Project management and ICT in the South European AEC small and medium enterprises
Carlo Rafele, Associate Professor, Politecnico di Torino
The South-European Building Industry Context
In the South-European countries, the Real Estate and Building Industries (otherwise called AECI - Architecture, Engineering and Construction Industry -, as a branch of the extended Construction Industry excepting Process Plant Engineering and Infrastructure) are some of the largest economic national drivers. For example, the Italian construction industry in 2002 had an output equivalent to 9% of GDP.
Yet, the South-European AECI is fragmented and unstructured, it has shared financial capabilities, it is compelled to sustain multiple-actor projects and it resides within an opportunity-driven market.
In fact, more than 90% of European AEC firms are small or medium size and a typical construction project consists of many processes carried out by different professionals at different locations. Poor cross-discipline and inter-actor communication are some bottlenecks for performance improvement, and they often re-enforce the confrontational and blaming culture so common in the Construction Industry (Sun & Aouad, 2000).
However, in this situation, the Building Industry faces a number of challenges as: Real Estate market growth; customer increasing value demand; complexity of territorial development; and public works' procedures changes such as project financing general contracting, construction management.
Project Management as Information Integration
Project Management (PM) and Information and Communications Technologies (ICTs) represent a key point to respond to these challenges and a structural investment to enable value, to put into effect production processes, and to decrease project overall costs. In particular, the implementation of a PM oriented organisation together with a Collaborative Information Infrastructure could be a proper solution to drive the actors of the Building Industry towards improvements in efficiency, quality and management.
In fact, since most of the South-European enterprises have to afford small and medium projects and network relationships with customers, contractors, and suppliers, Project Management enhances efficiency if it is able to integrate and communicate project and corporate information.
In this context, where processes are shared between a number of participants, the Project Manager is provided the tools to grant the value of his project, all along its history. Nevertheless, a project managing approach is still not common because of a cultural gap of the construction players and because it is not perceived as useful for small and medium projects: indeed, PM is often perceived as an over cost.
Furthermore, informatics utilization is not performing (more and more information in construction is actually generated in digital form, but, because of a lack of communication standards, electronic information connections between actors and enterprises are still not common) and the selection of useful ICTs for PM supporting is not easy because of their rapid evolution and wide offering.
As a result, the Building Industry is tardily embracing new modi operandi and new technological tools.
Lessons learned from other sectors: reference methodologies
To build up the value of PM with ICTs in the sector, AECI should start from the experiences of other industries (such as Process Plant Engineering), that have successfully adopted organisational cultures according to management methodologies and techniques (Latham, 1994).
One of these management comprehensive methods is the Value Chain (Porter, 1985). The efficiency of a responsible Value Chain permits a firm to reduce its costs and to achieve a better value proposition for its customers. The framework proposed in this paper analyses business activities: in detail, when a company competes in the AECI, it performs a number of interconnected value-creating activities, such as preparing a bid, managing a proposal, erecting a building, or delivering products, and these activities have connection points in suppliers and customers (Porter, 2002).
The Balance Scorecard® (BS) method (Kaplan & Norton, 1996) is also a reference to define the fundamental factors of lasting advantage. The BS approach aims to identify the corporate performance in four main factor areas: customers, internal capabilities, human resources and investments. Similarly, the framework suggested in this paper for AECI usage revamps the scorecard competitive factors in data-handling areas (customers, production, HR organisation and money issues).
The Value Chain and the BS could apply to the heterogeneous network of the South-European Building firms. In fact, the AEC market demands companies to define the activity chain according to net-functional logics: transactions must manage complex processes and knowledge that are chaotically shared among customers, consultants, designers, and suppliers. That is because these reference methodologies permit to understand the role of PM as a main information integrator and value communicator and as well of ICTs to enable communication standards, data sharing and process links.
The “4Ms” integrated information framework
Starting from the mentioned reference methodologies, a framework, called “4Ms pattern”, has been being deployed and set into practice during a research programme conducted by the Politecnico di Torino (Turin, Italy) with the aim to introduce Project Management and ICT tools into some small/medium enterprises of the Italian Building Industry. We summarise its development in the following paragraphs.
A firm can be described as an open information transfer system, where information is generally created and transmitted by messages or documents.
In particular, the AEC projects collect four main functional information areas (Exhibit 1): the project environment (called Market in the following), the products – services or goods- and their production (Material), the organisation provided to reach the project goals (Model) and the economic instances (Money).
We assume the following definitions:
- The Market area is the ensemble of the inputs from customers and competitors, together with the outputs from marketing and proposal management
- Material is the manufacturing and the technical environment of a company, which is composed by its production capacity in term of resources and tools, and by its capability in optimizing projects at low cost, short lead-time and high quality.
- The Organisational Model is the information gathered by the human capital of the business system: it concerns the entire organisation and the human resources management.
- Money information consists of economical and account quantification of activities developed by the other areas.
These four areas strictly derive from the four BS perspectives that are customer (Market), internal/business processes (Material), learning and growth (Model), and financial (Money).
Information coming from these four areas is operated, managed and strategically controlled according to some activity levels. The activity levels define a specific hierarchic structure of task and responsibility distribution in the company, identified in the organisational business centres, like: the projects, the whole enterprise or its business units and the inter-enterprise network of partners and suppliers (Exhibit 1).
These levels can be identified in Strategy, Management and Operations.
- Strategy permits the board to define and control a business model and, by consequence, to assess a competitive advantage; strategy is asked to preside over the entire value system of customers, internal resources, suppliers and stakeholders.
- Management activities allow executives to plan, measure and control sales and production.
- Operation activities allow Project Managers and teams to realise projects, to produce goods and to provide construction services.
Exhibit 1 - Information areas, activity levels as business centres and processes
The role of Project Managers in the information framework
According to these levels, the hierarchic distribution of does not push Project Management activities down to the bottom level of tools and techniques. Quite the contrary, a clear partition of information re-enforces the matrix organisation: the Project Manager is responsible of the full integration of area inputs and outputs.
Thus, Strategy, Management and Operations permit the firm to control the value chain and allow Project Managers to carry out projects. According to this point of view, business processes, such as planning, engineering, procurement, erection or commissioning, are integrating communication flows across the four information areas.
Business processes link the activities of the different areas in an ordered information workflow among actors at different decision levels and they contribute to re-enforce the role of Project Managers.
The PM is the key process for information integration: with a structured aggregation, project information is operated, managed and strategically controlled.
Analysing in detail the single M areas at the three different activity levels, we can identify the following specific tasks (Exhibit 2).
Market Area activities objective is to measure and pursue revenues growth.
- Contract Operations: these activities are required to define the main issues of a contract, to optimise the relation time/costs. A correct deal between the firm and the customer is the key element to plan a project. Otherwise, the contract is the baseline out of which penalties and damages must be paid.
- Customer management: it supports actual and future customer needs and the collection of new orders by the client. These goals are a result of project efficiency and of customer relationship experience and knowledge.
- Marketing Strategy (Positioning): to flourish in this environment, a company has to develop a comprehensive strategic perspective on the role of its services and goods to satisfy the market needs. Once the business goals are well known and competitive positioning is clear, a company acquires new customers by the way of marketing mix activities like institutional communication or public relations.
Material Area activities aim to optimise technical processes and internal capabilities.
- PBS Operations. The project breakdown structure (PBS) allows the project team to define the scope of work and the quality level prescribed by the contract. Thanks to a correct PBS deployment, the single tasks and work packages are analytically known by the operators.
- Production Management. It is represented by the management activities of multi-project execution. Planning, directing and controlling are skills depending by client targets, project typologies, business units and operative approaches.
- Manufacturing strategy. It represents the Research and Development Plan of the firm in regard of technical investments, patents or construction systems.
Model Area organisation aims to optimise internal and external processes.
- OBS Operations. It concerns the operative utilisation of a correct organisation breakdown structure (OBS), in order to assign the work packages to the right resources.
- Organisation Management. The value of a firm is enhanced if responsiveness of business is spread throughout the entire cooperation framework of internal and external processes. Organisation Management has to design the proper organisational model, the main project processes and the set of responsibilities and tools necessary to accomplish single tasks. The Organisation is people: the first asset of a firm is knowledge provided by its human resources that must be managed and kept by a mix of education, internal growth and external recruiting.
- Cooperation Strategy. The Organisational Model is defined by the system of joint ventures, permanent partnerships and by internal or external acquirements of material and resources.
Money Area activities objective is to measure and pursue the profit.
- CBS Operations. The Cost Breakdown Structure (CBS) is asked to measure work package costs, progresses and performances. CBS is the starting point for project cost control as a comparison between budget, actual and earned value.
- Accounting Management. They are the activities of corporate general accounting management that gather all information from any project.
- Financial Strategy. More and more customers demand engineering firms and general contractors to take part of project risks and to diminish its costs. Moreover, AEC firms operate as developers in risk cash-flow conditions. These financial exigencies compel AEC companies to conceive business plans and corporate cash-flow policies.
Exhibit 2 - The 4Ms pattern
Moreover, we do not have to forget a further integration process, concerning the Risk Management (RM) of a project. As known, the risk management highlights the weaknesses of operations all along the project life-cycle time. Thus, it integrates the four tools in the M areas: starting from the analysis of the Contract, the RM tries to solve the criticalities operating on the PBS activities, considering available resources and skills and evaluating the effects on costs (CBS).
The “4Ms pattern” in a Balance Scorecard perspective
The four information areas and the relating activity levels can be conceived in a BS perspective, which means that any activity has its objectives, its actual measures and its targets for the future performance. The Exhibit 3 shows some examples and proposes a general application of the BS to the AEC firms.
As it is known, the corporate performance is generated by the projects, in this sense the “4Ms pattern” grants to project-based AEC firms to define a long-term strategy and a future value creating approach.
Exhibit 3 – The 4Ms pattern in a Balance Scorecard perspective
The “4Ms pattern” in practice
A case study is provided to show the “4Ms pattern” utilisation to introduce both PM and ICTs in a construction firm. We propose the recent development of a medium-size enterprise (ImpresaRosso SpA – Turin, Italy), operating as General Contractor and Developer in the northern and central Italy.
The Politecnico di Torino was asked to define a business model and to deliver ICT tools and organisational techniques able to grant the firm a better exploitation of market opportunities, to conceive a long-term strategy and to optimise traditional Real Estate Development.
The main response to these needs was found in the specific utilisation of the “4Ms pattern”, that required the adoption of several operative and technological initiatives in the four mentioned Areas, as it is exemplified in the following.
For each level of activity, we are going to detail the initiatives undertaken regarding the four areas.
Face to some market opportunities offered by long-term construction & maintenance projects (like Project Financing, late introduced in the Italian context) by the present positive conjuncture of the Property and Real Estate sector, the enterprise decides to conceive a long term value creating strategy. According to this decision, the enterprise defines two business areas: short-term owner development and long-term projects.
This approach is supported by cash flow deriving from incomes by Real Estate Development, which is destined to be utilised for lasting operation financing.
To set out this new long-standing business model, the enterprise needs to partner with other corporations specialised in the property industry, in facility management and in building services, and also with real estate investors.
It needs also a technical effort to conceive engineering in a total cost perspective, in particular the future costs of maintenance, and in providing solutions for future needs.
A PM oriented education is provided to employees together with the design of a matrix organisation. The Project Managers are selected from the commercial staff. Business processes are re-engineered according to the new organisation comprising external consultants, partners and suppliers. Some human resources with financial skills are recruited to support Project Managers in planning the projects characterized by long-term return on investment.
PM tools and techniques are established and standardised in the enterprise to plan, direct and control the projects.
To sustain this operative programme and to enhance its effectiveness, the top management decides to sponsor the introduction of supporting ICT tools to enable the central role of Project Managers as process integrators and information communicators.
Yet, the enterprise is concerned in some opposite issues: on the one hand, it wants to transfer to ICT modes its business processes, in order to reduce the usual lack of cross-communication and integration (i.e. between the project team, the corporate management and the supply chain); on the other hand, it aims to have flexible and slow-but-sure introduction of IT procedures, to grant short implementation lead-time and gradual investments.
Face to those needs, the project and corporate communication and integration is assigned to a web-based Collaborative Process or Workflow Management System (WMS). According the “4Ms pattern” description, the WMS is asked to define and manage the business process as an ordered information flow across the four areas and between the actors at the different activity levels. Thanks to WMS, project managers and users are able to operate in their project dedicated sections, share documents (as attached files), exchange information in real-time, track revision history, validate and approve data and documents according to the process paths set up in the apposite administration forms. The WMS establishes a correct environment for ISO 9000 and Total Quality Management compliance.
The WMS is a messaging and workgroup tool (a web-based documental database), which becomes the exchange bus of all information created in the four M areas, using different specialised SW applications (word processing, accounting databases, CAD systems). It does not only grant a flexible, contained infrastructure, able to collect non-standardised information, but also it facilitates modular introduction of different software to accomplish single tasks and it enables an adaptive approach that does not require a main frame ICT implementation project, but it starts from the available tools to soon lay hands on an exploitable solution.
Once project teams are provided a WMS for multiple-project data integration and on-line communication, Project Managers are supplied of: an operative Project Planner software connected to the current-utilised Accounting Management System, a standard WP library database, and a new Business Planning Tool. These new SW applications, together with the existing ones, are considered the first pieces of the variety of applications destined to fulfil the 4Ms functionalities inside the firm.
The enterprise has been obtaining several benefits from the mentioned initiatives (the following results may be compared with the BS pattern of measures and drivers of future performance in Exhibit 3).
Market perspective. The firm has registered a growth of total revenues in the last year of about 15%, thanks to short-term development operations. What is encouraging is that long-term projects allow to forecast in the next 15 years a total income amount equivalent to 30-35% of actual revenues. Furthermore, construction services are more and more requested: in 2002 the firm started up 5 long-term building projects in the field of healthcare, car park, commerce, logistics. Budget cash flow is being respected in its first step thanks to a time for project completion attendance of about 90%.
Material perspective. The firm has registered a total project cost decrease by 2%, while design and engineering costs reduced by 6%, thanks to the effort in standardising work packages and operative construction solutions for different project typologies.
Model perspective. The firm has established a number of partnerships with investors and service maintenance providers, to grant a lasting and cost-effective exploitation of its finished building works. The partners have been invited to share the ICT infrastructure utilised by the enterprise. The total expenses to sponsor a PM oriented organisation, a business process reengineering and some educational services, are satisfying all level employees and are creating an environment for continuous HR improvement.
Money perspective. The total net equity internal rate of return is now nearby 9% and, as a summary of all scorecard indicators and drivers, it is expected to get to 11% in the next 15 years.
The “4Ms pattern” in progress
As a conclusive consequence, we may observe that the “4Ms pattern” could also provide a decision support to implement a collaborative information exchange infrastructure in an AEC firm. An ICT strategy is meant to individuate the tools needed to accomplish activity levels and business processes. That is because the “4Ms pattern” permits to focus on a framework of software solutions. Let us show it in details.
Market information can be generated and managed thanks to Customer Relationship Management (CRM) solutions. CRM permits to capture and integrate information from the customers, to create customer segments, to divest unprofitable customers by using methods such as reducing services or raising prices, to generate opportunities for revenues growth along with decreasing costs for new client acquisitions.
Material Area information can be delivered by Product Data Management (PDM), such as relation databases and data warehouse or specific calculation data-mining applications regarding production and engineering. PDM solutions permit to record new and changed data, to grant a reduced time-to-market, a design and variation productivity improvement.
Model information can be created and managed thanks to Supply Chain Management (SCM) transactional databases that rely project and corporate actors from suppliers to shareholders.
Money information can be produced and managed by Finance & Accounting Management (FAM) applications that permit to input ordinary accounting and cost controlling. They monitor performance, control investments, individualise cost centres, grant a real-time economic feedback on project progress.
The work is still in progress and it shows an information pattern that aims to order the organisational management in the field of de-structured projects, like the Construction Industry ones. The first results indicate that there is a wide necessity to reorganize the processes, clarifying hierarchic and logic relations inside the firm.
Furthermore, the identification of some basic ICT tools could drive the human resources, operating on the projects, towards a correct information and knowledge management.
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