How to successfully manage your mega-project. Part III Continuously improve your chances for project success. kpmg.com

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1 How to successfully manage your mega-project Part III Continuously improve your chances for project success kpmg.com

2 2 Building, Construction & Real Estate Mega-project keys to success Early planning and organizing Stakeholder communication and project controls integration Continuously improving your chances of project success

3 Building, Construction & Real Estate 3 How to successfully manage your mega-project Part III Continuously improve your chances for project success Mega-projects in the construction space live up to that categorization in many ways, including mega-size, mega-cost, mega-complexity, and mega-risk. When things go awry, mega-cost and schedule overruns can also occur. In Part I of this three-part series, we cited a Tennessee Valley Authority (TVA) nuclear generation expansion project that has experienced $1.5 2 billion and three years in overruns due to deficiencies in project set-up and ineffective management oversight. 1 The bigger the project, the more difficult it is to manage. The lesson from the TVA is that project management on mega-projects must be equal to the task. There are three keys to effective management of mega-construction projects: early planning and organizing, stakeholder communication and project controls integration, and continuous improvement. In this third installment of a three-part series, KPMG s Engineering & Construction practice offers six leading practices for continually improving your chances of project success. 1 Office of the Inspector General, Tennessee Valley Authority. Inspection Report: Watts Bar Nuclear Plant Unit 2 Project Set-Up and Management Issues Affected Cost and Schedule. Inspection (May 18, 2012).

4 4 Building, Construction & Real Estate Project management processes and practices are continuously improving as the scope and cost of mega-projects increases. For example, a hand-drawn activity construction project management (CPM) schedule that was satisfactory 20 years ago can t compare to the 100,000+ activity schedules typical of today. Similarly, it was not until the mid-1990s that earned value management (EVM) was widely recognized as a useful performance measurement tool for private engineering and construction projects. There are a number of papers and trade articles describing techniques for driving continuous improvement. 2 A common theme is for the project team to make small process improvements as the need arises and not wait for a major overhaul of the entire project management system. This can be done, for example, by making small changes and revisions to on-screen templates, logs, project reports, and other documents used on the mega-project. All such changes that simplify and facilitate communication are potential candidates for improvement. Additionally, continuous improvement is about the attitude and culture of your project team. If internal communication and interaction are overly formal, it will be difficult even to perform within the envelope of project-specific policies and procedures. A collaborative culture where information is exchanged informally and through multiple channels is preferable for inspiring continuous improvement. The project team must also practice tolerance for human error, but rigorously evaluate processes in order to eliminate wasted steps. Process efficiency should be directed towards improving quality, lowering the cost of performance, and eliminating delays. 2 See, for example: Keh, Bernie. Establishing a Continuous Improvement Culture to Improve Project Results. BOT International Management Brief, BOT International (undated), which can be found at:

5 Building, Construction & Real Estate 5 1 Perform self-assessments One way to encourage continuous improvement is for the project team to schedule a series of project control self-assessments. Typically, one or two self-assessment activities are completed each quarter. The project self-assessments should focus on validating compliance with existing corporate-level and projectlevel policies and procedures. Where there are negative findings, the review team provides recommendations for improving compliance and assigns a responsible individual to plan and improve results. All actionable findings have milestones and/or deadlines attached. Some types of project controls self-assessments include: Project readiness assessment Project controls compliance Regulatory compliance assessment Contractor/vendor cost audit Internal cost audits Risk management assessment Cost performance and EVM assessment Schedule performance assessment Quality control and inspection audit Change orders and claims assessment Project closeout audit. The goal is to reduce negative findings to zero on subsequent assessments dealing with the same subject matter. Project controls self-assessments should continue throughout the mega-project life cycle until handover and project closeout. 2 Conduct performance appraisals Individual performance appraisals of project team members will sharpen skills, identify areas for additional training, and encourage continuous improvement. The key to effective performance appraisals is to link actual performance to expected performance based on specific job descriptions (see comments in Part I on project team roles and responsibilities). The use of scorecards published in advance and a five-point grading scale is recommended. Scorecards should be tailored to individual job descriptions. Functional managers should review the performance of their direct reports, and senior managers should review the performance of their functional managers. The project director will review the performance of his or her senior managers. Don t forget 360-degree performance appraisals where managers and staff anonymously report on a set series of questions about their peers and managers. The feedback can be surprising (and humbling), but must be received and incorporated in the spirit of continuous improvement.

6 6 Building, Construction & Real Estate 3 Implement new processes From time to time, there will be a need to implement new processes for managing your mega-project. Some processes will be dictated by regulatory requirements, some by the home office, and some to improve or enhance existing project controls. To effectively implement new processes, the project leadership must get on board and oversee the transition from the top down. The benefits to the project and the construction owner should be clearly communicated along with the business rationale for implementing the change. The project team should be provided with appropriate advance training and a period of time to transition into new processes. Specific cut-over dates and expectations for using the new processes should be communicated to the project team by the project director. As new processes are implemented, leadership should encourage comments and user feedback. Negative feedback may require additional training of personnel or modification of the new processes to correct errors. 4 Integrate operational readiness personnel into the project team One of the most basic failures of mega-projects is not having an operational team trained and in place to take over the project upon completion. Too often, facilities are commissioned and ready for occupancy or production, but operational governance, roles and responsibilities, key management personnel, and shift workers have not been selected. One way to avoid this pitfall is to integrate your operational readiness personnel into the project team. Shortly after the investment committee s approval of the project, a core group of operational readiness managers should be contacted and invited to join the project team. Operational readiness managers will obtain a firm understanding of the scope and size of the project, systems and facilities, equipment types, maintenance cycles, and staffing and supervision requirements. As the project s engineering design progresses, operational readiness managers will be instrumental in reviewing the engineering, procurement, and construction (EPC) contractors drawings and specifications and in helping the project team to source and select equipment vendors. Working alongside the EPC contractor and project team, your operational readiness personnel will review and provide input into the development of the commissioning and start-up plan for the project. This is a key activity, as the commissioning and start-up plan needs to be integrated into the overall project baseline schedule at a high level of detail. A mega-project cannot afford to wait until construction is 50 percent complete to add hundreds of commissioning and start-up activities into the CPM, because the schedule may be too compressed to accommodate commissioning and start-up activities without accelerating the work and incurring significant cost growth. If systems and equipment training is included in the EPC contractor s scope of work, the operational readiness personnel will serve as the construction owner s primary point of contact for training content, formats, and schedules. This relieves the project team from the need to coordinate between the EPC and the operational readiness team and places responsibility for developing the necessary training programs with the proper owner organization. If the construction owner is primarily responsible for training, then the operational readiness team will need to initiate contacts within the project team to identify resources that will assist in developing operational training programs.

7 Building, Construction & Real Estate 7 5 Get operational resources familiar with project technology Depending on the length of the training program, operational supervisors and staff will be hired typically within four to eight months of facility start-up and will need to become familiar with project technology, facility layouts, operational procedures, maintenance schedules, etc. This requires that operational readiness teams have access to detailed design information, process descriptions, piping diagrams, and mechanical and electrical specifications, drawings, and Computer-Aided Design (CAD) models. Operational readiness managers will develop shift schedules, identify staffing requirement, prepare and validate operating cost models, and receive materials for first fills and operational spares. In addition, operational supervisors and staff should serve as observers during the mega-project s final inspection, commissioning, and start-up procedures to facilitate the handover of the project from the project team to operations. By shadowing and observing commissioning procedures, operational supervisors and staff will boost their confidence and get a more thorough understanding about how to operate the facilities after turnover. Your project management procedures should have a formal process for facility turnover by the project team and acceptance by operations as evidenced on a turnover document signed by both the project director and the facility manager.

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9 Building, Construction & Real Estate 9 6 Share lessons learned One of the benefits of cultivating a collaborative project management environment is the wealth of knowledge and experience that can be shared across all disciplines and experience levels. This is all the more beneficial for companies that manage similar types of projects year over year. For this reason, project teams should capture and communicate lessons learned on every project. Lessons learned should be captured by the project team in monthly or quarterly increments and stored in a database accessible to all team members. On a regular basis (two or more times per year), the project director or his designee should review the lessons-learned data and decide if there are any helpful ideas from a corporate planning and project execution perspective. These particular lessons learned should be submitted to and captured by the corporate level project management office (PMO) for use in planning future projects. An incentive program for submitting useful observations about project management practices and controls can encourage project team members to contribute data. Project learning should be identified by major project management category and control (see the discussion in the project organization section in Part I). This allows for the accumulation of project learning by topic area and is more useful to those on the planning and project management teams whose roles are limited to a particular area or process control. Where project learning on one particular project is considered significant for implementation on other current or future projects, the learning should be incorporated into project management policies and procedures. Even various checklists and forms developed by a particular project team that demonstrate an efficient and effective way of controlling a project are useful and should be passed along to other project teams. Institutionalization of good ideas through updates to the policies and procedures captures that knowledge for the use of others. At the conclusion of the project during the closeout phase, project team members should reserve at least a half day to meet and discuss project performance and team learning. The discussions should not focus on individual successes or failures, but on the team as a whole and on processes that went right or wrong. A team member should be assigned to prepare meeting minutes of the discussions and the note should be preserved in the archived records for the project. Copies of the meeting minutes should also be forwarded to the PMO for retrieval and use by other project teams.

10 10 Building, Construction & Real Estate Conclusion You can t manage a mega-project simply by drawing on industry experience, being familiar with project management principles, and applying technology. A successful mega-project is the result, in part, of continuously improving the ability of the project to meet business goals. That s the third key to success, and it encompasses self-assessments, performance appraisals, new processes, operational readiness and technology resources, and lessons learned. As we discussed in Part I, the first key to success is early planning and organizing, which encompasses team assignment, delivery strategy, estimating, risk management, buy-in from leadership, policies and procedures, role assignment, and conducting meetings. In Part II, we discussed the second key to success effective stakeholder communication and project controls integration which encompasses communication planning, systems and controls, work structure, scheduling, scope changes, risk, reporting, and sticking to the plan. Managing mega-projects may seem difficult and elusive. However, by following these three mega-project keys to success, it s more than possible.

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12 For more information, please contact: Brian Relle T: E: Clay Gilge T: E: kpmg.com The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. KPMG LLP, the audit, tax and advisory firm ( is the U.S. member firm of KPMG International Cooperative ( KPMG International. ) KPMG International s member firms have 152,000 professionals, including more than 8,600 partners, in 156 countries.