I am writing this article with the feeling that I am either courageous or stupid since what I will write about might be touching many or stepping on people soft toes.
I must start by saying, I am writing this article based on observations from working in this region (West Asia, GCC) for close to 17 years; observations, not scientific research. Therefore, I accept and welcome a challenge from the types of organizations that I will highlight today.
First, a few definitions
- By project owners, we mean “clients organization” that are developing projects and that will operate the products of these projects. These include private companies, semi-government, and governments entities.
- By projects here, we are mostly interested in major capital projects. Capital projects are projects that include the construction of a facility, such as rails, highways, cities, power plants, large hospitals, hotels, malls, etc.
- PMC: PMC = Project Management Consultants. In the context of this article, these are the companies who manage projects on behalf of the project owners; usually on a unit rate basis. The PMC will typically manage the consultants and contractors.
- Unit rates basis: the price of the PMC contract is typically based on Monthly Unit Rate, for a given position (cost specialist, scheduler, construction manager, site engineer, etc.) X the number of months that position is required; usually for the duration of the project. If the project is delayed, the PMC will generate more revenues and possibly profit.
- Consultant: in this region, the term consultant (in the context of capital projects) refer to the engineering company. The role of these companies would be to engineer the facility and would include design follow-up personnel during construction. Sometimes design follow-up work could be by the PMC or engineering consultant.
- Contractor: usually the companies doing construction and could be general contractors with various sub-contractors or just one company doing the whole work; although this latter condition would be rare.
Project Owners (small companies or investment companies)
If there is a small company, or an investment company, or even individual investor that wants to build an office tower, a hospital, a school or anything else as a first investment or maybe the only investment. One would expect in this scenario that the project owner will not have an engineering department and it is also likely not to have a project management department. Therefore, in these situations, it would make sense for this project owner to outsource project management by hiring a PMC. This organization may also hire or appoint a person (internal to the organization) as a project manager. However, this internal PM is likely working as a liaison or “client representatives” rather than a project manager – since the actual project management is happening by the contractor or engineering consultant with some oversight from a PMC – or the PMC will manage the work and the consultant and contractor.
Project Owners (large organizations)
Now, let us shift the discussions to major organizations, again private, government, or semi-government. These may include investment authorities of a given government. These organizations are set up to be permanent – long term and will be delivering projects for years to come. They are also likely to be investing millions if not billions of US$ per year.
We can understand that when these organizations are set up (if they are recent establishment) or are new to project management to outsource the management of their projects to PMC. This would be a logical approach, at least in the first two to three years of existence.
To PMC or not to PMC
It would also be logical to use PMC’s, if the PMC’s are doing great jobs in managing projects. Here is the debate, are they delivering excellent or good performance or a mediocre performance? Are they doing a great job? If not, how about a good job?
In my 17 years in this region; the vast majority of discussions that we had with project owners is that that PMC are doing a BAD job, at least some if we are NOT to generalize. Just this week, we read reports in the papers about two mega projects, each is a 1 billion US$ investment and each is two years behind schedule – almost double the original duration.
Unfortunately, these articles do not present a good case to study; only high-level statements. The fault and root causes of such project management failures could be on the PMC, the client, the contractor, an investor, a combination of all of the above. Since I am in project management, I do not want to self-scold project management but I will have to say there is more than enough faults to pass around.
A PMC – an ethical PMC – should not accept a project with bad feasibility and no proper plan, governance, and control — even if a client insists on the impossible. PMC has duties – ethical and professional duties – to educate clients. Further, a client is coming to a PMC because the client does not have PM Competence and they do not know what is right or wrong or what is a performance target or plan.
Therefore, we would say, in our professional opinion, a failure on one or two projects, would be largely attributed to the PMC. Once again, PMC folks challenged me – prove me wrong.
Back to Project Owners
Well, as we said – companies working on one project only and may not want to do again in the future, logic says — PMC is the way to go and it is likely to do a better job than the owner. In other words, some experience is better than none.
Large – newly established organizations – PMC is likely a good option as discussed earlier. If PMC is great, then continue with PMC. However, if you complain about PMC performance then why are not you doing something about it? Remember the popular saying that goes like “fool me once shame on you – fooling me twice shame on me …?
The Fear Question
I do not have a good answer, at least one that is politically correct, to explain why are they afraid. Maybe they are not afraid and they consider project management as a non-core function and they subscribe to the concept that non-core function is to outsource. I am willing to accept that for a real estate developer building one or two towers that PM is not a core function. However, if this company is building one tower after another, every year, spending millions and billions, is not PM a core function? I have to question that and I know I am biased.
For these organizations, marketing and sales are more important than PM but these guys forget that good PM will help them deliver projects:
- Faster, allowing earlier revenue generation
- Cheaper, allowing them to build more and bigger facilities
- Better, meaning fewer defects and issues
- Fewer issues = happier customer
- Faster and Cheaper, would mean lower prices to sell more —- or same prices and more profit.
Back to the news this week – two projects – $1 billion each – each is 2 years behind schedule. No info about the cost overrun but just imagine 1% = $10 million, 10% is $100 million and a 2 years delay on these projects is likely leading to more than 10% over the defined budget parameter.
Now, I know, PMC’s will not likely me today but I have to be brutally honest.
Do not you think the use of PMC is often a conflict of interest? Unless there are incentives or caps on the value of a PMC contract – a PMC working on a unit rate basis will get paid and make a profit whether the project failed or succeeded. A PMC will likely have higher revenues and profits if a project is delayed and less profit if the project is ahead of schedule.
Then —- PROJECT OWNERS —- are your PMC delivering excellence? If not, why are you allowing such practices and not investing in project management? Why are you afraid of project management? Are you managing projects or executing projects?
As a closing remark – one highly admired and recognized figure in our region said “we need to teach the world project management”, how can we do this if the vast majority of our projects are managed by external PMC’s?
“Owner-led project teams deliver better performing and more cost effective projects.” This quotation is from this article http://www.ipaglobal.com/the-executive-role-in-making-capital-projects-pay-off, which I found the day after I wrote the article above.
If you speak Arabic listen to this video.