Bill Gates estimates the world needs to build the equivalent of a New York City every month for the next forty years. But the engineering and construction (E&C) industry that will deliver the majority of this investment is failing to deliver. A study by Ernst and Young on 365 megaprojects (those with budgets over $1 billion where governance should be the strongest) found that 64% of projects were over budget and 73% of projects were delayed. Remarkably, the average project completion cost was 59% higher than initial cost estimates.
So what is to blame for this? Many case studies have identified some of the causes but the real challenge is that engineering and construction projects are inherently complex. Over the years a number of techniques and methodologies have been developed to address this complexity but we are yet to see transformative improvements in performance. Meanwhile, project management teams are too busy executing on their projects and have little time to reconsider new approaches.
Over the last year I have searched far and wide for methodologies and approaches that work and that can be easily integrated into the project team’s current workflows. To this end, I believe there are 5 levers of project governance that if deployed correctly can vastly improve project outcomes:
- Incentives
- Culture
- Process Management
- Risk Management
- Information Flows
Incentives
Incentives are one of the most potent ways to shape human behaviour. A 2012 study of project performance in the UK and ROI found that incentive mechanisms can have a “significant” impact on project delivery and play an important role in achieving excellent performance.
Unfortunately in many E&C projects the incentives of stakeholders are not aligned toward the successful on-time and on-budget delivery of the asset. Incentives need to be considered carefully both at a macro-level (company to company) as well as a micro-level (the incentives for individual employees) so that everyone is working towards a common goal.
Culture
Research by the Construction Institute of more than 260 projects found a clear link between higher trust between partners and lower project costs. Unfortunately many projects are beset by adversarial and mistrustful relationships.
More collaborative and transparent relationships would deliver higher value but cultural change cannot be forced. What is required is a conscious effort by industry leaders towards establishing better stakeholder relationships. Cultural change is arduous but must be seen as a long-term goal driven by a recognition of the need for change and an inspirational vision of the future.
Process Management
Waterfall, stage-gate, lean, agile. A lot of methodologies have been developed and deployed in an attempt to get better control over E&C projects. The challenge is the number of stakeholders, the complexity of the assets being delivered as well as unexpected events and changes that occur during project execution push any process to its limits.
Project tasks vary in type, risk profile, constraints and requirements. Different processes are better suited at managing some tasks than others. Appropriate management techniques must be selected for each type of task to ensure efficient completion.
Risk Management
Useful frameworks for managing and mitigating risk within a project have been developed and are frequently deployed. Despite this, KPMG found that owners rank risk management as their 3rd biggest concern whilst contractors rank is their 2nd biggest concern for project delivery. The issue is that risk management is rarely considered at a strategic level.
Risks within a project should be allocated to those best able to manage them but effective risk mitigation requires stakeholders working together. Profits are the reward for taking on risk, but the aim is to first make the pie bigger then consider the most appropriate way of distributing that pie based on the risk profile of each party’s scope.
Information flows
Projects are typically planned in terms of tasks. Who needs to do what by when. But this approach underestimates a key facet of project management – information. In addition to considering tasks, the way information flows between stakeholders needs to be assessed and bottlenecks eliminated. Considering information flows is also an ideal approach for facilitating digital transformation in an industry that remains one of the least digitized of all.
Putting it all together
These 5 factors cannot be treated in isolation. A real transformation of project delivery requires careful consideration of their interactions to make sure these 5 levers are working together to strengthen project governance and oversight.
For example, if anything, incentives can be too powerful and much damage has been wrought by overzealous executives focused on badly-conceived KPIs. However, a strong culture can be used to ameliorate incentive structures to reduce the risk of negative outcomes.
Contracting strategy is another area that cuts across all 5 levers. A good contract can help embed a positive working culture, align incentives, promote best management practices, share risk appropriately and allow for transparent information flows. A poorly considered contract, even if written with best intentions, can almost guarantee project failure.
How is Cybrik getting involved
Cybrik is on a mission to improve project outcomes and productivity. There is no simple solution here and we would not claim to have all the answers. However, we are collaborating with a diverse group of stakeholders to transform this industry for the better.
We are reimagining how projects can, and should, be delivered. This requires careful consideration of the project constraints, out of the box thinking, and pragmatism to ensure any new approach can actually be implemented. Finally, we are developing applications for improving the management of E&C project information flows. Providing the most useful information to stakeholders as and when they need it.
We would like to enlist you in our mission. We would love to hear your opinions on how to transform this critical industry for the better. This won’t be easy, but nothing worthwhile doing ever is.