Project Management Leadership: Carillion Failure Analysis Report

This report critically investigates the failure of the Carillion project, specifically the Aberden Western Peripheral Route construction, using project management theories. It identifies key reasons for the failure, including inaccurate managerial forecasts leading to cost overruns, ineffective time and schedule management resulting in delays, environmental risks causing disruptions, and procurement issues that exacerbated financial difficulties. The analysis delves into the consequences of these factors, such as the decline in Carillion's share price, heavy debt, and pension deficits. The report concludes with recommendations for improved project management, including better cost-control measures, resource allocation, waste disposal strategies, and the adoption of two-way tendering methods. Furthermore, it suggests strategies for financial recovery, such as asset disposal and fundraising through equity or government grants, as well as potential merger or takeover options to re-launch the brand.

PROJECT MANAGEMENT LEADERSHIP
AND SKILLS: PLANNING AND CONTROL

Table of Contents
INTRODUCTION...........................................................................................................................1
Reasons for failure of the business using project management theories......................................1
CONCLUSION AND RECOMMENDATIONS............................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Carillion is one of the leading integrated service organizations that vision is to become
the most trusted firm by providing excellent infrastructure services to the consumers. It not only
provides construction facilities but also manage number of projects, which are helpful for
economic growth such as transportation, power network and others (Carillion, 2017). Aberden
Harbour Board appointed Carillion for a constructing Aberden Western Peripheral Route to
promote transport and travel in North-East Scotland but the project failed and results in serious
consequences due to poor management. Thus, the key aim of the paper is critically investigating
the reasons of failure using different project management concepts.
Reasons for failure of the business using project management theories
Project management is a composite activity with number of dimension, in a nutshell, it
can be defined as the process including planning, managing, organizing, securing and controlling
the project activities to reach specific goals. Construction projects may have number of
constraints like time, budget constraints, quality, poor allocation of inputs, unfavorable weather
and many others (Fisk and Reynolds, 2011). In context to the cited case, Carillion needs to
rethink and redesign its business model and strategy with a new name due to the project failure.
Thus, the key reasons behind such failure are analysis here as follows:
Inaccurate managerial forecast/poor projection: Before the project planning, manager
needs to forecast potential cost that the project will incur through budget formulation and thereby
win the contract at a fixed cost (Chan, Scott and Chan, 2004). With the change in time and
uncertain economy, it is notoriously difficult for the managers to predict the accurate cost. As
stated in the case, in amid fierce bidding and ministerial pressure, companies are keen to charge
lowest bid as much as possible. Construction projects involve high cost and in the case, Carillion
team anticipated project cost first and then contact subcontractors, who charged high prices
resultant cost overrun and failure. It can be evident through the government estimates, in which,
ministers initially estimated the cost range of £295m to £395m, actually gone to £745m. Besides
this, Galiford Try forced to keep aside £98m as a contingency to cover cost overrun, as they need
to pay extra cost for material, machinery, labor and others.
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Ineffective time/schedule management: A proper schedule must be prepared and
followed according to complete the work on time. Although, undoubtedly, constructions projects
usually take more time than predictions, still, sound control and monitoring can reduce delays
(Nasir, Nawi and Radzuan, 2016). Carillion tendered subcontracts to carry out works i.e. steel
reinforcement, drainage, earthworks, rock crushing and others. Over the period, company did not
oversee subcontractors’ work progress due to poor monitoring. Besides this, unfavorable weather
was a reason for project delay, because, during winter season, they stopped work until
atmosphere became warmer delayed completion. Thus, no evaluation of work progress through
cost variance (CV) and schedule variances (SV) caused failure (Demirkesen and Ozorhon, 2017).
Environmental risk: Construction results in significant risk for public also and over
pollution is one of them. Carillion ceased work during winter resultant over pollution to nearby
rivers resultant unnecessary delay and negative public image. Thus, managers should prepare a
plan for proper disposal of waste, use latest technologies and control pollution to retain
ecological integrity for the community (Gould and Joyce, 2009).
Procurement issues: Carillion faced issues in procuring required resources like machinery,
labor, steel, concrete, equipments and others at expected rates pushed up the actual cost and
serious cash difficulties. Moreover, outsourcing the work by Scottish Government resultant loss
of revenues to Carillion and exacerbating damaged financial position. As a result, its total value
of public contracts slumped down to 81pc. In this regards, Mr Brent suggested Carillion to use
two-stage tendering method of procurement, similar to RFP (Request for Proposal), in which,
two separate proposals i.e. technical and financial are presented one by one to the contractors
(Koutsos, Dimopoulos and Mamolos, 2016). It will be definitely extremely useful for the
Carillion to design technical specification and quality based selection. However, in the second
stage, bidders invited to submit their proposal at competitive rates according to the set
specification, which provide flexibility benefits in risk allocation (Demirkesen and Ozorhon,
2017).
Due to the above-mentioned causes, Carillion’s share price dropped largely. Moreover, use
of heavy debt to £700m and excessive pension deficit brought serious financial troublesome
situation. As a result, value of £600m wiped from stock market because of aggressive hedge fund
shortage. Speculators made betting worth £140m against company’s shares. In order to inject
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cash and liquidity into the business, pension trustee suggested right issue to minimize the
pension deficit as an independent analyst; Stephen Rawlinson pension loss expects to increase
from £393m to £800m or above.
CONCLUSION AND RECOMMENDATIONS
The research investigated that procurement difficulties, cost overrunning, poor control
over subcontractors; work performance and progress, lack of monitoring, environmental
concerns and inappropriate managerial forecast brought difficulties for Carillion to complete the
Aberden Western Peripheral Route construction work successfully. Thus, in this regards,
company need to make better project management plans such as cost-control measurement,
better resource allocation strategies, waste disposal, emission control and use two-way tendering
method of procurement to transfer risk to the client. They need to regularly check and monitor
the work completion and cost incurred with the set timeframe and budget and revise plan
accordingly.
Because of financial crunch, Carillion can be suggests to dispose its unproductive assets
and analyze all the branch performance and sale such divisions, which are loss driven. By this
way, it can maximize efficiency and combat losses. In order to satisfy financial requirement, it
can raise fund through equity, however, falling share price and poor market performance made it
tough for the Carillion to attract investors and encourage them to put their money. Therefore,
fundraising may be a better rescue plan to overcome such troublesome situation, in which, it can
request grants and other voluntary contributions from the government agencies. It had also
signed new contracts for the future years; therefore, it may need to receive favors of rivalries i.e.
Balfaour Beauty and Kier through merger or takeover to re-launch the brand under the new
name.
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REFERENCES
Books and Journals
Chan, A.P., Scott, D. and Chan, A.P., 2004. Factors affecting the success of a construction
project. Journal of construction engineering and managemen., 130(1). pp.153-155.
Demirkesen, S. and Ozorhon, B., 2017. Impact of integration management on construction
project management performance. International Journal of Project Management. 35(8).
pp.1639-1654.
Fisk, E.R. and Reynolds, W.D., 2011. Construction project administration. Pearson Higher Ed.
Gould, F.E. and Joyce, N.E., 2009. Construction project management. Prentice Hall.
Koutsos, T.M., Dimopoulos, G.C. and Mamolos, A.P., 2016. A novel method for assessing and
mapping multiple impacts due to a technical construction project. Landscape and
ecological engineering, 12(1). pp.25-40.
Nasir, N., Nawi, M.N.M. and Radzuan, K., 2016, August. Relationship between time
management in construction industry and project management performance. In AIP
Conference Proceedings. AIP Publishing. 1761(1). pp. 020079.
Online
Carillion. 2017. [ONLINE]. Available through: < https://www.carillionplc.com/about-us/our-
business/>.
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