AA016 Client s Critical Success Factors in Outsourcing of Construction Projects Case Study: Tehran Municipality

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1 AA016 Client s Critical Success Factors in Outsourcing of Construction Projects Case Study: Tehran Municipality Mohammad Ali Haghnazar (Ph.D. Student, School of Management and Economics, Sharif University of Technology, Tehran, Iran) Dr. Mehran Sepehri (Associate Professor, School of Management and Economics, Sharif University of Technology, Tehran, Iran) Abstract To counter the competitive forces in the market, many firms re-evaluate their work by focusing on core competencies and increasing their outsourcing. Due to the project based nature of the construction industry identifying and evaluating key success factors will help top managers in implementation of successful outsourcing. These organizations primarily aim to finish their projects based on a defined scope of time, budget and quality, while accepted by the final customer. In this paper, a conceptual framework was defined based on literature review and interview with experts panel. Key factors related to the success of outsourced project were evaluated quantitatively in one of the largest project-based Iranian organizations, by using a questionnaire for one of their recent construction projects. Results show that successful implementation of outsourcing strategy in construction projects is strongly influenced by the level of coordination with the contractor, the contractor selection, clear project objectives, well defined technical tasks and client's top management support. Keywords Outsourcing, Client, Contractor, Project management, Critical success factors 1. Introduction With more competition in business environment, the necessity of utilizing other organization s competencies and skills is appreciated to provide maximum demands and requirements of clients with the minimum total costs. So besides increasing competition power of organization and agility of organization s activities, the possibility of increasing innovative potency and gaining competitive advantages will be provided. Different definitions for outsourcing have been submitted. According to Aalders definition, decision of an organization in respect of offering and/ or sale assets, human resources and services to a third party is called outsourcing in which the contractual party undertakes to provide and manage the required assets and services in the contract against defined income and in a certain time (Aalders (2002)). Nowadays industrial and business managers try to use outsourcing strategy; however, they encounter various challenges and problems. Managers and their consultants are trying to identify these problems to use outsourcing in a more effective manner (Thomas and Fernandez (2008)). Although widespread studies in respect of outsourcing literature have been conducted, still a comprehensive procedure for outsourcing decision making has not been developed (Vining and

2 Globerman (1999)). In this circumstance development of a comprehensive and systematic approach for decision making in respect of outsourcing and way of performing could be very effective in reducing risk of such decision. If set of factors most influencing on success of outsourcing of projects become demonstrated, both clients and contractors with awareness of those factors will be able to more effectively cope with the challenges in the projects and be influential on successful conduction of them. Success of a project is an abstract concept and the recognition of success or failure of a project is very complicated (Chan (1996, 1997)). However, project success concept could be assessed by performance measurement defined with various factors in different contexts. Key success factors are the concepts that should be considered precisely to ensure success of a manager and a project. In other words, key success factors are limited complex of factors that their existence ensures the survival and success of an organization or an outsourcing project (Clarke (1999)). Since 1960 decade project management researchers have endeavoured to identify the factors resulting in project success. Perhaps it could be said that key success factor approach is the best identified approach for restraining human and organizational aspects of projects (Fortune and White (2006)). Researches on project success factors show that preparation of a comprehensive list of these factors suitable for all projects is impossible. Because of unique features of each project, success factors differ from one project to another (Westerweld (2003)). This issue is true for outsourcing projects, too. In this regard many researchers endeavored to identify these factors in special contexts and with various approaches. Regardless of approaches and contexts, the mentioned key success factors are shown in the below table: key success factors Actual schedule Risk identification and assessment Project sponsor/hero Organizational structure/ culture Appropriate performance of suppliers/contractors/ consultants Training Political stability Project size/ complexity/ period of project Environmental influences Selection of right method/ tools key success factors Top manager's support Clear and actual objectives Adequate budget Involvement of consumer/ client Adequate resources/ allocated appropriately Effective change management Competent project manager Skilled/ eligible team Appropriate leadership Table 1: Review of proposed success factors in project success factors literature (Fortune and White (2006)) Pinto and Slevin (Pinto and Slevin (1986)) studied project success factors from several approaches in their ten-factor model of project success. Fig. 1 shows the framework of project performance on the basis of ten project success factors

3 Fig 1: framework of ten-factor model of project performance (Pinto and Slevin (1986)) Pinto and Slevin in their proposed model considered success factors and their relation and correlation with the project success from the sight of project team including project team members and project manager. The proposed models of Pinto and Slevin were developed in great construction projects environment. In Pinto and Slevin s Model, seven factors: top manager support, project mission, planning, consultant with client, personnel, technical tasks, client s acceptance are influential subsequently and procedurally on project success during life cycle of the project, and three factors of communication, problem solving and monitoring and feedback are simultaneously influential on success in all stage of project from the contractor s sight. In table 2, the definitions of ten success factors are shown. 1. Project Mission 2. Top Management Support 3. Project Planning 4. Consultant with Client 5. Personnel 6. Technical Tasks 7. Client Acceptance 8. Monitoring and Feedback 9. Communication 10. Problem Solving Clearly defined objectives and general guidelines Willingness of top management to provide required resources and adequate authority/power for project success Elaboration of activities Communication, consultant and listening actively to all vital members Recruitment, selection and training of required personnel for project team Availability of required technology and expertise for performing all defined technical activities Act of selling the final project to final consumers Comprehensive control in each steps of execution process Providing adequate network and data for all key parties in execution of the project Ability to manage unforeseen crisis situations and deviation from plan Table 2: Factors definition (Pinto and Slevin (1986)) The ten-factor Model of Pinto and Slevin created a new approach in project success factors context which, since then, has known and utilized as a reference in researches of this field (Anderson et al. (2006), Belout and Gauvreau (2004)). One

4 of the research fields in project management is study of client and contractor relationship in outsourcing of construction projects that most researches in this field focused on feasibility, advantages and disadvantages of outsourcing (Bryde and Robinson (2005)). Currently there are few researches which clearly distinguish between clients and contractors role in outsourcing project success (Bryde and Robinson (2005)), and in the related literature, the necessity of systematic research has been mentioned (Chan et al. (2003)). With regard to construction projects role in industrial developments of countries, successful conduction of these projects has a great role in economical growth of countries. Since the Pinto and Slevin s Model has been developed in construction project environment, it is appropriate to be used in this research. The ten-factor model of Pinto and Slevin is considered as a primary model in conducting of this research and the endeavor is to study key success factors in outsourcing of Construction projects from the client sight for Tehran Municipality as case study. 2. Research Method The research method of this paper is case study and applied research type. For assessment of key success factors in Construction projects, first introduced factors in Pinto and Slevin s Model were selected as initial model in semi-structured interview sessions with experienced experts, in order to identify the success factors from the client approach in these interviews. The relation between factors obtained from interview with experienced experts and project success are examined through distribution of questionnaire. In this theoretical model, success means completion of a project in a defined time, quality and cost which finally being approved by client. Since the objective of this paper is to identify the key success factors in outsourcing of construction projects, the dependent variable is success of outsourcing of construction projects.with regard to dependent variable and result of interviews with experts, independent variables of this research are key influential factors in success of outsourcing of construction projects: Mission and objectives of project (M), support of client s top manager (S), selection of contractor (C), technical and specialty tasks (T), communication management with client (R). Since Tehran Municipality is one of the best samples of utilizing outsourcing strategy in construction projects in Iran, the domain of this research is Tehran Municipality. In this research key success factors of outsourcing of construction projects are identified and assessed in Tehran Municipality as a client of construction projects. Statistical population of this research is managers, supervisors, and technical experts of construction department of Tehran Municipality. The studied projects were ones which have been completed and were of the most recent experience of statistical population. 2.1 Data Collection In this research the method of sampling is according to clustering and Snowball methods. Tehran Municipality includes 22 zones. So initially 5 zones of these 22 zones were selected by random sampling. Then in each zone, by the Snowball sampling, three of informed people in construction department were selected randomly for interview and they have been asked to introduce the other informed people. These interviews continued until saturation of information. Due to the

5 request of this organization to not disclose the name of projects and the interviewees in the research, their name will not be mentioned. In continue and in the section of quantitative research, after designing the questionnaires as for results of interviews, the questionnaires were distributed among all managers, supervisors and experts of construction department of these selected zones of Tehran Municipality. The total number of distributed questionnaire was 115 and 88 people of the statistical sample answered to questionnaire. With regard to the framework of model, the data collection tools in this research are interviews with the related expert panel and also questionnaires. 2.2 Validity of Research Measurement Tools In this study for consideration of validity, content validity and face validity were evaluated. In the face validity we consider whether the experts verify that the tools are measuring what is inferred from their name (Khaki (2000))? To measure the face validity, the questionnaire and its content were considered by ten experts and their comments were applied. Content validity shows that how the description of dimensions and components of concept is (Khaki (2000)). For designing of the questionnaire, with regard to strong history of models and also with consideration of main models variables, the endeavor was to apply element measurement indexes which are based on appropriate theoretical and their practical application in numerous researches and tests. Since in this study, the questionnaires were provided with regard to expert panel s opinion, its validity were evaluated by one of the common methods for measurement of the questionnaire's content validity which was introduced by Mr. Lawshe in In this method, before distribution of questionnaires, its content validity was considered by ten of experts through mentioned method, and its content validity ratio (CVR) was calculated Considering the number of experts (10), the calculated content validity ratio is more than the least content validity ratio (0.62). 2.3 Reliability of Research Measurement Tool In this study, also, the test retest method is used to estimate the reliability. Based on test retest method Cronbach s Alpha coefficient was estimated equal to which is above 0.7 and within the acceptable criteria. 3. Presentation of Results Based on multivariate linear regression, the direct effects of independent variables on dependent variable are presented in the form of Table 3. Estimation of Relation Direction Standard Parameter From Project s Mission and Objective to Project Success From Client s Top Management Support to Project Success From Contractor Selection Method to Project Success Estimation of Standard s Error t

6 From Technical and Specialty Tasks to Project Success From Communication Management with Contractor to Project Success Table 3: Direct effect of independent variables on dependent variables 3.1 Result Interpretation of the table of direct effects of independent variables on dependent variable Value of t indicates that the assumed paths from independent variables of model to dependent variable, including project s mission and objective, client s top management support, contractor selection method, technical and specialty tasks and communication management with contractor on project success is meaningful. Therefore, the correspondent assumptions regarding each path are verified. The total amount of Linear Correlation explaining project success through forecaster variables of mission and objectives of project, client's top management support, selection of contractors, technical tasks and communication management with client was Conclusion Hypothesis' Test Results are as below: Hypothesis I) Project Mission and Objective have effect on Project Success. The statistical result hypothesis indicates that the mission and objectives of the project has a positive and direct effect on project success. In fact, by clarifying mission and objectives of the project for contractor, the probability of project success will increase. The intention of mission and objectives of project structure is the circumstances in which the project objectives are not only clear for client, but also clear and understandable for the contractor. Project success is defined as performing a project within determined time, quality and cost that ultimately being approved by client (Pinto and Slevin (1986)). Comparison of test results of hypothesis with Researches of King and Cleland (king and Cleland (1983)), Baker et al. (Baker et al. (1983)), Pinto and Slevin (Pinto and Slevin (1986, 1988)) and Morris and Hough (Morris and Hough (1987)), which have accepted the direct and positive relationship between project's mission and project success, indicates that this hypothesis test results are consistent with previous research results. Hypothesis II) Client s top management support has effect on Project Success. Client s top management support structure means type and size of support which the contractor expects from client s top management (Pinto and Slevin (1986)). The client s top management support can comprised of cases like project finance (on time payment to contractor) or support and leadership of system in determining and allocating projects and solving substantial problems

7 Comparison of test results of hypothesis with Pinto and Slevin s researches (Pinto and Slevin (1986, 1988)), which have accepted the direct and positive relationship between top management support and project success, indicates that this hypothesis test results are consistent with previous research results. Hypothesis III) Contractor selection has effect on Project Success. Contractor selection structure refers importance of method of selecting appropriate contractor, like recruitment, for outsourcing of project. Comparison of test results of hypothesis with researches of King and Cleland (king and Cleland (1983)) and Pinto and Slevin (Pinto and Slevin (1986, 1988)), which have accepted the direct and positive relationship of recruitment, selection and training of personnel with project success, indicates that this hypothesis test results are consistent with previous research results, of course from Client's perspective. Hypothesis IV) Technical and specialty tasks have effect on Project Success. Comparison of test results of hypothesis with researches of King and Cleland (king and Cleland (1983)) and Pinto and Slevin (Pinto and Slevin (1986, 1988)), which have accepted the direct and positive relationship of technical tasks and availability of required technologies with project success, indicates that this hypothesis test results are consistent with previous research results, of course from Client's perspective. Hypothesis V) Communication management has effect on Project Success. Communication management with contractor means a reciprocal and continuous relation and communication with contractor (Pinto and Slevin (1986)). Comparison of test results of hypothesis with researches of King and Cleland (king and Cleland (1983)) and Pinto and Slevin (Pinto and Slevin (1986, 1988)), which have accepted the direct and positive relationship between communication management with contractor and project success, indicates that this hypothesis test results are consistent with previous research results. 5. Summary In this research, the endeavour was to consider and identify the effective factors on success of outsourcing of construction projects with use of comprehensive model of five-factor presented in theoretical framework. To do this research after semistructured interviews with construction department s experts of selected zones of Tehran Municipality zones, a questionnaire was developed and sent to 150 other informant people in construction divisions such that at last 88 analysable questionnaires was received. These research constraints were that the ten factors model of Pinto and Slevin was the input of interviews. So the output of these meetings was influenced by this selection and all interviewees was consider as same. To achieve the final model, after reviewing the existed literature and interviews with experts, the model variables were analyzed. At last the model was finalized

8 and the result was that these five factors (communication management with contractors, contractor selection method, project s mission and objectives, technical and specialty tasks, and client s top management support) affect on outsourcing projects success from client perspective and need more special and continuous attention from client s managers. 6. References Aalders, R. (2002), The IT Outsourcing Guide (2 nd edition), John Wiley & Sons, Ltd., England. Andersen, E. S., Birchall, D., Jessen, S.A. and Money, A.H. (2006), Exploring project success, Baltic Journal of Management, 1(2), Baker, B.N., Murphy, D.C. and Fisher, D. (1983), Factors affecting project success, Project Management Handbook, Van Nostrad Reinhold, New York. Belout, A. and Gauvreau, C. (2004), Factors influencing project success: the impact of human resource management, International Journal of Project Management, 22, Bryde, D. J. and Robinson, L. (2005), Client versus contractor perspectives on project success criteria, International Journal of Project Management, 23, Chan, A.P.C (1996), Determinants of project success in the construction industry of Hong Kong, unpublished PhD thetsis, University of South Australia, Adelaide. Chan, A.P.C (1997), Measuring success for a construction project, The Australian Institute of Quantity Surveyors Referred Journal, 1(2), Chan, A.P.C., Chan, D.W.M. and Ho, K.S.K. (2003), Partnering in construction: critical study of problems for implementation, Journal of Manageant Eng.,19(3), Clarke, A. (1999), A practical use of key success factors to improve the efectiveness of project management, International Journal of Project Management, 17(3), Currie, W. (2000), The supply side of IT outsourcing: The trends toward mergers, acquisition and joint ventures, International journal of physical distribution & logistics management, 30(¾), Fortune, J. and White, D. (2006), Framing of project critical success factors by a systems model, International Journal of Project Management, 24, Khaki Gh. (2000), Research Method in Management, Azad University publication, Tehran. King, W.R. and Cleland, D.I. (1983), Life cycle management, in Project management handbook, Van Nostrad Reinhold, New York. Morris, P.W. and Hough, G.H. (1987), The anatomy of major project, John Wiley and Sons, New York. Pinto, J.K. and Slevin, D.P. (1986), The project mplementation profile : New tool for project managers, Project Management Journal, 18(4), Pinto, J.K. and Slevin, D.P. (1988), Critical success factors across the project life cycle, Project Management Journal, 19(3), Thomas, G. and Fernandez, W. (2008), Innovation risks of strategic outsourcing, International Journal of Project Management, 26, Vining A. and Globerman, S. (1999), A conceptual framework for understanding the outsourcing decision, European Management Journal, 17(6), Westerweld, E. (2003), The Project Excellence Model1: linking success criteria and critical success factors, International Journal of Project Management, 2,