Bob the Builder Beane’s Dream: Sabermetrics for the Construction Industry
How two GSB grads' app is bringing sabermetrics to the construction industry
(618 words)
The construction industry is one of the largest sectors in the global economy with a GDP impact of over $5 trillion. By 2020, analysts estimate the industry will reach $10.3 trillion.[i] With such tremendous size, even minor improvements in efficiency can lead to billions of dollars in savings. Because work in the construction industry relies heavily on direct human labor and human supervised tasks, effectively deploying labor and transferring information is essential to driving productivity gains.
Unfortunately for the construction industry, communication between workers and management has long been woefully inefficient. Until recently, most construction projects required foremen to log employee hours and track worker assignments with pen and paper. A back-office team then scanned that information and faxed it to management for analysis. Management would then compute how much each worker should be paid based on which assignments they completed. This sloth-like and error-prone information flow impaired management’s ability to calculate labor costs accurately and make informed assessments of a project’s progress.
Recognizing this tremendous inefficiency, two GSB graduates founded Rhumbix, a technology startup that logs worker hours and tracks movement across a jobsite. Rhumbix’s mobile application provides workers a unique identifier and uses the GPS on workers’ phones to transmit their location as they move across the jobsite. Foremen within the company can use the mobile app to assign individual tasks to each worker and note once tasks are completed. Using the designated labor rate for each activity and workers’ individual cost codes, Rhumbix’s web app calculates compensation in real-time, saving significant administrative overhead and reducing payroll errors.[ii] Tracking worker movement also allows Rhumbix to generate motion studies automatically for management to review. Management can then iterate on jobsite layout to increase labor utilization, for example, by moving raw materials to a low-traffic area closer to their final destination. For premium customers, Rhumbix also offers software to calculate daily profits and losses and analyze delay sources.
Currently, Rhumbix’s entire business model is centered on reducing costs through efficiency improvements. Interestingly, however, its pricing structure does not directly correspond to the amount of money it helps customers save. Instead, Rhumbix charges companies a daily fee for every worker on the platform (Core = $0.50 per worker, Pro = $1.00 per worker, Premium = undisclosed).[iii] Each tier in the pricing model includes additional features. For example, Pro subscribers have access to customer support while Core subscribers do not.
Per-worker pricing effectively generates value for Rhumbix from Core and Pro clients, but leaves significant upside untapped for large Premium clients. Large construction projects, like Salesforce Tower, often eclipse $1 billion in costs.[iv] If Rhumbix drives a 5% efficiency gain, that means it’s generating $50 million in value to the customer. An outcome-based contract with a 20-80 cost-saving agreement would allow Rhumbix to earn $10M whereas a 2,000 worker team at $2 per day would only generate $1.5 million in revenue.
To maximize revenue and company success in the long-term, Rhumbix should develop additional features that allow it to increase revenue from Premium customers. Currently, the product functions only as a retrospective tool for measuring and analyzing workflow onsite. Thus, there is an untapped opportunity to develop a planning tool that leverages Rhumbix’s information on activity rates to predict the completion timeline of a project. For example, if Rhumbix data show that workers are installing beams in 75% of the usual required time, then the tool could update the expected completion date for the project. Creating a planning tool would integrate Rhumbix into construction companies’ processes end-to-end. Firms would rely on Rhumbix’s data to make initial timeline and profitability projections and then use real-time data from the field to update those predictions constantly to keep projects on track.
[i]“Global Construction Market Worth $10.3 Trillion in 2020 (50 Largest, Most Influential Markets),” press release, February 17, 2015, PR Newswire, http://www.prnewswire.com/news-releases/global-construction-market-worth-103-trillion-in-2020-50-largest-most-influential-markets-292235961.html, accessed November 2016.
[ii]Nitish Kulkarni, “Rhumbix Wants To Be the Palantir for Construction,” TechCrunch, November 10, 2015, https://techcrunch.com/2015/11/10/rhumbix-wants-to-be-the-palantir-for-construction/, accessed November 2016.
[iii]Rhumbix, “Pricing,” https://www.rhumbix.com/pricing/, accessed November 2016.
[iv] “Boston Properties Signs a 714,000 Square Foot Lease with Salesforce.com at Salesforce Tower,” Boston Properties press release (Boston, MA, April 1, 2014).
Great article, definitely seems like Rhumbix has a huge opportunity to create value via efficiency and cost savings in the industry. One challenge I envision is that on-site workers may not get on board with this. There could be significant pushback against constant monitoring, privacy invasion, and complete visibility into how much they are actually accomplishing during the day. Given the type of work (high effort, outdoor, manual labor) and pay structure (likely pretty low, hourly, with few performance incentives), I’d guess that a lot of the inefficiency in the industry is due to workers getting tired, taking breaks, or just plain slacking. Rhumbix, or the construction site manager, would have to be very thoughtful in pitching this to the on-site workers, to make sure they don’t just set their phones down on the ground each day and “forget” to put them back in their pockets.
An awesome post! I think this startup could be a game-changer in the construction industry. I especially like your suggestions on the planning front. To push it a little further, the construction sites that I’ve worked at has involved several different subcontractors. So a different companies for electrical wiring, plumbing, firefighting etc. The point is that there are several tasks that involve close coordination of different subcontractors. A planning feature could allow for example the plumbing guy to know the status of the electrical so he can decide whether to order onto the construction certain goods that will need to be installed. The advantages would be two fold. Firstly basic communication would reduce costs for all subcontractors, reduce timelines, as there is better communication and create a more clear and organized site. Secondly what often happens is that different subcontractors blame each other’s short fallings for delays, claiming they were delayed because the guy before him didn’t do his work on time. With proper tracking, there would be proper accountability, which is important when a real estate developer wants to know who has caused delays
This is a great idea that is going to take an enormous amount of skill and knowledge to implement. Most construction sites adopt changes slowly because their margins are too low to take chances, they have to remain focused on safety, and workers generally dislike changes that affect how they go about working. Although I agree that the upside, as you laid out, is huge, the backlash from workers against being tracked is going to be equally large. Hopefully their execution is as good as their idea.