CIB World Building Congress, April 2001, Wellington, New Zealand Paper: NOV 32 Page 1 of 12 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 CIB World Building Congress, April 2001, Wellington, New Zealand Paper: NOV 32 Page 2 of 12 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 CIB World Building Congress, April 2001, Wellington, New Zealand Paper: NOV 32 Page 3 of 12 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 CIB World Building Congress, April 2001, Wellington, New Zealand Paper: NOV 32 Page 4 of 12 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. CIB World Building Congress, April 2001, Wellington, New Zealand Paper: NOV 32 Page 5 of 12 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. CIB World Building Congress, April 2001, Wellington, New Zealand Paper: NOV 32 Page 6 of 12 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). CIB World Building Congress, April 2001, Wellington, New Zealand Paper: NOV 32 Page 7 of 12 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 CIB World Building Congress, April 2001, Wellington, New Zealand Paper: NOV 32 Page 8 of 12 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 CIB World Building Congress, April 2001, Wellington, New Zealand Paper: NOV 32 Page 9 of 12 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. CIB World Building Congress, April 2001, Wellington, New Zealand Paper: NOV 32 Page 10 of 12 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. CIB World Building Congress, April 2001, Wellington, New Zealand Paper: NOV 32 • 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. REFERENCES Akel, N, Ashley, D. B., Tsai, C. 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