Daniel Ahmoye is an associate partner in McKinsey’s Calgary office, where Kevin Stokvis is a partner; Matthew Roberts is an associate partner in the Denver office; Alpa Saxena is a solution manager in the Gurugram/Delhi office; and Julia Slayden is a consultant in the Washington, DC, office.
The authors wish to thank Rebecca Carothers, Justin Ferreira, and Diana Menzies for their contributions to this article.
Cost and schedule overruns are the norm in big capital projects. Here’s how to uncover their causes—and tackle them.
In the coming decades, a significant amount of capital—which our colleagues have estimated at USD 130 trillion—is likely to be spent on projects to decarbonize the global economy and renew critical infrastructure. Few organisations are prepared to handle this capital influx with the speed and efficiency it demands, however, with many already struggling to deliver their existing capital programs. A recent survey of senior project executives found that, on average, projects overrun their budgets and schedules by 30 to 45 %.
Why is it so hard to deliver capital projects on time and on budget? High levels of complexity are part of the problem. Executing major projects is always challenging, requiring complex, multilevel collaboration across an ecosystem of partner organizations and the coordination of resources at the front line. That complexity makes it vital that leaders have clear visibility of project performance. No big project is going to run seamlessly; organizations will need to manage all sorts of challenges, from supply chain delays to skills shortages. Fixing those problems is easiest when owners intervene quickly and decisively to address them.
Yet all too often, leaders lack a clear picture of what is happening on the ground. It can take days or weeks for the news of execution delays to filter up through the organization. And when information does arrive, it may not be the right information at the right level of detail for the recipients to understand the root cause of the execution delay. This makes it difficult for project leaders to take timely mitigation and recovery actions.
This lack of transparency is driven by multiple reporting issues. Data on progress may be siloed in disparate systems used by many different contractors. Critical data may be collected in ways that make aggregation and analysis difficult, such as non-standardised PDF forms or handwritten notes. Teams on the ground may not be disciplined in keeping accurate and up-to-date records. Even on the same project, dozens of measures of performance may not be consistently tracked across the enterprise or standardized across contractors. That means that inaccurate, out-of-date, or misleading information is often presented to project leaders for decision making.
Additionally, multiple stakeholders with different needs and objectives are looking for different insights from project data. Project directors need to understand how issues will affect the overall budget, for example, while project managers may be more concerned about how delays in materials supplied to the site will affect construction schedules. If they don’t receive the right information at the needed frequency and granularity, it becomes even harder for owners and contractors to generate insights, identify issues and opportunities, and make decisions at the right time.
To address these challenges, organizations should focus on three key areas. First, they need new technical solutions to capture and analyse project data. Second, they need improved project performance management processes that enable rapid, effective decision making based on that data. Third, they need project leaders with the right mindsets, behaviours, and capabilities to support high productivity, quality, and consistency in project execution. None of these elements are optional. A more effective project management approach “recipe” requires all three ingredients, and they work together to deliver improved project performance.
Revealing the truth: Using data and analytics to transform data into insights
Complex projects generate huge amounts of data. Taken together, engineering documents, schedules, purchase orders and invoices, staff time sheets, and countless other items can paint a rich and detailed picture of a project’s status. But to see that picture, management teams need a better way to access and interpret all their data.
Technical solutions involve setting up the digital infrastructure necessary to create project transparency among execution teams and top management. Historically, project information has been captured in disparate and fragmented systems, with linkages between information that can drive differentiated insights often lost in the shuffle. Implementing the right technical system increases the speed of ingestion, aggregation, and visualization of project data from different sources.
This allows organisations to apply analytics and draw predictive insights that enable decisive actions to mitigate risks. Such insights might include early warnings or red flags when slow progress on one or more activities puts the on-time achievement of critical project milestones in doubt, or where unresolved design or supply chain issues mean other activities are not ready to commence on their scheduled dates. Management teams can also use predictive tools to conduct what-if analyses. This might allow them to compare the likely impact of various interventions, such as productivity improvement in key tasks, or the sharing of equipment and personnel between projects.
Taking action: Improving project management processes to drive an effective performance cadence
Good data is necessary for successful project execution, but it isn’t sufficient. Projects also need management processes that enable effective decision making and drive performance on the ground. Too often, however, project management meetings struggle to meet that ideal. Common issues include discussions based on anecdotes or qualitative estimates of progress rather than hard facts, and a tendency to look backward rather than forward, focusing on explaining what happened yesterday rather than on problem solving for better performance tomorrow. These problems can be exacerbated by the tools companies use. For example, paper reports or PowerPoint presentations don’t allow leaders to drill down into project data and understand the root cause of issues. Without standard agendas and action logs, it is hard to ensure that decisions are followed through. And disconnections inside the organisation can prevent the effective two-way flow of information and decisions between the top management team and the front line.
Learn more about changing project outcomes with Project Delivery Navigator.
Improved project performance management processes are needed to enable teams and individuals to work toward the common goal of timely and within-budget project delivery. Such processes begin with fact-based discussions using real-time, or near-real-time data. They take an integrated view of project performance, looking across phases (for example, procurement, engineering, and construction by trade) and project areas. And they are structured to emphasize forward-looking problem solving.
In a robust and high-performing project team, information is cascaded through the management infrastructure to enable decision making at the right levels. A strong performance management culture includes regular project meetings, defined decision processes (including escalation paths), structured performance dialogues, and dedicated physical spaces for project decision making (that is, command centres). Data is aggregated and presented at the right level for each meeting so that site supervisors and team leaders see a more focused, granular view than the senior management team, for example.
A project’s digital control tower and its project performance management processes are closely linked. With instant access to accurate and comprehensive data, management teams can focus their attention on the issues that have the highest potential to affect project outcomes, rather than spending time on meandering discussions based on incomplete information. And if that data is held in the cloud, staff can access it and contribute to discussions wherever they are. Conversely, even perfect information availability won’t improve project outcomes unless an organization has good systems to support decision making and drive action.
A recent large liquefied natural gas project improved its performance management systems to reduce schedule slippage. It introduced shop floor production measurement practices and developed a standardized intervention cycle that enabled the front line to improve performance on an ongoing basis. This, combined with a digital control tower as a single source of truth for project data, allowed the owner to collaborate more closely with the contractor and improve the project schedule.
Enabling the team: Enhancing the capabilities mindsets and behaviours of project stakeholders
A focus on organisational capability building is needed to turn the insights obtained from improved transparency into results on the ground. That requires a range of skills, including knowing how to interpret data and how to manage constructive, fact-based discussions. Project delivery personnel should know how to create, and modify, complex plans and schedules. And frontline teams need lean construction skills to unlock performance improvements through the standardization and continuous improvement of tasks.
Mindsets and behaviours are just as critical. To keep projects on track, leaders need to be activists, engaging with their teams and working with them to improve frontline performance. They need to be resilient too, able to assimilate new information quickly and adapt their plans as things change on the ground. And all project team members should be adept at problem solving, finding fast, effective solutions to issues as they arise.
A digital control tower can enable all three of these critical attributes: helping leaders focus their attention on the issues that matter most; delivering relevant information in a clear, comprehensible format; and providing both data leaders and data managers with the information they need to find optimal solutions to difficult problems. For example, one Asia-Pacific-based engineering, procurement, and construction (EPC) company with a large project portfolio had long struggled to address data quality and performance management issues that exacerbated delays. Implementing a digital control tower allowed leaders to aggregate, integrate, and condition project data that previously had been siloed across multiple sources. The result? For the first time, structured deep dives could reliably uncover the root causes of problems, leading to faster, more accurate, and more agile decision making.
The full potential became clear when the company provided focused training for working teams on the control tower’s capabilities and use, leading to its adoption in weekly progress meetings for a priority project that faced a mix of technical, engineering, and contractual issues. After quick progress in implementing solutions, the company scaled the digital control tower across a variety of projects to improve transparency across its entire portfolio.
Transparency helps reduce project risk and accelerate execution. Transparency ensures top management understands the project’s progress and estimated trajectory. It enables organizations to undertake proactive performance management, anticipate risks, develop mitigation plans to avoid cost overruns, and identify areas of opportunity for acceleration and additional value capture. Owners and contractors can bring increased transparency to their projects by implementing new technical solutions, improving project performance management processes, and fostering the right mindsets, behaviors, and capabilities among their project leaders.