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Weekly UpdatesMajor capital improvement projects are usually accompanied by great anticipation, from the moment the project concept is first revealed until the ribbon is cut and the project is completed. As architectural renderings and models of the completed project are presented to the public, local officials and the media speak of the needs that will be fulfilled by the project and the benefits it will provide to the community. And while general cost estimates are normally provided, little, if any, attention is normally paid to the risks of substantial cost overruns or even project failure.
Most local government public works departments are well prepared to direct and oversee their own capital improvement projects, including street construction and repair, water and sewer construction and replacement, street lighting, and standard office and warehouse buildings. However, as capital projects extend into new communications or other advanced technologies, face "fast track" schedule requirements, or involve relatively new engineering design features, the standard budgeting and project management techniques often fall short.
Such was the case when the City of Milwaukee set out to build a new district police station and public safety data communications center. Because of scope creep, cost overruns, and project delays, one city alderman requested that the comptroller conduct a management audit of the project. This article reviews the findings of that audit, highlighting what went wrong and why and recommending specific actions local governments can take to avoid the problems experienced by Milwaukee. (1)
PROJECT HISTORY
In 1993, the police chief and his managers identified two increasingly urgent needs: (1) the need to replace and relocate an aging, inadequate police station in District 3 on the near north side and (2) the need to replace failing, unreliable data and phone communications and defendant identification systems. In 1996, the two projects were combined into a single project. The project ultimately expanded to include a new multi-level parking structure, an enhanced 911 system, two separate computer-aided dispatch systems, a new records management system, a citywide emergency operations center, and various off-site improvements.
Four city departments--the Police Department, the Fire Department, Public Works, and City Development--were involved in carrying out the project. City Development was to negotiate with existing property owners to acquire the site. Public Works was to administer the building construction and communications, and oversee the work of private vendors. The Police Department was to make final scope decisions and oversee the work of City Development and Public Works. The Fire Department was to work with the Police Department on shared user needs.
Public Works retained a construction manager to review the work of the general contractor, including any proposed change orders. Building construction began in 1999. As the project proceeded, a multi-level parking structure adjacent to the main building was added, as were the installation of emergency generators and the renovation of a radio shop at locations far removed from the project site. The building and parking structure were completed in late 2001.
In the end, Milwaukee had constructed a state-of-the-art police station and data communications center. According to the Police Department, the newly installed technology will significantly improve police response times and overall public safety operations. However, as of October 2003, certain technology components, including the computer-aided dispatching systems, were not fully operational. Moreover, the original 1994 project budget of $20.8 million had ballooned to an estimated $64.1 million by the end of 2003, leading to serious concerns about the city's ability to effectively manage major capital projects.
WHAT WENT WRONG
The final audit report, released in October 2003, found significant weaknesses in virtually every area of project management--project planning and definition, project budgeting, and ongoing oversight. Because the city did not clearly define the scope of the project before getting started, the project got bigger and bigger as time wore on. The completed project included a number of items that were not part of the original plan, including a multi-level parking garage, department-wide records management, offsite emergency generators, and a renovated radio repair shop. As a result, the project budget increased and the timeline was repeatedly extended, as shown in Exhibit 1.
Cost estimates for major pieces of the project were often not supported by adequate documentation or analysis. The original budget estimate reflected the costs of two separate building projects, not a combined project, while little attention was paid to estimating the cost of the technology components. Even though major scope expansion decisions were made throughout the course of the project, the budgeting process provided little if any opportunity for the Common Council to make meaningful "go-no go" decisions.
No city department took responsibility for controlling project costs. The general construction contract was let prior to the city acquiring control of the project site, leading to delays and some avoidable contractor costs. AS the project proceeded, cooperation problems arose among city departments. The building and technology components of the project were never properly coordinated. The Police and Fire departments could not reconcile their respective dispatching needs, necessitating separate dispatching systems that cost $12 million more than the joint dispatching plan. Although the Police Department ultimately assumed control of the technology components of the project, this was initially a source of disagreement between the Police Department and Public Works. There was no mechanism in place to resolve such disagreements as they arose during the project.
Public Works contracted for a construction manager for the project. Although the construction manager's contract was well done, the department in many cases failed to enforce the contract requirements. Project accounts were not properly structured, preventing the issuance of timely, accurate financial reports. Aside from periodic verbal briefings, senior management did not receive regular financial status reports, and there were no formal reports on the physical completion status of the project.
STRENGTHENING PROJECT MANAGEMENT
The purpose of the audit was not only to identify what went wrong during this particular project, but, more importantly, to recommend steps for improving project management in the future. The audit recommendations included four major changes to be applied to large capital facility and information systems development projects:
1. Formalize project budget proposal requirements
2. Revise ordinances to clarify project authority and responsibility
3. Prepare a memorandum of understanding in advance of complex projects
4. Institute and enforce project status reporting standards
The overriding goal of these changes is successful, on-time, and on-budget projects. The balance of this section discusses in some detail each of the four major recommendations.
Formalize project budget proposal requirements. To properly evaluate proposed projects, the city must have a set of well-defined parameters that promote meaningful assessment and comparative analysis. What follows is a checklist of essential information that is to accompany any future capital project budgets proposed by city departments.
* Statement of project scope. The statement of project scope is a complete description of the proposed project that defines what is and what is not part of the project. Specific work products (deliverables) that will result from the project should also be identified.
* Statement of needs and expected benefits. The statement of needs and expected benefits justifies why the project should be funded. The statement should quantify to the extent possible the needs that will be met and the benefits that will be realized by the project. Industry standards and other relevant supporting documentation should be included.
* Cost estimate. This is perhaps the most critical element of the project budget proposal. The cost estimate should include not only an estimate of all financial and non-financial project costs, but also an explanation as to how the estimate was developed. The cost estimate often involves the work of consultants and engineers, and should include any supporting documentation.
* Funding sources. All sources of project funding must be identified, and together they must be sufficient to pay for the entire project. The approval status of any non-city grant funding sources should be specified.
* Project work plan and schedule. The work plan should describe the sequence and schedule of major work tasks, highlighting interim or "milestone" deliverables over the course of the project. The work plan should also identify the units and personnel responsible for each of these deliverables, as well as an estimate of the resources required to complete them.
* City department responsibility matrix. The responsibilities of each city department involved in the project should be outlined in detail, including any use of outside vendors. Procedures for coordinating the work of different departments and for resolving conflicts should also be specified.
* Statement of project assumptions. All significant assumptions underlying the various components of the project proposal should be identified. Examples include estimated bid prices, labor rates, key staff and materials availability, subsoil conditions, private financing, completion of allied project components, timing of land acquisition, etc.
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