With inflation reaching a 40-year high in June and oil hitting a yearly high of $120 a barrel, talk among economists and banks turned to the subject of a US recession. There are differing views on when and if a recession might come, but while the experts debate the details, it is worth reflecting on what the Covid pandemic has taught us about thriving in a downturn – and how we can apply those lessons now.
Lockdowns and restrictions taught many that flexible working is more achievable than we thought and can deliver unexpected benefits. Once we’d mastered Teams and invested in new collaboration tools, we learnt there were time efficiencies from virtual meetings, with new ways of working leading to broader involvement and better decision making.
Should a recession take hold, flexibility in how we work will offer more options for dealing with changing circumstances. Incorporating remote and hybrid working into the mix allows agility in how we service customers, assemble teams and manage our real estate.
Many companies have opted to continue with some level of flexible working practice. A survey of 25,000 people in Spring 2022 for McKinsey’s American Opportunity Survey found that 58% had the opportunity to work from home one day a week, and 35% could work from home five days a week.
Flexibility allows companies to tailor working practices and spaces to suit the task. For instance, our people combine remote and project-based working, travelling to the site when live interaction can add value or when face-to-face interactions are urgently required.
Setting up so that some degree of flexibility with physical office spaces can help businesses prioritise skills over square feet. In a recession, real estate can be trimmed down so that talent can be retained, ready to meet the demands of the upturn that must follow.
Elon Musk caused concern among Tesla’s investors and the automotive sector in June when he emailed his employees to tell them he was halting hiring and needed to shed 10% of staff due to his ‘super bad feeling’ about the economy. Perhaps Musk’s caution is sensible: cars in general and electric vehicles, in particular, could be considered a ‘luxury’ item and hence sensitive to recession.
It is time to diversify for companies whose customer base is concentrated in a sector such as automotive that could be vulnerable to the impacts of the recession. For Soben, our involvement in the data centre sector meant that we grew significantly during the Covid pandemic. Our need for data and storage is not going away; it was a similar story for life sciences.
Having customers in various sectors also allows cross-training staff, so they aren’t wedded to one industry. We have moved people between life sciences, high tech, manufacturing and data centres. This allows ideas and good practices to move across sectors and has increased the skillsets and competencies of our QSs and project managers.
Geographical diversity helps too. Some countries have emerged from Covid far more potent than others, as Bloomberg’s latest Covid resilience ranking demonstrates. Its top five are South Korea, UAE, Ireland, Norway, and Saudi Arabia. It is worth considering countries that would be in your top-five Recession Ranking. We are seeing new strengths emerging, such as the natural resources sector in South America, which is blossoming as a result of the conflict in Ukraine.
New Risk Strategies
Dynamic and proactive risk management is a critical component of Soben’s project management and controls approach. That approach proved vital during the pandemic. Covid was that insurers’ nightmare, a Black Swan event – although that argument didn’t wash for the second or third waves of the pandemic. With the raft of new risks it introduced, Covid was a timely reminder that risk management strategies should be regularly revisited and updated. Construction projects are like life: a moving target.
Risk management should not just be a tick-box exercise. It should be a deep-dive, intelligently managed process that looks into individual risks and systematically allocates contingencies – rather than applying a blanket lump sum. I advise getting the whole team involved in workshops to weed out the real risks, how they can be mitigated, and how contingency should be allocated.
A project’s cost and schedule managers should update the risk register monthly, with more in-depth quarterly workshops. Project controls should be dynamic, looking ahead to give warnings and forecasting, rather than simply reporting on progress to date and the status quo.
Just as Covid led to an increase in disputes, so too would a recession, as organisations tighten their purse strings and look to claw back financial shortfalls through claims. Our advice would be the same as it was through Covid: talk about any potentially contentious issues early, rather than waiting until things worsen or until the end of a contract. I would always advocate fair treatment of contractors and their supply chains; it makes both moral and financial sense.
With the price of so many construction materials skyrocketing, a slow-down may not be as disastrous for the construction industry as it seems. A period to breathe could allow supply chains to recover or reform following the impacts of the situation in Ukraine. It could slow down the tender price inflation, which is making budgeting and forecasting so challenging.
Regardless of whether a recession hits or not, the points noted in this blog are worth considering: a flexible and agile approach; diversity in sectors and countries; robust risk management; and a proactive and honest approach to risk management.