Enabling Construction Audits through Data & Analytics · Enabling Construction Audits through Data & Analytics ... 17% of owners cited that they utilize Primavera Contract Management

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


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


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

Presenter

Presentation Notes

Talking points: Objectives 200+ participants this year, both sides of the table Organizations of various sizes Usually pick a couple key topics Transition to this year’s topic: technology

2016 Trends

Technology


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


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


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

Presenter

Presentation Notes

If you’re not at least advancing, you’re falling behind


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?


35%

17%

43%

65%

83%

57%




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?


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


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


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:

[email protected]

Internal Audit Enablement through Data & Analytics


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%




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.

Presenter

Presentation Notes

I know SAP is PG&E’s system of records and P6 (primavera) and Click are used to manage their schedule They use excel to manipulate reports from SAP


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.


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

Presenter

Presentation Notes

Talking point: What are we talking about when we say Data & Analytics?

Case Study #1Cost Audits with the Capital Projects Data Engine


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


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


Example approach cost audit

Confidential


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.


Example output –Executive summaryRapid understanding of project cost characteristics and trends:


Example output –Simplified executive summary


Example output –Employee risk level by charged hoursRisk-based analysis of labor transactions based on total individual hours billed


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


Vendors

Example outputRisk-based statistical analysis of non-labor transactions


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.


Example output –Risk profile of employees based on the number of flags triggered

Case Study #2Energy Project Staffing Analysis


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


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


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


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


Identification of project outliers

Project performance focus –example outputStaffing to cost curves


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


Example outputs –identification of agency outlier staffingGlobal staffing optimization focus

Outlier Agency staffing represents most immediate opportunity for savings

Projects

Confidential


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

[email protected]

(425) 890-0357

mailto:[email protected]

© 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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Enabling Construction Audits through Data & Analytics · Enabling Construction Audits through Data & Analytics ... 17% of owners cited that they utilize Primavera Contract Management