Budgeting and staffing for IT is a critical factor in the success of an AEC business. This video explains why it's worth investing in IT.
- Now for the most exciting part of our entire discussion, survey results and numbers. Now look, I know what you're thinking. No, no, stop, stop, don't press the skip button. Don't do it. Don't fast forward. Stay with me, 'cause this is the important part we're talking about money. That's right, now look all you need is love, but money makes the world go round. Let's talk about it for a minute. Now we do a survey every year. This is our fifth year of doing the survey. We surveyed over 2,600 construction companies, asking them a broad variety of questions.
Now you can go download this entire report at jbknowledge.com/reports. You can read through all of this detailed information. I'm just going to cover the highlights, 'cause this is really important. We got to talk about spending and budgets, and R&D. What'd we find out in our report? Well yet again, for a fifth year in a row, spending is low. When I mean low, it's not just a little low, it's really low. Look at this. This is a percentage of revenue spent on IT.
On average, you're at less than 1%, 1%, or 1% to 1 1/2% of revenue. That's all billings, right? You have revenue 1%. This is incredibly low. Now you say James, how low, because this is a low margin business we're in? You're not the only low margin business in construction. Check this out. Now this is a graph from Gartner Benchmark Analytics. Percentage of corporate revenue spent on IT. At the very top, as you can imagine, is software publishing and internet services, at just north of 6%, 6 1/2%.
Bring it on down, banking, media, education, still see construction? Oh, that's right, 'cause it's at the very bottom. I mean construction comes in below energy, chemicals, food and beverage. People, restaurants spend more money on technology than you, and you are building the world. You're building the roads, the buildings, the structures, the underground structures for the entire world to function. Yet we have the lowest investment rate in technology of any major industry.
This is not just sad, it's pathetic, and we have to do something about it. Now remember my discussion before was all about when you're looking at IT spending, the chicken or the egg, which one comes first. We talked about this, and this is where I get frustrated, because many companies in the AEC space come to me and say, look, we're a low margin business. We don't have the money to invest in technology. I would argue we're a low margin business because we don't invest the money in technology.
Investment comes before return. No guts, no glory. No investment, no return. Let's check this out. This is another indicator what's going on in the AEC space. Do you have a dedicated IT department? We further define this in the survey, as even one person, just one person dedicated to IT. Yet again, this is 2015 to 2016. In fact the answers got worse as our survey scale size went up.
Again, sickening. This means they don't have a single person at their company that is dedicated to an information technology function. Now let's take this pause. Just take a minute and define what IT really means. This isn't just people who fix your computer, or who fix your iPhone. Now look I do speeches all over the world, did 52 of them last year. You'd be amazed because they hear IT speaker, how many people come up afterwards and ask me questions about their iPhone.
You guys look, IT goes far beyond just fixing computers. It is the technology of managing information in your business involving strategies, application selection, and much, much more. First, we got to have a dedicated IT function in your company, but secondly, we have to redefine what you mean by IT. It's not your high school teenage kid who comes in on the weekends to fix people computers. That's a computer repair technician. That is not an IT professional.
Next, the most limiting factor in adopting new technology, bing, bing, bing, guess what? Top answer in 2016, lack of staff to support the technology. Amazing, they can't adopt new solutions 'cause they don't have someone there to help train, support, and implement. This is reflected in a lot of policies I see at construction, architecture engineering firms, in the country. They'll buy iPads. They'll hand them out to the field and say, there you go, you got your iPads, have fun.
That is not an adoption strategy. That is literally like a spray and pray strategy to adopting technology. Just spray the technology out there and hope some of it sticks. You have to have the staff to support adoption. Budget's listed as number two, employee hesitance, knowledge about what's available. There's a whole array of things that factor into this, but you have to have staff. You know there's something I've learned after running a business for 16 years, if you want to take something seriously in your company, you know what you do, you create a position, you create a seat for that person.
You hire someone and you dedicate them to that job. That's what you have to do. If you're going to take something seriously, it's got to be supported with staff. We further broke this down, the presence of IT departments versus sales volume, because many of you will say, well hey a lot of your survey respondents must have been small companies. Not so, check this out. Even right here, even at $51 million to $100 million, half of companies don't have any IT.
They'll have a safety director, an operations director, a VDC director. They'll have every other position but not iT. It's scary. Then we look at presence of IT versus number of employees, and we see the exact same thing. Even right here at 101 employees, there's still not a single IT person on staff. This has to change. Then we looked at and said, what does the size of IT department depend on? The number one answer...
Again this is a depressing answer, is I don't know. I mean there's literally no strategy on how large the IT department should be. The number two answer, the number of employees needing support, number three, number of internal software applications, number four, the size of current and upcoming construction projects. This is no way to plan ahead. This is like I'm a city councilman in my town of College Station, Texas, greatest place on earth to live. Just need to throw that out there. We also call it Aggieland, home of Texas A&M.
Also, just by random chance, the greatest university on earth. It's a random coincidence. They're both located in the same place. When I came in, I saw something a bit scary. That budgeting in a municipal level really was based on take last year, and add 5%. That's no way to budget for anything. First because inevitably, your cost of operations will outstrip inflation long enough that you default the organization.
Secondly, that's not a strategic way of thinking. You have to look at budgets based on what needs you have, what's the strategic vision of the organization, and what technology solutions have to be in place to support that strategic vision? Then you say, okay now we have to figure out what staff, and what projects, and what people have to come in behind it to support it. You've got to start with the strategy. We also looked at another interesting question, that was billing IT expenditures to projects.
Check this out, 47% of people said they are not billing IT expenses back to their construction projects. 36% said it depends on the expense, 14% say said yes, a very small percentage said no. Here's the interesting part, we surveyed these people that say it depends on the expense, or yes. We said, what was the secret sauce to recouping a direct expense recoupment of your IT expenses? Do you know what they told us? I'll give you a hint, there were no unicorns or magic fairies involved.
They literally just started adding it to the invoice. Okay, now the naysayers are going to come in and say, oh but James, our G&A expense is limited and capped. You're going to give me a long laundry list of reasons why you can't bill it back. The simple answer is you've never tried. Maybe you have tried and it didn't work on one project. You have to revisit this. Every single project, depending on your contracting method, there's a lot of different IT expenses that can be broken down by project. Then you can do a direct recoupment of those expenses.
That's aside from all the internal investment you're going to get from staff savings, efficiency savings, time, material savings. There's a lot of different ways to make your money back. In summary, you got to look at this holistically. IT departments can actually generate revenue, and can bill the projects. They can be a critical part of the project delivery team. We're seeing a new phrase come out in hiring. Now this is for linda.com, which is owned by Linkedin, which is owed by Microsoft.
We'll just keep going through daisy chain or ownership. They should really like and appreciate this that there's new job titles being posted on Linkedin, construction technologist. This is not someone who repairs computers or fixes iPhones. This is someone who thinks strategically about construction technology, helps set budgets, and pushes the entire organization forward on adoption. Now I have friends out there, these rare jewels, these unicorns of construction technology that really get it.
Of course their chief job is adoption, getting people to actually use the technology, getting them to buy in, getting them to be critically part of the organization. Construction technologists are critical to the future or construction in general. Now I hope you'll add that to your strategy as we look forward. We're still under spending other industries in IT by 75%. Remember the average, the cross industry average of IT spending is 3 1/2%. We're at 1% to 1 1/2%. We're at the bottom barrel of IT spending.
It's no surprise that we're at the bottom barrel margins. We can do so much better. Remember our phrase, there's got to be a better way. Most companies still react to IT budgeting needs rather than planning for them. There's really a lot that can be done in finance, budgeting, accounting, return on investment calculation, in your IT and project billbacks, and getting involved in investment and return.
There's some good stories out there right now. Kiewit a multi-billion dollar construction firm actually formed their on technology venture capital group called Kiewit Technology. Now it's called InEight, 'cause they improve everything you can do in eight hours of work. They're buying technology companies and starting them. JE Dunn started their own technology firm and spun it out. DPR has their own software development groups. We can go on, and on, and on, of all of these really progressive firms. I had mechanical contractor clients who now actually sell their VDC and technology services to other less adept contractors.
Their technology in VDC groups are now revenue streams for their businesses. It's really impressive what can be done in this area, and I hope you'll get started today in your company.
Follow James Benham—the CEO of JBKnowledge, Inc.—as he explains how construction science and computer science are merging into one joint field of study. James shares essential terms that you need to know to speak intelligently about topics like the cloud and machine learning. Plus, he dives into topics like the Internet of Things, the evolution of drones, and 3D printing. To wrap up the course, he covers IT budgets, staffing, and investing in research and development.
- Learning about the origins of construction technology
- Reviewing essential construction tech terms
- Understanding the Internet of Things
- Reviewing the evolution of drones
- Learning about the 3D printing process
- Investing in IT
- Investing in research and development