Project management challenges in the 1980s

a proposal

Bechtel Corporation

One of the important Bechtel group activities is an annual meeting that provides an opportunity for the Board of Directors and a cross section of Bechtel employees to discuss issues of mutual interest. This year a group of project managers presented a panel discussion dealing with the challenges and problems we face on projects as we enter the 1980s.

The panel did, I believe, an excellent job of presenting the subject and, very frankly, my remarks tonight are taken directly from their material. I intend to touch upon the diverse nature of project management tasks because of the diverse nature of the projects facing us in the future and the growing impact that the project environment is having on our work. Then I will focus on three areas that are the source of many of the challenges facing contemporary projects —namely, the client, the project team, and the need for results that sharpen our competitive edge.

The diverse nature of the projects undertaken by our organization creates real challenges for our professional project managers. Add to that the continually changing state-of-the-art in many of the technologies involved. Mega-projects, involving billions of dollars, thousands of people, and many years of duration, are common on our scene. At the same time, there is a growing activity in smaller, more compact and less costly projects brought on in an effort to cope with soaring financing costs, long lead times, and uncertainty in the economic outlook.

The change in this matter in the utility undustry is fairly recent. In 1978, almost half of the units ordered were larger than 650 MW. Last year not one of the fossilfueled boilers ordered was larger than 650 MW and half were under 450 MW.

Gulf States Utilities’ thinking illustrates the current trend toward smaller generating units. They are presently considering the construction of five 300-MW steam electric generating units. These units, to be fired by lignite from nearby mines, would be half the size of coalfired units now being completed by that company. To Gulf States, a key advantage is that smaller plants can be standardized, reducing engineering costs. They figure that standardizing on smaller units will reduce per unit lead time from six to three years and trim financing costs by as much as one third. Smaller units are more easily timed to fit the changing demand curve and have fewer technological risks.

I am sure that I do not need to tell the people in this room tonight that sociopolitical trends are significantly effecting the management of today's projects. Evidence of such influence is seen in the proliferation of governmental regulations, the unwillingness of the public to endorse new projects, and the law suit-prone nature of society which substantially increases our liability risks —even in the most routine dealings with clients.

The growing web of regulations is a serious threat to our economy in general and to the engineering and construction industry specifically. It is a present-day phenomenon that threatens to strangle our vital free market system.

In a recent talk at the Purdue University School of Engineering, Steve Bechtel, Jr. addressed this problem at some length. He expressed concern about the rampant overregulation resulting from the widespread tendency today to overprotect people, places, and things in our society. It is not a concern arising from reasonable safeguards that conscientious individuals recognize as necessary in terms of safety, environmental protection, and resource utilization. It issues, rather, from this trend toward overprotection. The subsequent surfeit of regulations, in turn, causes waste and cost increases that grossly compound our economic problems, not the least of which is inflation.

Overregulation limits our individual freedom of choice and personal liberties.

One of the most damaging consequences of overregulation is added expense. The total bill for regulation in this country has been estimated at about $100 billion annually. It may be well in excess of that amount, perhaps as much as 10% of the United States Gross National Product. Significantly, one company estimates that about 45% of its recent regulatory costs were excessive or at least questionable.

Streamlining and making the regulatory process more realistic and responsible is indeed one of the most important national agenda items for the 1980s. We could very easily spend the rest of my alloted time on that subject.

Instead, I am going to go on to some of the other challenges that confront project management in the engineering-construction industry.

CLIENT CONSIDERATIONS

Our primary consideration on a project is the client and thus, we must be constantly aware of client pressures, organizational influences, and the degree of client involvement in our work.

Clients are faced with multiple pressures; from governmental agencies, the public, and the financial community. All of these are generally transferred directly to the projects. Inflation not only increases the overall cost of the project but also affects internal economic trade-offs.

The makeup of the client organization and the dynamics of that organization directly affect the project and its management. The degree of understanding of project management systems (in our case a matrix management), client experience, and the delegation of authority in multi-owner projects all combine to make each project a unique challenge, demanding variations in management style.

The sophistication and experience of the client organization are determining factors in his participation in project activities. Perhaps even more important in defining the degree of client involvement is the extent to which the client wishes to direct activities and to fit the project team into place in the total organization.

In fact, the approach to major project engineering and construction by owner management is undergoing significant change for a variety of reasons.

There is clear evidence that this change has been stimulated by cost overruns and schedule slippages which have resulted in increasing owner dissatisfaction with overall project performance; a recognition by the A/E and constructor that project management effectiveness must be improved; and increased concern of regulatory agencies, special interest groups, and the general public about the impact of construction costs on product costs.

At this point, it might be helpful to trace the evolution of the changing approach toward management of major construction projects within the utility industry.

Looking back to the 1960s and earlier, one sees that electric utilities typically engaged A/Es and constructors to carry out turnkey projects; the utility defined overall policy, identified design concepts, and set basic project guidelines. However, the utility often had minimum direct participation in the management of the project, relying, rather, on executive management interface with the A/E and constructor, and project engineer direction of the engineering and construction tasks. The utility staff responsible for overseeing project activity usually consisted of five or six individuals who were normally technically- rather than management-oriented. Historically, this approach had been satisfactory for utilities because the regulatory impact on construction projects was relatively minor; technical and construction performance was fairly predictable; construction completion within cost and schedule budgets was the rule rather than the exception; and finally, since new plants frequently resulted in lower operating costs, the impact on rates was typically favorable, sometimes even permitting rate reductions.

In the past ten years, the environment in which power plant construction projects have been carried out has become increasingly complex. The more active regulatory process and the lack of predictability, both regulatory and technological, of power plant construction projects demand greater utility involvement in project management. The unsatisfactory project performance which often results from the earlier turnkey approach is increasingly evident and the subject of much criticism. Thus, the approach has generally become unacceptable to utility management, the regulatory agencies, and the public.

In response to the more demanding environment and to unsatisfactory project performance, the electric utility industry has established a trend toward active participation in managing construction projects. This more active utility role has taken one of three forms.

The first alternative involves establishing a project management team to actively monitor the performance of the A/E and constructor. The team directly manages the resources employed to design and construct the plant. This approach normally requires a project management team of between 25 and 100 with both management and technical skills.

The next approach has been to integrate the utility project management with the A/E and constructor management groups. Under this arrangement, utility managers play an active role in the day-to-day supervision of engineering and/or construction work. An even higher level of technical and managerial skills is needed by the utility's project management team. The size of the utility project management group varies widely depending on the degree of integration and project characteristics; however, the size is often 1-1/2 to 3 times larger than required in the first alternative.

Finally, a few utilities have established in-house groups to perform the work normally performed by the A/E and constructors. These utilities typically have major ongoing construction projects; thus, this approach is found most often in large utilities. A total work force of several hundred or even thousands may be required, and a full range of both managerial and technical skills is needed.

In summary, the methods normally found in the utility industry for managing power plant construction projects can be categorized into the following basic approaches: project engineering, project management, integrated project management, and in-house capabilities.

Respectively, each alternative provides a greater role for the utility and requires a larger and more highly skilled utility staff in both the technical and managerial aspects of power plant construction.

What is true for utilities in managing projects is true for industry in general. The trend is toward a more active role by companies in the management of their projects. Normally, these days, a company will employ a large engineer/ constructor firm as the A/E and prime constructor. The selected firm will be responsible for most of the work required to complete the design engineering, procure materials, and perform construction. This allows the client's project management group to focus on implementing the overall project policies, guidelines, and design concepts; maintain clear visibility over project status; and initiate corrective action as needed.

A by-product of this tremendous growth in client participation is an increasing need for objective review of project progress. Clients are especially concerned about monitoring progress because of the need to keep management informed; report requirements to regulatory agencies and; observe cash flow management criteria.

Key to maintaining visibility over project status is a Project Management Information System which provides periodic reports on major project activities to senior management.

The system is designed to continually monitor progress of the design, procurement, construction, and startup of a large construction project.

A preliminary objective of the system is to accumulate, in an auditable form and on an ongoing basis the actual costs of: the project, each retirement unit of the property, and components of the project financed with revenue bond funds as opposed to those financed by other means.

Another function of the system is to periodically report project cost and schedule variances; probable project cost when completed; changes in the planned date of resource availability; and experience and trends in labor productivity.

In addition, the system produces the detailed information necessary for preparing cost estimates of future projects and resolving contract adjustments for scope changes on the project in progress.

Finally, not only does such an information system present project information in a style easily understood by all levels of owner personnel, but it does so without upsetting an acceptable benefit/cost ratio.

A last issue under client considerations is that of promoting good client relationships. Open communication, of both a formal and informal nature, will create credibility in all segments of the project and client team.

PROJECT TEAM CONSIDERATIONS

Moving on now to the second major concern of project management in the 80s, let us look to the project team.

The project team is a service oriented group requiring expert organization, strong leadership, and the continuous support of senior management.

The successful project team is built around a sound communications network. Internal to projects, there is a constant need for staff and forecast meetings to plan and implement project activities and, then, to monitor progress.

Externally, the trend is toward frequent dialogue with the client. Project costs and schedules, quality of work, and the myriad of problems that inevitably arise demand continual communications between the client and the engineer-constructor management.

In the same way, advisory and developmental communications between the project team and senior management provide added support and help to assure project success as well as client satisfaction.

More than ever today, the selection of an experienced staff is vital to an effective team. Economic conditions, government regulations, and environmental demands necessitate a higher level of expertise than on projects of the past. Advanced technology has introduced extremely complicated techniques for project control and administration. What's more, due to longer, more complex projects, staff rotation is essential to provide for personal growth and advancement, and to breathe new life into a project.

Selection of the project manager is as important as the appointment of a capable staff. His is a multi-faceted task as complex as the project itself. It requires considerable experience in handling the problems associated with a major construction project as well as the leadership qualities to act on this experience. Reliability and the will to strive for desired results are prerequisites when considering project manager candidates.

Ongoing training and education is necessary to maintain a quality project management team. Formal training is offered increasingly through continuing education-type programs, both within the engineer-constructor organization and outside of it. Informal, on-the-job training exists for project managers as for any employee and will continue. The availability of management representatives for advisory purposes, in these instances, can be especially valuable. In this same vein, use of the assistant project managers will serve a dual function by permitting the project manager to concentrate on the most pressing matters while simultaneously grooming potential project managers for the future.

Finally, the trend is toward growing project manager mobility. His place is where the action is. In other words, the project manager must find a balance between client and management contact, all the while remaining available on location, within reach of project activity.

COMPETITIVENESS

That brings me to the third major source of challenge to project management in the new decade —competitiveness. In order for the engineer-constructor to be competitive in the long run, the project team must accomplish three things: meet the quality, cost and schedule goals of the project; ensure a reasonable profit; and satisfy the client.

It should be noted that accomplishing two out of three of these objectives does not denote success. For even if the client is apparently satisfied and quality and schedule goals are met, if costs have not been controlled and a profit not secured, the long-range competitive goal will not be met.

Critical to achieving these objectives is the development of an integrated, project plan which includes the scope, cost, and an integrated schedule for the project. It is essential that the project team be committed to the timely implementation of this plan. Once we have project team commitment, successful implementation consists of convincing the client and the vendors what is best for the project.

Having established and then implemented a project plan, it is imperative to track performance and take corrective action whenever necessary. A current trend in project management sees the use of computerized integrated project schedules for rapid identification of project status and options. This is in answer to growing client demands for more sophisticated and objective tools to track project progress.

These sophisticated control techniques are also effective in monitoring other aspects of a project, such as adjustments to the size of the work force, construction equipment needs, financing, cash flow, and contract changes.

A discussion of project management would not be complete without stressing the importance of managing the influence of external change on project activities. Change comes at a project from every direction —from government, clients, suppliers, and from the engineerconstructor. Therefore, change must be anticipated and controlled so that the project can proceed without constant interruption and according to a carefully planned schedule.

Project management is a risk-taking business. It is a constant challenge to analyze these risks and forecast their effects on manpower requirements, on costs, and on the schedule so as to ensure both successful project completion and client satisfaction.

I find that the bottom line in successful and effective project management is simply not tolerating failure. We —the project managers— must demand high performance if we are to maintain quality output and secure the trust and respect of our clients.

Looking back at the challenges and problems, it seems to me that there are a number of things we should be doing.

First of all, there is a need for high-level training, particularly in the areas of financing and advanced technology. We must establish a systematic selection and development of project management candidates.

Secondly, the engineer-constructor should seek to define more completely the role of the assistant project manager so as to make full use of his support capabilities. At the same time, of course, we will be preparing the assistant project manager to assume future assignments as a qualified project manager.

Next, I would encourage the integration of work schedules. The ultimate asset to project planning would be the ability to calculate impact of any actual or proposed change in the project plan. Through continued development of automated systems for integrating engineering, procurement construction, and startup schedules, we can enhance this forecast capability and provide for the timely and effective response to changes.

Sophisticated systems are also in order for the detailed measurement of cost and schedule performance as well as variance reporting. Clients are no longer satisfied with simple summary status reports. They demand a system that will rapidly measure progress versus plan for each defined segment of a project.

I see vital need, as well, for better control and identification of design changes. Managing change is a key factor in a successful project. Project managers must share their experience in this area so that we might improve techniques for controlling changes in the scope of the project.

Another area of prime concern is monitoring rework. As clients become more involved in the details of a project, they tend to follow rework more closely and demand justification for the cost of changes. It is important that the engineer-constructor develop a system which, on the one hand, protects his own interests and, on the other, provides useful information for monitoring project performance.

Another step that might enhance project performance involves the establishment of performance-oriented fee bases. In such cases, the project team is given an incentive for controlling both the cost and quality of the work.

CONCLUSION

It would appear that the management of complexity, both technical and sociopolitical, will be the primary problem for most industries in the 1980s. A new breed of executive will be needed to deal with the problems arising from the changing rules of the game.

Executives of the 1980s will have less time to adapt to changes, and they will be subject to greater penalties for their mistakes. To react quickly and effectively, they will need a combination of technical, business, and sociopolitical expertise nourished by a continuous dialogue with other managers and specialists from a wide variety of disciplines within the firm. They will have to work well with others.

At the same time, their motivation will become more tied to personal fulfillment as well as to the corporate good. Executives will expect to grow and learn in a corporation.

Hard decisions lie ahead for all executives as they guide their companies through a changing business environment. The only certainty is that executive wisdom, ingenuity, and fortitude will be put to the test in what promises to be a most challenging decade

ASA PMS

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Precedence Networks for Project Planning and Control

by P. J. Burman

  • First book to treat precedence networks in depth.
  • A general guide to project planning and control dealing with time, cost and resources.
  • Cumulative exercises for use as a textbook or selfinstruction.
  • An excellent reference for experienced project managers.
  • Costs of implementation of network methods, including estimation of when to use manual and when to use computer analysis.
  • Contents: Introduction to project planning and control methods; precedence network development; precedence network scheduling; multi-level and sectionalized networks; bar charts; project budgeting; use of computers for network analysis; project control; implementation of network methods; comparisons with “PERT” and “CPM.”

Peter Burman, born in South Africa, holds a MSc in mining engineering from the University of Witwatersrand. He has been a project management consultant with Project Administration Technique (Pty) Ltd. in Pretoria, South Africa.

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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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