Managing_Projects

MANAGING CONSTRUCTION PROJECTS ** In preparation for the writing of this text, a review of the project management literature (Winch 2000a) identified five generic project management processes: *Defining the project mission *Mobilizing the resource base *Riding the project life-cycle *Leading the project coalition *Maintaining the resource base Chapter 1 – The Management of Construction Projects 1.1 Introduction One of the principal ways in which modern societies generate new value is through projects which create physical assets that can then be exploited to achieve social and economic ends-factories for manufacturing goods, offices and shops for delivering services, hospitals for health care, and tunnels for transport. ‘HBG’s core competence is the generation and management of information.’ 1 1.2 Projects as the creation of new value All modern societies and economics are dynamic-the only certainty is change. The fundamental inputs to the process are capital and human resources – capital resources to cover the costs of investment; human resources to transform ideas into reality. The return on capital from the process is the profits taken out of the process by the participating firms. The return on human resources is the learning that takes place, as problems are solved through the project life cycle. 1.3 The project as an information processing system All organizations are, in essence, information processing systems. In order to function they must monitor their environment, take decisions, communicate their intentions, and ensure that what they intended to happen does happen. The analogy of a river is useful here. What is of interest in a river is the flow of water, which irrigates crops, provides a transport route, enables the generation of hydroelectric power and is a source of leisure and repose. Yet it is through altering the banks that we shape the flow-dams and weirs create lakes and power; dykes and canals control the direction; docks and locks facilitate transport; bridges and tunnels mitigate the downside of the river as a barrier. The process-the flow of water-cannot be directly managed; we have to manage the context in which it flows. 1.4 Project management and the management of projects The emergence of a concept of “project management” is a phenomenon of the twentieth century. It emerged as industrial societies started to build complex systems such as rail and power networks. 1.5 Projects and resource bases Construction projects mobilize capital and human resources. 1.6 The five generic project processes Business process analysis (BPA) has become increasingly influential in a number of industries-both in the re-engineering of business processes to maximize the benefits of the ICT systems, and in the diffusion of lean thinking. Conceptually, there are important links between the notion of the management of projects as the management if the total project life cycle and the development of BPA. This is clear from Thomas Davenport’s formulation of a business process as “a specific ordering of work activities across time and place, with a beginning and end, and clearly identified inputs and outputs; a structure for action”. 5 Case 1 The Channel Fixed Link Defining the project mission was fraught. The completed project was the third attempt that had actually started tunneling; the other two had been abandoned as key stakeholders lost commitment to the project due to economic and political pressures. The mobilization of the resource base also created serious-indeed show stopping-management problems. The construction contract was signed when their representatives were also on the client side. Although sophisticated program and budgetary management systems were in place, they could not be meaningfully used as management tools because of the continuing negotiations between TML and Eurotunnel. Leading the project coalition was extremely difficult, and overwhelmed more than one senior executive. Senior executives lost their jobs, marriages and nerves. Defining the Project Mission The first step in the management of any construction project is to define what is wanted. A bridge or building is a major capital investment. The term constructed assets will be used to define all those capital assets that are created through processes conventionally associated with the construction industry-the outcomes of the management processes analyized in this book. Moreover, such assets have very long lives, typically much longer than other capital assets. Such investment decisions are inherently strategic, and so it is to the disciplines of strategic management that we turn in this section to help us understand the process of defining the project mission. For our purposes, defining the project mission is a strategic decision-making process because: *It is about the relationship of the client organization to its economic and social environment; *It is a proactive process of allocating scarce resources between alternative projects; *It is related to the medium and long-term future of the client; *It is a prerequisite for the successful implementation of any strategy of expansion or diversification. Any decision by the client organization to expand existing capabilities or pursue new opportunities requires investment in additional facilities, and a high proportion of that investment will typically be on constructed assets. Even the most high-tech industries require buildings for staff, trenches for fibre-optic cables and the erection of radio masts. Acquisition of new facilities can take place either through purchase or rent from a property developer, or by direct procurement, depending on the functional specificity of the asset required. In the former case, the asset will often be aquired as a shell and core, and require fitting out to meet the client organizations specific needs. The remarkable capability of constructed assets to be adapted and readapted is one reason for their longevity. In line with the definition used by strategic managers of the corporate mission as the “overriding purpose in line with the values or expectations of the stakeholders” 2, the term project mission is used in this book to refer to the overall strategic intent of the project-what is to be delivered to the client. This mission is then broken down into goals and quantifiable objectives during the project definition process. Intended strategy is not the same as realized strategy, so the project mission is in a continual process of reappraisal during the life cycle of the project. Intended strategies are rarely fully realized because: *They are formulated under high levels of uncertainty regarding the social and economic conditions in which the asset will be exploited; *Assumptions made as the basis for strategy formulation prove to be untenable as new information becomes available through the project life cycle; *New opportunities present themselves to which the facility can be adapted; *Stakeholders change their minds. It follows from this analysis that the key criterion for project success is not that the intended mission is fully achieved, nut that the realized asset fully matches the client’s needs at the time of realization. Why, then, bother to define a project mission if it is going to change anyway' There are three very good reasons: *The process of definition as the participants articulate their understandings tests the intuition and analysis upon which the strategy is based for consistency and viability. *The defined mission allows the communication of strategic intent to the diverse project stakeholders-both those whose active participation is required to deliver the facility, and those who have the power to disrupt that delivery. *The defined mission provides the baseline for the planning and control of the project process through the life cycle. Chapter 3 – Deciding What the Client Wants 3.1 Introduction The organization’s overall corporate strategy will set the basic parameters of decision-making. Decision regarding, for instance, how many hospitals should be built, or how many new stores are required to achieve market share and turnover objectives, are corporate strategy decisions. With those decisions will come basic parameters which define the bounds of the project mission-hurdle rates for project appraisal; policies on space standards; branding policies for customer facilities and the like. The chapter will first address how clients understand their business so that they can articulate their requirements to those that will be designing and constructing their new facility, focusing on two aspects –spatial configuration and indoor environmental quality. It will then turn to the ways in which clients appraise the returns on, and benefits of, any particular investment project, and hence how they choose between competing project proposals. 3.2 Facilities as new value Clients invest in constructed assets because these provide a utility which can be exploited by themselves or others to provide goods or services which generate benefits, thereby providing the returns on the investment. So, the most important factor in project definition is understanding how this utility is generated. In essence, this utility is generated through business processes, so the key to this understanding is business process analysis. When discussing the budget for a new facility, it is common to address the capital and running costs of the facility, but how the facility will add value to the client’s business processes is often articulated only intuitively. Even the more sophisticated approaches of whole life costing limit themselves to the costs-in-use of the facility. However, the evidence for commercial buildings-and almost certainly for most other types of constructed facility-is that these capital and whole life costs are relatively trivial in the total cost profile. This is indicated by Table 3.1, which shows that capital and costs-in-use account for around 8% of overall costs per square foot for a commercial building over a 20 year span. The vast bulk of the costs are accounted for by the personnel costs (mainly salaries) of the people working in the building. Thus one study concluded that a 50% increase in annual energy costs to improve air quality through greater ventilation would be paid for by the resulting 0.25% to 0.5% increase in employee productivity. Table 3.1 Personnel using building 92% Annualized cost of construction 5% Utilities and facility management 3% 3.3 Understanding the spatial aspects of business processes Broadly, client organizations have four types of business process: *Information flows; *Resource flows; *Material flows; *People flows. The first two are essentially non-spatial. Information flows through mail systems of either the traditional or electronic type, or it is embodied in people and is therefore a type of people flow. Financial resources are similarly non-spatial in their flows. Material flows are demanding consumers of space, and hence buildings, and material flows between buildings requires a transport infrastructure. Similarly, people flows require space for their own movement, or movement enabled through the transport infrastructure. Understanding flows of materials and people is central to the definition of the project mission, because it is enabling such flows in the most efficient an effective manner that the value of the constructed asset is generated. Syntax space analysis – analyzes the effect that the spatial configuration of the building or urban space has on shaping movement patterns. Where different work groups need to physically interact-such as in organizations, whose competitive advantage comes through innovation-their relative spatial locations are important enablers of that interaction, as shown in Panel 3.3. Ensuring that an office encourages interaction between the staff, while allowing quiet space for activities requiring focus or privacy, is an inherently spatial problem. Table 3.3 Spatial configuration and people flows Three R & D groups were dispersed on more than one floor in a converted textile mill which consisted of a number of interconnected buildings. When they moved together into a new building providing a square, open-plan office, interaction levels rose significantly. Research in an advertising agency shows how the level of interaction between staff is strongly influenced by the spatial configuration of the offices- open plan with movement spaced running through generates much more interaction that cellular offices. In both R&D and advertising, the business process is, in essence, the creation of new ideas, and the people generate new ideas largely through random interactions with other people working on similar problems. However, in order to work up those ideas into usable forms, they also need relative isolation from interruption by others. 3.4 Indoor environmental quality and business processes While the spatial configuration of the building can provide utility through enabling efficient and effective business processes, utility can also be generated by providing an appropriate level of indoor environmental quality (IEQ). Poor IEQ can lead to loss of productivity, increased absenteeism an illness among employees, and turnover among tenants. One US survey-reported in Table 3.2-one of the reasons why commercial tenants move offices showed that the worst problem cited related to the design of the tenanted building in over half the cases, with 30% citing heating, ventilation and air conditioning (HVAC) and indoor air quality as the worst problem. The quality of IEQ also directly affects personnel productivity, as a recent review of UK surveys of buildings in use shows – see panel 3.5 for information on the PROBE studies. These productivity benefits come from four distinct variables: *Personal control – staff like to be able to personally control their working environment; *Speedy response to reported discomfort by facilities managers; *Shallow plan forms that allow all workstations natural light; *Small workgroups that allocated their own spaces. Table 3.2 Reasons for moving office Worst Problem %of responses HVAC and indoor air quality 30 Elevators 12 Building design 7 Loading docks 6 All others 45 Panel 3.5 Understanding IEQ: The Probe Studies Supported by the UK government, detailed evaluations of new buildings in use have been made, covering the technical performance of HVAC installations; the energy efficiency of the buildings; and user satisfaction with the indoor environment (measuring on 49 variables) using a development of the well-established Building Use Studies instrument. Research is continuing, and some 18 buildings have been surveyed to date. Overall, the findings are that performance is highly variable and frequently not as expected at the design stage. As the data set develops, it will allow the benchmarking of building IEQ performance. An interest should be declared here. The services in the most all-around successful building identified in the sample—the Elizabeth Fry building at the University of East Anglia- were engineered by the practice owned by the author’s brother-in-law, Fulcrum Associates. 3.5 Justifying the investment Once the utility of the asset has been identified, the benefits thereby generated need to be valued so that the resources required for the investment can be justified. The problem of the allocation of resources to projects is the capital budgeting problem—how does the client choose for investment those projects that will yield the greatest return' It is through solving the capital budgeting problem that the mission objectives for the proper program and budget are set. The essence of NPV (net present value) calculation is that the value of money today is greater than the value of money at a future point in time; therefore benefits accruing in the future need to be discounted to their current value for an appraisal to be made. The rate of discount applied is a function of the opportunity cost of capital, in other words the return on the capital that could be obtained if it were invested in the next best type of investment. NPV is essentially a cash flow calculation—it compares the outflow of cash required for the investment with the discounted inflow of cash arising from the exploitation of the asset, and it is, therefore, frequently referred to as a discounted cash flow calculation. So long as the NPV of the income is greater than the investment outflow at the chosen rate of return, then the project is worth pursuing in principle. When comparing a number of projects for scarce resources, those with the higher rates of return should be favored. This rate of return is known as the return of capital employed (ROCE). The calculation of the NPV requires both the cash inflows and outflows to be precisely measured, and herein lie three very important difficulties. Firstly, not all benefits can be precisely valued. While the cost of investment can be known precisely, this is not so easy for many of the benefits. The technique which has been developed to allow such factors to be taken into account in NPV calculations is shadow pricing, described in panel 3.7. Shadow prices, once established and agreed, can be fed into the appraisal calculations in very much the same way as market prices. However, because shadow prices-by definition- cannot be directly observed, the methodologies used to measure them are difficult in practice and often questionable in theory. Panel 3.7 Shadow pricing The concept of a shadow price is simple- it is the net loss or gain associated with having one unit more or less of the asset. If one more kilometer of road costing £x will generate £y worth of leisure time of commuters, were y>x at present values, then the investment provides a positive return. In practice, it is profoundly problematic: y is given by the amount that the appropriate decision-maker would be prepared to pay for an extra unit of whatever y is shadow pricing. For full cost benefit analysis, therefore, prices must be assigned to such emotive assets as how much society is prepared to pay to save an additional human life or to retain a particular view of rural landscaping. The third problem is central to the management of projects-both the cost and benefits of the investment are uncertain. On the benefits side of the equation: *The benefits arising from exploiting the asset may prove to have been optimistically valued; *The operational costs of the facility may be higher than predicted; *The facility may not be capable of being operated as planned; *The facility may be delivered late, thereby pushing the income stream further into the future and possibly missing the market opportunity. On the costs side, uncertainty arises for the following reasons: *The investment required may turn out to be higher than expected; *Late delivery of the facility may mean that existing, less efficient facilities, have to be kept operating for longer; *Late delivery of the facility may mean later commencement of the income stream. Even if benefits have been optimistically valued, some of this uncertainty can be managed within the project in two ways: *The longer the wait for the asset to be delivered, the greater the uncertainty regarding the benefits accruing from its exploitation. A shorter project program would reduce this uncertainty. *The asset can be designed to be used flexibly, thereby increasing the range of potential utilities. 3.6 Defining the project mission: a conceptual framework for product integrity Our task is now to pull together all these disparate strands in the definition of the project mission – the new facility needs to meet a set of functional requirements, symbolic desires and investment criteria. Different missions will imply different sets of trade-offs between these criteria- a library to house a donated collection at a university will have different symbolic and functional criteria from a local municipal lending library, These issues have been captured in the context of the car industry in the concept of product integrity, because “a company can be fast and efficient, but unless it produces great products… it will not achieve competitive advantage”. This concept is equally applicable to the constructed product and Fig 3.1 suggests how it might be applied. The three dimensions of the integrity of the constructed product are defined in terms of quality, because what is central to the creation of new value is the quality of the asset resulting from the process: Fig 3.1 Product integrity in construction; the quality of intention. *The symbolic aspects are captured by the quality of conception in terms of elegance of form, spatial articulation, contribution to the urban culture, and the like, measured through the professional peer review process. *The functional aspects are captured by the quality of specification, in terms of the fit and finish desired, and the fitness for purpose of the completed facility measured through performance in use. *The program and budget are assessed by the quality of realization, in terms of the objectives set for program and budget, and the service delivery experience for the client measured through process benchmarks for comparator buildings. Trade-offs between the criteria also have to be made—a high quality of conception typically implies a higher budget due to factors such as the greater proportion of the space given to circulation areas, and the higher quality materials used for finishes. Similarly, a higher quality of specification implies a greater investment cost for an expected greater return. How are these trade-offs to be managed' The rationalist would argue that all elements can be reduce to an NPV calculation through either market or shadow pricing, but this poses serious problems in practice: *PV calculations are themselves open to considerable uncertainties and hence debate-the future income streams are expectations, not certainties. *There is widespread lack of awareness among clients regarding the impact on business process performance of spatial configuration and IEQ factors-arguably, there is a serious problem of market failure here. *Disaggregating the PV’s of the components of the facility is a treacherous process-is the higher rental stream realized for the up-market development designed by a name architect due to the branding effect of the name, the play of light in the entrance lobby, or the prime location in the city' Successful project promoters and developers have a gut feel for these factors, not an Excel spreadsheet. 3.7 Output specifications in concession contracting This trend places enormous demands on client decision-making. In addition to deciding what they want in terms of the physical product, client/promoters must also decide what they want in terms of the services that the facility is going to provide. This is done by writing an output specification against which aspiring concessionaires can bid. Although the development of concession contracting has brought these issues to a head, the ability for formulate a clear output specification is at the heart of any briefing process. The essence of the output specification is the statement of what the client wants in term of its business needs, not how this is to be achieved. The aim, from the public policy point of view, is to purchase a service, rather than simply a facility from the private sector. There are four basic elements to an output specification: *Objectives which locate the project within the overall strategy of the client, and specify the service to be delivered; *Purpose which specifies the outputs to be achieved by the facility – a gymnasium is not an output, but regular access to sports facilities is; *Scope which identifies the core requirements of the service, and any additionally desirable services, together with any constraints upon service delivery such as latest date for availability, or regulatory requirements; *Performance specifies the level of service to be delivered in terms of measurable criteria varying from ease of cleaning to levels of facility availability. Penalties for lapses in service delivery may also be specified. In practice, many concessors have found it difficult to fully articulate what they want in business process terms. The output is much more easily defined in terms of facility-a prison, rather than a custodial service. Once the facility is ready to deliver the service, the lower risks during exploitation encourage concessionaires to refinance on better terms. This requires the facility to be “signed off” as an asset prior to service delivery. 3.8 Summary Defining the project mission is difficult. The most intuitive way of doing it is to point to existing similar facilities as models of either what is wanted or what is not wanted. In the absence of good analysis about how constructed facilities add value for clients by enhancing the performance of their operational processes—be they the celebration of God or mammon—this is, perhaps, the best that can be done. Most client still treat buildings and infrastructure as artifacts that are costs rather than assets that yield returns. This chapter has indicated some of the recent research that is starting to offer a better insight into how buildings do create value for clients through providing spatial environments that enhance employee efficiency and effectiveness, attract customers and symbolize values, yet there is a long way to go before product integrity in the constructed product is understood as well as it is in other industries. What has not been addressed in this chapter is the question of symbolic values. This symbolism can never be fully captured analytically, only interpreted subjectively. Even for hard-headed business people, symbolism is very important when they wish to express their corporate values in the facilities where their staff work or customers visit. This chapter has articulated the definition of the project mission as a problem in strategic management, and, building on approaches to capital budgeting, has identified the issues and trade-offs that need to be taken into account. The concept of product integrity was introduced to capture the three dimensions of quality in the project mission. The role of the project manager is to facilitate the client in coming to an appropriate definition of the project mission that can then be championed through the project life cycle to deliver value for the client. Chapter 4 Managing Stakeholders 4.1 Introduction The previous chapter treated the process of defining the project mission as if it were a problem that one decision-maker-the client-could solve in the isolation from the other stakeholders on the project. This happy situation is rarely the case, and so the client will need to manage the other project stakeholders in order to see its project through to successful completion- a problem of some considerable delicacy at times. This chapter will address the management of stakeholders on construction projects from the client point of view. First, the stakeholders will be defined, before techniques for mapping and analyzing the differing positions of the stakeholders are presented. The role of the regulatory context in institutionalizing the voice of some of the weaker stakeholders will follow, before a brief closing discussion of the ethical issues in construction project management. 4.2 Which are the project stakeholders' The project stakeholders are those actors which will incur a direct benefit or loss as a result of the project. Construction projects create new value, but they can also destroy value-noise and dust disturb local residents during construction, amenity (here defined as social utility) is permanently lost as a result of construction as symbolically important buildings are demolished and the landscape is changed. Moreover, where existing facilities are replaced, stakeholders in those facilities may not share in the value generated by the new one—common for instance, when fixed links replace ferries across rivers and sounds. It is useful to categorize the different types of stakeholder in order to aid the analysis, and hence management, of the problem. A first order classification with the client, and external stakeholders which also have a direct interest in the project. Internal stakeholders can be broken down to those clustered around the client on the demand side and those on the supply side. External stakeholders can be broken down into private and public actors. This categorization, with some examples, is shown in table 4.1. Table 4.1 Some project stakeholders Internal stakeholders External stakeholders Demand side Supply side Private Public Client Architects Local residents Regulatory agencies Financiers Engineers Local landowners Local government Client’s employees Principal contractors Environmentalists National government Client’s customers Trade contractors Conservationists Client’s tenants Materials suppliers Archaeologists Client’s suppliers A fundamental premise of construction project management is that the client is capable of fully articulating all if the stakeholders interests on the demand side—in other words, the client has the capability to authoritatively brief the team. Different interest groups within the stakeholder may also have different functional requirements, meaning that any project definition is a compromise which may unravel as more information becomes available to those groups through the project life cycle regarding what facility will be like. Similarly, financiers may have a different view from the client’s employees of what is important in a NPV calculation. Among the external stakeholders, there is more diversity. By and large, the internal stakeholders will largely be in support of the project, although there may be factions within the client which are backing alternative investments. External stakeholders may be in favor, against or indifferent. Those in favor may be local landowners who expect a rise in the value of their holding and local residents supporting a rise in the general level of the amenity. Those against may also be local residents and landowners who fear a fall in amenity and hence the value of holdings. Splits may well occur among these groups-if someone lives one kilometer from a proposed motorway junction, they may have a very different view than if they live 100 m away. The public external stakeholders-in those situations where the public sector is not also the client-will tend to be indifferent. 4.3 Mapping stakeholders The first step in managing the stakeholders is to map their interest in the project. This can be done using the framework illustrated in figure 4.1. The focus of the approach is the project mission as represented by the asset to be created—it is this rather than the mission itself which tends to be the source of contention between stakeholders. Stakeholders can be considered as having a problem or issue with the project mission, and as having a solution (tacit or explicit) that will resolve the problem. Where such solution proposals are inconsistent with the client’s proposals, they can be defined as being in opposition to the project. Fig 4.1 Mapping the stakeholders Problems Proponents Project mission Solutions Opponents This matrix categorizes the stakeholders into one of four types, but the discussion here can only be indicative-where a particular stakeholder sits in relation to the project depends entirely on the specific context of that project. The first group is those which require minimal effort, such as the client’s customers, or local and national government. The second group is that which needs to be kept informed. Groups which may be opposed to the project, such as local residents, conservationists, or environmentalists need to be carefully managed. Those which need to be kept satisfied usually fall into two main groups—regulatory bodies and the supply side stakeholders- which require very different management approaches. Regulatory bodies are, in essence, the institutionalized interests of the low power stakeholders. The final category is that of the key player. Here the client is central-the analytic questions revolve around which of the other demand side stakeholders are also in this category. The degree of integration of the stakeholder map will make a large difference to its manageability. If the stakeholders are at the far corners of Fig 4.4 (in the case study at the end of the chapter), then the definition process is likely to be turbulent and the stakeholder map unstable. If the stakeholders are clustered near the center of Fig 4.4, then the map will appear as relatively stable.