Project management and Operations management in construction

1. Abstract

This report aims to understand two very important disciplines namely, project management and operations management. Both disciplines are fundamental to achieving long term business success and growth in this highly dynamic business environment. These two areas of management are discussed particularly with respect to the construction industry. It is important to note that project management has its origins in the construction industry and has since then been an integral part of the construction as well as several other industries. Operations management, on the other hand, has largely been neglected for many years. However, over the past few years, management across various firms has realised the importance of effectively managing the operations to achieve business profits and growth. The main objective of this report is to present a discussion on the differences between project management and operations management in construction companies.

To present these differences, it is important to clearly understand the basic definition and function of these two disciplines. As a result, this report is structured as follows:

It begins by providing an overview of the construction industry moving towards providing a clear understanding of the concepts of project management and operations management.

Later, the discussion shifts towards presenting an insight into the importance of these two areas of management particularly with reference to the construction industry.

The next section provides a discussion on the differences between project and operations management.

This report concludes by presenting a discussion on the necessary skills for a project manager and highlights that it is important for project managers to possess a clear understanding of the operational activities of the firms in order to make sound business decisions. Only those organisations that are able to effectively manage their projects as well as their operations will be able to survive and prosper in the future.

Keywords: Project management, Operations management, Construction.

2. Introduction

In order to achieve business success, organisations need to perform a number of activities. These activities could either be their operations or projects or a combination of both. It is not possible for organisations to achieve long term sustainable business success without proper measures to effectively manage its projects and operations. Hill (in Slack et al, 2010) clearly indicates the importance of operations to an organisation by pointing out that operation is the ‘function responsible for 60-70 per cent of costs, assets and people’. Similarly, almost all the businesses across various industries undertake projects of some sort. One of the key challenges faced by organisations in today’s complex business environment is their capability to strike a balance in maintaining current business operations known as business as usual and also to maintain the rate of business change required to survive and compete in future (OGC, 2009). In this context of business change, projects play a critical role as they are required to introduce the changes required. Project management is gradually becoming an important discipline in the area of business success as Projects often provide the base for sustainable development implementation. It is important for projects to be well planned and well managed and have specific goals and targets. Although, operations management and project management are different in a number of aspects that are discussed over the next few section, there are a few characteristics that are similar for both projects and operations. Operations and projects both need careful planning, execution and control and are both performed by the human resources of the organisation. Also, they both often face the challenge of limited resources.

2.1. Construction Industry

Construction Industry is one of the important contributors to the economy of many countries. The rapidly changing business environment has transformed the way activities and projects are undertaken in the construction industry. Due to the sheer volume of resources required to undertake large construction projects, the construction industry possesses the ability to generate employment and supports economic growth in the region by contributing largely to the Gross National Product (GNP) and Gross Domestic Product (GDP). However, it is important to understand that the construction industry operates in a different environment and is susceptible to several factors such as physical environment, legislations, resource availability as opposed to other industries. The Construction sector has a strong impact on the day to day activities of several lives and hence it is crucial to ensure efficient use of resources on the construction projects. Construction projects and operations require a different set of skills in order to manage them effectively. For example: It is important to ensure the safety of team members involved in construction operations and projects as they usually need to deal with many hazardous operations. However, such safety concerns are not so significant in companies operating in the software industry. These challenges and newer ways of performing business activities have placed greater responsibility on the project as well as operations managers who are required to achieve business success within limited budgets and time. This implies that success in construction industry can be achieved by implementation of adequate project management and operations management teams.

Before we delve deeper into the discussion related to the differences that exist between project management and operations management in construction companies, it is important to clarify the basic definitions of project management and operations management and their importance in construction companies.

2.2. What is Project management?

Projects involve certain degrees of uncertainty as they are unique to the organisation undertaking it. In order to achieve success and desired results, it is important for the project management team to effectively manage the day to day activities involved in a project. Projects consist of a number of separate but interdependent tasks that have the specific objective of creating and developing some new entity (Woodward, 1997). In this aspect project management plays a crucial role. Project management has been in existence for several years and has become an integral area of management over the last three decades. Project Management Institute defines the discipline of project management as the art of planning and controlling various human and non-human resources to be used during the entire project life cycle in order to accomplish already set objectives of scope, cost, quality, and time by using modern management techniques (Barrie and Paulson, 1984). In simple terms, project management can be defined as the process of planning, executing, controlling and monitoring the various aspects of a project in order to achieve the project objectives and deliverables within limited time, costs and resources.

Figure 1

Project management Processes

1. PROJECT DEFINITION

2. TEAM ESTABLISHMENT

3. PROJECT PLANNING

(Scope, Importance, Project plan in terms of time frames and resources)

Continuous Project monitoring

4. IMPLEMENTATION

5. EVALUATION

6. PROJECT CLOSURE AND HANDOVER

Halpin and Ronald (Hendrickson and Au, 1989) point out the three basic ingredients that represent a project management framework. They are:

General Management: This is a broad subject that various aspects such as finance and accounting, strategic planning, organisational structure, marketing, organisational behaviour among others.

Special Knowledge domains

Supporting disciplines

For successful management of projects, strong working knowledge of these areas is needed. All these three areas play a key role in effective management as they are linked with the activities involved in undertaking a project.

2.3. What is Operations management?

The main objective of any business or organisation is produce high quality goods or services that meet their customers’ requirements in order to survive and prosper in the future. In order to achieve long term business growth, it is important for organisations to operationally enact the organisation’s business strategy. In this context, to achieve long term strategic direction, organisation’s operations play a key role as it is important to effectively manage a large number of daily operations that are aimed at accomplishing the desired objectives to satisfy the customers. In order to achieve this business objective, it is necessary for firms to transform their resources into desired outputs that can be delivered to the end users. Operations consist of all these activities that are necessary to transform and deliver an organisation’s offering of goods or services to its customers. The main objective of the operations function is to efficiently manage the available resources to produce the goods and services required by customers. Several large and small organisations have today acknowledged the importance of operations and hence have appointed people to take responsibility for managing all or part of the organisation’s operations processes. Success of operations within an organisation can be judged on the basis of its profits, growth and competitiveness. Operations activities form an integral part of any business as they focus on the management of a large number of assets, and expenditure to produce customer centric goods and services. Review of literature reveals that operations management within the construction industry is not a well recognized area of study as opposed to other major functional disciplines of marketing, human resource management and finance and accounting. However, the discussion that follows clearly establishes that operations management is every bit as important for Kentz, and other firms operating in construction sector in order to be successful. For the purpose of this discussion, it is important to establish the definition of operations management at this point. Operations management refers to the function that focuses on designing, managing and improving the systems and procedures that create organisation’s goods or services. It focuses on delivering value to the customers (Shtub, 1999). Other functions such as finance and human resources support operations functions and hence are indirectly involved in making products or delivering services. Firms that are able to effectively manage their operations can achieve sustainable competitive advantage. This is evident from the case of Toyota. Toyota’s Production System (TPS) plays a vital role in its business success. Toyota’s Production System is based on four integral principles namely, the elimination of waste (muda), continuous improvement (kaizen), automation with a human face (jidoka) and the involvement of all employees. The management at Toyota has worked towards implementing these key principles in day to day business operations and this is evident in their practices such just-in-time, total quality management and team-working. TPS has enabled Toyota to achieve high volumes and high flexibility but with low levels of inventory and minimal defects. The application of these principles to its design operations also typically enables Toyota to get new products to market faster than its rivals, and with fewer design glitches (Slack et al, 2010).

Figure 2 below shows the major functional principles of operations management that focus on delivering value to the customers.

Figure 2

Operations management Functions

Material availability

Quality data

Delivery schedules

Designs

Orders for materials

Production and delivery

schedules

Quality requirements

Design/Performance specs

Sales forecasts

Customer orders

Customer feedback

Promotions

Product/service

availability

Lead-time estimates

Status of order

Delivery schedules

Production and

Inventory data

Capital budgeting requests

Capacity expansion and

Technology plans

Budgets

Cost analysis

Capital Investments

Stockholder

requirements

Finance / Accounting

Operations

management

Hiring/firing

Training

Legal requirements

Union contract

negotiations

Personnel needs

Skill sets

Performance evaluations

Job design

Work measurement

Human Resources

3. Importance of Project management in construction

The discipline of Project management initially originated in the construction industry but can be applied across various industrial and commercial sectors. Project management in construction plays a critical role in the construction industry as it is important for companies operating in the construction sector such as Kentz to manage projects on time within limited budgets and to manage risk across a number of projects that are large in terms of budget, time and resources. There is a need for construction companies such as Kentz to maintain a tight control on these constrained resources and finances to ensure profitability. Construction projects are usually characterised by long and complex life cycle and lower profit margins. Consequently, it is imperative for construction companies to maintain strict control over project schedules and costs to avoid any over-budgeting or wastage.

Woodward (1997) notes that the project environment related to a particular project greatly affects the project management function. In this context, it is observed that the project environment related to construction project is affected by a number of internal as well as external factors such as availability of resources, legislative environment, physical conditions such as location, weather and the presence of competition. As a result, project management in construction is even more crucial due to the need to achieve high quality standards within limited resources.

In construction industry, project management specifically consists of a range of objectives which may be achieved by undertaking a number of operational activities that need to be accomplished within the specified resource constraints. It is important for firms such as Kentz to resolve any conflict that may arise due to the differences in the desired objectives of scope, cost, time and quality, to the limited constraints of budget and human resources, by finding and developing alternate ways to accomplish the goals of the project. Hendrickson and Au, (1989) point out the following functions of project management for construction:

Project management in construction is important as it helps in clearly specifying the project objectives and plans to outline the various aspects involved in the projects such as project scope, project budget, project timelines, setting quality standards, and selecting project participants.

Project management also helps in procurement of labour and other resources as per the predetermined plan and schedule. Hence, it is important for maximization of efficient resource utilization.

Project management activities help in smooth implementation of various operations as its main focus is to ensure proper coordination and control of planning, estimating, and construction in the entire process.

Since construction projects are large and complex and often require use of large number of human resources, they may often face the challenge of interpersonal conflicts that may arise due to improper communication. Project management helps in development of effective communications and mechanisms for resolving conflicts among various active participants.

Figure 3 below shows the importance activities of project management in the construction projects.

Figure 3

Project management Activities

Scheduling

1. Project activities

2. Start & End

3. Times

4. Networks

Planning

1. Objectives

2. Resources

3. Work Break

down Structure

4. Organization

Controlling

1. Monitor

2. Compare & Revise

3. Action

4. Organization

It is necessary for project managers in the construction industry to ensure that the project is completed within the specified timelines and budgets while also meeting the quality standards that were desired.

4. Importance of Operations management in construction

The Construction industry is characterised by complex and large projects that usually involve substantial costs while leaving little room for profit margins. In this context, efficient operations management is important because it helps in managing an organisation’s costs. It is important for construction companies such as Kentz to manage their available resources and budget in the best possible manner to generate greater profit margins. If an organisation fails to manage and maximise the utilisation of its resources, it will not be able to achieve sustainable project success. Operations management in the construction industry helps the project team to achieve higher level of efficiency at low operating costs. Moreover, it is necessary that once the projects are completed, they are able to meet the desired quality standards. This is even more crucial in a construction project as any negligence can create dangerous situations in terms of safety. Operations management helps the firms operating in the construction sector such as Kentz to ensure that they are able to achieve lower operating costs while also delivering high quality products to their customers. As discussed earlier, operations management has a long lasting impact on the quality, timeliness and reliability of the goods produced by an organization. The activities of the operations function are central to achieving these aims.

5. Project management Vs Operations management

The above discussion clearly indicates the importance of effective project management and operations management in construction industry. It is established that both these disciplines are important to achieve long term sustainable growth and success. Although, they are an integral part of every business, and practitioners are of the view that project management is considered to be one of the most important functions of an operations manager, there are a few differences between project and operations management. They are as highlighted below:

5. a. Project versus Operations -Differing objectives:

One of the major differences between project management and operations management lies in their differing objectives. The key aim of project management is to ensure smooth control and effective planning in order to achieve the desired objectives of the project on completion. On the contrary, operations management aims to manage and execute the daily operations that are necessary to sustain the business. Project management activities are usually designed around the project environment which is unique to a particular project. This implies that since a project is temporary and aimed at achieving some unique objectives to create a new entity, scope of project management is limited to that particular project. On the contrary, operations management is aimed at planning and executing the activities that are necessary for maintaining the current business operations. In terms of construction industry, activities that require procuring goods to undertake large and complex construction project and also that require selling the firm’s business to its potential clients are its operations. While, project management in construction industry ideally, would deal with the necessary planning of resources, budgeting, estimating of timelines and scheduling. Project management is temporary and is unique to a particular project that is undertaken to create a new entity, while, operations are ongoing and repetitive and deal with maintaining the existing business activities. Management of projects in a construction industry is a challenging task as the project environment is highly complex and the objective of project management is not limited only to the completion of project within specified time and budget. Client satisfaction and meeting the desired quality standards are crucial for project success in construction.

5. b. Time Constraints

Another major difference between projects and operations is that projects are characterised by a definite beginning and ending while operations are repetitive and ongoing. Projects usually end when the objectives of the projects are achieved. This implies that the project duration is finite as opposed to the operations activities that are continuous. However, this does not necessarily mean that they are short lived. For instance, a large construction company is contracted to complete construction of a large commercial complex for setting up offices. In this scenario, in order to complete the construction project of commercial complex, a business owner who hires the construction company to construct the complex, will usually specify a definite date of start and completion of the building. From the point of view of the construction company, this unique construction opportunity is a project that has certain time constraints. However, procuring of the building materials and other necessary equipments that are not unique to this particular construction project are known as the operations. These activities are repetitive and do not have a fixed time constraint.

5. c. Budget Constraints

Project management deals with completion of certain projects within the specified budget constraints, while operations management concerns those activities that are necessary to maintain a specific profit margin. For instance, taking the case of the construction company that has been awarded the contract to complete construction of a large commercial complex by a business owner. In this scenario, the business owner who hires the construction firm will allot a specific cost for the project as detailed in its Request for Proposals. On the other hand, it is the responsibility of the operations management at the construction company to, ensure that a predetermined profit margin is achieved on the project and work while outlining its cost structure.

5. d. Project management is future oriented while Operations management is

present oriented

Project management activities focus on achieving the future state of business. This implies that they are future oriented. On the contrary, operations management activities focus on maintaining the current state of business and bring the desired business changes, suggesting that the discipline of operations management is highly present oriented. In the construction industry, the aim of project management is to accomplish the completion of the project undertaken while delivering all the necessary expectations. All these activities of planning and coordination are aimed towards achieving a future state. While the daily operations are required to sustain smooth functioning of the current business activities.

5. e. Table of major differences between Project management and Operations

management

Table 1 below highlights the major differences between project management and operations management in a construction industry.

Table 1

Project management Vs Operations management

S.No

Project Management

Operations Management

Unique

Ongoing

Temporary

Repetitive

Aim is to achieve the objectives of the project and then to close the project.

Object of operation is to sustain the business

Future orientation

Present orientation

Creation of new things

Maintenance of existing things

6. Project managers should possess operations management skills

The above discussion clearly highlights the differences between project management and operations management in a construction industry. However, management across various organisations is of the view that operations management and project management are necessary skills for project managers across all industries.

It is important that project managers in a construction environment are able to adequately consider the quality and safety concerns. In a construction environment, any minor defect can manifest itself into a major issue as re-construction may be required leading to larger associated costs and delays in meeting the project timelines. Further, such defects can also often become the cause of several personal injuries or fatalities. Therefore, it is important to appoint skilled and efficient project managers who have the necessary experience to ensure that the job is done right the first time avoiding any major or minor accidents that may occur during the completion of the project objectives.

General consensus with respect to success of project management and operations management in construction industry is that it is important that managers are able to motivate the team to collectively work towards business success and accomplishment of business objectives as well as project objectives. It is necessary for management to ensure that individuals part of the projects and operations coordinate and cooperate to form efficient and effective teams that are specialised in a specific knowledge area. It is important for project managers to have sound project and operations knowledge, skills and experience in handling several different teams.

It is necessary that the organisations in the construction industry such as Kentz not only possess the necessary experience in the specialized knowledge area but also in the operations of their own as well their customers business. For instance, the management team at a construction may be well-versed constructing and customising the construction units as per the client requirements and yet it may lack the experience in the procuring the resources that are necessary to undertake customer transactions. This indicates the need for project managers to possess the required operations management skills. In order to achieve business success, it is important to ensure that the projects not only meet customer expectation but are also well aligned with the company’s ideal profit margins. This can only be achieved if project managers have sufficient knowledge of the operations while creating project budgets. Also, in order to efficiently schedule and plan the budget and resources, it is important for project managers to be well-versed in the supply chain and efficient management of logistics.

7. Conclusion

It is established that project management and operations management, are two different fields of management. Project management in construction plays a critical role in the construction industry as it is important for Kentz as well as other companies operating in the construction sector to manage projects on time within limited budgets and to manage risk across a number of projects that are large in terms of budget, time and resources. It is important for Kentz, and other firms operating in the construction sector to manage their available resources and budget in the best possible manner to generate greater profit margins. If Kentz or other organization operating in the construction fails to manage and maximise the utilisation of its resources, it will not be able to achieve sustainable project success. Project management and Operations management are differing in nature in terms of their scope, time and budget constraint. Also, Project management activities focus on achieve the future state of business implying that they are future oriented. On the contrary, Operations management activities focus on maintaining the current state of business and bring the desired business changes. However, management across various organisations is of the view that operations management and project management are necessary skills for project managers across all industries. It is safe to conclude that in this dynamic business environment, only those organisations will survive and prosper that not only possess the necessary experience in the specialized knowledge area to accomplish project objectives but also in the operations of their own as well their customers business. There is a need in Kentz as well as other companies operating in the construction sector to appoint project managers that have sound project and operations knowledge, skills and experience in handling several different teams.

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