The art of project leadership: Delivering the world’s
largest projects (2)
McKinsey
Capital Projects & Infrastructure Practice September 2017
Executive summary
Extraordinary projects have been executed through
millennia. Think of the scope of project management required to build the
Pyramids of Giza, the Great Wall of China, and the cathedrals of Europe; or
more recently, the development of the world’s transport, energy, space,
military, and science infrastructure. Today, the prize for executing large
projects successfully is significant. With ever-increasing size and ambitions,
the modern large construction project not only has a lasting impact on the
organisation, but can also impact wider industry dynamics, the regulatory
landscape and even geopolitical relations. However execution of large projects
has historically proved difficult. On average, projects with budgets above US
$1 billion, commonly referred to as “megaprojects” in the industry, are
delivered one year behind schedule, and run 30 percent over budget. If this
trend continues, US $5 trillion in value will be destroyed in the projects
currently announced around the world. For the sake of economic prosperity and
lost opportunity alone, this must change. The vast majority of research into
root causes of failure in large capital projects has concentrated on flaws in
project management processes, standards, systems, tools, and technical
mastery—the body of knowledge that we call the “science” of project management.
These topics are important. This paper does not seek to question, challenge, or
expand the existing knowledge around the science of large project execution.
Rather we aim to supplement current practice with a focus on “soft”
organisational and leadership elements of project delivery, which we call the
“art of project leadership”. We believe that it is this art that presents the
critical missing element, mastery of which increases the probability that a
large capital project meets its objectives and purpose. As the size of capital
projects rises, these multibillion dollar investments combine unparalleled
complexity of strategy, design, financing, procurement and, ultimately, project
execution. We have chosen to focus this report on a new subclass of capital
megaprojects, which we refer to as “ultra-large projects”—the largest and most
complex of capital projects, with budgets exceeding US $5 billion, and
timeframes exceeding five years. These characteristics bring unique
complexities associated with the scale of the project: multiple complex
interfaces with stakeholders such as local communities and government bodies,
new regulatory and environmental requirements, and often unique technological
challenges. When we refer to “ultra-large projects” we choose our language
deliberately—we assert that an “ultra-large project” is as different from a
megaproject as an ultramarathon is from a marathon. A marathon is a substantial
challenge—yet many thousands prepare for one by covering the full distance in
training and complete one each year. An ultramarathon is exponentially harder
and one can never train for the full distance. Similarly, an ultralarge project
represents an exponentially tougher challenge than a typical ~ US $1 billion
megaproject, and is the preserve of the few. We set out to answer a simple
question: Why do these ultra-large projects continue to fall short of
expectations despite so much experience, learning, discussion, and analysis?
What are the unique factors of success of those who managed to avoid
significant time and cost deviations? To get insights into these questions we
decided to ask the “project practitioners”—people with hands-on experience in
ultra-large project delivery. We conducted in-depth interviews with 27
practitioners who collectively have over 500 years of project delivery
experience. We then distilled, structured, and synthesised our findings.
Extraordinary
projects have been executed through millennia. Think of the scope of project
management required to build the Pyramids of Giza, the Great Wall of China, and
the cathedrals of Europe; or more recently, the development of the world’s
transport, energy, space, military, and science infrastructure. Today, the
prize for executing large projects successfully is significant. With
ever-increasing size and ambitions, the modern large construction project not
only has a lasting impact on the organisation, but can also impact wider
industry dynamics, the regulatory landscape and even geopolitical relations.
However execution of large projects has historically proved difficult. On
average, projects with budgets above US $1 billion, commonly referred to as
“megaprojects” in the industry, are delivered one year behind schedule, and run
30 percent over budget. If this trend continues, US $5 trillion in value will
be destroyed in the projects currently announced around the world. For the sake
of economic prosperity and lost opportunity alone, this must change. The vast
majority of research into root causes of failure in large capital projects has
concentrated on flaws in project management processes, standards, systems,
tools, and technical mastery—the body of knowledge that we call the “science”
of project management. These topics are important. This paper does not seek to
question, challenge, or expand the existing knowledge around the science of
large project execution. Rather we aim to supplement current practice with a
focus on “soft” organisational and leadership elements of project delivery,
which we call the “art of project leadership”. We believe that it is this art
that presents the critical missing element, mastery of which increases the
probability that a large capital project meets its objectives and purpose. As
the size of capital projects rises, these multibillion dollar investments
combine unparalleled complexity of strategy, design, financing, procurement
and, ultimately, project execution. We have chosen to focus this report on a
new subclass of capital megaprojects, which we refer to as “ultra-large
projects”—the largest and most complex of capital projects, with budgets
exceeding US $5 billion, and timeframes exceeding five years. These
characteristics bring unique complexities associated with the scale of the
project: multiple complex interfaces with stakeholders such as local
communities and government bodies, new regulatory and environmental
requirements, and often unique technological challenges. When we refer to
“ultra-large projects” we choose our language deliberately—we assert that an
“ultra-large project” is as different from a megaproject as an ultramarathon is
from a marathon. A marathon is a substantial challenge—yet many thousands
prepare for one by covering the full distance in training and complete one each
year. An ultramarathon is exponentially harder and one can never train for the
full distance. Similarly, an ultralarge project represents an exponentially
tougher challenge than a typical ~ US $1 billion megaproject, and is the
preserve of the few. We set out to answer a simple question: Why do these
ultra-large projects continue to fall short of expectations despite so much
experience, learning, discussion, and analysis? What are the unique factors of
success of those who managed to avoid significant time and cost deviations? To
get insights into these questions we decided to ask the “project
practitioners”—people with hands-on experience in ultra-large project delivery.
We conducted in-depth interviews with 27 practitioners who collectively have
over 500 years of project delivery experience. We then distilled, structured,
and synthesised our findings. Executive summary 2 The art of project leadership
While our interviewees give full credit to the absolute necessity of getting
the core project management systems and processes right (the science), most of
the practitioners almost take that part for granted, claiming that many
companies attempting large capital investment already do (and must) have best
practice standards and processes implemented. While addressing the importance
of the science, our interviewees kept coming back to the criticality of the
right mindsets, practices, attitudes, behaviours, leadership capabilities, and
organisational culture—all the topics covered under the umbrella of the project
leadership art—for successful delivery of the largest and most complex
projects. In fact, analysis of the interviews demonstrates that in discussing
success factors of these projects, our interviewees spent roughly 50 percent of
the time talking about the science, and 50 percent on the art. This proportion
is strikingly different to some of the subject literature, which at times
barely mentions these soft topics. Moreover, our interviews supported our
hypothesis that the art of project leadership gains importance with increasing
project size and complexity. Given the scale, extended timeframes, number of
parties involved and interfaces to manage, successful delivery of an
ultra-large project requires an equal mastery of both the science and the art.
Practitioners consistently emphasise the order of magnitude increase in
difficulty of managing projects of ultra size, and the importance of the topics
under the art umbrella—significantly more so than in smaller US $1 billion
sized “megaprojects”. Whereas these leadership skills might be termed soft, the
reality is that they can be the most difficult elements to ingrain within a
capital project organisation—to put it differently, the soft stuff is the hard
stuff. Our interviews and research support the view that the art of project
leadership becomes ever more vital with the growth of project scale and
complexity, and becomes critically important for projects of ultra-large size.
“Process does not deliver projects. Leadership does, and has to trump process.”
Jack Futcher Based on our research and interviews, we synthesised the critical
elements of the art into four discrete mindsets and eight practices. Of the
eight practices, four are relevant to the project setup phase and four are
relevant to the project delivery phase. We believe that by embracing these
mindsets and practices, project leaders can dramatically increase the chance of
successful delivery of ultra-large projects. For completeness, we also
articulated the “deadly sins” of project leadership—these are the mindsets and
practices that are best avoided to ensure successful project outcomes.
Mindsets
Mindsets play a
critical role in the development of ultra-large projects. Good systems and
processes will positively influence team behaviour to a certain extent, but
success or failure is largely determined by how well a team works together.
Team mindsets inform the multitude of decisions and interpersonal interactions
that occur on a project. Constructive mindsets lead to good decisions and
strong trust-based relationships, which in turn lead to high team morale and
excellent performance.
Through the synthesis of our interviews, we have
identified four mindsets that underpin the development of the project from
start to finish. Lead as a business, not as a project An ultra-large project is
more akin to building a business than executing a construction project,
requiring CEO-level leadership and judgment to address a broad range of
organisational issues. Take full ownership of outcomes The project owner needs
to maintain full accountability for delivery. They must remain well informed
throughout and be ready to step in to make tough decisions in a timely manner.
Make your contractor successful Owners and contractors work best as a business
partnership with a mindset of “we win together or lose together”. Productive
contractor-owner relationships are based on mutual trust and joint problem
solving. Trust your processes, but know that leadership is required Processes
alone will not resolve every challenge on an ultra-large project. Leaders
should trust and enforce the appropriate process, but recognise their benefits
and limitations. These four mindsets need to be adopted by the majority of
people in the project organisation and the broader owners’ team, not just the
top management of the project itself. Owners and project directors need to
create an environment where these mindsets are aligned with the natural way the
team approaches their day-to-day work and how they interact with each other,
contractors, and other stakeholders.
Practices for setup Unsurprisingly, the setup phase of
the project is fundamental to establish healthy management practices that
deliver successful project outcomes. As one of our interviewees noted, “The way
you start is the way you finish.” In the setup phase, there are four practices
that require “artful” application that leaders should uphold as crucial. Define
purpose, identity and culture Effective project teams have a unique and shared
identity, and create a culture of mutual trust and collaboration. Project
leaders should articulate purpose, role model behaviours, and nourish the
desired culture. Assemble the right team Besides shared values, owner and
contractor team members need to have the appropriate blend of leadership
qualities, cultural and local awareness for the task ahead. This must
complement the requisite technical skills and experience. Carefully allocate
risk and align incentives Successful owners thoughtfully delegate only those
risks that the contractor is better positioned to manage. Leaders should
establish and maintain relationships, not only contracts, to facilitate ongoing
alignment of incentives.
Work hard on relationships with stakeholders Strong and
transparent trust-based relationships with stakeholders enable prevention and
rapid resolution of problems. Invest in stakeholder management as a core
activity. The art of project setup extends far beyond checking boxes in a
corporate process. It requires making the right trade-offs and adjustments to
accommodate the unique constraints that each project faces. The setup phase
needs a strong focus on building constructive relationships (and specifically,
trust) with both internal and external stakeholders, to address issues early in
the project timeline that would otherwise impede delivery. Building trust is
also critical to productively addressing the inevitable crises that arise in
projects of this size and complexity. A good setup facilitates smooth execution
and, importantly, sets the project up as you mean to go on for the full span of
its operating life.
Practices for delivery By the time that a project
reaches the delivery phase, many of the key decisions have been made—it is the
leaders’ responsibility to execute the project within the evolved scope,
constraints, and degree of complexity. Given the size and duration of an
ultra-large project, unexpected challenges inevitably arise. Our research
indicates that in order to absorb and deal with these challenges, leaders of
these projects need to focus on the following four practices throughout the
delivery phase. Invest in your team Delivering an ultra-large project requires
continual investment in the effectiveness of the team. Leaders must think
deeply about how to develop and challenge their people throughout. Ensure timely
decision making Timely decision making depends on the delegation of decisions
to the lowest appropriate level. To achieve this, leaders must have confidence
and trust in their systems and people. Leaders are then free to resolve and
anticipate critical issues. Adopt forward looking performance management
Effective project leaders use fact-based performance dialogues to strengthen
trusting relationships and instil accountability. This allows for early problem
resolution and opportunity identification. Drive desired behaviours
consistently Effective project leaders inspire their teams—especially in
challenging times. They define, communicate, and role model expected attitudes
and behaviours. Leaders should take the time to connect with team members on a
personal level.
Our report examines each of these mindsets and
practices, presents common “sins” to avoid, and provides a practical guide on
how to implement these recommendations
FOR FULL REPORT
file:///E:/BLOG/2128SEP17%20The-art-of-project-leadership.pdf
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