25-01-17

In their earlier years, start-ups like Google and Amazon had to cope with incredibly rapid organisational growth. However, they never came close to facing the same ramp-up challenges as a mega CAPEX project who’s reality involves quickly assembling teams - often exceeding 10,000 people - within a period between two to three years.

This rapid scale-up is a steep learning curve for organisations which can have distinct productivity implications for projects. This is especially true for asset owners whose core skills are not in asset development but rather operations (e.g. rail operators, educational institutions, airport operators etc.). For this type of owner, investing in large CAPEX projects will frequently mean a need for swift hiring and enlisting the help of project management companies (PMCs) to manage contractors and the supply chain.

But has this helped?

In most cases, the answer is probably ‘no’. On current mega-projects, delays are upwards of 30% and cost overruns ranging from 20% to 100% are commonplace. Additionally, the productivity of construction as a global industry has declined despite the advances in technology (US National Society of Professional Engineers).

Although it'd be hard to pin all of the above on governance, organisational immaturity, lack of clarity in communication and misunderstandings in allocation of accountability are all key factors in project failures – here’s why:

  • Experienced personnel who have never worked together will need to be hired, carrying different norms and limited time to develop automations
  • PMC’s will typically ‘staff up’ after winning a project, facing similar cohesion and automation challenges
  • Often the role and compensation of PMC’s is not aligned with value creation and ‘taking the owner's mindset’ - they work to a deliverable and will rarely actively seek levers to capture project value

In December 2014, a report on the Hong Kong Express Rail Link by an Independent Expert Panel concluded that the absence of a Project Management Office (PMO) led to lack of visibility and understanding of progress reports by the owner and ‘exacerbated the inability to provide constructive challenge’.

To expand this definition, a PMO is a trusted owner’s representative with a top-management view that integrates the technical, market and managerial aspects of a project – it takes a business view of all project changes and provides a clear and independent perspective to the owner. Most importantly, and unlike other specialist stakeholders on a mega-project, the PMO is incentivised to create value for the project and/or asset.

To do this, a successful and competent PMO will:

  • Understand, model changes against the business case and force the right trade-offs between different economic levers and business objectives
  • Track the key strategic and operational risks and highlight them as significant in the agenda at the most senior level of the owner's organisation
  • Escalate critical business decisions in a timely manner
  • Create clarity and transparency to the owner and all parties involved in the project by setting up and managing a control system of information and/or reporting dashboards, and an appropriate information cadence
  • Be truly independent and fact driven in their advice, and always act in the interest of the owner and the project

We are seeing more and more asset owners - private and government - developing an understanding for the need of a PMO function on their mega-projects. It is a trend that has proven to alleviate key value-destroying drivers in projects, provide cohesion and drive the operational efficiency.