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Global engineering firms put emphasis on strategy and risk
Published in The Saudi Gazette on 28 - 02 - 2012

As major urban areas strain to adequately support rapidly growing populations, the need for infrastructure is at an all-time high, a development so pivotal that it is pressuring the engineering and construction industry to step up as never before to meet the challenge, and putting their efficiency and risk management processes to the test, KPMG International said in its Global Construction Survey 2012.
The survey participants included 161 engineering and construction companies around the world with revenues ranging from $250 million to more than $5 billion.
"With increased scale comes complexity as global industry players navigate a tough political, commercial, regulatory and governance environment which will test their risk management ability to the maximum extent," said Abdullah H. Al Fozan, KPMG's chairman in Saudi Arabia.
With projects anticipated to become more complex, maintaining margins and mitigating risk are major concerns for most respondents. Globally, 45 percent of respondents said that quantifying risks is the chief concern; in the Americas, 52 percent of respondents say that identifying risk is the main focus and nearly 50 percent said they want to understand the link between strategy and risk.
"Despite considerable investment, risk management still comes up a bit short," Al Fozan said. "Our survey revealed that nearly 54 percent of respondents said they failed to identify upfront issues that later caused margin erosion and only 36 percent believe that their project review processes are very efficient."
A perceived lack of policies, leadership and investment by the public sector as well as a lack of initiative in the private sector were considered as the primary barriers to public-private partnerships in infrastructure investment.
Just over 40 percent of respondents globally anticipate that the energy sector offers the greatest opportunity for revenue in the next 12 months. Second behind energy were roads/bridges tied with residential at 24 percent, followed by rail and mining.
Nearly 60 percent of respondents from the Americas believe the energy sector will have the biggest impact on revenues, followed by retail projects. Respondents from Asia Pacific and Europe, Middle East and Africa (EMEA) also see energy as their biggest revenue producers.
In Asia, respondents see the second biggest revenue opportunity in the industrial sector, while in EMEA, roads/bridges ranked second.
While 49 percent of respondents expect their backlogs will grow from 5 percent to over 15 percent in the next year, 71 percent of respondents cite economic uncertainty as their biggest ongoing concern followed by a skills shortage (31 percent) and thirdly, government deficits (30 percent). Sixty-two percent said that they expect margins on current bids to remain unchanged from their current backlog.
Fifty-seven percent said their revenues in 2011 increased from 2010, with the Asia Pacific region seeing the greatest growth (72 percent) followed by EMEA (53 percent) and then, the Americas (41 percent).
To mitigate risk, manage project complexity and effectively meet the anticipated increase in demand, companies are seeking solutions to address efficiencies in their procurement /supply chain. Nearly 60 percent of respondents said improvement in this area will improve profits and enhance cash flows. Almost 40 percent of respondents say the primary cause of inefficiencies in their supply chains were disparate processes and systems.
Cost cutting still remains a challenge for companies as well, with organizational culture seen to be culprit for implementing the cuts for 61 percent of respondents globally, and 78 percent in the Americas. Yet 17 percent of respondents globally said cost reduction was not a priority at all.
Survey respondents acknowledged that IT optimization is critical to improving efficiencies, yet 50 percent said overhauling IT systems takes too long and costs dearly. Thirty percent said there are not enough available ERP packages available that are tailored to the construction sector.
"IT investment doesn't come cheap," said Douglas Gates, Principle, KPMG in the US, Advisory practice. "Nevertheless those brave enough to fund major IT enhancements are now reaping the rewards of great centralization and transparency across their supply chains."


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