Project Profitability: Continuing evolution of the owner/client project management function


    In the post-World War II era, the facilities needs for corporations and institutions grew dramatically. Although some companies such as Kaiser and Ford had constructed enormous manufacturing operations in the first half of the 20th century, most businesses remained tiny by modern standards. The concept of the project manager or facilities manager as we know it did not exist.

    At the time, if a new plant or warehouse was required, the corporation or institution directly retained an architect or contractor. Architectural firms such as Albert Kahn & Associates in Detroit specialized in designing these types of buildings and pioneered layouts that improved production. Typically, a corporate executive represented the firm’s interests in the process. In a few cases, internal departments to handle the design, construction, and project management needs of corporations and institutions existed, but they were relatively rare and small in size.

    Salty snacks

    By the late 1980s, this had changed significantly. Many major corporations and institutions had developed substantial design and project management groups to handle most of their facility needs. The rationale behind the development of in-house design groups was based on the need to obtain specialized expertise. It was perceived this expertise was not readily available from external sources.

    In 1987, I was retained on a consulting basis by a large salty snack foods company to serve on its Engineering Advisory Board (EAB). There were four other members of the board including a professor from the school of construction at Auburn University, a facilities executive at Phillips Petroleum, another specialized consultant, and a retired executive. We were charged with examining all aspects of the operation of the 500-person engineering and design group at the company. This group handled the design, project management and facilities management needs of the snack foods firm. Little design work was outsourced. Small construction projects were also handled by the division.

    The EAB met regularly for nearly four years and made a number of recommendations. A chief concern of the management of the engineering and design group was the need to develop career paths for all levels of the staff. Originally organized in the early 1960s, the group had never formalized advancement channels for employees. By 1990, most of the staff was composed of technical personnel, including architects, engineers, facilities managers, construction specialists, and the like.

    About the same time the EAB was organized and meeting, the U.S. economy was suffering from one of its periodic recessions. Concurrent with this downturn, the concept of corporate “reengineering” was gaining wide acceptance. Reengineering focused on examining and understanding the core mission of a company, how to maximize profits from that mission, and a strong focus on cost-cutting.

    In 1991, a decision was made at the highest levels of the corporation to jettison the engineering and design group. Nearly 450 people, some of whom were very long-time employees, lost their jobs. A new project management/facilities management group was established to represent the needs of the corporation working with outside architectural, engineering, and construction consultants.

    The members of the EAB were told the decision had been made because the core mission of the company was the production of salty snack foods, not engineering and construction. A financial analysis had been made clearly indicating outsourcing as a far less expensive alternative, particularly when pensions, health insurance, and other benefits to the staff were considered. The EAB was disbanded almost immediately.


    In the mid-1990s, I was retained by AT&T to provide training for its facilities project managers. At the time, AT&T operated with two significant project management groups to represent the firm’s needs with outside technical consultants. One group was organized around the communications network, particularly transmission towers, ground stations, and the like. The second group handled virtually every other facility of the company, including offices, warehouses, etc.

    At this time, AT&T was the direct descendent of the old Bell System and was now in aggressive competition with the “Baby Bell” companies and newly formed telecommunication’s firms such as Sprint. Historic pricing structures were rapidly collapsing and AT&T was frantically seeking to cut costs to remain competitive in this new deregulated environment. The “bean counters” were examining every aspect of the company, trying to squeeze out non-essential expenses. The project management groups became targets.

    Despite the desire to cut costs, it was recognized that the facilities needs of the company required ongoing representation. Several options were considered by senior management. These included maintaining the internal project management groups as they were currently constituted, completely outsourcing their tasks, or a compromise solution that still achieved the goal of cutting costs.

    There were several concerns to be addressed. The internal project management groups represented AT&T to external consultants and were also accountable to internal corporate clients (the various divisions, locations, and departments of AT&T). Their task was difficult, as they were required to meet program needs while having a great deal of responsibility, but little authority. Often, project programs, budgets, and schedules were established without input from those most experienced in the process — the members of the project management groups.

    The institutional memory of current project managers was significant and there was fear this would be lost with outsourcing. Accountability was an issue, as the question remained who would external engineering, architectural, and construction firms report to?       A corporate executive recognized that design and construction project management were needed by AT&T, but said, “This is a telecommunication’s company, not a design and construction firm.”

    Under the current system, workloads were often uneven as periods of extensive design and construction activity left the in-house project managers overwhelmed. Other periods found them an underutilized and costly asset of the company. A solution was eventually determined to deal with this and other concerns of senior management.

    An experienced project manager was selected to lead a newly organized private practice consulting firm. This firm was initially financed by AT&T and given a long-term contract to handle their corporate work. Current project managers were offered the option of joining this firm or leaving for other employment. It was hoped this would preserve much of the institutional memory, reduce costs, and still provide the services and accountability the corporation required at the time.

    In September 1995, AT&T split itself into three publicly traded companies — AT&T, Lucent Technologies, and NCR. The newly created private practice firm became largely obsolete as each of the three spinoffs of the old AT&T developed their own approach to design and construction project and facilities management. In 2005, the now much smaller AT&T was acquired by/merged with one of its earlier offspring — Southwestern Bell (SBC Corporation) — which then assumed the name of AT&T.

    Institutions also are not immune to the pressure to control operating costs. Many health care institutions have significantly outsourced the project management/facilities management role. Today, even well-funded institutions with extensive construction programs strive to minimize their own staff, relying on a few key individuals and capable consultants to coordinate the work of external consultants.

    Still evolving solutions

    There is no ideal solution to the challenge of managing the design and construction activity in corporate and institutional organizations. It is a constantly evolving process driven by the need to reduce operating costs while still providing coordination and management of design and construction. I have a close friend who is the former head of a major brokerage firm. His company went from maintaining an internal project management/facilities management group to complete outsourcing and has now returned to having an internal department. The current head of this department is rapidly hiring and expanding her domain, adding to corporate operating costs.

    My friend’s company previously worked with an outside consulting firm on a master contract basis. This contract provided for full-time consulting staff to manage projects and facilities. Unfortunately, staff turnover within the consulting firm and mergers with other consultants left little institutional memory and resulted in uneven service. Eventually, it was determined to bring much of the project management/facilities management work back in-house. However, there is now growing concern about the cost of the department. The pendulum may soon swing in the reverse direction.

    The recent Great Recession forced nearly every company and institution to dramatically cut costs. This cost-cutting attitude has continued even as the economy recovers. As a result, it is extremely unlikely that internal project management/facilities management departments of any significant size will be the norm in the future. It is clear that design and construction project and facilities management will continue to be considered tangential to most corporate and institutional missions. For the foreseeable future, most owners/clients will need to retain external consultants who provide a diverse array of services.

    Howard Birnberg is executive director of the Association for Project Managers. He may be reached at 312-664-2300 or