As an industry, construction is no stranger to distressed projects. Some estimates say as many as 90 percent of major construction projects will experience significant delays or cost overruns, while others suggest nearly two-thirds of projects are failing.
In the context of construction, a distressed project is one that is substantially off of its earning and schedule targets and has missed milestones and key deliverables, but there are other signs that a project is heading off track long before this threshold is reached. Slow progress, resources that aren’t available when they’re needed, and staff and supplier turnover can all be early warning signs of trouble ahead.
What causes distressed projects?
Often the reasons a project has become distressed were built-in from the beginning, when an ambitious timeline didn’t leave enough room for delays in the project.
Late starts that are caused by missing paperwork or late access, for example, can get a project off to a rough start. In other cases, well-meaning contractors trying to offer good customer service allow too many owner changes that impact the project and go beyond the tolerances built into the schedule. Supply chain interruptions can cause significant backlogs at critical points in a project, as many people have experienced throughout the past year as a result of COVID-19.
When a project gets off track like this, the contractor stands to lose quite a bit of money, even if the project is eventually finished.
Narrowing margins
Along with the stress that comes along with breaching a contract, there can be significant penalties associated with distressed projects.
Liquidated damages are pre-decided amounts of money written into the contract that are owed when either party breaches the contract, often through late completion. The amount represents an estimate of actual damages to the others involved in the contract, such as when the owner can’t use the finished project as soon as planned.
Combined with ongoing overhead costs, liquidated damages chip away at the profit the project was intended to produce, known as margin erosion. These costs, along with anxious owners, can mean a lot of pressure to get an action plan into place.
Steps to project recovery
A project that gets off track is not always a lost cause. Many times the management team tries to recover the project - that is, to get all the elements moving to finish the project as near to the intended targets as possible.
Any contractor knows that there are many moving parts to a project, and trying to reschedule workers, equipment, and supplies to coordinate and cause as little downtime as possible can be mind-boggling, even for seasoned project managers.
There are a few basic steps to recovering a distressed project, but as is often the case, simple doesn’t mean easy.
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.
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. 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.
The logical approach
Avoiding guesswork and stressed decision making can be easier with a parametric program. ALICE takes all the variables and simulates the cost and time impacts of various scenarios, 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.
Instead of a manual process, in which a project manager will tweak one variable at a time and assess outcomes individually, a generative system like ALICE sifts through the outcomes of millions of different action plans, and how each will impact the rest of your operations. The simulator shuffles your resources through space and time so you don’t have to manually resequence activities.
Be prepared
Having to recover a distressed project feels like a worst-case scenario, but the stats above 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.
