Global megaprojects are notorious for missing deadlines, budgets and risk metrics.
Megaprojects are projects that exceed $1 billion US and their construction records are typically abysmal. According to a McKinsey study, “… the industry does poorly completing megaprojects on time, on budget, and to specifications.”
Furthermore, the study shows that “98% of projects incur cost overruns or delays, the average cost increase is 80% of original value and the average slippage is 20 months behind original schedule.”
According to the McKinsey study, since 1995 when productivity was virtually the same in the manufacturing and construction sectors at $65kUS per worker, manufacturing in 2012 was 1.7 times greater in 2005 constant dollars.
The study outlines that, “A variety of factors account for poor productivity and cost outcomes. Among them are the following:
- Poor organization. Decision-making and procurement processes do not have the speed and scale required.
- Inadequate communication. Inconsistencies in reporting mean that subcontractors, contractors, and owners do not have a common understanding of how the project is faring at any given time.
- Flawed performance management. Unresolved issues stack up because of lack of communication and accountability.
- Contractual misunderstandings. The procurement team typically negotiates the contract, and this is almost always dense and complicated. When a problem comes up, project managers may not understand how to proceed.
- Missed connections. There are different levels of planning, from high-end preparation to day-by-day programs. If the daily work is not finished, schedulers need to know—but often don’t—so that they can update priorities in real time.
- Poor short-term planning. Companies are generally good at understanding what needs to happen in the next two to three months, but not nearly so much at grasping the next week or two. The result is that necessary equipment may not be in place.
- Insufficient risk management. Long-term risks get considerable consideration; the kinds that crop up on the job not nearly as much.
- Limited talent management. Companies defer to familiar people and teams rather than asking where they can find the best people for each job.
“These problems are serious, systemic, and all too common. Still, some companies do manage to succeed. Through our analysis of more than $1 trillion worth of capital projects over the past five years, we have found that improving 'basic' project-management skills offers the most potential to improving site performance.”
But you might say, “Those are megaprojects in the oil and gas, mining and infrastructure sectors around the globe, what does that have to do with my commercial constructing business in the US?” Good question.
Perhaps a better question is, “What caused this lack of productivity to be the current norm in the industry and what can be done to improve it for the future?”
The McKinsey study lists the following 15 factors that might be improved in order to make your business more productive and profitable.
Concept and design:
- Build only what is needed.
- Maintain a life-cycle perspective.
- Strengthen scenario planning.
- Optimize around site constraints.
- Think modular design and standardization.
- Consult construction and procurement teams, beginning in the design phase.
- Optimize engineering processes and choices.
Contracting and procurement:
- Integrate risk allocation into the contract.
- Set up an efficient process for claims and change-order management.
- Align the interests of owners and contractors.
- Develop the owner’s perspective on costs.
- Overinvest in planning.
- Use prefabrication and preassembly methods.
- Build structures to cooperate on project performance.
- Minimize waste.
How many of those factors impact your processes and productivity? Most of them I am sure. How many of them do you incorporate into your processes? Some, but likely not all of them.
With the looming skilled workforce shortages, it will become critical that all of us develop ways to improve our productivity on our jobs no matter how large or small they might be.
The study goes into greater detail and you can read it here.