news • Dec 13 2023

Construction Outlook 2024: Viable Solutions for Cost Volatility

By Lindsay Coleman, Development Manager

 

When it comes to construction, the future is incredibly bright. The industry entered 2023 marked by a 7% increase in nominal value added and a 6% increase in nominal gross output compared to the previous year, according to Deloitte’s 2024 engineering and construction industry outlook

In the first half of 2024, there are expectations for an increase in profit margins and staffing levels, which means confidence remains high. However with this projected increase comes a variety of issues, ranging from labor shortages to rising costs that will have a significant effect on the entire industry in the next 12 months. While cost volatility, or the dramatic fluctuations in price for items that are necessary for the construction industry to thrive, have a significant role, there are also many options companies can implement to ultimately combat the issue.

 

The Cause of Cost Volatility

There are several root causes of cost volatility that are important components of its tumultuous nature. These causes range from sustained inflation to legislative restrictions. Desire to create more sustainable products is even impacted by increased labor rates.

According to BLS data, average hourly wages increased by 5.2% year over year to US$36.70 in August 2023 and around 17% since the beginning of the pandemic lockdowns in March 2020. These increases can be attributed to increased demand. A proprietary model developed by the Associated Builders and Contractors found that the construction industry will need to attract an estimated 546,000 additional workers on top of the normal pace of hiring in 2023 to meet the demand for labor. With a major labor shortage right now, particularly in the field of skilled labor, there’s more reason that people will charge premiums to work on a job.

While the labor force shortage is not a problem that will likely be resolved overnight, there are causes of cost volatility that owners and developers can easily attack – supply chain material procurement, and project planning.

Whether it’s material scarcity or increasing freight charges, Generis Collective understands how to combat the challenges of the supply chain. By utilizing strategic partners within our Collective, we can assist owners with procuring materials and equipment in early stages of design and planning. With the continuing volatility of cost in the industry, owners will likely turn to firms like Generis to pre-plan, pre-design, and perform thorough due diligence to ensure risks are minimized. By focusing on these issues early on, owners will have more confidence in their budgets and overall project timelines to ensure a project’s success.


The Effect of Cost Volatility

When a project ultimately takes longer than originally planned, it’s likely that cost volatility was a cause. Whether it’s the supply chain or the availability of various equipment and materials, cost volatility can spark significant delays in construction and increase risk. 

We’ve already seen the cost increases of construction materials change the industry: About 82.5% experienced a significant cost increase since 2020, with an average jump of 19%, according to a materials report from construction cost data tracking firm Gordian cited in Construction Dive. 

As Deloitte previously stated, “Managing cost volatility is a top priority for firms and can slow down construction starts if not managed closely.” That’s why it’s so important that organizations have a solid structure in line to facilitate a plan that deals with cost volatility before problems arise. 

 

Finding Viable Solutions – Generis Collective Can Help 

Because of the instability that’s predicted for the construction industry, it’s essential that companies employ operational strategies that can successfully navigate cost volatility. Generis Collective follows a strategic plan to work around these issues, and finds their experience and adaptability to be a tremendously successful means of dealing with those issues. 

For example, stepping back and investing more time and dollars into the initial planning phases, prior to committing to an architect and design plan, is one method our team finds to be significantly helpful. We also focus on sourcing materials and equipment earlier in the process and think more strategically at the design stage, so projects can be completed more efficiently. By focusing on methods that tend to deviate from those traditionally focused on, Generis makes it easier for organizations to face the volatility that often arises during the construction process.

Cost volatility has a variety of causes that, when combined, can create a powerful shift in the construction industry. However, it’s one that will always play a role. Whether it’s affecting the supply chain or the availability of necessary materials, cost volatility is an unfortunate issue that’s here to stay. Despite this, the Generis Collective team understands the way these tumultuous transitions can affect the construction process. Instead of failing to adapt, Generis Collective follows a strategic system to focus on the issue, rather than simply resisting it. 

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