BSS052-6: Project and Operations Management

Case Study: Project Management

PROJECT MANAGEMENT IN PRACTICE

Heathrow Terminal 5
Construction of Heathrow’s Terminal 5 was a £4.2 billion programme comprising 16 major
projects, including airport infrastructure, all service tunnels, road and rail links. The
programme included the construction of the main terminal and two satellite buildings (the
second of which will be completed by 2011), 60 aircraft stands (some already operational), a
new air traffic control tower, a 4000-space multi-storey car park, the creation of a new spur
road from the M25, a 600-bed hotel, the diversion of two rivers and over 13 km of bored
tunnel, including extensions to the Heathrow Express and Piccadilly Line services. It was
given the go-ahead in November 2001, construction started on site in September 2002 and
phase one went into service on time and on budget in March 2008. The project itself
involved 60 main (first-tier) contractors. The vision for the project was ambitious – not just
completion on time and within budget, but to ‘create a new standard for project delivery in
the UK’ – a requirement of the process. In addition, the principles of ‘fair reward for
achievements of our partners’ (the contractors) and ‘no surprises for BAA shareholders’
were established.

Figure 1: Heathrow Terminal 5

Contracts
The basis of the contract between BAA, its main client (BA) and its 60 main suppliers was
the ‘Team Handbook’. The contracts were reimbursable, with open-book accounting and
sampling audit. The contracts were also incentivised, with payments for saving made based
on a share of a reward fund – a pooled fund of the benefits gained, which would be
distributed on the achievement of key milestones in the construction phase and on the
achievement of key objectives during the operational phase.
The claim is ‘closer to fewer’ with long-term contracts awarded based on good past working
relationships and willingness to innovate practices. Where suppliers, particularly materials
suppliers, were having problems meeting the requirements of the project, ‘parachute teams’
were made available to enable improvement. These were funded as part of the contract by
BAA, as was the enterprise database – the real-time information system.
The contract was described as behavioural, setting out the values, norms and expectations
for the project. Values included statements of mutual respect and the principles of
recognition for performance. Norms were set out as processes that would be followed, for
instance in getting approval for changes. Expectations included training standards –
minimum 2 per cent of people’s time with an expectation of 5 per cent. In the team handbook
it was stated that: ‘When both our company and your company sign the agreement at the

Department of Strategy and Management, University of Bedfordshire (Dr Nasrullah K. Khilji)

 BSS052-6: Project and Operations Management
Case Study: Project Management
end of the team handbook, the handbook is also our contract; our agreement to work to
achieve success, together.’ The contract therefore was rather different to the conventional
work arrangement, where detailed specifications are set out in an attempt to ensure delivery.
It was clear that here the principles were completely consistent with the ‘Beyond Partnership’
approach.
These were the principles of operation.
In practice, the arrangements appeared to have worked well. During a site visit to prepare
this case, all the interviewees stressed the reality of the high levels of collaboration and
cooperation between parties, whatever their role or employing firm. Of particular impact were
the performance measures used which were deliberately designed to ensure the necessary
levels of collaboration were achieved. Indeed, there was a notable loss of individuals’
company identity in the people interviewed, and higher levels of apparent empowerment and
acceptance of personal responsibility. People defined their team roles in terms of ‘belonging
to the T5 project’.

Risk
The fundamental of the project was that ‘BAA holds all of the risk, all of the time’. This was in
contrast to the conventional construction approach, which requires that risk is ‘contracted
out’, thereby in principle reducing the project risk.
There was a strong rationale for BAA’s approach. It claimed that this allowed the contractors
to focus on the project, problem-solving and enhancing the product, rather than being
concerned about avoiding litigation for time delays, for instance, or relying on post-
completion claims for making the work profitable. This approach required a high degree of
openness on the part of the contractors and removal of local buffers – both of time and cost
– to a central pool. Such pooling of risk and contingency has been shown to be superior to
localised arrangements.
Moreover, and in many ways unique to the industry, the opportunities were treated in the
same way. Conformance to the expectation was the minimum requirement. BAA realised the
ambition of allowing structured flexibility, enabling changes and problem-solving, without
losing control of the end-product or costs. The aspiration is described in Figure 2 below.
Hierarchies of risk registers (at project, delivery team, functional team and task level) were
maintained, as would be expected. Opportunities were managed on an ongoing basis, with
the focus being product enhancement and the removal of waste from the value-stream.

Figure 2: BAA’s approach to risk

Department of Strategy and Management, University of Bedfordshire (Dr Nasrullah K. Khilji)

 BSS052-6: Project and Operations Management
Case Study: Project Management

Prototyping and in-project learning

A feature of the process was the extensive use of CAD to work out performance and
interface issues in advance. Members of delivery teams were required to work on the same
software, for instance, and were co-located. In addition, there was extensive use of trialling.
For instance, the first fixed link – an elevated passenger walkway necessary to link the
terminal to aircraft – was installed at the satellite building as a trial study. The result was a
considerably streamlined construction process. Indeed, this is just one example of where the
repetitive nature of the activities undertaken at the activity level was recognised and treated
as a manufacturing process would be.

Confidentiality and Intellectual Property (IP)

The team handbook stated that IP was owned by the provider where it was developed
outside the T5 project. A key to team-working within the project was the sharing of
information, and where IP was developed during the project, it became the joint property of
BAA and the developer. The claimed approach was a blend of lean (elimination of waste)
and agile (ability to respond to change) project management. The team manual, the
integrated process approach adopted, and the extensive use of proactive risk management
and intelligent planning led to the conclusion that this programme exhibited a high level of
project and programme management maturity, under any set of metrics. Indeed, the
environment more closely resembled projects carried out in the automotive, rather than the
construction, sector.

Conventional approaches included the use of earned value measures to provide basic
financial and progress control, and quality assurance as per ISO 9000. Looking further into
the quality management practices, there were many contributory elements, including the
product and interface modelling mentioned above and early conflict resolution. The latter of
these involved resourced planning – the planning time was considered as a contribution to
value-adding activity, and simulation of project as well as product plans was used
extensively. On-going value definition, engineering and analysis also took place.

The following area of the project scheduling represented a departure from conventional practice.

Scheduling and Last Responsible Moment

In scheduling project activities, including those described above under technology transfer,
the information flow in the project is mapped. It was demonstrated that there were many
decision points which were critical – if these decisions were delayed, the whole project would
be delayed or additional resources would need to be added to downstream activities. In
order to make all the parties (including the client, BAA) involved in the process aware of key
decision points and this criticality, the team used an approach called the Last Responsible
Moment (LRM) for key decisions. This had an additional objective – that the project plan stay
flexible and responsive. The LRM is calculated by backwards scheduling and when
established these become ‘milestones for information transfer’. These key points of
information transfer recognise the reality of design (iterative rather than linear) and provide a
visual signal that the next phase of detailed planning is to be commenced by the relevant
teams.

Such ‘planning in waves’ again appears to fit well with the reality of the project environment.

Department of Strategy and Management, University of Bedfordshire (Dr Nasrullah K. Khilji)

 BSS052-6: Project and Operations Management
Case Study: Project Management

Such an approach is an enhancement rather than a radical change of traditional methods of

planning and control. It provides a ‘managed postponement’ of key decisions, particularly
those involving trade-offs. Information emerges as the project progresses, and in principle,
the later the decision can be made, the more complete the information on which to base that
decision is likely to be.

The 50 per cent rule

Prior to final approval of each stage of work, cost targets for 50 per cent of project must be
fixed and for 100 per cent of initial works. This is consistent with the agile planning model. It
provides the basis for earned value methods to be used in control, but does not require
artificially accurate estimates to be in place before the necessary information is available.

Last Planner

It is reasonable to expect the project to accelerate as it progresses, with Last Planner

providing on-going low-level performance reporting and problem-solving.

Points for Discussion

1. Consider the way that you make purchases for yourself. How do you decide from
whom to buy? Are there examples of your personal purchasing where you have
frequented a particular business and formed a partnership-type relationship?

2. Why the trend to outsourcing? Suggest how this might or might not be beneficial to a
project organisation and how you mitigate risk.

3. Surely it would be better for project managers simply to deal directly with suppliers?
Under what circumstances would such an arrangement be beneficial for quality
assurance and how this can be managed?

4. What are the likely trade-off issues in the purchasing decision, and how would you
resolve these?

5. What is the responsibility of organisations to their suppliers? How might it extend

beyond just paying the bill?

6. Are PPP/PFI arrangements successful for government? How do these compare, for
instance, with the arrangements BAA had with their suppliers in the construction of
T5 at Heathrow?

Department of Strategy and Management, University of Bedfordshire (Dr Nasrullah K. Khilji)