Every project manager knows that a project that is delivered late and over budget is the ultimate career limiting outcome. Yet, as a recent KPMG survey shows only 25% of large construction projects finish in time and within budget. Does that mean that 75% of project managers end up without a job? In the situation where your company is running multiple projects simultaneously; does this mean that three quarters of your projects are bound to fail?
Is there not a proven way to limit this risk, and what should owner companies who are responsible for multiple capital projects do to mitigate against this?
Owner companies frequently utilise the services of specialised EPCM (Engineering, Procurement, Construction Management) contractors to manage capital projects on their behalf. The owner companies typically lack the capacity or in-house skills to run these projects and outsourcing this role to the EPCM is in line with the business strategy to develop the business opportunity, initiate a project, hand over to the EPCM, and then take over the assets, commission and operate the plant.
When these capital projects overrun, as they often do, the owner organisation is left with most of the consequences. Even if penalties are invoked in the contract with the EPCM the damage is done. Lost production, lost market share and other consequential damages can be even more significant than the original capital over-expenditure.
When employing the services of EPCM contractors, the owner organisation is usually reliant on the contractor to provision their own systems for accurate cost control and forecasting capabilities. Many EPCM specialists have systems to do this. However, without any standards in place and multiple projects usually underway involving different EPCM’s the owner then becomes responsible for co-ordinating and aligning these third party systems to their own requirements on a case by case basis.
When the EPCM provides their own system, it also won’t necessarily be integrated to the owners ERP system, and therefore might not fulfil the owners requirements in terms of project governance and reporting. Even worse, the EPCM might be running their systems on spreadsheets (see the article “Electronic Scraps of Paper”). Manual systems like this based on spreadsheets are not easily integrated into the owners business systems and subject to numerous inefficiencies and potential inaccuracies in data.
Eigasoft have been working with our partners to help owner organisations standardise on a project cost control system and integrating this into the back end ERP system for data consistency and reporting.
Costrac is ideally suited for this; it manages the complete project budget, procurement, controls and forecasting process necessary to manage capital projects; and its open architecture allows for easy integration to back end accounting systems. Together with ePimms, Costrac can provide easy to use real-time dashboarding and consistency for the owner across multiple projects simultaneously.
Many owner companies will implement the standardisation of their project cost control system as a way to mitigate against the risk of cost and schedule overruns. By “in-sourcing” the project controls application and insisting that EPCM contractors use a standard system, owner companies are far more in control of capital expenditure across the full portfolio, including the major investments as well as the the smaller “stay in business” projects.
Costrac’s multi-currency and multi-language capabilities also make the application a good choice in situations where owner organisations have projects taking place across several countries. Several scenarios like this occur in Africa, where Eigasoft’s customers in mining and sugar have operations across different countries.
Eigasoft’s partners are in a position to work with you to align your project controls software to the strategic business plan. This could include standardisation of software, integration into back end business systems and standardisation of processes and reporting.
Feel free to contact us for more information on how our partners can help your company evaluate whether this is of potential value. If you have any suggestions on how to improve this article, or comments please feel free to use the comments below. If you enjoyed this article why not subscribe now to our mailing list?