On time, on budget...NOT

Every engineering management firm you talk too, especially if they are in marketing mode, and these days that's nearly all the time, will boast of their record of "on time, on budget" project delivery. And yet, a prestigious and widely read study out of Duke University shows that the vast majority of Engineering projects are neither. And it adds, most also fall short of their original scope too. Here's the scoop, the Dukies got it right, nearly every "on time, on budget" claim is bogus.

Managing a large engineering project is an extremely long and complex process involving thousands of people and dozens of entities, both public and private generally under the overall direction of a public agency whose mission is something other than capital project execution. By this I mean they are large transportation agencies, public utilities, educational institutions, or airports.

Traditionally then, they have hired outside assistance to perform these tasks under their general direction. There are generally three broad phases to any project - planning, design, construction. Clever entrepreneurs have set out to define other phases, but these are in fact sub-sets of the big three and need not be discussed here. Each phase is performed by individuals and firms who specialize in the kinds of tasks required for that phase. Over the years ambitious firms have attempted to expand to cover more than one, with results that are generally pretty dismal.

In recent years, however, the concept of Program Management has arisen from some of the larger Engineering firms such as Bechtel, Parsons, and Halliburton. It is useful to ponder what Program management purports to be, why these firms chose to move in this direction, and what Program Management adds to a project, if anything.

Major crime enterprises, the Mafia if you will, have always moved aggressively from illegal to legal activities. The reason is simple, risk is lowered. Any financial adviser will tell you about the risk-reward curve. The higher the reward you seek (return on investment) the bigger risk you have to take. The lotteries are a simple example of this. If you win, you win big, but the most likely result is you'll throw a lot of money away. All business more or less follows this rule. Oil companies get very rich when they are going well, but the business has a lot of unknowns. Ford and Coca Cola, two giants of American industry, took risks in recent memory and lost. I speak of course of the Edsel and New Formula Coke.

Engineering work, particularly design work, has become increasingly risky in the past 25 years. Liabilities for faulty designs or designs that just didn't work well have increased spectacularly. It has become more and more difficult to predict these costs and to recover them from future clients. Conversely, Program Management was conceived and structured to minimize risk to the firm.

Program Managers present themselves to an agency embarking on a large capital program, often the only one that will be done during the professional lifetime of its managers, as their one stop, fix all answer to all the problems and the unknowns that are about to occur. A couple of things should be noted here, first most agencies begin planning for large capital programs after it's too late to do them well, and second the governing boards of the agencies are typically political appointees with little or no expertise in capital programs. Oh, and a third: the programs are usually underfunded.

So the agency hires the Program Manager and, lacking the resources to manage them well, turns all decision making authority over to them. And here's the rub: the Program Manager has no incentive to deliver the program on time or on budget. The longer the program runs, the more work they have for idle and marginal employees, the more over budget the greater their profit. Profit is almost always tied to total cost.

Delays and cost overruns occur, the agency becomes unhappy. Explanations are demanded. This is where the firm displays their real talent, providing the artful explanation, generally involving some outside force that couldn't have been foreseen, and redefining time and budget to demonstrate how the program is still adhering to both. Agencies are also happy if the explanation flies, gets them off the hook. The key of course is maintaining a lock on the expertise.

i shall be deconstructing some of the elements of this scam in future posts.