A rupee saved is a rupee earned! Whether it's a highway, bridge or airport, every project benefits from cost optimisation, says Kshitish Nadgauda, Managing Director Asia, Louis Berger. Within a specific project, the best way to address cost optimisation is by utilising the Pareto Analysis. In a conventional bridge or a highway project, it's typically the concrete or reinforcing steel that comprises big-ticket items. In highway projects, there is optimisation everywhere but earthworks, etc. tend to be low-priced. There you could look at optimising asphalt usage, he points out.
Excerpts of the interview...
Why is cost optimisation critical to the execution of infrastructure projects in India?
There are two main reasons that one can think of as important and necessary. Firstly, the vast majority of such projects are in the public sector. Although there are public-private partnerships (PPPs) in place, it is the valuable taxpayer money that is being put to use. So, it is a moral responsibility to ensure that each rupee is spent wisely. Secondly, in the Indian Subcontinent, the sheer volume of work that requires to be done is challenging, be it in terms of new facilities or upgrades. When we seek to attract greater investment domestically or from abroad, every investor is going to look at the quality and efficiency of infrastructure. It is, therefore, very important for us to get this large magnitude of projects off the ground expeditiously and efficiently for rapid economic growth and consequent creation of jobs. When you have so many projects competing for capital, that becomes another driver for optimisation. Now, on a Rs 70-billion project, if you save Rs 3 billion, the saved amount alone becomes another project somewhere. This has especially become even more urgent with the economy being impacted by the pandemic situation.
Although this question is somewhat speculative, however, what is the quantum of saving that could be availed on a big-ticket infrastructure project through the deployment of cost optimisation strategies?
This is a slightly difficult question to answer as savings can vary. But, in general, one of the best techniques is that the individuals working on a specific task must have the drive towards achieving optimisation in their minds. For instance, when a person is working on a certain design or formulating a process, they have to do it right the first time as much as possible. People should not be merely copying and pasting but looking for opportunities to bring about change. Secondly, this has to be done at all stages of a project. Every infra project goes through multiple stages like pre-feasibility, concept design, preliminary design and then detailed design. At every stage, an assessment must be made of the proposed cost. For example, for an airport, the layout and capacity are presented in terms of the overall master plan, including runway orientation and length, and passenger and cargo volumes. For a bridge or highway project, the conversation is around the number of lanes and whether to have flyovers or not at certain locations.
When you move to preliminary design, you start sizing elements to get a fair idea of the costing. Then, with approvals, you move into the detailed design stage. What is important is that at each of these stages, there needs to be a concerted effort to have a value engineering workshop. The optimisation can be achieved through value engineering, internal discussions and by bringing in some external stakeholders.
Optimisation should also mean reaping the most benefits from a project. In my experience, value engineering done in this manner results in 10-20 per cent savings, from beginning to end. And this should also extend into construction. This is an active practice abroad. We at Louis Berger-WSP propose to ask clients to build it into tenders.
Which segments within infrastructure are likely to benefit the most from cost optimisation?
Whether it's a highway, bridge or airport, every project will benefit. Granted that you may realise a lesser amount of savings on a project of lower magnitude or complexity. But the fact remains that a rupee saved is a rupee earned. Within a specific project the best way to address cost optimisation is by utilising the Pareto Analysis. It is a well-known fact that in most infrastructure projects, 80 per cent of the cost is only 20 per cent of the items! At every stage, you would break down the cost of the project to identify your big-ticket items. For instance, if you have a conventional bridge or a highway project, then it's typically concrete and reinforcing steel that constitute the big-ticket items. In highway projects, there is optimisation everywhere but earthworks, etc. tend to be low-priced. There you could look at optimising asphalt usage.
It is also important to make sure that it is built exactly as per specified quality standards and specifications. If that is not so, your cost optimisation strategy will be compromised. The contractors or other implementation agencies need to be pre-qualified based on the right criteria. Finally, there should be zero tolerance for any quality deviations. The costs also include long-term operation & maintenance costs.
Another important point of debate is how can unnecessary expenditure be reduced without compromising on the user safety of a finished project?
For any component of infrastructure that is designed and constructed, there are mandated codes and specifications intended to ensure quality and user safety. The optimisation is done to a point where you are still in compliance with the codes and standards. Let's say the code allows a factor of safety of 2 for the design of a certain component. So, if we have a factor of safety of 1.5, it doesn't mean that the project will fail the day it is opened, but means that the extent to which the code had intended the facility to be designed for exceptional events has been compromised.
Safety is also important during the construction phase. All too often we see it being compromised during projects. I am clubbing that with user safety because infra projects like metro rail, highways and bridges are constructed in an environment where you are interfacing with the travelling public. For instance, an upcoming metro rail project may very likely be along an existing roadway, where you have a lot of passengers and vehicles travelling every day. In India, the initial cost of the project could likely go up to ensure the safety of the travelling public. However, the increase is very limited and, in the medium-term, once the companies get used to adhering to all those requirements for construction safety, they will see their actual costs reducing. They will have fewer incidents during construction, which will mean fewer disruptions. Another point that I would like to mention in the context of optimisation is that costs could also be reduced if risks for every project are foreseen well in advance and mitigated.
Having completed several years in the market here and overseas as an infrastructure professional, do you think there is greater awareness about cutting down on unnecessary expenditure and enhancing efficiencies now?
Absolutely! The reason is that an infrastructure project is awarded a certain anticipated budget. And we find that in several cases the budget is not adequate. When we start looking at the objectives of the project and develop solutions, we find that it might be exceeding the client's budget. Now, it doesn't mean that we haven't optimised the costs. The client has hired us because we are experts. So, we must be strong enough to tell the client things that they may not want to hear. Like, unless they spend another Rs 10 billion their project is not going to be effective. But we have got to have all the information with which to explain that position.
What is your view on the Central Government's plan to provide a greater role to project management consultants (PMCs) in the execution of infrastructure projects?
It will surely help as long as it is done right. The roles and responsibilities of the PMC have to be adequately defined so that enough authority can be given. Let me also add here that the PMC - whether they are from Louis Berger or any other company - must understand and imbibe our role in the right spirit. If we are being hired as PMC, we have to be the driver of the project. For most of us, managing a project would mean getting it developed and executed on schedule while meeting all safety and quality requirements. It has to be a keenly monitored process every step of the way. Very importantly, the PMC must understand how the project is going to be executed and have a tabulation of all potential hurdles along the way well in advance and have mitigation strategies in place, with all stakeholders. This is where value engineering workshops are also useful. It is equally important to work as a team. This is easier said than done because a team involves personalities. Every stakeholder must take the ownership of responsibilities as the PMC cannot work in isolation.