development.
However, there are other headwinds the construction sector must navigate, with skills and labour shortages contributing to higher building prices. Moreover, a recent report in the Australian Financial Review1 (AFR) confirmed that higher building costs are here to stay as materials and labour shortages won’t ease from the current high levels. Arcadis National Director for Cost & Commercial, Matthew Mackey, agreed, “Over the medium term and beyond costs will rise steadily, driven by labour shortages caused by border closures, expanded investment in social infrastructure, increased material costs, and strengthening construction demand from the private sector2.”
More significantly, the AFR article suggested the mounting costs of labour and materials will contribute to total construction sector inflation of 9.5% over the year to June 2022, and 6% over the year to December 2022.
Consequently, for those construction businesses faced with the triple whammy of skills and materials shortages, surging demand for their services and sector inflation, now is the time to ensure they have a firm grip on the numbers vital to their business. There are three key numbers to track in business to grow it successfully: sales, profits, and cash, but there are also other key indicators worth monitoring.
Meeting demand from massive infrastructure opportunities
Demand for construction services won't decline anytime soon. According to a report from the Australian Construction Industry Forum (ACIF)3, Federal, state and local government budget stimulus measures have largely driven a growth of 2.7% for the construction sector, which delivered up to $243 billion in construction and building work in 2021.
ACIF4 says, the issues of skills and materials shortages remain significant concerns, owing to the demands placed on the construction industry due to The Federal Government’s HomeBuilder introduced in 2020 and large-scale infrastructure projects.
State and federal governments and the construction sector can partly alleviate the skills shortages by hiring and retaining skilled construction staff. While this sounds easier said than done, ACIF suggests worker shortages could be addressed by attracting and retaining more women, and more skilled migrants to Australia now COVID-19 borders are reopening closures.
Recruiting and retaining skilled construction staff
Employees can make or break a business—and therefore should be considered the most valued resource. The construction industry employs almost 1.2 million Australians5 and while employment in the sector is higher than five years ago, staff turnover in some businesses can be up to 50% or more of their workforce6.
Recruit for both
skills and attributes—ensuring future employees don’t just have the
skills—they should
also help build
the culture and
functionality of
your team.
Workforce recruitment and retention involves choosing the right people for the right roles at the right time. Choose your workforce carefully and ensure the workplace you present will help retain staff longer-term rather than hiring for a quick fix.
A blog from Bluebeam Inc., a developer of technology solutions for the global architectural, engineering and construction (AEC) industries suggests several ways to build your construction workforce. These tips include7:
- Consider your upcoming projects for the year and the resourcing requirements needed to successfully deliver these scopes of work on time and within budget.
- Map project requirements, including volume and skills to your existing workforce and identify where the gaps exist.
- Identify the members of your workforce who may be upskilled and plan their development to align with your incoming priorities.
- Recruit for both skills and attributes—ensuring future employees don’t just have the skills—they should also help build the culture and functionality of your team.
Keeping up to date with new technologies
Other measures to fill the skilled worker gap could involve promoting greater prefabrication and digitalisation. However, the construction industry has been slow to embrace digital technologies and innovations. For example, less than 40% of Australian construction businesses have a web presence. Only 3% have a digital business strategy.
Harnessing new technologies enables construction companies to optimise operational processes by optimising time and resources. These improvements will result in more robust construction project performance with near-real-time visibility into progress.
Staying abreast of the numbers
To help manage the challenges of skills shortages, equipment inflation and so on, there are three key numbers to keep tabs on to grow a successful business: sales, profits, and cash. Moreover, it is imperative to be proactive in setting pricing and ensuring quotes cover future cost increases.
Many businesses also use Key Performance Indicators (KPIs) to show how well they are performing. In a business sense, KPIs can address sales goals such as the number of sales the business must close monthly or marketing goals such as the number of leads generated this month. Examples of operational KPIs might be order fulfilment times, safety or incident reporting, employee satisfaction ratings and employee churn rates. KPIs should apply to short- and long-term goals.
When developing KPIs for your business, it is best to start with the business’s core goals, then look at the critical success factors affecting those goals. Many business owners may say the goal is profit, but you need to consider precisely how to achieve that. For example, if your goal is to grow market share, a KPI might indicate how many customers you expect to service per week.
All KPIs should be easy to measure and easy to understand. They should also be specific to a period appropriate to what is being measured. Once you have a set of KPIs that are right for your business, you will be able to paint a clearer picture of your organisation’s strategic performance and empower you to make agile decisions to impact your team’s success.
As part of our accounting and business advisory services at Brentnalls Construction, we can assist you in to stay abreast of your numbers and support you to improve your results and achieve your short and long-term business goals.
__________________________
3 https://www.acif.com.au/acif-news
5 https://buildforce.com/blog/why-is-employee-turnover-high-in-construction
6 https://blog.bluebeam.com/au/construction-industry-challenges-2022/
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Disclaimer
The information provided in this article does not constitute advice. The information is of a general nature only and does not take into account your individual financial situation. It should not be used, relied upon, or treated as a substitute for specific professional advice. We recommend that you contact Brentnalls SA before making any decision to discuss your particular requirements or circumstances.
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