Treasury Re-classifies ‘Sick’ Projects (Borneo Post Friday 19th March 2010)

On Sept 1 2009 the Finance Ministry issued a new circular asking the Public Works Department (PWD) and other agencies to classify any project whose completion had been delayed by more than 20 per cent or two months, as a ‘sick’ project. This circular changes the existing criteria of categorizing a project as ‘sick’ when the completion delay exceeded 30 per cent or three months after the scheduled completion.

The Works Minister Datuk Shaziman Abu Mansor said on 24th November 2009 the re-classification of ‘sick’ projects will be immediately enforced on projects tendered out from September 2009 but existing projects the circular will be enforced beginning June 2010.
Before analyzing what this means let us discuss the intent of this classification.

As this circular has been imposed by the Finance Ministry one would have imagined there would be some cost restrictions or penalties imposed on those contractors whose projects fall into its classification however, we are assured by the minister that this is not the case. So what happens to projects that are delayed to the point that they are tagged as ‘sick’? The circular states that if a contractor cannot demonstrate its ability to recover the project to complete on time the ministries agents can terminate their contract and re-appoint a new contractor.

However, on Wednesday 23rd December the Borneo Post ( Page 22) reported the Health Minister Datuk Seri Liow Tiong Lai as saying “Another 18 ministry infrastructure projects out of 86 (21%) are now catogorised as ‘sick”. These contractors will now “...be imposed a penalty of RM3,600 for every delayed day, until the project is completed”.

One thing for sure is this classification should not be used by the contractor as a decision point for the commencement of action once the project reaches the 20% behind schedule point. Instead the circular should be the catalyst for companies to implement standardised project controls tools and methodologies providing the ‘early warning indicators’ that the project is diverging from the approved baselines.

Research has proven that any divergence from the baseline evident as early as 20% into the project forms an unrecoverable trend to completion. This is an important statistic as what it implies is that project recovery is almost impossible even at this early stage in the project life cycle. Therefore, early warning indicators should trigger the implementation of acceleration strategies as early as possible thus ensuring the project never reaches 20% behind schedule.
So why do so many projects fall behind schedule and what can contractors do to keep their projects ‘healthy’?

To ensure a project is completed successfully requires controlling the critical elements of scope, time, cost, resources and risk. Most contractors believe they do manage these elements, however if they are honest with themselves they will see they are only paying ‘lip service’ to these requirements as many will simply prepare a rudimentary project schedule, a budget allocation spreadsheet, a resource distribution document, a list of deliverables from the contract and then discuss the risk of the project over a cup of coffee.

Even if these elements are undertaken methodically the main characteristic that is missed is the integration of the above elements onto a single platform so that if a change occurs in any one of the scope, time, cost, resource or risk elements the others can be adjusted to reflect that change.
So if say a change in the scope of work occurs requiring additional deliverables, the schedule can be adjusted by adding the relevant activities required to produce the deliverables, the required resources can be assigned to those activities which in turn will generate the associated costs and, any risks associated with the change can be logged, monitored and controlled.

One platform that manages this integration extremely well is Primavera Project Management (P6) software in that it utilises a single database and the functionality therein is integrated to manage each of the elements of scope, time, cost, resource and risk. What must be remembered is that Primavera Project Management (P6) software is a project management tool to facilitate a methodology and the tool alone is not enough to produce successful projects. However, if the tool is implemented correctly and standardised methodologies are adopted then together they will produce an accurate assessment as to the health of a project through objective performance reports.

Should a project start to diverge from its approved baseline then early warning indicators obtained from the performance reports will trigger intervention and recovery action can be implemented to ensure the project is kept out of the ‘sick’ category and the contractor from being blacklisted.

Over the coming weeks I will discuss each of the elements of project scope, time, cost, resource and risk management in more detail showing the benefits of undertaking these in a structured and integrated manner.