The scalability problem

January 2010 » Columns » INSIDER'S VIEW
Digging back into your economics studies, you may recall the concept of scalability. Only loosely related to "economies of scale," scalability refers to the ease with which supply can change to accommodate demand for goods and services. Economists distinguish between industries that are difficult to scale, often because of high fixed costs or other barriers to entry, and those that can more rapidly adjust to demand. Civil engineering and its partners in the construction industry represent the two sides of this coin.
Jason Burke, P.E., MPEM

Digging back into your economics studies, you may recall the concept of scalability. Only loosely related to "economies of scale," scalability refers to the ease with which supply can change to accommodate demand for goods and services. Economists distinguish between industries that are difficult to scale, often because of high fixed costs or other barriers to entry, and those that can more rapidly adjust to demand. Civil engineering and its partners in the construction industry represent the two sides of this coin.

It is exceedingly expensive to start and grow a construction business. It requires a high initial investment in "big iron" and has high costs of maintenance, bonds, and insurance. Operating such a business requires decisions that might seem counterintuitive to engineers accustomed to the relatively low fixed costs of office space, computers, and software. From an economic point of view, as demand fluctuates, it would seem to have a greater impact on contractors saddled with expensive, idle equipment than on engineers — or does it?

Economically speaking, engineers fall into a "knowledge worker" category. This refers to the fact that, fancy software notwithstanding, engineers' greatest assets are on top of their shoulders. By definition, the profession requires knowledge, judgment, and skill that results from education and on-the-job experiences. For better or worse, this asset simply can't be quantified on the balance sheet. Whereas the contractor's equipment is purchased and depreciated based on a schedule — reflecting its being "used up" in the fulfillment of business goals — the engineering manager faces a different calculus.

Economists model a scalable business as one that can efficiently adjust to market demands. The stated assumption is that a knowledge-based workforce can rapidly grow and shrink to accommodate a huge project or deal with inevitable slowdowns. As we have all seen, however, this is hardly the case. A contractor might buy and sell equipment with few reservations — in short, it is an exchange of one asset for another. Engineers, being more or less human, have a few additional concerns.

Aside from the complications of employing and training a transient workforce, there is the added issue of the "engineer supply." Though the engineering firm might conceivably be described as economically scalable, the universities that supply the engineers themselves certainly could not. The financial, labor, and infrastructure resources required to supply a qualified pool of engineers each year is incalculable. However, without an understanding of this relatively inelastic supply model, how could business managers possibly plan for a long-term future? To illustrate, consider the U.S. Bureau of Labor Statistics’ (BLS) projections for civil engineers between 2008 and 2018.

The BLS projects that more than 114,000 new civil engineers will be required by 2018 to account for industry growth and to replace those that will have left the profession. That may sound like a lot, but then consider that civil engineering undergraduate enrollment in the United States has been in the vicinity of 40,000 students for many years. This, of course, does not imply that every civil engineering student will enter the profession after graduation, but it reveals a significant demographic mismatch.

In terms of the effort we might put into promoting civil engineering, it is likely that only about one quarter of those encouraged to pursue such a degree will actually end up working in our field — even fewer considering that some civil engineers have a degree in some other discipline.

As practicing engineers, it is in our best interests to look beyond the existing pool of engineers and those soon to be graduating. It behooves us to understand as many of the "true costs" of producing an engineer as possible. In construction and other similar industries, equipment operators are often encouraged to work directly with manufacturers to understand the systems and design parameters that lead to the most efficient and maintenance-free work practices. This improves productivity and, in an ideal relationship, allows the equipment vendor to improve the supply to reflect real-world conditions.

What are we as engineers — the consumers of the universities' output — doing to ensure that their supply is sufficiently prepared and flexible enough to handle the realities of our rapidly changing industry?

Jason Burke, P.E., is a project manager in Billings, Montana. Find additional information at http://pmug.wordpress.com.

E-mail comments in care of bdrake@stagnitomedia.com.


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