How data can improve pharmaceutical construction project performance
With the world undergoing massive socio-economic and demographic change, compounded by the impact of the COVID-19 pandemic, the global population needs an increasing variety of medicines, treatments and vaccines to be delivered faster and more cheaply than ever before.
Despite this, ‘big pharma’ companies have been unable to significantly increase new drug output over the past decade. Drug approval in the world’s largest pharmaceutical market, the USA, continues to average at around seven to 12 years, and the estimated average cost of taking a new drug from concept to market is about $1.3 billion USD.
The momentous time and cost pressure within the pharmaceutical industry is putting project capital spend under the microscope. There are growing calls from executives, shareholders and governments to drive greater efficiencies and savings which can be passed onto consumers through lower drug prices.
However, increased pressure is not being met with improved construction performance. Both from our own project experience and analysis of publicly reported projects, we estimate 70 percent of pharmaceutical construction projects miss their original budget target by around 15 percent on average, with delays of about four months on a typical three year project schedule.
Finding answers in the data
Data analysis enables us to diagnose the reasons why construction projects for pharmaceutical companies so often miss their mark.
Through the benchmarking of pharmaceutical manufacturing projects we have supported across the US, Europe and Asia, we have grouped together where time, effort and capital is being expended (see figures one and two below).
What the dataset has illustrated is a broad range of results, exposing the lack of industry standardisation.
Reviewing the global numbers, there are sizeable swings in the time and cost allocated to key project phases. When looking into the next layer of detail, the variances further deepen when comparing across regions, project sizes and different sub-sectors within pharmaceuticals.
Less haste, more speed
Speed to market will always be the overriding driver for pharmaceutical companies which need to get a facility into operation so they can start to manufacture products. This is especially true for our clients currently producing COVID-19 vaccines at an unprecedented pace.
However, when it comes to the development of manufacturing space, the need for speed causes a propensity to rush through the early planning stages and an over reliance upon internal benchmarks of past project performance.
Issues typically start to arise during the conceptual phase of a project. At this stage, companies too often embark on the process of requesting capital funding while neglecting the importance of conceptual estimate validation, as well as comprehensive quantitative cost and schedule risk analysis.
This means that well into the basis of the design phase, project teams find themselves measuring their performance on estimates and plans that reflect wrong assumptions, and inevitably result in an increase in engineering costs.
Lack of intervention from project controls and proper benchmarking at an early stage of projects frequently leads to changes in scope during the design phases.
Such changes make it difficult to determine a procurement strategy reflective of the true project scope and the construction team is left to absorb project delays, causing sometimes severe cost overruns.
Avoiding schedule slippage
In the dataset provided, the schedule duration ranges are broken into the project phases that we typically see on medium and large-scale pharmaceutical construction projects (see figure one).
Typically, the consequences of poor-up front planning play out most strongly during the back end of the project, during the commissioning, qualification and validation phase (CQV).
Our data indicates the CQV phase typically ranges from three to ten percent of the project cost, but encompasses up to 40 percent of the schedule. This is particularly due to the operational qualification and validation stage, where there is extensive interaction with organisations outside of the construction project team to coordinate approvals, trial runs and significant documentation, causing a drop in productivity.
Any schedule slippage in the early phases of the project typically result in attempted acceleration of CQV, with significant additional resource added to the project. Extra resource doesn’t necessarily save time, however, because more consideration needs to be given to the constraints of the equipment availability (i.e. equipment usage dictates speed more than extra people).
Rather than trying to salvage a project schedule in its latter phases, investment should be weighted more heavily to pre-planning and throughout the design and construction phases.
This is evidenced on a current project where we are supporting a leading global biotech company based in Switzerland to establish strict project controls processes and project stage gate reviews, especially at the earliest stages of their projects. Having ensured the cost estimate and project plan are as realistic as possible, the company has successfully avoided the usual domino effect of poor up-front planning.
Minimising cost risks
In our experience of the projects which go over budget, around 90 percent of them do so on the process equipment, clean utilities and mechanical, engineering and plumbing (MEP) spend. Combined, these elements make up 44 percent of total project cost on average and added with building scope, roughly 50 percent of schedule (see figures one and two).
Too often, more time and resources than anticipated end up being spent on the utility work to create the veins of the building. Any changes to an MEP system can have an adverse impact if it is not built into the risk-based contingency.
This risk once again highlights the crucial need for proper planning and scope review during the early engineering phase.
Through the use of benchmarking and third party estimate reviews, we have created a robust package of data that enables leadership groups to determine if their business case and both the time and cost are worth the investment.
Setting greater expectations
Achieving 100 percent cost or schedule certainty at the outset is unrealistic, yet project funding approval is often applied for with a fixed number, rather than a realistic range.
Better expectation management of executives is a key part of the solution. We must support these key decision makers by:
- Being fully aligned on the business case for the project from the outset
- Building the right estimate to leverage and support project teams to build a proper project execution plan which ensures lean execution of the business case. This in turn will help to drive and negotiate a better-defined scope for subcontractors to bid against.
- Conducting independent estimate validations supported by regional cost databases at every funding request to confirm cost benchmarks are adequate for the region and project type
- Facilitating interactive planning sessions with project teams during the conceptual phase of the project to ensure key interfaces are considered and proper industry benchmarks are applied using bespoke software solutions (such as The HIVE, our digital cost management platform)
- Conduct estimate and schedule validation for third party reviews with proactive risk management
Collaboration is key
Interdisciplinary teams need to come together to make these solutions a reality. This includes the client, the owner’s representative, as well as design and construction firms.
As an industry, it is imperative that we establish a better early planning model. To deliver faster and more cost-effectively, you need to involve everyone from day one and ensure proper alignment on cost and schedule.
We are seeing the benefits of such positive collaboration on a current project in Denmark, where we are actively engaging with a key contract manufacturing organisation (CMO) to review their base design cost estimate and schedule. Through this we have been able to provide insight on the robustness of their cost and schedule estimate against current market conditions and identified potential scope gaps.
By getting the right people together early in the project and making decisions based on data, rather than on intuition, this pays dividends further down the line.
We estimate anywhere from a two to six week investment of time and resources to set up a solid early foundational plan from which to baseline a project.
Using our project controls toolkit can establish a solid project basis. This includes a mix of estimate development, early integrated schedule build-up from concept through regulatory approval, estimate and schedule validation, risk and Monte Carlo facilitation and use of our deep benchmarking data.
Walking the talk
While the world still in the grasp of COVID-19, the pharmaceutical industry is going to be under the spotlight for many years to come.
The current headwinds mean the time is ripe for pharmaceutical companies to make the industry changes that have been talked about for years, particularly around the initial set-up of their capital projects and the sharing of benchmark data.
This is an important moment for the industry to come together and, in particular, to harness the data required to ensure that construction projects are properly estimated and planned, while considering key risks that may derail their path to success.
With access to robust benchmarking and best practice controls, pharmaceuticals not only benefit from predictability, but have visibility to improve speed to market and avoid damaging cost and schedule overruns at a time when these cannot be afforded.
Our dataset incorporates cost and schedule metrics from 20 pharmaceutical construction projects, with a capital value of more than 100 million USD, completed within the past five years in the US, Europe and Asia Pacific. Project details are confidential.