Nostradamus for Projects (Part I): Building Predictability into your Enterprise

Predictability

Why is it the construction industry lags other sectors when it comes to productivity? Why are cost and schedule overruns the norm for engineering and construction projects?

The answer to these questions is complicated, as there are many factors that affect project outcomes. However, there is one critical factor that is often overlooked, but has a huge impact on returns and margins – Predictability.

What is predictability and why is it important?

Predictability is simply defined as knowing the outcome of an event as early as possible. For construction projects, we mostly focus on cost and schedule predictability. In order to have predictable projects you need early AND accurate forecasts.

To illustrate, consider projects A and B.

Predictability Project Comparison

 
  • Project A) Find out about a 20% overrun 20% into the project duration
  • Project B) Find out about a 20% overrun 80% into the project duration

Imagine instead your organization had highly predictable projects, like Project A. If you learn about an overrun 20% into the project duration versus 80%, you have ample time for course correcting action.

Keep in mind, this example is just one project. If you multiply this issue by hundreds or thousands of projects across your organization, you begin to see how important predictability is.

Construction Industry Institute Quote

An organization’s inability to accurately predict cost and schedule outcomes massively impacts the bottom line and management confidence, to say nothing of investor confidence. Given Wall Street speaks the language of predictability, executives in our industry must also attain fluency in predictability. Again, early knowledge of outcomes enables project teams to address project performance proactively to reduce cost and schedule variance.

Influencing Cost Over Project Lifecycle

 

You cannot eliminate all surprises, but the quicker you identify them the better chance you have to take action. Simply put, improved predictability breeds better project control and better financial outcomes.

What causes low predictability?

Tasked with Improving the Predictability of Accurate Project Outcomes, the Construction Industry Institute (CII) released findings  from its Research Team (RT) 291.

The research revealed that there were distinct and identifiable practices that affected predictability of projects. The research team categorized these practices as follows:

  1. Human behavior and organizational culture
  2. Project characteristics (project complexity, external influences, market conditions, project team)
  3. Forecasting practices (forecasting methods, forecasting data, contingency management, reporting)
  4. Management processes (project planning & execution, contracting, risk management, change management)

Somewhat surprisingly, the single most important factor in project overruns was found to be the people element, including a mix of leadership, competency and human behavior. RT-291 found evidence of systemic delays in reporting accurate cost and schedule variance, otherwise known as “the hockey stick effect,” named after the typical shape of curves depicting forecast change over time.

If you think about it, this makes sense.

Project teams are typically measured based on the outcome of a project i.e. the deviation of actual costs and schedule from planned. With outcome-centric evaluation, project teams will not feel compelled to become better predictors. Project managers express that the prediction of an overrun at completion raises concern, scrutiny, and suspicion from the home office. Therefore, project managers tend to adopt an optimistic and biased view toward the report of deviations with the hope that future corrective actions will effectively readdress performance. As a result, deviations tend to be reported very late in the project execution process (Back and Grau, “Four-casting for early predictability”).

Achieving high predictability

In order to increase the predictability of projects, executives must first and foremost address the human factor and culture within their organization. By institutionalizing and incentivizing proactive behaviors no longer driven by outcome-centric Variance Analysis but instead by Predictability Analysis.

CII introduced the Predictability Index to help organizations do just that. The predictability index measures a project team’s ability to accurately and timely predict cost and schedule performance by assessing three core competencies:

  1. Timeliness of forecasts
  2. Accuracy of forecasts
  3. Deviations at completion

CII has found that when organizations implement performance measurement based on predictability, deviations are reported earlier, root causes of issues can be identified sooner, corrective action can be taken to mitigate risk, and resources can be optimized across the organization.

Furthermore, organizations that measure and assess predictability are able to utilize predictability as a benchmarking metric. This allows them to analyze and track predictability against variables such as business unit, project size, geographic sector, team leadership etc. Additionally, the benchmarking of predictability performance is also perceived as a reinforcing message within itself, promoting behavioral shifts in the organization that emphasize trust, transparency, alignment, and timely disclosure of project performance information (Back and Grau).

Technology’s role in predictability

It’s no coincidence that in addition to productivity and predictability, the construction industry also lags other sectors in technology adoption. Deloitte notes that Construction invests just 1.5%  of revenue into IT, less than half of the average for all industries. Further, KPMG reported  that two-thirds of surveyed firms don’t use advanced data analytics to monitor project-related estimation and performance.

This void of technology has contributed to low predictability in the industry, as executives lack visibility and transparency into the project level to properly incentivize and drive predictability across the organization.

There is hope, however, as digital transformation is becoming a critical business initiative for organizations in the Engineering & Construction industry. Many firms are increasingly utilizing technology to successfully deliver projects and achieve performance targets. Digitization can extend the reach of an organization, improve management decisions, and drive efficiency throughout an enterprise.

Another benefit of technology is its ability to help track, analyze, and ultimately drive predictability. Technology can directly impact many of the practices that CII identified as distinctly correlated to predictability:

Project characteristics – technology helps you manage complex projects more efficiently, promotes more effective communication and collaboration between project teams and management, helps mitigate the impact of external influences, and in some cases, software can help directly measure and assess project teams based on predictability.

Forecasting practices – utilizing one software solution as a central hub for project data can help improve forecasting, making sure forecasts are based on consistent, accurate, and real-time information. In addition, reporting can be done much more quickly, and with less manual effort.

Management processes – software solutions can help make project planning, execution, and contract management more efficient and effective. The correct software will also improve risk and change management, and make sure that best practices are standardized throughout the organization. Solutions that integrate management processes with project controls provide the added benefit of making sure project delivery is aligned with organizational strategy, and that all data is accurate and consistent across the enterprise.

Human behavior and organizational culture – there are some solutions on the market that can even help with the human behavior and culture aspect of predictability. Software that leverages predictability indices can help organizations measure, track, and benchmark based on predictability. Shining a spotlight on predictability allows management to reward it, thus helping drive out “optimism bias.”

A digital transformation of your enterprise provides a great opportunity to increase the productivity of your organization. And since predictability is such a critical part of project and organizational success, it is very important to consider predictability as part of your digital transformation strategy.

For more information about how to deliver highly predictable projects as part of your digital transformation strategy, contact us.

 

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Podcast: Maximizing Your Projects Performance

Projects and portfolios often struggle to deliver their desired return on investment. Many in the projects business don’t standardize project prioritization, planning and delivery. They select projects without knowing whether they align with strategy. They can’t establish real performance baselines. With these limitations, what result should you expect?

With EcoSys, we’ve always focused on project controls. However, we all know there’s no point controlling a project perfectly if it’s the wrong project to begin with. Similarly, without ensuring your contracts are managed effectively, you can’t really control all aspects of a project.

With the release of EcoSys 8, we are showcasing our expanded portfolio management and contract management capabilities to offer a complete solution for improving the full life-cycle of projects performance. EcoSys is now the first integrated platform in the industry for project performance spanning project portfolio management, project controls and contract management. This allows our customers to benefit from our strengths in project controls and helps them break down siloes that usually isolate portfolios and contracts.

Everything happens in one platform. Other vendors who provide solutions in all three areas really offer three technology products on three different platforms. Our three products – EcoSys Portfolios, EcoSys Projects, and EcoSys Contracts – are on one technology platform. They are fully integrated, so when you select a project from any one of the three products, you’re selecting it from the same list of projects. You don’t have to manufacture a data exchange between the three pieces.

An exciting benefit of this is the ability to recycle data. Project execution data can be recycled that back into EcoSys Portfolios to make sure that your estimates for future projects are that much more accurate through benchmarking.

Listen to this podcast featuring Mark White, senior vice president of projects performance at Hexagon PPM to hear more about the benefits of EcoSys 8, the EcoSys product vision and roadmap.

 


EcoSys 8: Introducing Enterprise Projects Performance

Project controls is a vital part of successful project delivery. The ability to efficiently and accurately measure and forecast project performance can’t be understated. However, project controls alone is not enough. Consider a project that is flawlessly executed, on-time and on-budget, only to learn that it’s not strategic, doesn’t further an organization’s goals, and the investment would have been better spent elsewhere.

That is why with the release of EcoSys 8, Hexagon PPM has announced an expanded vision for the life cycle of projects, Enterprise Projects Performance. EcoSys now goes beyond project controls to look strategically at all projects in an enterprise – from project portfolio management, to project controls, to contract management.

The mission of Enterprise Projects Performance is to maximize investment returns through:

  1. The alignment of strategic decision making with tactical, real-time project and contract intelligence
  2. Proper prioritization, selection, and management of project portfolios from inception through execution to close out
  3. Controlling projects and managing contracts through standardization based on best practices to avoid overruns and mitigate contract risk
  4. High visibility of forecasts and trends via built-in dashboards, dynamically drilling down into underlying causes

Watch this video to learn more about what’s new in EcoSys 8, and how it can help you move beyond project controls.


Improving Projects Performance at CH2M

Efficiency is important in improving organizational performance, especially in the Engineering & Construction industry where project margins are so thin.

CH2M, a leading global engineering company providing consulting, design, construction and operations services recognized that in order to improve the performance of their projects, they needed to increase efficiency by eliminating the time spent manually compiling data from single point solutions. CH2M selected EcoSys as an enterprise-wide project platform, integrating with their ERP and scheduling systems to seamlessly integrate data sources, resulting in improved:

  • Budgeting
  • Forecasting
  • Change management
  • Progress measurement
  • Performance measurement

Watch this video to see how CH2M was able to replace inefficient in-house and single point solutions by standardizing their project controls solution with EcoSys.


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