Achieving Operational Excellence in Construction Projects through Process and Technology Alignment

1Co-founder & CEO, Nadhi Information Technologies Pvt. Ltd.; [email protected] 2Co-founder & CTO, Nadhi Information Technologies Pvt. Ltd.; [email protected]

Achieving Operational Excellence in Construction Projects through Process and Technology Alignment

Kalyan Vaidyanathan1 & Ravi S. Mundoli2

Running a construction business these days is challenging. The fiscal and regulatory environment is constantly changing and not always in favour of businesses. This is true for both Owners of capital projects (Developers and Owner/Operators) and Engineering, Procurement, Construction (EPC) contractors. Managing a profitable business is no longer only about having a healthy order book and managing cash flows within projects. To survive and grow in this environment, businesses have to achieve operational excellence that removes waste across the entire construction supply chain and become lean. Forward thinking companies are starting to look beyond the organizational boundaries and think of their businesses as an agile network of stakeholders who have to exchange information and coordinate seamlessly to deliver projects reliably, on time, and under budget. More than anything what is needed today is construction supply chain solutions that allow for such information flow and visibility across the supply chain. Solutions are needed that provide lead indicators to managing projects and use analytics to drive process improvement. This paper addresses the process and technology alignment needed for achieving operational excellence and for emerging stronger in these turbulent times.

1. INTRODUCTION

The construction industry in India is undergoing a sea change. Gone are the days when builders built small projects (less than 4 floors, 6 to 8 flats etc.). Infrastructure projects meant small road contracts, small power plants etc. Today’s construction projects are large in terms of scale, complex in terms of coordination and challenging in terms of execution, to say the least. Developers have graduated to building townships with integrated commercial, residential, and institutional spaces and the associated infrastructure of roads and utilities. Buildings are taller (20 to 30 floors), comprise sophisticated subsystems (electrical, mechanical, plumbing etc.) and the homeowner’s taste for finishing has evolved. Infrastructure projects that are talked about these days are metros, airports, ports, large power plants, roads and highways that criss-cross the country (the Golden Quadrilateral project) etc. A slumbering economy has woken up and is home to large players boasting robust overall growth and a worldwide clientele. Architecture, Engineering and Construction (AEC) is another sector that is attracting foreign direct investment (FDI) inflows and some of the larger players have been become public companies. Students who until recently only chose Civil Engineering when no other stream was available are now seeking out courses in Civil Engineering and construction management. A host of supporting industries and disciplines such as equipment manufacturing and professional project management are also riding this wave.

But with all this comes added complexity. FDI implies that there is a higher expectation of corporate governance leading to a steady professionalization of the industry. Often, much of the financing of projects is done by raising funds from institutional lenders and investors and

systems and processes are being put in place to address their needs. It also means that when companies avail facilities like private equity (PE) funds, projects are executed with leveraged money. Companies are debt ridden. This is compounded by the fact that competition is increasing and consequently margins are tightening. To survive and flourish in such an environment, companies need tighter control over cash flows, and technology solutions may go a long way in helping manage businesses better. In particular, there is increasing recognition of the value of getting project information to the appropriate stakeholders in real time so that they can take decisions and plan their future courses of action with the “freshest” possible data. Additionally, in a world where key decision makers are constantly flooded with data through various media, there is a crying need to go beyond simply collecting, aggregating and presenting data. Rather, the demand is for decision support and actionable insights drawn from the data.

There is a palpable and conscious shift in the industry towards experimenting with and adopting more up to date technologies and processes with a view to increasing efficiency. In a time of human resource shortage, the key idea is to make do with existing resources, but augment them with the technology and skills needed to be able to do more and do better while operating within the existing constraints. This includes increasing mechanization and automation at the construction site on the one hand, and increasing usage of information technology (IT) as a tool to magnify existing strengths on the other. Traditional “paper based” methods of managing projects may no longer be feasible, or indeed acceptable any longer.

Organizations are purchasing and adopting enterprise resource planning (ERP) systems to manage business electronically. The increase in the volume of construction works being executed, the serious and ubiquitous shortage of labour, and the consequent reliance on mechanization has increased the cost of construction.

This broad view of the industry reveals a few paradoxes – there is increased sophistication of the business with technology and automation, but today more than ever schedule adherence is poorest; there is a wave professionalization and smart talent in the industry, yet process maturity has not reached its mark; there is robust growth of the overall industry, yet companies are debt ridden and struggling. This paper will try to address these issues.

2. BUSINESS CHARACTERISTICS

As discussed above, construction projects today are more complex than ever and in each project, there are several more stakeholders than was the case previously. A large commercial IT project that the authors are working on currently has around 40 subcontractors and 15 consultancy firms involved, apart from the main contractor, the project management consultant (PMC), the owner, and the end user (see Figure 1). This does not include the material suppliers with materials coming from around half a dozen countries from around the world. In all, around 100 entities are interacting over a period of about five years to deliver the project. This is partly because there are more diverse and complicated finishing works in

the facilities today. Whereas earlier the typical building construction cost was split between civil works and finishing works in the ratio of about 70% to 30%, today it is reversed.

As shown in Figure 1, these factors make construction project management today as much an supply chain management challenge (Simchi-Levi 2000) as it is a project management problem. Money flows downstream from the owner, and goods flow upstream from the suppliers, but information flow is across all stakeholders. Today, the burden of managing this information flow is typically with the PMC (if one is engaged) or with the owner (who acts as the PMC). And studies have shown that seamless information flow can correlate with successful project completion (Tribelsky and Sacks 2010). Owners, general contractors and everyone down the chain use contracting models in an attempt to de-risk themselves from delivery non-performance. These include competitive bidding (L1), cost plus, guaranteed maximum price (GMP), design build, item rate contract etc. While all of them are (seemingly) effective in controlling costs, none encourage information sharing among the stakeholders. In fact, the current contract structures with their penalty clauses and slim margins actively encourage information hoarding and shielding by stakeholders as a way of avoiding penalties.

Quite separate from the attitudinal issues, legacy technology solutions also do not have capabilities that allow for easy information sharing. Technology solution providers typically are driven to produce solutions that will enhance productivity in order to show return on investment (ROI). These are easiest done by automating individual tasks in the management and delivery of projects. A quick study of the evolution of technology solutions will reveal that they were initially around 2D CAD (computer-aided design) systems, Estimation systems, Project Planning Systems, and ERP systems (mainly for financial reconciliation). These systems are typically contained within the boundaries of an organization. When information is to be shared across stakeholders (which sometimes can be business divisions within the same organization), information is extracted, massaged, printed, and shared. Whereas earlier information was shared via hard paper copies, these days it is shared via emails or through common network drives or FTP (file transfer protocol) sites. Today, even though there are advanced 3D CAD and Building Information Modelling (BIM) collaboration solutions available, the all these fall short when they hit an organizational boundary or a contractual limitation.

To effectively deliver construction projects today, this information flow has to be managed seamlessly from design to delivery. Owners need to understand and interact not only with their direct vendors (contractors), but also with the manufacturer who is supplying imported goods to a subcontractor that is working with your contractor (three levels deep).

There needs to be end-to-end visibility, collaboration across stakeholders and data from multiple stakeholders that needs to be available and available in near real time to make meaningful decisions. What we effectively need to manage is an information supply chain.

Figure 1: Construction Supply Chain

3. RECENT EVOLUTIONS IN CONSTRUCTION

Along these lines, the construction industry has seen some recent advances in business processes and in technology trends. On the business process front, Lean Construction has evolved and matured over the past 20 years or so. Lean Construction is a concept whose underpinnings are borrowed from manufacturing – Toyota to be precise – and adopted in construction. The core principles of lean thinking from manufacturing have been retained, but adapted to suit construction. The origins are in the work done by Greg Howell and Glenn Ballard that led to the development of the Last Planner System (LPS) (Figure 2). A complete description of the evolution is beyond the scope of this paper and there are references available (Ballard and Howell 1994, Ballard 2000). The LPS system espouses a collaborative development of the schedule that includes the execution supervisors (last planners) along with the planning team, allows for decentralization of decision making, and emphasizes pre-planning for the execution activities by “making ready” all the pre-requisites for it (including drawings, materials, labour, plant & machinery, work front etc.). The LPS system insists on measuring the reliability of the planning system (as against the reliability of the plan itself). The LPS principle has been broadened to include the entire lifecycle of the project from design to execution including how to arrive at target costs for the project that the entire team can deliver to (Macomber 2007).

Figure 2: Last Planner System

The construction technology landscape has also been evolving over the past few years. The most recent developments in technology have been around three areas. The first is the development building information modelling (BIM) solutions. BIM allows for the stakeholders to review the project virtually, detect clashes, get clarifications on scope and design, and build the facility virtually so that when they build it for real fewer issues will arise. The second is the evolution of mobile technologies. Given the mobile nature of the construction workforce from the people working at the site to te people who are the decision makers, technology solutions delivered on the mobile is a more natural fit rather than solutions delivered on desktop computers. This is especially true for solutions that manage the construction phase of the projects. The third is the access of the technology solutions on the cloud rather than it be installed within the hardware of each stakeholder. The cloud solution has several advantages including access anywhere, scalability of the hardware as needed without expensive capital expenditure etc. Cloud based solutions delivered on the mobile is a potent combination that works very effectively for construction technologies. Of course, all of this relies on the availability of a network to access the information (internet or mobile telephone network). And while internet at construction sites was a luxury in India a few years ago, it is now as much a utility as any other like electricity and water.

Combine all three technology trends and the technology landscape for the future will emerge. Buildings will be virtually constructed using BIM with seamless collaboration between owners, consultants, and contractors. The same is shared on the cloud and accessed using mobile devices. During construction, information needed to manage the construction phase including procurement information, financial information, and progress information can be accessed as needed. The next wave of technology solutions are now evolving to ensure that the data between all of the silos of information can be seamlessly integrated and shared. The information sharing allows for a more holistic picture to be constructed from engineering, through procurement, and construction so that impact of delays in engineering can be

accessed on construction schedule and delays in procurement on milestone dates in construction can be understood, accessed, and actioned upon. The next wave of technology solutions will, in addition to provide integrated visibility to the decision makers, use analytics to track performance trends of the various stakeholders in construction. Between the analytics and the integrated data visibility, decision makers will soon be empowered to make more meaningful decisions to drive projects to completion more seamlessly. This will then give them unique capabilities to setup longer term relationships with better performing stakeholders and drive operational efficiencies not only within the organization but across organizations at the supply chain level. With the evolution of these technologies and processes, business can soon mature their construction supply chain operations across the entire stakeholder chain in Figure 1.

4. MANUFACTURING ANALOGY – ETO CASE STUDY

Engineer-to-order (ETO) is a segment within manufacturing that is a project-based industry with a supply chain that is analogous to what we see in construction. Their project lifecycle is similar to construction in the sense that each of their orders go through an engineering, procurement, construction (or manufacturing), and commissioning phases. Some of the most visible segments within ETO are aerospace and defence with dominant players like Airbus and Boeing. Their ability to manufacture planes is similar to the construction equivalent of building blocks and apartments. Therefore, a peek into their approach for streamlining manufacturing and production operations will be useful in deriving equivalent recommendations for construction. One of the authors has first-hand experience working at a German ETO company (Vaidyanathan 2003) some years back when he was working at i2 Technologies, a leading manufacturing SCM software vendor at that time.

The ETO company is a beverage equipment manufacturer. Their clients are companies like PepsiCo, Coca Cola etc. Their projects involved designing and delivering the entire factory assembly line for their customers – machines for filling, rinsing, labelling, palletizing etc. On an annual basis, the company (in 2002) had realized revenues of about €1.2 billion and had about 6 months of order backlog. They executed about 1,500 new orders and about 6,000 upgrades and repairs in the course of a year. The new orders typically took about 9 to 12 months from engineering to delivery. Figure 3 shows a typical project structure. The upgrades are smaller projects that typically take only a couple of months. They had just completed implementing their ERP solution when the author’s company engaged with them.

An investigation done after the ERP implementation revealed that the divisions within the company were still operating as silos. The business development (or sales) division used Microsoft Project to do due date quotes during sales cycles without any understanding of resource or production constraints. The engineering division also worked outside the ERP system using spreadsheets, documents and Microsoft Project, and did not have any idea of production constraints. Production issues were tracked within the ERP system, but changes to the project systems module (the equivalent of bill of quantities or BOQ) did not automatically indicate changes to procurement (or materials) and delays in procurement were not visible to

execution team in production. Work had to be coordinated across five factories to get orders delivered as a package.

All this meant that due date quoting was poor and consequently due date adherence was poor. This also meant that their labour had peaks and troughs of workloads. They had to work overtime to deliver projects on time, but had periods of low workload also. Figure 2 also shows the problems with the processes that existed after the ERP system was in place. They realized that they needed an ability to modify corresponding and impacted data across four of their ERP modules – materials, project systems, human resources (HR), and finance when there was some change in the project. For instance, when the delivery date (due date) of the project changed, they wanted their procurement dates to change so that they could go to a just-in-time procurement model. They also wanted to improve their due date adherence on project deliveries. They also wanted to predict their labour workload (and overloads) ahead of time so that they could plan for it. They felt that with the use of technologies they could reduce their lead time to deliver orders and move their procurement to just-in-time, all of which they felt would improve their competitiveness.

Figure 3: ETO Supply Chain

To address these issues, they purchased a solution from i2 Technologies called Enterprise Project Planner (EPP). EPP provided the capability to integrate data from the various ERP functional silos and allowed the planner to modify related and impacted data across them. It also allowed for engineering plans, material procurement plans, and manufacturing production plans to be integrated with execution plans such that changes in delivery date could be evaluated when changes in (or delays) occurred in engineering and procurement.

A year into the implementation, the company had the foresight to realize that the technology solution will not be effective without getting their staff, their vendors, and their customers also to work and adopt the solution. In an attempt to get their staff and employees to adopt the solution, the company reorganized the business. It created a dedicated planning division with planners responsible for each functional unit (engineering, production, and installation).

With the assistance of i2 and the technical implementation consultants, the company ran an awareness program wherein it taught the value of integrated planning and collaboration to all of its divisions and immediate large suppliers. The company ran an incentive program wherein all of their factory floor workers were given their daily assignments through the EPP solution and they had to give their daily output achieved (or not, as the case may be).

Five years after the i2 solution was implemented, relentless attention to adoption yielded superlative results. The company was able to get 20% more output from their factories with practically zero increase in headcount. Their competitiveness increased and they had grown their top line to about €2 billion, all during a tough economic period for all of Europe and a good part of the rest of the world.

5. CONSTRUCTION – A FRAMEWORK FOR OPERATIONAL EXCELLEN CE

Leading from the ETO example and against the backdrop of evolutions in construction, the obvious question is, can construction realize the type of gains that ETO has? The answer is a qualified yes. The important takeaways from the case study are the following. One is to stage the evolution of process improvement. Two is to realize the importance of the twin role of technology and process and the realization that efficiencies from the installation of technology solutions can only be derived through relentless attention to driving process change. And the third is a top management commitment to driving the technology and process change.

In construction, Owners and EPC contractors need to realize the same. Any technology solution can only be effective if there is adoption. Most ERP solutions offer a lot of potential, but typically, realistically, ERP solutions are used to manage project accounting and inventory management during the construction stage. And CRM (customer relationship management) solutions are used tools for managing the sales process. The site operations typically are maintained and managed in spreadsheets. Data from the spreadsheets are periodically re-entered into the ERP systems for reconciliation of inventory and finances. Today, realistically, in India, there is a lot of overlap between engineering, procurement, and construction functions during project execution (Figure 4). And each is managed by different stakeholders using different systems. In today’s fast changing business days, what is needed is an ability to learn and adapt quickly to eliminate waste and operate efficiently. These wastes could be data entry duplication, mis-aligned procurement with progress or labour mobilization, or manual generation of MIS reports for management reporting. And the authors here recommend a staged approach to operational efficiency that combines process as well as technology solutions. The following is a set of steps suggested as a reference framework:

• Stage 1: o Implement the LPS at the site. This drives the required discipline ad

emphasizes the importance of pre-planning to avoid incidence of ad-hoc execution.

o Implement technology solutions that support the above planning process. These solutions should allow for all stakeholders to update the progress/status

of schedule, materials, labour, and BOQ and automate the required management information system (MIS) reports.

o This should be relentlessly driven till the behaviour of all the stakeholders change at one project. With this all the stakeholders at the site should be able to easily collaborate, share information, and deliver monthly milestones more reliably.

o The learnings from the project should be used to drive the change to all projects being executed by the Owner or EPC contractor.

• Stage 2: o Extend the LPS to include the engineering and procurement functions.

Eliminate the overlap between engineering and construction (Figure 5). o With the use of virtual construction using BIM technologies, engineering can

be taken to its logical conclusion before physical construction begins and this should help eliminate the overlaps seen today in the industry.

o This also means that owners and contractors have to now involve consultants earlier and provide access to them to the virtual information. Access has to also be provided to the procurement teams to ensure that procurement is in sync with changes made in design.

o This alignment between design and procurement during the “virtual construction” phase should eliminate the overlap between design and physical construction. This should avoid a lot of communication overhead between site teams and delays at site due to design and rework (due to working on dated drawings).

o The above calls for the next stage of technology solutions to be implemented and associated adoption issues to be solved. In addition to BIM, solutions are needed to manage engineering information, information exchange from BIM to ERP systems, information exchange between stakeholders from and during design, procurement, and construction.

o This again can be done in one project; learnings adapted, and rolled out to the organization for managing the entire portfolio of projects.

• Stage 3: o At this stage, all individual projects teams are collaborating from design to

delivery. Now, the data from the technology solutions can be used to benchmark individual business functions and/or stakeholders. These benchmarks can be used to identify lacunae and drive another wave of continuous improvement.

o The benchmarks can also be used to drive longer term relations with best performing contractors and sub-contractors so that the CSC maturity is reached.

o At this stage, each of the functions and stakeholder performance is benchmarked and the organization is driving continuous improvement in all areas. The benchmarks, and the metrics of improvement drives the next wave of technology and process changes making the organization a truly learning organization that is operating at a higher degree of operational efficiency.

The emphasis in steps above is to understand the role of technology and process and for management to drive the technology adoption to achieve desired process change (and efficiency). The emphasis is also for owners and contractors to move away from project based thinking for managing construction projects to an information supply chain based thinking. That implies alignment of processes and technology to integrate various business functions within the organization and across the organization at the supply chain level. This implies seamless collaboration across stakeholders (within and across organizations) and that also implies seamless exchange of information across systems that these stakeholders are and will use. For companies to operate at that level of operational efficiency, data entry has to be de-centralized to the last mile such that a lot of people can enter little information so that a few people can get a holistic picture to make timely decisions. As discussed in Section 3 above, some of these technology solutions are the next wave of evolution that is currently happening and is being made available to owners and contractors. These technology solutions will integrate existing systems at a data and workflow level eliminating data entry duplication and providing decision makers with holistic picture real time to make meaningful decisions that avoid incidence of delays rather than manage them once they occur. They provide lead indicators that allow for proactive management of projects rather than lag indicators that report performance. Only with relentless attention to operational efficiency driven from the top management as a strategic goal, and associated alignment of technology and processes, owners and contractors can achieve operational efficiency.

Figure 4: Engineering, Procurement, & Construction Activities Today

Figure 5: Engineering, Procurement, & Construction Activities Desired

6. DISCUSSION & CONCLUSION

Construction industry owners and contractors need to realize that managing construction projects today is about managing a construction supply chain, or more specifically an information supply chain. Business processes and tools need to be evolved with this realization in mind. And to evolve the maturity within the organization, process evolution has to happen in stages and process and technology evolution within each stage in tandem. Construction industry is in early stages of realization of thinking of operational efficiencies at the supply chain level. Given that there are no standards or benchmarks for individual companies to calibrate themselves. The construction industry needs industry benchmarks to calibrate their performance with respect to each other (and the industry). Various other industries like manufacturing and software have process maturity models that help calibrate their performance against an industry standard for operational excellence. For instance, the software industry has the Capability Maturity Model (CMMI) (Paulk 1995) and the manufacturing industry also has supply chain maturity models (PRTM 2005). Various attempts have been made in construction including a framework for a Construction Supply Chain Maturity Model (CSCMM) (Vaidyanathan and Howell 2007) but nothing has been accepted as a standard thus far.

In the absence of an industry standard, it only makes sense that each company adopts internal benchmarks for improving its performance against itself and self-driven metrics. But learning from the manufacturing experience above and from the authors’ experiences in providing technology and process consulting to the construction industry, operational excellence is a long term strategy that needs dedicated commitment. It involves alignment of processes with technology and alignment of technology tools for process improvement. The alignment of process and technology has to be a continuous, iterative, and constant process until they work smoothly and in tandem.

7. REFERENCES

Ballard, Glenn and Howell, Gregory (1994). “Implementing Lean Construction: Reducing Inflow Variation”, presented at the second Annual Conference on Lean Construction at Catolica Universidad de Chile, Santiago.

Ballard, Glenn (2000). “The Last Planner”, Lean Construction Institute White Papers.

Macomber, Hal and Barberio John, (2007). “Target-Value Design: Nine Foundational Practices for Delivering Surprising Client Value”, Lean Construction Institute White Papers (http://www.leanconstruction.org)

Paulk, M. C., et. Al. (1995). “The Capability Maturity Model: Guidelines for Improving the Software Process.” Reading, MA: Addison-Wesley Publishing Company.

PRTM (2005). “Supply Chain Trends 2005: What is on the Management Team Agenda?” Participant Report, PRTM, Waltham, MA

Simchi-Levi, D., Kaminsky, P., and Simchi-Levi, E. (2000). Designing and Managing the Supply Chain, Irwin/McGraw-Hill, New York.

Tribelsky, Effi, and Sacks, Rafael (2010). “The Relationship between Information Flow and Project Success in Multi-Disciplinary Civil Engineering Desgin”, Fifteenth Annual Conference of the

International Group for Lean Construction (IGLC-15), Detroit, Michigan, USA, 18-20 July, 2007, 170-180.

Vaidyanathan, K. (2003). "Value of Visibility and Planning in an Engineer-to-Order Environment." Eleventh Annual Conference of the International Group for Lean Construction (IGLC-11), Blacksburg, Virginia, USA, 22-24 July, 2003.

Vaidyanathan, Kalyan, and O’Brien, William J. (2003). “Opportunities for IT to Support the Construction Supply Chain”, Proceedings of the 3rd ASCE Joint IT Symposium on IT in Civil Engineering., Nashville, TN.

Vaidyanathan, K., and Howell, Gregory A. (2007). "Construction Supply Chain Maturity Model – Conceptual Framework." Fifteenth Annual Conference of the International Group for Lean Construction (IGLC-15), Detroit, Michigan, USA, 18-20 July, 2007, 170-180.

Vaidyanathan, K., (2013). "Cloud Based IT Solutions for Better Construction Management" Instruct Conference 2013, Bengaluru, India, 1-2 March, 2013.

Achieving Operational Excellence in Construction Projects through Process and Technology Alignment

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