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Project Portfolio Standardization

Globalization of Procurement &


Contracting
Driving Profitable Growth and
Competitiveness In Construction Projects
Abstract

Project Delivery Optimization

Dr Yasser Alkazzaz,
Founder & Project Management Consultant
E2CBridge
www.e2cbridge.com
Email yalkazzaz@e2cbridge.com
Mobile +1 817 253 4129 Office +1 817 742 1203

This document suggests new approach to assist construction


contractors in driving standardization and globalization
across their portfolio of projects. The approach consists of
identifying and implementing cost saving opportunities from
design standardization, re-use in design, modularization,
and prefabrication, and subsequently from related global
procurement strategies, contracting strategies and
associated alliance programs or framework agreements. As
a consequence, construction companies will be leveraging
these standardization opportunities to increase the rate of
project to project repetition and subsequently optimize their
delivery methods and profit as well as to strengthen their bid
competitiveness. As an indication, similar actions could yield
a reduction of 18%-25% in materials cost and up to 24% in
construction cost saving in addition to laying down stronger
foundation for competitiveness and scalable growth.

Poor project delivery performance


Engineering and construction projects are suffering
severely from not being delivered on time and on budget.
Industry surveys indicate 63% of projects are delivered
over budget and 75% are behind schedule. This
represents billions of dollars of value leaks and inefficiency
across industries. This situation is not necessarily related
to poor engineering design or construction issues, but
more to an indication of an industry lacking robust
approach to plan and control effectively project delivery.

Lack of portfolio integration,


globalization and consistency
Budgeting, scheduling contracting, and procurement are
bridging functions in transforming engineering design into
successful construction, but yet these functions are
executed on ad-hoc basis, not robustly integrated and
very often executed on project per project basis without
global coordination, standardization and consistency
across a portfolio of projects, in particular in construction
contractors organization

Reinventing the wheel from project


to project
Vast majority of construction projects across multiple
industries are still being customized with tailored
components and individually designed contracting and
procurement strategies. Since engineers like to engineer,
sometimes they re-invent the wheel and sometimes they
over-engineer. In addition, owners hire contractors
individually project per project where project teams
(including sub-contractors) and processes are almost
formed from scratch, with no incentive to leverage
consistently previous project experiences or to benefit
from global capabilities in term of standardized approach
to design, procure and build. This situation has left the
construction projects industry with a low rate of
standardization and consistency from project to project,
and has prevented the application of effective planning
and control that yields better delivery performance and
profits for all stakeholders.

Lack of sourcing strategy and global


procurement
In most of construction contractors companies project
procurement is executed locally on project-per-project
basis and sub-optimized due to non-existent procurement
standardization and globalization across the projects
portfolio. It has become an important source of
competitive disadvantage and is significantly reducing a
companys overall potential for superior profitability.
Most contractors have not yet developed strategic
procurement capabilities, as many of the key ingredients
of an effective sourcing/procurement are simply nonexistent:

commodity managers full or part time

sourcing strategies differentiated by commodities

multidimensional spend analysis across market,


regions, vendors and projects types

low cost sourcing

long term vendors alliances

and contract compliance

In addition, systematic enforcement at each project of


procurement discipline is conspicuous by its absence in
the industries. Not to mention that procurement
responsibility is almost systematically given to subcontractors without systematic governance which might
procure materials locally with higher prices and costly
mark up

Lack of standardization in delivery


methods and prime contracts
Current project delivery methods (construction manager
at Risk, design and build, design bid & build and others)
do not leverage standardization opportunities across the
portfolio for more competitive bidding. This is leaving
contractors organizations with vulnerable competitive
advantage as it is not capitalizing on synergistic
opportunity across the portfolio and not very much
leveraging lessons learned from similar previous
projects experience to optimize the bids consistently
across all regions and markets.
The lack of robust project portfolio standardization is
preventing contractors from consistently creating new
project bids as well as from reducing the risk of shrinking
profits lack of effective alignment in both bidding phase
as well as in project operations.
In addition, this is preventing contractors from
leveraging modularization, prefabrication in optimizing
construction service and sub-contracting.

Manufacturing approach to
construction standardization
The Bill of Material (BOM) usage has greatly contributed
to increase the rate of standardization in manufacturing
including but not limited to aerospace & defense, heavy
equipment engineering and fabrication. The explicit
application of BOM in driving project planning & controls
is lacking in construction projects and orphan in between
owners and contractors. Thus contractors engineers
define from scratch custom BOM for every project with
completely undisciplined and unorganized reuse from
project to project. In addition the project BOM is highly
disconnected among disciplines with too many errorprone material take off (MTO) files, equipment lists and
different coding and formats. This prevents future reuse
in other projects and it does not allow effective planning
and controls. In addition, it increases contingency and
ad-hoc changes that lead to budget over runs and
schedule delays. The explicit and consistent usage of
project BOM can progressively lead to identify
standardized design, components and work packages for
which generic BOM and plan could be maintained and
re-used across a project portfolio (per project type at
the least). Our combined experience in manufacturing
and construction puts us at the forefront to transfer
relevant practices and to develop robust approach to
construction project portfolio standardization and
optimization.

Organization disconnected in
between direct and indirect
Contractors corporate organizations are geography or
market orientated with primary driver on business
development, marketing and finance and sometime in

Copyright 2015 E2C Bridge Inc

detriment of project delivery performance. We dont often


find executive and senior management roles in the
corporate organization in charge of global project delivery
practices or design standardization, or global contracting
and procurement. In addition and often, there is
disconnect between indirect (corporate) and direct
(projects teams) personnel. Our industry analysis has
revealed that indirect personnel organizations have more
focus in monitoring profitability and less direct
responsibility to monitor closely project delivery
performance (focus on the consequences and not root
causes/drivers). The direct personnel (project managers)
are fully swamped on projects with no global responsibility
across the portfolio (tactical vs strategic). There is a great
disconnect between direct and indirect in terms of
performance monitoring:

Indirect monitors cash flow but far away from


delivery performance

Direct manages project performance but on


project per project basis with no sight across the
portfolio.
This disconnect in most contractors organizations is
leading to poor project delivery performance, hence
profitability and sometimes client dissatisfaction. Our
approach of project portfolio standardization and related
organizations, can assist in restoring operational
effectiveness and profitable alignment between direct and
indirect cross the span of an organization.

roadmap and an implementation program to fully


leverage and implement the opportunities identified in
step I. The objective of the improvement roadmap is to
generate the fastest and highest possible payback for
the client, by first delivering a series of quick hits, then
by undertaking more in depth actions to guarantee
lasting superior performance by the implementation of
robust, sustainable global procurement and project
portfolio standardization organizations and capabilities.
The new organization will optimize delivery performance
and increase profitability across the client portfolio of
construction projects. Our organization design model is
lean and adaptable and will work on matrix structure
with your existing organization without major shakeup
or reorganization.

Portfolio optimization and


standardization approach

Our background

At E2C Bridge, we have developed a robust consulting


methodology that leverages bill of materials (BOM)
standardization, procurement and contracting best
practices from manufacturing environments and apply
them in construction projects. The ultimate goal is to
assist construction contractors exercising horizontal
controls across their portfolio of projects in order to
maximize standardization, optimize procurement and
improve individual project performance.
The approach is organized in two steps:

Step I-Project Portfolio Assessment


The first step consists of performing a project portfolio
assessment with the mission of identifying, quantifying
and prioritizing saving opportunities in terms of
procurement and construction cost reduction, risk
reduction, schedule compression and an overall cost
improvement. Beyond that, we study the portfolio to
identify synergies and to increase the rate of repetition
from project to project. The goal of the study is to identify
some or all of the following opportunities.

Design standardization, reuse in design

Modularization, prefabrication and off site fabrication

Delivery strategy and prime contract optimization and


standardization (CM at Risk, Design & Build, Design
Bid & Build)

The identification of procurement and sourcing


strategies across all relevant commodities

Step II-Improvement roadmap


The second step consists of defining an improvement

Benefits of the approach


The application of this methodology could potentially
generate significant procurement and construction
services savings in a company portfolio.
As an
indication, similar actions have yielded a reduction of
18%-25% in materials cost and up to 24% in
construction cost saving and led a foundation for
stronger competitiveness and scalable growth.

Accomplished professional with over 26 years of track


record optimizing planning & controls, procurement and
supply chain operations in capital construction projects,
manufacturing and industrial operations environments.
Most recently, spent 7 years in capital projects assisting
clients optimizing return on capital expenditure from
cost saving and schedule performance through project
portfolio standardization and superior project delivery
optimization.
Work
included
identifying
and
implementing cost saving opportunities from design
standardization (equipment and materials), and
subsequently
from
related
standardized
contracting/procurement strategies and framework
agreements. In addition, developed superior and lean
project management & controls process and systems
capabilities that fully integrate procurement and
material management as well as 4D/BIM technologies
and result in superior budget and schedule delivery
performance. Prior to capital projects experience,
worked 10 years in supply chain operations leading
projects in strategy development, sourcing optimization,
risk modeling, operations & performance management
and IT/process alignment. Before that, spent 12 years
developing and leading projects in manufacturing
planning and scheduling optimizing throughput, lead
time and improving operating expenses, on time
delivery and responsiveness.
Prior to E2C Bridge, was global director at Hatch
engineering consulting and construction management
and held various executive positions before in USA and
Europe

Copyright 2015 E2C Bridge Inc

Copyright 2015 E2C Bridge Inc

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