December 6, 2010
Consult the classifieds in this issue to find 3 notices, 11 bids and proposals, and 7 job opportunities!
The Art of Internal Oversight: Why Do We Need It? How Do We Do It?
BY KAM SHADAN, M.S., P.E., Vice President, Gannett Fleming, Inc.
Project management oversight (PMO) is a tool used for the oversight of major capital projects. PMO verifies that the program management team responsible for the project has the adequate capacity and capability to manage risks and deliver the project within the scope, budgets, and schedule in a safe and reliable manner.
Today, the need for oversight is felt by all, including investors, funding agencies, and taxpayers who invest in major capital programs. Per the May 2009 issue of wiredFINANCE, Fortune 500 companies paid an annual estimated average of $500 million in legal costs. In addition, according to the Transit Cooperative Research Program’s Web-Only Document 31: Managing Capital Costs of Major Federally Funded Public Transportation Projects: Contractor's Final Report, cost studies for major transportation capital projects above $100 million have shown that average project costs typically grew up to 45 percent of the original estimates during the life of the project as a result of underestimation and risk management issues. One way to reduce legal costs while controlling project costs is to proactively and continually oversee major projects and mitigate risks.
The Federal Transit Administration (FTA) administers its own PMO program. In a report to the House of Representatives in 2002, the inspector general noted that the PMO practice, while needing some improvements in the area of cost estimate reviews, is a sound approach to oversight of capital programs and can be emulated by other government agencies.
While many transit agencies involved in the New Starts major capital projects follow the FTA’s PMO requirements, this article suggests that all transit agencies and private sector investors in capital projects consider self-imposing an internal PMO program.
Balancing oversight with technical assistance is the most effective approach; it will also differentiate the overseer from being perceived as an auditor. The chief executive officer (CEO) or the board of directors decides when to introduce oversight for a project.
The major components of any oversight program include:
* Selection of an oversight team;
* Oversight plan;
* Capacity and capability assessment;
* Readiness reviews and risk assessment;
* Continuous monitoring and risk management; and
* Lessons learned.
Selection of an oversight team. In selecting an oversight team, the CEO should keep in mind that oversight, while a simple tool, must still be applied by highly experienced professionals. The internal overseer will report either to the CEO or the board as the senior advisor and the sounding board. This gives the CEO and the board additional leverage in management and the evaluation of the project management team.
Members of the oversight team should be professionals who have “been there, done that,” yet are able to learn and try to gain the trust and respect of the project management team for which they have oversight responsibility. Oversight is as much an art as it is a science; therefore, the overseer needs skill in dealing with people and complex technical and management issues and processes, as well as experience in applying oversight tools.
“It benefits the project when a PMO brings real world relevant experience in the spirit of cooperation rather than focus purely on critical oversight and reporting,” said Steve Witter, transit manager for the Columbia River Crossing project, a multi-billion-dollar I-5 bridge replacement effort in Washington State and Oregon that includes light rail, highway, and bicycle elements.
At the end of the assignment, the overseer must be able to pass on the credit to the project management team for its hands-on work on the front lines of the project.
Oversight plan. Following the selection of an oversight team, that group must perform a preliminary assessment of the project’s size, complexity, status, risks, project management team, management plans and tools, scope, budget, schedule, safety, security, and quality requirements to build the project-specific oversight team.
Key members of a typical project team may include the project manager; project and document controls specialist; cost estimators; schedulers; risk assessment specialists; architects; engineers; environmental and planning specialists; procurement and project delivery specialists; construction management specialist; operations and maintenance specialist; real estate specialist; and quality, safety, and security subject matter experts.
The oversight plan must include activity levels for the phases of the project and must be tailored to fit the project’s size and complexity. When it is properly sized, depending on the duration of the project, the oversight costs could account for less than 1 percent of the budget for very large projects of more than $1 billion in budget, ranging to approximately 3 percent or less of budget for smaller projects of more than $10 million in budget, assuming an oversight duration of three to five years.
Capacity and capability assessment. This task is the most important building block of an oversight program because, so often, lack of capacity and capability lead to underestimation of scope, budget, and schedule requirements and future issues. The assessment, therefore, must determine whether adequate organization, tools, number of qualified personnel, and necessary tools are available to complete the current project phase successfully. The aim is not to start a project short in resources, making its staffing “on the run.”
This process must include review of the plan’s organizational chart, showing all positions for the current phase of the project with personnel affiliations (consultants or employees) and how they will be used. The key positions include the project manager, assurance manager reporting one level above the project manager, and the team that controls cost estimating, reporting, scheduling, and document and change control. Vacant key positions should, at a minimum, be filled on an acting basis with qualified personnel.
“At least in two agencies I worked at, the PMO helped guide the agency management in providing adequate Quality Assurance at the right level,” said Eric Oparko, quality assurance manager for the Sacramento Regional Transit District. “Later, through joint surveillances with the PMO, the team was able to detect quality issues due to antiquated processes, which resulted in retooling, personnel, and process changes that raised the bar for manufacturing of the subject product nationwide,” he added.
Readiness reviews and risk assessment. Following completion of the capacity and capability reviews, and after the project team determines it is ready to take on the project, it will establish key review points to assess the readiness of the project. This review will include a capacity and capability assessments to ensure that the project management plan addresses any new positions required.
"PMO reviews provide the necessary independent checks on the consistency of assumption among project elements in the project development phase,” said Carolyn Gonot, project director for the $6 billion Silicon Valley Rail Transit project, which will take San Francisco Bay Area Rapid Transit District rail service to the heart of San Jose, CA.
One important part of the review is an update of risks that may be on the horizon for the upcoming project phase. Risk assessment can be a complicated topic and is subject to much debate as to how extensive it must be to pay back with results. One generally accepted principle among all professionals is that the project must have a register that lists the project risks for each project phase with the probability of event and severity of impact, as well as a risk management plan to address these risks.
Continuous monitoring and risk management. In between readiness review points, the oversight team monitors the project’s management process to make sure it is in compliance with the approved project management plans, best practices, and established risk management benchmarks. Monitoring activities include joint quality surveillances and review of key project documents and activities that may impact the project.
“The PMO helps us have another set of eyes to look at critical project issues. It provides us with the checks and balances on the project and is an integral part of the project management process,” said Dennis Mori, AIA, executive officer, project management, for Los Angeles Metro.
Lessons learned. The project team and the overseer will meet at the end of the project to document a list of lessons learned and will memorialize them in a final report for future use. This document can be an effective training tool.
Oversight as a self-imposed, internal tool will provide the necessary leverage to the CEO and board to direct and evaluate the project management team. The oversight team supports the CEO and board on the project so they can focus on strategic issues. It offers those who provide financial or political support to a project with a level of assurance and accountability that the project management team is complying with the best industry practices. Where internal oversight exists, management can address the requirements of any external oversight in a more cost-effective and expeditious manner.
In sum, the risk of not having oversight far outweighs its cost.
Kam Shadan, an APTA business member, serves on the Bus Technical Maintenance Committee, Clean Propulsion and Support Technology Committee, and Rolling Stock Equipment Technical Forum. He is also a member of the Gannett Fleming National Program Management Practice as well as an elected member of the Executive Committee of the California Transit Association.
A rail car for the Santa Clara Valley Rapid Transit project to extend San Francisco Bay Area Rapid Transit District service to San Jose, CA. At top of facing page: Gannett Fleming is overseeing the Columbia River Crossing project in Washington State and Oregon for the Federal Transit Administration. This artist’s rendering shows the replacement bridge with light rail inside the southbound bridge and a multi-use path inside the northbound bridge.
The oversight process for a typical project.