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Enabling Construction Audits through Data & AnalyticsAGA Internal Audit TrainingAugust 2016
2© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
ContentsSection Slide Number
2016 Global Construction Survey 3
Survey Trends – Technology 4
Industry Trends 11
Data & Analytics in Internal Audit 15
Case Study #1: Cost Audits with Capital Projects Data Engine 19
Case Study #2 31
Q&A 40
3© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
How to successfully manage your mega-projectKPMG Global Construction Survey
2005 2007 2008 2009
2010 2011 2012 2013
1. Talent and People: “Shortage of quality and quantity of project human resources”
2. Fraud and Misconduct: “Invented and perpetuated in the projects industry”
3. Sustainability: “Are we leaders or followers? How can we avoid being order-takers?”
5. Risk and Governance: “Too many project are failing to meet intended objectives – we lack visibility”
4. Price / Cost: “How can we better manager labor and material price volatility”
Pipeline, Backlog and Margin – past, present and future
Disruption, Technology and Innovation
4© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Objective and methodology• To understand the views and opinions of senior executives of leading engineering and construction companies globally.Objective
• Interviews conducted from February through May 2016.Methodology
• Overall: 123 owners & 100 contractors• Region
• Europe, Middle East, and Africa: 9• Asia Pacific: 122• Americas: 88
• Revenue GroupsResponse Rate
• Frequencies and cross tabulations have been used to analyze the quantitative data.•Across the report, for low bases (n < 30), a footnote has been added:•Low base – findings are directional in nature•Percentages might not add up to 100 % due to rounding off or because multiples answers were allowed. Where applicable, a footnote has been added:•Percentages might not add up to 100 due to rounding off•Figures do not add up to 100% because multiples answers were allowed
Analysis
Less than US$1 billion US$1–5 billion US$5 billion+
96 57 61
2016 Trends
Technology
6© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Key findingsTechnology The majority of owners cited that they utilize multiple software platforms that are manually monitored
17% of owners cited that they utilize Primavera Contract Management as its cost, finance and accounting system
72% of owners cited that they utilize Microsoft Project for their scheduling and planning system, while 55% of owners also utilize Primavera P6
22% of owners indicated they utilize Autodesk – Building Ops for their Project Management system, while 20% utilize Aconex and 11% utilize e-Builder
39% of owners indicated Primavera as their preferred data analysis tool used in their organization
The majority of owners cited that they do not utilize advanced data analytics in addition to cost and schedule analytics
35% owners cited that they operate drone aircrafts to monitor the status of construction projects
7© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
What are people saying?“Provides real time integration between the field and office, saving time and money… more timely communication of information, easier access to information for governance and oversight.” –Instant Access to Information
“Maybe drone project monitoring might help with the real time information data. And we can see if real time, what the issues are even if we are not on site.” – Real-Time Monitoring
“Technology cannot solve problems but can help identify problems.” –Understanding through Data & Analytics
8© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
0
10
20
30
40
50
60
70
80
90
100
Technology Adoption Spectrum - Total
Cutting Edge Visionary Industry Leader Industry Following Behind the curve
100% Company Category
Cutting Edge Visionary
High: 100
Low:70
Industry Leader
High: 69; Low:50
Industry Following
High: 49; Low:30
Behind the curve
High: 29
Low:0
8%
24%
36%
33%
Advancement in TechnologyThere is a clear movement toward advancing project management technology capabilities – organizations without advancing systems risk falling behind:
67% of organizations are at minimum following suit
9© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
21% 18%22%
79% 82%78%
Overall - owners only(n = 112)
Energy Sector(n = 17)
US$5 billion+(n = 36)
Yes No
Advanced data analytics
Sector Peers Revenue Peers
In addition to traditional cost and schedule analytics, does your organization use advanced data analytics for any other aspect of your projects?
10© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
35%
17%
43%
65%
83%
57%
Overall - owners only(n = 116)
Energy Sector(n = 18)
US$5 billion+(n = 37)
Yes No
Utilization of drones or robotics
Sector Peers
Revenue Peers
Do you use remotely operated drone aircrafts to monitor the status of construction on your projects?
Where is the industry headed?
12© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Looking aheadNo slowdown in sight
Demand will continue to outpace supply
Continued high volume of projects
Leverage remains on the side of the contractor
What does this mean?
The gap will continue to grow – driven by:
Continued labor gaps – can the trade and technical schools keep up
Competition will not be for contracts – it will be for contractors, amongst owners
62%of Energy clients see continued growth in their capital portfolios
31% see Considerable Growth
13© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Growing Importance of Vigilance
Monitoring contractor performance will be vital –with opportunity, each will be looking to get to the next job as quickly as possible, make sure they finish yours
Labor challenges will drive increased need for oversight – are billing and other records compliant, or were corners cut
Effective, compliant sourcing more important than ever – best chance of getting the best value
The competition will be FOR contractors, rather than amongst them54%
Owners overall planning on larger capital program investment than last year:
Greater Investments
79%are interested in “disrupting” their current business model
68% feel project risks are increasing
Emphasis on Innovation
Growing Risks
14© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
How to successfully manage your mega-projectKPMG Global Construction Survey• Industry & peer specific comparisons available –
deep dive into your relevant issues
• Further information on industry trends, technology
• Thoughts from industry leaders and trendsetters
• For the first time, a contrast between Owners’ and Contractors’ view of where the industry is headed
For further information, or a copy:
kwiegand@kpmg.com
Internal Audit Enablement through Data & Analytics
16© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Swimming in data –and a growing gap
7% 8%13%
4%8% 7%
39%
31%
53%
7%
15%
0%
18%
8% 7%7% 8% 7%
18%23%
13%
Overall - owners only(n = 28)
Energy Sector(n = 13)
US$5 billion+(n = 15)
Dashboard Cognos Primavera Acumen MS, Microsoft Oracle SAP
Sector PeersRevenue Peers
Low base – findings are directional in nature Figures do not add up to 100% because multiples answers were allowed
36% 58% plan to expand 18%
Contractors Energy sector
Already using advanced data & analyticsThe people you’re doing business with often have better, more informative information.
17© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Internal Audit EnablementConstruction Cost Auditing & Compliance: assess vendor compliance with engineering, consulting, procurement, construction and other contracts, including verifying they’re performing in accordance with contract terms and conditions.
Project Oversight & Monitoring: design and implement a customized oversight and monitoring program aimed at reducing cost, mitigating risk, and increasing the accuracy and transparency of project transactions and reporting.
Project Performance Analytics: identify and analyze project and portfolio data for trends in project staffing/resourcing, costs, quality, procurement and correlations between project performance and internal and external attributes in order to drive continuous improvement in performance.
Identified an average of 3.4% of recoverable costs on over $10 billion in construction contracts.
Increase project management and project support staff efficiency by 10-30%.
Increase accuracy of project estimates and budget forecasts by 10-20%.
Identify anomalies and inconsistent or potential fraudulent transactions in project data as well as other issues and risks to be addressed.
18© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Data into valueCreate sufficient quality information along with data analytics capabilities and construction subject matter professional interpretation to improve performance, identify & get to the bottom of issues.
Example data
■ Job cost report
■ Project cost and schedule performance data
■ Project staffing plans and organization charts
■ Regional cost indexes and market data
■ Project estimates and contractual pricing data
5-10% Reduction in project support costs
10-20% Increase in accuracy of project estimates
Example findings
Reduced process durations by up to 40%
Increase accuracy of project estimates and budget forecasts by 10–20%
Increase project management and project support staff efficiency by 10–30%
Extract, Transform, Load (ETL)
Advanced analytics
Visualizations
Data storage and database systems
Calibration and implementation
Planning and initiation
Value realizationTest Valida
teReport Implem
ent
Case Study #1Cost Audits with the Capital Projects Data Engine
20© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
A More Effective Methodology
Kick-offRequest
Contractor Job
Financials
Review & Identify
Transactions for Testing
Test Sampled Transactions
ID & Report Non-
compliant Charges
Historical approach:
• Time intensive, manual process
• Based upon experience and professional judgment
• Limited sampling – significant testing becomes time & cost prohibitive
For years the approach has been largely unchanged, and heavily manual:
Data & Analytics Tools
With new tools, we can speed it up, make more educated decisions and dig deeper into more data
21© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Approach
■ Review owner and contractor project information to identify project cost assessment criteria
■ Assess readily available construction cost data to determine what additional data is needed
■ Customize tool analysis criteria
■ Conduct coordination meeting with client to validate customized tool characteristics and revise as needed
■ Conduct trial analysis using sample data; calibrate tool to achieve consistent results
■ Analysis and preliminary summary
■ Conduct ongoing coordination meetings to validate process and develop
Automating the Approach
Engagement kickoff
Initial data
collection and
validation
Tool calibratio
nAnalysis
Preliminary summary
Field testing
Report results
Formerly manual, time intensive process – heavily reliant on historical knowledge
22© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Example approach cost audit
Confidential
23© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Example cost testsAn inventory of more than 100 automated tests integrated in the capital project data engine that we can perform on cost data. In addition, we leverage machine-learning to detect abnormal transactions beyond the incorporated tests.
Area Example cost assessment routines
Labor transactions (rate and resources)
■ Identify employees in the Data Extract not in an approved resource list.
■ Identify pay rates outside of the approved rate schedule.
■ Identify overtime pay that does not match the approved rate schedule.
■ Identify employee classifications that change between periods and/or are not aligned with resource list.
■ Identify resources with similar or naming variations that can represent potential duplication.
Labor transactions (hours)
■ Identify anomalies in hourly entries for employees (e.g., exceeds allotment for period; does not reflect holiday or vacation entries)
■ Identify trends in entries of time submissions (e.g., repeat patterns, statistics anomalies).
■ Identify employees who have more non straight-time and non-overtime hours than straight time and overtime hours for a given day (e.g., more time on GIS Workstation than straight time/overtime for the given day)
■ Identify employees in the Invoice Extract with overtime hours who have less than 8 straight time hours.
■ Identify employees without an employee ID.
Material and expensetransactions
■ Different budget holder approving a purchase for outside of his/her cost center or department.
■ Identify vendors/payees with aggregate payments of less than $X per job.
■ Identify all transfers in excess of $X into and out from a job number.
■ Extract payments of $X to materials vendors.
■ Compare payment reports with job costing transactions to assess alignment.
24© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Example output –Executive summaryRapid understanding of project cost characteristics and trends:
25© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Example output –Simplified executive summary
26© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Example output –Employee risk level by charged hoursRisk-based analysis of labor transactions based on total individual hours billed
27© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Cost focus
Example output –Hours workedIdentifies employees that exceed a defined (e.g., 480) number of hours in a period
Set test threshold
All employees who did not pass High non-OT Hours test and/or Hours Worked test, and their quarterly hours All transactions associated with flagged employees
2.4% of employees among all employees do not pass High non-OT Hours test and/or Hours Worked test
28© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Vendors
Example outputRisk-based statistical analysis of non-labor transactions
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Example output –High dollars per vendorIdentifies records where aggregate vendor expenditures exceed a defined amount
Type in threshold of aggregate expenditure
Vendor has aggregate expenditure $19M to project 4000028.
3 transactions are from Vendor 1, while expenditures sums to $19M for project 4000028.
30© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Example output –Risk profile of employees based on the number of flags triggered
Case Study #2Energy Project Staffing Analysis
32© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Project description
A Global FORTUNE 100 oil and gas company was seeking opportunities to improve project performance and reduce cost through optimization of its global capital project staffing.
The challenge
■ Evaluate existing staffing practices and tools
■ Normalize global project staffing into common job groups (e.g., Leadership, Operations, and Construction Management)
■ Normalize project attributes (e.g., cost, schedule, and delivery strategy)
■ Analyze project data using the KPMG capital projects data engine to identify outliers and trends
■ Create custom visualizations to highlight areas of opportunity
■ Develop a prioritized plan for value realization, including data-driven deep dives into specific project staffing levels
■ Identify project factors that most impact staffing levels.
Key issues
■ Certain projects had significantly more staffing and owner’s team cost relative to peer projects (e.g., 17% owner’s team cost compared to a median of 11%).
■ Significant variation in job group staffing levels between projects, for example in the execution phase:
■ Varying staffing practices (e.g., titles, job groups, organization charts, and staffing plans) across projects
■ Immediate opportunities to reduce cost:
– Identified over 1,000 Agency FTEs in the 3rd and 4th quartiles of their job groups
■ Risk due to potentially insufficient staffing in certain project’s job groups
Key features and facts
■ 20+ projects across over 10 countries with a total estimated cost of $186 billion
■ Normalized 1,000s of unique staff with unique titles into common job groups
Staffing driving project performance
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Project performance focusGlobal Staffing Optimization AttributesBelow are example project attributes to gather, normalize, and analyze.
Information analyzed
Staffing by job group
Peak and average staffing
Staffing type
TIC/OTC
Project attributes
Category
Phase and general timing
Class
Greenfield/brownfield
Working interest
# of partners
Primary, #, and type
Local Content
Ease of doing business*
Ease of dealing with construction permits*
Ease of paying taxes*
Ease of tradingacross borders*
#, responsibility, and size
Primary contracting strategy
Primary compensationstrategy
Whether team is integrated with the EPCM
or EPCI firm
Project nature Location Contracting and compensation strategies
34© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Sufficient quality information along with data analytics capabilities and construction subject matter professional interpretation to improve performance.
— Opportunities to save costs?
— Sufficient resources in the right roles to reduce risk?
— What factors should be considered when staffing projects and how should they be addressed?
— Are leading staffing practices in place?
Team structure and role classification
Contracting strategy definitions
Titles Milestone definitions
Cost classifications
Performance measures
Example areas of observed global variations
Project performance focus –staffing
35© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Project performance focus
Immediate cost savings opportunities of 10–30%
Reduced annual ongoing costs (upwards of $1 million) normalizing staffing information
Reduced risk by identification of job groups potential needing additional staff
Leading and consistent staffing practices, including staffing plans, role classifications, and team organization approach
Project leaders empowered with better understanding of their project staffing relative to its peers
Consistent performance metrics,including cost and schedule
Integrated methodologies and tools created by data scientists
Increased understanding of the factors that impact staffing and ability to incorporate responses into future projects
Short-term Future State
36© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Identification of project outliers
Project performance focus –example outputStaffing to cost curves
37© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Example outputs –job group variation box plotsGlobal staffing optimization focus
3.6%
0.9% 1.5%
6.0%
0.9%
9.4%
6.3%5.1%
10.7%
3.6%
23.4%
4.5%
12.2%11.2%
0.6%0%
5%
10%
15%
20%
25%
30%
35%
40%
Perc
ent o
f tot
al s
taffi
ng
Job Group Box Plot (Phase 4)
Q1 - Median Median - Q3 Project 3
This project is a significant outlier with 23.4% of staffing in Operations
Confidential
38© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Example outputs –identification of agency outlier staffingGlobal staffing optimization focus
Outlier Agency staffing represents most immediate opportunity for savings
Projects
Confidential
39© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Project performance focus –example outputResource Correlation Analysis – Determination of RelationshipsDisplays level of resources by input value based off of historical data
Shows the impact on number of jobs by each value of an attribute. In this case for attribute “MPS Category”, it shows “Offshore Typical” projects normally need 5 more jobs comparing to “Deepwater” projects
The x-axis of the scatter chart represents the “theoretical” number of jobs (predicted number by the model) given such project attributes; y-axis represents the actual number of jobs. If the actual numbers equal the theoretical number, then the dots should lay on a straight line. Any points located far away from the straight line are outliers.
Project 1
Project 2
Q&A
Ken WiegandManager, Major Projects Advisory
kwiegand@kpmg.com
(425) 890-0357
© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG name and logo are registered trademarks or trademarks of KPMG International.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
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