The engineering & construction industry
a mature model for the future of project management success
Project Management Association of Japan
This paper examines, based on my experience working for a Japanese engineering and construction company operating globally over the past four decades, the value structure of engineering and construction (E&C) projects. In doing so, it identifies the project management best practices that the global E&C industry embraces. It also describes how project management practices used by the global E&C industry can contribute to the future of project management.
E&C Project Triggers for Future Vision
Mature Industry Giving Direction for the Future
The important role played by the E&C industry is rarely questioned. This industry engineers and builds national and social infrastructure, as well as industrial facilities, that generate economic outputs. In doing so, it contributes, in both industrialized countries and developing countries, a gross domestic product (GDP) ranging between seven and ten percent. This industry is also a major employer of a workforce that pioneers project management practices and transnational business operations. As a pioneer of project management, project management practiced in the global E&C industry (as shown in Figure 1) offers robust characteristics compared with the information services (IS) industry, which employs the absolutely largest number of project managers globally.
Figure 1. Cross-industry comparison of project management features
However, the E&C industry or, more broadly, the construction industry, is faced by a variety of challenges. In many countries, the productivity of the construction industry is one of the lowest; the industry’s public image is tarnished particularly vis-à-vis new economy; in many industrialized countries, the industry is almost constantly in short supply of experienced professionals and skilled workers and their inflow is not warranted; its degree of high technology utilization is not comparable with that of the other industry branches such as new economy and manufacturing; and, project management competency is taken for granted in the industry; it is not a plus factor as in the other industry branches, typically the IS industry.
These challenges impose on the industry search for exits for the future to regain its past glory, in quest for:
- More construction and project management value per dollar invested
- Greatly enhanced industry image
- Project management as a guide for integrating technology, wisdom, intelligence, and experience to craft the future of built environments or, more broadly, society.
Vision for Tomorrow
Based on the strategic position and features common to the E&C industry, and the challenges facing this industry, I propose a vision for evolving the current state of the E&C industry:
- The E&C industry will deliver safer and better projects more quickly and more affordably, accomplishing this by collaborating with industry participants and stakeholders while meeting society’s sustainability expectations.
- The E&C industry will challenge, as its tangible value, a 20% reduction in both capital and infrastructure investment costs and project delivery times, as well as realize zero injury and zero emission standards. The industry will also embrace several soft values: performing as leaders in sustainable development (SD); employing a well-trained, ethical, knowledgeable, and technology-savvy workforce; using high-tech delivery methods and project resources; modeling project management values in real terms; and serving as a learning industry that continuously delivers value to both industry and society.
- The E&C industry will target real-time project and facility management, using approaches guided by scenario-based project planning, automated design, integrated and automated procurement, intelligent project site, and intelligent lifecycle deployment of project products, approaches that are all supported by new materials, methods, products, and equipment, as well as a technologically advanced and knowledge-enabled workforce, and an integrated data and information management system.
Core Values of E&C Projects
A logical first step in searching the future of E&C projects should be to visit a variety of views on the industry core values, as expressed by both owners and E&C services providers, so as to draw an overall picture of the industry core values.
Global Owners’ Views
While traditional owner companies hold the view that the value of E&C services are generally biased toward contract prices, reputable global owners expect more soft values from their contractors. During the keynote presentation for the Construction Industry Institute’s 2005 annual conference, Tillerson (2005), then president and now CEO of ExxonMobil Corporation, quoted four top value requirements for the E&C industry: safety, technical competence and innovation, commitment to the highest standards of ethical conduct, and attracting and retaining human resources. Porter (2005), vice president of Engineering and Operations at DuPont, identified quite similar criteria—safety and health, environmental stewardship, high ethical standards, and respect for people.
US Owner vs. Contractor Perception on Construction Values
The Construction Industry Institute carried out, in 2004, a survey looking at the differences in the perception of construction value held by United States (US) owners and US-based contractors (Schaffer et al., 2005). This study reports on the perception of construction values or what constitutes “differentiators.” The findings of this study are summarized in Figure 2.
Figure 2. The perceived value of construction value—US owner vs. US-based contractors
In this figure, the top two tables identify a gap in value perception between owners and contractors, one that implies that:
- The primary concern for owners remains contractor-offered prices and commercial terms.
- Owners are concerned about safety; substandard safety performance can cause social sanctions and production losses.
- Contractors believe that owners should not take for granted contractors’ project management capability, and that this capability is the value accrued as a result of years of painstaking practice.
- Contractors expect that owners share the contractors’ challenge of recruiting and retaining quality workforce in competition with other industry branches.
Among those participating in this study, there were structured discussions on how to differentiate those factors that add value on construction projects from those that add either no or little project value. Those factors that earned high scores are listed in the table below (Figure 3).
The Japanese Contractors’ Perception of Construction Value
Each year, the Japanese Government’s Ministry of Economy, Trade, and Industry (METI) surveys the state of Japanese contractor companies, studying their export projects (Japanese Ministry of Economy, Trade, and Industry, 2005). Figure 3 shows, for 2004, the contractor-rated factors that most affected their success in securing export projects.
Figure 3. Contract-winning factors for export project by Japanese contractors
Although the term compounded technical capability is slightly vague, it generally represents the contractor company’s total technical capability in both core technology strength and project integration capabilities. This report shows that project management is a main concern.
From this literature, I concluded three observations regarding the stated values of E&C projects:
- There are two types of values for E&C projects: “hard” values that are quantifiable (excellence in investments costs, delivery times, safety records, emission) and “soft” values that are difficult to quantify. Both are equally important for sound industry growth.
- Owners and contractors should more closely discuss their perceptions of construction industry values so as to establish a common, equitable definition of value.
- While the E&C industry should address sustainability as an increasingly essential value, owners and contractors still lack the structured approaches to this objective.
Although members of the global project management community have increasingly discussed the value of project management, researchers and practitioners must not confuse the difference between the values produced by projects and those yielded by project management per se.
Equation to Maximize E&C Values
The structure that the E&C industry uses to maximize its values is outlined below.
E&C Industry Value Proposition Structure
Here, I analyze the three layers of the overall structure that the E&C industry uses to enhance E&C values:
Layer 1: Project competitiveness model
The basic component for maximizing added value is the project competitiveness model. It shows how individual projects produce added values.
Layer 2: Corporate performance initiative
Project competitiveness models are the product of corporate performance enhancement programs within project-oriented organizations, such as contractors or owners’ central engineering departments.
Layer 3: Industry initiatives
E&C values are largely enhanced when construction industry research initiatives, which examine project operations and management, are organized jointly by owners, contractors, suppliers, and academia. Additionally, state-of-the-art project management components are incorporated into construction value structures only through alliances between industry initiatives and project management associations.
Project Competitiveness Model
In Figure 4, I outline a traditional project competitiveness model that I originally introduced in 1996 and have since updated in response to the changes that have occurred in project execution environments. Although this model is configured for capital investment projects, it can apply to any built environment project with few modifications.
The project competitiveness equation labeled in Figure 4 as the total project management cycle is represented by a simple equation showing that the quality of project plans (i.e., “right” project selection and “right” project planning) coupled with the quality of project execution and management (i.e., “right” project execution and “right” project management) equals superior project performance or project excellence. Bottom-line superior project performance is demonstrated by the minimum capital expenditure, or CAPEX costs, as well as minimum cycle times, excellent HSE (health-safety-environment stewardship), planned facility operation performance, and resultant stakeholder satisfaction. The quality of project plans includes superior process technology, innovative supply chain schemes, front-end loading exercises for project plan optimization and value improvement, and HSE considerations. The areas of project execution and project management comprise the quality of project management, effective value engineering, robust engineering practices, global sourcing of materials, and smart construction.
Figure 4. Capital project competitiveness model
Corporate Performance Initiatives
Project-oriented organizations should tailor the generally practiced performance enhancement models shown below to reflect their business operations centering around projects:
- Strategy: shared core value, operations strategy
- People: employee productivity, organizational productivity
- Execution: capital productivity, asset productivity, supply chain productivity, customer focus quality.
Figure 5 details an E&C company’s organizational program for high performance. It shows how the company translated the previously described organizational competencies into key success factors (KSFs), measuring concrete scenarios and multi-year business plans in relation to four key performance indicators (KPIs): financial, market, business process/competency, and growth/learning.
Understandably, the financial measure (or primary measure) is dependent on the market measure, which, in turn, is a culmination of a business process/competency measure. The growth/learning measure is the foundation to move corporate performance forward.
Figure 5. E&C contractor competitiveness program
Substandard performance in the financial measure triggers accelerated efforts in the other performance measures. All the measures are based on a cluster of initiatives implemented by management and senior employees. Figure 6 lists a sampling of KPIs for the respective measures.
Figure 6. Typical key performance indicators for performance measures
Construction Industry Initiatives
Representative E&C industry initiatives include The Construction Industry Institute of the United States of America, The Engineering Advancement Association of Japan (ENAA), and The European Construction Institute (a pan-European industry institute).
Alliances between E&C industry initiatives and project management associations, such as the alliance between ENAA and the Project Management Association of Japan (PMAJ), have proven most effective for three reasons:
- Project management was born out of the E&C industry, and has evolved into a suite of diversified models with unique features.
- Modern project management, formulated after the traditional E&C project management approach, was cross-fertilized with project management models of the other industry branches and contributes to business competitiveness scenarios.
- The field of project management is neutral to construction industry politics.
Best Practices of Project Management in the Global E&C Industry
The global E&C industry’s practice of project management faces ever-evolving challenges. One of the most crucial involves managing global, collaborative projects: No single corporation can thrive on its own resources in this borderless project industry scenario and tough economic situation. Figure 7 shows a tree of the project management best practices used in the global E&C industry, in the respective project phases.
Figure 7. Tree of E&C project management best practices
Smart Project Development
Project management involvement in business conception:
As both owners and contractors try to reap the benefits of combined expertise and experience to enhance project viability and optimize project plans, the chances of experienced contractors getting involved in the Project Definition Phase are increasing and, hence, project management is afforded opportunities to expand into upstream project work.
Owners who need financing for project materialization now often seek contractors’ structured financing capabilities to widen their funding alternatives, and they are interested, where warranted, in product off-taking capabilities that contractors may offer in association with their project development partners such as Japanese trading houses; project managers are responsible for mobilizing such expertise.
Supply Chain Innovation
Supply chain innovation in the E&C industry involves deconstructing traditional business value chains and rebuilding more efficient schemes. More and more owners look at owner – contractor alignment, whereby they seriously look for a more effective division of core competencies that owners and contractors respectively possess, which has led to the formation of partnering and strategic alliance. Also, the use of unincorporated joint venture/consortium contract formats is a way of life for global contractors on multi-hundred million-to-billion dollar projects.
In the United Kingdom (UK), the value-for-money mandate propelled the creation of the public-private partnership (PPP). The original formats of PPP are the BOT (build-operate-transfer) and the BOO (build-own-operate), both of which were spawned by the construction industry.
Project Plan Optimization
The E&C industry experience shows that consolidated and intensive cross-functional planning during the upfront phase of a project greatly enhances opportunities to optimize a project; decisions that impact 80% of project costs and schedules are generally made within the first 20% of project progress (Schaffer et al., 2005). This experience has led to the concept of the front-end loading exercise, in which owner and contractor key personnel who are responsible for the project planning, implementation, and product utilization are gathered in an integrated team for a certain period during the definition or early execution planning phases, in order to capitalize on their combined ability to influence a project, in terms of facility configuration and performance, as well as to develop project execution alternatives.
Secure Project Scope Development
An enhanced WBS used by global contractors is extensive, down to level 10 or more; it is mostly standardized for uniform use on all company projects, and is structured for global collaboration of multiple parties involved in a single project.
Global contractors, especially those companies mostly operating on lump sum turnkey (LSTK) contracts up to one billion US dollars, have highly accurate cost estimating capabilities, namely, a +/- 2 to 3% accuracy from contracted fixed prices, which is necessary to stay in business. To sharpen this edge, contractor companies continuingly invest in cost estimating methods and global cost databases.
Robust Project Implementation
Multi-pillar operations management involves using methods and know-how to manage operations of a number of project components, called operations centers, distributed throughout the world. These methods clarify the function of a project directorate and project operations centers. Because US multi-hundred million-to-billion dollar capital investment projects involve a huge number of document items, an electronic data management system (EDMS) enhances project work efficiency, especially in configuration management. EDMS also contributes to achieving the goal of “paperless” project operation.
Global project resources deployment is a vital ingredient for project success. To support this facet, proprietary global resources management systems are used to track resources procurement and movement around the globe on a real-time basis. On built environment projects, constructability assessment during the design stage is important. The current industry trend is to use three- or four-dimensional computer-aided design (CAD) technology to plan construction operations by means of CAD-assisted simulation techniques. The 4-D CAD application combines construction planning with scheduling.
The last chain is a project surveillance method called Cold-Eye Project Review. For many years, the management of a project had been left to the project manager. However, as projects have become increasingly more complex, project execution environments ever tighter, and the chances of substandard performance greater, owners and contractors alike now introduce structured project progress reviews, which are also called “cold-eye,” or independent, project reviews. In structured project reviews, project progress is evaluated at company-specified timing and according to given criteria, by general managers of projects, chief project managers, heads of project management technology departments, or other seasoned experts who are not involved in the day-to-day management of projects.
Building Blocks for the Future—Project Management Capabilities of Values for the Industry
The project management practices used by the global E&C industry have produced, and will offer the industry—and more broadly, society—numerous valuable capabilities. These are explained below.
Project management offers organizations the capability to reasonably map, or at least make available techniques to map, required elements and resources. This consists of knowledge and/or the material required for an organization’s new ventures, including projects. This capability can help organizations develop unique ventures or business models.
Project management always entails selecting plans or actions from alternatives. This practice allows project managers to develop their ability in analyzing scenarios for creating new ventures and for eliminating the risk of relying on a single plan.
Value Improving Proposition
Project management constantly operates in races against time and budgets, and this characteristic prompts it to acquire the know-how to mobilize value-improving practices from in-house or outside sources. Value-improving practices realize design-to-cost (DTC) and delivery cycle time compression, which are typical key success factors in developing or winning new business, as well as realizing competitive time-to-market for placing new products.
The uniqueness and uncertainty of projects presents a challenge for project managers. In response, project management has focused on the ability to grasp a project’s scope, even in early conceptual or planning stages, and is able to define a detailed scope for implementation by using logical breakdown techniques such as WBS. This ability contributes to enterprises’ business in facilitating business decisions and later minimizing costs.
The heart of project management is to organically assemble a variety of resources, both hard and soft, into a functional system in a constrained timeframe or within a given budget, whether such resources are well 10 known or not to project teams. Without this capability, many innovations that now exist might not have been realized.
Project management is well versed in quantification of required efforts and resources, as resource and budget control are its lifeline functions. This ability injects discipline into business operations of enterprises that would otherwise spend given budgets without giving due consideration to output for the dollar, thus contributing to lowering not only project costs, but also enterprise operational costs.
Project management is well trained to utilize proven project management methods such as scope or configuration management, schedule management, cost management, and quality management, as well as earned value management. This suite of management capabilities offers enterprises greater ability to meet business objectives.
An established practice of project management involves monitoring and evaluating the status of projects periodically, thereby maintaining transparency and visibility until completion. This practice can provide a sound vehicle for tracking business operations.
Risk Prediction and Containment
Project management practices help organizations more effectively predict and contain risk than the practices used in other management disciplines. This capability helps organizations contain their exposure to business cost escalation.
The Future of E&C Project Management
The global E&C industry, presently practicing state-of-the-art project management, is geared to develop its future project management model, one comprising five elements:
- Project management incorporating sustainability stewardship
- Transnational and virtual project management practices
- Technology-assisted project management decision-making
- Knowledge and information integrated project and facility management practices
- Project management to help address global imperatives.
Project Management Incorporating Sustainability Stewardship
Sustainability is providing for the best for people and the environment both now and in the indefinite future. According to the 1987 Brundtland Report, the purpose of sustainability is: “Meeting the needs of the present generation without compromising the ability of future generations to meet their needs.” As the global E&C industry increasingly embraces sustainability stewardship, project managers working in this industry become increasingly responsible for incorporating sustainability into project conception and planning, using as their guide industry and corporate sustainability policies.
Transnational and Virtual Project Management Practices
The global E&C industry is already implementing integrative project management of transnational components, on a project-to-project basis, in which virtual communications and decision-making, supported 11 by a global project information and communication technology (ICT) platform, are fully utilized. This project management model will further evolve and, at the same time, will be transferred to other project management application areas.
Technology-Assisted Project Management Decision-Making
The artificial intelligence (AI) project management decision support systems that some US universities are currently developing may emerge over the next decade as prototypes. These could shorten the time required to nurture E&C project managers.
Knowledge and Information-Integrated Project and Facility Management Practices
Construction industry initiatives in industrialized countries are developing models that will improve construction operations, particularly in the area of technology and management methods.
For instance, as shown in Figure 8, the integrated and automated capital project developed by the US Department of Commerce, and known as the fully integrated and automated technology project (FIATECH), is developing real-time project and facility management scenarios using project planning, automated design, integrated and automatic procurement, intelligent project site, and intelligent life cycle project product deployment (FIATECH, 2005). This project integrates the best high technology, experience, and innovative concepts contributed by industry, academia, and technology. This project is supported by new materials, methods, products, and equipment, as well as recently introduced technology, knowledge-enabled workforce, and integrated data and information management technology.
Figure 8. Road map of the FIATECH integrated and automated capital project
Project Management to Help Address Global Imperatives
The global E&C industry, which founded project management, should extend the frontier of project management. It could contribute to using project management in such areas as:
- Environmental stewardship: The E&C should incorporate this mandate into its processes for project conception and planning.
- Science frontier: The global E&C can help technologists apply its methodology when integrating discrete technology.
- Public sector efficiency: The PPP (or its original BOT or BOO) can render innovative concepts.
- Innovative development schemes: Global E&C project management function has been involved in this genre, and should lead in hammering out innovative social and industrial development schemes based on complex production and social systems.
- Protection or shelter against natural violence as well as recovery from damages: The global E&C industry should use its project management approach to step up its contribution to this noble obligation.
The global E&C industry should take a leading role in proposing that the global project management community combine their wisdom, intelligence, and resources to advance the role of project management in improving the state of the world—in implementing positive global changes and in solving challenging global problems.
FIATECH. (2005). “Capital Projects Roadmap” Section, top page, of FIATEC Home Page. Retrieved August 1, 2005, from http://www.fiatech.org/projects/roadmap/cptri.htm
Japanese Ministry of Economy, Trade, and Industry. (2005). Japanese contractors’ overseas projects 2004. Tokyo, Japan: International Project Promotion Office, Industrial Machinery Division, Manufacturing Bureau.
Porter, J., Jr. (2005, July 21). More value for the money. Dunn award of excellence address presented at the annual conference of the Construction Industry Institute, Proceedings of the Construction Industry Institute Annual Conference 2005, Austin, TX, USA (p. 192).
Schaffer, S. G., McManus, R. W., Sutphin, D. L., Telford, G., Twardowski, T. E., & Walsh, K. D. (2005, July 20). Commodity vs. value added services: Lost in translation. Proceedings of the Construction Industry Institute Annual Conference, Austin, TX, USA. (pp. 41-42).
Tillerson, R. (2005, July 21). Construction industry leadership in the changing energy marketplace. Keynote speech presented at the annual conference of the Construction Industry Institute, Addendum to the proceedings of the Construction Industry Institute Annual Conference 2005, Austin, TX, USA.
©2006 Project Management Institute