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Infrastructure Development: Avoiding the Next Debacle

How to ensure another Chunnel, WPPS, or Big Dig doesn’t happen to you.

Fortnightly Magazine - July 2007


To address the entire range of factors that can affect a project, this is best thought of in terms of project-risk management: identifying, addressing, and mitigating risks related to the management, execution, and control of projects.

The organizational shortcomings in project-risk management that we see across much of our daily practice leads us to estimate that as many as 40 percent to 50 percent of major construction projects will exceed their original schedules and incur significant cost overruns. The resulting risk events (financial, reputational, legal, or regulatory) will challenge even the most seasoned management teams and boards as they address the project-related issues.

The other side of that coin, however, is that a methodology based on sound project risk-management practices will focus on the processes, procedures, and controls used to manage large capital projects, and as a result create true value for their companies. Following this approach, an organization will have the means to identify process weaknesses and to strengthen them proactively, with the goal of preventing the occurrence of schedule slippage, cost overruns, and defective quality. For companies that are innovators of best project execution practices, the results are significant and lasting:

• Assurance that contractual obligations are appropriately fulfilled, including any joint-venture arrangement;
• Assurance of the adequacy and effectiveness of performance measures to properly control (track and monitor) costs, quality, schedule (timeliness of completion), and safety standards;
• Assurance that construction processes are conducted in adherence to established policies and procedures; and
• Assurance that adequate anti-fraud measures are in place to reduce the risk of fraud, waste or abuse.

Key Risk Areas

The organization or owner must analyze the risks posed by a specific project at two levels—project implementation and project infrastructure design. Process-classification tools of all sorts exist, many based on a generic American Productivity and Quality Center model. Protiviti’s customized data-bases for the energy and utility industries include more than 1,000 processes and sub-processes, associated risks and the necessary controls that occur during project execution.

A rundown of key project implementation risks from the owner’s perspective should include elements listed above.

Also critical to the success of a project is its infrastructure design—the deployment of the essential components that need to be in place and linked together to pave the way for continuously improving project process performance. Without alignment, comprehensive and value-driven project risk management capabilities are difficult to attain.

If a component is deficient, the process will not achieve the strategic objective, people may be unable to perform, reports will not provide information for effective management, analysis will be inadequate, and sufficient information will not be available for reporting and analysis.

Energy & Utilities Industry Application

Protiviti has distilled a list of the 10 most commonly addressed tactical focus areas, along with con-crete steps that can be taken in each area ( see Table 1, “Top 10 Big-Build Mistakes” ).

These proven methodologies can underpin an organization’s focus on excellence in project-execution performance, while driving best-in-class objectives and continuous process improvement. Information and analysis on the effectiveness of construction management performance is used as