Do recent developments in the construction industry suggest importance must be placed on project governance?

Posted by Jack Alford on April 18, 2018

Project governance in construction

Project failure. Two words that can cause construction firms all over the world an awful lot of problems. The consequences may vary in severity, for some businesses a few failed projects can be manageable, but for others it can be the final straw that leads to some serious financial difficulties.

It goes without saying, that getting to the bottom of why so many construction projects run into trouble should be a priority for business leaders.

According to PwC, and as discussed in our white paper, ‘Why project governance matters to built environment businesses’, 45% of capital projects are delayed by 6 or more months and 92% of these delays are down to poor management. This is an alarming statistic, considering project management is an area that businesses should be able to control.

In an industry where working on time and to budget is paramount to success, it’s surprising to see the percentage of capital projects that are delayed. However, in many ways it’s promising to learn that the vast majority of these delays are down to project management, an area of your business you have the power to improve.


 

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Why project governance matters


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What Is The Industry Telling Us?



The construction industry

Looking to the AEC industry, there are some learning points we can glean from recent events. No doubt, you have read about Carillion and their recent catastrophe. By understanding some of what happened, it may help prevent your business from making some of the same mistakes.

As reported by a number of industry commentators, there were a whole range of problems that led to the downfall of this construction giant. It could be argued that they overreached themselves, taking on too many risky contracts with margins that were simply too tight. There have been complaints aimed at the executives for taking large dividends in spite of the clear financial difficulties the business was going through.

The interim chief executive, Keith Cochrane blamed the sector and its low pay-outs:

“In too many cases, we were building a Rolls-Royce but getting paid to build a Mini.” – Keith Cochrane, Carillion.

Are the low pay-outs to blame for Carillion’s financial disaster? In truth, it was probably a combination of factors that led to their downfall. But as the arguments rage on about which factor is most to blame, surely it can be agreed that the business should have been able to see this coming and take corrective action. This is where operating within a robust project governance framework comes into play.

With effective governance in place, you are able to understand which of your projects are delivering the most profit, and perhaps more importantly, which are not. You are also able to take stock of your order book and ensure you have the right mix of projects in play to minimise the risk of any profitability issues.

It is strongly advised that you put yourself in a position of control. Take control of your forecasting, work winning and order book. With the right framework in place, potential problems will be flagged early, enabling decision makers to be proactive and take the necessary actions before it’s too late.


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Is Proper Project Governance Really The Answer?



Project governance framework

In this context, think about project governance as the management framework within which your company’s project decisions are made. It encompasses all aspects of the business, including operations, outsourcing and procurement, HR, financial management and IT. When done properly, the benefits of getting this right are huge.

Poor project governance can result in businesses quickly seeing their margins go in the wrong direction, allowing mistakes and bad practice to creep in. This can involve missing a key deadline, being hit with a penalty, losing that vital piece of information you need in a dispute or simply financial negligence. Richard McWilliams, Director of Technology at Turner and Townsend expands on this:

“A wrong turn, a false move, a project that’s not properly set up, or doesn’t have proper governance – and a company will start burning rather than earning profit.” – Richard McWilliams, Turner and Townsend.

If you aren’t paying enough attention to the governance of your projects, the risks are high. The question is, are you willing to take the chance?


Time For Action?


So you’ve bought into the idea of project governance, but how does your business actually implement it? Taken from our recent White Paper, ‘Why project governance matters to built environment businesses’, here are six key steps you can follow to get you started:

  1. Review how the business is currently running projects with a focus on each department, including operations, outsourcing and supply chain, HR, financial, management and IT 
  2. Ask how much the business is willing to invest in change – in terms of people, processes and systems – and look at the risks involved in not making that investment 
  3. Assign change leaders and champions 
  4. Invest in the right expertise, systems and technology 
  5. Make the internal change within the team 
  6. Implement regular reporting and feedback loops.

This is just the tip of the iceberg, if project governance is an area you recognise your business needs to improve, then you should check out the free whitepaper below.

 

Project Governance Whitepaper

Find out why project governance matters to AEC businesses and how you can implement it for your business.

Download Your Copy