In my previous life as a site architect working on the design and build of a mega shopping center, I vividly recall a cold winter’s morning, standing on site with the team that included the “finance guy”, as we called him. He was understandably worried because he had to deliver a difficult message to the project team. The message? The project had run out of cash. The project manager was infuriated but all he could do was throw his hands in the air and walk off the site. Someone in our team said sarcastically, “so much for our project controls!”
What exactly are project controls? What do they do and why are they so important? In fact, in my experience, I have found that if you were to ask many people that question, you may be met with a few puzzled stares. However, the truth of the matter is that project controls are probably the most important element of any successful capital project delivery.
Project controls have much to do with monitoring all the metrics of a project. This can include quantities, time, cost, cash flows, risk reporting, etc. The simple definition in my book is that project controls are all the actions you would take to ensure that your project is delivered on time, on budget and in accordance with the project’s design specifications. This of course means that project controls cover the entire life cycle of the project – from its initiation, to the planning, execution, monitoring and control and even at the project closeout phase.
Based on my experience, as an advisory partner to many leading developers in the region, I have summarized below what project controls we would expect to see in place on capital projects. This summary is by no means all inclusive, but will go a long way towards delivering a project successfully.
1. Stage gate approvals
As the project moves through the lifecycle from initiation, planning, executing, monitoring and control to close-out, we would expect to see formal sign-off from senior management and the key stakeholders. These stage gate approvals do not allow the project to proceed without the required formal documented approvals in place.
2. Policies and procedures
We have seen the use of detailed policies and procedures leading to improved project delivery functionality, from predevelopment through to handover, leading to better decision-making, greater accuracy of forecasted spend and the capability to deliver on budget, thus limiting cost overruns. In essence, defining all the actions needed to be taken in a detailed policies and procedures document provides guidance to your team, makes their tasks predictable and ultimately, limits surprises.
3. RACI matrix
A Responsible, Accountable, Communicated and Informed (RACI) matrix describes the level of participation by the various roles in completing tasks and the project. This simple yet effective tool can be very useful in clarifying roles and responsibilities across the various departments/functions within the team.
4. Delegation of authority matrix
In most cases, we have observed the incorrect use of a delegation of authority matrix. Entities have moved to extreme cases where either too much or too little authority has been placed on the project team. The net effect allows variations to be carried out outside the mandate of the delegated authorities. In many of these cases we have also observed the use of retrospective approvals being obtained when the Variation Order is prepared. Having key personnel with the adequate level of authority and accountability is key to project delivery.
5. Project reporting
Daily, weekly and monthly reporting can provide a good mechanism to ensure projects are being accurately reported on. A report produced for the sake of reporting is meaningless. Below are examples of good practices that should be considered: 5.1 Forecasting and variance analysis Monthly forecasting and variance analysis is essential to project reporting. The use of variance analysis on “actual” versus “budget” and “forecasted cost” data provides the where did we plan to be, where are we now and what is the expected final cost of the project.
5.2 KPI and project specific KPIs
The project team should meet with senior management and the board at the start and during the project to develop, track and enhance the KPIs. This is the perfect opportunity to ensure all stakeholders are aligned, and the required KPIs are in place. We recently reviewed the monthly reporting of a leading contractor and observed that the contractor did not report on “Paid to date.” The project team did not feel it was their responsibility to report on this metric as they felt that it was up to the finance team to report on payment related issues. We challenged the Board of Directors and senior management on the lack of input from other departments including finance and procurement departments in the monthly reports. We stressed the importance of including finance and procurement KPIs in the monthly reporting. This would also ensure they are measured accurately and in line with the needs of the business.
5.3 Absence of Early Warning Notices (EWNs)
This is essentially management looking out for anything on the horizon that would affect the delivery of the project. We work closely with senior management and the project team to develop and identify EWNs, so that problems are avoided and projects are successful in delivering the expected value for their owners and other stakeholders.
5.4 Work-in-progress (WIP) management
A recent client had completed his mega project and was happy that his project was delivered on time. While the project was slightly over budget, he believed that he had successfully delivered the project. In the months that followed, to his horror, he became aware of the fact that over 20% of the project value was still “work in progress” and had not been certified and accounted for before. To his disappointment, he began to realize his “accruals” and “WIP management” system was almost non-existent.
5.5 Earned value or value of work done
Like WIP management, the value of work done and earned value methodology needs to be closely monitored. The project team and consultants should be able to demonstrate a robust methodology to measure and communicate the real physical progress of a project taking into account the work completed, the time taken and the costs incurred to complete that work. If done correctly it should allow for effective management decision-making, which helps evaluate and control project risk.
5.6 Risk management function
In our experience, we have seen a worrying trend where we find no evidence to support the fact that our clients identify risks, prioritize them, establish mitigating strategies to deal with these risks and then monitor the effectiveness of these strategies. In other words, we cannot effectively say that the majority of our clients have a robust risk management culture in their organization.
While the previous metrics may seem daunting to a project control office that is still in its infancy, it is important to realize that the aim of these is to provide useful information to management so that a project may be delivered successfully. Most organizations are encouraged to use metrics that work for them. For example, during the course of our advisory work, we have assisted leading clients with the development and use of a one-page project dashboard report. This “one-pager” would ideally be provided to executive management to help them provide the correct oversight on projects. In hindsight, it would have also helped our little shopping center back in the day!
KETAN BHOOLA, B.ARCH, MRICS, is an Assistant Director at Deloitte Corporate Finance Ltd.’s Infrastructure & Capital Projects division.