CONSTRUCTION EFFICIENCY AND ITS IMPACT ON THE ECONOMIC

DEVELOPMENT OF PERU

ABSTRACT
This paper presents an analysis of how a significant improvement in the efficiency of the
construction sector could help solve two major restrictions we have in Peru’s
development and growth – the capacity of the construction industry in Peru to meet the
new challenges of projected growth and the power to continue steadily increasing the
national infrastructure in a sustainable way. The goal of overcoming these restrictions is
so that construction does not bottleneck growth for our country.

KEYWORDS
IGLC22, Lean construction, efficiency, innovation

INTRODUCTION
More than a decade ago, the construction industry of Peru began making significant
efforts to increase the efficiency of its construction projects, in part due to past crises that
had shown that one of the pillars of sustainability in this industry is project efficiency.
Today, we are faced with an important growth in the market with much more global
competition. Therefore, we now regard these efforts to improve efficiency as no longer
just an option for the industry, but an obligation for facing the market and working with
the significant growth that has flourished in our country during the last decade.
Knowing that construction is an industry that crosses over into all other industries (i.e.
that its investment in other productive sectors seems to be increasing, that it is directly
related to the generation of infrastructure in our country, and that it is a key factor to
sustainable growth), we believe that construction is key to promoting and exploring all
options for improving the performance of the construction industry and that we should
not allow our industry to bottleneck development in our country. Therefore, in this paper
we review the results of companies or groups of companies in implementing Lean
Construction in Peru and we try to provide evidence for why such methodologies
implemented throughout our industry can help address the new challenges that are
present in our industry.

GROWTH RESTRICTIONS IN PERU

This part of the paper will discuss two key factors that we believe may affect the
country’s growth and are directly related to the construction industry.

ACCELERATED GROWTH OF THE CONSTRUCTION SECTOR

Peru is going through one of its most important periods in its entire life as a republic,
having rates of economic growth higher than 5% (see Figure 1) for almost 10 years in a
row. This is the product of good economic policy that has allowed Peru’s growth to
remain unaffected even by the international crisis of 2009.

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This good economic policy results in an increase of investments in Peru’s productive
sectors, including the industrial sector, agricultural exports, tourism, trade, housing, and
mining – finally translating these investments into major construction projects within the
different productive sectors. This phenomenon is causing the construction industry to
experience growth rates that are much higher than the rest of the economy (see Figure 1)
(reaching its highest growth at15% of GDP for several months in a row).

Figure 1 (“Requirements for urban development and planning of urban infrastructure in the city of Lima”)

And if we analyze this growth for the largest construction companies in the country, we
can see that the growth rates are higher than 30% in recent years, such as in the case of
Graña y Montero (see Figure 2).

Revenue (millons US$)

2000 1,293 1,540
620 992

0
2010 2011 2012 2013 (proy.)
Figure 2 (“Graña y Montero ExecutiveChart December 2013”)
With these kinds of indicators, we can conclude that every year, the construction industry
in Peru requires 15% more project engineers, technicians and workers, construction
equipment, suppliers, etc. This means that we are looking to successfully carry out newly
emerging projects in our industry, which until now could only have been realized with
the invaluable effort of the local industry and in part thanks to the significant
participation of international companies in the construction sector and the massive
presence of engineers and technicians of different nationalities in Peru (who come to
contribute and participate in the growth of our country.) However, these great efforts
have resulted in a decline in the efficiency and profitability of construction projects. If
this growth continues in subsequent years, we may be close to reaching the limit of the

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industry’s abilities, and this may be a deterrent for major projects presented in the
following years.

NATIONAL INFRASTRUCTURE
One of the key factors for a country is to develop its national infrastructure (airports,
ports, roads, etc.), especially in the sectors where Peru still has significant shortcomings.
The Global Competitiveness Report 2013-2014 of the Word Economic Forum (see
Figure 3), prepared by the committee for improving the competitiveness of the states of
the world, initially described the sustained growth that the GDP in Peru has experienced
between 1990 and 2012.

Figure 3 (“The Global Competitiveness Report”)

This study places Peru in the 61st position—in terms of competitiveness—out of 148
countries assessed.

This report also evaluates the different factors that determine the competitiveness of each
country by dividing it into three major groups (see Figure 5):
 Basic requirements (40%), or the institutional requirements of the country, the
macroeconomic environment, and especially the infrastructure that are important
for sustaining the country's development environment.
 Competitiveness enhancers (50%), such as education, labor market efficiency,
financial market, and market size.
 Innovation (10%), which generated new business and innovation investment
made in the country are assessed.

Of all the variables in which Peru scored poorly, there are two points that are related to
the construction industry – infrastructure and innovation.

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In this study, Peru’s rating in terms of infrastructure is 3.5 out of 7, making the country
90th out of 148 countries evaluated.
Peru’s rating in terms of innovation is 2.8 out of 7, giving the country a rank of 122nd out
of 148 countries evaluated (see Figure 4).

Figure 4 (“The Global Competitiveness Report 2013 -2014”)

From this study, we can conclude that one of the issues that needs to be reformulated—
because of its importance in terms of growth and competitiveness—is the country's
infrastructure.

Therefore, the government has developed an infrastructure investment plan up to the year
2021 (to be completed by the bicentennial anniversary of the independence of Peru),
when one will be able to appreciate the investment projects carried out during this period
(see Figure 5) in the amount of US$88 billion to invest in infrastructure projects.

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 Figure 5 (“National Infrastructure Plan 2012 – 2021”)

Therefore, we could conclude that there will be a significant increase in investment in

infrastructure that will make the construction industry be required throughout the
implementation of major projects nationwide for at least the next eight years.

Of the two factors discussed above, we can conclude that, in the not too distant future, if
we fail to optimize the performance of the construction industry (both in terms of
management and technical issues), this could bottleneck growth and development in our
country.

PROPOSED SOLUTION: SEARCHING FOR AN IMPROVEMENT IN

PRODUCTIVITY TO INCREASE THE CAPACITY OF THE INDUSTRY

We propose the following efforts on behalf of the industry. This part of the paper will
develop the particular experience of the implementation of Lean Construction in a group
of construction companies in pursuit of improved project efficiency.

Studies of productivity of the construction industry that were carried out in Peru during
the last decade—and were given in response to the crises in the past—served as a model
for showing that the one of the pillars for sustainability in this industry construction is
project efficiency. Also, these studies are the result of a growing market that is much
more complex and globalized, and yet they remain an important tool that allows us to
compare ourselves with our heavily industrialized neighboring countries that may or may
not be competitive in our market (see Figures 6 and 7).

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 100%
90% 23% 21% 23% 22%
27%
80%
70%
60% 42% 37%
43% 43%
38%
50% TNC
40% TC
30%
TP
20% 37% 41%
33% 34% 33%
10%
0%

EMPRESA 1

EMPRESA 2

EMPRESA 3

EMPRESA 4

EMPRESA 5
No agrega valor Agrega valor

Soporte Paras autorizadas

Figure 6 (“Analysis of Building Efficiency in Chile”) Figure 7 (“Productivity Benchmarch Project”)

Source: Corporación de Desarrollo Tecnológico Source: Capitulo Peruano de Lean Construction

The first productivity study conducted in Peru was developed in 2000 by engineer Ghio
Castle for a particular group of companies at the time who made the decision to measure
and improve their efficiency through the use of Lean Construction. Then, in 2005, a
De la Construcción
research thesis was carried out that sought to measure the improvement in productivity
for construction companies after five years of working on productivity improvements.
Finally, in 2013, the Peruvian Chapter of Lean Construction conducted a Productivity
Benchmark Project in order to measure the productivity of the various member firms in
the chapter. All of these studies were performed by analyzing a general level of activities
and all of which have the following results (see Figures 8 and 9):

Figure 8 (“Productivity in Construction Works 2001”)

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 2013

24%
36%

40%

TP TC TNC

Figure 9 (“Productivity Benchmark Project 2013”)

These graphs show measurements of productive work as 27.9% in 2000, increasing to

30.4% in 2005, and finally achieving 36% in 2013. In general, we can see a slight
improvement in productivity in the industry over the years (2000, 2005, and 2013), based
on efforts of these companies in the use of methodologies such as Lean Construction.

Moreover, if we look at the productivity gains obtained in the most important items used
in a construction project for a construction by a particular construction company, such as
formwork or sanitation, we can see that the productivity improvements that have been
obtained during the recent years are significant – as in the case of formwork and similar
projects, which has decreased from IP’s of 3.5HH/M2 IP's of the 1990s to IP’s of 0.9
HH/M2, and for sewer installation items, which have decreased from IP's of 3.9 HH/ML
to a 1.57 HH/ML (see Figure 10).

ENCOFRADO APORTICADO
4.00
3.00
2.00
RATIO HH/M2

1.00
0.00
SANTO…

WESTIN /…
T-3
SALAZAR

SG-299

SG-225

SG-421

ED-
CHORR
8G-777

GOLF

PQ. LOMAS
BARR-2

CAPITAL

90 91 92 93 94 95 96 97 98 99 2002 2005 2008 2010

PROYECTO / AÑO

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 Figure 10 (“Lean Construction in Peruvian Projects GyM”)

One can observe that the results of the items analyzed in isolation give us more
significant improvements in the efficiencies of these items (see Figure 10). However,
these improvements have not been able to reflect overall improvements in the entire
project (see Figure 9), and this may be because most efforts have been oriented towards
the structures stage of construction projects (where they have better productivity results)
or stages where contractors have more staff on its payroll, therefore neglecting the stages
or items that are subcontracted, increasingly becoming bigger and more complex each
time or more than 50% of the contract. This reduces the workforce to only 10% on
average (see Figure 11), achieving only partial improvements that are, however, further
reduced by our own growth effects that the industry has experienced, which are:

 Difficulty: We have more and more complex projects.

 Quantity: The number of projects has increased significantly.
 Magnitude: The size of the projects is taking on a much larger scale.
 Specialization: Projects are becoming more specialized and multidisciplinary.
 Competitiveness: The competition is making cost and schedules more aggressive.

Obra MO Mat EQ SC GG Total

(1545) Edifico Hochschild 4% 16% 2% 75% 4% 100%

(1561) GYM BLOQUE III 12% 21% 3% 56% 7% 100%
(1563) Santo Toribio 16% 41% 5% 32% 6% 100%
(1572) Edificio playa Kontiki 6% 15% 5% 46% 29% 100%
(1580) Iglesia y centro pastoral 4% 16% 2% 70% 8% 100%
(1584) Edificio de oficinas capital 12% 24% 8% 50% 6% 100%
(1600) Edificio de oficinas capital - niveles superiores 20% 54% 6% 15% 5% 100%
(1602) Torre Abaco 19% 38% 8% 23% 11% 100%

Figure 11 (“Internal Statistics of the Last 21 Projects of Graña y Montero”

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CONCLUSION

To increase the efficiency of the construction industry in Peru, a proposal of new

strategies that allows for sustained development is necessary. In order to create these
strategies, we suggest the following:

1. Training and development of cluster-level construction companies throughout our

industry, seeking to improve construction efficiency so that we effect a change at the
sector level.

The clusters are understood as a set of companies, suppliers, adjacent industrial, research,
training, and other support entities that are interconnected by similar and/or
complementary economic activities, are located in geographic proximity, and have a
common goal.

An advanced cluster generates competitive advantages (e.g. knowledge and innovation),

forming a dynamic source of employment and income generation. This would achieve
better efficiency standards in the construction sector, becoming the engine of regional
economic development.

Therefore, we propose a cluster formation between construction companies in order to

create synergies that enable the efficiency level in the construction sector to increase.
Among its objectives, we also propose the implementation of new technology and
improved construction processes.

Today there are clusters in the construction sector who are already working with this
goal, for the most part having joined together in order to learn, develop, and apply new
methodology—such as BIM (Building Information Modeling) in the case of the BIM
Committee of Peru or the aforementioned Peruvian Chapter of Lean Construction—with
very good results in terms of time and cost for the companies that comprise the group,
assuring that projects managed with this technology should have reduced their costs due
to quality failures, optimized engineering, and increased their efficiency when building.

2. In this way, we also propose extrapolating the synergies created for the development of
BIM or Lean in Peru and promoting technical topics that help the efficiency of the
industry like:
 Proposing to use construction equipment such as tower cranes, placing booms, or
concrete distributors by companies that make up the cluster in order to increase
the efficiency level in the construction of the concrete structure.
 Suggesting the widespread use of prefabricated materials from slabs, columns,
beams, footings, stairs, to pre-made walls.
 Proposing optimal structural designs regarding constructability of the project,
enabling the use of standard formwork equipment we have in the market and,
thus, increasing the efficiency of labor.

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3. We also propose promoting the management of innovation, always looking for
knowledge and new systems to elevate our technical level, which differentiate us in a
sustainable manner.

4. We also propose to work towards managing subcontractors. In the development of new

management, aimed at improving their services and standardizing their management
system, we believe that it is essential to promote Virtual Design Construction in such a
way that allows us to integrate models for the products, processes, and organization of the
most important subcontractors.
However, these efforts must also be the responsibility of the cluster, as they are
responsible for providing support for formalizing the sector’s subcontracted businesses.

5. We would also offer ongoing training to our employees with courses, periodical
certifications, etc.

6. We also intend to work towards managing providers in terms of their material use and
material efficiency.

REFERENCES

Alvarado Mario (2013): “Cuadro Directivo Graña y Montero Diciembre 2013”;

Encuentro de directivos de Graña y Montero. Lima, Perú.

Asociación para el Fomento de la Infraestructura Nacional (2012): “Plan Nacional de

Infraestructura 2012 – 2021” Brecha de inversión en infraestructura. Lima, Perú.

Ayllón, Jose Luis (2011): “Requisitos para el desarrollo urbano y la planificación de

infraestructura urbana en Lima”; Foro: Vías al Futuro; Lima, Perú.

Capitulo Peruano de Lean Construction (2013): “Proyecto Benchmark de Productividad”;

Ceremonia de Bienvenida a Miembros del Capitulo; Lima, Perú.

Castillo Ghio Virgilio (2001): “Productividad en Obras de Construcción” Pontificia

Universidad Católica del Perú. Lima, Perú.

Comité Para la Mejora de la Competitividad de los Estados del Mundo (2013): “The
Global Competitiveness Report 2013 -2014”; Word Economic Forum.

Corporación de Desarrollo Tecnológico: “Análisis de la Productividad en Obras de

Edificaciones en Chile Abril 2013”; Santiago de Chile.

Lambarri Juan Manuel (2011): “Lean Construction en Proyectos Peruanos GyM”; 21

Congreso Internacional del Lean Construction; Lima, Perú.

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