Wednesday, November 7, 2012

What's the Return on Failure (ROF) for (STUPID)X?

This post summarizes another aspect of the series of presentations  Collaborative Construction made in Ireland in late October.

Readers familiar with Collaborative Construction know James focuses - obsessively some say - on the need to drive waste and inefficiency out of our business processes.  Academic research into lean manufacturing processes and the ensuing information associated with Six Sigma and similar process improvement mechanisms reveal significant levels of waste in all sectors of the economy.  Delving into these numbers in multiple sectors, in multiple jurisdictions and analyzing them in multiple ways reveals resources - e.g. capital, both monetary and intellectual, time, labor, and materials - are wasted at phenomenal rates.  Specifically, research routinely reveals waste at rates of 30 to 50%.  Inefficiency, self-dealing, corruption and a variety of factors account for these high levels of waste.

In Ireland the keynote presentation at the CITA BIM Workshop highlighted the cost of waste globally and then drilled down through the economic data to the level of individual Requests for Information, aka RFIS.  After introducing the concept of (BUILT)X Solutions in Ireland - the link takes you to the earlier blog post on that topic - the presentation quickly moved to analysis of waste and inefficiency on a global scale.  The image below lays the conceptual ground work for the conversation and articulates a positive solution, specifically, Collaborative Construction's (BUILT)X Solutions program.

The algebraic style acronyms set forth in the slide above - (BIM)X, (SMART)X, (CM)X and (BUILT)X are all defined and explained in the post linked above.  This post introduces another acronym - (STUPID)X - an acronym, like others used by Collaborative Construction, that summarizes several different concepts in a single phrase.  The image below defined the phrase (STUPID)X for purposes of the presentation. 

(STUPID)X afflicts everyone from time to time and impacts every sector of the economy.  In the built industry, at the macro level, (STUPID)X manifests itself as a waste rate of 30% to 50%.  At the micro level (STUPID)X manifests itself in the form of RFIS.  The (SMART)X game changers required to stop (STUPID)X will be addressed in a separate post.  This post simply identifies and defines the problems.

The next two slides summarize the cost of waste attributable to (STUPID)X actions on a global scale and the third slide summarizes the cost of RFIS to individual stakeholders on a project by project basis.

The image above is relatively self-explanatory.  Many participants in workshops and seminars presented by Collaborative Construction reject the academic claims of a 30% to 50% waste factor.  The loudest protests often come from individual representing firms involved in commercial construction, heavy infrastructure, mining and similarly complex and large scale operations.  These individuals and their firms are entitled to their opinion, but are NOT entitled to facts from a different universe.  Even a cursory review of the process improvement literature reveals inefficiencies on an astonishing scale.  The Center for Integrated Facilities Engineering at Stanford University in California is a great place to start for anyone interested in learning more.  Burying your head in the sand will not change reality.

One caveat is necessary here.  Innumerable businesses earn profits, pay salaries and otherwise sustain themselves off the $21 to $35 trillion in waste noted in the image above.  Further, innumerable corrupt governments, their sycophants and other hangers-on likewise suckle at the teat of corruption and waste.  In other words, there's big money to be made managing the ball of fat.  That, however, fails to add VALUE and an efficient economy thrives on value adds.

The image below assumes global placement of $5.0 trillion in new facilities and infrastructure annually over a 20 year period.  The $4.6 trillion global construction output reflected in the image was pulled from a 2006 study and that number has been rounded up to $5.0 trillion for ease of calculation and reference.

Assuming global placement of $5.0 trillion in new facilities and infrastructure annually for 20 years the world will enjoy $100 trillion in new facilities and infrastructure (F&I) at the end of that 20 year period.  The average cost of operations and maintenance of F&I is 10% to 30% of the value of the F&I.  Most operations and maintenance (O&M) today is conducted in the dark by operations and maintenance personnel armed with 19th and 20th Century data, tools and processes.  The delivery of O&M in this environment is incredibly inefficient.  (BIM)X enabled F&I can and will be managed much more efficiently than traditional F&I has been or will be managed.

The question readers - and owners of massive portfolios of F&I like governments and large corporations - need to ask is what will the RETURN ON FAILURE be if they continue to manage F&I in the 21st Century using 19th and 20th Century data, tools and processes? Return on Failure (ROF) is calculated just like ROI on money invested over time, only you are calculating the cost wasting those funds over time.  In the above image you would simply plug $20 trillion into a simple compound interest calculator and crunch the numbers for 5, 10 or 20 years.  The ROF reflects the failure of an economy - or an individual firm - to wring waste and inefficiency, aka (STUPID)X actions, out of the system.

The image below tackles the cost of RFIS rather than the annualized costs of O&M on a global scale.  But the ROF can be calculated just as easily for an RFI as it can for O&M costs.

For years Collaborative Construction has been asking participants in our workshops and seminars to raise their hand if their firm calculates the cost of RFIS.  Ever now and then a hesitant hand rises.  The image above generically depicts the data related to the cost of RFIS gathered by Collaborative Construction and its affiliated partners over the years.  Interestingly, though very few entities track the cost of RFIS, those who do insist on anonymity.  Most stakeholders in the built industry treat RFIS as a project cost and ignore not only the value / cost of those RFIS but also ignore the possibility of eliminating those RFIS.

Which brings the conversation back around to (BIM)X and the question of whether an integrated team that delivers planning, design, construction, operations and maintenance services can reduce the long term cost of O&M if they deliver (BIM)X enabled F&I.  Multiple public owners of large portfolios of F&I have begun to answer that question with a resounding YES.  In the US those entities include the GSA, USACE, the state of Wisconsin, the state of Arizona, the state of Colorado and others.

The foregoing summarizes the "Value" portion of the presentation in Ireland,  The next post will deal with the solution, stopping (STUPID)X.

Welcome to the Collaborative Revolution!

James L. Salmon, Esq.
Collaborative Construction
300 Pike Street
Cincinnati, Ohio 45202

Summary of Services and James L. Salmon's CV

Office 513-721-5672
Fax 513-562-4388
Cell 512-630-4446

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