The recent Global Construction Survey conducted by KPMG provided some valuable insights regarding Portfolio Project Management. Managing a significant portfolio of programs and projects involves juggling a complex set of criteria to gain maximum value—a task made harder by the size and complexity of individual mega-projects that can soak up resources and carry huge risks.
Political factors also intervene: in some cases, shiny new initiatives take precedence over less exciting but important maintenance projects. A well-run portfolio aligns project decisions with organisational strategy and aims to optimize return on investment.
A key finding of the survey is that government appears to lead the way in its portfolio management, which suggests a big leap after years of under-investment. This is seen in Ireland with the Programme for Government launched last year. The programme seeks to focus on an investment-led recovery, prioritising investment in capital spending. The plan is to stimulate the economy with a jobs-led recovery, through investment in public infrastructure, and critical areas such as housing, health care, transport, and energy. This level of capital spend and investment across the infrastructure sector will require leadership in Portfolio Management in particular to manage the approval process in the public sector which is typically long and onerous.
The responses from this year’s survey indicate that owners have more mature portfolio management than contractors, with the larger organisations the most advanced—which is to be expected given their superior resources. In our experience, engineering and construction companies are, however, making progress and, indeed, are ahead in terms of screening potential projects and employing financial and risk analysis tools—a sign that they’re no longer willing to undertake any project without regard to margin or risk. This may also mean that engineering companies and contractors are becoming increasingly cautious about bidding on very large, highly regulated, complex, extended duration projects in competitive markets, fearful of repeating past failures.
More than two-thirds of project owners have defined portfolio governance processes and an established capital allocation framework, which lets executives stay abreast of the overall portfolio direction and performance and ensures that resources are applied in an optimal fashion. Healthcare, government, and power and utilities are the sectors that appear to practice the most effective allocation of capital. One concern is that only four in ten owners say they use portfolio planning software. With a crisis like COVID-19, there’s often an urgent need to reallocate resources, but to do so requires real-time data to do scenario analyses and figure out how best to shift people, equipment and money. In an asset-intensive organisation, running multiple projects worth billions of euros, this represents a big opportunity to improve performance.
Similarly, 45 percent of owners do not have an embedded asset management team to oversee capital allocation between projects. The tension between competing interests puts pressure on leaders to funnel resources into certain projects that may be higher profile or satisfy immediate issues. For instance, in the public infrastructure sector, we often see expensive new programs such as new lanes on highways to reduce congestion, with critical maintenance taking second place. The result? The immediate needs of commuters are satisfied, while crumbling bridges and roads get worse and eventually have to be replaced at enormous cost.
Another gap in owners’ portfolio management is quantitative tools for financial and risk analysis, which help in screening big projects. Respondents from oil and gas and chemicals score more highly in this category, reflecting the longer life spans of their assets, and the need to plan ahead accordingly.
Today’s construction projects involve a range of stakeholders including owners, contractors and suppliers, each with multiple projects of their own. One failure—like a cost overrun—can have a devastating impact upon the rest of the portfolio. In managing finite financial and human resources, owners must take tough decisions on capital allocation that fit the strategic goals of the organisation, rather than satisfying individual empire builders or responding to short-term challenges. Infrastructure illustrates this dilemma perfectly: a failure to maintain existing assets can lead to an inability to cope with environmental shocks like fires, flooding and unseasonably hot and cold weather.
When a portfolio management process is based around reliable data insights, decisions like screening and selection and capital allocation become more rational; there is less reliance upon power plays by different groups and individuals, or knee-jerk responses to public opinion (especially in the case of government infrastructure programs).
Ongoing tracking of benefits is a key area for improvement. Currently a minority of owners and contractors deploy sophisticated software which gives assurance that their investment strategies are generating value. Which may explain why only 58 percent of the survey respondents say they consistently monitor, track and report on benefits realised from capital projects and programs.
Using the results of the survey KPMG have developed an action plan to address the key findings. In regards to Portfolio Management there are two specific actions to consider that will greatly impact success in the delivery of projects; invest in planning tools and invest in shared technology platforms to enhance data analytics throughout the lifecycle of projects and into operation. To support the application of these tools, an asset management capability will enable the full benefits to be yielded through effective portfolio management that understands the whole life costs of capital investment in infrastructure.
Action: Invest in portfolio planning software and a formal, embedded asset management team. This should help ensure that capital allocation decisions reflect the organisation’s wider interests, and that investments in projects generate the optimum ROI.
Action: Bridge the technology gap between owners and engineering and construction companies, with owners investing in shared platforms to enable contractors to access technologies like integrated PMIS, BIM and advanced analytics.
The pace of change is challenging leaders like never before. To find out more about how KPMG perspectives and fresh thinking can help you focus on what’s next for your business or organisation, please get in touch with our team below. We’d be delighted to hear from you.