Misallocation of Value
Quality, Consequences and the Construction Industrial Complex (part 91) – All IMHO:
Happy New Year!
Since reading Thinking Fast and Slow by Daniel Kahneman I have become fascinated with rational Vs behavioural decision making and its impact on property design and construction.
Advertisers have long known people are emotional and make their choices based on “fear, envy and greed”. Think about FOMO or fear of going against the norm or buying a supposed “risk free” investment.
I think there is a growing realization, for me anyway, that people make decisions based on emotions and fear rather than rational logic. This is why behavioural economics is now a thing and rational atheists are confused when challenged by religious people. So what has this got to do with property design and construction?
If the property industry was rationally seeking to optimize building performance and minimize environmental impacts for the social good, decisions would be made based on:
- Value over first costs
- Environmental & energy performance
- Whole life cycle analysis including disposal
However in the real world, property industry decisions seem to be based on emotions of fear and greed resulting in:
- First cost only decisions – greed
- Not challenging the status quo – fear
- Not challenging the construction industrial complex supply chain – fear
The real issue is that the poor decisions made during design and construction do not impact designers and constructors. Poor decisions effect building owners, users and society over the 20 to 40 year life span of the building.
IMHO, there is a “misallocation of value” within the property industry driven by short term, emotional thinking. How can this change?
I believe the decision making environment matters. Culture, at a national and organizational level matters. Macho cultures of fear, which are prevalent in construction, generate poor decisions. Cultures of abundance e.g. natural resource based economies, do not generally value energy efficiency.
Fear or really indifference of the long term perspective must be changed. Ultimately the gaps between cost and value need to be bridged. It pains me to say this, but government may be a large part of the solution. Governments can:
- Describe the scale of problems with credibility because, how things are described, effects decisions
- Foster a culture of change focused on long term policy thinking
- Incentivize long term thinking and innovation
- Make rules to support value over cost
At the heart of the property development business should be a “golden rule” of delivering buildings that work, are energy efficient and healthy for occupants. I think construction needs a “cultural reformation” to live up to this rule or even modify it to include “do no environmental harm” . Going forwards, I plan to focus on the long term and challenge the status quo.
This is what happens when I have a vacation, I read a lot then get moody and philosophical. Something technical next week I think!
Twitter: @BLDWhisperer
Related posts & links:
#47 – Right Side of History? ( https://www.linkedin.com/pulse/right-side-history-adam-muggleton?trk=mp-author-card )
#61 – Too Big to Succeed? ( https://www.linkedin.com/pulse/too-big-succeed-adam-muggleton?trk=mp-author-card )
