Is There a Demographic Craft Labor Cliff That Will Affect Project Performance?

Implementation Resource 318-2

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Craft Risk Availability Forecasting Tool (CRAFT)

Research Team 318, Is There a Demographic Labor Cliff That Will Affect Project Performance

Construction Industry Institute

With assistance from:Construction Users Round Table (CURT)Construction Labor Market Analyzer (CLMA)National Center for Construction Education and Research (NCCER)

Implementation Resource 318-2

August 2015

2015 CII Annual Conference Edition

© 2015 Construction Industry Institute™

The University of Texas at Austin

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Table of Contents

1. Introduction 1

2. Craft Labor Availability Risk Estimation Process 3

3. Benefits and Limitation of the Tool 6

1

1

Introduction

Over the past several decades, the U.S. construction industry has experienced cycles of recessionary decline followed by periods of industry growth. During growth periods, projects have experienced craft labor shortages across multiple trades, in terms of both head count and skill level. CII chartered RT 318 to investigate this problem, specifically asking the team to answer the question, “Is there a craft labor cliff that will affect project performance?” The team performed a macro-level demographic analysis of the North American craft workforce and found a near-term craft labor “cliff” in the Southwestern and Southeastern United States for welders, pipefitters, and electricians. This lack of the quantity and quality of craft labor will negatively affect project performance in these regions. The team also detected a number of long term trends within the craft workforce: an increase of the average age of the construction workforce at three times the rate of non-construction industries; a shift in craft worker preference from job satisfaction towards higher pay; a lack of educational attainment among Hispanic workers that will prevent them from moving into industrial-focused trades (e.g., pipefitting or welding); a reduction in career and technical education at the high school level; and the shrinking wage gap between craft workers and all other industries.

Previous research on workforce issues lacks any large-scale focus on quantifying the impacts of craft labor availability on project performance. To fill this research gap, RT 318 assessed the impact of craft availability on project safety, cost, and schedule performance by performing a statistical regression analysis of 97 North American construction projects completed between 2001 and 2014. This sample population was made up of 85 U.S.-based projects and 12 projects located in Canada.

RT 318 used the results of this analysis to develop the Craft Risk Availability Forecasting Tool (CRAFT), to enable project managers, estimators, and site management teams to assess the risk that craft labor availability poses to a specific project’s safety, cost, and schedule performance. The tool’s five-step process determines the impact of craft labor staffing difficulty on a project’s safety, cost, and schedule performance. These risk estimates will support project management decision-making during the project planning stages. Table 1 shows the three levels of staffing difficulty modeled by the tool and the expected safety, cost, and schedule effects at each level.

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Table 1. Performance of Projects Affected by Craft Labor Shortage

Craft Labor Staffing Difficulty

OHSA Number of Recordable Incident Cases per 200,000

Work Hours

Average Cost Change (%)

Average Schedule Change (%)

Moderate/Severe 0.94 17.3% 22.5%

Slight 0.43 3.2% 12.8%

No Difficulty 0.26 –6.2% 6.4%

Data Source: RT 318 Project Survey and CII Benchmarking and Metrics Database

The next chapter describes the model and how it can be used to quantify the risk. Chapter 3 describes the benefits of the tool and potential limitations. While this implementation resource offers a method for analyzing the risk posed by craft shortages on individual projects, Research Summary 318-1, Is There a Demographic Labor Cliff That Will Affect Project Performance, and Research Report 318-11, Is There a Demographic Labor Cliff That Will Affect Project Performance, present the team’s general recommendations for addressing these industry-wide threats

1. Introduction

3

2

Craft Labor Availability Risk Estimation Process

Using data from its survey of 29 North American construction projects (completed between 2010 and 2014) and CII Benchmarking & Metrics data from 68 North American projects (completed between 2006 and 2013), RT 318 calculated the expected impacts of three levels of staffing difficulty on cost risk (in percent difference from budgeted cost), schedule risk (in percent difference from budgeted schedule), and safety risk (in terms of total recordable incident rates). (See Table 2.) Of the projects, 87 percent were located in the U.S. and 12 percent were located in Canada. Most of these projects were industrial projects with an average construction cost of $231 million (and a median cost of $41 million) and an average construction duration of 913 days (and a median duration of 623 days). The research team performed a linear regression to develop the cost and schedule performance model, and a Poisson regression to develop the safety risk estimate model. The models are statistically significant (with a 95-percent confidence level) for safety (p = 0.0044), cost (p < 0.0001), and schedule (p = 0.0149). (See RR 318-11 for additional detail on the development of the CRAFT tool.)

It is important to note that the CRAFT tool is intended as a risk analysis tool, and is not suitable for use to set contingencies or to adjust project costs to account for workforce impacts on project budgets and schedules. The average cost changes and confidence intervals shown in Table 2 are based on the performance of past projects and should not be used to adjust project cost estimates. Organizations should instead use the CRAFT tool to understand the level of performance risk craft availability poses to their planned projects.

Table 2. Estimated Performance of Projects Affected by Craft Labor Shortage

Craft Labor Staffing Difficulty

OHSA Number of Recordable Incident Cases per 200,000

Work Hours

Average Cost Change (%)

(95% Confidence Interval)

Average Schedule Change (%)

(95% Confidence Interval)

Moderate/Severe 0.94 (0, 2.84)

17.3% (8.4%, 26.2%)

22.5% (11.5%, 33.4%)

Slight 0.43 (0, 1.72)

3.2% (–0.9%, 7.3%)

12.8% (7.7%, 17.9%)

No Difficulty 0.26 (0, 1.25)

–6.2% (–10.7%, –1.8%)

6.4% (1%, 11.8%)

Data Source: RT 318 Project Survey and CII Benchmarking and Metrics Database

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2. Craft Labor Availability Risk Estimation Process

To quantify the risk associated with craft labor shortages, the CRAFT user must categorize the level of the potential craft shortage on a particular project. The research team defined the severity levels of craft staffing availability on the basis of the definitions shown in Table 3. Most owners and contractors use formal and informal methods of conducting labor surveys during the planning phases of their projects, to understand the labor market for each one. Among these methods, studies of project-specific wage, labor, and competition were found to be the most commonly used, conducted either in-house or by private consultants or large national database companies that collect data on labor supply and demand. Regardless of the method used, the CRAFT user should map the results of the organization’s labor survey onto the severity levels of labor availability, using the definitions provided in Table 3.

Table 3. Severity Level Definitions of Craft Labor Shortage

Level Definition

Moderate/Severe

Staffing difficulties would lead to activity delays or project milestone delays.

Slight Staffing difficulties would lead to a consumption of activity float.

No difficulty There is no labor shortage anticipated for the project.

The CRAFT Process

Modeling craft labor availability risk with the CRAFT process involves following a simple five-step process:

1. Develop a cost and duration estimate for the project.

2. Analyze the labor market conditions for the specific project area and identify the anticipated level of staffing difficulty as defined in Table 3.

3. Quantify the potential project safety, cost, and schedule performance based on the expected values and ranges described in Table 2.

4. Use the performance risk quantifications calculated in step 3 to inform the project decision-making process with respect to craft labor risks.

5. Repeat steps 1-4 as necessary as the project is refined throughout the planning phase.

5

CRAFT Risk Estimation Process Example

Below is an example of a project team following the five steps of the CRAFT process.

Step 1: Develop a cost and duration estimate for the project. Based on the preliminary conceptual design, the project in question is expected to cost $40 million and require 600 calendar days to complete.

Step 2: Analyze the labor market conditions for the specific project area and identify the anticipated level of staffing difficulty as defined by Table 3. Based on a market analysis of the project region, the project is expected to experience a “moderate” level of craft staffing difficulty.

Step 3: Quantify the potential project safety, cost, and schedule performance based on the expected values and ranges described in Table 2. Table 2 identifies the following performance impacts based on historical data from projects with a moderate level of staffing difficulty: a cost increase of 17.3 percent (with a range from 8.4 percent to 26.2 percent); a schedule increase of 22.5 percent (with a range from 11.5 percent to 33.4 percent); and an OSHA TRIR rate of 0.94 (with a range from 0–2.84). For the project in question, this translates to a potential cost ranging from $43.36 million to 50.48 million, with $46.92 million being the expected cost. The project’s duration might range from 669 calendar days to 800 calendar days, with an expected duration being 735 calendar days. Finally, the potential OSHA recordable incident rate for the project may range from 0 to 2.84, with 0.94 being the expected recordable rate.

Step 4: Use the performance risk quantifications calculated in the previous step to inform the project decision-making process with respect to craft labor risks. Using the performance ranges calculated in the third step, the project manager would begin to compare mitigation strategies for the craft labor availability impact.

Step 5: Repeat steps 1-4 as necessary as the project is refined throughout the planning phase. As the project progresses through the development process, steps 1- 4 would be repeated at each update of the budget and duration.

2. Craft Labor Availability Risk Estimation Process

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3

Benefits and Limitations of the CRAFT Model

The CRAFT tool provides a number of benefits to the user including the following:

• Provides a simple, statistically sound model for quantifying the potential impacts of craft availability on a project’s safety, cost, and schedule performance.

• Enables a baseline performance comparison to analyze the potential benefitsofstrategiestomitigatelaboravailabilityimpactsoncostandschedule performance.

• Quantifiestheimpactsofcraftlaboravailabilityonprojectsafetyperformancetohighlighttheneedforstrategiestomitigatetheseeffects.

While the tool is beneficial and statistically valid, users must understand its limitations, which include the following:

• The tool’s performance estimates are based on a sample of past industrial projects in North America with the following characteristics: – most executed by CII member organizations – completed between 2001 and 2014 – median cost of $41 million, with a range of $0.5 million to $8,549 million – median schedule of 622 calendar days with a range of 46 days to 3,131 days.

The risk tool should not be used for projects that fall outside these parameters and will not be valid in construction market condition dramaticallydifferentfromthoseinNorthAmericanbetween2001and2014.(See RR 318-11 for a full discussion of the statistical analysis on which the tool is based.)

• The accuracy of the CRAFT tool’s risk estimates depends heavily on the accuracy of the initial project cost and duration estimates developed in step 1, and the labor market survey performed in step 2.

• TheCRAFTprocessisnotofferedasasolutiontocraftworkforceshortages.Since using the model as an estimating tool would do little to alleviate the industry’s craft shortages, organizations should not use it to adjust a project’s cost or schedule estimates. Instead, project teams should use the CRAFT tool as a risk model to determine whether mitigation approaches (e.g., modularization or schedule adjustment) are warranted to prevent potential shortfalls in project cost, schedule, and safety performance.

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Despite these limitations and cautions, the CRAFT tool gives project teams a statistically sound model for quantifying and planning for the potential effects of variable craft availability on project safety, cost, and schedule performance.

3. Benefits and Limitations of the CRAFT Model

Research Team 318, Is There a Demographic Labor Cliff That Will Affect Project Performance

* Mohammed Albattah, University of Colorado-Boulder

Kevin Blair, Matrix Service Company

Scean Cherry, Day & Zimmermann

Kimberly Corley, Shell

Brandon Davis, AECOM

Marco Giron, Lauren Engineers

* Paul Goodrum, University of Colorado-Boulder

Steve Greene, NCCER

Daniel Groves, CURT/CLMA

Shaddy Hanna, ConocoPhillips

Dean Hamrick, Fluor

Don Jones, LyondellBasell, Co-chair

* Hossein Karimi, University of Kentucky

Mitch Lee, Victaulic

Chris Maxson, CCC Group

James MacDonald, ConocoPhillips

Jennifer Sulak Brown, Barton Malow, Co-chair

Jon Tate, Zurich

* Tim Taylor, University of Kentucky

* Principal authors

Editor: Jacqueline Thomas

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