Reducing schedule duration through repetition leads to lower construction costs. With most industrialized designs repeatedly used for multiple projects, design costs can be allocated proportionally. In addition to cost savings, this presents opportunity for revenue diversification.
As industrialization continues to gain efficiency, investors and contractors can realize a quicker payback period due to a compressed schedule, leading to less interest cost. This also allows for the general conditions’ scope to decrease. Monthly costs therefore become much lower.
Cost savings are found in the factory setting as well. Factories reduce waste by controlling inventory and protecting building materials.
Industrialization also provides cost savings in labor. Site labor often requires subcontractors that charge a markup. Much of this trade work is moved in-house and can be conducted by lower-skilled labor.
Industrialized construction faces financing challenges unlike the traditional industry. New methods of industrialized construction have a limited track record, resulting in many lenders hesitant to commit. If a developer secures initial financing, underbidding could require additional capital. When lenders do approve, a significant up-front payment and higher interest rate are often required. Typically, lenders allocate monthly loan draws based on percentage of on-site work complete. With industrialized construction occurring in the factory, the off-site prefabricated components do not add value to the construction site.
Industrialized firms may have significant up-front costs. Architectural designs and manufacturing processes must be developed as well. These capital expenses and any operational costs should be included in return on investment calculations of the supported projects.
Whereas prefabrication work is executed in a predictable factory environment, transporting equipment and modules to the construction site can be challenging. Robust project, supply chain and logistical controls are required for timely and effective deliveries.