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Poor project management blamed for budget blowouts

August 21, 2017

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The sorry state of Project Management in New Zealand

April 22, 2018

Back in August 2017, I had the pleasure of being interviewed by Catherine Harris for an article that appeared on stuff.co.nz (you can read the full article and comments Here: https://bit.ly/2v6FOFh).  You may remember this point in time as it closely followed Fletcher Building's admission of a $292 million dollar loss.  Sir Ralph Norris, the Chairman of the board at the time agreed with me that "poor project management and governance..." was in part responsible for the loss.  We know now that this figure is $1 BILLION, and in the mad rush to fight off a potential acquisition, Fletcher's have looked to the shareholders in a capital raising exercise.

 

So what really is the "state of play" in New Zealand's project management industry and why should we care?

Well, there is not a lot of hard figures that we can use to measure the local project management industry but there has been some good work done by PWC around the construction sector and by KPMG on the industry as a whole. KPMG has been monitoring the industry releasing a 3-yearly report.  Added to this is my own research for the last four years trying to get a handle on just how big this "issue" is and whether the various industries can actually see it?

 

In 2010 KPMG reports project success across all industries and project types was 36% consistently on time [on-time], 48% consistently on budget [on-cost] and 59% consistently achieving stated deliverables [as-per-scope]. 2013 delivered the following results 29% on-time, 33% on-budget and 35% achieving stated deliverables.  2017 raced in at 31% on-time, 29% on-budget and 33% achieving stated deliverables.

 

So now that we have the "how are we doing" bit out of the way, let's look at the size of the playing field.  The best figure I could find to split project value between the public and private sectors is approximately 55%/45%.  The Minister of Finance, the Hon. Grant Robertson provided me with the following quote "Currently there are almost 600 significant Government projects either being planned or underway with a combined whole of life cost of over $83 billion."  Setting aside the lack of definition around what constitutes a "significant" project and acknowledging that "whole of life" includes operational costs and are therefore excluded from project management, we never the less have some figures to start from.  If $83bn equals 55% of all projects in New Zealand, then the total project value would equal $151bn.  For another method, PWC calculated that the construction sector accounts for $35bn annually, My research grouped the project industry into six sectors.  Assuming an even expenditure across all six sectors then we arrive at an annual project expenditure of $212bn.  So a large value variance with no quality research data to reduce the margin of error.

 

Let's be pessimistic for a bit...

 

$212bn with a two-thirds failure rate means we are going to spend $141bn on failed projects (and let us remember this is project failure based on the old "iron triangle" of project success - on-time, on-budget and as-per-scope).  KPMG highlights that the average project spend is $15m with only $5m delivering the desired outcome.  So another way of assessing the value for our $212bn is to say that it will only provide actual "desired outcomes" of $70bn!

 

Looking at the Government's project portfolio we can apply the same calculation... $83bn spent, $27bn delivered.  Given we have a budget due to be released shortly another way of handling the probable project's outcome would be to factor in project spend of $249bn.  

 

All of a sudden an $11bn hole looks quite attractive.

 

Tune in next time for a look at some more specifics around some of the causes in the construction sector and how they could potentially be addressed.

 

Happy projects.

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