Developing deeper insight into project performance through analytics

By Gregg M. Schoppman, FMI

Most projects don’t start off being bad.  They begin with the best of intentions but possibly lack the nurturing, caring and planning to be successful.  There are also those projects that take a dark turn, but their trajectory provides a false sense of security to management.  They exhibit signs of being a best in class project, one that will become the cover page of the sales brochure. However, below the surface, there are signs and indications.  A client starts to pay just a little bit slower.  A key trade partner goes bankrupt. The supply chain sees a small interruption. A ripple.  Before long, the poster project quickly becomes the pariah.

Firms are spending a great deal of energy to understand the short and long-term ramifications of the Post-COVID-19 world.  Throughout the world, there are projects that were irreparably harmed due to stops and restarts, while others barely saw a hiccup of a delay.  For many, their work in progress report may have seen little disruption, allowing leaders to take a deep sigh of relief.  Is this a tad premature? Are some of these projects heading into the “Bad Zone?”

In what seemed like an eternity ago, we had sports.  Take a college football game pitting two rivals – the Southern Reptiles versus the Northern Polar Wolves – against each other.  The Southern Reptiles in this game are favored by 2 touchdowns, or 14 points.  Put another way, the Reptiles are “spotting” the Polar Wolves 14 at the start of the game or handicapping their odds.  In the end, if the Reptiles win – which was expected – but fail to achieve a two-touchdown advantage, fans, pollsters, etc. see it as a failure.  An uncanny example of winning but failing at the same time.  Similarly, consider a contractor that has a project that they bring in at 20% gross margin.  On the surface, this sounds like a win.  However, after you factor in that the project was estimated at 45% and the overhead of the firm is 21%, you realize that this project was an unmitigated disaster.  

Now consider projects in the new environment.  What if projects in this new Post-COVID world had similar handicapping practices to provide a different set of optics on a project?  Consider the list of projects below:

This snapshot illustrates the firm’s work in progress for its complete portfolio.  In addition to showing the variance from bid day, additional comparisons are shown Pre-COVID and the margin as of today.  The contract values are shown to help provide context on the margin contribution.  From this perspective, the forecast for the firm looks relatively strong.  It appears our team will win but as we know from sports, this is also the reason we play the game. 

One of the first areas that should be analyzed is the collection cycle.  Below is an illustration of the same project list but with a different characteristic – the handicapping factor:

For each project, the collection rate was show Pre- and Post-COVID.  The resulting “Payment Risk Handicap” is shown on the far-right side.  The aim of this factor is to normalize the data in such a way provides an accurate comparison.  For instance, the factors are show below:

It is important to note that all of these handicapping factors are deeply subjective.  While there are most likely industry benchmarks, the idea is to use the internal firm comparatives.  For example, industry collections hover around 45 days for above average performance.  That being said, the contractor in this example operates in multiple sectors so it is important to provide a factor that can translate to all project types.  

Now look at Multi-Family B.  This project actually showed some modicum level of margin enhancement (7.15% from 7.00%) but it is also showing a deterioration in collections.  On the surface, this one indication does not demonstrate potential failure but is it a portent of things to come.

In an similar fashion, the same process could be done for other aspects of the project. For instance, the aim is to examine areas that might have been adversely affected by the COVID-19 pandemic or any other economic deviation.  In the example below, the supply chain and the critical path are investigated:

Hospital B project shows the greatest impact related to material procurement.  Interestingly enough, this project was performing at a margin of 11% but it also shows the greatest potential risk through schedule overages.  The handicapping factor was calculated based on the overage (see below):

Similarly, a firm can measure the potential “General Condition Burn Rate” which is another extension of the schedule impacts:

We see once again Multi-Fam B rears its ugly head again.  While it would be intuitive to assume that any projection or forecast would account for general condition overages, there are probably many instances where managers fail to correlate the critical path and monthly cost report effectively.  

After additional factors for trade contractor performance and internal process compliance are also calculated, the table below provides a summary of each handicapping factor as well as a total.

It comes as no surprise that Multi-Fam B shows the greatest POTENTIAL for becoming “bad.”  So, was the intent to create a tool that serves as a self-fulfilling prophecy? The aim of any tool – whether it be a standard work in progress report or a handicapped version – is to drive action.  With so many warning signs, senior management not only has the optics to defuse a potential disaster but implement a series of steps to protect the firm.  For instance, the firm can do any of the following:

• Owner Meetings – Discuss payment terms and examine customer liquidity
• Schedule – Develop alternate work schedules or alternate products that may be more readily available
• Subcontractor Performance – Conduct a series of deep trade partner coordination meetings to discuss performance, risk mitigation, etc.

Harkening back to the football example, if the Reptiles were down by two touchdowns at the end of the game, there would be great disappointment.  However, the scoreboard actively provides feedback throughout the game and team leaders use that data to develop course corrections.  If they are down by two touchdowns in the first quarter and they have zero yards of rushing, the coaches enact a mitigation plan.  Construction leaders today cannot be lulled to sleep by a “satisfactory” scoreboard.  Doing so will allow complacency to set in and the good to become the bad.

About the Author

As a principal with FMI, Gregg specializes in the areas of productivity and project management. He also leads FMI’s project management consulting practice. He has completed complex and sophisticated construction projects in the several different niches and geographic markets. He has also worked as a construction manager and managed direct labor. FMI is a unique and fast-growing firm of professionals passionate about creating a better future for engineering and construction, infrastructure and the built environment throughout North America and around the world. For more information on FMI, please visit www.fminet.com or contact Schoppman by email at gschoppman@fminet.com.