Steps to project Recovery

Steps to project recovery

(When you're courting a new client or considering a new development, it seems pessimistic to have a Plan B, an option for addressing project failure. Yet current statistics indicate that as many as 40% of projects fail for one reason or some others. Maybe its not pessimism but realism.)

There are a few basic steps to recovering a distressed project and a few basic tools, but as is often the case, simple doesn’t mean easy.

Schedule

Budget

Implementation

First, the team needs to assess the current state of the project: where the project really stands, what needs to be done next, and how to get it there. Since failure often begins toward the end of a project’s lifeline, there will be added pressure to make a fast assessment. A project, however, can stall at any point in its timeline, so the assessment needs to use a system that accurately evaluates the legitimate and accurate condition of the project in order to process its status. It is important that an honest recognition of the factors that led to the failure are included but not dwelt upon.

From the assessment, a new schedule will start to form, lining up all assets to make the most efficient use of each. Then, the new schedule should be discussed and negotiated with all stakeholders to come to an agreement on next steps with a commitment to allocate the resources . If the project was far enough off the schedule when recovery efforts began, it’s likely that the budget, timeline, or scope will have to be adjusted.

Since so much time and effort has already gone into the project, emotions are likely to be high. The schedule needs to be made methodically and without panic to maximize outcomes. It will be well and truly based on the original documents since only then can the team establish the variance. It is at this point, that addressing the deficiencies leading to the failure be resolved, either by redefining the roles and responsibilities or by restructuring the approach or interface with the project (maybe a whole new project team).

Once an assessment is prepared, a revised schedule is agreed to and an accurate accounting evolves, then the management tools are back in place that are necessary to move forward on the project, if the management component has either been repaired, revived or replaced or finally put in place.

The logical approach

Avoiding guesswork and stressed decision making is a necessity when re initializing a distressed or stalled project. A skillful manager will take all the variables and simulate the cost and time impacts of various scenarios, narrowing the focus allowing the team to make informed choices about next steps. This not only gives management the certainty that they’re making the best possible decisions, but also helps justify the decisions to outside stakeholders, if required.

All of these activities will fine tune the tools available to the project manager, but at this stage variations should be relatively minor unless there are hidden variables or major external events that impact the process.

Be prepared

Having to recover a distressed project feels like a worst-case scenario, but the stats make it obvious that the opposite is true: each project should be flexible to handle changes in workforce and resource availability, unexpected discoveries on the project site, and other variables. Having a dynamic recovery plan in place means everyone can get to work to get a project up and running to its successful completion. All projects should at least consider a backup plan that addresses this possibility.

When a project or trade is distressed, you need to quickly identify challenges, timelines, and the best course of action. Timely and reliable advice is key.

Cost-to-complete reporting and option analysis

Risk and schedule assessment

Stakeholder management and appointment

Project assessment and development delivery strategy

Tender and contract review, negotiations, management and administration

Scheduling and claims advice

Review of costs incurred, paid out and accounts payable. Include an overview of retentions, preliminary notices and liens

Check authority approvals and compliance

Track possible legal issues and mitigate whenever possible

Have a plan

As stated earlier, to determine the go-forward plan for a distressed asset, you need a clear understanding of project risks, what it will cost to complete the project, and the immediate and long-term site and development activities required.

Having expertise in quantity surveying, cost consulting, project management, financial advisory, scheduling, claims, and property condition reviews and appraisals is critical.

Developers & trades

Schedule delays, cost overruns, defects, contract disputes or authority approvals can all lead to financial stress that result in unfortunate distressed situations for some developers, projects and trades. It is critical to get timely advice to identify the key issues and understand the solution options to minimize any further project or business erosion. This can occur even after a renewal plan is being implemented, it may even be more likely.

Execute

An assessment of the cost to complete is obviously imperative and this includes establishing any debt profile that exists (this can often take time as various creditors come out of the woodwork!). Experience shows that this is not always a straight forward process. On another project when a contractor collapsed, a sub-contractor confirmed they had been paid up to date, only to later discover this meant a 90-day payment term. Therefore 3 month’s payments had gone down with the contractor which had not been paid on to the sub - contractor. Build in a dynamic contingency, maybe even from a separate funding source. This can help restore confidence with the lender who capital has been at risk so far.

Undertaking a detailed survey to establish whether the works completed are fully compliant with no defects is also crucial. This survey certainly needs to be factored into the Cost to Complete. Any response will require consideration of the cause of the default e.g. contractor failure, cost overruns, ineffective management, misappropriation of funds, international pandemic etc., but the initial response will invariably be the same: i.e. secure the site and ensure the works remain insured.

Sidebar from the Lenders point of view

Although a regular occurrence, sometimes calling in a loan is not the answer. Having a known distressed project on the open market immediately affects its value. Sometimes it is better to consider working with the Developer and appointing a Project Manager to put the necessary systems and procedures in place to see the project through to the end.

So, what are some of the options?

Based on experience, introducing a new contractor and asking them to take on a significant element of the risk is rarely a satisfactory option. Compromise is often needed on all sides, with both parties taking elements of the risk which invariably means we don’t necessarily get the fixed / firm cost to complete we would all prefer.

Keeping sub-contractors and suppliers onboard can be very difficult, especially where some are required for warranties / guarantees. New incoming trades may not warrant the existing work so replacing previous work in order to achieve necessary warranties can be a costly exercise. Also, the incoming contractor may not wish to engage with some of the previous trades.

Another key influencing factor is the stage of the scheme. Again, early advice from a valuation perspective from the valuer / monitoring surveyor is paramount in establishing cost and value. A project nearing completion clearly requires a different approach to a scheme that is still in the ground.

“Root” Causes of Failure

There are numerous causes of project failure. Below is a generic list of common causes of failure:

? End user stakeholders not involved throughout the project

? Minimal or no stakeholder backing; lack of ownership

? Weak business case

? Corporate goals not understood at the lower organizational levels

? Plan asks for too much in too little time

? Poor estimates, especially financial

? Unclear stakeholder requirements

? Passive user stakeholder involvement after handoff

? Unclear expectations

? Assumptions, if they exist at all, are unrealistic

? Plans are based upon insufficient data

? No systemization of the planning process

? Planning is performed by a planning group

? Inadequate or incomplete requirements

? Lack of resources

? Assigned resources lack experience

? Staffing requirements are not fully known

? Constantly changing resources

? Poor overall project planning

? Enterprise environmental factors have changes causing outdated scope

? Missed deadlines and no recovery plan

? Budgets are exceeded and out of control

? Lack of replanning on a regular basis

? Lack of attention provided to the human and organizational aspects of the project

? Project estimates are best guesses and not based upon history or standards

? Not enough time provided for proper estimating

? No one knows the exact major milestone dates or due dates for reporting

? Team members working with conflicting requirements

? People are shuffled in and out of the project with little regard for the schedule

? Poor or fragmented cost control

? Each stakeholder uses different organizational process assets, which may be incompatible with the assets of project partners

? Weak project and stakeholder communications

? Poor assessment of risks if done at all

? Wrong type of contract

? Poor project management; team members possess a poor understanding of project management, especially virtual team members

? Technical objectives are more important than business objectives

These causes of project failure can be sorted into three broad categories:

? Management mistakes:

These are due to a failure in stakeholder management perhaps by allowing too many unnecessary scope changes, failing to provide proper governance, refusing to make decisions in a timely manner, and ignoring the project manager’s request for help. This can also be the result of wanting to gold-plate the project. This is also the result of not performing project health checks.

? Planning mistakes:

These are the result of poor project management, perhaps not following the principles of sound management and oversight, not having a timely “kill switch” in the plan, not planning for project audits or health checks, and not selecting the proper tracking metrics.

? External influences:

These are normally the failures in assessing the environmental input actors correctly. This includes the timing for getting approvals and authorization from third parties, or an unforeseen occurrence like the pandemic.

The Definition of Failure

Historically, the definition of success on a project was viewed as accomplishing the work within the expressed constraints and obtaining customer acceptance. Today, the expressed and implied constraints are still important but it has taken a “back seat” to the business and value components of success. In today’s definition, success is when the planned business value is achieved within the imposed constraints and assumptions, and the customer receives the desired value.

While we seem to have a reasonably good understanding of project success, we have a poor understanding of project failure. The project manager and the stakeholders can have different definitions of project failure. The project manager’s definition might just be not meeting the triple constraints criteria. Stakeholders, on the other hand, seem more interested in business value than the triple constraints once the project actually begins. Stakeholders’ perception of failure might be:

? The project has become too costly for the expected benefits or value

? The project will be completed too late

? The project will not achieve its targeted benefits or value

? The project no longer satisfies the stakeholders’ needs

EARLY WARNING SIGNS OF TROUBLE

Projects do not become distressed overnight. They normally go from “green” to “yellow” to “red”, and along the way are early warning signs that failure may be imminent or that immediate changes may be necessary.

Typical early warning signs include:

? Business case deterioration

? Different opinions on project’s purpose and objectives

? Unhappy/disinterested stakeholders and steering committee members

? Continuous criticism by stakeholders

? Changes in stakeholders without any warning

? No longer a demand for the deliverables or the product

? Invisible sponsorship

? Delayed decisions resulting in missed deadlines

? High tension meetings with team and stakeholders

? Finger-pointing and poor acceptance of responsibility

? Lack of organizational process assets

? Failing to close life cycle phases properly

? High turnover of personnel, especially critical workers

? Unrealistic expectations

? Failure in progress reporting

? Technical failure

? Having to work excessive hours and with heavy work loads

? Unclear milestones and other requirements

? Poor morale

? Everything is a crisis

? Poor attendance at team meetings

? Surprises, slow identification of problems, and constant rework

? Poor change control process

(Contibutions came from many sources too numerous to footnote or acknowledge, so I am doing it here. Thanks to all and the industry!)