Capex efficiency: time for an efficiency health-check?
In the early part of the 2nd decade of the 21st Century, ‘efficiency’ is rapidly becoming a hackneyed phrase. Almost every organisation from any industry is looking for ways to increase efficiency to become more competitive, stay afloat or respond to shareholder and regulatory demands.
Achieving sustained efficiency improvement is an easy and laudable aim to set, but often far harder to achieve in practise. In these challenging economic times, the first round is often focussed on arbitrary “cut 10% from the supply-chain” savings. Many organisations have already achieved this. With tender prices at rock bottom and savings achieved through all tiers, is our industry really geared up to find further efficiency savings and does it have the maturity of approach required to deliver the £400-500bn of infrastructure assets that Lord Davies believes the UK requires in the next decade?
Our research from over 100 programmes across the world reveals the difference between efficient and inefficient programmes can be up to 30%! Diagnosing and treating the causes of inefficiency in capital projects and programmes can have a huge impact on cost. Unfortunately, in most cases little structure or learning is applied to this process, meaning organisations revert to scope or specification stripping to achieve their target cost savings. The result is lower value built assets and higher than necessary capital costs.
So how can an organisation improve their approach to diagnosing and treating inefficiency and thereby achieving the next 10% in capital cost savings?
Typically, an organisation looking to generate savings seeks to benchmark cost and schedule metrics with their peers. Whilst this provides interesting insight into relative performance, it does not provide any specific indication of what they need to do to improve. Using an analogy of a medical check-up, your Doctor will collect ‘health-measures’ relating to your weight, blood pressure and heart-rate, all of which will give an overall indication of your level of health. They will also ask you a number of questions about your ‘life-style’; how much exercise do you take, what is your calorie intake etc. They will recommend ways in which to improve your ‘health-measures’ by changing your ‘life-style’.
Applying this analogy to construction, clever organisations will capture cost and schedule metrics (the ‘health-measures’), but also use structured maturity frameworks to diagnose and improve the efficiency of their approach (the ‘life-style’ factors). At Turner & Townsend, we measure maturity against a structured efficiency framework that enables us to diagnose and treat the efficiency of capital projects and programmes, targeting improvement where the biggest impact can be achieved and delivering the savings that might otherwise have been hidden or unknown. These targeted improvements have ranged from improved project control toolkits or revised governance processes through to complete organisational re-design.
If our industry can find better ways to measure and improve its approach, or ‘life-style’, we will be well positioned to capitalise on future infrastructure investments and help improve the long term economic prospects of the UK.