CMAA/FMI Study Reveals Growing use of Program Management in Construction

October 24, 2006 |

85% of America's biggest construction owners are using some form of program management for their capital improvement programs. Of the owners that rate their in-house program management capabilities the weakest, most continue to use only internal program management resources.

These trends point to an unrealized opportunity to control construction costs through the application of sound program management efforts, according to the "Seventh Annual Survey of Owners" recently completed by the Construction Management Association of America and FMI. The survey queried owners with annual capital budgets totaling nearly $65 billion, representing about 26,333 projects per year with an average project size of $2.45 million.

"We found evidence to support the hypothesis that the most important driver of cost for capital construction programs is how the program is managed," the survey report concludes. It also states: "The preliminary analysis conducted demonstrates that simply outsourcing the management or performance aspects of an owner's capital program has little relationship to low cost. Looking deeper, we discovered that firms using more collaborative project delivery and management systems along with a higher concentration of management activity supported by a small set of service providers tended to demonstrate lower management costs."

The survey revealed "a major shift in the top concerns of owners." When asked about the changes they would like to see in the next five years, the overwhelming majority registered their concerns for the rising costs of construction, most notably the rising costs of construction materials. "Ultimately, all of the responses to this year's survey, as in the past, concern the management of construction such that owners can accomplish their capital construction plans as efficiently and effectively as possible." Among the other key findings of the survey:

· Eighty-five percent of all respondents currently use some form of Program Management for their capital improvement program.

· State and federal agencies rate their capabilities and resources to manage a major construction program in-house the highest among all owner types.

· Municipal authorities, including most K-12 school districts, rate their capability and resources to manage a major construction program in-house the lowest among all owner types.

· Only 56 percent of respondents rank their organizations' capabilities and resources for managing construction programs in-house as good or better (rating of 7 or higher on a 10 point scale).

· Fifty-three percent of all respondents managed more than 80 percent of their construction program in-house.

· Eighteen percent of those citing that their capabilities were the lowest on our scale performed 80 percent or more of their program management in-house.

· Design and construction performance were outsourced 78 percent and 76 percent of the time, respectively, across all survey respondents.

· Pre-design, design oversight and program activation were the least-frequently outsourced services at 30 percent, 30 percent and 27 percent, respectively, across all survey respondents.

· Very small (less than $1 million) capital programs and moderately large (between $500 million and $1 billion) programs tend to outsource the greatest amount of services.

· Organizations with programs less than $500 million or greater than $1 billion tend to perform more functions internally rather than outsource.

· Owners answering the survey rated material costs as the highest concern impacting future construction plans (rat¬ing of 8.5 on a 10 point scale) followed by concerns about the aging construction workforce.

The survey defined Program Management as "the unified management of a capital improvement program consisting of one or more projects from inception to completion. Comprehensive construction management principles are used to integrate the different facets of the construction process planning—design, procurement, construction and activation—for the purpose of providing standardized technical and management expertise on each project."

Sixty-one percent of respondents said they are currently practicing Program Management according to this definition, while another 24 percent said they practice Program Management but in ways that differ from the CMAA/FMI definition. Outsourcing Program Management functions is "a relatively new practice in the construction industry," the survey says, adding that for most owners, "there is a mixed use of internal and external resources depending on expertise, schedule, time constraints and other factors."

In identifying the functions most likely to be assigned to an outside service provider, the CMAA/FMI study notes that "most of the responsibilities for the functions on our list would fall to traditional construction managers, so, in one sense, we can see the evolution of program management from construction management. "Fully integrated program managers will be involved in each of the functions listed," the report adds, "because the most effective use of program management will fully integrate construction programs with organizational strategy."

The complete findings of the "Seventh Annual FMI/CMAA Owners Survey" were presented and discussed at the CMAA National Conference in Tampa, Florida on October 17.

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