Why Project Controls ?

Every year, organizations around the world exceed their budget on large-scale construction projects – and count themselves lucky. The unlucky pay this premium and still struggle with late and/or incomplete delivery that costs them significantly more in terms of ROI, speed-to-market, and other strategic metrics. These losses are due to a combination of lack of project visibility and agency risk. A Project Controls Framework is the set of protocols, processes and systems that addresses these problems.

Lack of Project Visibility

At the start of a construction project, the owner organization has a strategic goal and a budget. At the end of project, the organization has a completed asset and a depleted budget. What happens in the middle is not always clear enough quickly enough to allow the owner to mitigate risks and achieve savings effectively. That's not just because the owner does not know construction. It is also a result of the dynamic nature of market and environment conditions and their effects on construction projects. To quote Moltke the Elder, "No battle plan survives contact with the enemy."

Construction Management, Engineering and Construction firms typically make hundreds or thousands of adjustments in order to complete a project. Unfortunately the volume of the data that these changes generate makes it impossible to sort and filter through to focus on the ones that make the most impact. In addition, the data received typically consists of invoices and actualized schedules, which represent past changes. With such data, owner's and construction managers cannot make strategic decisions about the course of a project, identify risks to address or streamline the project. The best they can do is to learn how much they have to pay that month.

Agency Risk In Construction Services

Agency risk (also known as agency cost) arises from the fact that the business objectives of the construction services provider are not the same as those of the owner organization. A provider's objective is to maximize its profits within the contract it has with the owner. However, the owner's basic objective is to minimize cost and time to build its facility to reduce its capital investment and start its revenue generation as soon as possible so as to maximize its return on capital investment. Based on the purpose of the facility, owner's objectives can be far more complex than this. For example a pharmaceutical company has to manage integration of drug release with marketing campaign, full monetization of the patent period, and a high degree of product quality control in parallel to its plant construction. An independent power producer has to fulfill its power purchase agreement obligations and complete its power plant as soon as possible to start generating revenue. A wireless network operator has to build a certain number of cell sites within a certain timeframe and budget to meet its yearly coverage and revenue generation goals, and to support the launch of its next generation products. A public transportation utility has to make sure that its funding is spent in compliance with its grants, and that the facility is built in accordance with the requirements of the day service will start. While the project plan is based on the client's objectives, on-the-fly adjustments are made by the contractor, construction manager, and engineer, usually in accordance with their own objectives. For example, a change can be accommodated by compromising time, cost or scope. It is just natural that each party will differ in approach because they have different goals. A Project Controls Framework can reduce Agency Risk when designed around owner's goals and objectives by experienced professionals.

Impact

In today's construction market, on a $100M/year construction program, overruns may average over $10M/year. During a new drug's exclusivity period, a three-month construction delay can cost over a billion dollars in un-recoverable revenue. Delays in completion of an airport expansion have ripple effects on economic activity in the region served by that airport estimated in the millions of dollar per day. There is virtually no limit to the potential economic, reputation and liability cost associated with sub-standard construction. With such staggering amounts at stake, client organizations have to empower themselves to address such project delivery variances. They do so by implementing a Project Controls Framework.