Managing project development for better results

By: R. Max Wideman

Victoria, B.C.

President, West Coast B.C. Chapter P.M.I.

If the project objective is to create the best possible product for a given level of expenditure, then the objective of management during the development stage of a project should be to establish an effective project team, a unity of purpose and commitment to results. Yet the process of managing a project through the development stage is frequently not well understood by the principal players, and the dynamics of their separate interests may well run counter to project objectives. Indeed, so entrenched is the adversarial attitude amongst the various segments of the building industry, it is some times difficult to persuade the parties to a project to act together in the common interest, without a significant communication, not to say, educational program.

To be aware of the dichotomies that exist, is to be aware of the pitfalls that face the Project or Development Manager and this is the first step in understanding and improving the performance of the team.

Management and the Principal Parties

The principal parties to a building project and their respective interests may be identified as follows:

The “Owner as Sponsor” anxious to maximize return on investment.

The “Owner as Operator” anxious to maximize productivity.

The “Designer” anxious to provide an efficient design service and build a reputation for future work.

The “Constructor” anxious to maximize profit, particularly if market competition has resulted in initial tight margins.

The “Project Manager” anxious to set the stage for a successful project through effective management.

These relationships have to be managed just as positively as the technical aspects of the project. The objective of project management may be said to be the achievement of pre-determined specifics within given parameters of quality, cost, time and client satisfaction. A successful project is therefore one which is perceived as having achieved satisfactory trade-offs within these parameters.

Management in the project context means to plan, organize, execute, monitor against the plan and then control by taking corrective action ... or in simpler terms: to direct by saying what you are going to do before you do it, so that there is an opportunity to modify your actions at minimum cost and maximum effect. Provided always, of course, that this process does not give way to procrastinating beyond the period of opportunity for effective action.

It must be understood that this process, particularly during the development stage of a project, can be a predictably sensitive area for members of the project team. Professionals understandably do not like to feel that they are being restricted in their professional judgment, second guessed or criticized. Cautious but candid, constant and complete communication is therefore essential.

The Project Plan

If establishing a project plan in terms of scope, quality, cost and time sounds simple in the first instance, the subsequent monitoring against the plan during the development stage may be anything but simple.

The problem arises in building work because the manner in which a project feasibility (financial viability) is put together is, for the most part, not the way in which the building is built and consequent hard costs collected. For example, a pro forma analysis may well be established on the basis of a cost per square metre or other similar units (e.g., apartment suites, hotel rooms, hospital beds, etc.) experienced on similar buildings. The construction costs on the other hand, and the forward estimating of these costs during the development stage for budgeting purposes will generally follow trade practices, as reflected in the Canadian Masterformat or UCI coding systems.

The development drawings or sketches during the development stage in effect converts concept unit costs into trade categories by establishing form and selection of materials. Such matters as foundations, structure and finishes are determined from such alternatives as concrete, steel, aluminum, wood, glass, block, drywall, etc. Indeed, a number of materials and their respective installation trades may be used together to form a “system” such as the building “envelope.” Certainly, the electrical and mechanical services will directly or indirectly involve a majority of the trades on the project and vice-versa.

Thus, an original budget in concept or pro forma terms must be similarly “developed” into a corresponding working budget. This must be accomplished over a period of time through the design process, yet, without losing control over that process. This essential aspect of the development stage is made the more difficult because the building industry is fragmented into specialties, which, while they have a good understanding of their own processes and vested interests, often have less than complete understanding of the process as a whole.

For example:

The owner as sponsor has difficulty in understanding the length of time required to detail a preliminary design into working drawings including meeting the necessary regulatory standards and approvals.

The owner as operator has difficulty in understanding the importance of knowing in detail what he is getting as the design develops and the extra difficulty and costs involved in making changes and additions later on if he doesn’t.

The designer is concerned with technical and professional excellence which impacts on the performance cost relationship and may conflict with cost effectiveness. Generally, neither the most expensive nor the cheapest ranks highest from a return on investment standpoint. The designer is understandably concerned with maintaining the profit from his fee by holding down the cost of design and supervision, as well as potential liability. This may well act as a brake on innovation. Increases in scope for an increased fee, on the other hand, may be encouraged at the expense of budgetary control.

The contractor has difficulty in understanding the designer’s problems and is probably never given the owner’s objectives. He considers that these are not his concern. His concern is with productivity and costs on a fixed price contract and because contracting is a high risk business, his incentive is powerful. Other team members do not always appreciate just how powerful this incentive is, and the effect on the contract if this effort is frustrated by them, or the effect on the budget if the incentive is removed. The contractor, too, will be interested in genuine increases in scope of work since this will increase his opportunity to increase profit, although a myriad of small changes will likely be counter productive through reduced productivity.

There are others who are closely involved in the development process who may also have limited understanding. For example:

The accountant being generally unfamiliar with either the development or construction process has difficulty in understanding why the budget cannot be fixed from the beginning and hence is suspicious of any adjustments. He tends to be unsympathetic toward human error and oversight, not withstanding the highly complex nature of design coordination and construction execution of a modern building. Moreover, genuine savings between “actual” and “what might have been,” receive scant attention because such numbers are “soft” and do not show up on a balance sheet.

The lawyer too, is often in a similar position and provides advice from the limited perspective of his professional calling. Indeed, there are all too few lawyers with a knowledge of what it really takes to achieve a successful project, practicing in this specialized field. Many contracts in use on building projects still consist of obscure legal language or legal niceties designed to protect one party against the other — perhaps unfairly. “Time is of the essence” and breach of contract are good examples of two such thorny issues. Such contracts actually reduce the chances of success and increase the chance of conflict because of the difficulty the parties have in understanding their respective obligations. The situation is further exacerbated by the apparent absence of indications of good will and cooperative effort to mutual benefit and a contract can be so one sided as to be self-defeating.

On the other hand, without legal advice, good documents prepared by standard documents committees may be taken and used “off the shelf’ without appreciation of the real understanding and intent between the parties. Even with legal advice, attempts to modify such documents in order to change the underlying philosophy of the division of responsibilities between the several parties involved in the design and construction processes can lead to a legal maze and the questioning of some very fundamental issues. The very approach of Development or Project Management is a good case in point. There are as yet no well established and understood project contract documents and agreements which reflect the requirements of the knowledgeable owner who wishes to manage the project process himself or manage it through a Project Manager as his independent agent.

The Project Manager is himself constrained by the often conflicting goals of scope, quality, cost and time. He may not appreciate that upon their successful attainment, the accolade so richly deserved by the team fades like a mirage as the serious business of start up and revenue earning gets under way. In fact, there are other objectives which in retrospect are often seen as of greater importance and should not be lost sight of. These include client satisfaction, follow on work and business development spin-off for the Project Manager’s own company or division. A tightrope walk indeed.

Improving Performance Through Understanding

The question is, how to make the development process work better? Good books and articles on project management and appropriate management tools and techniques are available to the manager for reference and the number is steadily growing. Too few are read by the specialists involved in the process as they are seen as being outside their area of concern.

Yet projects are built by people and their effective interaction through understanding.

Successful companies succeed by putting together people who work well together, whether from within their organization or outside it. Virtually all their effort is committed to the common objectives, rather than the conflicts to which the complex relationships of the project are naturally prone. The twin keys are seen to be commitment and communication — commitment by team members to pre-established project objectives and continuous and effective communication. Not necessarily more communication is required, but rather better quality and better directed information and understanding.

Even our educational establishments seem to be slow in taking this up as a challenge in the specific context of project work. The more regrettable, considering information and communication techniques properly handled on a project can result in substantial savings and the industry as a whole represents over a quarter of our gross national product.

The following diagrams have been developed from information on a large number of building projects, typifying the project development process.

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FIGURE 1

Figure 1 shows a typical project life cycle separated into its generally accepted basic stages, with the activities to be expected in each stage. The stage separations correspond to key decision points for purposes of executive level control. Not all projects, of course, conform rigorously to the stages shown and the activities within each may vary somewhat. However, short fall in project performance and lack of control can frequently be traced to significant departures from the sequence shown. The so-called “fast-track” approach to project implementation, i.e., the sequential procurement of separate design packages may be viewed as a departure. In fact, however, for effective control each design package must still follow the stages shown.

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FIGURE 2

Figure 2 shows a typical building project bar chart which relates the master schedule activities to the stages outlined in figure 1. Tender award is taken as an arbitrary zero on the time base, since it is a clearly defined point in time of commonly understood significance in the life of a project. Again, the time durations shown are representative of a fairly large number of building projects from under $1 million to multi-million.

It is interesting to note that most projects have been in existence for as long as it will take to construct them. The corollary is that a construction start must be preceded by adequate time for preparation of the necessary design and administrative procedures.

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FIGURE 3

Figure 3 shows typical manpower loadings for the design and construction forces on a building project. Several broad points are of interest:

-depending on the type of facility, the man hours invested by management and its design teams will amount to at least 25% of the on site labor man hours.

-since on-site labor constitutes approximately 40% of the construction cost, it follows in very general terms that one dollar invested in design effort corresponds to ten dollars of construction investment.

-the man hours required for working drawings is approximately three times that required for concept/ feasibility.

-the on-site labor should peak at about 160% of average, from 50% to 75% of the construction schedule.

-“fast-tracking” will result in some overlapping of the working drawings and early construction stages.

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FIGURE 4

Figure 4 shows the rate of development of information during the various stages of the project. As is to be expected from Figure 3, project information expands rapidly during the definition or working drawings stage, from approximately 15% to 85% of the total. Since it is highly dependent upon the work done in the concept stage it is vital that the concept effort address all necessary aspects and be of high calibre. Equally, it is vital that the development of working drawings by all the disciplines involved be managed and monitored against the concept proposal.

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FIGURE 5

Figure 5 shows the extent to which project costs can be influenced through progressive stages of the project. Obviously the owner’s requirements, and to a lesser degree regulatory requirements, have primary impact on project costs.

Assuming an orderly progression, that is to say, without any significant back-tracking, the ability to influence the final cost diminishes rapidly as the concept, and later on the working drawings, are developed. It is for this reason that significant management effort must be applied and accepted by the design team during the concept definition stages of the project, if satisfactory cost control is to be maintained. Similarly, undue re-examination or shifts in original scope should be avoided if design development is to proceed efficiently and on schedule. Again, this emphasizes the importance of a high calibre concept presentation. Conversely, if the original scope does come in for significant revision it is clear that the project is not in fact ready for the definition stage and detailed design work should be stopped. It is not generally understood that it is more difficult, hazardous, and costly in design time to make major changes to an existing design than it is to start from scratch.

During execution the contractor is certainly able to influence cost but only to a much lesser extent toward a favorable variance. It is also common experience that cost saving or cost cutting efforts at this stage rarely return one hundred cents on the dollar. Aside from opportunities to improve profit margins, disruption, delay and possibly wasted effort and materials are genuine and legitimate offsets.

Cost Effectiveness

The name of the game of project management therefore is “cost effectiveness.” Cost effectiveness may be defined as best value for money. For analytical purposes, this needs to be more closely defined as the optimum trade-off between such parameters as scope necessity, quality including aesthetic value, time to put in place, enhanced production or reduced operating costs, etc., according to the type of project and original basic project objectives. Much of this may be subjective as is the case in assessing aesthetic value or forecasting the future labor cost trends. Yet, it is nearly always possible to make a value judgment in comparing alternatives and the better the project objectives are defined at the outset, the easier this judgment becomes.

Consultants must not only not lose sight of this, but have a particular responsibility to ensure that their staff and sub consultants also clearly understand project objectives.

When a design consultant accepts an assignment to produce specifications and working drawings for a construction project it must be clearly understood by all his supporting staff that they are spending money on two different levels. First is the cost of the amount of time put into the design. Second is the cost of putting the design physically into place. Every sentence or every word put into a specification and every line put on a working drawing has an associated cost downstream and the cost is committed just as surely as the time is spent in its preparation.

What is not always appreciated is that, as noted earlier, the relation between the second and first costs even at the working drawing stage is on average between 8 and 10 to 1. There is therefore a substantial leverage to justify “getting the working details just right” in the first place. As the Ability to Influence Cost curve indicates, the earlier the point in the development process, the greater the leverage.

There is also here an interesting anomaly. The more elegant and simple the solution to meet the design criteria, the cheaper the cost of both construction AND the detailing effort. It is well worth searching for.

The next question is how detailed should the cost effective comparisons become, bearing in mind that the more detailed they get, the easier it seems to be to draw comparisons – and lose sight of the woods for the trees. How often does one find a project team including design, schedule and cost funcitons getting “bogged down in detail”?

This suggests that at the outset in establishing project objectives, dollar values should be set as guideline references for purposes of cost and schedule monitoring, design evaluation, approvals and control. Such values will vary depending on the relative emphasis on the various project restraints, such as the relative significance of budget and time. Indeed, the relationship may well vary through the life of the project, delay time becoming much more costly as the project nears completion and production capability.

Costing and the 1/10th of 1% Rule

In setting the guidelines for cost reporting for purposes of monitoring and controlling the project, a minimum amount to be anticipated under a separately coded item in the final cost report may be set at 1/10 of 1%. An upper limit may also be called for of say 2½%. Thus, a coded item which is expected to exceed this would require further breakdown.

For example, for a project for which the construction budget is $10 million, the cost reporting structure would be set up to code items not less than $10,000 and not more than $250,000.

Such guidelines help considerably in developing initial budget strategies and maintaining balanced judgment during the life of a project.

Similarly, in evaluating design alternatives, assuming that a reasonable and consistent level of cost consciousness has been maintained by all staff on the design team, a lower limit of significance may be set at say 2½%.

Hence, in the example given above, in comparing the merits of design alternatives of elements in the $250,000 range, differences of $6,000 or more would be considered significant and worth pursuing.

Applying Value Management

As stated earlier, significant effort by the management team should be exercised during the concept and definition stages. This should at least take the form of specific and contractually required design reviews, appropriate timing for which is also shown on Figure 5.

These reviews and earlier or additional ones if need be, can best take the form of a project management technique known as Value Management.

Value Management, a recognized service in the United States, is commonly defined as “An organized approach whose objective is to optimize the total cost and/or performance of a facility or system.” The methodology of this approach is that costs are optimized firstly by identifying areas of high cost and then by systematically developing alternatives that perform the required function at lower cost.

Note that this does not necessarily mean cheapest or lowest first cost, because account must be taken of the total overall cost. The total overall cost is the ultimate cost to design, construct, operate, maintain and dispose of or rehabilitate the facility over a specified life cycle.

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FIGURE 6

Figure 6 shows the total overall cost of ownership of a typical office building over a forty year life cycle, and it is interesting to note that the initial costs are only one half of the total cost.

Focus only on initial cost without regard to the present value of future maintenance and operating costs is often a serious shortcoming in the programming, planning and design of facilities.

Under traditional practice, the design professionals, architects and engineers, develop plans and specifications to meet the design criteria of the owner/operator. However, each design discipline being compartmentalized often by sub agreement, tends to generate its own requirements and then review and modify these requirements more or less in isolation. Since each discipline tends to prescribe maximum performance and safety factors, unilateral decisions are taken which incidentally modify the criteria and standards of the owner.

Consequently, decisions are reached which are not the most economical or acceptable for the end use of the facility. Effective decisions involving total overall costs require a team approach by people knowledgeable in all costs.

Value management provides the vehicle for this team approach. The methodology, including the initial step of preparing a project cost model, is set out simplistically in Figure 7. The cost of these reviews may range from 0.1 to 0.5% of project costs, yet result in savings of 10% or more. A pay-off of up to 100 times is not uncommon.

To some, Value Management appears as an interruption of the design process, particularly as not all disciplines advance at the same time. In fact, in building work, because of their logical dependencies, architectural design leads the parade followed by structural, mechanical and electrical, in that order.

Thus, electrical design may be only 15% advanced when architectural design is say 60% complete.

In fact, the early application of Value Management accelerates design and saves time by clarifying design scope, avoiding unnecessary design work, preventing false starts and reducing time loss when budgets are exceeded. The tighter the schedule for design the more beneficial the application.

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FIGURE 7

Value Management encourages standardization and simplification as design solutions to solving problems and helps to spot design deficiencies and gaps in discipline interfaces.

Summary

The writer hopes that these notes will provide an insight into the pitfalls and opportunities of managing the project development process. With better understanding, the project team can be more effective, have greater unity of purpose and be committed to better results.

References

1. Adams, J. R. and Barndt, S. E. “Organizational Life Cycle Implications for Major Projects.” Project Management Quarterly, Vol. IX, No. 4, Dec. 1978, p. 32-39.

2. Wideman, R. M. “Project Management Examined.” Unpublished lecture material for the University of Victoria, British Columbia, 1980.

3. Dell‘Isola, A. J. “Value Engineering in Construction.” Van Nostrand Reinhold Co.

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