Why marvels of engineering require miracles of project management

 

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Jens Roehrich, University of Bath and Jas Kalra, University of Bath

It’s highly likely that you recognise the building in the picture at the top of this page. The Sydney Opera House is, after all, one of the most famous structures in the world. Designed by Danish architect Jørn Utzon, it attracts over 8m visitors a year and provides a massive boost to the Australian economy. Opened 45 years ago in October 1973 by Queen Elizabeth II, its iconic design of enormous precast concrete shells has won numerous prizes and UNESCO World Heritage site status.

Another example of world famous design is Concorde, the turbo jet-powered supersonic passenger airliner that roared over the Atlantic Ocean from 1976 to 2003. Jointly developed and manufactured under an Anglo-French treaty, only two airlines (Air France and British Airways) operated the 14 aircraft which were built to offer speed and luxury.

A trip from London to New York took less than three hours, and cost around £8,000 for a return ticket. In 2006, Concorde won the Great British Design Quest, beating other iconic designs such as the Mini and the London Tube map.

The lesser known element of these two design success stories, however, is that from a project management perspective, they could both be considered as massive failures.

Flying high.
John Selway/Shutterstock

The Opera House was finished ten years late, at a cost that came in a huge 1,357% over budget at AUS$102m. The project also had a huge impact on the career of the architect, who, after disputes with the Australian government over design, schedule and costs, left the country before the building was completed, and never returned.

And while Concorde was an engineering marvel, travelling over twice the speed of sound, it had cost overruns of over 1,100%, coming in at around £1.3 billion. This meant far fewer aircraft were produced than originally planned. It also meant French and British taxpayers were left to pick up much of the tab.

More recent projects have faced similar problems. In Edinburgh, the Scottish Parliament Building came in at more than 1,000% over budget, with an estimated final cost of over £400m. The Millennium Bridge in London faced serious safety concerns due to the swaying motion of the structure, which needed to be fixed. Further along the River Thames, the Millennium Dome exceeded predicted maintenance costs and attracted fewer visitors than had been expected.

So why do so many projects end up painfully over budget, frustratingly late or not meeting expectations?

Great expectations

Part of the answer lies in the enormous expectations placed upon the [shoulders of the project manager]. In the case of the Sydney Opera House, some have argued that in fact nobody really took on that vital role. Utzon was focused almost entirely on design, while the government committee had no technical expertise.

Yet large scale projects come with great uncertainty and myriad stakeholders who must to be managed. Often a number of public and private organisations have to work closely together in order to deliver.

The role of a project manager is crucial – and often underestimated – in these situations. Project managers are (and should be) sometimes compared to superheroes due to the vast range of socio-cultural and technical powers they possess.

They need to be able to lead and motivate teams of different professions (such as engineers and managers). They need to be keen problem solvers. They need to have supreme negotiation skills to deal with a wide variety of interest groups and their often conflicting demands and expectations. They need to be adept at manoeuvring through the politics of such projects with a clear understanding of what the customer wants.

On top of all of this, project managers need technical understanding to manage schedules, organise and coordinate the various work packages, allocate resources and control budgets. Managing massive projects is a truly Herculean task.

Even the most diligent of project managers cannot account for all uncertainties. And the spotlight of media publicity means issues that do arise are often amplified, affecting public and government perception – and potentially restricting future investment.

Long term thinking

For example, a recent report revealed that delays in the UK’s Crossrail project are overshadowing its other notable successes – such as the lack of legal disputes and minimal supply chain disruption, which are not common in projects of this scale. This could potentially harm future investment in transportation – unless a project manager promises to deliver on better timescales. These promises in turn can lead to overly optimistic timescales, with any future delays overly scrutinised.

This vicious circle of over-promising and the inevitable under-delivery would lead to such projects being perceived negatively. Project managers, therefore, often need to maintain a stoic stance in face of short-term “failure” – and not give in to the lure of suggesting optimistic timescales.

Scottish parliament building, Edinburgh.
Shutterstock

Similarly, stakeholders need to appreciate that short-term setbacks are not indicative of the actual value delivered by these large scale projects.

While massive cost overruns and project delays need to be avoided, we should not forget that these kind of project management challenges do not necessarily add up to failure. A number of projects, including the Sydney Opera House, have become iconic symbols for their cities and countries and over time, attracted revenues far exceeding expectations (and costs).

They remind us that beauty does not come easy. Large scale projects can create economic and social value, even though the process of accomplishing them is not always pleasant. Human endeavours that are painful in the short term can lead to long term and sustained benefits for all.The Conversation

Jens Roehrich, Professor of Supply Chain Innovation, University of Bath and Jas Kalra, Research Fellow in Supply Chain Management, University of Bath

This article is republished from The Conversation under a Creative Commons license. Read the original article.

How to not run out of beer (or soft drinks, or chicken) – by supply chain experts

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Jas Kalra, University of Bath and Jens Roehrich

Football tournaments are unpredictable – that’s one of the best things about them. But one thing no one seems to have expected over the course of the FIFA World Cup this summer is how much carbon dioxide (CO2) would be needed to keep the beer flowing in British pubs.

But it’s not only beer which is facing a shortage. There is also increased pressure on supplies of Coca Cola, chicken and frozen food. And it’s all down to reduced levels of available carbon dioxide after three of the four production plants in the UK were temporarily out of action.

Although this might seem like a rare occurrence, such problems are actually not unusual. It was only in February 2018 that takeaway giant KFC had to temporarily close down hundreds of outlets when it ran out of chicken.

All of these shortages happen because of the decisions made regarding a company’s supply chain. With KFC, a few months before the shortage, the company had decided to switch its logistics service provider from Bidvest to DHL. The result was a massive disruption to the supply chain at the time of the changeover. Six years ago, rival firm Burger King made the exact same decision with very similar consequences.

The message to organisations who provide consumers with food and drink should be made loud and clear: start caring about your supply chain like it matters.

A complex system

In simple terms, a supply chain is a network between a company and its various suppliers which involves a product – say beer – being produced and distributed. The trouble is, for big firms, these networks are never simple.

They involve large amounts of complex information related to finances, services and products. It requires the firm to have a clear understanding of all the parts in the chain and the roles those parts play. Where are certain key products and services at any given time?, How is everything connected in order to deliver a constant flow of chicken and beer to the customer?

Unfortunately, the nature of supply chain management is such that its importance is only clear when we run out of something we want (or when we hear about horse meat scandals or poor treatment of workers).

But long gone are the simpler days of Henry Ford, whose car company owned everything in a supply chain – from a sheep farm to source wool for car seats to the final assembly plants. Companies now need to be able to coordinate the myriad of activities and information across a network of organisations, including in the case of chicken, pullet farms, breeder farms, poultry processors and packers, and distributors – as well as CO2 suppliers (involved in the slaughter).

Understanding the various flows across a supply chain is vital not only for managing the suppliers who account for most of your procurement spend, but also the suppliers that may end up as your bottleneck (when a shortage of one element slows everything down). In other words, while financial and product flows are important, so is a clear understanding and action plan to deal with suppliers who you rely on for a particular product or service.

From a company’s supply chain perspective, it is important to look beyond their own sector and map out their whole supply chain to genuinely understand the various flows of information. They need to be able to identify possible bottlenecks and have contingency plans in place.

Chain reaction

Common practice in some sectors – car parts, for example – includes dual sourcing in which companies select two suppliers for the same product to ensure a continuous flow. It also drives competition between suppliers and reduces possible supply chain disruptions.

Managing a whole network of companies is important. Beer, chicken and fizzy drink brands are nowadays more likely to feature in the social media limelight if consumers don’t get their products at the right time, of the right quality and at the right price. In other words, the mindset needs to change from a sector-specific supply “chain” thinking to broader sector-spanning supply “network” thinking.

Outsourcing ‘non-core’ activities: panacea or poison?

The concept of ‘core competencies’ has been developed from the resource-based view theory. Core competencies are the ones that afford the firm a sustainable competitive advantage. Non-core activities are the ones that support the core activities but by themselves do not afford the firm a sustainable competitive advantage. Many organisations have made strategic outsourcing decisions by drawing on this wisdom. The logic that has been followed is that the organisations should outsource the activities and functions that are not core to their organisation in order to free up capacity to focus on their core activities. This idea is an attractive proposition, for it promises reduced headcounts, increased efficiencies, and since we’re effectively sourcing from suppliers with expert knowledge, more effectiveness as compared to if the service would have been managed in-house. Certainly then, such engagements should be considered beneficial, for we’re getting more for less, right? As  Professor Paul Cousins and I have uncovered in our work, this is not always the case.

In our research, we observed that mindless outsourcing of so-called non-core activities can, and often do, lead to suboptimal outcomes. As organisations start outsourcing these activities, they expect themselves to be free of the ‘cost’ of managing them on a day-to-day basis. Little do they realise that what they have outsourced is essentially a problem, instead of procuring a solution. Since they have not specified the required solution well enough, they often play into the hands of the supplier. The most common specification, in this case, is the time-and-materials (T&M) specification, which in the academic literature is known as an input-based specification. Under the auspices of such a contract, the client requests for certain resources to be made available for a certain time. An example of this could be, ‘I want 3 engineers deployed on my site- 8 hours a day, 5 days a week’. Clearly, the responsibility of the supplier begins and ends with making sure there are three engineers available at the client’s site at the requested times. The responsibility of getting value out of these three engineers rests with the clients. And don’t even get me started on the SLAs!

The outcome of such engagements is that the client ends up spending even more time and resources than before to get some value out of the contract. For example, what if the supplier decides to replace an engineer with which the client has developed a relationship with another engineer? The client-specific, tacit knowledge that the engineer has developed is lost. The client will then need to re-develop the relationship and knowledge with the new engineer. In our research, we observed that the client had to invest significant time and resources ‘upskilling’ some of the new engineers to compensate for the lost knowledge. This is not a new phenomenon. Who doesn’t remember Sainsbury’s IT outsourcing story in the early 2000s? Sainsbury’s outsourced its IT function to Accenture, who was a relative newcomer to the UK retail sector. Accenture, a technology consultant, made up for its lack of functional knowledge by hiring a lot of Sainsbury’s personnel and training them on technology. Over the next couple of years, Sainsbury’s became increasingly dependent on Accenture. Years later when Sainsbury’s wanted to terminate its relationship with Accenture, it had lost all of its tacit knowledge to Accenture. Therefore, Sainsbury’s had to invest a lot of time and resources to rebuild its IT capability from the scratch. Compare this with its rivals such as Tesco and Wm Morrison, who in spite of being in the business of retail, never outsourced their IT functions.

So, the next time you decide to outsource a function, think carefully beyond the core- and non-core function so the service and more about the transaction costs- the cost of managing the service in-house or in the market. Is this really a non-core activity? Is outsourcing it really an efficient and effective decision?

Jas