Are You Incentivizing Project Predictability or Secrecy?

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16 INSIGHT l Issue 43 » QUARTER 4, 2018 INDUSTRY UPDATE » These are all questions that owners and contractors have been asking them- selves for decades, but productivity and performance levels in the engineering and construction industry still lag behind other sectors by a considerable margin. What is responsible? THE HUMAN FACTOR In its report on improving project outcomes and predictability, the Con- struction Industry Institute (CII) identified the human factor as the most significant component of project success. The human factor means not only the people working on a project, but also the organizational culture and the incentive structure built around projects. If not properly managed and aligned with orga- nizational strategy, the human factor can have a negative effect on projects. Some of the causes of low predictabili- ty and project ineffectiveness are directly attributable to the human factor: • Insufficient effort or attention • Inadequate experience and expertise • Optimism bias • Poor transparency and accountability Now what? Realizing the human factor is critical to project success is a first step, but how can you ensure the human factor is improving project predictability and performance rather than hindering? INCENTIVIZATION While the human factor is notoriously difficult to change, improvement can be achieved through properly aligning incen- tives with organizational needs and goals. Most organizations utilize an out- come-centric performance measurement – that is, the project team is measured based upon the deviation from cost and schedule at the end of the project, i.e. if it is close to planned budget and schedule at completion (good) or far away (bad). But this is too simplistic, and it inad- vertently sends the wrong message. It contributes to optimism bias, while limit- ing transparency and accountability. To illustrate, imagine a project team discovers an issue that will likely cause a 20 percent overrun when the project is 40 percent complete. The team has two options: A) Report the issue to management B) Don't report the issue and try to get back on track CII found most often, project teams will choose Option B out of fear that if they report the issue to management, they will be subject to more scrutiny for the Are You Incentivizing PROJECT PREDICTABILITY OR SECRECY? HOW CAN WE IMPROVE THE PERFORMANCE OF CAPITAL PROJECTS? WHY DO SO MANY OF OUR PROJECTS EXPERIENCE OVERRUNS, DESPITE OUR BEST EFFORTS? WHAT CAN WE DO TO MITIGATE THE RISK OF PROJECTS?

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