Across many markets, we are seeing dramatic growth in the scale and complexity of capital construction programmes. Like all programmes, these consist of a series of discrete but closely coupled projects that, when taken in their entirety, enable an owner to meet a set of well-defined strategic objectives. And just as we saw a set of nonlinear scaling effects come into play as we scaled up from programmes with total installed cost in the 100’s of millions to the low single-digit billion range (so-called mega programmes), so too are we seeing a new set of nonlinear scaling effects come into play as we scale up to programmes in the tens of billions. I have referred to this new scale of programmes as “Giga” programmes to highlight the differences from current-day mega programmes.
“Giga” programmes bring new challenges in many regards, but like mega programmes, the two principal vectors are those with respect to the management of a step change in scale and a more exponential change in complexity as the number of interfaces and opportunities for impact grows in a decidedly nonlinear way. However, “Giga” programmes also bring new opportunities, with the principal ones being associated with the dramatically increased leverage these programmes afford an owner.
Strategic Programme Management is about understanding the differences between “Giga” and “Mega” programmes and, more importantly, critically understanding the core elements of successful programme delivery, how they may change and how they must relate to each other in the delivery of “Giga” programmes. Most importantly, “Giga” programmes require the owner and his programme manager to re-examine their roles and together make the changes in focus, people, processes and systems required to achieve success in the delivery of a “Giga” programme.
To illustrate some of the challenges and opportunities present in “Giga” programmes, some “stories” from the strategy phase work done on several “Giga” programmes are captured below.
In developing a project execution strategy for a large, global private client, we reviewed current design and construction practices as part of our familiarisation process for the development of a delivery strategy for a new “Giga” programme. The existing work, as well as the new programme, was sited in a remote, costly, labour-constrained and environmentally harsh setting.
During observations, we repeatedly passed one operation as we travelled back and forth between different projects within the current “Mega” programme. This operation involved a two-man crew bolting up a large hopper. Over the course of the day, we would see one of the men walking a kilometre down the road to a warehouse to retrieve additional nuts, bolts and replacement tools. It became evident that what was taking place was less than optimal, so we stopped to watch the operation.
What we saw were two men with eight different-sized sets of nuts and bolts and eight sets of tools working at low productivity rates because of the environmental conditions. Despite their best efforts, they would periodically encounter a defective nut or bolt, and since the bolting operation had a defined sequence, they would have to obtain good parts from the warehouse when they ran short of a particular size. Each nut and bolt combination had a different tool set, and periodically, a tool would fail in use and need to be replaced. Progress on the operation was slow, and given the scale of the operation, it was likely that this crew would be at this one particular operation for a good part of the month. In discussions with the construction manager, we could identify no good reason for different size bolts, so we decided to ask the designers on return to the engineering office.
On our return to the principal design office, we identified the designer of this particular hopper and asked him a simple question, namely, what he was trying to optimise. His answer was quick and straightforward, “design”. As he pointed out, stresses were less towards the outside of the flange, and as such, he could use smaller bolts, which cost less. So we sent him off to figure out what the cost savings were versus using one size bolt. He came back the next day and told us $157.
The next call was to the construction manager, who didn’t understand why multiple bolt sizes were needed. Our question for him was if all bolts were the same size, what would his direct construction labour cost savings be (unskilled labour was about $1000 per day at this site and retaining labour was still a challenge). The following day, he called back and told us that, with the likely efficiency improvements, he could have taken 10 man-days out of this operation or $10,000 in direct labour costs. We started to thank him, but he said he wasn’t done. He then went on to point out that for every $1 of direct labour cost, he had $2 of indirect labour costs associated with maintaining a construction camp, taking care of meals and laundry and doctors, and transporting labour back and forth for periodic leave.
Again, we started to thank him, but he interrupted and said he wasn’t done. He continued, pointing out that he now had a larger warehouse to house eight sets of nuts, bolts and tools versus one size, that he had to track eight times as many items in the supply chain and eight different sets of cost codes for the benefit of the accountants and that given the remoteness of the site they had to over order eight sets of parts and tools versus just one since the cost of delay was huge. Finally, he flagged that we would now have eight sets of waste streams versus just one.
Throughout this process, he highlighted the cost of that $157 savings, and the results were staggering. In the new “Giga” programme, there were going to be close to fifty of these same hoppers spread out at five site locations. Clearly, a different philosophy was required, namely one that recognised the scaling effects of a “Giga” programme and, more importantly, one that recognised that the inefficiency one might encounter in the “nuts and bolts” of a mega programme was unacceptable in a “Giga” programme.
Equally important was putting in place a strategy and change process that provided a path forward and a mechanism to constantly assess whether we were keeping the appropriate outcomes focus – one sensitive to the scaling effects and opportunities present in “Giga” programmes.
In developing an execution strategy for a “Giga” programme, we reviewed programmatic needs for major commodities with an eye on capturing the leverage opportunities that come with large capital spending. We identified structural steel as a billion-dollar procurement opportunity if we could consolidate our steel buy and reduce the number of custom shapes required. The historical approaches to design, procurement, and construction would not support this leverage opportunity, so the challenge was to modify the management and programme delivery approach to capture the tremendous leverage opportunity that this “Giga” programme presented.
The approach we developed was to do a consolidated programmatic steel buy for major structural steel, using an approach involving staged delivery over the life of the programme coupled with locked-in pricing (and select adjustment factors) and pre-negotiated option and cancellation provisions. All steel shapes were to be from a “catalogue” of standard steel shapes the supplier produced, and this “catalogue” was to be provided to all design teams together with a changed design approval process requiring any custom shapes to require programme-level approval (raised the bar to drive standardisation). Consolidation of supply required a changed approach to quality control and assurance (to avoid systemic issues) and a more active role in the supply logistics chain to ensure needs would be met. Construction contracts are to be modified from supply to the erection of owner-furnished material. This required recognition of different risk profiles assumed by contractors and a re-base lining of the approach to appropriate fee determination.
Recognising the inherent leverage this “Giga” programme represented allowed us to leverage our spending for significant volume discounts, strengthen our quality control and assurance approaches, gain greater certainty about the state of the overall supply chain, simplify the design process by discouraging custom shapes; simplify the site logistics and material tracking requirements by reducing the total supply categories to be tracked, stored and dispatched to the right place at the right time (each custom shape was previously a unique item of supply); reduce total programmatic construction pricing by reducing commodity pricing and delivery risk and reducing quantity risk allowances in contractor bids.
Upon being asked by the “C” level of a major private sector client with an upcoming “Giga” scale programme to work with his delivery team to develop a strategy to deliver this programme in a way that would meet the owner’s aggressive strategic business objectives related to schedule, we quickly determined that success would be possible only if the delivery team were willing to go outside the box and their normal design and contracting approaches. An assessment of available labour and remote site productivity rates quickly flagged the near impossibility of meeting the schedule objectives if we were to stick to building the entire facility at the ultimate site location. In order to kick the process off, an initial call with the head of the delivery team was scheduled before a strategy team (whose help he might or might not want) arrived.
After the usual pleasantries at the start of this kickoff call, we posed a simple question to the head of the owner’s delivery team, “If we could build your whole plant somewhere else and parachute it in, would you care?” There was a long pause. Clearly, this was not the opening question that he expected. Finally, he answered, “No…but where will you get a parachute big enough?” We replied that this was our problem.
As we went through the strategy development process, we continuously looked at opportunities to take man-hours away from the site, ultimately opting to build select facilities as modules that would be transported to the site. However, even in the modularisation discussions, we had to work to change mindsets and frameworks. We needed to get the existing delivery team past “how many 40 (or 53) foot containers were we talking about, to the notion that we were talking about 1000-ton plus modules that were either major segments of a project or even the entire project.
The choice of modularisation changed the design sequence, procurement approach, logistics, and construction sequence, but it took unavailable man-hours of effort off the critical path and away from the highest cost and least productive construction location.
And yes, we did consider flying the plant in…but not parachuting it down.
In an ongoing “Giga” programme development effort, a tiered shared contingency approach was developed that ensures that risks that do not squarely fit into one “box” for management by a single party but rather straddle two contracting levels are adequately managed for shared success.
The recommended commercial approach is based on the following:
Simply put, the approach attempts to “fill in” much of the “white space” between boxes to ensure that the risks that lurk in between well-defined contract packages (and inherently are retained by the owner) are squeezed out to the extent possible. “Giga” programmes carry risks well beyond those encountered on mega programmes because of the nonlinear increase in scale and complexity risks. The tiered contingency pools provide for augmented risk management, recognise that a greater percentage of risks require the efforts of one or more parties and reduce the number of risks totally within the owner’s purview, allowing appropriate risk management to be focused on the remaining retained risks.
On one “Giga” programme, the owner was faced with a broad array of stakeholders with often competing objectives. He attempted to satisfy these needs by developing a broad, compelling vision which would serve to satisfy all stakeholder groups in one grand sweep. He failed, however, to ensure that this grand vision met his other strategic business objectives with respect to cost and schedule. The immediate effect of this grand vision was to raise the bar for each and every stakeholder’s expectation. The owner continued to try to cajole each and every stakeholder through a series of further concessions until cost and schedule forecasts could no longer be ignored. By then, it was too late.
Strategic Programme Management is built on defining a set of true, strategic business objectives and then developing a strategy to achieve each and every strategic business objective. Strategic Programme Management is built on the word “and” when it comes to meeting these objectives. Strategic Programme Management is not about placing primacy on one of the strategic objectives. To be successful, “Giga” programmes require careful attention and selection of the overarching strategic business objectives. These objectives cannot be a set of wishes and wants but rather must be those things which are required for programme success.
On “Giga” project after “Giga” project, governance is a key issue. The roles of the programme manager and owner change when compared to projects of a smaller scale. Simply put, the highest levels of the owner’s organisation are more engaged but with a focus built almost exclusively around the achievement of a small set of well-defined strategic business objectives and assessing the effectiveness of the primary strategies being employed to achieve those objectives. Similarly, the programme management organisation requires broader performance metrics aligned with the achievement of these strategic business objectives and higher degrees of delegation than what would typically be practised on a mega programme.
One question that arises in many of these “Giga” programmes is whether an integrated programme management team staffed by both owner and third-party programme management personnel is possible. While the answer is yes, in one particular programme, this integrated management structure blurred accountability and responsibilities and discouraged proactive management. This integrated management structure was implemented without the governance protections required for it to be workable.
As each of these stories illustrates, Strategic Programme Management is about meeting challenges head-on to capitalise on these and other opportunities inherent in a “Giga” programme. “Giga” programme owners require a programme manager that:
Most importantly, the owner requires a partner who can help it translate its programmatic vision and broad objectives into a well-defined set of specific business objectives that underpin an actionable and implementable strategic plan for the “Giga” programme.
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