Project Management Institute

Part III -- Some Independent Views

Organizational Behavior Effects

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The purpose of this section is to present independent observations by persons having no direct interest in this particular incident or the specific professions involved. The objective of these articles is to bring attention to theoretical concepts and alternatives relevant to the incident and the Commissioner’s recommendations. These ideas are presented to stimulate further thinking relative to certain aspects of these recommendations.

The opinions expressed are those of the authors based solely on the Commissioner’s report and on an in depth knowledge of theory and practice in the respective areas. Each of the concepts are in fact practiced in some industries or organizations.

The purpose of this article is to analyze some of the commission’s recommendations and their implications for the future operations of project organizations. Of specific concern are the potential impacts on organizational effectiveness and the project organization’s ability to maintain the flexibility necessary to adapt to a dynamic and changing environment.

APPLICATION OF ETHICAL STANDARDS

One of the more interesting aspects of the report is the commission’s focus on attempting to adjudicate the activities of all parties involved in new construction except the owners of the buildings. The report rightly points out that owners “who erect buildings on their own land have legal responsibilities to ensure they are structurally safe” (pg. 41). The report then discusses three new practices that have been emerging in the construction industry over the last few years:

  • Fast-tracking - Beginning actual construction before the design itself is completed. In an effort to save time and money, some projects get under way with only the general layouts completed.
  • Bidding for Professional Services - Owners are increasingly calling for competitive bids from engineering firms. This increased competition has driven down fees and, potentially, the quality of professional services in structural analysis.
  • Fragmentation of Activities - Because of all the parties involved in construction projects and the high level of sub-contracting used, there is a very real blurring of lines of authority and responsibility for specific construction activities.

The report concludes (rightly, in my opinion) that these pressures have had a significant impact on the construction industry and are potentially dangerous for structural safety. However, in discussing the role owners should play in construction safety, the report dodges the central questions of their specific culpability by throwing responsibility for maintaining standards of ethical behavior back into the laps of the professional groups, including architects and engineers. Because, the report contends, owners are not governed by standards of ethical practices and are not a clearly defined group in the community, there is no need to attempt to regulate their activities.

This series of conclusions and qualifications as to the exact responsibilities of building owners raises a number of very real concerns from an organizational theory perspective. The most obvious concern with the commission’s conclusions lies in the fact that professional groups, such as architects and engineers, are engaged on a contractual basis by owners who, implicitly or explicitly, determine the standards of behavior expected from these professional groups. To illustrate, consider the owner’s practice of encouraging competitive bidding for services. In the interest of maintaining adequate profit margins, there is a strong potential for the organization which wins a contract as the lowest bidder to offer a less costly and less rigorous performance of their services.

In initially offering this recommendation, the commissioner needed to be aware of an important principal of organizational theory, namely, that organizational adaptation and the development and perpetuation of new services occur as the result of external demands; in this case, the demands of the building’s owners. The commission would have done well to consider this point. To say that professional organizations should be governed by standards of ethical practices is correct and fair. To suggest that their employers, those who contract for the professional’s services and pay their fees, should not be held to a similar level of ethical behavior is a short-sighted and highly questionable conclusion.

RESPONSIBILITIES OF PROFESSIONAL FIRMS

A second recommendation of the commission that has serious and, I suspect, unconsidered implications for project organizations suggests that in addition to the ethical standards required of individuals, companies should face deregistration for unethical or incompetent practice. In effect, rather than punishing the unethical individual within the company, professional firms should be required, through the threat of deregistration, to regulate the behavior of their members.

This recommendation has the advantage of ensuring that firms adopt company-wide standards of ethical behavior and, further, that they regulate and police themselves. A possible disadvantage (from the point of the architectural or engineering firm) lies in the strong potential for over reactions (beyond good engineering practice) resulting in significantly increased lead times required for the completion of activities by professional groups. To illustrate, as a result of this commission recommendation, many firms would find it prudent to install committees of review for every piece of contracted work performed by members of the company. Rapid turnaround of designs and specification checks, so important to many developers and building owners, would be largely impossible under the new approach.

CREATION OF A MANUAL OF CONSTRUCTION PRACTICES

A final recommendation of note has to do with the practices and procedures engaged in by construction firms. The commission report points out that because of the “fragmentation” discussed above, lines of authority and responsibility tend to blur, with the result that contractors and engineers are responsible for the work of others, often without guaranteeing adequate checks of the quality of materials provided and the construction performed. As a result of the problems inherent in fragmentation, the commission report suggests the creation of a manual of recommended construction procedures and practices. The intent of the manual would be, in effect, to standardize the activities of the various sub-contracted groups and make clear the lines of authority and responsibility for all activities.

This recommendation has the benefit of ensuring that there is little likelihood that minor, sub-contracted work can “fall through the cracks. ” That is, by maintaining performance specification standards and clear lines of responsibility, it is unlikely that different project groups will be unaware of their responsibilities and the activities of other group-a major contributing factor in the Station Square collapse.

From an organizational perspective, one implication of this recommendation for creating a manual of standard practices is the potential impact on the professional commitment levels of a project organization’s members. Standardization, as a practice, is a well-recognized means of regulating the behavior of the organization and its members. For years, bureaucracies have been set up on the principle that behavior can and should be regulated as a means of ensuring that activities are standard, uniform, and predictable. The major drawback of the bureaucratic approach has been the consistent finding that when rules and procedures are established to regulate operating decisions, there tends to result a concomitant over-reliance on the use of these procedures for every situation, no matter how inappropriate. Standardization eliminates accountability, thus reducing an organizational member’s professional commitment to a project.

A second potential drawback lies in the use of standardized practices in a rapidly changing environment. The obvious implication of the development of a set of standard practices is to decrease the flexibility of the organization to respond to external threats and opportunities, particularly in addressing innovative or non-traditional projects. The manual has never been created that anticipated future changes or allowed project managers to consider new or different approaches to performing their job. It is a pity that the commission did not consider the implications of this recommendation for the long-term viability of project organizations.

In anticipating the potential impact of increased bureaucratic controls on project organizations, the commission would have done well to consider the events transpiring in several of the “Eastern Bloc” countries, including the Soviet Union. The world is currently witnessing the collapse of the bureaucratic model—with its emphasis on centrality of control and standardization- fueled by its failure to allow for innovation and change in response to external forces. Historically, bureaucracies have proven incapable of anticipating or even keeping up with changes in the company’s external environment.

I wish to make clear that there are some advantages to the development of a standardized manual for construction procedures. The commission makes a strong case for the potentially adverse effects resulting from the fragmentation of the construction industry. A manual of procedures could, at the very least, define the lines of authority and responsibility for the various subcontractors. The commission needs to be aware, however, that an over-emphasis on the creation of a manual of construction practices represents a short-term quick fix at the expense of long-term solutions. Certainly, it is desirable to standardize those activities which require “sign-offs” from appropriate professional individuals (engineers, architects, etc.). On the other hand, over-reliance on the use of standardization in all aspects of construction practices is potentially damaging to the long-term viability of construction organizations through discouraging innovation and adaptability.

IN SUMMARY

The commission of inquiry has performed a complex task in a generally thorough manner. They have proposed several recommendations for improving the operations of professional and construction firms in an effort to ensure that disasters like the Station Square collapse do not happen again. It is unfortunate that, in performing their tasks, the commission did not see the usefulness in consulting individuals who could have offered advice on the potential impact of their recommendations on project organizations. The commission needed to be made aware that the specific recommendations they have proposed have important implications for the organizations and their ability to adapt and operate in a dynamic and changing workplace. This section was intended to offer an organization theory perpective on the findings of the commission of inquiry, in effect, to make the commission aware that suggestions offered to improve specific aspects of construction firms’ operations may have added undesirable side effects that the commission has not considered and project organizations are currently not in the position to address.

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The Inquiry Commissioner quite correctly focused recommendations on improving the safety of the product of a project. The purpose of this portion of the examination of the incident and the subsequent recommendations is to clarify the opportunities for managing the overall quality, including safety, of the product of a project in light of recent developments in quality management in industry in general.

MODERN QUALITY MANAGEMENT

The management of quality has been. for the last decade, one of the most dynamic areas of concern in many industries. In volume production industries. the relevant measure of defects has changed from percent (parts per hundred) to ppm (parts per million). The “costs of quality” have been reduced from 15 cents to only 3 cents out of every sales dollar. These statistics can easily be misunderstood because the “costs of quality”, or really the costs associated with trying to achieve quality have changed dramatically during the decade. While we have traditionally accounted for only those costs associated with quality control, the “costs of quality” is a much broader concept today resulting in magnitudes which are startling at the least. The above numbers seem small when expressed in cents but when seen as $15 million out of a $100 million project, the magnitude of the Station Square development, it is easily seen as potentially greater than the profit from such a job. Thus, not only must the objective of the Inquiry be to ensure the safety of the public but to also permit the realization of the savings available from the approaches of modern quality management (MQM).

It is necessary to recognize exactly how such savings are realized in company after company in the volume production industries to understand how it can be achieved in project oriented endeavors. There are four basic costs of quality—internal failure, external failure, appraisal, and prevention.

The failure costs include costs of correcting defects during the project, as well as, after project completion. The costs of prevention and appraisal include quality control and inspection but go beyond conventional concepts of even these areas.

Under the classical approach to quality, failure costs have typically been 80% of total quality costs, about equal between internal and external. By this experience then, these could have been a total of about $12 million for Station Square. Appraisal and prevention have accounted for about 10% each, or perhaps $3 million for this development. After complete installation of MQM, experience has shown that the total amount spent for appraisal and prevention is actually reduced somewhat but the failure costs are reduced dramatically. Thus, it is conceivable that quality costs might have been as little as $3 million, a savings of $12 million on this project.

The definition of quality has changed from “fitness for use” to “conformance to requirements/specificstions.” The rationale for this is well documented in “A Case History” in Chapter 4 of Quality is Free [1, pp. 41-49]. The implications of this change are somewhat more subtle, however, and require more consideration than is appropriate in this article. Some essential concepts of MQM are that

  • Quality cannot be inspected into a product, it must be designed in.

l To achieve quality output, attention must be focused on the process, i.e., process control, and generally statistical process control.

l The standard for quality is zero defects. To expect less is to ensure that less will be achieved.

 

To control the process then it is necessary to focus on the process using a systems view. The systems view is

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.

February 1990

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