Proportion of projects delivered above original bid margin
Almost half of the respondents say that fewer than 25 percent of their projects exceed the original bid margin, indicating considerable room for improvement in dealing with project risks such as rising costs, supply chain interruptions, financing and resource shortages. The situation appears more acute in Europe, Middle East and Africa, as well as among the smaller companies in the survey. It’s likely that big engineering and construction firms have better-developed processes for assessing and addressing project risk.
When asked about projects that significantly under-performed, a majority (54 percent) admit that they failed to identify the ultimate cause of margin erosion back at the bidding stage. This is a surprisingly high response, suggesting a clear need to employ more rigorous upfront assessment of potential project risks.
Efficiency of project review process
Only 36 percent of the respondents consider their project review processes to be “very efficient”, and the figure for larger firms is just 30 percent, which is of some concern given the size and complexity of the projects they undertake – and could help explain the margin erosion mentioned earlier. This finding means that just a minority of engineering and construction companies carry out a system-generated assessment of financial information, which in turn facilitates a qualitative project review. Robust, consistent and ongoing project analysis is paramount to improving project management practice as well as overall project performance.
Challenges in emerging markets
While emerging markets represent a big opportunity for engineering and construction companies, there is often a high degree of uncertainty. The respondents consider access to appropriate skilled resources as their single biggest concern, followed by political risks and cultural differences. Interestingly, only 14 percent cited “variability of the legal system” as a major risk factor; a number of firms have had difficulties with local legal issues in emerging markets, so they should ensure they fully understand how such factors could impact their business.