The Norwegian Ministry of Finance has established a quality assurance scheme for major projects exceeding NOK 500 million. Several external companies, including DNV, have been assigned to undertake such assessments.
Poor engineering and management, unrealistic budgets, scope changes at late stages, cost overruns and critical delays have been characteristic features of many big investment projects in a number of countries. Historically, there have been quite a few examples in Norway too, according to Peder Berg, Deputy Director General of the Ministry of Finance.
“In response to these challenges, the Ministry of Finance established a quality assurance scheme in 2000. Dubbed QA2, the quality assurance scheme is mandatory for all State sector projects with a cost estimate exceeding NOK 500 million,” says Mr Berg. “Basically, this requires the respective responsible ministries to undertake assessments during the front-end stage, with a particular aim to review cost estimates and major risks that might affect the project The documentation is then subject to scrutiny performed by independent commercial quality assurers holding framework contracts with the Ministry of Finance.”
Governance regime
Mr Berg strongly believes that good governance of major investment projects require some sort of regime. This should comprise the processes and systems that need to be in place on behalf of the financing party to ensure successful investments. More specifically, this would typically include a regulatory framework to ensure adequate quality at entry, compliance with agreed objectives, management and resolution of issues that may arise during the project and also standards for quality review of key governance documents.
“The challenges are numerous,” says Mr Berg. “How to ensure projects’ viability and relevance up-front; how to avoid hidden agendas during planning, underestimation of costs and overestimation of utility, unrealistic and inconsistent assumptions; how to secure essential planning data, adequate contracts and such like.”
According to Mr Berg more than 90 projects have been subject to external quality assurance since the scheme was initiated in 2000. In 2005 the scheme was extended to include quality assurance also at an earlier stage in the project cycle.
Extended scheme
He explains, “For all its merits, the QA2 scheme does not address the more profound issue of whether the proposed project is an adequate response to real societal needs. It is indeed of limited value that a project was completed according to scope, on budget and in time, if it should never have been approved. The quality assurance scheme was therefore extended to include quality assurance of the choice of concept (QA1), to be performed at the end of the pre-study (appraisal) phase. QA1 aims at giving the best possible support for deciding on whether and how to proceed with the project into the basic design/engineering phase.”
Examples of recent major Norwegian investment projects include the new opera-house now being built in Oslo (Snøhetta), the new bridge linking Norway and Sweden at the Svinesund fjord and the “KNM Skjold”, a stealth-type rapid torpedo vessel for the Royal Norwegian Navy. Less spectacular, but indeed not less important, are a number of big IT infrastructure projects, e. g. LOS, an integrated platform for accounting, fiscal reporting, human resource management and logistics support for the Defence sector.
The single most important project that has been subject to the QA 1 scheme is the possible procurement of new combat aircraft for the Royal Norwegian Air Force.
Deliveries from DNV
DNV’s scope of work involves both QA1 and QA2 assessments, and is mainly in connection with major road and bridge construction projects such as the E6 Gardermoen-Kolomoen and the T-connection project at Karmøy. DNV is part of a consortium which includes Advansia, a project management specialist in the field of complicated land-based projects and the Institute for Research in Economics and Business Administration (SNF) in Bergen, recognised for its economic analysis work.
Erling Svendby, Director Public and Defence Market in DNV Industry comments, “Our main deliveries in terms of QA1 work include assessments of the effect of the project compared to society needs, the relevance of the requirements and their prioritisation, cost-benefit analyses, including uncertainty analyses of the alternatives, and recommendations regarding a further decision strategy and guidelines for the basic engineering phase.
“Regarding QA2 deliveries, these cover cost framework recommendations, including provisions for uncertainties, project organisation and management, contract strategy and proposals regarding simplifications and reductions.”
Given DNV’s core competence in managing risk, Mr Berg believes DNV is well placed to ensure the delivery of sound quality assurance assessments on major projects. “There’s always a lot of factors involved when choosing an external company to undertake such assignments. Decisions must be made on balance and we must be sure that the methods employed meet our best practice requirements. Many companies can boast of this, but when employed what comes out at the end? I am glad to say that DNV thus far has always delivered, and has proved very good at creating useful alliances such as those with Advansia and SNF.”
Right management
Reflecting on the development of the quality assurance scheme, Mr Berg says, “Experience shows that the QA 2 regime, that has now been afoot for some years, is being met with essentially constructive responses from the ministries and agencies involved, which have adapted their practices to meet the new quality requirements. We have also seen more successful projects, reduced cost for the state and better use of public funds. Further, the regime is now on the public agenda and it is expected to have a considerable effect on key stakeholders in the future.
Right choice of concept
“However, project governance reaches far beyond the project management community,” warns Mr Berg and continues, “When making recommendations on the choice of concept (QA 1), the audiences that are addressed basically consist of the project owners, i. e. individual ministers and the Cabinet as a whole. They make the decisions, and they will ultimately assess the relevance of the QA 1 reports to their decision making. It is thus imperative that the reports produce true decision support, and are not interpreted as attempts at imposing technocratic solutions. With the aid of DNV and our other commercial partners, our task is to present clear and unambiguous advice based on open and frank assumptions and an uncompromising analytical approach.”
Governance internationally
Building governance structures are high on the agenda in a number of countries around the world, and in the public as well as in the private sector. But in the public sector, the development is still in its infancy in most countries. A clear exception is the United Kingdom, where a specific agency has been established, the Office of Government Commerce (OGC). “The OGC model is different from ours”, says Mr. Berg, “not only as it is organised outside of the ministerial community, but also in the definition of customers, and their approaches on counselling. We do share the same basic values on project management, though, and I personally see the differences as a positive means of inspiration for the further development of our systems. That said, differences in country size, decision making structures and political and civil service tradition, will, I think, always require some sort of tailor-made process for individual countries.”
Both the United Kingdom and Norway have been approached by other countries that are in the process of considering an overall governance structure for major investment projects, and systems modelled after that of the United Kingdom are indeed in operation in different parts of the world. Recently Denmark decided to implement a quality assurance process of five pilot projects according to a scheme which might be labelled a simplified QA 2. “I think it´s fair to say that now there is an international trend moving along similar paths as we and a few others covered during the last decade. The development is of course exciting, and an encouragement for us at the Ministry, and, I am sure, for our commercial partners as well,” Mr. Berg concludes.
