Capital Efficiency: Integrated Project Control Using Blockchain Technology
Reposted with permission from constructionexec.com, February 13, 2019, all rights reserved. Copyright 2019.
The planning and execution of projects is governed by three interdependent constraints: resources, time and cost – commonly referred to as the “triple constraint.” A change to one invariably causes an impact to the others. The most efficient projects consistently find ways to optimize the three constraints to execute faster and at a lower cost than those that do not. Today, this can be achieved using blockchain technology.
A blockchain is an immutable system of record for transactions and activities. Rather than being stored in one company’s centralized system, it’s replicated among all parties that are granted access. Whether it’s the completion of a task or the receipt of material or payment for services, a blockchain’s key function is the independent validation that the conditions for the completion of the transaction have been met before the transaction is recorded.
Transparency into project data enabled by blockchain technology establishes the foundation for integrated project control and automated field data capture. Project blockchains can be used to track the thousands of project activities and transactions required to complete a project as they occur and provide the resource, schedule, safety and cost data needed to track and manage performance.
The real value for improved tracking comes from smart contracts, machine learning and artificial intelligence, which automate the collection of actual results and can provide the independent validation. For example, follow the procurement and installation of a HVAC system. If a HVAC vendor was required tag the equipment with an RFID or Low Energy Bluetooth tag at the time of manufacture, that could then be used to track the HVAC system automatically as it’s shipped from the manufacturer, received and stored on site, pulled from storage and installed, and inspected and approved.
Historically, tracking updates for the HVAC system would have been made manually via email, phone calls and in person observations. With blockchain technology, however, tighter integration between the owner’s, contractor’s and vendor’s systems is possible – including the automation of the ordering, invoicing, payment and receiving processes.
Planning and controlling projects using blockchain and smart contracts allow contractors to overcome two of the primary obstacles that projects face – adversarial contracts and disparate, disconnected systems. Real-time data access across all project parties creates an ecosystem where project teams can work collaboratively on maximizing overall project performance versus collecting and manipulating data to protect one’s position. Rather than only having the baseline plan to work from, the blockchain’s transparency gives insight into actual performance – everything from productivity, cost and schedules to errors and safety.
It’s now possible to proactively plan and manage the triple constraints throughout the complete project lifecycle. The result is a truly integrated supply chain that enables project controls with continuous access to all activity and associated data. Organizations are able to deliver the same or more value from new assets at a lower cost, which frees up capital for other investments.
Those concerned with protecting proprietary information can be assured that blockchain is essentially “triple-entry accounting.” The third entry is to the immutable distributed ledger, which eliminates the possibility of manipulating data for reporting.
When an organization doesn’t effectively optimize a project’s resources, time and cost, it runs the risk of degrading the business case that served as the basis of the investment decision for the project. Mismanagement of the “triple constraint” can result in either delays in commissioning the asset and it generating revenue and/or cost overruns that must be covered by additional debt or company capital. Both of these scenarios negatively affect the return on investment.
While the construction industry still lags behind other sectors in productivity improvement, blockchain technology is a step in the right direction to improve this trend. The immutable and transparent record created by the project blockchain builds a deep level of trust among project stakeholders, paving the way to better decision-making and untapped efficiencies. More projects can be brought in ahead of schedule and under budget. Through continuous improvement, breakthrough project performance can be delivered that will dramatically improve project value.