Taking bold steps for lasting...

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Dubai| November 6th , 2018

Taking bold steps for lasting

transformation

GHASSAN ZIADAT, VP – MAJOR PROJECTS, MCKINSEY & COMPANY

CONFIDENTIAL AND PROPRIETARY

Any use of this material without specific permission of McKinsey & Company is strictly prohibited

CONFIDENTIAL – NOT FOR DISTRIBUTION

2McKinsey & Company

This presentation will examine where construction AI solutions are

starting to emerge; explore a few specific use cases; and look to the

horizon for a map of its future possibilities. Today’s construction leaders

can no longer afford to ignore the potential implications of AI, and as with

many digital leaps, early movers will reap the largest benefits.

Course Description

3McKinsey & Company

Ghassan Ziadat

Vice President – Capital Projects & Infrastructure Major Projects

Leads McKinsey’s work on major projects in the Middle East, bringing more

than 30 years of experience in delivering major infrastructure projects—

including airports, railways, roads, bridges, and general urban regeneration.

Has deep expertise in project design, program management, value

engineering, and public-private partnerships.

More: https://www.mckinsey.com/our-people/ghassan-ziadat

Presenter

https://www.mckinsey.com/our-people/ghassan-ziadat

4McKinsey & Company

1. Technology landscape for E&C sector

2. AI as a different way to approach projects

3. Digital transformation

The purpose of this presentation is to convey technical knowledge to the conference

participants.

The presentation also contains slides with text that summarises the content of the

presentation and the main learning objectives.

Learning Objectives

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Contents

The productivity challenge: A call for technology disruption

The digital landscape

Steps for lasting transformation


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Construction constitutes 13% of Global GDP but productivity growth remains dramatically low

9.514.0

2014 2025

3.6% p.a.

9.5

(13%)

64.5

(87%)

2000 2010

170

1995 2005 20150

190

110

120

130

140

180

150

160

200

Construction

Total economy

Manufacturing

SOURCE: OECD, WIOD, GGCD-10, WorldBank, US BEA/BLS, Turkish National Statistics Bureau, Singapore National Statistics Agency, Malaysian Statistics Agency,

Rosstat, McKinsey Global Institute Analysis, Global Insight; ISSA

1 Real (2005 USD) gross value added per hour worked by persons engaged, indexed 1995 = 100, 20-year CAGR

100

Global GDP Global productivity growth trends

USD, trillions Real gross value added per hour worked by persons engaged,

indexed 1995 = 100

9.5

(13%)

74$

Trillion

7McKinsey & Company

SOURCE: OECD; WIOD; GGCD-10; World Bank; BEA; BLS; Turkish National Statistics Bureau; Singapore National Statistics Agency; Malaysian Statistics Agency; Rosstat; IHS; ITF; GWI;

McKinsey Global Institute analysis

Lagging construction

productivity costs the

global economy $1.6

trillion a year

1 Assumes construction sector output remains constant and current workers are re-employed in other sectors at the total economy productivity rate.

Total productivity differential, 2015

Real gross value added per hour, 2005 $Average

productivity

Construction sector

Total economy

Economic value lost as a

result of productivity gap1

($ trillion)

Global

37

25

$1.63

63

34

$0.5840

31$0.46

2116$0.44

Central and

South America

86$0.05

63$0.03

3420

$0.07North America

EuropeAsia Pacific

Africa

Middle East

~1/3of lost value globally in the

construction sector comes

from North America (primarily

the United States)


8McKinsey & Company

7 key levers were identified that could improve productivity by 50-60%

Cumulative

impact

Potential global productivity improvement1 from implementation of best practice

% impact on productivity

1 The impact numbers have been scaled down from a best case project number to reflect current levels of adoption and applicability across projects, based on respondents to the McKinsey &

Co Global Construction Industry Productivity survey who responded agree or strongly agree to the questions around implementation of the solutions

Enabler

8 - 9%

6 – 10%

8 - 10%

7 - 8%

Gap to Total

Economy

Productivity

SOURCE: McKinsey Global Institute analysis

48 - 60%5 - 7%

14 – 15%50%

1 2 3 4 5 6

Regulation Collaboration

& Contracting

Design &

Engineering

Supply Chain

Management

Onsite

execution

Technology Capability

building

7

External forces Industry dynamicsFirm-level operational

factors

9McKinsey & Company




Contents


10McKinsey & Company

All project lifecycle phases ~ 2400 firms

We mapped the construction technology investment

landscape over the last 10 years…Back-office Digital CollaborationOn-site Execution

Drone Enabled

Yard Inspection

Off-site Fabrication

Value Engineering

Productivity Management

Design Simulation

Virtual learning

3D Printing

Machine Learning

Deep Learning

Equipment Management

Portfolio Planning and Management

Risk Management

Design Management

Process Simulation

Testing and Training

Robotics/Automation

Predictive Assessment Performance Equipment Marketplace

Constructions Materials Marketplace

Labor and Professional Marketplace

Bidding Process

Contract Management

Manpower Optimization

Compliance

Materials Management

Real-time Monitoring

and control

Progress Tracking and

Performance DashboardsQuality

Control

Resource

PlanningEstimating

CRMCapital Financing

Project Scheduling

3D Modeling

Laser Scanning

Document

Management

BIM

2018

2400

Constellations

$18B

North America

Firms

Clusters

Investment

Geo center

of gravity 85%



Constellations of new solutions and use cases are emerging

around proven technologies – will accelerate impact

Drone Enabled

Yard Inspection


Value Engineering


Design Simulation

Virtual learning

3D Printing

Machine Learning

Deep Learning


Portfolio Planning and Management

Risk Management

Design Management

Process Simulation


Robotics/Automation

Predictive Assessment Performance Equipment Marketplace

Constructions Materials Marketplace


Bidding Process

Contract Management


Compliance


Real-time Monitoring

and control

Progress Tracking and

Performance DashboardsQuality

Control

Resource

PlanningEstimating

CRMCapital Financing

Project Scheduling

3D Modeling

Laser Scanning

Document

Management

BIM

Digital CollaborationCONSTELLATION 4:

ARTIFICIAL

INTELLIGENCE &

ANALYTICS

Back-officeCONSTELLATION 5:

MARKETPLACES

On-site Execution

CONSTELLATION

3: ROBOTICS

CONSTELLATION 1:

3D PRINTING &

MODULARIZATION

CONSTELLATION

2: TWIN MODELS



Construction remains the most active phase: AI and VR/AR

are starting to gain momentum

Note: Early Stage VC, Late Stage VC, M&A and PE transactions included in analysis

Use Case Category

Concept & Feasibility

Design & Engineering

Pre-construction

Construction &

Commissioning

Operation &

Maintenance

Overarching

# Companies with

Transactions

Number of

Transactions

Total Transaction

Value ($M)

Average Transaction

Value ($M)

Back Office

% Founded in Past 5

Years

Small all around

Niche market –

established, small,

and expensive

Large but well

established

Very large market

growing quickly

Medium-to-large

market growing quickly

Very young category

Very established,

niche market



57 605655545352 5850 5921 51

220

38 4822 28 432523 696361 684630 40390 26 3127 65 66 856462

240

80

40

140

160

60

20

180

0

200

120

100

500

6724

400

4237 443533 34 36 4932 41 474520 29

Quality Control

Equipment Marketplace

Design ManagementProject Scheduling

Laser Scanning

Risk Management

BIM

Compliance


Document Management

Bidding Process

Process Simulation

Contract Management

Construction Materials Marketplace

# of transactions

3D Modeling

Value Engineering


CRM

Capital Financing

Portfolio Planning

and Management

Estimating

Machine Learning

Progress tracking and Performance Dashboards

Deep Learning


Design Simulation

Companies founded in last 5 years, (%)

ERP

Predictive Asset Performance

Robotics / Automation




Drone enabled yard inspection

Virtual Learning

Real-time monitoring and control


3D Printing

Resource planning

Transactions driven by established use-cases (e.g. document management)

and talent acquisition (e.g. Machine Learning) Concept & Feasibility

Design & Engineering

Construction Back Office

Operation & Maintenance

Construction & Commissioning

Pre-construction Overarching (AI/ML)

SOURCE : McKinsey Startup and Investment Landscape Analytics

Size of bubble = number of

companies addressing that use-case

N = 2361 unique companies

1 Total number of transactions in past 5 years, includes PE/VC, M&A and private placements. Does not include debt financing

2 Number of companies with transactions in the past 5 years, companies with multiple use cases are counted towards each use case (total is not MECE)



Some

technologies

we are

excited about

CONFIDENTIAL – WORK IN PROGRESS – NOT FOR DISTRIBUTION

Artificial intelligence

Twin models

Robotics & 3D printing


Artificial intelligence can revolutionize the way we approach projects


1

Refining quality control and claims management.

Neural networks can help owners and firms alike understand the likelihood that a contractor or subcontractor will file a claim,

enabling owners and firms to proactively allocate contingencies and deploy targeted mitigation plans.

Boosting project monitoring and risk management.

These applications would dramatically reduce decision-making cycles in a construction project from a monthly basis to a daily

basis—through full automation of the project scheduling and budgeting update on the combination of BIM, AI, drone, and laser

capabilities.

Constant design optimization.

These applications can recommend to engineers and architects the use of a specific design, such a structural solution based

on various criteria including total cost of ownership, execution timeline, and likelihood of construction mistakes during

execution.

Building commercial excellence and a competitive edge.

Supervised and unsupervised learning algorithms can boost an E&C firm’s project win rate, enhance margins, and ensure

project value


AI adopters with a proactive strategy have significantly higher profit margins

1 Firms that are big data and cloud services users and report their strategic posture toward AI to be: “Disrupting our industry using AI technology is at the core of our strategy,” “We have changed our longer-term corporate strategy to address the AI threat

or opportunity disruption,” or “We have developed a coordinated plan to respond to the AI threat or opportunity but have not changed our longer-term corporate strategy.”

2 Operating profit margin for selected sectors as a share of turnover, for continuing operations and before exceptional items.

-5 50 1510 20-10

Self-reported current profit margin2

Difference from industry average (unweighted) (percentage points)

AI adopters with proactive strategy1

Non-adopters

Partial AI adopters or experimenters

High tech and telecommunications

Automotive and assembly

Financial services

Utilities and resources

Transportation and logistics

Consumer packaged goods

Retail

Education

Health care

Building materials and construction

Professional services

Travel and tourism

SOURCE: McKinsey Global Institute AI adoption and use survey; McKinsey Global Institute analysis

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1





Contents



We are seeing change …. but there’s still so much untapped potential!

SOURCE: Capital IQ, Gartner IT key metrics data 2012

02008 20122010

5

3

7

2

1

6

4

2006 2014

8765430 1 2

1 Based on data of top 20 E&C companies by market value Globally 2 Top 20 companies by market value

Consumer

discretionary

Industrials

Aerospace

Automobile

Chemicals

& Energy

Construction

IT spending

% of revenue spent on IT

Software/internet

Banking/finance

Education


Media/entertainment

Telecommunications

Insurance

Healthcare providers

Transportation

Pharma/life sciences/medical

Utilities

Industrial electronics

Consumer products

Manufacturing

Retail/wholesale

Food beverage processing

Chemicals

Construction

Energy

Database

CONSTRUCTION

Hospitality

Healthcare

Government

Personal and local services

Entertainment and recreation

Retail trade

Education

Transportation and warehousing

Real estate

Mining

Chemicals and pharmaceuticals

Utilities

Oil and gas

Advanced manufacturing

Wholesale trade

Finance and insurance


Media

ICT

Basic goods manufacturing

Agriculture and Hunting

Level of digitization

MGI industry digitization index,

2015 or latest available data

R&D investment

% of revenue spent on R&D



There are a few enablers that

will make digital successful

in construction delivery


▪ Digital participation needs to be part

of the bidding contracts for all project

participants

▪ Digital project emulates an IPD

(Integrated Project Delivery) setup,

this needs to be leveraged in the

contracts to prevent emergence of

claim culture

▪ All project participants need to work

with one shared data backbone in

one system

▪ Even the early conceptual design

needs to be done in at least 3D BIM,

otherwise the amount of later rework

will be prohibitive

▪ Data will need to be made available

to all project participants, with up

from agreement from all

Supportive contract strategiesStrong data foundation Building core capabilities

▪ Invest in training of staff as the

traditional project management roles

will shift to digital

▪ Hire new talent and integrate with the

core team to develop a digital unit


Building capabilities is the

biggest challenge

for digital transformations

26%

63%

Transformations where

the company did not invest

In developing leaders x 2.4

Transformations where

the company invested a

great deal in developing

leaders through

the transformation

Organizations that invest in

developing leaders through the

transformation are

~2.5 % of transformations that

were very or extremely

successful

times more likely to succeed

skill gaps as a hindrance to driving digital transformation.

McKinsey Global Survey 2014:

The Digital Tipping Point; survey among 850 C-level executives

difficulty finding talent

as the #1 challenge

77% of executives we interviewed mentioned

“The skills needed go beyond pure IT to include specific

technologies, such as social media or mobile, as well as the

analytic skills to drive value from [big] data”

The Digital Capabilities your Company needs, MIT Sloan

Management Review

Out of 12 possible challenges to meeting priorities for digital

programs, leaders selected

SOURCE: McKinsey Transformational Change Survey, Digital Academy



Questions to address

along the digital

transformation

journey

How do we generate

insights from data

Data

collection

What is the value

at stake?

Digital

strategy

Is our IT infrastructure

and organization set

up appropriately?

IT infrastructure

and org

What digital solutions

are going to enable us

to capture the value?

Digital

ecosystem

What types of

decisions do we want

to make with the

support of analytics?

Advanced

analytics


McKinsey has extensive experience in digital and in capital productivity

digital engagements in the last

three years

of our digital work is in

technology transformations

capital productivity and

infrastructure engagements in

the last eight years

areas of cutting-edge

expertise across 22 industry

sectors and 12 functional

areas

digital designers and

developers with McKinsey

Digital Labs

regional roundtables

as part of McKinsey’s

Global Infrastructure

Initiative, with dozens

of senior leaders from

engineering and

construction joining

the discussion

Boost in construction sector productivity possible

through seven levers, as identified in MGI’s 2017

report Reinventing Construction: A Route to Higher

Productivity

ranking by Kennedy of capital

projects and infrastructure

consulting practices

years in business

economic research,

McKinsey Global

Institute (MGI) was

created in 1990

ranked private sector

think tank by University

of Pennsylvania think

tank guide

Groundbreaking areas

of research, including

productivity,

competitiveness, and

growth

… and we invest in research that’s on the cutting edge

of many sectors, including construction

Unparalleled digital and capital productivity

practices …


23McKinsey & Company 23McKinsey & Company

Follow us:

Ghassan Ziadat

Vice President –

Capital Projects &

Infrastructure Major

Projects

Latest insights:

[email protected]

00 971 2 6942582

Dubai

McKinsey & Company

https://www.mckinsey.com/industries/capital-projects-and-infrastructure/our-insights

@McKinsey_CPI

Linkedin.com/showcase/mckinsey-capital-projects-&-infrastructure

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