During a company or industry downturn, or in times of great global fear and uncertainty, such as with the COVID-19 pandemic, capital spending reductions will move some companies to consider project organization and team staffing changes. IPA recommends patience and perseverance during such times. Decisions to eliminate owner organization positions in particular can carry lasting unintended consequences. It is not easy to rebuild owner-led project leadership capability through development or recruitment once that capability has been diminished.
IPA research has long established that adequate owner staffing is critical to capital project success. For individual projects, teams with sufficient owner staff are more successful at producing quality information during project definition and thereby achieving better front-end definition (measured through IPA’s Front‑End Loading [FEL] Index) than contractor-led or understaffed teams. Strong owner teams deliver projects at an average of 25 percent lower cost than contractor-led or understaffed teams. But when capital investment slows down, companies can be tempted to take drastic measures to cut costs, including eliminating owner personnel and/or entire competencies within project organizations.
The key to successfully adapting to slowdowns in capital investment is being strategic and intentional about how owner staffing changes will affect project risk in the short- and long-terms. A few important questions can help dictate an organizational strategy. They are:
- Can all project staff be kept and, if so, how do you make the most of their time when there are not enough projects for them to work on?
- How does an organization set priorities for maintaining certain staff and capabilities?
- How can the short-term cost of maintaining staff/capability be weighed against long-term viability and capability needs?
The answers to these questions can serve as the basis for an organizational strategy that can provide guidance in tumultuous times.
Top Priority: Maintain Core Competence in Key Functions to Support Adequate Owner Control on Projects
Even outside of uncertain and/or difficult conditions like COVID-19, many project organizations are limited in their ability to achieve the robust owner staffing they desire simply due to the difficulty in justifying the cost of acquiring and maintaining the resources to their businesses (despite the research previously described that shows the benefits of such staffing). IPA is commonly asked: “If I can’t have all the resources I need, what should be my priority? Are there certain functions that are particularly leveraging for project success?” The answer is yes, there are a set of competencies IPA research shows to be core to project systems. At a minimum, these core competencies should be retained to ensure project organizations are capable of delivering effective projects once work picks back up.
While IPA has routinely shown that sufficient owner staffing across all functions is key to effective project development and execution, ultimately, it is critical for an organization to enable owner teams to maintain adequate owner control. Assuming that scope development competency is housed in the businesses, core functions that facilitate value creation in projects include project management, engineering disciplinary leads, construction management, project services (cost estimating, scheduling, controls), and procurement and contracting. In the absence of any one of these functions, a project team relinquishes too much control to contractors and consequently project performance suffers; teams lacking owners across these functions have great difficulty achieving high-quality project definition and ultimately deliver projects that average 22 percent more expensive than those teams that have owners staffed across these functions.
For each of these functions, however, a range of roles and capabilities exist. We can explore the baseline owner capability required to maintain owner control and minimize project risk, which has implications for the baseline functional competency requirements at the organization-level.
To develop and execute a successful portfolio of projects that meet the owner’s objectives with respect to operability, cost, and schedule, the project management function must be strong within the owner organization. This role is critical to orchestrating the project team to achieve good quality definition and controlled execution while simultaneously ensuring the project is done in alignment with the owner’s interests and objectives. This function (as a whole) cannot successfully be outsourced without introducing significant risks to the owner organization.
The engineering function is one heavily influenced by company and organizational strategy. However, at a minimum, owners must have strong engineering management, particularly for larger projects to control engineering hours and ensure designs are developed in alignment with the owner’s requirements and per contractual agreements. This means that companies need to have the ability to provide lead engineers for every project and, for major projects, lead engineers for each discipline that will be required for the project. The disciplinary leads will be the organizers of design review, which is even more important in today’s world of weakened EPC companies.
Similar to engineering, an organization’s construction competency as an overall function is heavily influenced by strategy. However, to ensure high-quality definition, the owner must be capable of providing early input about constructability and safety. Furthermore, the capability to monitor construction productivity and progress relative to plans can facilitate identifying issues early enough that they can be mitigated. The construction manager’s role in ensuring project safety is imperative.
Cost estimating, scheduling, and project controls are often lumped under a single umbrella. Regardless of the overall title for this group of functions, these functions represent a conflict of interest when performed solely by contractors without any checks. Below we describe the minimum core capability for each of these three functions:
- Cost Estimating: Teams need the capability to at least validate contractor cost estimates; this helps ensure the estimate is reasonable (i.e., verifies materials quantities) and the planned schedule fits the estimate; in addition, this capability can help identify if the scope is poorly defined
- Scheduling: Like cost estimating, the minimal capability required for the scheduling function is the ability to validate schedule feasibility and independently assess project progress; the ability to validate contractor schedules throughout bid evaluations helps identify where the schedule is not on target with the bid, indicating the contractor does not fully understand the project scope and is unlikely to provide an accurate cost estimate; the ability to assess project progress provides the owner with more transparency and the ability to know very early if a project is going off track; a competent scheduler can assist with equitable adjustments on changes and reduce the number of costly contractor claims
- Project Controls: A strong owner capability in project controls is critical throughout the life of the project, starting in FEL 2 to ensure engineering hours can be controlled; design progress is as advertised; design and construction conform to sponsor requirements; contracts, estimate, and schedule are consistently developed and will support controls during execution, and a change control mechanism or program is in place; this function is critical during execution to monitor and control changes and explain the cost of changes to estimators
Procurement & Contracting
Owner input is required to support the project team in developing the procurement plan, conducting pre-qualification and contracting discussions, negotiating terms, and ordering long-lead items. Their involvement beyond this minimum capability largely depends on the procurement approach and contracting strategy. A corporate procurement function will most likely always exist—the key here is to make sure enough capital project savvy procurement and contracting representatives that can provide timely input to projects in the capital portfolio remain in the organization.
As mentioned for several of these functions, varying levels of capability are possible. For example, some companies maintain the ability to build their own cost estimates in-house. However, for this strategy to be effective, estimators need to have the skills to do this and the organization needs to provide them with the tools necessary to support building quality estimates including a database of information to leverage.
In addition to the key functions mentioned above, companies must retain additional functions in-house. For example, does the company retain discipline engineers? What about process engineering capabilities or deeper construction support/expertise than overall oversight?
To Each Their Own Staffing Strategy
The staffing considerations detailed above should provide guidance to businesses and project leaders about how to prioritize staffing needs and tradeoffs; the staff required in each competency area to maintain baseline capability; and the appropriate balance of owners and contractors in each competency area, including what, if anything, can be outsourced.
A clear organizational strategy establishes guidelines for navigating these difficult decisions. If circumstances have changed enough, it may necessitate a change to the strategy, but this should not be a de facto result of a knee jerk reaction. Project teams with the right mix of owner personnel in key functions are more likely to establish a clear vision, strategy, and approach for planning and executing projects; ensure complete and timely inputs into the information process across all functions; and provide appropriate contractors oversight.
Each organization must determine which competencies are core to their business beyond these. Establishing this organizational strategy provides the basis from which informed decisions can be made about staffing.