Despite their planning and risk management efforts, owners are still finding that a sizable percentage of their projects are either failing or aren’t coming in anywhere near on time or on budget.
More than half—53%—of owners say they suffered one or more underperforming projects in the previous year, a number that rises to 61% for larger organizations, according to KPMG International’s ninth annual Global Construction Survey 2015, based on interviews with 109 senior leaders from private and public organizations around the world that conduct construction activity.
Only 31% of respondents’ projects over the past three years came in within 10% of their budgeted cost. And only one quarter of projects over that period came in within 10% of their original deadlines.
The owners imply that these failures, delays, and overruns are less the result of poor project oversight than of talent shortages and the lack of integration of project management information systems into these companies’ accounting and procurement software programs.
Most owners polled assert that their companies use formal screening, prioritizing, and approval processes for projects, including financial and risk analysis (84%). More than 80% of respondents state that the majority of their capital projects are planned. Thirty percent of respondents use a design-bid-build project delivery strategy, while 32% use engineer-procure-construct.
“All potential projects should be systematically identified, classified, screened, prioritized, evaluated and selected,” writes Jeff Shaw, Director-KPMG in South Africa. “This process must be supported by an appropriate budget allocation and monitoring process. Throughout the capital allocation process, alignment between strategic objectives and the capital project portfolio must be tested.”
The report notes, however, that owners are challenged finding qualified project management personnel. Forty-five percent of respondents say they struggle to attract qualified craft labor, planners and project management professionals.
While 64% of respondents believe their management controls are either “optimized” or “monitored,” nearly one-third concede that their controls are “standardized,” with no testing or reporting or reporting to management and only limited staff training.
Most construction companies rely heavily on software to manage projects. Fifty-five percent of respondents say they are “satisfied” or “mostly satisfied” about the return on investment from project management tools and training. And 73% say they are confident about the accuracy and timeliness of reports they receive from managers and contractors.
However, only about half of respondents say their organizations have introduced an integrated project management information system (PMIS). Consequently, less than one-fifth of respondents could answer “yes” definitively when asked if investments in project governance and controls have reduced project costs.
In planning for delays and cost overruns, senior executives polled identify a range of methods to calculate contingency levels. The two most popular are setting aside an specific amount of contingency for all projects (e.g., 10%), and quantitative risk analysis. “The relative sophistication of the latter suggests that owners are trying to become more accurate in their forecasting,” the report states.
Sixty-nine percent of owners polled say that “poor contractor performance” is one of the biggest reasons for failing projects, delays, or cost overruns. And there’s definitely something negative going when only one-third could say they have a “high” level of trust with pros.
More than eight in 10 respondents expect greater collaboration with contractors over the next five years. How much these relationships actually change, though, remains to be seen. The report suggests that lump-sum, fixed-price contracts, which dominate among the survey’s respondents, are one reason for the fragile state of owner-contractor relationships, primarily because they defer risk onto the contractor. And owners believe the balance of power is shifting toward them; nearly half expect to have more negotiating strength when delivering capital projects over the next five years.
KPMG International offers five steps for owners to improve the performance of their projects:
- Take a fresh approach to talent management through more effective recruitment, development, and retention strategies;
- Execute a fully integrated PMIS for swift coordination and real-time reporting;
- Demand practical targets from contractors based on realistic expectations of what can go wrong;
- Use contingency planning to control costs rather than excuse overruns; and
- Invest in relationships with contractors by creating integrated project teams.
Related Stories
Sports and Recreational Facilities | Mar 14, 2024
First-of-its-kind sports and rehabilitation clinic combines training gym and healing spa
Parker Performance Institute in Frisco, Texas, is billed as a first-of-its-kind sports and rehabilitation clinic where students, specialized clinicians, and chiropractic professionals apply neuroscience to physical rehabilitation.
Market Data | Mar 14, 2024
Download BD+C's March 2024 Market Intelligence Report
U.S. construction spending on buildings-related work rose 1.4% in January, but project teams continue to face headwinds related to inflation, interest rates, and supply chain issues, according to Building Design+Construction's March 2024 Market Intelligence Report (free PDF download).
Apartments | Mar 13, 2024
A landscaped canyon runs through this luxury apartment development in Denver
Set to open in April, One River North is a 16-story, 187-unit luxury apartment building with private, open-air terraces located in Denver’s RiNo arts district. Biophilic design plays a central role throughout the building, allowing residents to connect with nature and providing a distinctive living experience.
Affordable Housing | Mar 12, 2024
An all-electric affordable housing project in Southern California offers 48 apartments plus community spaces
In Santa Monica, Calif., Brunson Terrace is an all-electric, 100% affordable housing project that’s over eight times more energy efficient than similar buildings, according to architect Brooks + Scarpa. Located across the street from Santa Monica College, the net zero building has been certified LEED Platinum.
Contractors | Mar 12, 2024
The average U.S. contractor has 8.1 months worth of construction work in the pipeline, as of February 2024
Associated Builders and Contractors reported that its Construction Backlog Indicator declined to 8.1 months in February, according to an ABC member survey conducted Feb. 20 to March 5. The reading is down 1.1 months from February 2023.
Museums | Mar 11, 2024
Nebraska’s Joslyn Art Museum to reopen this summer with new Snøhetta-designed pavilion
In Omaha, Neb., the Joslyn Art Museum, which displays art from ancient times to the present, has announced it will reopen on September 10, following the completion of its new 42,000-sf Rhonda & Howard Hawks Pavilion. Designed in collaboration with Snøhetta and Alley Poyner Macchietto Architecture, the Hawks Pavilion is part of a museum overhaul that will expand the gallery space by more than 40%.
Affordable Housing | Mar 11, 2024
Los Angeles’s streamlined approval policies leading to boom in affordable housing plans
Since December 2022, Los Angeles’s planning department has received plans for more than 13,770 affordable units. The number of units put in the approval pipeline in roughly one year is just below the total number of affordable units approved in Los Angeles in 2020, 2021, and 2022 combined.
BIM and Information Technology | Mar 11, 2024
BIM at LOD400: Why Level of Development 400 matters for design and virtual construction
As construction projects grow more complex, producing a building information model at Level of Development 400 (LOD400) can accelerate schedules, increase savings, and reduce risk, writes Stephen E. Blumenbaum, PE, SE, Walter P Moore's Director of Construction Engineering.
AEC Tech | Mar 9, 2024
9 steps for implementing digital transformation in your AEC business
Regardless of a businesses size and type, digital solutions like workflow automation software, AI-based analytics, and integrations can significantly enhance efficiency, productivity, and competitiveness.
Sports and Recreational Facilities | Mar 7, 2024
Bjarke Ingels’ design for the Oakland A’s new Las Vegas ballpark resembles ‘a spherical armadillo’
Designed by Bjarke Ingels Group (BIG) in collaboration with HNTB, the new ballpark for the Oakland Athletics Major League Baseball team will be located on the Las Vegas Strip and offer panoramic views of the city skyline. The 33,000-capacity covered, climate-controlled stadium will sit on nine acres on Las Vegas Boulevard.