Standardised Process Improvement for Construction Enterprises (SPICE) M.Finnemore, M.Sarshar Dept. of Surveying, University of Salford, Salford, UK ABSTRACT This paper describes the current status of the SPICE research project that is investigating the transfer of best practice from the I.T. industry to the construction industry. The research focuses specifically on the improvement of business processes and in particular the use of the Capability Maturity Model (CMM). This model provides an evolutionary step-wise framework for process improvement and assessment tools to appraise the maturity of an organisation. This paper first introduces the concept of SPICE and then goes on to describe the various methods employed to establish the applicability of process improvement concepts in the construction industry. The paper then presents the 'Balanced Scorecard' method of business appraisal and investigates its suitability as a method of linking business assessment and management to process improvement. Keywords: SPICE, Capability Maturity Model (CMM), Process Improvement, Balanced Scorecard 1. INTRODUCTION Recent reports by Sir Michael Latham (1994) and Sir John Egan (1998) have emphasised the need for the construction industry to increase its productivity and improve quality. One method of achieving this would be to improve the management of construction processes. However, until now the industry has lacked a methodological mechanism that enables it to direct its improvement efforts and resources effectively. SPICE sets out to address this by using the Capability Maturity Model (CMM). This is a tool that focuses on the processes and the maturity of an organisation and experience of its use has been drawn from the IT sector. Successful implementers have reported significant business benefits. For example, Hughes Aircraft (USA) reported a 5:1 ROI, and Raytheon (USA) achieved a 7.7:1 ROI and 2:1 productivity gains [Saiedian 1995]. Industry analysis by J. Herbsleb [Herbsleb 1994] showed that companies implementing CMM achieved an average of 35% productivity improvements and an average of 39% post delivery defect reduction. If these figures could be duplicated by the construction industry, they would address Latham s requirements of 30% cost reduction and zero defects. 2. RESEARCH OBJECTIVES To establish whether the process improvement concepts of the CMM are applicable in the construction environment. To establish whether the CMM assessment methods are suitable and applicable to construction organisations. To investigate the suitability of the 'Balanced Scorecard' as a method of linking business assessment to process improvement.
3. RESEARCH METHODOLOGY The approach is based around case studies in two companies (one a large contracting firm, the other a small professional architectural practice). The research and findings will be verified by continuous dissemination and exchange of ideas with industry representatives via a process improvement network and working with representative bodies. Figure 1. (right) shows the project's iterative approach and output. Literature Search & Reference to CMM & Balanced Scorecard Steering Committee & Panel Discussions Evaluate via questionnaire & case studies Output Framework handbook & assessment tool Industrial guidelines booklet Seminars & club meetings on process improvement Figure 1. Research Methodology 4. SPICE BACKGROUND 4.1 Process A process is a sequence of events performed for a given purpose. The process combines people, tools and procedures together to achieve a desired outcome. (See Figure 2.) Components of a process: People with skills, training, and motivation A B C D Procedures & methods defining the relationship of tasks. Tools & equipment Initial SPICE research has sought to identify the key processes during the life-cycle of a construction project and to establish the relevancy of the key process areas adopted from the original software CMM model. Initial indications from a case study (to be described later in this paper), are that in general, many of the software process areas can be translated, with meaning, to the construction industry. Figure 2. - Components of a Process 4.2 Scope of the SPICE Project SPICE is scoped to only incorporate the processes directly related to the design, construction and maintenance procedures of a construction organisation. Other functions such as finance or marketing are outside the current model. However, experience with CMM indicates that through creating an emphasis on their core business functions, organisations develop a process improvement culture. This has long term benefits for the whole company. 4.3 Immature versus Mature Organisations Before realistic goals for process improvement can be set, the distinction between a mature and immature organisation must be understood. In an immature organisation, practitioners will improvise construction processes during the course of a project. Even if a process is specified, it is rarely followed or enforced. The immature organisation is reactionary and a large proportion of the time is spent fire fighting. The quality of its products are
difficult to predict. When a project falls behind programme, as is often the case, standard processes are curtailed and the ultimate quality of the product suffers. However, even in such an undisciplined environment, individual projects can produce excellent results. When this occurs it is generally due to the heroic efforts of a dedicated team rather than through performing proven processes. A mature construction organisation has the ability to manage all its processes on an organisation wide basis. These processes are accurately communicated to all staff and their roles and responsibilities are made clear. Commitments made are realistic and results are predictable. 4.4 The Framework SPICE identifies the management processes that differentiate mature companies from immature companies. Figure 3. (below) is the SPICE draft framework currently under development and it indicates these management processes in a step-wise framework. Stage 5 Continuously Improving Stage 4 Quantitatively Controlled Stage 3 Well Defined Stage 2 Planned & Tracked Stage 1 Initial / Chaotic Evidence from other industries [Imai 1986, Paulk 1993] suggests that continuous improvement is based on small, evolutionary steps, rather than revolutionary measures. SPICE organises these steps into maturity levels that lay successive foundations for continuous process improvement. The levels provide guidelines to prioritising processes for improvement efforts and resources. A maturity level is a well-defined plateau toward achieving a mature process. Each level comprises a set of goals that, when satisfied, stabilise an important component in the construction process, resulting in an increase in the process capability of the organisation. [Paulk 1993] Figure 3. The Draft SPICE Maturity Framework 5. QUESTIONNAIRE As part of the initial SPICE research, a reduced and modified version of the CMM assessment questionnaire was sent to industry professionals across a broad spectrum of disciplines. The questionnaire was distributed to organisations within the industry (contractors, architects etc.) and also organisations not directly involved in the industry, such as clients and suppliers etc. This was to capture an internal and external perspective. The objectives of the questionnaire were to: Generate Industry Awareness Establish if the adapted Key Process Areas were applicable to construction Identify additional Key Process Areas Align research with the construction industry (terminology etc.) At this stage it was not attempting to establish industry maturity. The questionnaire was developed by re-wording the descriptions and individual questions of the original CMM questionnaire to reflect construction industry terminology as closely as possible. For example, requirements management became Brief Management. The questionnaire was then issued to over 100 individuals of which 30 have replied to-date. The limited scope of the
questionnaire and inexact target audience means that the collected data is unsuitable for any detailed analysis but nonetheless has returned some useful indications. It was apparent from the responses that not only were the questions read but also understood. The key process areas were recognised and confirmed as relevant. The comments and suggestions made gave direction on future terminology. 6. CASE STUDY The case study was conducted at a small architectural practice. Its purpose was to establish whether the process improvement concepts and assessment methods of the CMM were applicable in a construction environment. The study was carried out by IT Management Consultants and observed by members of the SPICE research team. The full CMM assessment consists of audits, questionnaires and interviews. This pilot study took the form of an abbreviated assessment and did not include any audits. For the purposes of this pilot study, the original CMM questionnaire was crudely modified by replacing the words software with construction. A portion of the resulting questionnaire that was used is shown in Appendix B. Three staff, a professional architect, a middle manager and a senior partner of the firm each completed a questionnaire and a semi-structured interview in the assessment exercise. The management consultants produced the assessment findings in two documents. The first was a confidential summary of the firm s process capability and will not be referenced in this paper. The second comprised of general observations about the suitability of CMM and its assessment mechanism to construction. Some of the items are shown below: The participants from construction generally understood the issues addressed in the CMM questionnaire The assessors, although from the IT industry, could relate to and interpret the pattern of the responses from the construction company. The responses reflected some organisational characteristics that were also encountered in software companies. Organisation culture and communication issues in construction are similar to those encountered in software companies. Process capability characteristics are broadly similar to that in the software industry, with one or two notable exceptions. Systematic quality management, change management and other project control mechanisms would have similar benefits in the construction industry, to those anticipated in the software industry. As well as the similarities, the management consultants identified some notable differences. Professional qualifications, customs and working practices are better established in construction. Standards and data are more readily available in the construction industry. The senior partner of the firm expressed that he felt the process was simple and worthwhile and the findings highlighted both the strengths and weaknesses of the firm. He felt that the shortened version of the assessment was more suitable to the construction industry since the full version required audits and excessive resources.
7. PANEL OF EXPERTS A panel of 24 senior industrialists and academics were invited to review the SPICE research to-date. Half of the delegates were industrialists and its purpose was to reaffirm the value and meaning of SPICE in the construction industry. The panel were generally supportive of the process maturity approach and concepts. The majority found value in the framework, provided it could be applied across the construction supply chain. A concern was expressed that the assessment mechanism appeared too similar to existing quality assessments and the cost of such an assessment would be too high for construction companies in general and SME s in particular. 8. THE BALANCED SCORECARD If construction companies are to embrace the concepts of process improvement, it is vital that the business benefits it provides can be demonstrated. Traditionally, companies have looked to the quarterly and annual financial reports to indicate the success of the organisation, but this is only an indicator of past performance. Financial data in isolation only tells part of the story and can give misleading signals for continuous improvement and innovation [Kaplan 1992]. Companies are still using the traditional financial accounting model as they attempt to build internal assets and capabilities, and to forge linkages and strategic alliances with external parties. Financial performance measures worked well for the industrial era, but they are out of step with the skills and competencies companies are trying to master today [Kaplan 1992]. As a result of these inadequacies, the 'Balanced Scorecard' performance measurement system was developed. The Scorecard allows executives to view a company from several perspectives simultaneously. It includes traditional financial measures that reveal the results of actions already taken, but also three sets of operational measures that show customer satisfaction, internal processes, and the organisations ability to learn and improve - operational measures that are the drivers of future financial performance. In this way, the scorecard is balanced because it represents external measures for shareholders and customers, and internal measures of critical business processes, innovation, and learning and growth. The measures are balanced between the outcome measures - the results of past efforts - and the measures that drive future performance. The four perspectives of the Balanced Scorecard are: Customer - How do customers see us? Internal / Business Processes - What must we excel at? Learning & Growth - Can we continue to improve and create value? Financial - How do we look to shareholders? As well as being a measurement tool for gauging business performance, the balanced scorecard is also used as a strategic business management system. With previous performance measurement systems, most organisations use their non-financial measures for local improvements only, for example their front-line and customer facing operations. The objectives and measures for the balanced scorecard however, are derived from a top-down process driven by the mission and strategy of the business unit. This means that rather than business improvements occurring locally, they have an organisation wide impact that addresses specific business objectives.
8.1 The Balanced Scorecard and SPICE As described earlier in this paper, SPICE is scoped to only directly address the processes of an organisations internal core business. However, as the example in Figure 4 shows, improvements to the internal processes can influence all perspectives of the balanced scorecard through an entire chain of cause and effect relationships. In this way, an organisations ultimate business objective can be addressed by improvements to internal processes. For example, the business objective may be a higher return on capital employed. By improving the quality and cycle time of an internal process, the client will receive the product more quickly and to a higher quality. This is expected to lead to higher customer loyalty, which, in turn, is expected to lead to higher financial performance. Thus, improvements at process level have translated as higher customer satisfaction and ultimately improved financial performance. Financial Return on Capital Emp. Customer Customer Loyalty On-time Delivery Internal/ Business Process Process Quality Process Cycle Time Process Improvements here can be translated through all perspectives Learning & Growth Employee Skills Figure 4. Example of cause and effect relationships through the four Balanced Scorecard perspectives. [Kaplan 1996] Internal Business Perspective SPICE could provide a suitable model for a construction organisation to develop the internal business process perspective of its balanced scorecard. At present, business managers are required to identify and define the key processes of the business when creating a scorecard. The SPICE framework facilitates this task by defining the generic key process areas of a construction organisation and specifying which to prioritise. It would give structured guidance to the business managers on where to direct their improvement efforts. Any improvements made to internal processes would be translated through the various perspectives of the balanced scorecard to help achieve the organisations overall business objectives. The next stage of the research will be a case study to develop a balanced scorecard for a construction organisation.
9. SUMMARY SPICE is a current research project that is attempting to tailor the successful Capability Maturity Model (CMM) from software industry to a construction industry specific model. The model will provide an evolutionary framework for business process improvement and also an assessment tool for organisational maturity. An industry questionnaire, a case study, and a meeting of industry representatives have indicated that a construction industry CMM model and process improvement in general are feasible. On-going research will continue to develop this concept. The Balanced Scorecard method of business performance appraisal is a tool that assesses not only the financial aspects of an organisation but also the three other perspectives of Customer, Internal processes and, learning and growth. Initial research has shown that the Balanced Scorecard could be a suitable method of establishing the effect of process improvement on business performance. In addition, the strategic management systems offered by the balanced scorecard could benefit from a standardised process improvement mechanism. Future research will investigate these links further.
APPENDIX A This appendix shows an example of part of the questionnaire used in the assessment case study. The questions were derived from the original CMM questionnaire by replacing the word "software" with "construction". This particular set of questions is for the first key process area of "requirements management". "Construction" Process Maturity Questionnaire Capability Maturity Model, version 1.1 April 1994 The purpose of Requirements Management is to establish a common understanding between the customer and the "construction" project of the customer's requirements that will be addressed by the "construction" project. Requirements Management involves establishing and maintaining an agreement with the customer on the requirements for the "construction" project. The agreement covers both the technical and non-technical (e.g., delivery dates) requirements. The agreement forms the basis for estimating, planning, performing, and tracking the "construction" project's activities throughout the "construction" cycle. Whenever the system requirements allocated to "construction" are changed, the affected "construction" plans, work products, and activities are adjusted to remain consistent with the updated requirements. 1. Are system requirements allocated to "construction" used to establish a baseline for "construction" engineering and management use? Yes No Does Not Apply Don t Know 2. As the systems requirements allocated to "construction" change, are the necessary adjustments to "construction" plans, work products, and activities made? 3. Does the project follow a written organizational policy for managing the system requirements allocated to "construction"? 4. Are the people in the project who are charged with management responsibilities for allocated requirements trained in the procedures for managing allocated requirements? 5. Are measurements used to determine the status of the activities performed for managing the allocated requirements (e.g., total number of requirements changes that are proposed, open, approved, and incorporated into the baseline? 6. Are the activities for managing allocated requirements on the project subject to SQA review?
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