A construction value chain is a type of business model that includes all the different activities required for the project. In the construction industry, a value chain is created to ensure a project is successful from the planning stages to the completed and approved building structure.
It is necessary to use a value chain in construction because it ensures that the project delivers the maximum value for the lowest value. Of course, it also guarantees the biggest profit.
Primary activities of the construction value chain
There are five main activities in the construction value chain, as well as two other activities that are not always necessary for all projects. The five main activities include:
- Raw Materials – These are the materials that will be used in the work.
- Product Manufacturing – Includes all manufacturers used throughout the project.
- Design and Engineering – The design and engineering section of the value chain includes the building owner, architects and engineers.
- Construction – The construction phase will also include architects and engineers, but also any contractors that are used.
- Operations and Maintenance – Operations and maintenance includes any maintenance companies used, the building owner and anyone occupying the building.
The other two construction value chain activities may include the demolition of older buildings before new construction begins and the renovation of a building that is already constructed and in use.
The purpose of value chain activities in construction is to ensure that everything runs smoothly until the entire project is completed. Organizational structures and control systems are often in place to ensure nothing is left out. Technology plays an important role in the construction value chain, but so do the employees hired to do the work.
The potential for Additional Value that is created from the construction value chain
When a value chain is used in the construction industry, it is expected that there will be additional value added with each completed project. Buildings can last fifty years or even longer beyond their original timeline when a value chain is implemented. Buildings are also more energy efficient, which saves even more money and resources in the long run.
Construction Value Chain Challenges
Unfortunately, there are many different challenges that everyone needs to be prepared for when it comes to utilizing the value chain in construction. These challenges include the following:
- Climate change – Environmental concerns, as well as measures continually introduced to reduce the carbon footprint of buildings.
- Demographic changes – The number of people living in a building is constantly growing and this means that buildings need to be constructed differently. Additionally, not as many young people are entering the construction industry and this means it will take longer for projects to be completed.
- Technological changes – The creation and design of buildings is changing rapidly due to all the advances in technology. This affects all non-technological features of the construction industry value chain.
- Changes in the economy – There are stricter requirements for mortgages, as well as greater caution when it comes to people willing to invest their money. Add in the fact that it is becoming increasingly difficult to find affordable housing and buildings and the value chain does not work as well as it should.
- Changes in energy supply – All buildings and homes are expected to use less energy in the future, but this affects how this activity is implemented in the construction value chain.
- Changes in globalization – There has always been strong competition in the construction industry, but all the higher standards are causing some jobs to go to people abroad. After all, if they could create higher quality materials and other items at a lower price, companies would be crazy not to give them their business.
Steps required to perform a value chain analysis
It is important for every construction company to carry out a value chain analysis to ensure it is working as well as it should. The steps required are quite simple and easy, so there is no doubt about where improvements need to be implemented and where other changes need to be made.
- Identify all activities within the value chain
The first step is to identify all activities that are included in the construction value chain. There are usually between five and ten activities in this stage, depending on the job and how much work needs to be completed.
- Analyze all value chain activities
Once the activities of the construction value chain are known, it is best to analyze them to see if improvements or changes need to be made. Sometimes this analysis is as simple as doing some calculations to see what the extra profits and savings are. However, there are times when these calculations are not so easy and a person may need to calculate the numbers several times before getting the true numbers they need.
- Consider Potential Improvements Needed
Almost all value chains in construction can be improved, so this step will almost always be continuous. Sometimes the answer to improvements is as simple as providing additional support for the project in question. But other times, you must add features, increase prices, reduce costs, or increase the value of your brand to see the results you want.
The disadvantage of using string values in construction
There aren't many disadvantages to using string values in construction, but there is one that always stands out. This disadvantage is the fact that many companies will lose vision and strategy because they are too focused on the numbers and different segments that are needed for the value chain in the construction industry.
Some people don't like using the value chain in construction, for the simple reason that they don't want to lose the vision they have for their company. However, the value chain is very important in this industry, so we ask everyone to consider using it in some way in every project they undertake.
