by Willem Louw

CAPACITY DEVELOPMENT

Project management capacity is needed in the boardroom as much as on the project site

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The discussion on project management skills being vital to the development of Africa’s infrastructure, and the debate on the issue of increasing South Africa’s levels of project management capacity should start at the top. This is not only a conversation on increasing project management capacity in the field but, even more critically, it is a conversation on how those project managers in the field are being supported by their executive management. The conversation becomes very scary if we contemplate the plans being made in South Africa relating to our National Development Plan (NDP) and the strategic infrastructure projects (SIPs) contained within the NDP.

“To be blunt, when it comes to the governance of large projects, most boards strike me as brain-dead. They are not asking the right questions early enough in the process to deter bad decisions.”

The quotation above comes from Edward W. Merrow, founder and chief executive of Independent Project Analysis, Inc. (IPA), the world’s leading consulting firm evaluating projects of national and international oil, chemical, pharmaceutical and mineral companies. Although targeted at the ‘mega’ level within the capital project environment, the extract is equally, if not more, applicable to capital projects that have the potential of significantly influencing the risk profile of any organisation if inappropriately managed.

Sufficient evidence exists globally that investments in capital projects with a significant potential to influence the risk profile of an organisation are not meeting the critical objectives as promised to the decision-making authority at the time of sanctioning the capital. Owner input (and particularly the business management thereof at board level) is not sufficient to support the objectives to be achieved by the project management team responsible for the implementation of the project.

Context/Reasoning

At the Presidential Infrastructure Investment Conference held in Sandton in October 2012, President Jacob Zuma said that South Africa would spend as much as R4 trillion on infrastructure development projects over the next 15 years. If it is true that most boards behave as if they are brain-dead and do not ask the right questions early in the project development process, then there will be a significant proliferation of bad decisions waiting for us on the capital investment front in South Africa for the foreseeable future.

At the same conference, Deputy President Kgalema Motlanthe reflected that the implementation of projects would be the most challenging aspect, while President Zuma stated South Africa should use what it learnt about project management prior to hosting the 2010 FIFA World Cup to implement the National Infrastructure Development Plan successfully.

It can be argued that it is not in the implementation that we should excel, but much rather in the development and planning of the front end of the projects.

Additionally, it would be quite revealing to ascertain how effectively and efficiently we have dealt with the most recent mega capital projects we have implemented or are implementing in this country, including our apparent success with the 2010 World Cup stadiums from a board decision-making perspective.

Why this thread of contextualisation and reasoning?

The jury is still out on how much the 2010 World Cup stadiums really cost and to what extent these monoliths will be utilised gainfully in the future. Was consideration of sustainable business plans ever part of the deliberations for the stadiums at executive level?

The overrun in costs (and there are more than superficial facts available to substantiate this) and the future utilisation of the stadiums are not execution issues, but significantly dependent on how substantially the front-end plans were interrogated by the ultimate decision makers i.e. boards, organising committees etc.

Similarly, we could question how thorough or complete the involvement was by decision makers asking the right questions early enough for the following collection of projects:

• ¾ The new multipurpose pipeline built by Transnet from Durban to Heidelberg (Gauteng). Snippets of information in the public domain reveal quite interesting information on how decision making (or rather the lack thereof) resulted in a significant overexpenditure and a very delayed completion date.

• ¾ Eskom’s Medupi and Kusile power stations, and the utility’s ability to deliver as promised. Without necessarily placing blame on the contractor(s) for late delivery, poor quality workmanship and labour unrest, we should ask questions about when decisions were made to place the orders for the turbines and how involved Eskom was when the project labour agreements were concluded.


• ¾ The Gautrain’s end cost, and its schedule to Pretoria and Park Stations. For the moment, we should celebrate the fact that the Gautrain was available at Sandton Station for the 2010 World Cup – but we should ask at what cost and what has transpired since?

• ¾ The current saga of the e-tolling fiasco in Gauteng and the impending fiasco in the Western Cape. What conversations took place proactively at board level at the SA National Roads Agency Limited to deal with stakeholder involvement and sign-off well in advance of the commissioning of the Gauteng system, and how is the board entrenching/institutionalising lessons learnt on the Gauteng project for the benefit of the intended Winelands project?


If we (hypothetically) rate our performance at board level for the mentioned smorgasbord of projects, it will be very surprising if we score more than 4 or 5 out of a possible 10 points on a rating scale reflecting the ability of the boards overseeing these projects to ask the right questions early enough in the process to have circumvented bad decisions.

As the Ed Merrow extract so vividly portrays, the conversation is all about the interface between business management (read ‘board’ or other equal-stature decision-making authorities) and project management (both within the owner fraternity) early enough in the development of a capital project. It is NOT about project management during the execution phase of the project. It is about the improvement of the understanding of the board and business management as the ultimate vehicles influencing decisions on the project. It is about where and how they can optimise the realisation of the key objectives of the project team in terms of cost, schedule and operability.

Virtually all modern project systems are organised to use a gated work process that consists of a series of stages with a set of defined products. The following is typical of such a protocol:

Getting the front end right i.e. the definition of a project, from the formation of the core team until after full-funds authorisation is what is called the front-end loading (FEL) or the front-end planning (FEP) process. In its simplest description, it is the core work process of project teams prior to authorisation. The work process is typically divided into phases or stages, with a pause for an assessment and decision about whether to proceed.

The gate assessments should examine the economic, business and delivery objectives and technical aspects of the project at that point.

It also needs to be indicated in this context that one of the most important misunderstandings in the application of the project work process is the purpose of the gates in the process. Many boards and business professionals assume that because the engineering and project management organisation is the steward for the stage-gated process, the process is structured to meet an engineering or project management purpose. In fact, the gates do NOT serve an engineering or project management purpose, but very significantly a business purpose for distinct utilisation by the board or business management.

Recommendation

To deal with this ‘anomaly’ and to ensure appropriate attention is focused on the right questions at the right time by the board or business management during the FEL or FEP of a capital project, the following high-level recommendations are provided for immediate implementation, particularly as regards capital to be spent on infrastructure development in South Africa:

• ¾ An executive sponsor should be appointed for a project or programme at the highest level as a member of the executive team tasked with the responsibility for the project or programme on behalf of the organisation. This sponsor’s primary job is governance: to see that the project or programme meets the organisation’s goals and complies with its policies. Successful executive sponsors must be (company) politically connected throughout the organisation and be willing to engage in regular dialogue with project team members and stakeholders. The executive sponsor must be a superlative strategist who monitors project scope to ensure the end result will deliver strategic benefits. This is a severely underestimated role in the broader scheme of roles and responsibilities on a project and, although of significant importance, preparation and guidance of an executive sponsor is often largely neglected.

• ¾ It is more important than ever before for owners, boards and decision-making authorities to establish a rigorous governance framework that guides effective decision making very early in the development of the project, thereby laying the groundwork for achieving project success. This framework should, inter alia, cover the following: project definition and project planning, a transparent control environment, internal accountability, contract terms, and communication and reporting.


• ¾ The performance of FEL and FEP on the project must be measured, as it is the world’s best capital investment. Unclear business or delivery objectives that fail to articulate what the board or business management need for success, the failure to secure co-operation from other non-project functions (such as operations), and the lack of enough knowledgeable staff are failures of the primary tasks of the board or business management early enough in the project. The FEL or FEP is a matter of discipline and needs to be driven by the board. A stage-gated FEL or FEP work process is a core business process. The board or business management needs to insist on it. Corporate main boards and governmental decision-making authorities must insist on equally good preparation of all major projects.

Conclusion

The focus should not only be on mega or large projects in the R4-trillion infrastructure development programme envisaged over the next 15 years in South Africa, but even more so on projects that have a significant potential of influencing the risk profile of an organisation or the country, should they go wrong.

Merrow states that the failure to complete FEL on mega/large projects is costing industrial firms and their shareholders hundreds of billions of dollars in value. This has been understood for some time now and yet there are no signs of improvement.

He further states that this can only mean that business leadership of industrial firms does not understand the relationship between FEL and success.

This statement (and for ‘business leadership’ read ‘board or governmental decision-making authority’) does not only hold good for projects that produce products for sale (intended to make money) and have a profit motive, but is as true for the following:

• ¾ Investments in capital that may not have a primary profit motive, but are essential for infrastructure support to the profit-motive projects; and

• ¾ Capital projects undertaken by government and parastatals in the process of service delivery.
If we do not address the glaring vacuum in project management skills at board level in all these focus areas – and particularly in those infrastructure projects being overseen in the National Development Plan – then we will not live up to the expectations created by the NDP, and will continue our slide toward mediocrity as far as service delivery is concerned.

Willem Louw

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