2. D ISSERTATION B ACKGROUND
2.1 THE DISSERTATION RATIONALE
The background or rationale for the dissertation topic is that benchmarking was created in the production(manufacturing) environment and is not yet fully adapted to the project environment. Some researchers are even pessimistic about the use of benchmarking in a project environment. In his book on Total Quality in Construction Projects, Hellard (1993) strongly encourages the use of Total Quality Management (TQM) philosophy in the oldest project environment that exists, i.e. construction.
However, about the prospects of using benchmarking in the same environment Hellard writes: “...by the nature of the construction industry, with its essentially project-based activities in different locations, the concept and principles of benchmarking are difficult to apply, and the lessons to be learnt more difficult to deduce. The concept of benchmarking against best practice is an excellent one. However, ...the author regrettably cannot see how the principle can be applied with benefit to most companies operating in the construction industry.”
Hellard gives a very pessimistic view of benchmarking in the project environment.
Others do not share this pessimism about using benchmarking in projects. A survey sent to Houston Business Roundtable members, reflected a strong interest in benchmarking within the engineering-procurement-construction community, where 90% of respondents stated the willingness to share data and modify existing data-collection procedures to provide uniformity in the way activities are measured across companies (Fischer, Miertschin and Pollock, 1995). Fisher and co-writers concludes in their article that benchmarking is new to the construction industry, but a so powerful tool that you cannot afford not to use it and further explore it.
The author of this dissertation share the opinion that benchmarking has the potential of becoming such a good tool for improvement in the project industry, that it must be further explored. Many companies and organizations are already researching and exploring the possibilities of benchmarking in the project environment. Examples of literature/research that show work in benchmarking of projects are: NORSOK(1995), Statoil (Andersen and Pettersen, 1995), Construction Industry Institute (CII, 1996a and CII, 1997), International Management of Engineering and Construction and Project 2000 (IMEC, 1995; IMEC 1996; and Andersen and Millar, 1996). Some of this
literature will be discussed in later sections of this dissertation. For now, just a short overview of the focus of current benchmarking work of projects will be given.
Benchmarking and measuring of high level attributes (like financial performance) in a project is commonly done. Sandberg (1996) of Statoil see this high level type of performance benchmarking as a wrong use of benchmarking, and that some organizations see benchmarking as a way to prove that they are world champions. As mentioned earlier, the intention of doing benchmarking should be improvement and not such a predetermined comparison of high attribute measures.
Due to the wanted improvement focus of benchmarking from most people with an interest in benchmarking of projects, considerate efforts are done to bring benchmarking to a lower project level. For instance have Construction Industry Institute defined performance measures (metrics) for different project phases, and are then able to use benchmarking for meaningful suggestions for improving the execution of projects to its members (see chapter 6 for more about CII benchmarking).
Another example is NORSOK(1995) which have come one step below the high attribute figures and measures key figures at a lower level, like financial and time-wise performance for different phases of Norwegian North Sea Oil & Gas exploration projects (see chapter 6). These key figures are compared with similar figures from projects in other parts of the world. NORSOK are thus able to evaluate various type of performances, that can help to set new goals and is the first step towards improvement.
However, with the focus on performance only, it is hard for the NORSOK study to tell why there are differences in performance and how one should go by to improve.
Again, to fully utilize the potential of benchmarking for improvement, the focus should be on processes, i.e. process benchmarking (see comments by several researchers in previous chapter). None of the two examples of project benchmarking mentioned above, have had such a focus that it can be said to be a process benchmarking.
The focus of this dissertation’s research is on improvement of project management only, by using the technique benchmarking, and not the product related project work (see Figure 1.5. by Westhagen, 1994). The relation between project management and product related work in a project, will be discussed further in the coming sections of this chapter. The above mentioned examples of benchmarking do not directly focus on how to improve project management, but rather the project as a whole.
Only one - 1- publication was encountered that shows the actual use of benchmarking to improve project management directly. This publication is a report from British Columbia Hydro that contracted to Haddon Jackson Associates to organize and conduct a benchmarking study of project management practices in electric utilities (Brunner, McLeod and Laliberte, 1995).
Brunner et. al. sought to identify policies and practices of project management that impact performance. The basic concept of their benchmarking comparisons was to
relate the cost of providing project management to the benefit of the service. They write: “...there is a performance tradeoff that management must make between costs of providing project management services and the level of service, in terms of overall project cost and schedule performance, that the function provides. In other words, ...the more you spend on project management the more you are likely to receive in terms of overall project benefits. The study sought to identify those companies who have found ways to significantly reduce project management costs relative to the other companies, while maintaining a higher than average service level.”
Their study’s conclusions were:
• Increasing the sophistication of project management is a wise investment.
• Project managers in companies with specialized project management organizations handled more projects at the same time.
• Companies were more likely to meet cost targets than schedule targets.
• The engineering function is the least cost and schedule conscious.
• Introducing an appropriate level of engineering and construction contracting into the project has a beneficial effect on cost performance. (Between 30-70% of contracting in engineering is the optimum. Having more or less makes the cost performance drop. In construction, project cost performance was maximized when greater than 60% of the construction was contracted.)
• Project management organizations do not monitor their overall performance very well.
Although this study is very interesting and may help in improving project management, the focus is at a too high level of project management in order to use the full potential of benchmarking. This is partially recognized by Brunner, McLeod and Laliberte:
“Although not yet established, the corporation recognizes the need to develop measures relating to the project management process in order to monitor and improve the level of performance in completing projects.”
This request about measures for project management processes is interesting and correspond to the view of the author of this dissertation. Next section in this chapter will discuss the measuring of project management further.
Researchers are aware of that more work need to be done to use benchmarking in the project environment to its full potential. In addition to above discussed work that needs to be done, researchers have also discussed other problems. Lema and Price (1995) states four problems that research has to address within the TQM framework in order to find the full potential for benchmarking in the construction industry:
1. Identify and prioritize areas with potentials for performance improvement, i.e. what areas should benchmarking focus on?
2. Identify sources of best performance and best practices, i.e. who can we compare against?
3. Set out a methodology for adapting and improving the best practices in an organization for quality and productivity improvement, i.e. what methodology can we follow to incorporate new knowledge and improve?
4. Develop a framework for how to compare performances and set targets in an organization, both within the industry and outside the industry, i.e. internal and external benchmarking.
Many of the above problems are complex and even hard to comprehend, and can not easily be addressed by company benchmarkers or researchers. It is therefore wise to target and address the problems that researchers believe are the most urgent or pertinent ones. Swanson (1993) writes: “For most organizations, the decision to benchmark is not hard to make, but the decisions on which practices to benchmark and which performance measures to use are difficult. There is sufficient literature suggesting that benchmarking should focus on critical areas first, but the literature doesn’t provide practical tools to help the practitioner select appropriate benchmark subjects and measures.”
Sandberg (1996) agrees with Swanson’s opinion. “The number 1 problem in benchmarking today is that no one are able to define what one wish to focus on.”
Jakobsen (1993a) states the same problems in other words “the greatest challenge in connection with benchmarking of project management, is in determining what areas of project management that are to be benchmarked”.
Thus, the two most pertinent or prioritized problems these researchers focus on, can with the focus of this dissertation be summarized as:
1. to decide what areas of project management to benchmark.
2. to decide what to measure, i.e. define metrics.
Andersen (1995b) bring the discussion of these two problems one step further, by strongly encouraging the process focus as part of the solution for benchmarking to be fit for project management. Viewed from his production or manufacturing environment, but after being involved in studies of the potentials of benchmarking in the project environment, Andersen (1995b) claimed that there are 3 major problems that needs to be addressed for benchmarking to work to its full potential for project management:
1. project management have not traditionally been process oriented like the production environment. The processes of project management need to be defined and preferable described with the relation to each other.
2. measures or metrics for these project management processes need to be suggested.
3. there is a need for a benchmarking process model adapted to the project environment, i.e. a new step-by step plan that are followed when the benchmarking is actually executed. The existing models are made for the production environment and needs to be adjusted.
There has been some development since 1995, especially in the matter of project management processes, that will be brought up later. The author of this dissertation agrees with Andersen that the process focus is part of the solution to make benchmarking work for project management. However, the focus on project management and its processes requires a fundamental discussion of what a project and its different components really are.