Who’s protecting
your blindside?
Corporate Research
December 2013

Construction
Management:
Protecting your
business from
...
Is your blindside exposed?
Risk management continues to top business agendas, being
regarded as critical to succeed in tod...
Construction management is often
neglected
While strong project management is well understood and
usually considered criti...
Risks are hidden throughout the
construction journey

Case Study

Strong planning and project management at the outset is ...
3. Miscommunication

4. Breakdown between project phases

Communication issues between the project team can often be
the r...
Case Study
5. Unfamiliar local market dynamics

Unfamiliar local nuances

Arguably, the most obvious example of differing ...
Case Study
6. Lack of accountability on site

Lack of accountability

It is important to have a line of sight and understa...
Your core business could take an
unexpected hit
There is a wide range of potential complications in the delivery
of a real...
Professional construction
management covers your blindside
Incorporating detailed, professional construction expertise in ...
An integrated approach protects
your business
Typically, a professional project manager is engaged during the
early stages...
Jones Lang LaSalle Project and Development Services
We provide project and construction management services
for real estat...
Jones Lang LaSalle Global
Argentina
latinamerica.am.joneslanglasalle.com

Germany
www.joneslanglasalle.de

Maghreb
www.jon...
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[Report] Who's protecting your blindside? Construction Management: Protecting your business from project risk

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Risk management continues to top business agendas, being regarded as critical to succeed in today’s competitive and volatile corporate environment. However, many companies leave themselves open to significant risks in the delivery of real estate projects. Risk management continues to top business agendas, being regarded as critical to succeed in today’s competitive and volatile corporate environment. However, many companies leave themselves open to significant risks in the delivery of real estate projects.

To learn more about JLL's project and development services in APAC, please visit: http://bit.ly/1iEasVh

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[Report] Who's protecting your blindside? Construction Management: Protecting your business from project risk

  1. 1. Who’s protecting your blindside? Corporate Research December 2013 Construction Management: Protecting your business from project risk
  2. 2. Is your blindside exposed? Risk management continues to top business agendas, being regarded as critical to succeed in today’s competitive and volatile corporate environment. The major risks and pressures that many companies are grappling with include: Top Ten Business Risks Aon’s Global Risk Management Survey, 2013 1. Economic slowdown/slow recovery • Uncertain economic and political environments 2. Regulatory/legislative changes • I ncreasing pace and intensity of competition 3. Increasing competition • W ar on talent, speed to market, innovation and reputation 4. Damage to reputation/brand • H igher levels of regulatory compliance 5. Failure to attract or retain top talent • C ontinued pressure to reduce costs 6. Failure to innovate/meet customer needs Real estate is increasingly seen as a tool for businesses to leverage in addressing these risks. This includes workspace continuity planning to minimize business interruption, improving portfolio flexibility to adapt to changing space needs over time and implementing workplace strategies to provide the most attractive environment for ‘best-in-class’ talent. However, many companies leave themselves open to significant risks in the delivery of real estate projects. Despite good project management and planning at the outset, many things can go wrong during the life cycle of a construction project. The potential impact on the core business and bottom line of the organization is often underestimated. 2 | Who’s protecting your blindside? 7. Business interruption 8. Commodity price risk 9. Cash flow/liquidity risk 10. Political risk/uncertainty
  3. 3. Construction management is often neglected While strong project management is well understood and usually considered critical to the success of real estate projects, the importance of construction management is often overlooked or undervalued. Appointing a professional construction manager can significantly reduce business risks arising from the project delivery process. A construction manager is always responsible for managing the on-site works and associated tasks such as logistics, security, safety and communications during the construction of a real estate project, working solely in the best interest of the client. Too often, this role is performed by someone who lacks the expertise, accountability or incentive to effectively look after your interests during the construction phase. The relationship between the project manager and the construction manager can, to some extent, be compared with the producer-director relationship during the creation of a movie. While the responsibilities of the two roles during the project are different, they share the goal of successfully completing a movie. Both roles must be performed to reach this goal, even though they could both be performed by the same person. Similarly, the project manager and the construction manager share the goal of successfully completing a project, each with a specific area of responsibility (Fig.1). Fig. 1: Who is Looking After the Production and Direction of Your Project? Project Manager (producer) Construction Manager (director) • Obtain and interpret the brief • Provide schedule, cost, logistics and feasibility of construction input during design stage • Provide independent advice and reporting • Manage and coordinate the design • Manage and coordinate authority approvals • Interface with your internal team • Administer your contractual obligations with all parties • Link between the construction manager and the design team • Interface with stakeholders • Trade contractor identification, procurement and management • Site establishment, management and coordination • Administer trade contracts including claims and payments • Manage the handover to owner Source: Jones Lang LaSalle Who’s protecting your blindside? | 3
  4. 4. Risks are hidden throughout the construction journey Case Study Strong planning and project management at the outset is critical to the success of any building project. Still, it is in managing the delivery for the duration of the project—from initial briefing to final project delivery—where much of the hidden risk can be found. Leaving room for flexibility Why do things go wrong? The following scenarios may sound familiar: 1. Confrontational relationships When contractors compete on price for a specific scope of work and are open to being penalized when they don’t deliver, it is in their interest to do everything they can to protect and maximize their own position. In this situation the person responsible for the delivery is more concerned with protecting their position (often through a significant amount of paperwork) and minimizing cost by cutting corners in terms of time, quality and material substitutions. In addition, managing these types of relationships can be a significant administrative and time-consuming burden. ›› A more collaborative and transparent approach, where shared goals are the starting point, will link rewards and liabilities to the project outcome. This ensures that all parties work to maximize the final result, because that is the best way for them to both protect and maximize their own position. Articulating what a successful project outcome will look like and keeping all parties working toward the common goal are key to reducing conflict along the way. 2. Lack of flexibility Inflexibility often leads to significant problems later in the process when changes need to be made. The potential impact will vary depending on the relationships you have with your suppliers. In a confrontational relationship, contractors will look to benefit from the changes made along the way by adding time and charging additional fees. With a more collaborative approach, shared goals include establishing the most appropriate delivery/contracting model that can accommodate potential scope changes along the way. ›› Incorporating specialist consultancy from the start will help identify potential issues that might arise so that you can best plan for required flexibility in the project scope. 4 | Who’s protecting your blindside? During the relocation of a large international bank in Singapore, new layout plans were shared with the senior employees that would occupy the space. However, they did not really understand the implications. When, close to completion, members of staff were invited to view their new workspace, some were unhappy with the layout. This resulted in a redesign of the floor plates, which could have significantly increased the project costs and delayed the move by months. By having a collaborative approach, enabling the changes to be accommodated within the existing program and costs restricted to a minimum (net cost of trades), these impacts were mitigated.
  5. 5. 3. Miscommunication 4. Breakdown between project phases Communication issues between the project team can often be the root of many major issues. This applies particularly for any potential scope change along the way, because even fairly small amendments (such as the addition of partitioning walls) can impact on costs and timing if not handled correctly. Without clear and effective communication among all participants, a project can easily disintegrate, particularly in more complex situations where changes are made throughout the construction phase. The importance of solid and continuous management of all participants across the full length of the project delivery chain is often underestimated. There is a broad range of stakeholders involved across the project life cycle (sample in Fig. 2), and managing them all effectively can prove difficult. Inability to manage these stakeholders often results in a breakdown in the transfer between different phases, in particular toward the latter stages of a project when in-depth, technical knowledge of the construction process becomes critical. ›› A single point of contact for project delivery and onsite works throughout the project can help simplify communication and clarify accountability, ultimately avoiding delivery errors. ›› Integrating professional management across the full duration of a project ensures a seamless link between all phases of the project. Fig. 2: Ability to Effectively Manage Stakeholders Crucial to Project Success Initiate Plan Design Close/Handover • Main and trade contractors • Landlord • End users • Developer • Facility manager • Green authorities/ council • Security • Internal project team • Finance • Designer • Project sponsors (C-suite) • Internal IT • Vendors • Local authorities • Change management • Legal Construct • Shipping agents • Leasing team • Movers • Unions Note: Stakeholders are often involved across multiple phases Source: Jones Lang LaSalle Who’s protecting your blindside? | 5
  6. 6. Case Study 5. Unfamiliar local market dynamics Unfamiliar local nuances Arguably, the most obvious example of differing local market conditions is the quality of the available workforce. The skills and availability of trade contractors can vary significantly by country and sometimes even from project to project, which directly impacts the level of expertise and control required. Local nuances also include legislation such as health, safety and environment (HSE), availability of logistics and infrastructure, cost of trade contractors and materials, taxes, authority approvals and regulations. A project owner in China engaged a main contractor to fit-out a 50,000-sq ft office space. A significant part of the main contractor’s responsibility was to manage the works through to completion and handover the premises ready for occupation. However, the project owner was unable to move in once the project had been completed as the main contractor had not obtained the necessary authority approvals and argued this was the responsibility of the owner. When the space was eventually occupied, additional issues surfaced. Sick leave was found to be exceptionally high and constant staff complaints were received around the smell and atmosphere of the building, as the main contractor had not allowed time to purge the air before occupation. If not properly understood, all of this can easily translate into issues such as delays, unexpected costs, on-site accidents or poor-quality workmanship. ›› In situations where your market knowledge proves insufficient, integrating local expertise and best practice management is required. Building a platform in emerging markets Jones Lang LaSalle’s Global Corporate Real Estate Trends 2013 report shows that portfolio growth will be highest in the world’s emerging economies over the next three years. These are also the world’s least transparent real estate markets, and operating in such opaque environments represents significant risks. At 19%, real estate market transparency was seen as the single most important challenge when expanding into emerging market. 6 | Who’s protecting your blindside?
  7. 7. Case Study 6. Lack of accountability on site Lack of accountability It is important to have a line of sight and understand the ongoing construction activities, risks and issues. When there is no onsite representative acting on your behalf, accidents, mistakes or delays are likely to occur without your knowledge. You are then burdened with addressing these issues as well as explaining the consequences to stakeholders. This is particularly risky if you are inexperienced with construction projects and/or unfamiliar with local market practices. An on-site flood during a fit-out construction project in India damaged not only the site, but the works under construction as well as significant elements of the tenant space occupied below. The project owner did not engage a construction manager to take overall responsibility for the site and consequently suffered significant delays while damages were rectified. As no single company was responsible for the site, major costs were incurred and insurances were limited to individuals. The lack of accountability caused financial loss and also greatly impacted the reputation of the construction company, which was seen as the irresponsible employer. ›› A professional, accountable representative on site looking after your interests will keep you fully informed. Appointing a specialist with full responsibility to identify and mitigate risks provides quality assurance while safeguarding time schedules and overseeing performance in areas including safety, security and logistics. While legally responsible, some contractors may have conflicting demands when it comes to best practice in HSE compliance. Reinforcing HSE efforts on site can ensure that HSE-conscious behavior (as well as processes and procedures) are aligned with the project owners’ standards and significantly improve a positive project outcome. 7. Transparency and governance issues With the strong global focus on compliance and corporate social responsibility, it is now imperative for project sponsors to have full transparency of cost, as well as supply and labor resources. When main contractors are engaged, often there is an expectation that they will take responsibility for these requirements. While they are technically responsible, too often you will not find out that they have not fulfilled their commitments until it is too late, leaving your business exposed to regulatory, legal or financial risk. ›› Appointing a professional representative to oversee all procurement and labor management at the trade level— including identification of material sources, control of labor before and during construction, and competitive tendering— will eliminate the opportunity for poor practices and provide auditable results to satisfy the most stringent governance requirements. Who’s protecting your blindside? | 7
  8. 8. Your core business could take an unexpected hit There is a wide range of potential complications in the delivery of a real estate project, whether it is a complex, from the ground up construction development or a basic interior fit-out. The potential impact on the core business of a company is often underestimated and may threaten the position of an organization in areas such as reputation, brand, compliance, talent attraction, customer satisfaction, business continuity and profitability (Fig. 3). The success of delivering real estate construction projects is primarily measured by the key variables of time, cost and quality—often referred to as the ‘iron triangle’—as well as HSE. However, the actual impact on the business goes beyond the delivery of the finished product. For example, time issues can delay speed to market and erode competitive advantage, cost issues can impact cash flow and profitability and quality mishaps can negatively impact customer experience or harm talent attraction and retention. In addition, a wide range of HSE issues arising during construction can significantly impact the core business. For example, environmental damage or health and safety incidents can harm a company’s brand and reputation, while the financial impact of litigation or lost productivity can substantially hit the bottom line. There is a real risk of your project running over time, and beyond budget: 25% of projects overrun the initial bid margin1 40-50% of projects in the US overrun on timing and/or costs2 92% of projects in Malaysia overrun on time or budget3 1. KMPG Global Construction Survey, 2012 2. Construction Management Association of America, 2009 3. International Journal of Advances in Applied Sciences, 2012 Figure 3: Failure to Successfully Manage Construction Projects Directly Impacts Your Core Business CHECK Loss of competitive advantage LIST FVH FK HISO SO CVN DJSK HG Delays in getting your product or service to market SGH OOO OSI Failure to meet compliance requirements Exposure to legal action Inability to meet customer expectations Reduced corporate profitability Damage to reputation and brand Disruption of business operations ZKDJVHS SKFGJH AKFJ SKGJHFGKJDFGH ZCV DS DLKDFJ SLFKGJDFLKJ DFLHKGJ LDHKGD DVKJSD DJFJFHHB O DND IDHVDDFK KSFKK HHDHDK KDKF DFJSDJKHFDS HLSGBFJKBCXB DFGJ SGDHJ FHJ ;LGK ZSDH;LHLG Inability to attract and retain talent SPOIGHSFJHSADFLIU DJKV SDFKJALS;GKJS ALFKJF FLKSJHD SLGKJ SDLK SDLGK FKJH SDLGKJ SDLGJK SLDLS KJDGSH SL SLGK SLGK GJK SSLDKGJ SLDKGFDGJ SLD FJFJ DJL SDJGFKHSKJ D SKLGH KJHFG SKGJSF DV KSDJFH DSHJGF SIUE AKDSYIO EIYGS DSF DKDFLHSD 3-9589 49870 B SKFLHSD ASFHA AWOFI DKLFGJL SET ESTOPJT F WANTED STAFF Long Term VNBCK X,M GSBKJ 39025 LKSRGJ ETHEW LSGKHJFKLG DFLGJ DFSHLK 42450 SHJK SGJFGD AESFUITY DZZV JELKR EQWT8 CBJKH EPOURT SDGHLJF SLKG DHKLF EIYOEG KSFLGHL SD.GKJ JDGHFKLSDLK SELHG E;SGFJ GSDJ SDGHLI AEFBJ AEFHL ED 320 23598- 2350- 245 DVLHJ SPEOFU AE;FKLJ DJKVHC FJKCVXG EWPTU F SDKDSG 2309534905 590458 ZKDJDF SLDHGK SED FGKUI E EWPT SGF SDG DSKLHG ERPTUI RWGPO FGJHK FG SRGOIU LSRGHK GBJ, S WEITU EKRJGH S,G W ELTIY SEFLKH NNN Source: Jones Lang LaSalle 8 | Who’s protecting your blindside? Impact on cash flow and liquidity
  9. 9. Professional construction management covers your blindside Incorporating detailed, professional construction expertise in the project as early as possible can greatly improve the success of your project and reduce potential business risks (Fig. 4). This enables you to benefit from advice on potential construction issues during the design stage while ensuring smooth transition between all phases of the project. For example, fully considering up front the impact that proposed methods and materials will have on the actual construction process will avoid unexpected changes, claims, disputes, delays and cost increases later on in the project life cycle. When combined with on-site coordination, a construction manager engaged early in the project will minimize the risk of time, cost, quality and HSE-related issues and insulate you from the subsequent business impacts. Fig. 4: Risk Mitigation through Construction Management Where do things go wrong? How can a construction manager help? 1. Consultancy: Critical advice during design and planning 2. Coordination: Seamless connection across all phases 3. Control: Greater control over delivery on site 4. Communication: Reduced conflict between parties 5. Clarity: Continuous knowledge of the project • Unclear scope • Not enough time or money • Bad planning and scheduling • Unexpected changes • Local market nuances • Poor trade procurement • Contractors cutting corners • No accountability on site • Insufficient technical knowledge • Stakeholder confrontation • Accidents on site What are the benefits? • Avoid delays • Prevent cost hikes • Increase certainty of outcome • Save time and costs • Minimize claims and disputes • Reduce HSE incidents • Quality finished product • Continuous knowledge of the project Source: Jones Lang LaSalle Who’s protecting your blindside? | 9
  10. 10. An integrated approach protects your business Typically, a professional project manager is engaged during the early stages of the project, then hands over the responsibility to the main contractor who is responsible for the project through construction to completion. Even if a professional construction manager is engaged, the gaps inherent in this hands-off approach create many opportunities for risks to creep in. The delivery of a construction project works best when both roles work seamlessly together, and even more so, when they are performed by the same provider (Fig. 5). This ensures a seamless transition from project initiation all the way through to completion and handover to operator, minimizing the opportunity for gaps to occur that might expose your business to risk. Fig. 5: Seamless Delivery Through Integrated Project and Construction Management Initiate Plan • Initiate project • Assign project team • Set up project on tool Design Construct Close/Handover • Conduct visioning session • Conduct design review with client • Landlord coordination • O&M’s • Execute A/E vendor contracts • Update project budget and schedule milestones • Monitor site activity • Punch list • FF&E coordination • Close-out checklist Project Management • Move coordination Construction Management • Prepare preliminary project budget & schedule • Construction feasibility advice • Procure permits • Invite subcontractors to bid • Trade contractor procurement, management and administration • Manage handover to operator • Site coordination/ execution • Responsible for quality, security and safety Risk Management | Accountability | Best Practices | Common Tools | Shared Goals & Objectives Source: Jones Lang LaSalle 10 | Who’s protecting your blindside?
  11. 11. Jones Lang LaSalle Project and Development Services We provide project and construction management services for real estate owners, occupiers and investors. With over 840 professionals in Asia Pacific, supported by a truly transparent global platform, we provide the most consistent client experience across more than USD 18 billion in capital works annually. As your construction manager, we oversee all aspects of procurement and construction—from technical engineering and estimating, to site management, commissioning and handover. We add value by providing construction input to the design team at the most critical stages of the process. Through seamless integration of project and construction management, we reduce confrontation and improve communication throughout all stages of your project. This helps you to achieve consistency, increase speed to market, minimize risk and maximize transparency. For more information, please contact one of our experts: Dave Colverson Regional Director Construction Management, Asia Pacific +65 6494 3786 dave.coverson@ap.jll.com Kevin Hastings Regional Director Construction Management, Australasia +61 2 9220 8655 kevin.hastings@ap.jll.com Jipu Jose James National Director Construction Management, India +91 9884 032 233 jipujose.james@ap.jll.com About Jones Lang LaSalle Jones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of USD 3.9 billion, Jones Lang LaSalle operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 2.6 billion square feet. Its investment management business, LaSalle Investment Management, has USD 46.7 billion of real estate assets under management. About Jones Lang LaSalle Corporate Solutions A leader in the real estate outsourcing field, Jones Lang LaSalle’s Corporate Solutions business helps corporations improve productivity in the cost, efficiency and performance of their national, regional or global real estate portfolios by creating outsourcing partnerships to manage and execute a range of corporate real estate services. This service delivery capability helps corporations improve business performance, particularly as companies turn to the outsourcing of their real estate activity as a way to manage expenses and enhance profitability. Darren Wee Local Director Construction Management, Singapore +65 64943966 darren.Wee@ap.jll.com Author Alexander Colpaert Senior Manager Corporate Research, Asia Pacific +65 6494 7084 alex.colpaert@ap.jll.com Who’s protecting your blindside? | 11
  12. 12. Jones Lang LaSalle Global Argentina latinamerica.am.joneslanglasalle.com Germany www.joneslanglasalle.de Maghreb www.joneslanglasalle.ma Slovakia www.joneslanglasalle-slovakia.com Asia Pacific www.joneslanglasalle.com/asiapacific Hong Kong www.joneslanglasalle.com.hk Mexico www.joneslanglasalle.com.mx South Africa www.joneslanglasalle.co.za Australia www.joneslanglasalle.com.au Hotels www.jll.com/hospitality Middle East www.joneslanglasalle-mena.com Spain www.joneslanglasalle.es Belgium www.joneslanglasalle.be Hungary www.joneslanglasalle.hu Morocco www.joneslanglasalle.ma Sri Lanka www.joneslanglasalle.com.lk Brazil www.joneslanglasalle.com.br India www.joneslanglasalle.co.in Netherlands www.joneslanglasalle.nl Sweden www.joneslanglasalle.se Canada www.joneslanglasalle.ca Indonesia www.joneslanglasalle.co.id New Zealand www.joneslanglasalle.co.nz Switzerland www.joneslanglasalle.ch Chile latinamerica.am.joneslanglasalle.com Ireland www.joneslanglasalle.ie Panama/ Peru latinamerica.am.joneslanglasalle.com Taiwan www.joneslanglasalle.com.tw China www.joneslanglasalle.com.cn Israel www.joneslanglasalle.co.il Philippines www.joneslanglasalle.com.ph Thailand www.joneslanglasalle.co.th Colombia latinamerica.am.joneslanglasalle.com Italy www.joneslanglasalle.it Poland www.joneslanglasalle.pl Turkey www.joneslanglasalle.com.tr Croatia www.joneslanglasalle-croatia.com Japan www.joneslanglasalle.co.jp Portugal www.joneslanglasalle.pt Ukraine www.joneslanglasalle.ua Czech-Republic www.cz.joneslanglasalle.com Kazakhstan www.joneslanglasalle.kz Romania www.joneslanglasalle-romania.com United Arab Emirates www.joneslanglasalle-mena.com Egypt Korea www.joneslanglasallekorea.co.kr Russia www.joneslanglasalle.ru United Kingdom www.joneslanglasalle.co.uk Latin America latinamerica.am.joneslanglasalle.com Saudi Arabia www.joneslanglasalle-mena.com United States www.us.am.joneslanglasalle.com Luxembourg www.joneslanglasalle.lu Serbia www.joneslanglasalle.rs Vietnam www.joneslanglasalle.com.vn Macau www.joneslanglasalle.com.mo Singapore www.joneslanglasalle.com.sg www.joneslanglasalle-mena.com EMEA www.joneslanglasalle.eu Finland www.joneslanglasalle.fi France www.joneslanglasalle.fr COPYRIGHT © JONES LANG LASALLE 2013 All rights reserved. No part of this publication may be published without prior written permission from Jones Lang LaSalle. The information in this publication should be regarded solely as a general guide. Whilst care has been taken in its preparation no representation is made or responsibility accepted for the accuracy of the whole or any part. We stress that forecasting is a problematical exercise which at best should be regarded as an indicative assessment of possibilities rather than absolute certainties. The process of making forward projections involves assumptions regarding numerous variables which are acutely sensitive to changing conditions, variations in any one of which may significantly affect the outcome, and we draw your attention to this factor.

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