Project Management Institute

Construction industry update

building bridges

CONSTRUCTION INDUSTRY UPDATE

BY KAREN J. BANNAN

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PHOTOGRAPHY BY CHARLES SHEARN

As construction industry growth continues, a strategic mindset has become the tool of choice.

Mark Holmes, Deputy Director, Mace Ltd., London, U.K.

PROJECT MANAGEMENT in the construction industry isn't just about cutting costs or avoiding mistakes, says Mark Holmes, deputy director at Mace Ltd., a London, U.K.-based construction project management firm. In many ways, the greater value is in getting companies to rethink they way they work.

“These days, project management firms add value by enhancing business solutions, not just simply delivering a construction job,” Mr. Holmes says. “More often, construction projects are used as a catalyst to change the way an organization works.”

For example, when British Airways moved its headquarters from a series of buildings near Heathrow Airport to one new building in Harmondsworth, U.K., the company's culture became more unified, changing the airline forever. “Yes, we were only building a new [headquarters], but the building became a catalyst in changing the way the company worked,” Mr. Holmes says. “Construction can be a way of shaking up performance.”

When British Airways moved its headquarters from a series of buildings near Heathrow Airport to one new building in Harmondsworth, U.K., the company's culture became more unified, changing the airline forever.

Get it Done

The construction industry is healthy—population growth and industrialization of the developing world continues to drive work across the globe.

“The construction industry is very low-margin, so it's always a competitive process,” says Robert Ryan, deputy director, Construction Industry Institute, based at the University of Texas at Austin, Texas, USA. “The bidding process works to reduce those margins even lower. There's been a fair amount of consolidation and a large amount of international competition. So the industry is generally healthy because of high demand for construction. New construction of industrial facilities— which is a major growth point—is largely occurring in developing countries.”

EXECUTIVE SUMMARY

➜ Project managers should interview clients to find out what the actual goals of a project are beyond assembling a building or working on a new road.

➜ Project managers must focus on both scheduling and change control to minimize issues.

➜ Collaboration is an important goal for any construction site. The construction industry would do well emulating the manufacturing industry.

Project management, in some form or another, is present on every construction site, says Manuel A. Garcia, associate director, Construction Industry Institute. “Project management is embedded in the construction of capital facilities and has been for decades,” he says. “It facilitates the efficient implementation of capital facility programs. I cannot envision a project being constructed to meet safety, quality, schedule and cost goals without project management principles in place.”

New Needs, Old Problems

Glenn Ballard, a professor at the University of California at Berkeley, Calif., USA, and research director for the Lean Construction Institute, Oakland, Calif., USA, says the majority of construction sites—even those that use formal project management—have miles to walk in terms of using the methodologies to their fullest potential. “It's still a very traditional industry—design, bid, build. By that definition, you're not going to have any strong integration,” he says.

This lack of integration often comes across as fragmentation. There are so many people working on a particular project, some concentrate on their own portion, says Chris Quaife, chair of the BC Building Projects Committee and principal of Symmetric Resources, North Vancouver, B.C., Canada. With margins so tight, some look for a way to cut costs and squeeze more value into a building or project. “You find that some people are trying to enforce quality against people who have no mandate for quality— they just have to get things done as quickly as possible,” he says. “There's a great pressure to cut down on design costs by squeezing prices instead of treating design as a long-term investment on the project. If you are in a market that is so cost-driven, people do things that are sensible in the short term but not in the long term.”

Despite these continuing issues in construction efforts, experts say anecdotally that collaborative project chartering is more commonplace, especially between designers and builders. However, formal processes are present more often on larger, commercial projects— those with a full-time staff and functional specialists and receive more upper management attention due to proportional risks.

Shared Schedules

Because each step in the construction process is so intricately tied together—if materials aren't delivered on time, building can't start—scheduling is a practice that is highly developed on most projects. Large projects most often use the critical path method (CPM), Mr. Garcia says.

“Schedules are managed by use of milestones at the highest level, but at the working level, we find CPM network planning over short horizons; say three- to six-week look-ahead schedules. But these schedules are ‘views’ derived from CPM schedules,” he says. “Major outage and turnaround work requires shutting down production lines or facilities that significantly affect organizational resources. In these cases, we see work activities being tracked by the hour to fit equipment and area access windows.” This approach ensures quick completion so that normal operations can be restored promptly.

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UNNECESSARY CHANGE SHOULD BE DISCOURAGED BY ESTABLISHING HIGH RETURN-ON-INVESTMENT THRESHOLDS FOR PROPOSED CHANGES.
Manuel A. Garcia, Associate Director, Construction Industry Institute, University of Texas, Austin, Texas, USA

Smaller projects, which usually are managed as a portfolio of projects and require tailored approaches, are more likely to use scheduling based on annotated milestone schedules and bar charts, Mr. Garcia says. And fast-track projects—those that involve scheduling activities simultaneously—require intense attention to scheduling because they allow for little recovery time. The result: CPM scheduling generally is a requirement, not an option.

No matter the scheduling method, unless you have a project manager with clear controls, projects won't come in on time, says Michael Shelly, managing director of Project Management International Ltd., Dublin, Ireland. “You need to have established roles—who's responsible for what—document management and a system for scheduling. But more important, you need a clear change-control mechanism,” he says. “The biggest problem on a site can happen when people make changes and no one is controlling those changes.”

In fact, change management is a constant challenge facing the construction industry today, according to the Construction Industry Institute (CII). “Uncontrolled changes that lack management can cause a problem to go out of control,” Mr. Ryan says. “It's avoided by implementing two things: effective scope definition and effective change management process, which both fall under pre-project planning.”

“People make changes when they are looking for that extra little bit of savings and they don't think that there are implications,” Mr. Shelly says. “Project managers should make sure every change gets flagged and queried. Only if there's a real benefit should people sign off on that change.”

It's not so much that the industry performs change management incorrectly, but that it simply isn't implemented as quickly and completely as it should be, according to Mr. Garcia. “Necessary change should be implemented as early and swiftly as possible during the beginning design stages. Unnecessary change should be discouraged by establishing high return-on-investment thresholds for proposed changes,” he says. “The productivity of all members always is adversely affected by changes and the total impact of change is never fully captured on a change order. The basic question is whether the return on investment of implementing the change significantly overcomes the costs of disrupting the execution of original plan.”

A World of Change

In the future of the construction industry, the greatest challenges—at least in the United States—will come as a result of legislation and the need for speed. For example, Sutter Health, a large health care provider based in Sacramento, Calif., USA, is working on a $5.5 billion seismic upgrade of its facilities. The work, by law, must be completed by 2013.

Because the deadline is so soon and the work so daunting, the organization uses lean project delivery, a project management concept inspired by Toyota Motor Corp. that produces maximum value with as little waste as possible. The process integrates project management best practices, such as strong collaboration and a holistic view. Construction subcontractors are brought onboard early in the design and development process so they can contribute their knowledge. This means fewer surprises along the way and fewer changes.

“What that means in practical terms is that the owners have preferred suppliers—architects, engineers, specialty contractors—who form a design committee,” Mr. Ballard says. “It's about truly getting people to collaborate and share incomplete work and to allow money to move across organizational boundaries so you don't get snared in who pays whom.”

In another example, Capital Development Group, a group of construction companies in the Orlando, Fla., USA, includes architects, consultant engineers, and electrical and mechanical contractors. Together, these disparate entities take on work as a group, calling it the “Three Musketeers Movement.” The participants talk about how to share monetary gains and losses during a project, creating a situation where there's no reward for charging more during the building process.

Another challenge is training new workers, Mr. Garcia says. “With the aging workforce, within a decade the U.S. construction industry faces a major challenge in transferring the knowledge base of retiring workers to a new generation of constructions workers—supervisory and labor,” he says. “The construction industry also needs to achieve higher levels of productivity by incorporating technology into its work processes, both in the office and the field. CII research has revealed a need to attract new workers as well as to train middle management workers to rise to leadership positions.”

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The Details

Contract management slowly is changing, and not a moment too soon. “If you look at the way things are right now, you see some building owners looking to do the quick flip—get the building up, get it sold, and transfer all the [liabilities and] risks to the new owners,” Mr. Quaife says. “When you get to a point where the designers and planners also are investors in the project and have to make sure that everything ties together before going forward, then you see success.”

Increasingly, management focuses on the backend of construction projects—the ultimate result—to planning and project set-up, according to Peter W.G. Morris, professor of Construction and Project Management at University College London and author of The Wiley Guide to Managing Projects. Called front-end loading, this approach requires project managers to ask more questions about why a project is being done and create defined processes. In fact, the Construction Industry Institute, based in Austin, Texas, USA, has found that projects that employ front-end loading tend to succeed.

These days, project management firms add value by enhancing business solutions, not just simply delivering a construction job, more often, construction projects are used as a catalyst to change the way an organization works.
— MARK HOLMES
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IT’S ABOUT TRULY GETTING PEOPLE TO COLLABORATE AND SHARE INCOMPLETE WORK AND TO ALLOW MONEY TO MOVE ACROSS ORGANIZATIONAL BOUNDARIES SO YOU DON’T GET SNARED IN WHO PAYS WHOM.
Glenn Ballard, Professor, University of California at Berkeley, and Research Director, Lean Construction Institute, Oakland, Calif., USA

Overall, though, problems result from poor applications of good practices more often than lack of skill, knowledge or technique. “We need to learn the lesson that was learned in manufacturing,” Mr. Ballard says. “There's been a tremendous revolution in manufacturing related to local control. The closer the project manager is to the small details, the less successful he or she will be.” PM

Karen J. Bannan is a freelance journalist. Based in New York, she writes about business and technology for more than 20 publications including The New York Times, Crain's Chicago Business, MyBusiness, CFO and Robb Report.

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI.

PM NETWORK | JULY 2005 | WWW.PMI.ORG

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