What goes wrong on complex projects

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As commercial contract specialists and advisors, we at Baker Tilly are critically aware of the challenges that complex programmes can present to organisations. Large projects of all types – in IT, construction, transport or in the mining industry – can test an organisation’s contract and project management capabilities to their fullest. Delivering these projects on time, within budget and to specification has always been difficult for a myriad of reasons. Not least because they are: • Commercially complex high-risk and high-cost endeavours (for both client and supplier organisations) and often demand sophisticated contractual relationships with a number of key suppliers and their sub contractors • Always top of mind for CEOs, boards, shareholders and stakeholders alike, and are generally in the public domain – resulting in pressure and a spotlight on delivery teams • Made up of multi-faceted and multi-layered programmes of work that are inherently difficult to co-ordinate and manage; often demanding a unique combination of leadership, creativity, teamwork and technical delivery skills across diverse sets of specialist teams and organisations Although there have been significant improvements in project governance in recent years, many high profile projects still fail to be seen as successful. Our view is that whilst there is no definitive silver bullet solution for success, there are invaluable lessons to be learned by avoiding the common pitfalls. This paper seeks to share lessons and highlight what can be done to improve the likelihood of project success. We have drawn from our experience and used real examples of complex programme challenges, deliberately chosen to provoke thought and generate debate. We hope you find them both valuable and interesting. Walter Akers

Text of What goes wrong on complex projects

  • 1. www.bakertilly.co.uk What goes wrong on complex projects?

2. 2What goes wrong on complex projects? | 2014 Introduction Why do so many complex projects fail to deliver? 1 1. Get the commercial governance and planning right from the start 2 2. Have you given risk to the right person? 3 3.Poor definition cannot be rectified by excellent execution 4 4.Do you know how the contingency was priced and how it is being used? 5 5. False security of the black box 6 6. Dont be seduced by ambition 7 7. The false success of soft budgets and loose schedules 8 8. Pay attention to key relationships 9 9. Where is the opportunity register? 10 10.Schedule drives cost is only part of the story 11 Contacts12 Contents 3. 1 What goes wrong on complex projects? | 2014 As commercial contract specialists and advisors, we at Baker Tilly are critically aware of the challenges that complex programmes can present to organisations. Large projects of all types in IT, construction, transport or in the mining industry can test an organisations contract and project management capabilities to their fullest. Delivering these projects on time, within budget and to specification has always been difficult for a myriad of reasons. Not least because they are: Commercially complex high-risk and high-cost endeavours (for both client and supplier organisations) and often demand sophisticated contractual relationships with a number of key suppliers and their sub contractors Always top of mind for CEOs, boards, shareholders and stakeholders alike, and are generally in the public domain resulting in pressure and a spotlight on delivery teams Made up of multi-faceted and multi-layered programmes of work that are inherently difficult to co-ordinate and manage; often demanding a unique combination of leadership, creativity, teamwork and technical delivery skills across diverse sets of specialist teams and organisations Although there have been significant improvements in project governance in recent years, many high profile projects still fail to be seen as successful. Our view is that whilst there is no definitive silver bullet solution for success, there are invaluable lessons to be learned by avoiding the common pitfalls. This paper seeks to share lessons and highlight what can be done to improve the likelihood of project success. We have drawn from our experience and used real examples of complex programme challenges, deliberately chosen to provoke thought and generate debate. We hope you find them both valuable and interesting. Walter Akers Partner Why do so many complex projects fail to deliver? 4. 2What goes wrong on complex projects? | 2014 Too many projects are set up to fail from the outset Getting the commercial planning and governance right at an early stage is important to achieving eventual project success. The ability to influence the project outcome diminishes as the project progresses. At the same time, the cost of change and rectification dramatically increases with time (as shown below). Therefore the quality of decision making at the outset is crucial to the eventual outcome and success of the project. It is important that, at an early stage, all key stakeholders are involved and commercial / procurement professionals are on board. A stage or gate approach to project evaluation and decision making is helpful, with clear accountability assigned for all aspects of the project including the commercial and cost outcomes. Get the commercial governance and planning right from the start 1. We failed to get on top of the planning and our governance only really started after work on the ground commenced. That was a big mistake, thereafter we were always playing catch- up and no amount of effort later on could compensate for this failing. Client Project Manager Office Renovation Programme High Low Time Cost of rectification Cost of change and rectification Ability to influence the final outcome and direct success 5. 3 What goes wrong on complex projects? | 2014 Risk should be placed with the party best able to manage that risk. However, very often, risk within the supply chain is placed with the party who is weakest in the commercial negotiations. Perversely this often means that the challenge of managing these complex risks is left to those least equipped to do so, as organisations that are at a disadvantage in the commercial negotiations are also often those that lack the necessary scale, capacity and resources. Typically when things go wrong, these weaker links in the supply chain initially hide the problems until they become critical. Then it falls to the project owner to take charge and mitigate the damage. The procurement approach employed determines the way in which risk is managed. However, every project has its own particular set of needs and priorities around scope, scale and technical complexity. A well-defined, low risk project will suit traditional tendering and contracting approaches where transferred risk can be readily quantified and competitively priced by the market. At the other end of the spectrum, partnering contracts suit projects of higher risk and complexity that require collaboration under risk reward sharing arrangements. Have you given risk to the right person? 2. We knew they were desperate for the work and they needed to win the contract so we were able to negotiate hard. We forced them down on a low fixed price and also got them on the hook for delivering against a tight schedule. If something went wrong they had to fix it at their cost. The problem was that as things inevitably did go wrong they could not respond and finally when they ran out of cash we had to step in and appoint another contractor to take over. Project Manager Transport Infrastructure Project 6. For most projects, success or failure is determined during the initial stages of the programme. Without proper attention and investment in the initial identify, select and define stages, there is little chance of projects meeting their overall objectives. In many cases failure to meet objectives has been blamed on poor execution, but when this is analysed properly often the problems in the execution phase have arisen because of poor preparation at the start of the project. It is important that sufficient time and competent people are involved to assess the opportunity properly, identify its value drivers, risks and uncertainties, align objectives with stakeholders and achieve high quality definition of scope, schedule and commercial contracts. As is demonstrated by the graph below, experience has shown that good up front preparation and definition delivers a better outcome even if execution is poor. Poor definition cannot be rectified by excellent execution 3. We knew the specification was not quite right, but we were under pressure and pushed on regardless. In the end the inconsistencies in the specification led to extensive rework we paid a heavy price for not tying down the specification from the outset. Programme Manager Automative Tooling Programme 4What goes wrong on complex projects? | 2014 Value Capture Identify Select Define Execute Operate The impact of front loading on project outcome Good definition & execution Good definition & poor execution Poor definition & good execution Poor definition & poor execution 7. 5 What goes wrong on complex projects? | 2014 Accurate estimation and reliable budgets are needed to successfully price and deliver any complex project. An important aspect of this is to determine an appropriate amount of contingency. Contingency is the amount added to the base estimate for incomplete project definition and specific project risks. Each organisation needs to consider its own desired estimate accuracy, but a good starting point is the P50 budget amount, where there is an equal chance of costs exceeding or being lower than the estimate. (This is illustrated in the figure below: Project estimation accuracy graph). On very large projects a probabilistic cost risk analysis should be performed and a cost risk distribution produced taking into account risk correlation and other sensitivities. This is illustrated by the normal distribution curve below. Understanding the contingency and how it has been determined is important in negotiating contracts and pricing work. It is in every contractors own interest to over price the contingency and project owners should scrutinise and challenge this area. Tracking the contingency throughout the project is important in controlling costs and managing overruns. It is not uncommon for the contingency to be used up before a project is completed and for this only to come to light when the prime contractor starts putting in cost claims in the latter half of a project. Do you know how the contingency was priced and how it is being used? 4. We knew that our main suppliers estimates for contingency were too generous. However, our team could not really provide the board with enough evidence to challenge the estimates. It was not until we brought in a specialist at the tail end of the project that we discovered that we could have saved money by apportioning contingency in a different way. Project Director University Capital Build Project estimation accuracy graph Probabilityofestimateoverrun 90% 50% 10% Most likely P50 cost Under expenditure Over expenditure Accuracy/Cost 8. 6What goes wrong on complex projects? | 2014 If it matters to the project outcome, dont treat it as a black box. Dont blindly trust others to deliver the final outcome. Actively monitor all significant aspects of the project from start to finish. Problems on projects are often initially hidden from view or are buried deep in the supply chain. They usually only come to light in the latter stages of execution. It is not uncommon for a project to report green against all KPIs initially, only for cost claims and variation charges to surface later-on. The key to