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Avoiding Catastrophes in Project Execution
Kumar Saurabh, PMP, Sr Manager Samsung Engineering India Pvt Ltd. Execution of projects involve a clear understanding of scope and achieving the end result within schedule and budgeted cost by effective utilisation of all resources. Projects have been successful only when major stakeholders continuously identify and mitigate the risks and are flexible towards acknowledging and tackling the known and unknown challenges. Project Managers in EPC sector face numerous challenges that are universal and at times very specific to Indian conditions, during the life cycle of any project.

Globally, oil and gas projects are riskier to execute and are less successful as compared to non-oil and gas projects due to more intricacies, uncertainties and higher stakes. Based on the report by Edward W Merrow, Independent Project Analysis, Inc dated April 2012; non-oil and gas projects maintained a success rate of around 50 per cent whereas only 22 per cent of oil and gas projects were termed successful. Rest 78 per cent of the non-successful projects witnessed 33 per cent cost overrun and execution schedule slippage of 30 per cent. Further, 64 per cent of such projects also experienced production attainment problems in the first two years after their first output. Table 1 shows statistics of global projects. Project slippages and overruns can affect any nation adversely and can be catastrophic to any developing nation like India. India has a projected growth rate of more than 8.5 per cent in the proposed 12th Five Year Plan with an infrastructure investment of around 40.9 Trillion, thereby providing an opportunity of around 17.0 Trillion in the EPC sector. This cannot be achieved if the project related challenges are not identified and solution themes are not implemented on a real-time basis in a well-planned project.

Challenges Faced by Project Managers During Project Execution:

Professional Project Management Approach: Numerous projects are being executed in India where assigned project managers are the ones who are neither professionally trained nor undergone regular training but have gained experience by virtue of being associated with projects throughout their career span. Key decisions taken by such project managers are based on their experience and may not always be aligned with the best practices adopted globally. Due to this, probability of similar problems occurring repeatedly increases substantially and that might result in cost overrun, schedule slippage or lack of quality.

Samsung Engineering, recognise the importance of associating with professional bodies like Project Management Institute (PMI) and also have a dedicated Project Management Office (PMO) that monitors and analyses every project in order to execute every project in the best possible manner.

Talent Shortage: Globally the industry is plagued by shortage of skilled workforce and Indian industry is also not immune to the same. Availability of skilled workforce is not commensurate with the Indian growth pattern and as a result the gap has increased substantially. Major construction projects are worst hit due to around 40 per cent shortage of skilled workforce. Further, only less than 20 per cent of workforce undergoes training that is updated and is in line with the global standards. There is an urgent need to setup and promote training centres for all skilled workforce that are in accordance with the global parameters and standards and are employability-centric, not only theory-centric.

Scope: Finalisation of scope must be based on feasibility studies, local conditions, prevailing socio-political structure etc. This is all the more important for infrastructure projects like road projects. There have been instances when the scope has been overestimated and tenders have been floated accordingly but subsequently, the same had to be modified in the absence of any bidder. Also we have come across various instances where roads had to be diverted or scrapped as presence of a religious structure was not considered prior to execution. We must ensure that projects are initiated after due diligence and are not based on the whims and fancies of the initiating decision maker.

Value Engineering: There is a tacit acceptance that India dismally lacks in acknowledging the importance of value engineering while executing projects. Value engineering mind-set is generally not present as it is considered to be a hindrance in the generally accepted project execution procedures as the results of value engineering are latent at times. Over-specifications of projects are quite common leading to higher project costs and at times, also affecting the viability of projects. Few suggested new technologies that can be implemented are use of corrosion resistant steel, closed structural sections, pre-engineered buildings, engineered steel guardrail system in roads etc, as steps towards the value engineering thought process. Focussed value engineering can save around 5 per cent-10 per cent of project cost and also beneficially affect the opportunity cost.

Approvals and Clearances: As per the prevalent procedures in India, any project in pre-tendering stage has to obtain numerous approvals and clearances from various regulatory and statutory bodies. This, at times, adversely affects initiation of a project by more than 1-2 years. Further, an effective single window approval mechanism is generally non-existent. Due to this, there have been instances when approval from a certain department does not positively impact the approval process since clearances from other departments are inordinately delayed. Even during project execution, lack of transparency and cumbersome approvals has been the reasons for cost/schedule overrun.

Inadequate Funds or Intermittent Fund Flow: More than 25 per cent projects in India do not have timely financial closure and one of the major reasons for the same is financial constraint. The effect of global economic meltdown is also very much evident in India. Many projects that started after proper studies also had to be either closed midway or slowed down due to insufficient fund flow, like the 6 MMTPA refinery complex of Nagarjuna Oil Corporation Ltd in Tamil Nadu. In order to have regular fund flow, there is an urgent need to implement tax holidays, encourage investments from long term savings mobilisers, have controlled interest rates and create positive environment for funds from external commercial bodies and funding agencies.

Political Influence: Projects in India are generally initiated due to local/national requirement, to utilise the resources available or to align with global standards/parameters. However completion of projects is largely dependent on the political structure and political influence. On-going projects become the first casualty in the case of unstable national or local political scenario. A Few projects also succumb to protests that are politically instigated to gain personal political mileage or as vendetta to their predecessors. In the national interest, we need to ensure that a professional and effective mechanism is in place to make certain that all projects are executed in a transparent manner and are immune to any political influence.

Dispute Management: Due to long, cumbersome and tedious procedures related to resolution of disputes, stakeholders involved in project execution may not necessarily comply with all statutory or regulatory requirements, thereby affecting quality and profit margins. As per Business Standard dated April 26, 2011, NHAI is facing 1,635 Nos. disputes having arbitration claims of over 11,084 crores in tribunals and various courts. There is an urgent need to re-visit and strengthen The Arbitration and Conciliation Act -1996, ensure enforcement of decisions taken by arbitration tribunals, introduce mechanism to weed-out frivolous claims and have an empowered and dedicated body to fast track disputes related to infrastructure projects.

Risk Management: There is a visible difference between the risk assessment and management mechanism followed in India vis-a-vis global practices. Comparatively, very few organisations in India recognise that risk management is an integral and essential tool for executing projects successfully within the contractual parameters. Indian companies tend to have a lower Bid to Win ratio in International Competitive Bidding as all risk parameters are not seriously analysed and mitigated. In order to align ourselves with global organisations, a dedicated risk management team must be part of any organisation that is empowered to influence decisions based on the assessment.

Path Ahead We need to be aware of the complexities and challenges involved in executing projects. However key to successful execution and development is to have an early trigger mechanism to identify the above mentioned challenges and risks and to be aware of any other challenge that might creep in while executing projects. Presence of standardised solution themes for issues related to projects will help us in achieving our desired growth figures.