The Productivity Imperative
Around the world, ever-larger capital projects are being undertaken. Better project management and technological innovation can improve the chances of success. Three factors are defining the future of large-scale capital projects. First, investment is growing fast. In 2013, global investment in energy, infrastructure, mining, and real-estate-related projects was about six trillion dollars; by 2030 that, could be thirteen trillion dollars, according to our research.
Second, billion-dollar-plus megaprojects will account for a greater share of these developments. Third, the industry does poorly completing megaprojects on time, on budget, and to specifications. We estimate that ninety percent of megaprojects suffer cost overruns of more than thirty percent; seventy percent are at least forty percent late.
There are many reasons for this poor record. Start with productivity—or, rather, lack of it. productivity has been flat for decades, according to our research. In manufacturing, by contrast, productivity has nearly doubled over the same period, and continuous improvement has been the norm.
A variety of factors account for lost productivity. Among them are the following:
Inadequate Communication. Inconsistencies in reporting mean that subcontractors, contractors, and owners do not have a common understanding of how the project is faring at any given time.
Flawed Performance Management. Unresolved issues stack up because of lack of communication and accountability. Decision-making and procurement processes do not have the speed and scale required.
Contractual Misunderstandings. The procurement team typically negotiates the contract, and this is almost always dense and complicated. When a problem comes up, project managers may not understand how to proceed.
Insufficient Risk Management. There are different levels of planning, from high-end preparation to day-by-day to-do list. If the daily work is not finished, schedulers need to know—but often don’t—so that they can update priorities in real time. Companies are generally good at understanding what needs to happen in the next two to three days, but not nearly so much at grasping the next week or two. The result is that necessary equipment may not be in place. Companies defer to familiar people and teams rather than asking where they can find the best people for each job.
Designing and Delivering Systems
We help companies go beyond standard purchasing approaches to work in close collaboration with suppliers, where as much as 80 percent of a product's value may be created. This involves implementing lean manufacturing to improve suppliers' operations and optimizing interfaces between suppliers and manufacturing plants. Some clients pursuing this strategy have achieved savings of 10 to 20 percent in materials costs alone, as well as substantially reducing their environmental footprint. We also support clients in thinking strategically about the future of resources and how new patterns of product ownership could create competitive advantage.
We draw heavily on our experience in helping clients redesign IT functions such as application development, infrastructure, sourcing, or lean IT, as well as on our knowledge of business strategy and sector dynamics. We help clients design architectures and systems that create business value, and we align the perspective of our clients’ IT function with the demands of the boardroom. In particular, we work with clients to create a two-speed IT architecture—a front-end system to deliver customer-facing programs quickly that runs alongside more static and core back-end transactional systems for areas such as financial reporting. We also design data centers that draw on new rules for data-center strategy, including demand reduction, green-design approaches, and modular designs.
Managing strategy and stakeholders includes ensuring continuous alignment of the project with the business strategy and value objectives, detailed analysis of stakeholder positions, vendor management, and proactive risk identification and mitigation.
Technology is the backbone of digital transformation. From system automation to rapid development, how companies manage their technology has a critical influence on their ability to create value.