Infrastructure Project Management : Special requirements

Dr S G Deshmukh Director, ABV-Indian Institute of Information Technology & Management Gwalior

deshmukhsg@gmail.com 9 Apr 2012

Session at TECHNO-CONCLAVE 2012 ITM University, Gwalior

Preamble

Infrastructure is the key

driver for the Sustenance

of India’s economic growth

Courtesy:

Manage India (Newsletter of PMI )2011, Vol 3(4)

3

Typical Scenario in our country

Solution..

Infrastructure development involving Public utilities to improve the Quality of life

Some examples..

National highway development and Prime Minister’s Gram Sadak Yojna

Reliance Jamnagar Refinery

Konkan Railway project

Delhi Metro rapid transit system

Bandra—Worli Sea Link Bridge Project in Mumbai

Mundra Port & Special Economic Zone (SEZ): India’s largest private sector port and SEZ

New/modernized airports—Hyderabad, Bangalore, Delhi

Nationwide telecom networks

Several changes taking place..

Public Private Partnerships (PPP) using models such as Build Operate Transfer (BOT)

Increase in size and capacity of Projects

Consortia, joint ventures, strategic Alliances

Rapid entry of new entrants and rapid corporatization

Improved practice of project management

Improvement in productivity, quality, and delivery capability

Mega project financing, both within and outside India

Infrastructure Projects

Typical examples

Road

Power

Telecom

Airport

Port

Gas-oil Pipeline

Urban facilities' (Housing )

Characteristics of infrastructure projects

Huge stakes involved

Time and Cost overruns

Issue of ownership

Multiplicity of agencies

Speaking points..

SWOT Analysis of Infrastructure

Project Management Approach and issues involved

Application in Construction industry

Role of Materials Management

Role of IT

Supply chain orientation

Learning from Delhi Metro

Concluding remarks

Present scenario in Infrastructure ..1..

Infrastructure projects, in terms of number, size and complexity, have grown dramatically in the past few years. The overall investment and spending have almost quadrupled in many infrastructure sectors.

Managing infrastructure projects is no easy task. The gestation period is long. The capital investment is high.

There are many stakeholders to address.

Present scenario in Infrastructure ..2..

There are also many variables beyond the control of the developer, such as government policies, clearance process and weather events. These projects are thus quite prone to time and cost overruns.

At the same time, project developers and managers can minimize risks by following the basic principles of project management – proper planning, execution and monitoring.

Reasons for cost/time overruns of central govt projects Reasons Projects

Fund constraints 31

Law and order matters 10

Land acquisition issues 22

Slow progress in areas other than civil works 79

Delay in equipment supply 5

Environmental clearance 2

Others (proper technology selection, award of contract, delay in civil works, geo-mining, court cases, inadequate infrastructure support, bad weather, government clearances)

48

Source: Project Management Practices in India 2010 (Indicus Analytics and Ace Global), Project Implementation Report (MOSPI)

SWOT Analysis

Strengths

Liberalized and Growing economy

Strong financial base

Good consumer base with a focus on Urbanization

Improved Connectivity with the world (Thanks to IT infrastructure!)

Availability of Competent manpower and natural resources

Weaknesses

Bureaucratic mindset

Inadequate facilities

Lack of proper orientation

on Cost/Time awareness

Emphasis on Rules and regulatory approach

SWOT contd..

Opportunities

FDI increasing in infrastructure projects

Success stories of T3/ Delhi Metro

Development of Quality infrastructure to improve quality of life , and

Development of quality manpower

Our strategic Positioning in Asian Region

Threats

Foreign investors may choose other countries

Economic meltdown

Danger of moving away from original mission?

A Project Management Approach to Infrastructure !

Project

A temporary endeavor undertaken to create a unique product or service.

Ref: Kanda A, 2011, Project Management: A Life cycle approach, Prentice Hall India Ltd

Project

Management

The application of knowledge, skills, tools, and techniques to project objectives to meet stakeholder needs and expectations.

Project Management

Management of time, scope and cost of project

A project is a non-routine, non-repetitive, one-off undertaking with discrete time , financial and technical performance goals !

Ref: Kanda A, 2011, Project Management: A life cycle approach, Prentice Hall India Ltd

Knowledge Areas in PM

Scope Management

Time Management

Cost Management

Quality Management

Human Resources Management

Communications Management

Risk Management

Procurement Management

Integration Management

Project Management Context

Project Phases and Life Cycle

Stakeholders

Leadership Skills

General Management Skills

Communications Skills

Project Phases and Life Cycle

Divide Project into Phases

Better Management Control

Review Deliverables and Performance

Fast-tracking

Example of Project Phases

Conceptual Design

Detailed Design

Coding and Testing

Training and Documentation

Deployment

Stakeholders

Individuals and Organizations

Actively Involved in Project

Interests Affected by Project

Key Characteristics of PM approach

System Approach, Integrator

Multi Faceted, Multi Disciplinary

Focuses on delivery ,timeliness, flexibility, cost as performance characteristics

PM has a set of tools and techniques, the list is expanding with the increase in the complexity of business.

Typical characteristics in a construction project..

Finite horizon and the associated transient involvement of the firm contracted to execute the project

Unique nature of many of the equipment/materials

Drastic impact of material shortage

Conception Planning Implementation Completion

Leadership and

Team work

Organization &

People

Management Skills

Project

Management

Techniques, Models

Computer Support

& Information

Systems

THE PROJECT PROCESS

Identification

Appraisal

Selection

Work breakdown

Networking

Scheduling

Time/cost tradeoffs

Resource issues

Monitoring & Control

Updating costs & times

Problem solving:

- Behavioural

- Technical

Accounting

Report writing

Disbanding team

Handing over

ENABLERS

Typical Phases in a project

Concept and Feasibility phase

Planning Phase

Design Phase

Commissioning phase

Role of Materials Management in a Project (Construction)

Role of Materials Management ..1..

Concept and Feasibility Phase: estimate costs of major items, develop list of vendors , estimate availability and lead time of critical items

Planning Phase- Contribute to specification of requirements, evaluate contractor bids, prepare project procurement plan of execution

Role of Materials Management ..2..

Design Phase-Expedite design on long lead time items, work with engineers in timely development of specific equipment and materials

Construction Phase- Check when installation of key equipment is possible and how it will be handled, influence construction schedule when appropriate

Commission Phase- dispose of surplus, ensure availability of spare parts , operating and maintenance instructions

Informational role of MM..

General information on lead times

Supply sources with associated lead times

Development of new sources

Information on new equipment and material

Imperatives

Significant Cost of materials

Invisible costs

Complexity due to various alternatives

Implications on delays

Customer-supplier chain everywhere

Perspective...

A total concept involving an organizational structure unifying into a single responsibility for the systematic flow and control of material from identification of need through usage and accounting of the same.

Importance.. Materials represent a major expense in

projects (for example in construction projects), so minimizing procurement or purchase costs presents important opportunities for reducing costs.

Importance of Purchasing A multi-dimensional function comprising

Acquisition of materials required to support the project

Procurement of capital equipment needed for development projects

Procurement and upkeep of public utilities by adequate material support

Importance .. (contd.) Decisions about material procurement may also be

required during the initial planning and scheduling stages. For example, activities can be inserted in the project schedule to represent purchasing of major items such as elevators for buildings.

The availability of materials may greatly influence the schedule in projects with a fast track or very tight time schedule: sufficient time for obtaining the necessary materials may be allowed.

At times, more expensive suppliers or shippers may be employed to save time !

Typical Benefits

Improved availability of materials may reduce craft labor costs

Reduction in project delays

Enhancement in productivity

Reduction in storage costs

Reduction in chasing and firefighting !!

Concerns.. Poor materials management can result in large and

avoidable costs. First , if materials are purchased early capital may be tied

up and interest charges incurred on the excess inventory of materials. Materials may deteriorate during storage or be stolen unless special care is taken.

Second, delays and extra expenses may be incurred if materials required for particular activities are not available

Accordingly, a timely flow of material is an important concern of project managers.

Concerns...

Cost of materials and

Cost ON materials

Timely delivery so as to have smooth flow and avoid PROJECT DELAYS

Service centric approach

Typical Costs.. Costs of purchasing

Packing costs

Transportation costs

Insurance premia

Cost of Receiving

Inspection costs

Material Handling costs

Loss caused by scrap, rework

Inventory carrying costs

Cost of Paper work

Objectives of Materials Management Support operational requirements

Manage the material process efficiently & effectively

Select, develop,& maintain sources of supply

Develop strong relationships with other groups

Support organizational goals

Develop integrated strategies that support organizational goals

Types of Materials : Examples from construction projects

Bulk Materials

Example: Wet concrete mix, earthwork to be

excavated required in large quantities

Standard off-the-shelf material

Example: Standard piping and valves required in

chemical processing

Fabricated members or units

Example: Steel beams, columns for buildings are

pre-processed in shop

Example: Impact of Materials Rs

Lakhs @ 2 % saving on matl.

@ 2% saving on labour

Materials 70.00 68.60 70.00 Labour 16.00 16.00 15.68 Overhead 26.00 26.00 26.00 Profit 18.00 19.40 18.32 Total 130.00 130.00 130.00

Scope of Materials Management

Materials Requirement Planning & Control

Purchasing

Inventory control

Receiving and Inspection

Transportation

Material handling

Disposal of materials

Value analysis

Materials Management: Procurement • Definition of Procurement Activities

– Identify or reevaluate needs

– Define and evaluate user requirements

– Decide whether to make or buy

– Identify the type of purchase

– Conduct a market analysis

– Identify all possible suppliers

– Prescreen all possible sources

– Evaluate the remaining supplier base

– Choose a supplier

– Receive delivery of the product or service

– Make a post purchase performance evaluation

Item Procurement Importance Matrix

Reasons to Hold Inventory Meet unexpected demand

Meet variations in customer demand

Take advantage of price discounts

Hedge against price increases

Quantity discounts

Types of Inventory

Raw material

Work-in-progress

Maintenance/repair/operating

supply

Finished goods

Factors contributing to high

inventory ..1..

Surplus inventory

difficulty in disposing of items

No scientific policy

difficulty in standardization

ineffective powers of delegation

frequent modifications

upgradation of technology hence items become obsolete

Factors contributing to high inventory ..2..

Inability to predict the consumption pattern

inability to decide on critical/non-critical items

overbuying of items

few suppliers sending items in more than desired quantities

improper organizational structure

Lack of control

Possible options for managing projects

Selective inventory control

Use of Inventory models

Standardization

Vendor management

Lead time management

Use of IT

Supply Chain orientation

Selective Inventory Control

Prioritize items on some logical basis

Prioritize managerial efforts

Monitor and control selectively

Pareto (ABC) Analysis : Vital few/ Trivial many !

10 20 30 40 50 60 70 80 90 100

Percentage of items

Perc

en

tag

e o

f d

oll

ar

valu

e

100 —

90 —

80 —

70 —

60 —

50 —

40 —

30 —

20 —

10 —

0 —

Class C

Class A

Class B

Selective Inventory Control

ABC (Based on Price and volume of use)

VED (Vital, Essential, and Desirable)

FSN (Fast, Slow, and Normal).

HML (High, Medium, and Low)

SDE (Scarce, Difficult, and Easy to Obtain)

GOLF (Government, Ordinary, Local, and Foreign)

Multi-Unit Selective Inventory Control (MUSIC)-3-D Analysis

CONSUMPTION VALUE

High value vs Low consumption value

LEAD TIME

Long LT vs Short LT

CRITICALITY

Critical vs non-critical items

Classify and Analyze Items in the above categories and Review them periodically

Decisions based on

Purchase quantity Follow up Tighter

procedure/systems Safety stock Average inventory Powers of delegation Information systems Consumption norms

Application of value engineering

Development of new sources

Reporting Central

purchase/stocking Delegation of

authority Planning Vendor rating Forecasting

Use of Inventory Models..

Tradeoff between Inventory carrying and ordering costs

Basic issues to address: When to order and How much to order

Economic Order Quantity (EOQ) based models

Computerized models

Standardization

Facilitate international exchange of goods and services and to develop mutual co-operation in the sphere of intellectual, scientific, technological and economic activity

Benefits to

Manufacturer Trader

User Society at large

Objectives of standardization (as per ISO)

Benefits of Standardization Standardization helps in having a

common platform for communication

Interchangeability of items, sub-assemblies etc.

Facilitate the process of documentation

Reduces inventory !

Supplier Management

Models for supplier

Arms Length Model

Closed, Competitive

Evaluation on lowest bid

Data/Information sharing very limited

Inspection based quality regime

No shared R&D

Partnership Model

Collaboration based

Multi-criteria evaluation of sources

Sharing of data/information encouraged

Participative attitude towards quality

Shared R&D

Long Term Strategic Partnerships

• Develop supplier partners, especially in the

commodities key to their company's growth

and future success

• Ensure that there is a close match in

technology, growth plans, and corporate

culture to have an open and successful

relationship

• Plan and execute for a long-term relationship

• Exchange much more data than traditional

relationships

Lead Time Management

Time between feeling the need for materials and the time when that

need is actually realized.

Components of Lead time ..1..

Need is felt for an item

Specifications are drawn

Approval by relevant

authority

Indent transferred to

purchase dept

Rates, terms etc identified

New sources to be

identified

Tabulation and

comparison of

quotations

Rates/terms of

contracts negotiated

and finalized

Requisite number of

POs prepared

Components of Lead time ..2.. Acceptance by

supplier

Manufacturing of the item

Follow-up with the supplier

Stage-wise inspection

Transport

Material received

Invoice quantity checked

Material inspected

Accepted material used

Rejected material sent back

Cheque issued to the

supplier

Documents filed

Increase in Lead Time due to ...

Bad planning

Wrong specifications

Incomplete indents

Incomplete POs

Too much

centralization

Improper/incomplete

negotiations

Inadequate technical

support

Inadequate

inspection/testing

Sources not known

Inadequate legal

knowledge

Wrong estimation of

requirements

Wavering on choice of

mode of transport

Compress Lead Time

Select and Involve Supplier Early in Design

Value-added Time/Lead Time = 3.8%

Lead Time ± 33 weeks

… … ± 1 week

Select

Supplier

direct work time =

Value-Added time

… ± 2 mh

Start Design …

Lead Time

Ready to Ship

Compress Lead Time

Value-added Time/Lead Time = 4.6%

New Lead Time ± 25 weeks

.. ± 6 weeks

.. Engineer and Supplier

Collaborate Ready to Ship

Start Design ..

..

Use of IT

Information Technology: An Enabler Information links all

aspects of supply chain

E-business

replacement of physical business processes with electronic ones

Internet/web enaled allows companies to

communicate with suppliers, customers, shippers and other businesses around the world, instantaneously

Bar code and point-of-sale data creates an

instantaneous computer record of a sale

Radio frequency identification (RFID) technology can send

product data from an item to a reader via radio waves

Use of IT

Full integration of various functions at

office as well as at site

Sufficient flexibility to respond to various

contractual arrangements

Line reporting on various purchase orders

On line status on various projects

Hardware portability

Compatibility with other engineering, cost

accounting, and project control software

Use of IT: Desirable Features

Full integration of various functions at office as

well as at site

Sufficient flexibility to respond to various

contractual arrangements

Line reporting on various purchase orders

On line status on various projects

Hardware portability

Compatibility with other engineering, cost

accounting, and project control software

Use of IT: Enterprise Resource Planning (ERP)

Accounting oriented information system for identifying and planning enterprise wide resources needed to take, make,ship and account for customer orders

As an enabler to quickly access information and integrate different functions.

ERP system: Typical Modules

Purchasing

Inventory management

Waste management

Invoice Verification

Information System

Project monitoring & Control

Supply Chain Orientation

Supply Chain Management

Supply Chain Management (SCM) is the

practice of a group of companies working

collaboratively in a linked chain of

interrelated processes designed to best

satisfy end-customer needs while

rewarding all members of the chain.

Why SCM?

Process improvements

Cost and time reductions

Enhancements in profitability

New business opportunities

SCM Stakeholders

• Owners

• Engineering firms

• Contractors

• Subcontractors

• Equipment and material suppliers

• Raw material suppliers

• Lenders and insurers

Construction Supply Chain

RAW MATERIALS

PROVIDER

tier 3

tier 2

SUB-

CONTRACTOR tier 1

tier ...

tier 2

SUPPLIER tier 1

OWNER

CONTRACTOR

specialists

ARCHITECT/

ENGINEER

EPC FIRM

Salient features of construction environment

Changes in schedule and scope are common

Constraint on availability of resources and poor site conditions pose real costs and limits on subcontractors and suppliers

Retarded information sharing

Transient nature of projects

Insights...

Decisions in each part of the supply chain affect the other parts

Accelerator or Bullwhip effect Demand changes by the end-user create an

acceleratory effect in the supply chain which magnifies the size of demand changes in upstream Supply Chain elements

Best way is to reduce Lead Time !

Challenges in SCM

Project unique design and materials

Specifications

Uncertain demands

Project specific supply chain

Unpredictable environment

Client intimately involved

Barriers to SCM Implementation

Traditional contracting practices

Functional silos

Lack of SCM skills

Local project vs. global program perspective

Must be practiced at strategic, tactical, and

task levels

Risk aversion

Lack of incentives

Lack of standards

Tools & Techniques of SCM

Supplier-Managed Inventories

Supplier Relationship Management

Web-Based Project Management

Strategic Inventory Placement

Core Competency Leveraging

Streamlining

SCM Activities

Integrated behavior

Mutually sharing information

Cooperation

Customer Focus

Integration of processes

Partners to build and maintain long-term relationships

SC Orientation...

Systems view

Strategic view

Willingness to address

TRUST

COMMITMENT

COMPATIBILITY

VISION

KEY PROCESSES

TOP MANAGEMENT SUPPORT

SCM Benefits Compression in longest paths of the SC

Reduction in variability of lead times

Reduction of cost risks and charges for extra

services

Reduction of communication errors and delays

Reduction of waste

Increased net present value due to savings in

maintenance, repair and operation

Additional income to all stakeholders

Rewards Are Worth the Effort!

Remark..

Dissatisfaction due to fragmented processes in construction will lead to

Collaborative construction environment and integrated management of materials

Case of Delhi Metro

Delhi Metro Rail Corporation(DMRC)

Established in 1995

Phase I(67.5 km) and Phase II(125 km) as route length

Investment of US$ 2.3 Billions

Began construction in 1998 and completed Phase I in 2006 (3 years ahead of schedule)

There are 6 lines, and a total of 142 stations

Today a fleet of 280 coaches with 70 trains run daily

Features..1..

Appointment of Mr E Sreedharan as Project Manager !

Effective project design

Business culture based on punctuality, honesty and strict adherence to deadlines

Lean organizational structure (just 2 deptts: Project Organization, Opns & Maintenance)

Features..2..

GOI enacted Delhi Metro Act superseding local acts/regulations and hindrances

Primavera software for project monitoring

Trained manpower through own training programme as well sent abroad

Features ..3..

In order to steer clear of political interference, the DMRC sought autonomy on all major matters and the GoI promised to give it this autonomy.

Financial powers were vested in the managing director. Also, MD was the last authority on tenders,

Remarks

Major infrastructure projects are often stalled because of a. lack of funds, b. political interference, c. lack of professionalism and accountability, d. property disputes, corruption, etc. Even before the commencement of the project, the DMRC attempted to put in place effective systems to ensure the smooth progress of the project.

Summary of DMRC project

Project Management

Project Skills

Quality Skills

Timeliness

Flexibility

Empathy & Safety

Learning from DMRC

Develop Project Management

Systems Organizations must create PM processes using well accepted process

groups and knowledge areas. PMI’s global standard, A Guide to the Project

Management Body of Knowledge (PMBOK® Guide), focuses on five process

groups and nine knowledge areas.

Define and Measure Project Success Project success is generally measured using “efficiency measures” like

scheduled delivery dates, budgeted costs, and other efficiencies.

These are “necessary” measures across infrastructure, but not “sufficient.”

Project success must consider long-term impact on customer, project team,

business, and preparedness for the future. Ref: Korgaonker MG, India Emerges as a Global Brand in Projects , PMI News, Sep

2011, Vol 3(4)

Learning from DMRC Develop Strategic Perspective of PM An international survey of over 400 Architectural, Engineering, and

Contracting (AEC) companies revealed acute gaps in Strategic Management

(SM) processes. AEC companies are 30–40 percent less involved in SM activities

than Fortune 500 companies. They have dispersed SM profiles and pay

selective attention to knowledge resources, finance, and markets.

Innovate to Manage Complex Project

Supply Chains (PSC) There are wide variations in capabilities across the supply chain & gaps exist in

design, consultancy, technical talent, specialized technology, and vendors.

Coordination and integration of PSCs is a formidable challenge

Ref: Korgaonker MG, India Emerges as a Global Brand in Projects , PMI News,

Sep 2011, Vol 3(4)

Closing Remarks..

Infrastructure development is a necessity for economic development

Management of infrastructure requires project management approach

A systems approach involving all stakeholders

Useful Resources

Web sources www.pmi.org www.iimm.org www.construction-institute.org www.wholesaleelectric.com/ns_cmms www.wasteless.org

Books Kanda A , Project Management, A life cycle approach, Prentice

Hall India Ltd

Monczka, Trent and Handfield, Purchasing & Supply Chain Management, Thompson

Thank you very much !

My coordinates

Telephone: 0751-2449801

Fax: 0751-2449813

Email: deshmukhsg@gmail.com