There is a problem…
Today’s civil infrastructure, energy and industrial projects are complex and dynamic production systems that challenge even the most sophisticated owners and the leading project management organizations to deliver them efficiently and effectively. Massive project cost overruns, schedule delays and increasing claims are commonplace in these industries and demonstrate the profound impact of inefficient management approaches.These are global issues. Over the past 50 years, in the US alone, Construction productivity has continued to decline, while total investment in capital projects continues to rise. Global construction spending is estimated to grow to USD 15 trillion by 2025. The industry is one of the largest industrial sectors and will account for over 13.5% of world output by 2025 .
At this level of investment, even a 1% improvement in efficiency would save in excess of USD150 billion annually.
Why is this important?
The construction industry is enormous, comprising one eighth of the world’s total economic output. The problem is pervasive – one out of two major capital project experiences substantial cost overruns. The combination of size and inefficiency is staggering, resulting in a significant opportunity to capture lost value.
The effects of rapid globalization, increasing complexity and resource constrained supply networks have combined to create a “perfect storm” for large scale investments, contributing to continued cost overruns, declining productivity, and extensive physical waste. These trends create significant value loss in the delivery of major capital projects.
This value loss impacts companies, their customers, shareholders and society in general. Loss of value is not only measured in terms of increased project costs, but also in terms of delayed output from projects including: clean water, affordable energy, safe and efficient structures, and reliable transportation systems.
How did we get here?
Why does this value erosion continue? The answer is clear: for the last 50 years, project management efforts have placed more emphasis on scheduling, reporting, cost accounting and claims, and far less on actual work execution. This was done, appropriately, to ensure financial stewardship and protect each organization involved in the project delivery process.
However, in the process we stopped focusing on the work itself.
Conventional project management approaches are well defined. The PMI Body of Knowledge includes knowledge areas such as scope, time and cost management, as well as quality, risk and procurement management. These functions are essential to managing large and complex projects, but they are by no means the only activities required to support successful project outcomes. The conventional approach is largely missing a crucial dimension – designing and managing work execution at a detailed, controllable level.
The lack of focus on Project Production Management – the definition and control of the actual work – and an over-reliance on cost and time reporting methods, are major contributors to project inefficiencies and loss of value for all stakeholders.
A Path Forward
Instead of relying solely on conventional project management approaches, companies can better control cost and time, reduce the risk of safety incidents, enhance quality, and reduce waste by managing projects as production systems. Project Production Management (PPM) shifts the focus from functional project management processes to designing and controlling project work processes and optimizing the use of resources.
What is Project Production Management? Simply put, it is a systematized approach to managing work. It includes the detailed modeling, optimization, control and improvement of project work activities. These activities can be physical work, such as welding or placing concrete, or they can be knowledge work such as design or engineering. PPM is, by definition, a forward looking approach to defining and controlling work, rather than a backward facing look at what was (or was not) accomplished in the last reporting period.
The principles of Production Management have been extensively researched and documented by Operations Management and Industrial Engineering researchers and practitioners. These methods have been applied successfully in manufacturing and other sectors over many decades with consistent results – higher productivity of labor, increased returns on invested capital, more efficient work processes, and less waste.
By focusing on planning and controlling the work, rather than on reporting and forecasting schedule and budget, variability is reduced, cycle time is improved, throughput is increased, and a greater degree of control and predictability is achievable.
The use of Project Production Management to support delivery of large and complex capital projects has generated significant results for those who have properly implemented the practice. However, PPM has not yet been adopted as a standard practice for the delivery of these projects.
The Project Production Institute increases industry awareness and facilitates a shift in thinking in support of the application of Project Production Management theory and methodologies to major capital projects. PPI funds research and disseminates knowledge about the application of operations management and systems theory to the delivery of complex and critical projects. Specifically, PPI:
Provides: A framework for research on project production management
Supports: The use of a common vocabulary, consistent nomenclature, and standard definitions
Promotes: The application of Production Management theory to projects
Interested firms, research institutions, and individuals are invited to join PPI’s efforts:
 Source EY research and analysis
 “Global Construction 2025 – A global forecast for the construction industry to 2025” – July 2013, Published by Global Construction Perspectives and Oxford Economics London, UK