Summary
Engineering and construction industry is one of the most traditional sectors among the technical fields, specifically from management and delivery perspective, that needs devoted attention to adopt with the current high-risk environment. Today is the time we should look over our major infrastructure projects, bring the experts around the table, work together, and evaluate our strategies, approaches, procedures, plans and systems to reflect the required changes in adaptation with the fast-paced environment. This will not be an easy step, needs awareness, focus, collaboration, knowledge, and experience, in addition to support of industry leaders to happen. This article tries to present some critical shifts in mindset and approaches that in author’s opinion are required to succeed in future.
Even in a normal situation, taking into account their over-complexity, scale, number of stakeholders and decision makers with contradictory benefits, and their long-term development periods, major infrastructure projects and transit projects in particular can be affected more than any other projects by economic, political, and environmental changes. Therefore, regardless of all possible preventative actions, there is no doubt that problem solving and change management are and will remain two key components of these projects. However, ongoing economic, supply chain, resource shortage, climate change, energy and food crisis due to the ongoing wars, and fast-paced technology changes drive us to change our focus area. It is essential to shift from problem solving on daily basis to spending time and resources on risks management or focus on saving money via continuously evaluating and improving our team’s efficiency, and products’ quality rather than believe in claim and change management as the only way to recover from financial losses.
Acknowledgment: This article became much longer than expected. Maybe because of my lack of proficiency in English or due to the number of areas to cover or both. I appreciate your patience in advance and invite you to bring a cup of coffee and read it in your spare time. Hope it creates a few sparks in your mind.
Exponential increase in cost and duration of major infrastructure projects
Reading Steve Munro’s recent blog titled: “Infrastructure Ontario procurement update – November 2022” [1], where he provides the procurement updates of a few IO’s major transit projects in GTA and Ontario, caused me to remember my old favourite topic: improving efficiency and quality, focus on risk management rather than problem solving and change management.[2]
As Steve in addition to other observers articulates some of these major transit projects have quite substantial changes in their budgets and timelines during procurement phase, comparing to the initial estimations which was used for justification of the project in addition to funding purposes. As we all know this is just the beginning of the journey. Only Ontario Line for example has been split to four packages and two of them, OL South Civil and RSSOM (Rolling Stock, Systems, Operation and Maintenance) packages have been awarded at least two times higher than initially calculated budget ($15bn comparing to $7bn). If we consider the same average multiplier for Civil north’s two packages, they will cost around $7bn in total comparing to initially $3bn estimated combined package. However, bearing in mind the extended timelines for Civil North procurement packages, not only their award numbers may go even higher but also it will result the opportunity loss, revenue loss and additional financial cost related to delay for the whole line. Notwithstanding, the deficiencies, claims, unforeseen risks, and many other factors that may happen during implementation phase, normally cause delay and cost overrun in addition to what is discussed. This will give us a project that will be awarded over two times and delivered even more comparing the initial estimations.
These roughly calculated numbers lead us to the question “Where this additional money will come from and whether the funding will become a further problem and cause even more delay for such projects or not? Or maybe some of these projects should be sacrificed and go on hold to enable the others get funded?
It’s good to bring to the readers attention that the purpose of this article is not solving a macro economic, investment or political issue considering lack of author’s competency in these fields. However, it might be beneficial to bring the importance and urgency of the issue to everybody’s attention, also to urge all involved teams and stakeholders to focus on finding solutions and prevent even more delay or cost overrun.
Reasons of failure for major infrastructure projects, literature overview
Bent Flyvbjerg [1], Oxford Business school’s professor, in a controversial article published in 2014 articulates that a conservative estimate for the global megaproject market is between US$6 and US$9 trillion per year. He states not only these are big projects, but also the scale and complexity of them are growing over time. He explains cost overruns, time delays, and benefit shortfalls have remained high and constant for the 70-year period for which comparable data exist. Nine out of ten megaprojects have cost overruns. Overruns up to 50% in real terms are common, and over 50% overruns are not uncommon. Conventional megaproject delivery is highly problematic and poor performance records in terms of actual costs and benefits are common. He also denounces a “break-fix” model which explains the “iron law of megaprojects: Over budget, over time, over and over again”.
McKinsey [2] in an article published in July 2015 titled “Megaprojects: The good, the bad, and the better” summarizes three reasons why infrastructure mega projects fail or go bad: Overoptimism, Overcomplexity and above all Poor Execution. McKinsey study of 48 troubled megaprojects showed that poor execution was responsible for cost and time overruns in 73 percent of the cases; for the rest, these were due to politics, such as new governments or laws.” McKinsey studies have shown that delivering infrastructure more efficiently can reduce its whole cost by 15 percent. Efficiency gains in approval, engineering, procurement, and construction can generate savings of as much as 25 percent on new projects, without compromising the quality of outcomes. Up-front preparation pays for itself many times over.
Economic crisis encourages innovative approaches
Looking back to the innovation history, we see many of forward steps to improve procedures, and approaches happened during rough economic periods. For instance, Just-In-Time (JIT) supply chain methodology was established by Toyota after World War II while Japan’s society was struggling considering Lack of cash flow, Lack of land space, Lack of natural resources and excess of labour. Taking 30 years to develop, Toyota pioneered the just-in-time (JIT) method. The introduction of this method helped the automotive manufacturer to optimise their processes in response to these challenges to make their operations lean.
As another example, the early 1980s recession was a severe economic recession that affected much of the world between approximately the start of 1980 and 1983. Six Sigma was created by Bill Smith in the 1980s. He was working at Motorola at the time which needed a quality management tool to increase business performance. He developed the new method and changed the future of quality management.
Consideration of post Covid economic conditions in addition to many other national and global social, economic, political, and environmental changes, guides many experts to believe we are in the middle of another crisis which is exceptionally different with our past experiences and need our special attention and innovative approaches.
Part 1- Now is the time to take action and shift
Many components of infrastructure major projects need close attention and review for improvement. However, some have been focused the least or even ignored in the past which are in fact critical for project success. In my opinion most of the items listed in next two sections, may need a specific task force to work collaboratively with others but stay dedicated to refining them. These areas can be summarized as follows:
a. Risk management vs problem solving
Implementation of risk management systems, tools, techniques, and procedures mostly have a formal use in project and program management. In many cases, they are required by financial and investment institutes, or are a part of official project/program management documentation, and in best case scenario are being used for contingency calculation for budgeting purpose. I’ve seen the reluctancy of the project teams, even leaders in participation in risk management meetings considering their busy schedules and more important real issues to be dealt on daily basis. Investing both human and monetary resources on problems that have not happened yet or maybe never happen doesn’t sound legitimate for most people. Even most consulting companies are focusing on problem solving rather than risk management services since it is a more appreciated area for most leaders.
There is no doubt that problem solving always will remain critical in project delivery. However, we apply all project management techniques and methodologies to increase their predictability. In addition, none of us can deny that risk management is a much cheaper and more beneficial approach comparing to problem solving. In other word, each major project requires not only the initial risk registration, qualitative and quantitative analysis, but also demands an established continues, real-time, fact-base risk management system. In many cases, monthly data gathering and analysis to identify the new risk may not be adequate. We may lose the chance for early risk/opportunity identifications. Fortunately, today’s digital technology and integrated project intelligence solutions can assist us in almost real-time project data collection, analysis, and early-stage risk identification.
b. Efficiency and quality improvement vs claim management strategy
As per McKinsey‘s study that was referred earlier, cost and schedule underestimation and benefits overestimation are two main reasons for major infrastructure projects’ failure. These two factors might be applied by both project sponsors to get the approvals and funds, also by project teams to win the project. For the same reason, claim and change management is being considered as the best solution to go forward and recover the related losses. Although, due to the associated immense financial and legal risk, delay in access to the financial resources caused by the length of data collection, commercial negotiations and legal procedures, also mental and emotional hassles, it is important to consider claim management as the last option on the table, not the only solution.
We may not be able to completely address the first systematic problem as explained above. But we can prevent or mitigate risks and bring our costs lower by improving project’s efficiency and quality or implementation of a proper value engineering.
However, many major projects in our industry are applying almost the same mistakes, over and over without serious consideration of change in last 70-80 years. In my opinion, one of the most important responsibilities of management team is creation of systems and procedures that minimize the required time, efforts, and errors, also improve the quality. Surprisingly we are still trying to manage these major projects using hundreds of excel sheets.
Of course, automation and digitization can help in this regard but it’s much more than that. Creation of self-controlled systems and workflows, performing peer reviews, creating “mistake-proof” or “inadvertent error prevention “or as Japanese call “Poka-yoke” systems are some other approaches. As you see, it’s not only about automation or procedures and how to do things. It’s more a mindset.
c. One-Team approach rather than competitive mindset
Initial awareness regarding One-Team approach is observable across the industry in recent years. We see the reflection of this approach in the progressive contractual models. However, there is still long way to go and so much to do to ensure it is a principle in our project and organizational culture. Even our executives and managers are not in deep believe that this is the only way of success for the project and for everybody who is involved or benefits from the project. Everybody from technical team members to the project leaders and executives need to replace their competitive and political mindset with a more collaborative and transparent approach and help to achieve their common goals.
d. Systematic thinking and integrated solutions vs traditional approaches
Like our body, imagine the project as a live system that its internal components and elements are constantly interact with each other and with their environment. Any changes in a project element, or a new observed problem or risk in a specific area may affect multiple other areas and should be evaluated carefully. In many cases a change in one activity may affect multiple activities in future and exceed the cost and schedule beyond our expectations. Most of the times in evaluation of a change, we are just focusing on the required time and cost to perform the job regardless of its domino effect on the future activities and associated costs, delays, or risks.
Another example is integrated project control and project delivery solutions. It can save enormous amount of money, time and increase the efficiency. It can also save us against the human error as the result of manual procedures. In many cases using digital solutions such as Enterprise Resource Planning systems (ERPs) or Project Intelligence Systems can help us to achieve some level of integration in the projects. However, only application of digital solutions is not enough. Systematic thinking is a strategy, a culture, and a mindset that should be considered in all areas of project and during all phases. The problem is many of our experts gradually loosing their strength in having this holistic perspective by focusing so much on their area of expertise rather than considering all other affected areas. Systematic thinking helps us to see the trends, connect the dots, identify the root causes, also predict more risks or opportunities.
Some psychologists may argue this capability is unique and exists in a few specific types of personalities. The others may disagree with this opinion. Whichever is true, a specific team consisting of experts with diverse backgrounds who benefit from holistic-view mindset or have been trained for this task, is required to overview the integration and inter-relation consideration in all defined and considered processes, systems, decisions, work and info-flows and many other aspects of the project.
Part 2- Other areas that need close attention
In addition, and to make the list even longer, we may refer to other crucial areas which haven been valued less in the past or currently require closer attention such as:
a. Supply chain and resource management need specific attention
Supply chain and resource management were always critical in any project. Yet, considering post Covid situation and related supply chain issues, increased inflation and interest rates, and shortage in available resources in today’s economy, they became even more vital. Therefore, any related monitoring systems to these project components should be integrated to project control systems and monitored along risk, schedule, and cost management on frequent basis to identify impacts by any changes in these areas on the overall project budget and schedule.
Creation of more efficient system and procedures, to save the required resources, efforts and cost also is essential to address these two issues.
b. Contractual management
We all have observed frequently in major projects that by increasing the scale and complexity of the project, the size and complexity of the related contracts increases. Therefore, evaluation of all contractual schedules and ensuring of its coherency becomes much more difficult. Sometimes there are more than 30 schedules and thousands of pages, and many discrepancies among different clauses and articles are detectable due to preparation of each by a different team or as a direct result of multiple changes during contractual preparation or negotiations.
In more progressive contracts, the project sponsors may have the tendency to provide less level of details to encourage more innovative solutions by the project team. However, only time can judge if all required consideration have been brought to account to minimize the possible future claims and blames. Early assignments of the roles, responsibilities, authorities, and risk distribution solutions provided in these contracts are only some areas can lead us to the project success.
Another area from contractual management perspective which is worthy to refer is counting so much on Project Agreement or the prime contract and neglecting mentioning the required details in subcontracts and service agreements which can create further disagreements or claims. It is important to consider the assumptions, exclusions and any additional details in the service agreement or subcontracts to clearly identify the responsible party to perform each task. In case of lack of clarity, they should be recorded in the risk registration log in addition to all other contractual risks. We also need to take necessary actions and increase project management team’s awareness of the associated contractual risk and considerations for each involved party.
c. Technology is a tool, not a solution
Technology is progressing on a fast pace and can add so much value to major projects considering their scale, complexity, and amount of data. However, in many cases, it has been applied inappropriately in a way that not only has not met the expectations, but also has created more complexity and became overwhelming. For the same reason, many of experienced managers and leaders are resisting against the advantages that technology can create.
Technology selection is a team effort. Digital tools should be evaluated carefully by the committees that include digital and IT team members, technical team members and end users, project managers, and corporate leaders. It is much more complicated procedure and many other factors such as alignment with organizational strategic plans, organizational culture and hierarchy, and the industry norm applications in addition to price, being user friendly, required trainings, supplier support, downtimes, technical capabilities and integrability with other digital solutions are just some areas which should be evaluated. Furthermore, applying a new technology alone doesn’t solve project issues. Our strategies, procedure, standards, and resources may need review and update to adjust with the new applied digital platforms to achieve the best results.
d. Interface management normally get undervalued or neglected
In addition to the interfaces between different components, teams or disciplines of any project, all interfaces among the project and the other ongoing or upcoming projects in the vicinity of the project that can direct or indirectly impact on the scope, schedule or cost of the project should be, recorded, evaluated, and monitored closely.
When we are talking about interface management, since technically it has a systems background and its standards have been defined as a part of systems engineering procedures, everybody immediately remembers the required coordination and communications among systems and rolling stock suppliers, with architectural and engineering designers, or construction, maintenance, and operation teams. But as we all know, interface management is not limited to the project or program team but as referred earlier it’s applicable to much wider area. Therefore, in addition to the project team, project sponsors and other main stakeholders have critical role in its implementation and maintenance since they have more knowledge and access to the information about other projects or programs.
It’s important not only to provide the list of interface projects, but also their scope of work, their related documents, schedule, and any major update or change in these areas to be shared to the project team and the impacts should be evaluated by the project team frequently. We have seen very limited communication and coordination in this area between different involved parties which can cause so much delay, redoing the work, and wrong decisions.
e. Capturing additional requirements along the way
In almost all major projects that I worked for, requirements management (RM) was a painful task for a lot of design and construction team members. Since RM has systems/software background, they have specific standards and procedures how to capture, track and finally verify and validate them to close the project. For the same reason, normally systems team are taking care of this task in infrastructure projects. However, because of their lack of understanding of civil requirements, also lack of knowledge or interests of the rest of the team, normally it doesn’t follow a proper procedure.
The goal should be not only to breakdown project agreement requirements which are mandatory to address, but also to capture any other technical requirements that being raised along the way and by different stakeholders or as the result of interface management process, break them down to technical requirements for each discipline, track and address them. In many projects these additional requirements have been addressed by emails, excel sheets, and many other inappropriate communication and tracking tools. Requirements Management is even more critical in progressive contracts with limited details or high-level functional requirements in the prime agreement.
f. Being agile and flexible is more crucial than ever
I think there is no doubt about fast-paced environment and the urgent need for flexibility and agility to adopt in today’s world, comparing to any time in the past. However, our industry is the oldest engineering sector, in fact it even existed in ancient world. In addition to that, governmental funding, and political influence in addition to the number of involved decision makers and stakeholders, makes it even more traditional and reluctant to change which is understandable in some level. However, the world is not waiting for us. Situations like pandemics, wars, climate and technology change, economical crisis, resource shortage, supply chain issues, etc. push us make our decisions fast and be more flexible.
g. Any shift needs training
There is no doubt for most of us that when there is a shift in technology, we need to train our team members properly and adequately. However, there are a lot of other shifts which may need training such as organizational restructuring or engagement in bigger teams and consortiums which include more stakeholders with different approaches, benefits, cultures, or areas of expertise. We normally don’t consider adequate trainings for these types of changes. For instance, shifting from design-bid-build contractual model to more progressive models such as alliance, integrated project delivery (IPD) or design-build-finance-operation-maintenance (DBFOM) need big mindset shift in all levels. In these projects everybody from technical team members to the project leaders and executives need to replace their competitive and political mindset with a more collaborative and transparent approach and help to achieve their common goals. To accomplish this, extensive trainings and cultural activities are required. Another example which has not emphasized enough, is the required technology related trainings, tailored specifically for leaders and executives to assist them understand associated benefits and risks.
h. Communication and teamwork
I don’t think any of us can argue about the importance of communication and teamwork in these major endeavors which can be number one reason for lack of team’s efficiency or quality shortage. The reason is obviously the scale, complexity, the number of involved teams and stakeholders, geographical expansions, different cultures and approaches, and lack of appropriate tools or protocols. However, the main point should be added here is transparent and meaningful communication.
Establishing one-team and collaborative approach, avoiding multiple platforms for collaboration, data and document management, considering appropriate communication technology, defining clear and transparent communication protocols and authority levels using RACI matrix, creating automated workflows, and encourage the team to utilized the appropriate method of communication for each specific situation and purpose can be only some of the solutions might be defined to deal with this type of complication.
i. Politics and lack of transparency
Considering the amount of governmental funds or private investments that are being spent on these major projects, their scale and complexity level, number of involved team members including involvement of politicians, governmental agencies, numerous numbers of stakeholders and all the biggest corporates with the contradictory benefits, make them incredibly political. As a result, everybody and mostly the project will suffer from lack of transparency and sometimes, inadequate fact-base decision making. However, as many experts have mentioned before, there is an urgent need to focus more on increasing transparency on these projects and avoid political approaches.
Trying to be realistic, I am not sure how much they are avoidable in the real world. But as the minimum corrective step, it will be helpful to take these issues to another table and let executives discuss and resolve them. Also, spare project teams from stressful political engagements considering their day-to-day workload and pressure level which needs focus, collaboration, and support. We have observed a contrary approach in most projects. Instead of solving political problems in higher levels, the pressure gets transferred to the project team and they get lost in solving the issues with no full awareness nor the authority.
j. Leadership and Team building
In addition to the regular technical and professional tasks and comparing to the smaller projects, our teams in major projects are working longer hours, suffer from higher workload and more stressful environment, deliver more packages, perform much more administrative works, and should overcome more cultural and political challenges, use new and more technological platforms, and in some cases deal with lack of job security more than other projects.
Moreover, considering current overall mental health issues following two years lock down, increasing life costs as the result of interest rates rise and inflation, many of our team members are struggling with daily life and may need more understanding and support. Therefore, the leaders and executives’ responsibility regarding team building and support has extended. They should be the role models of their teams, helping them to overcome the issues whenever they can’t solve alone, work more collaboratively with each other, and believe in one-team approach.
References
[1] https://stevemunro.ca/2022/11/22/infrastructure-ontario-procurement-update-november-2022/
[2] On Nov 30th, 2022, Steve has published another article titled:” Tracking Metrolinx Project Costs” (https://stevemunro.ca/2022/11/30/tracking-metrolinx-project-costs/#more-49856) and explains multiple reasons as the source of major budget surge in some of these projects. As an example, he refers to application of different calculation methods which may cause huge discrepancies.
[3] Here is a good summary of Flyvberg’s article: https://www.pmi.org/-/media/pmi/documents/public/pdf/research/research-summaries/flyvbjerg_megaprojects.pdf
And full article: Flyvbjerg B. (2014) What you should Know about Megaprojects and Why: An Overview. Project Management Journal, Vol 45 (April/May), Number 2.