An overview of project management and project management services

International Engineering Company, Inc.

Ed note: The Northern California Chapter of PMI has been conducting an ambitious lecture series designed to provide a forum for evaluating project management approaches and methods. These state-of-the-art lectures present existing techniques as developed within major engineering and construction firms. As this lecture series presents a unique opportunity to learn the latest project management methods, they will be published in Project Management Quarterly for the benefit of all the membership.

The following is the first in the series. Its purpose is to establish a perspective for those which follow.

Much ambiguity presently exists in the field of project management. Therefore an important first step is to clarify the difference between project management (PM) and project management services (PMS). The basic distinction is that whereas PM is an art, PMS refers to a contractual arrangement between an owner and a professional design and/or construction company.

Definition of PM

Project management is the art of coordinating resources and directing unidisciplinary groups so that the components of work performed by each group accumulates into a multidisciplinary team effort which achieves the desired objectives (or contracted scope of work) on time and within budget.

Project management responsibilities are not reserved for the project manager, but are the proper function of all project supervisors. The project manager, together with his subordinate managers, can be thought to function as synergists. These managers are the supervisors who organize and integrate the team effort, thereby causing the end result to be of far greater value than the sum of the individual components of effort.

Definition of PMS Contracts

A PMS contract is one which empowers a company referred to herein as the project manager to act as an authorized agent or representative of the owner in all matters specifically assigned to the project manager under the contract. Where the project manager is retained to perform the full range of Project Management Services identified by the American Consulting Engineers Council (ACEC) in Exhibit A, the only activities which will not normally be performed by the project manager are those required to:

  • Manufacture and install equipment,
  • Fabricate and supply material,
  • Perform field construction, and
  • Commission equipment (start-up and testing).

Under a PMS contract, the project manager is responsible to the owner for total coordination of the project. This includes the responsibility for issuing, directing and coordinating:

  • Design contracts with architectural and engineering (AE) firms,
  • Purchase orders with vendors (manufacturers and fabricators), and
  • Contracts with constructors,

all as required to perform the project design, procure material and equipment, and construct the project facilities.

The degree of physical construction performed by a project manager can range from none to a complete turnkey operation. Similarly, the design requirements of a PMS contract can extend from total to partial to none (i.e., where all design work is contracted to other AE firms).

A company which contracts to provide project management services would normally appoint a project manager who would then direct the efforts of a design manager, a construcion manager and a services manager. Each subordinate manager might then be assigned responsibilities as indicated on the hypothetical organization chart shown in Exhibit B. This organization structure is defined in greater detail in the next section.

A description of PMS contracts would be incomplete without including the concept of operations management (OM) following construction. This service is becoming popular with owners who want to have the project manager “prove” its performance by operating and debugging the completed facility for a specified period, usually from one to five years. When this service is to be provided under a PMS contract, an operations manager should be assigned to the project early in the design period, reporting directly to the project manager.

Definition of a Company
Which Provides PM Services

The relation between the project manager (a company) and the projects which it sponsors can be set in perspective, in order to understand how the sponsoring company supports each project group. The company can be classified into three interlocking spheres of operation. These, as depicted in Exhibit C, are the ownership, officers and professional staff. The primary functions performed within each sphere of operation are also indicated in Exhibit C.

Officers of the company are charged with the responsibility of managing business development and operational efforts such as establishing organizational responsibilities, priorities, and procedures. Officers are responsible for administering the company so that the professional staff can attain the desired project objectives.

Projects represent the primary cost centers of a company engaged in providing PM services. Projects should not normally be regarded as profit centers, because the project staff can do little to affect the total revenue of the company after the project is contracted. Only the company, or a division thereof, can be labeled a profit center in that it usually controls the contracting and billing functions.

Each project that is undertaken can be viewed as an integral part of the company plan. Therefore, the effect of each project’s contribution to the overall plan should be evaluated regularly throughout the project’s life.

Contracting Project Management Services

Many alternatives exist for contracting project management services. Exhibit D depicts several of the most popular contractual formats currently in use. Two primary contractual formats are depicted on the left-hand side of this exhibit. The upper one shows a contractual arrangement in which the project manager performs both construction management services (CMS) and architectural and engineering services (AE) as an “agent” for the owner. The lower one shows a contractual arrangement in which the project manager performs these same services as a “consultant” or “representative” of the owner.

The secondary formats shown in Exhibit D are modifications of the primary contractual arrangements, based on variations in the contractual relationships between the construction manager (CM), the design manager (AE), and the services manager (SM), these modifications are also dependent on which firm has the overall management contract with the owner.

One option in contracting for project management services which is not depicted in Exhibit D, is to contract for PM services only and to subcontract all (or most) of the design, procurement and construction functions. This type of contract is presently being written by IECO* on multibillion dollar projects such as the 12,000-megawatt hydropower facility for the Itaipu Binational Commission.

Draft contracts used for guidance in formulating actual PMS contracts have been prepared by the Associated General Contractors of America (AGC), the American Institute of Architects (AIA) and the American Consulting Engineers Council (ACEG). These contracts define different types of contractual relationships, as indicated below:

  • The AGC contract defines contractual arrangements for construction management services (CMS) only, performed as an agent for the owner. This is the most familiar arrangement for project managers which have functioned as general contractors for many years and are accustomed to working in this fashion, frequently with hard-dollar contracts.
  • The AIA contract defines contractual arrangements for construction management services only, performed as a consultant to the owner. Because architects and consulting engineers are most familiar with this form of service, the AIA contract is a valid starting point for writing such CMS contracts.
  • The ACEC contract (presently in draft form) defines contractual arrangements for project management services (I.E., AE, SM and CM services) performed as a consultant to the owner. It is suited for use by both architects and consulting engineers.

Project Manager as an Agent for the Owner

As an agent for the owner, the project manager would be legally empowered to contract with suppliers and contractors on behalf of the owner. The project management would then sign procurement and construction contracts in the name of the owner with the owner identified on each document. This procedure would limit the project manager’s risk of being financially caught-in-the-middle if any controversy were to arise. Although this contractual format is somewhat hazardous for the project manager, it is popular with both owners in the private sector who have limited experience in construction and some project managers which are experienced as general contractors.

Project Manager as a Consultant
(or Representative) of the Owner

When serving as a consultant to the owner, the project manager would normally prepare contracts and purchase orders which are then signed by the owner. This way, the project manager would not be involved in the direct contractual relationship between the owner and the vendors or contractors. However, the responsibility for administering the procurement and construction contracts would rest with the project manager, as the authorized representative of the owner. This contractual format is popular with experienced owners who recognize that it is their best interest to participate in the decision-making process. It is also favored by governmental agencies which must award contracts on a competitive basis (i.e., not by negotiation).

Organizing Project Management Services

The project organization, such as that shown on Exhibit B, can be divided into three functional areas of responsibility, as coordinated by the project manager. These responsibilities are those of the design manager, the construction manager and the services manager.

The project manager should maintain the primary owner contact, as well as the overall responsibility for coordination of all project activities both in the design office and in the field office. At IECO, we not only have contracts for complete management services but also have contracts for performing limited services in each of the three separate areas which comprise a project management service (i.e., design management, procurement management and construction management).

The design manager and the design staff perform, or contract to perform, all or part of the architectural and engineering (A&E) design function. A quality assurance (QA) program should be established in the design office, for the reasons outlined in the section that follows. The QA program in the design office should be maintained separate and apart from the QA program in the field.

The services manager and his or her staff provide functional support to the project. As shown on Exhibit B, these functions include scheduling, cost control, procurement, accounting and estimating. On small projects, the services manager’s position may be omitted, with the project manager assuming direct responsibility for these functions.

The construction manager is responsible for all field operations. His or her authority extends through the construction superintendent to the resident engineers, who coordinate the contractors in the daily construction effort. The construction manager’s jurisdiction includes all field services as tabulated in Exhibit A. The construction manager does not normally direct the work of individual construction contractors under a PMS contract. Instead, he or she administers the construction with the individual constructors as an arm of the owner’s organization, to ensure a coordinated work effort which meets all requirements of the construction contracts. It is the construction manager’s function to “coordinate and direct” the constructors in making interface decisions that affect them collectively, however the construction manager should only “assist” each individual constructor within its contracted area of responsibility.

Quality Assurance and the Matrix Organization

A Quality Assurance (QA) program, in both design and construction, is an important component of any management effort. QA is a concept which permits a supervisor to delegate authority while reliably maintaining responsibility for the action of others.

Simply put, QA consists of having two experienced engineers evaluate the same decision from two different perspectives. One perspective is that of the line organization, which is concerned with performing the scope of work within both the project budget and the project schedule. The other perspective is that of the quality assurance staff, which is responsible for ensuring that the project work is adequate to meet each of the following:

  • All contracted commitments (including operational performance),
  • All legal restraints (i.e., building codes, OSHA, NEPA, etc.),
  • All criteria established for the project, and
  • Good practice (as is common to each trade or discipline involved).

When two competent engineers, one emphasizing quality and the other contractual commitments, can view a particular question and resolve it to their mutual satisfaction, the resulting decision should prove to be satisfactory. This is not to say that the decision will always prove to be optimal or that it will even prove to be correct in every instance. However, the QA procedure will provide each supervisor with a statistical assurance that of the myriad of decisions being made by his subordinates, those that do gain QA concurrence are less likely to need reversal. In addition, he or she is assured that those decisions which do not gain QA concurrence will be promptly identified for attention.

In order to reduce the time required to identify disputes, as well as the severity of those disputes, QA staff should be continually involved in the decisionmaking process at all levels of the project. Milestone reviews after the production work of the line organization has been completed will invariably lead to dissension.

QA in the Design Office: Although the QA function is depicted on Exhibit B for both design and construction, a hierarchical chart cannot portray the dual accountability of line and staff engineers as can one which is in matrix format. An organizational matrix chart for the design team is presented on Exhibit E.

This chart shows that in the event of professional disagreements based upon differences in judgment at any level of the design organization, lines of appeal are available to both the chief engineer and the project manager. Each member of the organizational matrix is shown to have a dual accountability, as well as a concurrent responsibility to keep both of his immediate supervisors informed.

Dual accountability should never result in a disruption of project responsibility. All parties are responsible for the progress, cost control and quality of the work. However, where line supervisors such as the design manager and the construction manager might frequently emphasize the first two items, the quality assurance staff (i.e., the technical specialists and inspectors) must place emphasis upon quality. It is this difference in perspective, as applied by professionals having complementary experience, which is the basis of a quality assurance program.

A difference in judgment should not be allowed to delay the progress of the work. In such instances, the project should continue as directed by the representative of the line organization, while the staff organization (i.e., the quality assurance representative) negotiates with more senior management to reverse the decisions in question.

QA in the Field: The construction engineer is shown in Exhibit B to be responsible for the staff inspectors who represent the heart of the QA program in the field. It is the inspectors’ responsibility to ensure that all work is performed in strict accordance with the constructors’ contracted duties and the performance requirements of the project .

The construction engineer reports to the construction manager. The construction engineer has a dual responsibility that can best be demonstrated by the matrix format of Exhibit F. By issuing independent reports about the performance of the field work, the construction engineer can alert all parties to potential problem areas and — in the event of professional disputes — lines of appeal are established, up through the project organization to the responsible corporate officer, who is legally responsible for the work.

As with the design organization matrix, this appeal procedure should not disrupt the work in the field. Maintaining planned progress, cost control and quality of the work are the responsibility of every member of the project team. However, where the construction manager might place emphasis on the first two items, the construction engineer and his corps of inspectors would place emphasis upon quality. This difference in perspective is the basis of a quality assurance program in construction.

Value Engineering

Value Engineering (VE) is an important function of the project manager. VE should be used as early in the project development as possible, to develop optimum solutions for those problems which may have a major impact on either the project schedule, project costs or the performance of the completed facility. As optimum solutions can only be obtained by making objective and systematic evaluations between conflicting demands, a VE team must have a multi-disciplinary viewpoint.

In evaluating the options available to resolve a given problem, the VE team should develop comparable cost estimates for the most attractive concepts. on a life-cycle basis. These cost estimates should include not only the present worth of capital costs but also the cost of operations, maintenance, replacement (or salvage value) and other recurring costs that are identifiable.

VE teams should be led by senior personnel who are experienced and objective. The remainder of the team can be comprised of objective experts and project participants, as desired to represent different viewpoints and specialties.

Coordination, Communications and Decision-making

During a fast-track operation a very short response time is available to the project manager for decisionmaking. Therefore communications should be free and open between all supervisors on the project, regardless of level, discipline or location. Supervisors who cannot delegate authority and who insist that the lines of responsibility shown on an organization chart also serve to prescribe lines of communication, will prove to be a detriment to the decision-making process.

The responsibility of subordinate staff members should be to make decisions on matters which they believe themselves to be secure in their judgment, and to routinely inform their supervisors of these decisions. This responsibility should be specifically delegated by each supervisor, with the understanding that the subordinate staff member must promptly consult his supervisor in those decisions upon which he is unsure of his judgment. If a supervisor believes that specific limitations should be imposed on certain types of decisions, these should be defined in advance for each subordinate.

A subordinate should present his or her supervisor with recommended decisions for review rather than presenting questions for resolutions. Decision-making provides the supervisor with the originator’s best thinking. Questions demand considerably more time from everybody.

The speed of communications and the reliability of the decision-making process can be greatly increased by the formation of multidisciplinary project groups, as opposed to working in functional groups (i.e., disciplinary or departmental groups). Just as the laws of magnetism state that an attracting force is inversely proportional to the square of the distance between two bodies, it can be postulated that communications between two people also vary inversely as the square of the distance between them.

The recommendation to form project groups is based upon this hypothesis, as well as the increased difficulty experienced when coordinating “between” functions, as opposed to “within” functions. Within functions, personnel have usually been trained to perform their unidisciplinary tasks and frequently have long-standing working relationships with the functional group leader and technical specialists in their discipline.

However, most unidisciplinary people rarely recognize the many interdisciplinary interfaces across which they must coordinate. In addition, because of the temporary nature of a project group, such communications are frequently between people who have not related together in the past. Hence the recommendation to form unidisciplinary project groups for each component task is based on strengthening the weakest link, that of interdisciplinary coordination.

Reporting Project Performance

The services Manager (SM) and his staff are the focal point for monitoring both the progress and the cost of all aspects of the project. The services manager’s function is to issue timely and concise reports to all supervisors responsible for the design, procurement and construction of the project. Superfluous information is both expensive and disruptive.

A reporting system should fulfill three primary functions, as depicted on Exhibit G in graphic form. This exhibit shows how the reporting system should support the precontract planning of the project (e.g., by providing institutional memory from past projects and by permitting the allocation of resources to component tasks), the dissemination of project restraints to the supervisors responsible for each component task, and the monitoring of the production effort.

A most important feature of the reporting system is the ease with which it can disseminate current project restraints (schedule and budgetary) to the supervisors who can take effective action to implement each component task of the project. It is also important to involve each supervisor in the planning of these restraints so that they can fully understand the scope of work and become committed to implementing the plan of action.

The reporting system also provides a comparison for monitoring the current project plan against the expenditures accrued to date and against an independent estimate of the current status (progress and expenditures) of each element of work. Such comparisons allow each line supervisor down to the lowest supervisorial level, to monitor the work of their subordinates for each component task on the project.

If the reporting system is supported by a computerized, single-entry data base system, designed to integrate progress and cost data throughout the project, the services manager’s reporting responsibility is limited to the dissemination of reports to appropriate project supervisors.

In such cases, the services manager and his staff do not have to collect input data on labor costs, material and equipment procurement status, progress payments, change orders, etc. as would otherwise be required in a batch operation. Instead, these data are entered into the system by authorized line personnel in the design, procurement and construction groups.

Reports should be issued to all supervisors on the project management team and the owner’s staff, as well as to the contracting design and construction contractors, based on need. Most reports should be exception reports which identify deviations from planned schedules and/or budgets. Detailed data, as appropriate, should be made available to each party at remote entry terminals, having video tubes (CRT’s) and/or hardcopy printers.

In a well-designed reporting system, reports to the lowest supervisory level should include specific detail about the operations at that level. The data presented should then be abbreviated in reports to increasingly higher supervisorial levels, each having broader management responsibilities. This results in a hierarchy of cumulative status reports that are brief, yet address the needs of each project and corporate supervisor.

The Owner’s Role in PMS

Just as the owner is dependent upon the recommendations of the project manager to help evaluate its available options, the project manager is dependent upon the owner to continually make prompt and responsible decisions. For project management to be most effective, an atmosphere of understanding and mutual trust must exist between the project manager and the owner. Where this mutual dependence is fully understood by both parties, the decision-making process will be both lucid and smooth.

On many projects the owner will choose to assume responsibility for some of the services listed in Exhibit A as being provided by the project manager. This level of owner involvement is desirable and should be encouraged.

When performing a PMS, the project manager is providing the owner with a foundation upon which to make decisions about capital commitments. Since this feature of being able to make phased commitments, which are supported by the most current and reliable data available, is one of the owner’s prmiary reasons for contracting a Project Management Service, the project manager’s responsibility is to:

  • Idenitify reasonable alternatives,
  • Provide a conceptual (or VE) evaluation of each alternative,
  • Derive recommendations and their supporting reasons, and
  • Provide the owner with these recommendations so that timely decisions can be made, without jeopardizing the project schedule or the project budget.

Such reliance upon one another for prompt decision-making is a prerequisite to successful performance of PMS contracts. Because of this interdependency, IECO discourages the use of guaranteed cost provisions in its contracts. Such provisions tend to place the project manager in an adversary position with respect to the owner, because it is then in the best interest of the owner to seek additional services without additional cost; and it is in the best interest of the project manager to minimize the services in order to maximize profits. Although professionalism should limit these shortcomings, it is best not to start a project with an adversary contract when other alternatives are available.

The two most preferred forms of reimbursement at IECO are cost-plus-fixed-fee (CPFF) and cost-plus-percent-fee (CPPF) contracts (i.e., percent of construction cost or labor cost). In both types of contracts, all reimbursable costs are compensated on a monthly basis, as scheduled in the contract for both direct reimbursable costs and cost items which are included as overhead.

Cost-plus-fixed-fee contracts are considered to be the most equitable terms of remuneration because the owner is assured that the project manager has no incentive, or option, to increase its profit either by extending the time of completion of the work or by increasing the cost of construction. These are also low-risk contracts for the project manager. Although it is working against a budget estimate, with its reputation at stake, it is not liable for any unanticipated cost overruns or delays in progress.

Letting Design and Construction Contracts

One of the first assignments that the project manager should perform is an evaluation of the contract packages which are planned to be let for design, procurement and construction. Each package should be of a size which maximizes competition but still maintains a singular responsibility for component systems. A preselected list of qualified bidders who can perform the work, both technically and financially, should be prepared for each package.

The project manager and the owner must strike a balance between the desire to fast-track design and construction and the desire to avoid the complexity of coordinating a multiplicity of contracts. For example, fast-tracking (compressing the schedule by concurrently performing separable components of critical activities) could be carried to its extreme through the issuance of unidisciplinary trade contracts to construct a complex facility. Many owners and project managers do not wish to be placed in the vulnerable position of having to coordinate the project work to that level of detail.

One way to avoid this situation is to issue general contracts for each separate facility, in design and/or in construction. The ability to fast-track could still be maintained to a high degree by issuing purchase orders for material and equipment (both temporary construction equipment and permanent operating equipment) which have a long lead time, with respect to the timing of their initial usage on the project. The identification of such material and equipment should be high-priority activity of the project manager.

Several variations exist for contracting to perform construction under the direction of the construction superintendent (see Exhibit B). Excluding turnkey construction for the moment, the most flexible arrangement and the one which permits the greatest opportunity to fast-track a project is shown at the bottom of Exhibit H. As noted above, contracting in this manner with trade contractors requires the project manager to assume the responsibility for coordinating all aspects of the interdisciplinary interfaces. This responsibility is fully equivalent to that of a general contractor on construction projects which are bid conventionally.

It is possible to reduce the coordination responsibility of the project manager, but this always results in the sacrificing of fast-track capability. Other variations for letting construction contracts are depicted on Exhibit H, by moving in steps from trade contracts (for each facility), to disciplinary contracts (in which each trade contractor is to perform his specialty on all facilities throughout the project), to general contracts for individual facilities, and finally to a single general contract for the entire project . Each of these contractual arrangements could be awarded through either negotiation or bid, on either a cost-plus or hard-dollar basis.

Another option exists for the gradual increase of fast-track capability. This option also requires a high degree of coordination from the project manager. It is the option to perform turnkey construction. In perspective, turnkey construction can be visualized as another option in providing project management services. Project managers that either have construction capability or can put together an effective joint-venture team have the opportunity to totally coordinate and fast-track a project. Exhibit I presents a recommended organization chart for the field construction forces on a turnkey project. Exhibit I can be contrasted with that portion of Exhibit B shown to be reporting to the construction manager.

Conclusion

In conclusion, it is important to emphasize that project management technology should not be confused with the sophisticated tools and techniques which support the management effort. Too many people think of CPM networks, bar charts, progress reports and cost reports as project management. It is not!

Project management is performing through people. It is the motivating of people to take on responsibility and to relate to one another in an atmosphere of open-communications. This is the only way in which a manager can coordinate and optimize the decisionmaking process. The procedures established by the project manager, verbally or in writing, are frequently the determining factor in the success or failure of a project.

EXHIBIT A

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PROJECT MANAGEMENT ORGANIZATION CHART

EXHIBIT B PROJECT MANAGEMENT ORGANIZATION CHART

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EXHIBIT C

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EXHIBIT D

THE DESIGN ORGANIZATION MATRIX

EXHIBIT E THE DESIGN ORGANIZATION MATRIX

THE CONSTRUCTION ORGANIZATION MATRIX

EXHIBIT F THE CONSTRUCTION ORGANIZATION MATRIX

AN OVERVIEW OF PROJECT MANAGEMENT

EXHIBIT G AN OVERVIEW OF PROJECT MANAGEMENT

C/M CONTRACTING RELATIONSHIPS

EXHIBIT H C/M CONTRACTING RELATIONSHIPS

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EXHIBIT I


* International Engineering Company, Inc.

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.

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