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Avoid Project Failure in a Weak Economy

July 9, 2009
Get the scoop on project-management techniques that lead to success in any economic environment

By now, you’re sick of hearing about it – the constant din of reporters and headlines telling you just how bad the economy is, how construction is suffering, and how it might take a while for things to turn around. For building owners and managers who are taking on construction and modernization projects this year, and in the near future (in our 2009 Modernization and New Construction Trends report, more than 80 percent of you indicated that you’re doing this), it’s more important than ever to review best practices to avoid coming in late and over budget.

While the economic recession hasn’t really been a friend to anyone, hardship in parts of the buildings industry has actually led to benefits for owners and developers. “It’s a very tough economy right now, and we’re seeing very, very low numbers and very aggressive numbers from contractors and subcontractors, which is a really good thing,” says Tom Fioretti, managing director of project management at Grubb & Ellis, Chicago. “Those numbers are coming in lower because, obviously, the work has dried up and margins are tighter.”

This increased competition leads to more and lower bids – so you can, potentially, have your pick from a range of vendors with low, attractive prices. Material costs have also decreased with the decline in construction – another reason why now, if you have the resources, might actually be a great time to build.

Planning for Stimulus Money

If you’re like many owners and developers starting projects right now, you’re probably wondering: Where is all that stimulus money, and how can I get some for my project? The details of the American Recovery and Reinvestment Act will definitely pulse some life into the construction industry, but the focus will be on infrastructure improvements and public works projects.

If you’re in the commercial buildings industry, don’t give up hope of seeing the benefits of this money. “What will eventually happen, as people go to work on the highways and sewer treatment plants, is that you’ll start seeing secondary effects coming into the commercial industry,” says Roger Liska, chairman and professor of the construction science and management department at Clemson University in Clemson, SC. “It will be a domino impact. And, in terms of contractors looking for work, if they start bidding on government projects, that will also have a positive impact on our economy.”

For more information on the American Recovery and Reinvestment Act, and how it will affect your upcoming projects, be sure to check out Buildings' August 2009 cover story. And, stay tuned for a series of webinars that Buildings is offering on the topic, beginning at the end of July.

Keys to Project Success

While the economy has affected these factors, the principles of successful project management are steadfast. “Best practices are best practices,” says Wayne Crew, director at the Construction Industry Institute (CII), an organized research unit of the Cockrell School of Engineering at the University of Texas at Austin.

Safety. From CII research that includes 14 tried-and-tested best practices for the buildings industry, Crew identifies the basic principles for avoiding project failure, and he singles out safety first. “Zero-accident safety programs create a project environment that treats workers with dignity and respect,” says Crew, who adds that project teams need to embrace the mindset that all accidents are preventable. “It’s something that doesn’t seem to have anything to do with the economy, but, in fact, the research is very clear that it’s good business.”

Front-end planning. Before the job even begins, a tremendous amount of front-end planning and analysis must be completed. “The key factor that impacts the success of construction projects is early planning by the project team,” says Steve Sanders, director of the Construction Industry Cooperative Alliance at Clemson University in Clemson, SC. “Getting the proper team together and going through the proper planning processes upfront will help make the project a lot more successful,” he says.

Front-end planning includes defining the scope of the project, risk analysis, budgets and scheduling, and the project-delivery method, which includes spending time on the design aspect of the project. “You really want to get your scope pinned down before you go out in the field and get bidding and budget numbers,” says Fioretti. Knowing just what you want to achieve, what you can afford, who needs to be involved, and how long it might take are all keys in defining project scope, as is working out the design. CII’s project definition rating index (PDRI) is a tool that measures project scope (if you’re looking for help).

“We’re seeing more and more projects being built by the design-build or integrated construction process,” says Roger Liska, chairman and professor at the construction science and management department at Clemson University. “The owner is contracting with one firm to do the design and construction instead of the traditional concept of design-bid-build.” This trend toward integrated construction smoothes some of the pre-planning by eliminating the need to contract with two parties – a process that has, according to Liska, been known to create adversarial relationships.

Are You the Project Manager?

If you’re a building owner or manager, are you also fit to be a project manager? Steve Sanders, director of the Construction Industry Cooperative Alliance at Clemson University in Clemson, SC, offers his advice:

“Different organizations have different levels of competency in planning and managing projects. Some of them try to actually manage the work when they don’t have the competency or internal skills. So, if an owner is looking at a new project, my advice to him/her would be to do a detailed internal analysis of what competencies he/she has internally, asking, ‘Can we manage this work ourselves, or do we need to get outside expertise?’

I see too many owners who try to act as their own construction manager or general contractor and sub out the work to cut costs. That especially happens in a bad economy. They end up causing themselves more problems because they don’t have the expertise or competency to actually plan and manage the work. In the long run, it would be cheaper for them to find someone who can do that for them – somebody to help them define their scope, build their team, define risk, and analyze those risks. It’s a wise investment to hire people upfront who know what they’re doing.”

When choosing the best project-delivery or contracting method, Liska advises that you “do your homework. The owner has a lot of investment in this project, and he or she needs to take a deep breath and spend a little bit more time as the project is being conceived, before the final drawings are done and the first shovel of dirt is removed.” Crew also encourages taking a step back from the stress and rush of projects to do things right: “Schedule and budget limitations, and those kinds of stresses, push and pressure people to eliminate the time and expense of front-end planning, which is an essential process that develops sufficient information allowing for the assessment of risks and good decision-making, and maximizes the potential for a successful project.”

Hiring great contractors. “The key for us is hiring competent service providers and having the right people at the table,” says Fioretti. George C. Lancaster, senior vice president at Houston-based Hines, agrees, saying that one way to a successful project is “a project team that’s completely in sync with its client and business objectives.” Finding the right people is the challenge. While engineers and architects require certification, says Liska, “we joke and say that anybody with a pick-up truck and a saw can become a contractor. There’s truth to that when owners start looking at limited budgets and think about taking the lowest bid or lowest price, but that’s very dangerous in today’s world of construction. You have to build a competent project-management team, and you want to be sure they have prequalifications.” Setting up a rigorous RFP process for selection helps a lot, says Fioretti, as do referrals from peers.

“Sophisticated owners will review financial records and past experience, and talk to at least three of their other clients with the same kind of work,” says Liska, who also greatly encourages seeking out certified vendors. “Certification, unlike licensing, is a voluntary activity where the project manager (or vendor) would sit for a test and become certified. That’s another prequalification I know I would use.” Various agencies and organizations, depending on the type of project and people involved, offer certification (for example, the American Institute of Constructors offers Certified Professional Constructor certification, and the Project Management Institute offers Project Management Professional credentials).

One thing to avoid, though, is sacrificing a quality project team for a little less money. “We’re seeing a fair amount of layoffs on the contractor and subcontractor levels, which leads to a lot more competition. This is a good thing, but the downside is that it’s really becoming ‘buyer beware’ because the initial pricing is coming very low. But, once you hire a contractor and subcontractors, if there are any changes or revisions to the work, they come back with as much change order money as they can get,” Fioretti warns. Sanders adds that “the tendency of owners in this situation is to try to press the contractors to do the work as cheaply as possible. There’s nothing wrong with trying to get the most value for your money, but when you start pushing contractors to do work cheaper than the value of the work, you’re setting yourself up for some problems later in the project.” Finding the right people, then, is just as important for the outcome of your project as are planning and budgeting wisely and fairly.

“One of the tendencies I see is that owners want to spend less on design fees, which makes it harder for contractors to bid on the work,” says Sanders. If you’ve taken the time to properly define your scope in front-end planning, change orders (which Lancaster labels as “red flags”) should not come back to haunt you, your budget, or your schedule.

Communication. Once you’ve done your homework and found competent, experienced individuals, make sure everyone is on the same page. Alignment of stakeholders, according to Crew, is vital to establishing uniformly defined goals. Fioretti encourages weekly meetings involving the project manager, architect, engineer, contractor, subcontractors, and any other important stakeholders. Use this time to get status updates and address any necessary changes so that project delay can be avoided. “Every project’s going to run into issues and problems,” says Sanders. “It’s just a matter of the approach the team takes to deal with those.”

Seeing the Signs
At what point can you tell if your project is going well or heading toward disaster? “Most processes to measure schedule and costs, and the things we use to define a successful project, are pretty retrospective. In other words, they look backwards,” says Crew. With good planning and qualified people on your team, you should be on the right track, but here are a few negative indicators to watch for:

  • Numerous change orders and rework.
  • Poor communication amongst the project team.
  • Finger pointing and blaming when problems arise.
  • Safety problems or incidents.
  • Lack of status meetings.
  • Losing contractors or subcontractors.

According to Crew, CII research states that unsuccessful projects typically cost 11-percent above budget, run 30-percent behind schedule, and include change orders that total 9 percent of the total budget amount. Successful projects, on the other hand, show that in-depth planning and processes lead to better outcomes. These projects end up approximately 2-percent under budget and 2-percent ahead of schedule, and include change orders that are approximately 5 percent of the total budget.

You may be thinking of putting this article down and running those percentages over your project figures. If your past projects have been a success, you likely have best practices in place for every step. If not, consider “taking a deep breath,” as Liska suggests, and “spending a little more time planning and considering the steps. Then you’re going to find that you have a project that’ll probably come in at the schedule and for the amount of money specified, with no safety problems, no quality problems – and that’s what you really want.”

Jenna M. Aker ([email protected]) is associate editor at Buildings magazine.

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