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2015 Global Construction Project Owner’s Survey: Prioritizing projects, Optimizing your portfolio

Whether project owners are operating in buoyant capital project markets or in those still emerging from the economic slowdown there is intense competition internally for funding and people, and externally for scarce contractor resources. Consequently, organizations need to manage their capital efficiently and effectively across a wide range of projects, to ensure they are aligned with strategic goals. Core capital allocation components include capital budgeting and planning policies and procedures, a cross-functional capital review committee, and a robust system for tracking and reporting across the portfolio.

All potential projects should be systematically identified, classified, screened, prioritized, evaluated and selected. This process must be supported by an appropriate budget allocation and monitoring process. Throughout the capital allocation process, alignment between strategic objectives and the capital project portfolio must be tested.

Of course, this is not the only way to optimize the portfolio

However, this and other approaches should always have established guidelines, to keep projects in line with growth and profitability targets. With a seemingly endless pool of possible projects, and the need to balance competing interests within ever changing capital and capacity constraints, organizations can struggle to choose the most appropriate mix. Some lack basic guidelines, and may cast the net too wide, which leads to a time-consuming review process that overloads decisionmakers with excess information, and causes unwanted internal conflict. Others employ unnecessarily narrow parameters that fail to allow for innovative suggestions that could bring great value. Once a project is selected, it is easy to neglect the process of evaluating performance against the original business case, to clarify any learnings and document financial data. Given the huge amounts spent on construction projects, the relative success or failure of capital allocation and portfolio optimization could ultimately determine the organization’s entire survival.

Keeping the talent conveyor belt running

In order to successfully manage the enormous responsibility of a multi-billion dollar project, owners are heavily dependent upon capable project management teams that understand engineering and construction, project management principles and practices and, not least, the increasingly sophisticated technology that controls every step. The talent gap is a much-discussed phenomenon in the industry, and owners face the same challenges that contractors have been grappling with for years – to attract, train and retain the best people in the face of severe competition from other sectors. Forty-four percent of respondents say that they struggle to attract qualified craft labor to projects, and a similar percentage claims that a lack of available planners and project management professionals is hampering their project progress. One respondent feels that one of the organization’s most pressing needs is: “making sure we have well trained project managers with good tools to complete projects on time and within budget.” Not surprisingly, there is a strong correlation between organizational size and number of full-time employees specifically assigned to projects. Almost half of respondents from smaller organizations (less than US$1 billion turnover) have 50 or fewer staff, while for the largest entities (turnover greater than US$5 billion), three-quarters have teams of over 50 and 62 percent have more than 100 employees.

Number of Full time employees managing capital construction projects

Number of Full time employees managing capital construction projects

Those organizations with fewer full-time project staff tend to have a higher annual average capital expenditure per employee. Fears that this could stretch their resources are not borne out by the findings, which show that the smaller institutions in the survey also report a lower rate of underperforming projects. This suggests that it is not the quantity of employees that makes the difference, but the quality of employees. The larger the organization, the more likely it is to have a significant pool of tried and tested project workers. Twenty-nine percent of respondents from larger entities say that they select their teams based upon past performance, compared to just 11 percent for the smaller organizations. Nevertheless, most project workers are chosen on a case-by-case basis.

A need for outside assistance

Despite investment in recruitment and training, owners routinely bolster their project teams with additional, temporary personnel, particularly in the aforementioned areas of craft labor and planners and project management specialists. Over two-thirds of the executives in the survey note the need to hire a significant number (more than 5 percent of the total workforce) of external project or program management experts to supplement existing staff. And, the larger the organization, the greater the need: 87 percent of the larger institutions report the necessity to bring in outside people. The energy and natural resources sector has been hit hard by the recent plummeting price of oil, and most players, if not all, will have to reduce staff numbers, which can stretch resources when carrying out major construction projects.

The above article is an excerpt from KPMG Global Construction Survey 2015

David Okwara

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