Infrastructure Projects
Due to constraints and competing demand for social infrastructure e.g. transport, health, and housing, there is frequently strong opposition to infrastructure projects. In the UK, projects like Heathrow Expansion, Crossrail and HS2 have been criticised for delays, overspends and environmental concerns. Despite these, the economic advantages of infrastructure and value from large scale procurement is almost indisputable, as many of these projects eventually attract government or private funding. The government’s target according to www.gov.uk, that by 2022, £1 in every £3 (33%) of expenditure should reach SMEs directly or through supply chain contracts is fuelling an increased appetite for smaller sized projects. Nevertheless, it is prudent for leaders, managers and multidisciplinary teams to proceed cautiously with over-optimism and biases with cost-benefit analysis, cost estimates or overly ambitious plans and timescales that can taint the success of a project large or small from inception. This will become crucial post COVID19, as governments globally bear the financial brunt of the pandemic, resulting in projects previously scheduled for funding being cancelled, postponed, or needing alternative funding models such as hybrid or private sector funding.
Digital Transformation
The present lockdown has meant that many businesses are forcefully embracing technology while realising that digitalisation is no longer optional but essential. Technology, however, must be ethical and safe, while sensitive personal and commercial data must be captured and processed securely. Technology should be used to analyse data gathered from past projects and to convert these into intelligence so that clients, funders, suppliers and businesses can genuinely begin to learn lessons from past mistakes. Furthermore, technology ought to be used extensively in identifying emerging risks and for mitigating and actively managing future risks. Digital systems must be used for providing real-time cost data, reporting and for forward-thinking independent cost audits that do not merely tick boxes but actively influence early decision making and enforce governance and accountability throughout a project’s lifecycle. The possibilities and future of technology are endless, particularly with the power of harnessing technology in integrating systems, capturing costs efficiently at source, forecasting accurately and undertaking cost audits on infrastructure projects.
Cost Assurance & Audits
Like technology, cost assurance and audits are sometimes perceived as nice to embark on but non-essential, however, it is crucial for governance and accountability early and throughout a project’s lifecycle. Cost assurance is a business-as-usual review to verify that cost claimed and reimbursed monthly are contractually accurate. Cost audits are different from statutory financial audits that verify the truth and fairness of financial statements. Cost audits are forward-thinking independent audits that verify that costs claimed by a contractor or supplier and reimbursed by a client or funder are contractually accurate throughout the lifecycle of a project. Cost audits require distinctive skills, such as commercial, finance, auditing, knowledge of contracts, law and judgement. The pandemic has proven beyond a reasonable doubt that effective leaders in the infrastructure sector in public and private organisations who promote research, development projects and enable a culture of continuous improvements via planning programmes in the short, medium and long-term are more likely to survive. This must, however, be achieved sustainably, each business and organisation must drive a culture of not merely reporting annual shareholder profits or short-term cost savings but accountability and sustainable long-term value. Cost audits are essential for projects, irrespective of the size and type of infrastructure investment. Clients, funders, suppliers, and businesses require this forward-thinking intelligence from independent cost audits to avoid repeating past mistakes.
Training
An early lesson from current events is that businesses must not merely provide training for specific employee roles but must encourage agility and training in transferrable skills so that staff members are already potentially equipped to be more responsive throughout the business in a crisis. Companies will need an ethos that attains and retains the right resources by empowering, training and developing staff. Organisations will need a genuinely inclusive culture that retains the right people regardless of perceived norms in that industry or sector. Organisations will also need to embed control systems and processes which build on lessons learned from past mistakes made within their businesses. This culture will challenge senior management but influence operational manager behaviour and instil in stakeholders assurance that notwithstanding business as usual cost pressures, management has a safeguarding regime in place that will legitimately protect stakeholder interests and maintain business continuity during challenging times. Going forward, it will be crucial for organisations, businesses, and projects to have leadership and management who have the right behaviour, culture, practices and whose judgment can be relied upon in making and communicating difficult but the best decisions in unusual circumstances with integrity.
Businesses
The pandemic has shown that while many businesses have been impacted, Small and Medium-Sized Enterprise (SME) have been most affected. According to the Office of National Statistics, of the 3,642 businesses who responded to the Business Impact of COVID-19 Survey (BICS), 45% reported turnover “lower than expected” for the period 9th to 22nd March 2020. Of the businesses that responded, approximately 45% reported that turnover was lower than normal, 5% reported that their turnover was higher than normal, and 9% reported that while their turnover had been affected in the period, it was within their normal range. Of the affected businesses, 98% of those who reported that their turnover was abnormally affected, attributed this to COVID-19. These effects were widespread across all sectors. Over a quarter of respondents (27%) also said they were reducing staff in the short term, while 5% were recruiting staff in the short term. Sadly, although SME’s account for 60% of jobs, they are impacted the most in an economic downturn.
Figure 1: Effect on turnover, percentage of all responding businesses, 9th March to 22nd March 2020.
Source: Office for National Statistics – Coronavirus, the UK economy and society, faster indicator
SMEs are often established with the right vision and aspirations, but many, particularly in the first three years, struggle with cash-flow, financial and risk management capabilities. The government’s recent COVID-19 response efforts are welcome but clearly much more must be done now by them and local councils to ensure that SMEs are supported with the right levels of grant funding, business rate and tax breaks to safeguard their survival and UK unemployment levels. In future, SMEs will need a more economically inclusive business climate that provides access to further ring-fenced government expenditure and fully funded bank or local enterprise funded schemes for financial management. This must include free business continuity and risk management training and access to skills and facilities that will enable them to become more resilient and to successfully thrive in the long-term.
What Next
We are presently still in a flux phase with this pandemic but CFBL, have continued to work tirelessly to support clients and SME’s through this period. When it all ends, the lessons learnt will almost certainly result in a fundamental transformation and digitalisation of the way we live, budget, plan, deliver products, services, infrastructure and govern business operations. In the long-term, it will revolutionise the world and change the way we live, interact with each other and the environment with both negative and positive consequences depending on how we view or embrace the change. As professionals in multidisciplinary teams or functions working on projects or embedded within businesses, we must work together to prepare ourselves, clients and customers for this wave of change. From Julian Birkinshaw’s Leading through a Pandemic LBS Webinar Series, according to Sir Andrew Linkierman’s current research on judgement, in the meantime, we can use our judgement to make the best decisions we can, instead of no decisions at all and we have the option to focus on negative unknowns or the positives we know with each day. I support this viewpoint but what would you rather do?
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Read the full article in the Chartered ICES
http://ces.pagelizard.co.uk/webviewer/#cesmay2020/infrastructure_a_post_pandemic_perspective