Improving Complex Facility Construction Projects by Using an Owner s Paladin

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1 Percentage of Projects Improving Complex Facility Projects by Using an s Paladin Paladin A trusted leader; heroic champion; defender of a cause; advocate; protagonist Introduction Few organizations have strong in-house capital asset acquisition competencies to define and manage complex facility projects consistently well. This should not be surprising because building facilities is not usually a recurring core function of the organization s primary business. Healthcare enterprises operate medical facilities daily, but only build a new hospital every other decade. Likewise, years and even decades often separate the building of a new school by an educational institution, a new terminal by a transportation enterprise, or a new plant by a manufacturing company. As these construction projects arise, owners draw from their existing pool of operational resources to oversee design, procurement, and construction that will be conducted by contractors. Unfortunately, history indicates the chances of having a complex facility delivered on time and within budget are slim with this model (Figure 1). When owners rely on traditional design and construction contractors to manage a project (including the front-end requirements definition and prioritization functions that are inherently the owner s responsibility), inevitably scope expands, costs rise, and schedules extend beyond initial expectations. and construction contractors, by definition, do not have the requisite operational personnel, experience, and perspective to set requirements exactly to owners priorities. s are not healthcare providers, educators, transportation providers, or manufacturers; they innately view the owner s business operations as something to be shoehorned into the facilities they are most comfortable building. contractors are simply not sufficiently Figure 1 44% of U.S. executives surveyed said that the most pressing issue for them is managing complex projects; however, many lack critical know-how and/or core capabilities to perform effectively and efficiently - ESI International, May 2008 versed in the owner s environment to provide designs that optimize operational effectiveness and ensure expected returns on investment. Additionally, being on the opposite side of the buyer-seller relationship, design and construction contractors are inherently conflicted in their interests to minimize scope for which they ll be compensated. 50% 40% 30% 20% 10% 0% Exceed Budget by >10% Exceed Cycle Time by >10% Megaprojects (>1 billion) Other Projects (<$1 billion) - Booz Allen Hamilton data for the Oil and Gas Industry, March

2 Given the risks associated with overreliance on contractors, owners sometimes attempt to manage their construction projects using in-house resources exclusively. While operational requirements can be identified by organic project teams, few in-house teams have the sophisticated skills and tools needed to perform design trade-offs with the certainty investment decision-makers want. Downsizing and streamlining, the greening of staff and the leaning of the organization, and changing corporate priorities and workforce structures collectively erode corporate memory and the competencies needed to manage large complex capital projects. Time and again, shortcomings in owner staffing levels, capabilities, and the quality of project definition are cited as issues leading to later problems in execution. 1 How can owners bolster in-house capabilities to manage construction projects better when hiring is not an option and the objectivity of design and construction contractors is suspect? s need to have an advocate that can serve as a trusted advisor to help them gain and retain control of their projects and become better capital stewards across the acquisition lifecycle. 2 The concepts presented in this paper are universally applicable to all industries and government. We recognize that accepted project terminology varies among industries and clients, but suggest that the reader should be able to translate these concepts into his or her organization s terminology easily. Constituents in Capital Asset Acquisition The owner identifies the business/mission and operational need for the asset, defines and secures funding to acquire the asset, often operates, and always maintains and provides long-term stewardship of the asset throughout its entire lifecycle including divestment or disposal. In facilities construction projects, for example, the owner is the building owner and not the tenant who leases space. A capital asset typically has several constituents within the owner organization, three of which influence its development significantly (Figure 2): 1) The Business/Mission constituency, which identifies the need for a capital asset to provide (new) desired levels of products or services; 2) The User constituency, which ultimately operates and maintains the asset; and 3) The Project Management team, which identifies and acquires the asset that best meets the collective needs of the enterprise. Triad of Constituents Project Management (Defines and Acquires the Asset) Business/ Mission (Sets Enterprise Vision, Mission, Objectives) Users (Operates and Maintains the Asset) Each constituent has its own unique perspective and constructive conflict must exist among them to obtain an optimal asset solution for the enterprise. Figure 2 Each constituent has a unique perspective with specific objectives and measures of success that can and will often conflict. The Business/Mission constituency articulates and justifies the need for the asset, secures funding, and develops the 1 Megaproject Market Study, Booz Allen Hamilton, We discuss in the last section of this paper why we have chosen paladin to describe this advocate role over more commonly used terms such as owner s representative or owner s agent. 2

3 overarching strategy. The User constituency desires a capital asset that maximizes production (e.g., yields, quality, productivity), while minimizing operations costs (downtime, repairs, maintenance and sustainment). The Project Management constituency is a temporary team charged with executing a successful economic transaction between the owner organization (including its internal and external stakeholders) and the contractor(s) employed to design and construct the facility. A successful transaction is one wherein the owner acquires an asset that meets desired performance specifications while being on-time and within budget. Therefore, the Project Management team s first function is to identify, prioritize, trade-off, and translate the multiplicity of competing performance objectives sought by stakeholders (e.g., easy access/egress for personnel versus plant security needs) into design specifications that designers and builders can implement within funding and time objectives. The Project Management team s second function is to solicit, select, engage, oversee, and modify as necessary the work performed by contractors. Consequently, the Project Management team is responsible for stewardship of the project throughout all stages of the design and construction lifecycle. In summary, Business/Mission, User, and Project Management constituencies each have different perspectives and cultures that are complementary, but also lead to conflict that must be constructively resolved. 3 All of these constituencies must engage in trade-offs to derive a solution that meets critical, desired (but not all) requirements, while balanced by the constraints of time and affordability. The owner must also navigate amidst a complex environment with myriad internal and external influencers and constraints. Only then can an optimal capital asset be defined, designed, funded and built. Environmental Influencers and Constraints Beyond the three critical constituencies already described within the owner s enterprise, other factors influence greatly the trade-space afforded the Project Management and extended team in defining and acquiring the optimal capital asset (Figure 3). External Stakeholders Community NGOs Organizational Processes Work processes and standards Project management support Assurance Figure 3 Enterprise Environment Project Management (Defines and Acquires the Asset) Business/ Mission (Sets Enterprise s Vision, Goals, Objectives) Government Regulators Users (Operates and Maintains the Asset) s and Enterprise Culture Organizational Processes First and foremost are the formal, internal work processes and standard operating procedures that govern all enterprise activities. Typically rooted in common sense, these processes have been derived and refined over time into the proprietary operating environment that defines the enterprise s way of doing business. Beyond being codified in the enterprise s management procedures and systems, many are also reinforced by law or statute to ensure the safety and wellbeing of the enterprise s personnel. These processes are proactively promulgated via corporate Values Beliefs Norms 3 Three Cultures of Management: The Key to Organizational Learning, Edgar H. Stein, Sloan Management Review, Fall

4 standards, operating procedures and training; enforced by way of compliant governance mechanisms, forms, templates, and systems; and reinforced through internal and external reviews and audits. Enterprise Culture Equally important, but far more difficult to identify and qualify, is the enterprise s culture. Although many enterprises can have similar, if not identical, policy, workforce, processes, tools and systems, the operations and outcomes of these capabilities vary greatly. For example, despite common Department of Defense policy and guidance, processes and procedures, and training and systems, their implementation and use vary greatly among the Army, Navy, Air Force and Marines. Similarly, variations in performance can be seen among corporations within the same industry, despite comparable knowledge of project management best practices. We share this as a word of caution. Implementation of proper training, processes, tools and systems often does not always yield intended outcomes because full understanding of, and adaption to, the specific culture and domain of the owner s enterprise was never fully considered by those supporting the capital construction Project Management team. External Stakeholders External stakeholders form another set of critical influencers on project requirements and outcomes. They come in the form of formal influence (i.e., those empowered by law or statue to enforce certain activities or results), and informal influence (i.e., those working through public and private perception to define success in term of achieving the objectives of special interests). Regardless of their legal standing, external stakeholders weld significant influence, if not authority, and their objectives should be given full consideration commensurate with other technical performance parameters. Too often, Project Management teams only acknowledge the formal external influencers and fall victim to the informal influencers who can obstruct progress should their objectives not be considered appropriately. s and The last group to exert its influence on capital asset acquisitions is the contractor and vendor community, including: architects, engineers, construction managers, and equipment and materials suppliers. Clearly, it s in suppliers interests to inject their offerings as early in the acquisition cycle as possible, not just for the revenue, but to increase their probability of winning the large and lucrative design and construction contract(s). By marketing their proprietary architectures, designs and features early in the lifecycle, suppliers attempt to sway owner requirements in their favor (perhaps without regard to their true impact in adding value). Additionally, with poorly owner-defined requirements, contractors are both willing and often solicited to design and redesign the asset for as long as the owner compensates them. Later during detailed design, construction, or even early operations, the owner recognizes that it must change the facility to meet objectives. For this, the owner often pays many times more for the same scope than if it had been included during conceptual design. 4

5 Acquisition Project Life Cycle Responsibilities The breadth, depth, and timing of critical functions and activities needed over the project lifecycle are daunting (Figure 4). The criticality of owner involvement in shaping the scope and conceptual design is marked during the requirements phase. Requirements Operations Divestment Project team integration, organization, roles/responsibilities Stakeholder management (operations, maintenance, engineering, management, community engagement, external) Business and project objectives Requirements analysis Alternatives analysis Financial analysis Technology selection Safety, health, and environmental requirements Sustainability Scope definition Conceptual design Value engineering Execution plan Contracting strategy Target validation (cost, schedule, operability) Funding/Financing optimization (modeling/simulation) readiness Safety, health, and environmental management management / lean construction Project recovery Claims management and resolution Operational readiness (commissioning, staffing, supply chain, manuals, and training) As-built documentation Sustaining capital/ expansion Continuous improvement Permitting Constructability reviews Cost estimating and scheduling Project controls, performance management, progress reporting Scope and change management Closure cost and risk analysis Independent reviews, audits, benchmarking, quality assurance and quality control Risk management Contracting and procurement involvement is critical for this activity involvement is desired for this activity Figure 4 s are generally responsible for the key decisions early in the lifecycle, while construction contractors execute much of the activities later in the lifecycle. s must define and prioritize their business and project objectives in a manner that readily translates into design features and architectural specifications to which industry can respond. This requires a high degree of functional integration among business, operations, engineering, contracting, and construction competencies to derive the right project scope and freeze it before execution. 3 5

6 s are often expected to plan and deliver a construction project that will have many layers of requirements beyond the physical asset (Figure 5). To avoid costly rework and maximize efficiency, these features must be integrated from conceptual design and not bolted on later during construction. Yet because construction contractors are not in the owner s business, they are usually ill-equipped to appreciate the unique parameters of these requirements. Additionally, because many owners do not acquire large complex capital assets very often, they too lack the necessary Multi-Layer Communities: Integrated Vision and Federal Government, State & Local Leadership Jurisdictions, Local Community Interests, Private Industry, Financial Institutions Figure 5 Mission/Business Layer Technology/C 3 Layer Environmental and Sustainability Layer Resilience Layer Physical Layer Infrastructure System The purpose of the infrastructure and its models, principles, human capital, policy, and operating concept necessary to achieve its desired performance Activities associated with deploying or inserting technology to ensure the efficient functioning, optimal performance and smart behavior of the system The planning and execution needed to ensure compliance with regulatory guidelines and the community s interest in being environmentally friendly and responsible The protection and security of people, assets and mission, including building for adaptive capacity, redundancy, and graceful degradation The planning, design, acquisition, integration, transition and maintenance of the physical assets experience and lessons learned to address these requirements sufficiently in the early stages of the lifecycle when the opportunity to ensure success is greatest. 4 So how best for owners to ensure their projects aren t derailed before the start? One method is to employ a stage-gated project development process to help assure the right sequencing of activities, types of plans, and levels of analyses are developed and followed to minimize risk as the project advances from one phase to the next. The gatekeepers are expected to answer key questions with Requirements Operations Divestment Does the scope meet the business/ operational need? Do we have full functional input and alignment? Is the owner s project team adequately staffed? Can we proceed with minimum risk of change? Is the risk profile acceptable? Are the cost, schedule, and operability targets reasonable? Can we fully fund the project? Is the contracting strategy appropriate? Figure 6 Execution Readiness Readiness Are the work packages sequenced properly? Can we begin field work with minimum risk of procurement and design/engineering delays? Can we proceed with minimal risk of costly field changes? Can field productivity be maximized? Startup Readiness Are operators and maintainers trained and equipped to operate and maintain the asset? Disposal Readiness Is the asset at the end of its useful life? What are our options for divestment, decommissioning, and remediation? What are the costs and risks associated with each option? confidence before advancing projects to the next stage, as shown in Figure 6, but even with a highly prescriptive acquisition processes, many owners do not have the discipline, resources or in-house capabilities to answer fully the critical questions needed to improve the project s risk profile. 5 6

7 Critical Tasks Integration Heightened Challenges for Complex Projects Figure 4 alludes to the breadth of functional competencies needed for any capital asset acquisition, but we haven t yet described the unique challenges of managing a complex project. By complex, we mean a project with one or more of the following characteristics: (1) Many organizational and system interfaces, (2) use of innovation and new technology, (3) large scale and scope of operations, (4) large capital expenditure for the organization, or (5) criticality to continuing operations and business continuity. As projects entail greater technological sophistication; increased inter- and intra-dependencies on other systems, components or programs; heightened organizational complexity (further exacerbated by reorganizations, mergers and joint ventures), and accelerated rapidity of change, risk increases exponentially. As if increased project complexity and diminished in-house competencies aren t enough, in today s world of social media, heightened stakeholder scrutiny, and amplified Non-Governmental Organization (NGO) involvement, missteps attract more attention and widespread distribution than ever before and can take years to recover from. While not all projects fail to provide expected outcomes on time and within budget, there remains too much variability in achieving desired results. Although some might accept such variability as inevitable for complex projects, the tolerance for such deviations is limited, especially given the transparency and insights investors are now afforded. Cost predictability (and also competitiveness) must improve in a tight fiscal environment to assure management s and the organization s credibility. s need ways to improve project management and outcomes. Value Protected by Using an s Paladin An s Paladin helps to provide stewardship for a capital asset acquisition over the entire project lifecycle. An s Paladin augments the in-house Project Management team by providing expert staff, state-of-the-art techniques, and sophisticated tools that are not usually resident in the owner s organization. An s Paladin should have the expertise of traditional architecture and engineering (A/E) and construction management (CM) contractors, but be devoid of their bias for selling marque designs, proprietary architectures or hallmark constructions. Alternatively, the s Paladin provides an objective perspective and works closely with the owner as a trusted advisor to manage stakeholder requirements and expectations (including owner constituents unrealistic expectations), enhance and challenge the Project Management team, and assess independently project development progress and risk. The s Paladin takes a holistic view of the project, measuring success in terms of achieving the outcomes desired by stakeholders and not just the outputs measured by the Business/Mission and User constituencies. Thus, the s Paladin is committed Requirements Operations Divestment Figure 7 Continuity 7

8 to ensuring both integration within a project phase and continuity across phases (Figure 7) to prevent critical tasks from falling through the seams among subcomponent scopes, performer contracts, and project phases. Armed with in-depth understanding of the owner s business, an integrated set of capabilities, and a command of global best practices, the s Paladin provides more than staff augmentation or outsourced responsibility for one aspect of a project. It helps the owner to make sure the project is healthy, is fully aligned with business objectives, and stays on track throughout execution and early operations. It can help ensure discipline is used when developing the project. For example, it can ensure that the analysis of alternatives is robust and includes options including non-capital options that are independent of contractor, vendor, or owner constituent bias. It can also highlight risks of doing work out of sequence or deferring steps in the work process when there is pressure to do so. The s Paladin can make transparent both data and consequences of incorporating the inevitable new scope or functionality late in the project cycle and thereby help minimize costly changes. Requirements Environment Competencies Figure 8 Attributes s Paladin Strengths A/E Firm s mission and business needs Users processes and procedures Stakeholders requirements Enterprise s culture and environment Firm Organizational policy and standards Industrial base and vendors Independence and objectivity Architecture and design Contracting and procurement Project management Commissioning and occupancy Startup, transition, and acceptance As summarized in Figure 8, hiring an s Paladin offers strengths over traditional s Representatives hired from the design and construction contractor pool. An s Paladin offers strengths in all areas critical to success, particularly those involving owner-driven processes and decision making, which if not adequately addressed can lead to project failure. 7 We refer to such a staunch owner s advocate as a Paladin rather than as an s Agent or s Representative, which are commonly used terms in the industry. This is because the s Paladin is much more than an agent or representative, which acts on behalf of the owner in dealing with construction contractors and vendors. The s Paladin helps the owner build capacity to be better stewards of capital across the lifecycle. It works integrally with the owner not only to manage contractors and suppliers but also to manage internal constituencies and external stakeholders that can influence (positively or negatively) project scope and performance. The s Paladin inherently sits squarely on the owner s side of the buyer-seller relationship, and covers a scope beyond that given to a project management contractor (PMC), CM, or s Representative (Figure 9). 8

9 SELLER BUYER SELLER BUYER Enterprise Environment External Stakeholders s Paladin Project Management / Manager / s Representative Area A Area B Area C Security Utilities & Infrastructure Turnkey Site Security Engineering Consultants Consultants Consultants IT Site IT Figure 9 s Paladin Roles, Responsibilities and Authorities The roles and responsibilities that an owner can instill in its s Paladin can vary as shown in Figure 10. Along a spectrum, the s Paladin can be an ancillary advisor, with no authority to direct contractors. With more authority, it can also take a financial stake in delivery outcomes by putting its fee at risk. Generally, with more authority, the s Paladin has more influence over the outcomes, but also tends toward the seller side of the buy-seller relationship. The owner must be willing to delegate authority, or else revert to the advisor model. In other variants, the s Paladin can also take on design integration or construction oversight roles. At the far end of the spectrum, the s Paladin could take full delivery responsibility much like a turnkey contractor. The optimum role varies depending on owner capabilities, preferences, and project characteristics, but the s Paladin is most effective when aligned within the s team as shown in Figure Advisor Paladin Responsibility Spectrum Manager Manager Turnkey s Advisor s Paladin s Representative s Representative Turnkey Prime Sub- s Sub- s Sub- s Sub- s Sub- s Advisor consults with owner that manages multiple contractors Paladin partners with owner to manage project development and prime contractor(s) s representative is the prime design contractor and may provide some construction management engages a construction management contractor for construction outsources the entire project to a prime contractor Figure

10 Beyond enhancing the management of individual projects, the s Paladin can also improve enterprise-wide practices and assist in managing the portfolio of projects. This article focuses on the value s Paladin adds to individual projects; while future articles will address portfolio capability. Conclusions Enterprises acquiring large, complex facilities can benefit by engaging an s Paladin to help manage their projects. The s Paladin should have mission insight and domain perspectives comparable to the owner; possess the competencies and expertise equivalent to an A&E or CM while remaining independent; and provide state-of-the-art project management skills, processes, tools and systems. The s Paladin can ensure integration within each project phase, as well as continuity across phases. The ideal time to engage an s Paladin is early in project development. For owners contemplating their next big project, now is the time to make a relatively small but critical investment to maximize project success over the lifecycle. About the Authors Peter Andrejev, PMP, CCEA has 30 years of professional experience assisting government program managers in the acquisition of large, complex defense, intelligence, and civilian systems. At Booz Allen Hamilton, he leads major client engagements and internal investments in acquisition and program management, systems engineering and integration, and economic and business analysis. He served as an advisor to the Business Executives for National Security Task Force on Acquisition Law and Oversight in 2009, was named the 2000 National Cost Estimator/ Analyst of the Year by the Society of Cost Estimating and Analysis, and currently serves as SCEA s Director of Certification. Christopher Carabetta has 15 years of professional experience in engineering and business. He has helped 22 global companies in the capital intensive process manufacturing and extractive industries to more effectively deploy capital assets and has advised on over 120 major projects. Chris has guided companies in building stage-gated project systems with centralized major project organizations, and supported continuous improvement by benchmarking capital project performance at the portfolio level. He has also completed closeout and lessons learned evaluations for individual projects and pre-sanction readiness independent evaluations for prospective projects. 10