Reducing project failures
13/11/1999 NST By Andrew A.L. Tan
Part 1.
"THE fact that Danaharta has to carve out non-performing loans for companies
under S.176 and inject some RM15 billions for loan management, restructuring
and rehabilitation in order to minimise losses and revitalise the banking
system and property industry before transferring to assets management underlie
the fact that in our country project failures are colossal!"
Why do projects fail? Very simple, "If you fail to plan, you must plan to
fail!" This in a way reinforces Murphy’s Law that imply that there is an inherent
failure system in-built into projects. The question is how do we circumvent
it? How do we avoid project failures and ensure project success? Project failures
are daily occurrences all over the world and are not peculiar to any particular
country. For example, the classic project failures are the Sydney Opera House
and the French-British Channel Tunnel.
In the former, apart from substantial delay, the cost over-run from an initial
estimate of US$7m, eventually reached US$100m and was colossal. Sure, it was
an engineering and architectural feat, but there were innumerable organisational
and contractual problems that eventually led to the resignation of the Danish
Architect, Jorn Utzon. It was a brilliant architectural masterpiece that poses
a huge structural challenge to its engineers but this is not the main reason
for its failure.
The main reason is lack of planning. It seems that there was a lack of consideration
of the initial cost estimates and anticipation of the difficulties to be encountered
on the project. This imply that there was a lack of a thorough and comprehensive
Feasibility Study to gauge its economic and technical viability from the very
onset.
Apparently, there could possibly be a lack of a proper and in-depth PRAM Study
(Project Risk Analysis and Management).
There could be a lack of systematic planning and project organisational management
and perhaps even a well thought out contract strategy and relationships among
members of the entire project consortium team that led to the resignation
of the architect responsible for the award winning design.
Similarly, the Channel Tunnel experience substantial delay of more than two
years and the cost over-run was from an initial estimate of 2 billion pounds
to a final cost of almost 5 billion pounds. It is not possible to dwell into
details of a project failure of such a huge project within one article as
numerous books have been written on this issue alone.
On home turf, project failures as shown by the amount of non-performing loans
carved out by Danaharta are mainly confined to economic losses. Project failures
due to technical reasons involving loss of lives while economically successful
are much more serious as in the case of Highland Towers. Suffice to say, that
the main reason is the lack of proper planning and a comprehensive, thorough,
in-depth and detailed Feasibility Study to ensure project success not only
in economic terms but also from the technical and engineering point of view.
Feasibility Study
"A Feasibility study is necessary to determine the economic and technical
viability of a project in order to avoid project failure and ensure project
success" A feasibility study establishes whether the project can be implemented
successfully not only to yield meaningful return on investments (ROI) or bottom
line profitability but also in aspects such as marketability of the type and
nature of properties that are developed and its technical viability as well.
A feasibility study is useful to translate a certain dream and vision into
reality. It is my professional opinion, that this alone is the single most
important and crucial factor in ensuring project success and the lack of a
proper study by a qualified project consultant is sure recipe for project
failure.
A feasibility study can be quite complex and complicated covering wide ranging
issues depending on the subject of the study, its size, type of development,
location etc.
It involves conducting market studies, financial study, funding requirements,
project planning, detailed cost studies and estimates, ROI study, cash-flow
projections, project definition, functional definition, technical evaluation,
project risks analysis and management (pram), authorities approvals and constraints,
contract strategy, organisational set-up, assembling the competent and compatible
project consortium team and finally implementing effective and efficient project
management led by an experienced and qualified project consultant as the project
leader.
Market study, research and data collection
"The idea of a market study, research and data collection is to establish
the potential demand for the type/nature of properties to be developed and
the appropriate and suitable type of development that can capture the target
niche markets granted the cyclical nature of the property market, the changing
economic scenarios and ever-changing consumers tastes and preferences." The
above study is necessary even prior to the acquisition of a piece of landed
property. Once the land has been acquired, the above study is necessary to
recommend the appropriate type of development best suited for the site granted
the inherent constraints and the prevailing market demand situation. By conducting
a comprehensive feasibility study, it enhances success and minimise mistakes
due to short-sightedness and lack of research, study and analysis of all aspects
related to the subject property. Property development is a calculated risk
game, albeit a rewarding and lucrative one.
The range of activities in conducting a Feasibility Study in order to establish
certain facts and collate all the necessary data include the following:
-
Preliminary investigations;
-
Preliminary site visit, verify site conditions, terrain,
access, etc;
Land valuation study;
-
Schematic/diagrammatic layout plan and architectural
concepts;
-
Economic/market analysis, gauging supply/demand scenarios,
potential demand for residential houses, apartments, bungalow lots, offices,
retail, taking into consideration the population, income levels, economic
activities of the area and the state of the nation’s economy;
-
Analyse current market trends and likely development
in the property market;
Understand the cyclical nature of the property market;
-
Pricing strategy and timing of the launch
Formulation of marketing plan, marketing strategy, marketing tactics, marketing
mix, trends analysis, analysis of competitors and the 7P’s (place, pricing
strategy, product packaging, promotions, people, planning and phasing strategy)
-
Socio-economic study (PEST Study);
-
SWOT analysis;
Analyse the types, prices and number of units of other developments in the
vicinity;
Population catchment, neighbourhood and occupational survey; and
Macro and micro development pattern study.
-
Verifying title search for any encumbrances
Development studies, zoning, density, height control and
limitations, permissible plot ratio, road widening, set-backs requirements,
compulsory and acquisition, preliminary schematic architectural and town planning
sketches. Government and state Government policies with regards to the development
will also be included along with the collation on all information related
to the subject property and its development potential.
Andrew A.L. Tan is a project consultant with his own firm, Ace-Slimp. He
is also an acknowledged writer and seminar speaker on the Art and Science
of project management. He has written and published three books titled:
(1) Project Management in Malaysia (2) Property Development in Malaysia and
(3) MSC: A Quantum Leap. He conducts in-house training on the "Art and Science
of Project Management for Project Success!" He can be contacted at Tel/Fax:
03-4056937 and e-mails: aalt@tm.net.my Part two of this article will appear
next Saturday.
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