PM WORLD TODAY - CASE STUDY - JULY 2008 Transforming an Organization by Using a New Project Management Approach By Jacob Kashiwagi, Marie Sullivan, Kenneth T. Sullivan & Dean Kashiwagi Editor's note: This paper was presented at the PM-04: 4th SCPM & 1st IPMA/MedNet Project Management Conference in the Mediterranean, 29-31 May 2008, Chios Island, Greece (http://2008.pmgreece.gr). As a Media Partner for that event, PMForum is republishing selected papers in PM World Today. This paper is included here with the consent of the author and the permission of the Centre for Construction Innovation of the National Technical University of Athens (www.innovation.view.gr) who is the copyright holder of the conference proceedings. All conditions and disclaimers of the copyright holder pertain. Abstract The US Army Medical Command (MEDCOM) annually manages 250 projects, with a scope of $300M, at 26 different sites. Due to current events and initiatives, MEDCOM is anticipating an increase in construction requirements. As a result, MEDCOM is seeking for a more efficient project management model that can optimize each project manager's function as well as the organization. The hypothesis is that the entire organization is merely a summation of the project managers, and that the organization's bureaucracy problem is a magnification of the internal problems of a project manager. The new project management model must overcome the constraints of the lack of perceived information and expertise and bureaucracy of the environment. This paper proposes a model which is a combination of different processes and concepts which have been tested out in the delivery of construction for the past 13 years. Keywords Leadership, Project Management, Performance 1. Introduction The United States Army Medical Command (MEDCOM) is currently responsible for the construction, maintenance, and repair/renewal of over 26 medical facilities in the United States, servicing over 5 million soldiers (active, retired, and their relatives) and civilian employees (U.S. Army Medical Department, 2008). PM World Today is a free monthly eJournal. Free subscriptions available at: http://www.pmworldtoday.net Page 1MEDCCIM's repairfrenewal effort is estimated at approximately $250 million. The direct project management of the effort includes: 1. The Core of Engineers (CUE) Takes care of the procurement of projects 2. Quality Assurance Personnel {QM Makes sure vendors performs all the contracted work. (Reports to the CDE} 3. Facility Manager and Staff Site personnel that take care of the facility and help the contractor. 4. Project Integrator MEDCDM hired staff to help coordinate and solve project problems In 2UU4, the US. Army Medical Command {Medcom} began partnering with the Performance Based Research Studies Group (PESRG), out of Arizona State University, to create a new project management structure that would: 1. Minimize overhead and transaction costs on their repair and renewal projects. 2. Minimize problems and increase performance on projects (cost increases, delays, quality issues, and client satisfaction problems} 3. Educate and train both vendors and project management individuals to effectively identify and minimize risk 4. Create an environment of accountability throughout the MEDCDM project management system. 2. Problem The motivation to change the current project management structure has come due to the following factors: 1. The federal government has issued a mandate requiring MEDCDM to increase its performance and become more efficient. 2. There has been a tremendous increase in patients, due to the Iraq war and aging population, accelerating the need to build additional facilities {construction requirement estimated at $2.5 billion dollars}. 3. The amount of additional funding MEDCDM will be able to receive to account for the additional work that is required will be limited by the US. economy. 4. The performance of the construction industry and MEDCDM has been very poor. MEDCCIM perceived that the traditional project management structure of control, direction, and decision making, must be changed due to the following reasons: 1. The extensive requirement for resources (money, time, and trained personnel}, because it relies on the owner's management to identify and solve problems that arise. 2. The difficulty in finding project managers that can perform. PM Iul'lr'or'lci Today is a [roar monlhly aJournaI. Fraa subscripljons availabla al: hrlip :rhvan'rworldtodaynat Paga 2 3. The inability to measure the current level of performance under the traditional method. 3. PBSRG PIPS Leadership Structure MEDCOM was attracted to the project management leadership based structure of the best value Performance Information Procurement System (PIPS). The results from 500 tests, $1 billion of work, and over 42 different partnerships, showed that 98 percent of projects were completed on-time, on-budget, with high customer satisfaction. In addition, PIPS also minimized project management by up to 90%. PIPS is a structure embedded with leadership processes, such as: the transfer of risk and control, pre-planning activities, identification and minimization of risk that the contractor does not control, and dominant measurements. The structure forces participants on a project to take accountability for their responsibilities by (Kashiwagi, 2008) : 1. Consolidating the responsibility of a project solely to the vendor, instead of dividing it between all the players (project manager, site personnel, etc.). This can be done because the structure forces the vendor to identify and minimize the risk that vendor does not control that could impact the project, as well as documents all unforeseen problems that occur and how they should be minimized. 2. Quantifying and updating simple performance measurements directly related to the cost, schedule, and quality of the project weekly. 3. Encouraging the client's professional to rely on the expertise of the vendors to make decisions and solve problems. 4. Requiring vendors to show dominant information to minimize client decision making. 5. Having the vendor record all documentation and allowing the client's representative to check the documentation for accuracy. 6. Selecting the best value vendor and transferring risk and control to the vendor. The PIPS leadership structure allows a project manager to rely on the proven process instead of their limited experience. It also holds the vendor accountable for the performance of the project through simple measurements. This allows the vendor to self-regulate themselves, decreasing the amount of time the project manager must spend managing a project. By holding the vendor responsible for managing the minimization of risk, the structure then gives tools to the vendor to hold everyone in the process accountable. This forces the entire project team to be more efficient and productive. PM World Today is a free monthly eJournal. Free subscriptions available at: http://www.pmworldtoday.net Page 33.1 MEDCOM Potential Solution Since PIPS had only been used on individual projects before, the question arose, "If PIPS was implemented into an organization could it restructure the entire organization to become more efficient." The assumption being that an organization is similar to a very large and complex project. 4. Hypothesis and Methodology The hypothesis of this paper is that a PM leadership based structure/process can be overlayed on an entire organization, and will have the same impact as on a singular PM. The hypothesis will be tested by applying the PIPS structure to the MEDCOM project management process. The validation of the hypothesis will be determined by measurements in terms of: 1. Transaction and overhead cost as a percentage of the work requirement. 2. The performance of the vendors. 3. The percentage of problems in the organization that are identified and fixed. 4. MEDCOM's staff ability to handle the increased work requirement. 5. Current Progress Due to initial internal resistance from the MEDCOM contracting/procurement group, the PIPS leadership process was implemented by the vendors. The vendors generated the performance information that created the environment of accountability and risk minimization of the process. This was the first time, that the process was implemented independently of the procurement system. The following results and observations have been realized: 1. The system has been able to identify the source of problems. Figure 1 shows the general sources of delays and increases to cost, taken from the weekly reports on each project. 2. From the measurement system, MEDCOM has been able to hold the components of the system accountable. Figure 2 shows the performance of all the vendors, Figure 4 shows the performance of the project managers, Figure 3 shows the response time to problems of the contracting office. 3. The commanding officer is able to identify and deal with problems faster due to the PIPS structure identifying the projects with the most problems. Figure 5 shows the top ten riskiest projects out of the 200 being tracked. 4. There is less confusion and more accountability due to the focus on passing only dominant information. PM World Today is a free monthly eJournal. Free subscriptions available at: http://www.pmworldtoday.net Page 4Entity Days % Entity $$ % Contractor 438 5% Contractor $ 1,051,992 4% FM 4271 44% FM $ 4,425,692 16% COE 3742 39% COE $ 21,149,101 77% Unforeseen 1240 13% Unforeseen $ 939,076 3% Totals 9691 Totals $ 27,565,861 Fig 1: Source of increase to cost and duration Contracting Number of Average Average Average No Office Projects Top Ten Weeks on Top Risk # Rank Ten List MST 1 19 6.1 3.7 11.5 MST 2 10 5.1 4.1 20.5 MST 3 3 9.3 3 9.4 TOTAL AVERAGE: 3.6 13.8 Fig 2: Response time of the Contracting Office CONTRACTOR OVERVIEW Contractor 7 Contractor 1 Contractor 5 Contractor 3 Contractor 2 Contractor 4 Contractor 6 Total Awarded Budget $3,257 879.00 $54,019 ,965.54 $34.401 565.78 190 534 049 44 $59 072,104.60 483 122,319.68 $12 171 327 22 Current Cost $3,579 656.00 $54,130 247.38 $52,605 ,310.97 $99,209,330.44 $73,593,985.15 $83 601 036 37 $15 ,653,111.44 OVERVIEW OF PROJECTS Total Number of Projects 4 50 32 39 15 % Projects On Time 0% 62% 25%% 509% 33% # of Jobs Delayed 6 19 10 %% Projects On Budget 0%% 94 % 79% 67% W of Jobs Over Awarded Budget AVERAGE PROJECT # of Risks per Job 0.44 3.00 1.47 1.77 0.87 Owner Generated Risks 3.00 0.44 2.88 1.25 1 1 Number of overdue risks 0.50 0.14 0.63 0.47 0.38 1.87 % Over Awarded Budget 3.03% 0.20% 52.92% 0.63%% 6.55% 0.58% 27 78% %% over budget due to owner 1,10% 0.20% 52.92% 0.62% 2.52% 0.41% 27.15% # of Days Delayed 289.25 6.34 180 75 70.50 96.27 162.69 6.63 # of days delayed due to owner 99.00 29.38 178.88 67 .28 45.2 161.72 6.53 Owner Rating 90 8.63 8.62 3.76 8.97 9.33 9 94 Risk Number 4.52 4.48 4.06 3 26 2.38 1.76 Fig 3: Contractor Performance Comparison PM World Today is a free monthly eJournal. Free subscriptions available at: http:/www.pmworldtoday.net Page 5PROJECT INTEGRATOR OVERVIEW P1 2 PI 3 PI 6 PI 7 PI 8 PI 11 Total Awarded Budget 151 243,819 $20,378,747 121,290,144 138 954,143 122.749,368.00 16,873,187 Current Cost $52,327,469 522,867,777 621,820 443 139 350.920 $22,901 589 00 $16 779.456 OVERVIEW OF PROJECTS Total Number of Projects 15 18 %% Projects Completed On Time 46% 47% 44% 40% 0% # of Jobs Delayed 15 B 10 3 %% Projects Completed On Budget 75% 25% 50% 72%% # of Jobs Over Awarded Budget 6 5 0% AVERAGE PROJECT # of Change Orders per Job 1.04 1.13 1.56 2.00 11 0 Owner Generated Risks 0.86 0.75 1.00 1.33 1.80 100 Number of overdue risks 1.00 0.75 0.27 0.28 0.20 0.00 Over Awarded Budget 2.11% 12.21%% 3 29% 1.02% 0.67% 44.13% % over budget due to owner 1 69% 2.17% 3.29% 0.54% 0.07% 44.135 of Days Delayed 122.25 159.20 185.56 121.60 721.00 # of days delayed due to owner 17.18 92.38 150.33 164.6 121.60 721.0 Owner Rating 8.24 8.09 9.54 9.51 7.09 10.00 Risk Number 5.83 5.17 2.21 2.48 4.49 7.28 Fig 4: Project Manager Performance Comparison TOP 10 RISK RANKING PROJECTS No. Project Location Risk # Contractor 1 Project 1 Location 1 18.59 Contractor 2 2 Project 2 Location 2 11.87 Contractor 4 3 Project 3 Location 3 11.69 Contractor 3 4 Project 4 Location 4 11.68 Contractor 4 5 Project 5 Location 5 10.84 Contractor 7 6 Project 6 Location 6 10.00 Contractor 5 7 Project 7 Location 7 9.49 Contractor 5 8 Project 8 Location 8 9.00 Contractor 5 9 Project 9 Location 9 8.57 Contractor 5 10 Project 10 Location 10 Contractor 1 Fig 5: Top Ten Riskiest Project List 6. Conclusion Although the PIPS leadership structure has not yet been fully incorporated into the contracting/procurement group (the selection of the best value using performance information), the dominant performance measurements of the process has encouraged all the contractors to: 1. Identify and minimize the risk that they do not control. 2. Document the risk on the projects, and follow up on the risks on the project that the contractors do not control. 3. Minimize contractor generated cost change orders. 4. Ensure that the US Army Medical Command personnel are coordinated with and understand when they are bringing risk to the project. PM World Today is a free monthly eJournal. Free subscriptions available at: http://www.pmworldtoday.net Page 65. Identify the causes of nonperformance. The US Army Medical Command has found out that bureaucracy has caused many of their issues. They are continuing to transform themselves from the traditional model of managing, controlling, and directing to a PM model that transfers both risk and control to the contractors. 7. Reference Kashiwagi, Dean T., (2008). Best Value. Tempe, AZ: Performance Based Studies Research Group (PBSRG). U.S. Army Medical Department(2008). Introduction to the U.S. Army Medical Department. Retrieved March 6, 2008, from Army Medical Department Web site: http://www.armymedicine.army.mil/about/introduction. html#structure This paper was originally presented at the PM-04: 4th SCPM & 1st IPMA/MedNet Project Management Conference in the Mediterranean, 29-31 May 2008, Chios Island, Greece. It has been republished here with permission of the author and conference organizers. For information about the Chios conference or to see the full proceedings, visit http://2008.pmgreece.gr