Reengineering Capital Project “Rework”
The goal of limiting rework to 2% is within reach
Almost 30 years ago the Construction Industry Institute (CII) researched the “Costs of Quality Deviations in Design and Construction,” and concluded that, “The average cost of rework on industrial projects exceeds 12%.” Design deviations accounted for about 80% of the increased cost and construction deviations only 20%.
Victor E. Sower, an author and quality management consultant, and his coauthors published their cost of quality research in 2007 in the International Journal of Quality & Reliability Management. In surveying members of the ASQ Quality Management Division, they found that about one-third of organizations systematically tracked cost of quality. “We have seen no evidence since then that this percentage is substantially higher today,” Sower said.
As an active member of the ASQ Inspection Division for more than 30 years and having worked on several major capital projects for oil and gas, I am amazed that the cost of rework continues to plague our efforts to reduce rework. I am confident that we can make significant improvements to reducing rework, but we must reengineer our thinking.
Before we start, let’s talk about what kind of results we wish to obtain. According to CII research, 80% of increased cost due to rework is directly related to design deviations meaning rework. These design deviations account for an average of 12% of total installed project cost (TIPC). Many large-scale industrial projects are now called mega-projects and their TIPC can easily range from $5-25 billion. On a $10 billion mega-project, you could easily lose 12% x $10 billion = $1.2 billion. I have worked on four mega-projects and I have seen that happen. That should get the attention of people in executive and senior project management very quickly. Therefore, we must focus our energy to significantly reduce design deviations.
Based upon my experience and research, the goal of limiting rework to 2% is within reach. In one major oil company they reduced rework from 10% to 2%, and their overall total cost of quality was reduced from 23% to 11% concerning 12 major projects.
Now comes the hard part—realizing our goal of only 2% rework. First, we need to understand reengineering. Per the father of reengineering, Michael Hammer, here is the official definition: “The fundamental rethinking and radical redesign of business processes to bring about dramatic improvements in performance.” Here are the three steps to realizing a reduction of rework to 2% on your next project.
Step One: Read the book “The Reengineering Revolution” by Michael Hammer. You must understand the tools of reengineering leadership, which are: explicit communications, personal behavior, and measurements and rewards.
Step Two: You must establish a respected relationship with the project manager and the project financial manager within 30 days of assignment to the project. As you know, the project manager is primarily concerned with cost and schedule—don’t ever forget that. When you meet with the project manager, talk only in those terms; do not use quality terms. You must use cost and schedule to show the project manager how you can bring value to the project.
Step Three: You should implement a quality performance management system. This is a tool providing quantitative analysis of certain quality-related areas of design and construction by collecting and classifying the costs of quality. In most cases this involves a database to identify rework costs particularly during the design phase. CII has used timesheets to include deviation categories to identify rework but there are other ways to capture this data: use your initiative and reengineer. Some areas that have frequent deviations include piping and mechanical design. This is where you need to work closely with your financial manager to capture the data and reengineer how best to achieve your goal of 2% rework and providing your company major savings.