Maturity in performance: Project success rates and contingencies

Maturity in performance

Planning is one of the most difficult and least understood aspects of a project but can help track progress and provide realistic expectations.

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Construction at site
  • Owners are still failing to bring projects in on time and on budget – especially those in the energy and natural resources and public sectors
  • Half of respondents do not use a management reserve, which could lead to an over-optimistic view
The significant investment in project controls – and the high levels of confidence that many owners have in these controls – have not halted the run of underperforming projects. Over half of all the respondents state that they suffered one or more underperforming projects in the previous financial year. For larger organizations, this rose to 61 percent, while executives from the energy and natural resources and public sectors experienced even higher levels of project failure, at 71 percent and 90 percent respectively.
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Looking back over the past 3 years, fewer than one-third of all respondents’ projects managed to come within 10 percent of the planned budget and just a quarter of construction projects came within 10 percent of their original deadlines.

These findings suggest that, while controls may bring many benefits, they have yet to be fully and effectively embedded. The results also raise questions on the skills of those working with the various controls, either within PMIS or otherwise. 

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Planning for delays and cost overruns

Contingency planning typically involves downside risk estimates for budget and delivery times throughout the project life cycle. According to the senior executives participating in this year’s survey, a range of methods is used to calculate contingency levels. The two most popular approaches are: 1) a set percentage, and 2) quantitative risk analysis, with 30 percent respectively opting for these choices. The relative sophistication of the latter suggests that owners are trying to become more accurate in their forecasting.

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Only half of the respondents state that their organizations use both a project level contingency and a management reserve. Management reserves recognize the potential for risks that are outside of the project team’s ability to control, which reflects a more realistic and pragmatic view.

In terms of managing contingencies, the single most common method (used by a third of respondents) is to allocate and, if necessary, reallocate contingency funds directly to control accounts based on ongoing project risk assessments. Thirty percent say that they choose to draw down from a single pool of contingency based upon project risks, which shows a more mature and sophisticated approach and a further 23 percent operate contingency as a single “balancing account” with transfers to and from other control accounts as needed.  

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