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“Construction firm responsible for overdue, over-budget … project
The initial cost of the … project was $250 million, less than a third of the current price tag.”¹
“Laval’s Place Bell arena to cost $50M more in overruns …”²
“City battles contractor over … Bridge cost overruns”³
Negative headlines on capital projects are all too common. These project ‘Pain points’ tarnish all involved notwithstanding the ensuing adversarial ‘blame-game’. When the project is publicly funded the Pain extends to all taxpayers. While current, it’s not new news or just the Canadian story. Project Pain has plagued planning, design and construction projects internationally and for decades.
The Pain … is not confined to bad press. It’s the continued waste of infrastructure resources and the opportunity cost of not being able to invest elsewhere – be it time, talent, material or capital.
Much research has been done on this multi-billion-dollar issue. Many conclusions have been reached:
- “Cost overrun has been attributed to several sources including scope creep and rework (Love et al. 2005), unrealistic cost targets and misguided trade-offs between project scope, time and cost (Ahiaga-Dagbui and Smith 2014b),4
- a poor understanding of the systemic and dynamic nature of projects (Eden et al. 2005),5
- unidentified or improperly managed risk and uncertainty (Okmen and Öztas 2010) to6
- suspicions of foul-play and corruption (Wachs 1990)7.” 8
All these issues are symptoms of the root problem – productivity.
The above chart looks at the building industry within the context of other industries by comparing productivity over many decades. It’s clear that building industry productivity has flat-lined or declined, despite innovation and use of various technologies within the industry. So why is this the case?
McKinsey Global Institute Report provides some productivity root-cause analysis:10
What Owners desire most from their capital projects is value for money, usually to support service delivery.
Projects are complex – by the very number of elements and activities that need to come together in a defined time frame by a whole lot of strangers. The current level of value-added in building industry projects is a meager 10% while the manufacturing sector produces around 62% of value-add. What can be done differently to achieve better results? How then do Owners move from ‘Pain’ to ‘Gain’?
For the past 20 years, LEAN principles and methods have been applied within the building industry. LEAN is an outcome of the Total Quality Management (TQM) and Toyota Production System which dates back to the 1930’s. The fundamentals of LEAN Project Delivery are:
- Generation of Value
- Focus on Process & Flow
- Removal of Waste
- Optimizing the Whole
- Continuous Improvement All Within the Principle of Respect for People (more collaboration – less adversity)
These fundamentals apply to the whole project delivery team. Value generation begins with meeting the customer’s requirements. On a project, while the Owner is the main customer, each subsequent worker is the customer of the worker that went before. (For example, the plumber is the customer of the framer, the framer is the customer of the architect and structural engineer, while the drywall installer is the customer of the plumber – and so on.)
Supporting these fundamentals, LEAN projects utilize a number of methods, tools and systems-thinking to deliver better value for all involved.
Many case studies have been written and continue to document improved results. LEAN project practitioners share their experience with others through Communities of Practice and the approach is growing international in application and scale. The results speak loudly!
This is great news for Owners of infrastructure. LEAN is no longer a ‘bleeding edge’ approach with inherent risk of the unknown but has become a ‘leading edge’ better practice. LEAN as a quality process is also being embraced by organizations and companies internally to improve over-all productivity performance, customer value and the bottom-line.
However, change is slow …
Owners of infrastructure – particularly public Owners – can drive productivity improvements within this industry to change outcomes. Owners can lead change in each of the seven areas identified in the McKinsey report for action.
A logical first step would be to take the lead in promoting continuous improvement on capital projects by choosing to deliver projects using LEAN thinking, tools and methodologies. This fundamental change can be accomplished and the stage set for success during the project planning and procurement – or ‘going to market’ for your AEC and supply chain expertise. Using value-based procurement (as opposed to a laser focus on price) to get the right team on board and a project delivery model that promotes collaboration through-out the project. Value-based procurement is not new in the public sector and is being used successfully by various jurisdictions to solicit suppliers using many important criteria that respond to the specific project challenge.
Public Owners are responsible for a significant amount of infrastructure in Canada – from transportation to water & sewage treatment plants to hospitals to public schools. Improving project performance by even 2% each project would create a compounding interest effect of closing the productivity performance gap in short order.
This would translate to better value for money and score a ‘Gain’ for the entire project team and the industry.
Check our website to learn more about Lean project delivery and how your journey starts. www.shift2lean.ca
1 Heide Pearson and Kaylen Small Global News, Canada
2 CBC News, Canada
3 Tamara Elliott, Global News, Canada
4 Dominic Ahiaga-Dagbui, Scott Sutherland School of Architecture and Built Environment, Robert Gordon University, Aberdeen, AB10 7QB, UK
5 Simon D Smith, School of Engineering, The University of Edinburgh, William Rankine Building, Edinburgh, EH9 3JL, UK
6 Peter ED Love, Department of Civil Engineering, Curtin University, GPO Box U1987, Perth, WA 6845, Australia
7 Fran Ackermann, School of Management, Curtin University, GPO Box U1987, Perth, WA 6845, Australia
8 SPOTLIGHT ON CONSTRUCTION COST OVERRUN RESEARCH: SUPERFICIAL, REPLICATIVE AND STAGNATED
9 Paul Teicholz, Professor (Research) Emeritus, Department of Civil and Environmental Engineering, Stanford University, US
10 McKinsey Global Institute, Reinventing Construction: a Route to Higher Productivity February 2017, In collaboration with McKinsey’s Capital Projects & Infrastructure Practice
11 McKinsey Global Institute, Reinventing Construction: a Route to Higher Productivity February 2017, In collaboration with McKinsey’s
Capital Projects & Infrastructure Practice
12 Dodge Analytics
Kathleen Lausman, MBA, BES