Poor project management blamed for construction budget blowouts

The industry's track record of projects coming in on time or budget is poor.
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The industry's track record of projects coming in on time or budget is poor.

Fletcher Building's admission that it has struggled with poor project management on some of its biggest projects is an indication of a much wider problem.

That is according to a project management specialist, who says the industry as a whole is losing money hand over fist.

Fletcher Building's chairman Sir Ralph Norris has blamed the $292 million loss in its construction division in 2017 to poor project management and governance, design changes and a lack of resources, specifically workers.

Accurate construction contract pricing was almost an art, he said at the company's annual results last week.

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"A boom in any business is almost as bad as a bust, because you end up with a situation where resources get short, the ability to price becomes compromised by the fact that the demand becomes such that sub-contractors and trades, etc, start to become more expensive because of the scarcity situation.

The Justice and Emergency Services Precinct building in Christchurch, one of two projects believed to have cost Fletcher ...
JOSEPH JOHNSON/STUFF

The Justice and Emergency Services Precinct building in Christchurch, one of two projects believed to have cost Fletcher Building big money in terms of labour shortages and delays.

"And you also find you run into blocks and hurdles, which mean time goes against you and in any business, time costs money. "

However, James West of Christchurch-based project management consultancy Quantum Aspects says much of what he sees is avoidable.

"Unforeseen circumstances are the result of poor planning more than anything".

West said a PWC report last year showed the average cost of a commercial build in New Zealand was $15m, but only a third of that cost delivered the actual building. The rest was spent in overheads, wastage, litigation and other costs.

"The impact of a professional project manager with proper planning experience can have on a project will largely will eliminate most of that $10m worth of loss per project."

He also cited an all-industry report by KPMG on project management which found in 2010 that just over half of all projects came in on time, budget and within scope.

By 2013, that dropped to 31 per cent, and last year it was 29 per cent.

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West said upskilling was one of the main issues. Many project managers started as labourers, worked up to being site manager, and then moved sideways to become a project manager.

Project management jobs advertised in the construction sector all required commercial construction experience but did not require project management qualifications.

 "From that level, your exposure to project management is only what you've been exposed to... There are qualifications, but the recognition in the industry isn't there.

"Essentially the industry and the sector doesn't know what it doesn't know and they're unwilling to change."

Another big issue was the way construction tenders were carried out. Designs went back and forth between architect, builder and developer until the costs were right. It was an inefficient and costly system.

International best practice in project management had a list of 47 risks that should be anticipated before work began, West said.

"So typically a project manager should be spending 65 per cent of his total time on a project before the hammer's picked up. And currently they're doing about 5 per cent."

Geoff Hunt, chairman of the Construction Strategy Group and until recently the chief executive of Higgins Group, agreed investment in on-the-job training for project management was very low.

AUT has a course in construction management, but its graduates were not enough.

"To offset that, we bring a lot of good people in from offshore but then you go back to what are the reasons for the training deficit.

"And I think the margins in the industry are so squeezed, most clients want the cheapest possible price, that there isn't the capacity of the construction companies to actually pay for training for their staff to the extent they've done that would make the industry more effective."

The client also needed to have its act together and not change its mind continually, Hunt said.

"I've been involved in sorting out a number of projects where the customer has actually failed miserably on their side of the equation to deliver their side of the deal."

Hunt said a recent report by the World Economic Forum showed productivity in construction globally had improved just 1 per cent in the last 30 years. 

"That's a bit of a shocker and it means we've been doing things the same for 30 years."

Mark Robinson, an associate director of finance and economics at PwC, said the problem with poor project management was that when things went awry, it flowed on to everyone else's schedules.

It was part of the industry's age-old productivity debate, and there was definitely room for more time being spent on design at the very beginning of a project.

"The more design you can do upfront, the less people have fix things or redesign things later."

Three ways to improve productivity in construction:

1.  Reduce the boom-bust cycle by getting the Government to invest in the down times.

"The sector's cyclical which is just a fact really, so that doesn't change," Robinson says.

"One of our suggestions is that ... public sector large scale investment could be done counter cyclically, at least to some extent, which might help smooth that."

2. Pool the work to attract bigger players.

"One of the things we found was that not many of the big firms were entering because all the projects were largely too small," Robinson said.

"We're a relatively small market with a bunch of small players ... but there are ways in which that could be improved, ways in which you could club together, or have some bigger procurement processes, which might get some bigger firms entering."

3. Clients thinking more long-term.

"If they could fully think about the whole-of-life cost and what lower cost in the short term really means, and if they could push for more design and more project management because that's what they thought would give them the best outcome, then that's the way you could get more project management," Robinson said.

"Because really if the client doesn't want to pay for it, it won't happen."

Source: PWC

AUT's first construction management students graduated in 2007, not last year as reported in an earlier version of this story.

 - Stuff

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