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Watch out: Infrastructure growth ahead

Getty images/ istockphoto

Getty images/ istockphoto

As India draws closer to being a $5 trillion economy, the government’s strategic initiatives to encourage the infrastructure sector is providing a boost to collective growth of the Indian economy. Several countries are attempting to upgrade their real estate and infrastructure development to assist the allied industries in getting the necessary momentum to achieve economic growth in these difficult times. These industries play a pivotal role in enhancing the employment generation and uplifting of the small and medium businesses as well.

However, delays in large-scale infrastructure projects due to multiple waves of COVID-19, coupled with a nationwide lockdown, have hindered the infrastructure projects. The protracted gestation period has pushed some infrastructure projects into a vulnerable zone that can only be overcome if corporations assess the risk and recalibrate the project and resources involved accordingly.

The vulnerability of infrastructure projects to market volatility arises from the industry’s normal protracted gestation period. Infrastructure firms nowadays must have a very comprehensive mechanism for revalidating costs and schedules every quarter. Direct costs should be calculated using important indices such as commodities, labour, POL, and, of course, the Bill of Quantities. The indirect cost assessment is mostly a function of the schedule, which should ideally be evaluated on a weekly basis. Furthermore, the upward or downward impact of both of these levers, as well as the mitigating measures/ identified activities, should be recorded and tracked every quarter. They should then be brought up with other stakeholders such as clients, government agencies, supply chain partners, and so on to limit any long-term damage. It is also essential to have uniform progress on the ongoing projects to avoid delays, which can be achieved via technological advancements in the sector.

Today, governments are partnering with private players to ensure a robust approach and seamless execution of some of the marquee infrastructure projects across the country.

Latest techniques

Infrastructure companies need to institutionalise pull planning/ equivalent tools to review, monitor, and push the progress of the projects. The underlying principle is to cascade and break down the overall project schedule embedded in primavera or equivalent to weekly targets in terms of quantities to be executed as well as corresponding revenues. Enablers are identified to facilitate these targets, along with people responsible for ensuring that the enablers are in place at the right time. For example, if a raft needs to be cast in a specific week, a dedicated team member must be assigned to ensure that the design/ drawings are available on time and similarly, there should also be other team members who would take responsibility for labour, equipment, and material.

Each person responsible would then share updates on the progress of their enablers every week. The tool is crisp without missing the details, and performance and non-performance are recorded, which could be further shared with all the stakeholders. This should also be in sync with the right procurement strategy that compliments the project’s overall daily requirements.

A robust strategy

Procurement strategy is a very important aspect of the overall execution of infrastructure projects. For example, in Tata Projects if a project is worth more than ₹500 crore, the entire execution strategy document must be approved by the Managing Director to assure complete sponsorship. However, it is imperative that a large EPC Company engages with limited but committed vendor base.

The priority of EPC companies should be to keep track of commodity pricing, consolidate procurement across several projects, and engage in pre-bid tie-ups for niche as well as high-end supplies and services. Inviting bids through reverse auctions has gone a long way toward ensuring transparency. Nevertheless, an end-to-end digital process from ‘Procure To Pay’ will further improve the visibility as all partners will have real-time status of their outstanding payments.

After the pandemic, the business dynamics across sectors have been shifted to digital for the better, paving the way for a brighter digital future.

The majority of infrastructure companies today are focused on digitising their processes for seamless communication and ensure complete transparency to strengthen relationships across stakeholders.

Technological obsolescence

Obsolescence in technology dates back to when it first became a part of people’s personal and professional lives.

Technology is used across the whole project execution chain, including engineering, procurement, construction, and commissioning. Keeping up with technology changes from beginning to end is indeed a difficult task for leaders. As a result, a specialised task force of young people, consisting of functional experts and technology professionals, must be assigned to ensure that all-important and high-impact advances are informed across stakeholders.

Also, as the world progresses digitally, there is a need to adapt to modern technology for seamless execution. For instance, geospatial mapping; Building Information Modelling, video monitoring; 3D modelling, and incorporating dimensions like time (4D) and cost (5D) into a 3D model help ensure timely project completion while avoiding cost overruns.

Supply chain disruptions

Supply chain uncertainties and disruptions are a huge issue and needs to be promptly handled. For example, during Brexit, British construction companies reported supply chain disruptions as demand for materials and logistics capacity outstripped supply.

The average vendor performance deteriorated to record rates, and construction companies faced severe shortages of building materials, a lack of available transport capacity and long wait times for construction items from abroad due to port congestion.

Planning strategy

Hence, supply chain is a major issue for construction companies due to the vast variety and quantum of raw materials and supplies required. It requires proper planning and a crisis management plan to tackle sudden uncertainties.

Aggregate planning strategy gives clear visibility on commodity demand. We strike a right balance between operational and procurement goals by virtue of active demand forecasting technique that includes need validation, optimising inventory level, collaborative planning, better capacity utilisation and resource allocation. We have developed various in-house tools to serve the purpose.

Progress evaluation

Due to the huge working capital requirement, there is a need for optimising costs and linking progress, especially related to supply chain to billable revenue. This needs to be incorporated as a cultural change — both at client’s end and by EPC companies. Hence, linking payments to supply chain integration is important. For example, a portion of payments need to be linked to supplies and not merely to project milestones.

In conclusion, with the government making infrastructure a priority for overall economic development, India is bound to witness larger infrastructure growth. For instance, GatiShakti is a significant ‘productivity’ booster initiative for the infrastructure sector. This initiative will help overcome the multiplicity of approvals and delayed clearances which were big bottlenecks. Its multiplier effects will lead to faster project implementation and control costs. The initiative is as transformative for the infrastructure sector as liberalisation was in the 90s. Moreover, involving private companies in national infrastructure projects has the potential to help India’s infrastructure reach international standards, as the possibilities are infinite.

However, success will depend on how balanced and fair the contracts are structured across the complete execution chain.

The writer is Chief, Project Controls, Tata Projects Ltd.

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Printable version | May 25, 2022 2:13:34 am | https://www.thehindu.com/real-estate/watch-out-infrastructure-growth-ahead/article38303563.ece