assessing project execution strategies for embassy projects

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ASSESSING PROJECT EXECUTION STRATEGIES FOR EMBASSY PROJECTS
L. F. ALARCON
Department of Construction Engineering and Management, Universidad Católica de Chile, Escuela
de Ingeniería, Casilla 306, Correo 22, Santiago, Chile
D. B. ASHLEY
Dean, College of Engineering, The Ohio State University, 142 Hitchcock Hall, 2070 Neil Avenue,
Columbus, OH 43210-1278
ABSTRACT
The division of Foreign Building Operations (FBO) is an organization in charge of an extensive
program of embassy upgrading and construction for the U.S. Department of State. FBO is frequently
facing choices about project delivery strategies, contracting strategies, and a handful of choices
regarding project execution strategies. To face this challenge the FBO adopted an innovative
approach to decision making, called General Performance Model (GPM), for analyzing the selection
of project execution strategies that is described in this paper.
Working with members of the
organization of the Foreign Building Operations (FBO) of the US Department of State, the authors
developed a model to forecast and evaluate the effects that certain project execution strategies, would
have on embassy projects developed overseas. The selected methodology offers a means for
structuring a systematic discussion about factors and elements in the situation at hand. The model
described represents an opportunity for the FBO organization to analyze important aspects of their
relationship in a systematic and rigorous way.
The FBO selected two specific projects in different stages of development to introduce this new
analysis approach: Istanbul and Tunis. The use of this methodology to analyze the first two embassy
projects showed enormous potential to support knowledge formalization of the organization and to
support planning and decision making.
KEYWORDS
Project Performance Modelling; Predictive Models; Cross-Impact Analysis, Project Delivery Systems
INTRODUCTION
Very often in organizations managers are required to make decisions in situations where they can not
count on precise and complete information but they need to be particularly rigorous to justify their
specific choices. The division of Foreign Building Operations (FBO) is an organization in charge of
an extensive program of embassy upgrading and construction for the U.S. Department of State. FBO
is frequently facing choices about project delivery strategies, contracting strategies, and a handful of
choices regarding project execution strategies. These are complex decisions, with a high degree of
uncertainty, where the ability to predict their implications for project performance can bring
substantial benefits to the decision making process. On the other hand, there is an enormous need to
gather and capture the experience disperse in the organization in a way that can be useful to improve
the quality of the decision making process.
The FBO adopted an innovative approach to decision making, called General Performance Model
(GPM) (Alarcón and Ashley, 1996, 1998), for analyzing the selection of project execution strategies
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that is described in this Report. Working with members of the organization of the Foreign Building
Operations (FBO) of the US Department of State, the authors developed a model to forecast and
evaluate the effects that certain project execution strategies, would have on embassy projects
developed overseas. The selected methodology offers a means for structuring a systematic discussion
about factors and elements in the situation at hand. The model described represents an opportunity
for the FBO organization to analyze important aspects of their relationship in a systematic and
rigorous way.
The GPM methodology provides a systematic, structured process to carry out a discussion on relevant
project planning issues. During the modeling process the assumptions, subjective assessments of
scenarios and internal and external conditions become explicit. Previous users have found an
educational value in the modeling process itself (Alarcón and Ashley, 1996) (Akel et al, 1996)
(Venegas and Alarcón, 1997) (O'Ryan et al, 1997). The documentation of this process provides a
useful historical record, which can facilitate the continuous updating of strategic scenarios, empirical
information, assumptions and perceptions of the modeling team. The use of this methodology to
analyze the first two embassy projects showed enormous potential to support knowledge
formalization of the organization and to support planning and decision making.
SELECTION OF PROJECTS FOR ANALYSIS
The FBO selected two specific projects in different stages of development to introduce this new
analysis approach: Istanbul and Tunis. Only the analysis for Istanbul is described in this paper.
Information about project performance measures and the ranges of these variables was elaborated by
estimating pessimistic, optimistic and most likely values in a scheme similar to that used by the PERT
system. The information shown in Table 1 was provided by FBO personnel, partially based in
statistical data available from previous projects. This information incorporates the uncertainty of
these variables in the mathematical model by adjusting a probability distribution to the data.
Table 1. Performance Variability for Istanbul Project
Performance Measures: ISTANBUL FIRST COST (MM$)
Pessimistic
91.30
Optimistic
78.85
Most Likely
83.00
CYCLE COST (MM$/year)
Pessimistic
1.10
Optimistic
0.90
Most Likely
1.00
SCHEDULE (Months)
67.2
44.80
56.00
PROJECT QUALITY (% chg.)
-20
+20
0
MODELING BACKGROUND
The GPM methodology used for the analysis was originally developed by Alarcón and Ashley,
working with a Task Force of the Construction Industry Institute (CII), to predict the effect of project
team options on project performance (Alarcón and Ashley, 1996, 1998). This methodology uses two
basic structures. One is a conceptual model that identifies important variables and interactions in the
owner-contractor relation during the construction process and estimates their influence on the success
of a finished project. The second structure is a mathematical model for quantitative analysis (Alarcón
and Ashley, 1998). This structure uses a Cross-Impact model to process interactions and uncertainties
among the variables of the conceptual model.
MODELING PROCESS
The modeling process involved the participation of a large proportion of the FBO organization. A
group of 75 members of the organization were invited to participate in the modeling process in an
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effort to capture a variety of expertise that should be integrated into the model. The purpose of this
effort was to offer opportunity to contribute to the modeling process to all the members of the
organization that could have specific knowledge or criteria that could be useful for the decision
making process.
In order to facilitate the process the participants were divided in 4 subgroups based on experience or
position, however, some of these groups could include the same or many of the same individuals.
GROUP A: This group should include senior-level personnel in charge of making decisions on project
implementation strategies.
GROUP B: This group should include experts on the specific strategies that will be evaluated.
GROUP C: This group should include personnel with a vast experience in the project management of
FBO projects.
GROUP D: This group should include personnel from the project management team of the particular
project under evaluation.
In addition, a coordinator from FBO participated in all the modeling and analysis sessions to provide
a link among the different groups within the organization.
The modeling process was carried out in three sessions of two days (eight hours per session) that
were scheduled in different weeks over a six week period.
MODEL STRUCTURE
In carrying out a project, FBO normally faces numerous decisions about strategies to carry our its
projects, among them project delivery systems and project organizational strategies rank among the
most significant. These two type of strategies and the design approach were selected to be analyzed
using the GPM model structure. The project delivery system or the project organizational strategy
have a significant impact on the type of interaction developed among project participants, they define
the relationships, roles and responsibilities of project team members and the sequence of activities
requires to provide a facility (Sanvido and Konchar, 1998). It is well-known that this interaction
creates the flow of information needed to develop a project which satisfies the pre-established
objectives of all parties. However, participants lack detailed information about how these interactions
affect their own performance. This modeling effort is an attempt to obtain a more accurate evaluation
of the importance of the selected strategies for project development and suggest guidelines to assure a
loss-free project.
The model is a simplified structure of the variables and interactions that influence the decisions that
are being analyzed.. It integrates experience and opinion from FBO personnel whose knowledge and
experience permits the quantification of risk in embassy projects. The model assumes that the FBO
strategic objectives in any project are tied to schedule, cost and quality. The experience of the FBO
personnel is used to determine the effects that specific characteristics of a project execution strategy
will have on the development of a project.
The structure of the model is shown in Figure 1. This structure shows four levels (from left to right):
Strategies, Drivers, Processes and Performance Outcomes. Starting with the left-hand side of the
model, each layer represents alternatives for each strategy, for instance, several alternatives for
project organization or project delivery systems. Following the strategies or decision options there is
a set of variables that is directly affected by them; these variables are called drivers. Each alternative
strategy is assessed as to its probable impact on drivers. The drivers, in turn, propagate these effects
through interactions among themselves and with processes. The model is defined as a set of variables
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whose effects propagate from left to right, where each variable is modeled internally as a set of five
mutually exclusive and collectively exhaustive events. The events represent the existing range of
performance for each variable and are discussed later in this Report.
Figure 1 shows the model-input screen with GPM release 2.0, a computer system developed to
support GPM modeling (Alarcón and Bastías, 2000). The system provides a graphical interface that
supports the modeling process in an interactive environment. The users can actually see the model as
they go through the modeling process, they can add or delete variables, strategies or outcomes and
immediately see the changes in the conceptual model. Further along the modeling process, the system
provides support to each step in developing the mathematical model and the analysis process. A brief
description of the different parts of the FBO model is provided in the following paragraphs.
Figure 1. Conceptual Model Structure
Strategies
The Strategies were divided in three groups: "Project Delivery Systems", "Project Organization" and
“Design Type”. The first two strategies are described below.
Project Delivery Systems:
Four project delivery systems with some alternatives considered for FBO projects were included in
the model. Most of their definitions were adopted from previous studies from the Construction
Industry Institute (Sanvido and Konchar, 1998). The systems are summarized in Table 2.
Project Organizational Strategy:
Two project organizational strategies with some of their alternatives considered for FBO projects
were included in the model. They are summarized in Table 3.
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Table 2. Project Delivery Systems
Design-Bid-Build
Early: Construction contractors are prequalified early in the design process and invited
Prequalification
to comment on the design during its preparation. Contractors bid the construction
Alternatives
upon completion of the design.
Normal: Construction contracts are prequalified near the conclusion of the design and
bid the work upon completion of the design.
Request for Proposal: Construction contractors are requested to submit combined
FBO
Process price and technical proposals and the award of the construction contract is negotiated.
Alternatives
Invitation for Bid: Construction contractors are invited to submit price bids to
construct the building. The contract is awarded to the lowest responsible and
responsive bidder.
Construction Manager at Risk
The owner commissions an architect/engineer to prepare drawings and specifications under a design services
contract. In addition, the owner retains a construction contractor at the outset of or early in the design process.
Over the course of the design the contractor provides a variety of services including constructability reviews,
subcontractor prequalification, value analyses, and prices guarantees. During construction the contractor
manages the construction.
Design-Build
The design/build solicitation contains only very limited information on the desired
facility. The design/build contractor has the maximum latitude in its response to the
solicitation.
Design
Criteria/ The design/build solicitation includes the building program as the basis for the
contractors’ proposals.
Design-Build
The design/build solicitation includes the building program as well as a preliminary
Preliminary
Design/
Design- design for the desired facility. These documents provide the basis for the contractor’s
proposals.
Build
Direct
Design-Build
Developer Build to Suit
Lease:
Purchase:
The project facility is leased by the Government.
The project facility is purchased by the Government.
Table 3. Project Organizational Strategy
External Program Management
A private company is retained to provide the program or project management.
Private
Another public agency, e.g., the Corps of Engineers, is retained to provide the program
Public
Hybrid
or project management.
Another public agency is retained to provide the program or project management. In
turn, it retains one or more private firms to manage the program or project.
In House Program Management
Dedicated
In- The project or program is managed by an in-house team led by one or more project or
House
Project program managers. Key team members are assigned full time to the project or
Management Team program, are supervised by the project or program manager, and are collocated.
The project or program is managed by an in house team led by one or more project or
Matrix
program managers. Team members are not assigned full time to the project or
Management
program, are supervised by their functional managers, and reside in their functional
Project Team
Integrated A/FBO
and
Contractor
Project
Management Team
divisions.
The project or program is managed by an integrated team consisting of Government
and program management contractor personnel led by one or more project or program
managers. Key team members are assigned full time to the project or program, are
supervised by the project or program manager, and are collocated.
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Model Variables: Drivers, Processes and Performance Outcomes
The Drivers are variables directly affected by the strategies, and spread their effects inside the
organization and project participants, thus affecting his management. In determining whether a
project participant is a “driver,” the following question was asked: “Is the performance of (project
participant) directly affected by the selection of an execution strategy?”
The processes are variables conditioned by the Drivers, that directly affect the project results. The
A/FBO selected security/functionality, planning, funding, procurement, site acquisition, construction,
and commissioning as process variables.
Performance outcomes are measures of performance that quantify the effects of the strategies on the
project. The measures used are First Cost, Schedule, Cycle Cost and Project Quality. Table 4
summarizes the list of Drivers, Processes and Performance Outcomes of the model.
DRIVERS
PROCESSES
PERFORMANCE
OUTCOMES
Table 4. Model Variables
Congress / OMB / FMP / A/FBO and Department Senior Management
Host Country (including local business community and local construction
workers)
Post
Building Tenants (including the intelligence community, law enforcement
agencies, foreign affairs agencies, and other tenants)
Project / Program Management Team (including L/BA, Diplomatic Security,
Consular Affairs, A/LM and the project director and field staff)
Architect / Engineer
Construction Contractor
Specialty Contractors / Commissioning Teams
FBO/Resources
Security/functionality
Planning
Funding
Procurement
Site acquisition
Construction
Commissioning
First Cost
Schedule
Cycle Cost
Project Quality
MATHEMATICAL MODEL
The mathematical model uses concepts of Cross-Impact Analysis (Alarcón and Ashley, 1998)
(Gordon and Hayward, 1968) (Honton et al, 1985) and probabilistic inference (Pearl, 1987). CrossImpact Analysis (CIA) is a technique specifically designed to study how the interactions of events
present in a mathematical model affect the probabilities of those events. It is used to analyze the
numerous chains of impact that can occur, to determine the overall effect of these chains on the
probability that each event will occur. The Cross-Impact concepts have been adapted and extended
(Alarcón and Ashley, 1998). Among the extensions, a method to combine probabilistic evidence is
applied in this system to perform probabilistic inference (Pearl, 1987).
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IMPACT OF STRATEGIES ON DRIVERS
A strategy represents the decisions under evaluation in the model. The effect of the strategies on
drivers of the model must be specified for different alternatives. In this case, an alternative can be
characterized by the presence or absence of certain strategy characteristics. The user must specify the
main characteristics that will define the strategy and the system automatically generates all the
possible alternatives. Some key characteristics for the strategy formulation were modeled with the
methodology and were grouped as described in a previous section.
The effects of each alternative on the model drivers can be assessed using a conventional scale
defined by the user (Alarcón and Ashley, 1996, 1998). Each impact must be assessed individually for
each driver, without taking into account interactions with other drivers. These types of assessments
can be independently collected from specialists for each option such as project delivery systems,
project organization or design approaches.
INTERACTION AMONG VARIABLES
The knowledge about interactions among the different variables of the model is consolidated in a
"cross-impact matrix". For the example under discussion, Figure 2 shows the matrix that corresponds
to the effects of the drivers on the processes of the Istanbul project. The elements of this matrix
respond to the question, "If changes in performance of the column variables occur, how is
performance of the row variables affected?". The answer indicates the intensity and direction of the
effects according to the scale shown. For example, Figure 2 indicates that an improvement in
Project/Program Management significantly affects (by intensity) Contractor’s performance resulting
in an improvement (in the same direction), an impact with the assigned value SIG+.
Figure 2. Cross-Impact Matrix
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This way of identifying impacts among the variables is a simplification of the procedure used in
"cross-impact analysis" (2, 7), the technique employed by the mathematical model to facilitate the
process of user’s modeling. This information is later converted to the numerical format required by
the formalism of cross impact. Only direct impacts are set out in this matrix; indirect impacts are
captured through the interaction among the variables.
In the same way, the A/FBO team built a matrix that, according to the personal perceptions of the
members of the organization, represents the effects that processes of a project have on its results and
how the processes affect each other.
ANALYSIS OF RESULTS
Using the data collected, multiple simulation runs were carried out using the mathematical model to
process the interactions and uncertainties among the variables of the conceptual model and to give
quantitative results as detailed below. Only some Istanbul project results are discussed in this paper,
more extensive review of results are discussed in the Report (Alarcón and Ashley, 2000).
Analysis of Individual Options
The conceptual model evaluated the effects that the execution strategies under analysis would have on
the performance of a project. The results of these analyses are summarized below.
Project Delivery Systems:
Figure 3 summarize the effects of using different Project Delivery options on project First Cost, the
result is similar to the one obtained for other project performance outcomes. There are several
options that show similar performance for most outcomes. For instance, variations of Design-BidBuild such as “early prequalification” and “request for proposal” seem to improve performance of the
traditional system to a level that competes well with the best Design-Build option “Preliminary
Design-Build.” With regard to Design-Build, the model shows that its benefits are only capitalized
when the level of initial definition of the design increases to a level of a preliminary design. The
model predicts the worst result for the Design-Build option with less definition “Direct DesignBuild.”
Developer build to suit/Purchase
Developer build to suit/Lease
CM at Risk
Preliminary DB
Design Criteria DB
Direct Design Build
DBB Preq. Normal/IFB
DBB Preq. Normal/RFP
DBB Preq. Early/IFB
DBB Preq. Early/RFP
0
10
20
30
40
50
60
70
80
First Cost MM$
Figure 3. Cost Predictions for Project Delivery Systems
90
100
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The option “Developer Build to Suit” did not show differences between its options of “lease” or
“purchase” and the model predicts a performance similar to the base case “DBB Normal
Prequalification/IFB”. The option “Construction Management at Risk” appears slightly superior to
the other project delivery options, even though the differences are very small.
Organizational Strategy:
Figure 4 summarize the impact of each one of the organizational strategies on project schedule. The
results show that if an external agency is selected to manage the program, the best alternative is to
choose a private agency. If the strategy considers participation of FBO resources in the organization,
an “In-House Dedicated Team” is the best alternative together with and “Integrated FBO/Contractor
Organization.” This last alternative appears slightly superior to the both the “External/Private
Organization” and the “In-House Dedicated Team”.
In t e g r a t e d
F B O /C o n tra c to r o rg .
In H o u s e / M a t r ix
M g m t.
In H o u s e / D e d ic a t e d
Team
H y b r id
E xte rn a l/O th e r
G o ve rn m e n t A g e n c y
E x t e r n a l / P r iv a t e
0
10
20
30
40
50
60
70
S c h e d u le (M o n th s )
Figure 4. Schedule Predictions for Organizational Strategies
Analysis of Combined Effects
The mathematical model used for this analysis offers the attractive potentiality to evaluate the
simultaneous effects of strategies. This capability was used to evaluate the combined effects of the
“project delivery systems” with “organizational strategies” and “Design Strategy”. The most
promising individual strategies were combined to analyze their combined effect and compared with
the “base case.” The “base case” was considered as a combination of: Design-Bid-Build + In-House
Matrix Mgmt. + Project Specific Design. The combined strategies analyzed were:
1.
Preliminary Design-Build + Integrated FBO/Contractor Org. + Prototype Design
2.
Construction Mgmt. at Risk + Integrated FBO/Contractor Org. + Prototype Design
Figure 5 summarize the improvements obtained by combining the preferred strategies for all the
performance outcomes. The most significant improvements are obtained for Schedule and Quality.
The chart shows step by step the contribution of each individual strategy. For instance, first the
outcomes for the individual strategy Preliminary Design-Build, then the outcomes when Prototype
design is added and then when the organizational strategy Integrated FBO/Contractor Organization is
added. Similarly, the chart shows the outcomes for the Construction Mgmt. at Risk strategy, then the
addition of Prototype Design and then the addition of Integrated FBO/Contractor Organization. The
chart shows that the benefits of combining these strategies are not additive, the gains obtained by
adding a third strategy are marginal compared with the ones obtained by adding the first two
strategies. Also, in this case the results obtained for both combinations are very similar and represent
savings of approximately MM$ 4 in First Cost and 7 months in Schedule.
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Combination of Preferred Strategies
DB Preliminary +
Integrated FBO/Contr+
Prototype Design
DB Preliminary +
Prototype Design
DB/Preliminary
PROJECT QUALITY
CYCLE COST
DBB base + Project
Specific + Matrix mgmt
SCHEDULE
FIRST COST
CM at Risk + Prototype
Design + Integrated
FBO/Contr
CM at Risk + Prototype
Design
CM at Risk
0
2
4
6
8
10
12
14
16
Performance Improvement %
Figure 5. Performance Improvement for Combined Strategies
SUMMARY AND CONCLUSIONS
This paper summarizes the results of a modeling exercise developed to analyze the impact of project
execution strategies on project performance outcomes in embassy projects. The conceptual model
developed during this modeling effort is the formal representation of the perceptions of the modeling
participants of how strategy characteristics affect variables of the project and how these effects spread
within FBO projects. The project strategies included in this preliminary analysis included project
delivery systems, project organization and project design approach.
Conclusions about Project Strategies
The application of the model to the most important FBO strategies focused analysis and problemsolving efforts in those areas perceived to have a major influence on the results the organization may
expect from its management. Some interesting conclusions can be drawn from the analyses of
Istanbul and Tunis Projects. First of all, the modeling effort showed very little difference in the
conceptual and mathematical model structure and therefore the analyses of both models lead to
similar results in term of preferred strategies. Therefore, conclusions discussed here are valid for both
projects. The most important conclusions are discussed below:
Delivery Systems:
•
CM at Risk appears as the most competitive Delivery Strategy for both projects
•
However, several delivery strategies have comparable benefits for performance outcomes.
Preliminary Design Build (DB), and several variations of Design Bid Build (DBB) such as
early prequalification, request for proposal follow closely the performance outcomes obtained
for the leading strategy CM at Risk.
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•
Page 11 of 12
Design Build appears as a competitive strategy only in its version with a higher degree of
definition: Preliminary Design Build. The model predicts very poor performance for Direct
Design Build.
Organization:
•
There are three strategies that appear producing the best project results: Integrated
FBO/Contractor Organization, In House Dedicated Team and External/Private Organization, in
order of preference but producing very close results. Each one of these strategies has its own
merits, costs and resource requirements that should probably be the key considerations to select
the most appropriate for a project.
Combination of Strategies
•
Combined strategies are not fully additive. The results predicted for the combinations of two
preferred strategies are not the sum of the impacts of each one. The implementation of many
“preferred” strategies in a single project does not result in an addition of good results, there are
only marginal improvements when the same factors or variables are impacted by different
strategies; therefore, managers should be careful in selecting the strategies for implementation
on each project.
•
Several different combined strategies are capable of yielding similar improvements:
5% on first cost
~ 12% on schedule
7% on cycle costs
~ 14% on quality
The methodology used to develop this model showed enormous potential to support knowledge
formalization of the organization and to support planning and decision making. This methodology
offers a means for structuring a systematic discussion about factors and elements in the situation at
hand. In this example, the model developed represents an opportunity for the FBO organization to
analyze important aspects of their relationship in a systematic and rigorous way.
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