What goes wrong on complex projects

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What goes wrong
on complex projects?

2What goes wrong on complex projects? | 2014
Introduction – Why do so many complex
projects fail to deliver? 1
1. Get the commercial governance and
planning right from the start 2
2. Have you given risk to the right person? 3
3. Poor definition cannot be rectified by
excellent execution 4
4. Do you know how the contingency
was priced and how it is being used? 5
5. False security of the black box 6
6. Don’t be seduced by ambition 7
7. The false success of soft budgets
and loose schedules 8
8. Pay attention to key relationships 9
9. Where is the opportunity register? 10
10. Schedule drives cost is only part of
the story 11
Contacts 12
Contents

1 What goes wrong on complex projects? | 2014
As commercial contract specialists and advisors, we at
Baker Tilly are critically aware of the challenges that
complex programmes can present to organisations. Large
projects of all types – in IT, construction, transport or in
the mining industry – can test an organisation’s contract
and project management capabilities to their fullest.
Delivering these projects on time, within budget and to specification has always
been difficult for a myriad of reasons. Not least because they are:
• Commercially complex high-risk and high-cost endeavours (for both client
and supplier organisations) and often demand sophisticated contractual
relationships with a number of key suppliers and their sub contractors
• Always top of mind for CEOs, boards, shareholders and stakeholders alike,
and are generally in the public domain – resulting in pressure and a spotlight
on delivery teams
• Made up of multi-faceted and multi-layered programmes of work that are
inherently difficult to co-ordinate and manage; often demanding a unique
combination of leadership, creativity, teamwork and technical delivery skills
across diverse sets of specialist teams and organisations
Although there have been significant improvements in project governance in
recent years, many high profile projects still fail to be seen as successful. Our
view is that whilst there is no definitive silver bullet solution for success, there
are invaluable lessons to be learned by avoiding the common pitfalls.
This paper seeks to share lessons and highlight what can be done to improve
the likelihood of project success. We have drawn from our experience and
used real examples of complex programme challenges, deliberately chosen
to provoke thought and generate debate. We hope you find them both valuable
and interesting.
Walter Akers
Partner
Why do so many complex
projects fail to deliver?

Too many projects are set up to fail from the outset
Getting the commercial planning and governance right at an early stage is
important to achieving eventual project success. The ability to influence the
project outcome diminishes as the project progresses. At the same time, the
cost of change and rectification dramatically increases with time (as shown
below). Therefore the quality of decision making at the outset is crucial to
the eventual outcome and success of the project.
It is important that, at an early stage, all key stakeholders are involved and
commercial / procurement professionals are on board. A stage or gate approach
to project evaluation and decision making is helpful, with clear accountability
assigned for all aspects of the project including the commercial and
cost outcomes.
Get the commercial
governance and planning
right from the start
1.
We failed to get on top
of the planning and our
governance only really
started after work on
the ground commenced.
That was a big mistake,
thereafter we were
always playing catch-
up and no amount
of effort later on
could compensate
for this failing.
Client Project Manager –
Office Renovation Programme
High
Low
Time
Cost of rectification
Cost of change and rectification
Ability to influence the final
outcome and direct success

Risk should be placed with the party best able to
manage that risk. However, very often, risk within the
supply chain is placed with the party who is weakest
in the commercial negotiations.
Perversely this often means that the challenge of managing these complex
risks is left to those least equipped to do so, as organisations that are at a
disadvantage in the commercial negotiations are also often those that lack
the necessary scale, capacity and resources. Typically when things go wrong,
these weaker links in the supply chain initially hide the problems until they
become critical. Then it falls to the project owner to take charge and mitigate
the damage.
The procurement approach employed determines the way in which risk is
managed. However, every project has its own particular set of needs and
priorities around scope, scale and technical complexity. A well-defined, low
risk project will suit traditional tendering and contracting approaches where
transferred risk can be readily quantified and competitively priced by the
market. At the other end of the spectrum, partnering contracts suit projects
of higher risk and complexity that require collaboration under risk reward
sharing arrangements.
Have you given risk to
the right person?
2.
We knew they were desperate for the work and
they needed to win the contract so we were
able to negotiate hard. We forced them down
on a low fixed price and also got them on the
hook for delivering against a tight schedule. If
something went wrong they had to fix it at their
cost. The problem was that as things inevitably
did go wrong they could not respond and finally
when they ran out of cash we had to step in and
appoint another contractor to take over.
Project Manager – Transport Infrastructure Project

For most projects, success or failure is determined during
the initial stages of the programme.
Without proper attention and investment in the initial “identify, select and define”
stages, there is little chance of projects meeting their overall objectives. In
many cases failure to meet objectives has been blamed on poor execution, but
when this is analysed properly often the problems in the execution phase have
arisen because of poor preparation at the start of the project. It is important
that sufficient time and competent people are involved to assess the opportunity
properly, identify its value drivers, risks and uncertainties, align objectives
with stakeholders and achieve high quality definition of scope, schedule and
commercial contracts.
As is demonstrated by the graph below, experience has shown that good
up front preparation and definition delivers a better outcome even if execution
is poor.
Poor definition cannot
be rectified by excellent
execution
3.
We knew the specification
was not quite right, but we
were under pressure and
pushed on regardless. In
the end the inconsistencies
in the specification led to
extensive rework – we paid
a heavy price for not tying
down the specification from
the outset.
Programme Manager –
Automative Tooling Programme
Value Capture
Identify Select Define Execute Operate
The impact of front loading on project outcome
Good definition execution
Good definition poor execution
Poor definition good execution
Poor definition poor execution

Accurate estimation and reliable budgets are needed to
successfully price and deliver any complex project.
An important aspect of this is to determine an appropriate amount of contingency.
Contingency is the amount added to the base estimate for incomplete project
definition and specific project risks. Each organisation needs to consider its
own desired estimate accuracy, but a good starting point is the P50 budget
amount, where there is an equal chance of costs exceeding or being lower than
the estimate. (This is illustrated in the figure below: Project estimation accuracy
graph). On very large projects a probabilistic cost risk analysis should be performed
and a cost risk distribution produced taking into account risk correlation and other
sensitivities. This is illustrated by the normal distribution curve below.
Understanding the contingency and how it has been determined is important in
negotiating contracts and pricing work. It is in every contractors’ own interest to
over price the contingency and project owners should scrutinise and challenge
this area.
Tracking the contingency throughout the project is important in controlling costs
and managing overruns. It is not uncommon for the contingency to be used up
before a project is completed and for this only to come to light when the prime
contractor starts putting in cost claims in the latter half of a project.
Do you know how the
contingency was priced
and how it is being used?
4.
We knew that our main
supplier’s estimates for
contingency were too
generous. However, our
team could not really
provide the board with
enough evidence to
challenge the estimates.
It was not until we
brought in a specialist at
the tail end of the project
that we discovered that
we could have saved
money by apportioning
contingency in a
different way.
Project Director –
University Capital Build
Project estimation accuracy graph
Probabilityofestimateoverrun
90%
50%
10%
Most likely P50 cost
Under expenditure Over expenditure Accuracy/Cost

If it matters to the project outcome, don’t treat it as a “black
box”. Don’t blindly trust others to deliver the final outcome.
Actively monitor all significant aspects of the project from
start to finish.
Problems on projects are often initially hidden from view or are buried deep
in the supply chain. They usually only come to light in the latter stages of
execution. It is not uncommon for a project to report “green” against all KPI’s
initially, only for cost claims and variation charges to surface later-on.
The key to keeping on top of this is to use the project governance processes to
work for you. Good governance requires far more than checking compliance
against the original plan – it requires a challenging independent mindset, rigorous
enquiry and attention to detail with a practical understanding of the pressures of
project delivery.
False security
of the black box
5.
Next time we will do things differently. We
thought that the prime contractor would manage
these risks. That is what we paid them to do, but
they did not ultimately solve our problems. We
let them get on with it and our mistake was that
we did not monitor progress or verify what they
told us. The problems only came to light during
the latter stages of the build. Solving them so
late in the schedule was expensive and delayed
completion considerably.
Programme Director – Leisure Complex Building Project

It is all too easy to get excited about new technology and
cutting edge design. Being at the forefront of new thinking
can be the right answer in some situations however it is
important not to lose sight of your real needs.
Be aware of highly customised specifications that result from personal preference
in the design by architects, civil engineers, IT developers and others that over-
specify the requirements instead of meeting the organisations core needs. This
creative customisation increases total costs through product/feature proliferation,
over specification and an inability to leverage spend and reduced competition from
artificially limiting the number of suppliers that can meet the demand.
To gain efficiencies across the project, design activities and specifications need to
be standardised and focused on your real needs. By employing techniques such as
Value-Engineering (VE), an organisation can influence specification design and drive
standardisation. VE is a systematic method used in the assessment of a product or
service to improve the value by reviewing function and associated cost. Adopting
this methodology ensures the technical specifications are closely aligned to an
organisation’s or project’s core needs and provides a fair balance between meeting
the technical and commercial requirements.
Don’t be seduced
by ambition
6.
We were seduced by the
ambition of the solution.
It was innovative, leading
edge and exciting. But
we lost sight of our
original goals and our
real needs. In the end we
spent way too much on
a system, most of which
we did not need.
Senior Business Stakeholder –
IT Case Management System
Development

Project overruns and missed deadlines are normally
cause for concern.
However we should be just as concerned with the converse: a project that is always
reported as within budget and delivering milestones on time is often an indicator of
wasteful over estimating for costs and time. A good timetable and resource budget
should create a healthy tension on the project and create a sense of urgency and
attention to resource allocation.
It is important that there is a clear understanding between the base budget
and any contingency for risk and uncertainty.
The false success
of soft budgets and
loose schedules
7.
We realised that the
contractor had built lots
of extra time and resources
into the schedule. It was
easy for them to deliver
ahead of the milestones.
At first everyone was
happy that the project was
reporting ahead of schedule
and within budget but
ultimately we paid more
than we should have and
the project took longer
than necessary.
Construction Programme Director
– City Regeneration Programme

Aligning project goals and incentives across both internal
teams and throughout the supply chain is key if you are
going to get everyone working together. If it is important
to the project you want it to be important to them.
Of equal importance is nurturing a healthy and mature relationship with
contractors and suppliers. In some organisations there is a culture of having
a transactional “cost down” or even adversarial relationships with third party
suppliers and a reluctance to form partnerships. This is a missed opportunity.
Positioning the organisation as a supplier friendly customer – one that is easy
to work with and willing to develop win-win partnerships – will make an
organisation more attractive in the market and secure preferential treatment
from suppliers. This is crucial to effectively deliver complex projects where risk
needs to be shared across multiple parties.
Pay attention to key
relationships
8.
Our IT implementation
failed because we could
not get everyone to work
together. The teams sat in
different silos and spent all
their energy infighting and
blaming suppliers when
things went wrong.
Project Manager –
ERP Solution Implementation Programme

Uncertainty, within projects, can be both good
and bad.
On most projects there is a huge focus on managing risk. Projects include
detailed risk logs and set out mitigating action plans. These logs are
regularly updated and monitored. Rarely do projects have an opportunity
log of what could turn out better than planned or where uncertainty should
be managed for advantage. As a result, the full value of the project may
not be achieved.
Where is the
opportunity register?
9.
We focused so much attention on managing
all the things that could go wrong we failed to
take full advantage of an unexpected opportunity.
The market price of raw material commodities
fell sharply during the course of the build, but we
were slow to change our procurement strategy
and missed an opportunity to save a huge
amount of cost.
Head of Housing Improvement – Inner City Council

As most projects are highly bespoke and are not often
repeated by an organisation, it can be challenging to
achieve the best procurement and contracting outcomes.
Also, as they fall outside of the organisation’s day to day operations, normal business
processes are sometimes circumvented. For example aggregation of total project
demand, buying standardisation and forecasting are difficult and often overlooked
but necessary to secure value for money.
Key to success here is to plan early and to implement a procurement and contracting
strategy. Ensure that you actively coordinate procurement through the supply chain
and look for opportunities to leverage the projects total buying power to reduce costs.
Manage spend on a consolidated category basis and not simply by contractor. Use
up to date market intelligence throughout the project to flex the strategy and make
better real time decisions.
Schedule drives cost is
only part of the story;
procurement and
contracting also have a
part to play in ensuring
best value
10.
Initially each contractor
was responsible for
buying their own raw
materials even though
any price increases
or savings would be
passed through to us
as the project owners.
Once we consolidated
all this procurement
across the whole
project we achieved
significant buying
power and savings that
would not have been
possible otherwise.
Purchasing Lead –
Rail refurbishment and
upgrade project

Contacts
Walter Akers
Partner
walter.akers@bakertilly.co.uk
T: +44 (0)7561 327662
Steven Snaith
Partner
steven.snaith@bakertilly.co.uk
T: +44 (0)7966 039009
Chris Knowles
Partner
chris.knowles@bakertilly.co.uk
T: +44 (0)7808 161351
Sola Fadojutimi
Director
sola.fadojutimi@bakertilly.co.uk
T: +44 (0)7538 180470
Simon Atherton
Director
simon.atherton@bakertilly.co.uk
T: +44 (0)7734 683811
Manpreet Mahal
Associate Director
manpreet.mahal@bakertilly.co.uk
T: +44 (0)7436 268741
Walter Akers Steven Snaith
Chris Knowles
Simon Atherton
Sola Fadojutimi
Manpreet Mahal

Baker Tilly UK Audit LLP, Baker Tilly Tax and Advisory Services LLP, Baker Tilly Corporate Finance LLP, Baker Tilly Restructuring and Recovery LLP, Baker Tilly Risk Advisory Services LLP, Baker Tilly Creditor Services LLP and Baker Tilly Tax and
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recipients should not act upon it without seeking professional advice. © 2014 Baker Tilly UK Group LLP, all rights reserved. 332

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