What are the keys to a successful project? As an introduction to our new series on procurement, Simon Rawlinson of Davis Langdon examines how to make the right decisions for your scheme and avoid the most common pitfalls …
Procurement decisions have a profound effect on the balance of risk and reward on projects, and the roles of each party in that project. In this series on procurement, Davis Langdon will examine such routes as two-stage tendering, collaborative working, construction management and the transfer of design responsibility. Illustrated by case studies, the series will set out how clients can improve the chances of a successful outcome. But first, by way of introduction and based upon the 12 principles of Davis Langdon's DLivering Success initiative, we examine the opportunities for intervention to increase the likelihood of a positive outcome.
The UK construction industry has never had the best reputation for meeting its clients' expectations. Evidence of this poor performance comes from the NAO's report Improving public services through better construction, which concludes that failure to fully implement best practice procurement and project management in central and local government currently costs £2.6bn a year in terms of avoidable capital and operating costs.
As demands on projects become more complex and multifaceted, incorporating such elements as sustainability and whole-life value, the problems associated with defining and achieving the criteria for success become greater. In reality, the problems that affect many failing projects require a systemic approach to diagnosis and resolution. However, there are few projects, particularly in the private sector, that are subject to regular, structured project reviews that enable these issues to be tackled at an early stage. As a result, project success may be achieved more by accident than by design - albeit that the client and the project team will be working hard to achieve the best possible result.
How projects go wrong
With the exception of some government and local government bodies, which have implemented the Office of Government Commerce's Achieving Excellence programme, and major clients such as BAA, there are few examples of organisations using project implementation programmes with a formal "gateway review" system, used to sanction progress from one stage to another. This structured approach to project management helps to focus on success factors that otherwise might not be identified.
Research on projects undertaken by the OGC has identified a number of common causes of project failure, including:
- Lack of a clear link between the project and the organisation's key strategic priorities, including agreed measures of success Problems include the misprioritisation of projects or the absence of agreed critical success factors. The full scope of change required to deliver the full business benefit needs to be defined, even if this is beyond the current scope of the construction project. Understanding the consequences of slippage in cost, time or quality also helps to inform decisions if adjustments to the project are required later.
- Lack of clear senior management ownership and leadership Key project management issues include early, firm decision making and the ability, responsibility and authority of the project owner to deliver the project and its benefits. Critical but common project weaknesses are complex communication channels and lack of a single point of responsibility.
- Lack of effective engagement with stakeholders Major problems areas in stakeholder management involve identifying the right stakeholders in the first instance, understanding and agreeing their requirements, resolving conflicting priorities and managing their continued involvement.
- Lack of skills and proven approach to project and risk management The main risk is the availability of an appropriately skilled and resourced project team of consultants and contractors with clearly defined roles and responsibilities, such as the defined scope of design. Other areas of potential failure include the effectiveness of change or risk management processes, particularly the extent of buy-in by the team.
- Failure to break down projects into manageable steps The absence of a review system to confirm that the project is on target to deliver forecast benefits can be a significant weakness.
- Consideration of projects on the basis of initial cost rather than whole-life value The failure to consider options on the basis of occupation, maintenance and disposal may result in poor decisions or potential benefits being overlooked. By focusing on capital costs, the appraisal may not address the key business needs.
- Lack of client understanding and contact with the supply chain Potential sources of failure include the presentation of the project to the supply side, in terms of clarity of expected outcomes, roles, risks and rewards. Proposals also need to ensure that projects are packaged to generate sufficient market interest to secure the right resources at a competitive cost.
- Poor project team integration The use of integrated design and construction teams has become the norm in public-sector projects. However, apart from with design-and-build, integration is less common in the private sector. Problems associated with a lack of integration include the misallocation of project risk, poorer supply-chain co-ordination and integration and a greater chance of adversarial relationships.
What is success, and how can it be defined?
Project success can be defined in many ways.
In the commercial sector, a distribution centre delivered on time and budget, fully let and generating its target capital value may be called a 100% success. For a school, by contrast, long-term success may be judged in terms of learning outcomes such as improved exam grades. Although projects must meet their cost, time and quality targets, broader success criteria need to relate to the project's primary objectives - those aspects of the scheme's delivery that will provide the anticipated benefit.
Considering how buildings deliver business benefit to their owners over their lifespan is the essential starting point for the assessment of project success. In doing so, consideration of the creation of value relating to both the operation of the building and its effect on third parties helps to ensure that proper consideration is made of the full impact of the project.
The key value drivers for construction projects are:
- Exchange value The simple financial value of an asset at the point of letting or disposal driven by the efficiency of the building, location and the quality of the space.
- Operational value Constructing Excellence's recent report Be Valuable report has provided further insights into the relationship between build and operational costs and value, with the perspective that value based on operational benefits is an essential success criterion. Operational issues can only be defined through consultation with a wider group of stakeholders. This aspect of a building's success increasingly has a sustainability dimension related to energy labelling and lifetime carbon emissions.
- Image and brand Buildings can make a substantial contribution to an organisation's image, values and reputation, providing tangible evidence of business or organisational culture and creating a sense of identity among employees and building users.
- Contingent value This defines the broader impact of the project upon its surroundings and the wider community. The impact of an investment upon its surrounding area - such as a catalyst to further development, through the creation of jobs or improved infrastructure - is a good example of contingent value.
- Esteem value This is the intangible benefit derived only by third parties from the positive effects of a development on its surrounding area through design quality, greater amenity or the enhancement of an address, such as the Tate Modern on London's Bankside.
Creating the conditions of success
The OGC's Achieving Excellence programme is an example of a highly developed project management and delivery system. It incorporates key features of project definition through business benefit analysis, option appraisal, procurement using integrated teams and the systematic use of gateway reviews at key points in the project cycle.
Investing in project management and controls can yield some very substantial benefits to the client. The National Audit Office recommends: increased emphasis on the continuity of workload; better use of commercial muscle as a large client; a greater focus on whole-life value; more investment in project management capability; greater adherence to measurement of project outcomes; and the consistent application of project review.
Recent research by the NAO has pointed to considerable success by the government since 1999 in delivering improved projects and services measured through cost and programme certainty - albeit from a low starting point. However, the research has also shown that inconsistent application of the Achieving Excellence programme has meant the full scope of benefit has not been realised.
In the private sector, a more flexible approach to systematic project delivery can be applied, with fewer mandatory processes. However, it is important that the health of a project is regularly reviewed, using a structured approach, to ensure that it is on course to meet its objectives.
Principles of approaching the management of a project in this way include:
- The exploitation of knowledge and experience gained from previous projects;
- The use of structured review sessions;
- The availability of a consistent, high-level framework for the management of the project.
DLivering Success checklist
The key drivers of Davis Langdon's DLivering Success initiative, which is used to diagnose project health, are:
Why? Describing the client's need for the project:
- Purpose Why is a construction project needed and is the purpose clear?
- Appraisal Why is the solution appropriate? Has a thorough option appraisal been carried out and concluded this is the right choice?
- Definition What should the project deliver? Is the project definition comprehensive and unambiguous?
- Precedent What is the precedent for this type of building? Have exemplar projects and processes been researched?
- Management How is the project structured? Are the appropriate management arrangements in place?
- People How well suited are the people chosen to deliver the project?
- Procurement How appropriate is the chosen procurement approach?
- Design quality How is the value of design quality to be realised?
- Cost management How is cost management to be made effective?
- Programmes How do programmes and plans contribute to project success?
- Communication How are good communications achieved?
- Risks How are risks identified and managed?
They can appraise the project using their specific success criteria against the background of key issues that need to be addressed to ensure certainty of delivery.
Case study: The Eden Project, phase one
The Eden Project in Cornwall is a mature scheme that is now in its fourth construction phase. It has been a major success, demonstrated through visitor numbers, its impact on local regeneration and as a construction project, by delivery on budget and ahead of schedule.
The Eden Project was conceived and built ahead of the development of DLivering Success, but the principles behind the system were applied intuitively by the project management team. In fact, experiences of the project and its management were fed into the development of the system. The management of the Eden Project exemplifies all of the principles that underpin effective project management and delivery, in the following ways:
- Purpose The vision and objective of the project as a visitor attraction, research facility and education resource was formed by chief executive Tim Smit at the outset and remained constant throughout the project.
- Appraisal The basic concept was tested using a number of design options and locations as part of the development of a robust business case ahead of funding. The business case was based on realistic assessments of visitor numbers and income projections.
- Precedent The scheme had no direct precedent either in terms of a business proposition or as design and construction. As a result, significant effort was focused on active risk management to reduce the uncertainty associated with the project. Later phases of the project have benefitted from lessons learned through staff continuity and formal knowledge capture.
- Definition The scope of the project was clearly defined and linked to business plans and budgets. It helped that the project was relatively self-contained.
- Management The project benefited from strong visionary leadership backed-up by a clear project management structure. Key issues including the management of stakeholders were explicitly addressed in the project management plan.
- People The Eden Project team, many of whom were co-located and site-based, became highly integrated and were wholly focused on resolving the technical challenge represented by the project and on its successful delivery.
- Procurement The project was procured using the NEC form on the basis of a guaranteed maximum price, with the design team novated to the contractor. Compensation events were linked to the risk register, providing complete clarity as to the allocation of risk exposure.
- Design quality Eden is a design-led project with client commitment to innovation, quality and to sustainable design, balanced with the desire to use materials and to detail the design very efficiently.
- Cost management Budgets were realistic and market-tested. When funds proved to be insufficient, the scope of the project was reduced at an early stage without significant disruption to the project. Use of a GMP and active risk management enabled the contingency to be retained through the project.
- Programme The project was delivered two months early as the result of the development of a realistic master programme and the flexibility of the resequencing of work to deal with on-site disruption.
- Communications The Eden Project benefited from a close-knit, co-located team with a decisive, hands-on client. Close-control project management kept the team informed of progress and actions required to meet targets.
- Risk management A formal risk management process was run, with registers updated on a regular basis. Integrating the register into the contract ensured the ownership of risks was clear and that actions were taken to mitigate potential risk exposure.
John Connaughton, Malcolm Potter and Michael Dallas of Davis Langdon's DLivering Success team have contributed to the preparation of this article.