Procurement update: Project controls

01 / INTRODUCTION

How is project success defined and how is it assured? In the construction industry, success is often measured in relation to the factors of quality, cost, programme and safety. Published key performance indicators continue to show that many projects suffer from significant variations between planned and actual cost and programme, and below-target levels of client satisfaction.

Based on narrow measures, some of these projects will have failed to meet their objectives. However, in reality the assurance of success is even more complex than is suggested by the quality, cost and programme triangle. Projects need clear objectives, and these objectives need to relate to broader business requirements and the value that will be delivered. The
project will have stakeholders with differing expectations, and requirements may also change. It will be delivered in an environment that is subject to risk and uncertainty. Other equally important targets, including health and safety, also need to be given an appropriate emphasis.

Project controls have a central role in the delivery of projects and the assurance of outcomes. However, while the case for investment in project controls is compelling, recent PhD research by Ian Mackenzie has indicated a low level of take-up of best practice, which has a direct link to impaired project outcomes.

This article focuses on project controls. It is important to distinguish between project and programme controls. Project controls are used to assure delivery of a single investment within scope, programme and budget. Programme controls take integrated data from projects and provide insight and programme-wide analysis, giving decision-makers the assurance that the overall programme will deliver expected outcomes.

02 / WHAT ARE PROJECT CONTROLS?

Project controls (PCs) comprise the people, processes, procedures, systems and tools that are used to support delivery, decision making and performance management; and to mitigate the impact of unexpected events.

The PC culture evolved in very challenging environments such as North Sea oil and gas projects, where the consequences of schedule slippage on one component could have a huge knock-on effect on overall project investment outcome.

PCs work on the assumption that projects will not go precisely to plan, so action needs to be taken to ensure that performance, time and budget targets are still met. An IBC 2000 Project Control Best Practice Study carried out by Independent Project Analysis identified that good project control practices reduce execution schedule slip by 15%.

Benefits that can be secured from the use of PCs include:

• Monitoring progress against agreed baselines - providing early warnings of a deviation from expected outcomes
• Providing decision-makers with reliable information in easy-to-use dashboards on current and forecast project status
• Enabling better co-ordination of a programme or portfolio of projects, including phasing and levelling of resources and budgets
• Improving performance through progressively raised benchmarks
• Effective management of contractor incentivisation - validating key performance indicators and baselines, and confirming that productivity targets are met
• Reinforcing desired aspects of project performance, such as an active health and safety culture.

Project controls is a dynamic discipline, which is set to gain massively from the ability to integrate specification, cost and time within BIM. The migration of project controls into BIM creates the potential to use modelling to optimise outcomes as well as design and construction operations.

03 / MARKET DEMAND

As many clients are preparing to reinvigorate their investment programmes following the extended downturn, effective PCs have never been more important. There are a number of reasons for the increased relevance of PCs to clients:

Increased value of predictability

Tighter government controls on public financing and the impact of debt and lower profits on private companies mean that all projects (public and private sector) need to be much more “bankable” to secure funding. This requires significant improvements in project predictability.

Previously, private sector organisations have funded their asset investments directly from profits or from their balance sheet. Conditions associated with securing external project finance and stricter corporate governance require that enhanced levels of project predictability (cost, schedule and quality) and transparency are demonstrable on asset investment programmes.

Improving project performance

More clients are investing internal capability or securing the services of specialist PC providers to drive efficiency, optimise value for money and drive performance improvement on their projects and programmes.

Optimised allocation of spend

On publicly-funded programmes, constraints on long-term planning resulting from annualised funding remain an issue. Annualised funding is commonly used as a means of enforcing budget controls, but it inevitably restricts the scope of planning and the client’s ability to respond to opportunities or unexpected events. Longer-term financial planning backed up by the assurance provided by an effective PC environment could help clients to flex their spending to match their budgets and an optimised work programme.

Making best use of project governance

Project sponsors are typically senior managers who will only have limited time available to provide input into the management and governance of programmes. PCs that provide a consistent, forward-looking update on project progress, preferably in real time, will guide the management team towards taking the right corrective action, at the appropriate time. Project dashboards, directly linked to the PC system, are a really effective and client-friendly approach to progress and exception reporting.

The following table shows how PCs make different contributions to the delivery of projects and programmes with varying degrees of complexity and sensitivity.

Business drivers for project controls

	Capital investment	Examples	Key business drivers
	Complex projects on a single site	Nuclear and thermal power stations, the Olympics	Project bankability through predictability of schedule or cost-driven outcomes Cash flow / cash use Risk transfer
Increasing complexity	Portfolio of complex projects on multiple sites or an extended site	Nuclear decommissioning, transport and infrastructure programmes, such as the Thames Tideway Tunnel, Crossrail or airports	Continuous delivery performance improvement Integration of business-critical functions and supply chain solutions Effective programme-wide resource, change and risk management
	Capital maintenance programmes	Capital works programmes for the water, gas and electricity transmission and distribution industries	Regulator focus on outcomes (for example, RIIO - Ofgem’s framework for setting price controls) and value for money is driving improvements in asset performance and significant cost reduction
	Portfolio of simpler projects	Retail, hotel and banking expansion and refresh programmes	Minimisation of impact on business activities Schedule predictability Progressive cost reduction
	Discrete major projects	Hospitals, roads, rail, education	Value for money Cost and schedule certainty

 

04 / KEY COMPONENTS OF PROJECT CONTROLS

The foundation of PCs rests on the detail of the schedule and estimate, and the ability of the PC team to derive useful, timely insight to drive client decision-making.

PCs are not a core aspect of the project management skill set, and research has shown that key aspects of the PC methodology, including the baselining and regular monitoring of programmes and deliverables, are often not included as part of the suite of project management activities.

Key activities include:

• Development and maintenance of the work breakdown structure (WBS), cost breakdown structure (CBS) and cost control accounts. A consistent WBS and CBS is an essential tool to enable the assessment of progress on site to be used to predict outturn cost and programme.
• Estimating, planning, scheduling and risk assessment, providing a realistic initial baseline for cost and time against which progress can be measured and the impact of changes assessed.
• Progress and performance measurement and forecasting, based on an agreed baseline, performance metrics and KPIs.
• Earned value management, quantity tracking and the application of rules of credit.
• Cost and time capture analysis and forecasting, including the adjustment of estimating norms.
• Divergence analyses and trending, providing the key information that project sponsors require to identify the need for corrective action.
• Change management, including change logs and the reporting of early warning/change notices.
• Risk management, producing quantitative analysis based on integrated, correlated cost and schedule models.
• Reporting, meeting the needs of senior managers and project sponsors through the provision of well-targeted and clearly communicated progress metrics.

Other elements that need to be delivered as part of a co-ordinated PC and project management suite include the project/programme manual, document control procedures and clearly defined communication plans.

The project controls cycle

The diagram here illustrates the cycle whereby information on progress on site is combined with inputs from the change control process to provide an accurate assessment of likely project outcomes. The key components of the PC cycle include the use of an agreed baseline estimate and schedule, together with accurate data on progress and costs incurred related to progress on site.

05 / PROJECTS CONTROLS DELIVERY MODELS

The organisational requirements of PCs can be substantial. According to widely quoted research, costs range from 0.5% to 3% of the total project budget, implying a significant requirement for PC specialists.

In response to acceleration in their planned investment programmes, a number of client organisations, including utilities and public bodies, are enhancing their procurement and commercial capabilities. At the same time, with more risk being transferred to service providers and contractors, the supply side is also seeking to build its own capability.

Unfortunately, both client and service providers are reliant on a small pool of scarce project controls specialists. Until recently, project controls has lacked a distinct career path, but some clients with extended programmes have developed apprentice-based training programmes that provide exposure to the main project controls disciplines of scheduling, estimating, risk analysis and reporting - a broad and well-rounded skill set. Project controls will benefit in time from a specific formal qualification. In the meantime, as demand outstrips supply, there is a high level of demand for a mobile and largely self-employed workforce.

Limited availability, at least in the short term, will dictate new ways of working - smarter integrated solutions, based on the effective exchange and analysis and reporting of data, are needed to make best use of the information management and control tools currently in use.

A range of options for PC delivery is available to organisations, depending on their internal capability and the complexity of their asset investment programmes. While many organisations do not need to bring in external support, they may benefit from the broad, cross-sector perspective of a PC specialist, bringing experience from many industries, when reviewing an existing system or designing new processes.

Project controls delivery options

			Internal organisation capability
		Low	Medium	High
	Low	Delivery by professional adviser team or works contractor	Resource enhancement	Resource enhancement / Commodity PC supplier
Project complexity	Medium	Specialist PC suppliers	Resource enhancement / Commodity PC suppliers	Resource enhancement / Specialist PC supplier(s)
	High	Partnering with specialist PC supplier(s)	Specialist PC suppliers	Specialist PC supplier(s) / resource enhancement

 

06 / FEATURES OF AN EFFECTIVE PROJECT CONTROLS SYSTEM

To be effective, project controls rely on good quality, consistent information, regular progress reviews and an accurate, realistic baseline. The most important components are:

Work breakdown structureThe consistent and compatible coding of cost and schedule information across the programme is vital for effective reporting and change management. In some cases, the WBS will help interface with operations as well as project delivery. The CBS may be more detailed than the WBS used to drive the schedule and reporting but should share the same coding, so that reporting of cost and time are linked.

The WBS must define the full scope and should be defined so that it can be used for progress reporting as well as estimating.

Baseline review A key review tool is the Integrated Baseline Review - a joint review by client and delivery team of the estimate, schedule, risk estimate and reporting processes, providing a joined-up assessment of whether the scope can be delivered given budget, resources and schedule.

Integration of the capital works programme with operations The delivery of many capital works projects will need to be integrated with business operations - whether live transport infrastructure, production processes or essential safety activities. Interfaces with other projects may also need to be considered.

In these instances, the interface between the capital project and operations will make estimating and managing project costs and durations significantly more complex - potentially introducing a wider range of risk and cost dimensions related to downtime and lost output.

To facilitate the effective integration of the project with operations, the PC system will need to interface with schedules taken from different sources dealing with production, downtime, outages and other projects. Compatible planning tools using a common WBS and other standards are essential to manage these interfaces effectively.

Contractor input into the PC process Large contracting organisations maintain internal PC capability to assist them in their delivery of projects, management of internal resources and subcontractors and suppliers.

Where an appropriate procurement strategy and commercial incentives are employed by a client, such as an alliance, then the objectives of the contractor and client can be aligned, and the contractor’s PC capability can be directed to secure the project objectives.

If a client requires input from a delivery partner into the client-side PC system, then these requirements need to be identified as part of the selection and contract award process - so that information requirements can be set, capability assured and resources included within the contract sum, or target price.

Risk analysis When delivered as part of project controls, risk analysis is used to assess tactical, project-level risks in terms of quantum, cost and programme. Assessments are based on simulations produced using quantitative analysis tools. Outputs will be fed into programme-wide risk allowances as well as project contingencies.

Monitoring progress Earned value analysis (EVA) is the preferred method for monitoring progress, bringing together scope, cost and time, helping to ensure, for example, that programme certainty is not delivered at the expense of cost overrun. The difference between EVA and conventional progress monitoring is that it uses the extent and resource cost of work in progress to predict cost and time outcomes.

By comparing planned value - the value of work that should be delivered in accordance with the plan - with the actual value of work completed and the cost required to deliver, the client and delivery team will get a clear picture of the status of the project. Successful EVA depends on an agreed baseline schedule and estimate that reflects the current scope, alignment of progress measurement with the WBS/CBS and a regular reporting cycle.

Managing at a project and programme level When focusing on projects, it is easy for teams to forget that internal resources and the wider supply chain may not be able to meet broader programme needs. Site constraints, bottlenecks in approvals and the basic logistics of running multiple projects on the same site could significantly impact delivery predictability. The programme dimension needs to be built into the PC process.

Driving value through the PC process One risk of creating a sophisticated controls process is that too much emphasis is placed on data collection and reporting and not enough is focused on managing down into the projects.

The ideal PC process will provide enough information to provide project sponsors with assurance that a project is on track, the insight needed to support decision-making and data to support future project delivery such as activity norms and benchmarks. One key to success is to avoid too much upward reporting.

07 ENSURING EFFECTIVENESS

PC systems are large and complex and can take on a life of their own, particularly on extended programmes. Project and programme failure can occur for a number of reasons, including ineffective governance, poor decision making or reliance on unrealistic assumptions.

Areas where a shortfall in performance can occur include:

• The need for continuous improvement - addressed by sharing best practice from other projects and clients
• The need for capability development in specific areas - potentially addressed through additional training, process reinforcement and/or corrective action to meet best practice standards
• Endemic weaknesses in the PC system, requiring changes to processes or systems, capability reinforcement, additional resources or additional business-wide training. Issues might involve weak compliance, absence of systems or lack of core capability. In these instances, a wholesale review of the PC system will be needed.

In reviewing existing PC systems, it is important for organisations to look beyond their sector to learn from other industries and solutions.
Useful diagnostic tools include the APM project controls maturity compass and the P3M3 assessment developed by OGC, which measures the effectiveness of the use of information by a project organisation.