A 4 Way Approach to Minimize Asymmetric Information in Projects

The widely held belief that construction project costs can be controlled by utilizing a competitive procurement process is based on a false premise. While it is true that the owner can select the lowest bidder through competition, in almost all cases, particularly with a fixed/lump sum price contract, once the contract is awarded, the relationship quickly morphs into a monopoly as the constructor assumes overwhelming control of project information. When it comes to controlling the final cost of the project, information matters. Many owners fail to recognize the tremendous value that 21st century construction technologies can bring to bear on addressing the problem defined by Barry B LePatner in his ground-breaking book, “Broken Buildings, Busted Budgets” wherein he has coined the phrase “asymmetric information”.

The construction industry has a demonstrated track record of resistance to utilizing new technologies exacerbating the problems resulting from asymmetric information. Modern technologies can be harnessed to aid the owner, by eliminating asymmetric information and providing visibility into the entire operation of the construction process.

In addition to investing in new technologies, embedding cost reporting provisions into contracts, acquiring the required level of talent of technical resources within the owner’s organization and adopting an organizational change management approach that mandates the adoption of a state-of-the-art Project Management Information System (PMIS) empowers the owner’s organization to effectively manage construction projects and significantly reduce the final cost.

Implementing these construction technology solutions throughout the project lifecycle, can directly minimize asymmetric information and effectively control costs and improve profits, as follows:

  1. Technology affords a greater degree of collaboration that results in heightened levels of communication and efficiency

Lack of communication is the primary cause of project delays and cost overruns. A well designed PMIS workflow application enables the owner to dictate the practice of structured information so everyone uses the same data.  A single source of truth not only mitigates disputes but goes a long way towards effective communication.

Structured workflows that are designed specifically for the organizational approach preferred by the owner, ensure accountability and consistency on projects and programs managed by multiple project managers.  Well-designed dashboards, alerts and formal reporting of the issues that impact the project, provide decision makers with timely information, enabling quick response times and proactive decision making.

Technology can deliver a greater clarity of roles and tasks, allowing for increased quality of work aligned with project requirements. As construction projects are notoriously known for unknowns, (e.g., unanticipated field conditions, planned vs. real-world differences in conditions, etc.) adhering to an owner mandated PMIS workflow application provides the project team with a strong communication tool with tangible advantages, improving cross-functional communication that team players significantly value, and which has become a rarity in the industry.

  1. Multi-discipline teams are required by owner’s for managing information that matters 

When the owner and constructor enter into a fixed price/lump sum agreement, they are often operating with different goals in mind. Common ground can be found when the objective is to complete the project expediently, but there is generally a departure where the cost of the project is concerned. While the constructor is profit driven, the owner is value driven.  There may be optional contracting methodologies available that can mitigate this conflict.

Although, optional contracting methodologies, (i.e, Cost-Plus Fixed Fee, Guaranteed Maximum Price, Shared Savings, Performance Bonuses, etc.) are not the primary focus of this blog, what each of these options have in common are the need to have a variety of skills in-house, or at minimum, under consultancy agreements, to aid the owner’s efforts in staying abreast of all of the issues that the constructor may raise, and for the owner to be able to independently assess the issues, and oversee the veracity of the information supplied by the constructor.

When the owner has a qualified team and a well-designed PMIS workflow application, providing visibility into real-time performance issues, the problem of asymmetric information can be ameliorated.

  1. Embracing the change is a strategic imperative

There is a direct correlation between user adoption of new technologies and the tangible value the technology affords the organization. When new technology solutions are embraced as a strategic imperative by the executive management of the organization there is a much greater chance that all the entities, people and companies involved in the delivery of the project will reap the benefits as well.

Similarly, there is a direct correlation between stress levels of the project team and the quality of work produced.  By embracing the adoption of new technology, communication improves and as a result, stress amongst all project participants is reduced. Additionally, improved technology can bring other significant benefits such as an increase in employee satisfaction levels, increase in monetary benefits offered, and increased training to further specialize employee skillsets.

Reducing asymmetric information with technology can advance goal and task alignment within the organization, providing optimal results. Providing 21st Century technology solutions to facilitate communication dilemmas ensures the entire project team is equally informed with reliable, real-time information.

  1. Contractual requirements define how technology, processes and people align on goals and objectives for an effective project culture

Although many construction projects have similarities, each project has unique features and specific requirements that must be clearly and explicitly described in the contract General Requirements (Division 1 of the specifications) in order to have all engaged parties understand and be prepared to meet contractual obligations.

Clearly written administrative procedures enable project managers and all project participants to understand the project before its commencement and use the data to effectively deliver the project to the satisfaction of the owner. Pre-determined and well-defined technology solutions can provide the constructor with the information necessary to estimate the exact numbers of managers, staff and other resources required for the project, helping all entities align to establish a project execution plan that best complements the efficient completion of the project.

Asymmetric information is common within the construction industry, therefore proactive steps must be taken to address project issues and prevent unnecessary impacts resulting from inadequate planning, outdated technology and poor communications.

When large projects are contemplated, it’s crucial that budgets are carefully planned and abided by to prevent unexpected cost overruns. While an investment in new technology may be considered a short-term, unanticipated expense for some owners, there are immense long-term benefits, as project costs will be significantly reduced by improving project efficiencies.

Ensuring clear communications is crucial to successful outcomes for all parties engaged in the project. Technology is constantly advancing and providing time and cost-efficient methods for managers to streamline processes, ensure projects are completed on time and that reliable information is communicated to all involved.

Credits: This blog is based on the ‘Information Matters’ whitepaper published in 2019 by Mark Bodner and Gregory Coburn. The full whitepaper is available for download under the publications link at: www.4cteam.com/news

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