Building Blocks - Issue 17 - June 2014

The importance of project health checks on effective capital projects

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Peter Blahnik, Risk Advisory, Calgary

Capital projects are complex, expensive and challenging to manage. They’re executed in a dynamic, ever-changing environment. So it’s critical to embed effective project controls in the process to manage risks along the way. Control systems can manage scope, change, cost, risk, quality, communication, time, procurement and resources.

Project health checks are focused methods that can enable project managers to look deeper at costs and scope control with a goal of identifying opportunities for improvement throughout a project. It is critical that project managers act quickly and decisively on the results of a project health check.

The following example illustrates the importance of this type of project evaluation.

Managing change

Change control is a high-risk component of any project and needs to be a focal point in a project health check. In this project, inadequate scope control resulted in increased costs and eroded the owner’s confidence in the contractor.

The owner, in response to a regulatory order, hired the contractor to oversee the remediation of a contaminated worksite so demolition and construction activities could commence. To expedite regulatory approval to proceed, the contractor’s scope was defined at a high level instead of an activity-based level. The owner and its representatives had minimal understanding of the regulatory order and were most concerned with delays in the overall project schedule. As such, they approved a work order for the contractor based on the high-level scope definition.

The contractor fulfilled the intent of its scope obligation but requested multiple budget increases, driven largely by the non-prescriptive nature of the regulations. This resulted in several meetings between subject matter experts to convince regulatory authorities that the worksite was clean.

Lessons learned

So, what can we take away from this example from the owner’s perspective?

  1. Understand the baseline: Ask the contractor to provide a detailed plan and have them explain it. In this example, the owner and its representative did not ask for an activity-based plan, nor did they understand the impact of the regulatory order. They had preconceived notions that the work to remove the regulatory order would have little impact on the project once a contractor was engaged.
  2. Understand changes: Challenge the contractor when they present scope changes. Make sure to understand why they are asking for additional budget or time. In our example, the owner was not in a position to challenge deviations because there was no baseline. In the end, the project was completed six months later than expected and at a much higher cost than initially budgeted.
  3. Communication is critical: Establish a structured communication protocol that includes regular face-to-face meetings and clear, concise meeting minutes. All contract change requests need to provide the rationale for the change and accounting against the baseline. Most important, make sure key decision-makers understand and agree to changes. In the example, the owner’s representative did not mandate formal meeting minutes and accepted emails as the basis of additional funding requests. It became difficult to retrace the project history and the rationale for the budget increases. Although the owner approved changes, they did not understand the impact on the scope.

Project controls are a way to verify project performance and manage risk, and ineffective controls will increase risk and costs. Don’t be afraid to update project controls when an issue arises. A project leader understands how to make changes to the project and manage risk in a dynamic environment, while never losing sight of the project goals.