Being able to deliver significant time and cost savings to high-quality capital projects is only possible through understanding their complexity. In this short article, we explore the transformation that can be achieved through a fresh approach to leadership, governance, risk, reward and culture.
Major capital projects have a habit of going wrong in one way or another. However much we might need that new bridge, hospital or utilities infrastructure, the chances are that they will fail to be delivered on time, on budget and with all the promised benefits.
Our Megaprojects series shows the scale of these problems at the upper end of the capital project spectrum. For instance, research by the Danish economic geographer Bent Flyvbjerg reveals that less than 1% of projects worth more than $1 billion meet all their promised requirements. And while smaller capital projects tend to fare better, similarly serious failings routinely crop up.Connor Butler is Managing Principal of Relevate, a consultancy that has steered many capital projects to successful completion on both sides of the Atlantic. “In most cases, companies, individuals and governments can’t afford to write blank cheques or absorb huge delays,” he says. “But it really doesn’t need to be that way. There’s no reason why we can’t deliver on time and on budget, whatever the scale. But it does require a step change in an organisation’s culture.
“Earlier this year, I saw that a large general contractor had restated all of their 2019 earnings after some big projects went badly wrong,” he adds. “When I looked at the remedies they set out in their press release, they were talking about training people better in budgeting and forecasting processes. But forecasting was not the reason why their projects were running late and over budget. Far from it, when you try to solve the problem simply by introducing more controls, all you do is disrupt the flow of the work even more. The fundamental thing that shows up again and again is that we need to address the complexity of these projects.”
Billy Glennon, Group CEO of VISION, adds that capital projects are often undermined by the perspectives of those running them. “If you’re an engineer, you tend to think of the capital project in terms of a construction process,” he says. “If you’re an IT person, you look at it in terms of the flow of information. And if you’re an accountant, you look at the money. All of these views reveal something, but they also hide something.”
To explain what that ‘something’ is, Dr Charles Spinosa, Group Director of VISION, takes up the story. “Imagine a factory where everybody has their own workspace and focuses on their own individual task before passing the widget down the line. If you can create that picture in your head, you’ve made Henry Ford very proud. Now imagine that the workspace of the person before you in the line overlaps with your workspace, and you overlap with the person after you. You find yourselves bumping into each other and having to improvise. This is the complexity of capital projects. Everything that happens influences everything else.”
But there is a set of solutions. And it’s one that has been proven to work many times. Collaborating over many years, VISION and Relevate have created a four-step plan that navigates the complexity of capital projects, supports improvisation and brings people together to make huge savings in time and budget, while delivering all the promised benefits.
In very simple terms, the four pillars of this approach are as follows:
1 Appoint a transformational leader
The budget holder must be capable of taking on the role of a strong, heroic leader who will fight to change the way capital projects are achieved. This means being willing to take risks, share authority and develop the leadership skills of partners.
2 Transform your approach to governance
Establish a policy organisation, modeled on a board of directors, at least half of which should be made up of people outside the project execution teams. Include likely antagonists. Then establish three regular meeting and planning levels – one for the senior decision makers, one for the project managers, suppliers and departmental discipline specialists, and one on a weekly basis for budget holder managers and suppliers.
3 Share risks and rewards
Award contracts to suppliers on the basis of experience and skill, not on the basis of projected cost. Align all the parties to a common structure of goals such that all profits come out of savings made on the project as a whole. Create healthy incentives to reduce costs and innovate without jeopardising shared rewards. Set up agreements so that suppliers make profits when things do not go wrong or when they make up for losses with savings elsewhere.
4 Embrace Commitment-based Management (CbM)
CbM is modeled on the way agile, entrepreneurial start-up teams work. All team members make commitments to each other that they must deliver on. Requests are specific, negotiations clarify, questions are asked during execution, and feedback is given regularly. Each commitment has a precise standard of quality, time, and cost. And everyone on the project understands the importance of the work, making even small commitments within that context. (Read more about our approach here.)
Find out more
Contact us on capitalprojects@vision.com if you are interested in exploring the crucial detail behind these four steps. You can also explore our other articles on this topic, or listen to our Megaprojects podcast series.