XVII

Procurement as a leverage to Recover EPC project deviations

Author: Luca Papallo - Process Automation Division - BU Oil & Gas and

Petrochemical - Supply Management

Keywords: Procurement Strategy, Procurement Process, EPC, Strategy-Making

Process, Project Deviations.

Introduction

This research focuses on the area of Operations Management, particularly on the

procurement in the EPC (Engineering, Procurement and Construction) industry.

During the last years procurement assumed a key role in supporting companies

competitiveness, because of the notable changes into the macro-economic environment

that affected the procurement function, bringing into question its administrative and

transactional role. In particular: the growing recourse to outsourcing for those

activities deemed as not adding value; increased globalization that implies to compete

with companies geographically far and with different cost structures; the technological

advances in internet based systems such as the B2B e-commerce (that in 2005 had, only

in Italy, a value of 94 billion € representing more than 5% of the total Italian B2B

market, source: Politecnico di Milano ICT observer); changing consumer patterns

(bundling and un-bundling politics and so on). In this research two studies take place,

each of them related to Procurement in EPC companies.

Setting-Up the Procurement Strategy - RQ1

Procurement and Strategy

All of the above mentioned environmental changes impose a reorientation of the

purchasing function, leading to the recognition of its strategic role. The evolution of

purchasing, from a mere buying function to a strategic function, has been accompanied

by a growing interest from researchers, in order to provide an helpful methodological

support. According to Ellram and Carr (1994), three main stream of research, partially

overlapped, can be found in purchasing literature1: specific strategies employed by the

purchasing function; purchasing’s role in supporting the strategies of other functions

and that of the firm as a whole; purchasing as strategic function of the firm. However,

since 2000 (Carr e Smeltzer, 2000) another stream of research appeared, about the

1 The international literature mainly refers to purchasing; the word procurement is mainly used in

specific industries such as the EPC industry. In the traditional sense, there is a significant difference in

that purchasing merely reflects the act of acquisition, while procurement encompasses more elements

of the supply chain (for example logistics, transportation, expediting etc.). According to this, talking

about EPC companies, it will used the term procurement, aware of its difference with the term

purchasing.

XVIII

impact of purchasing strategy on firm performance. The first part of this research

focuses on the second stream of research, were a lack was found2.

Purchasing Role

In this stream of research some interesting contributions can be found since 1981 when

Spekman (1981) highlighted the need for strategic planning within the purchasing

function, seen as the right way for fully integrating the purchasing function into the

firm’s strategic planning process. However, Browning (1983) pointed out the

importance of improving strategic planning skills among purchasing managers, to

purchasing give a contribution to corporate strategic planning. Landeros et al. (1989),

using Porter’s model of the competitive positioning of the firm, suggests that purchasing

can play an instrumental role in supporting the firm’s strategic positioning;

nevertheless, according to Carlson (1990), positive results can be achieved only if the

purchasing function is supportive of, and sensitive to, long-term corporate objectives

that allow for the development of strategies to allocate resource efficiently. St. John and

Young (1991) stated that the formal goal-setting process encourages managers to only

develop a common vision of the future, because the manufacturing strategy (as well as

for purchasing strategy), made of day-to-day operating decisions, is usually inconsistent

with that vision. Emulating Skinner’s seminal work on manufacturing strategy (1969),

Watts et al. (1992) constructed and Krause et al. (2001) tested, the link between

purchasing and corporate strategy basing on competitive priorities: knowing the relative

importance of the performance (time, cost, quality, innovation and flexibility) for

corporate competitive strategy, purchasing can make decisions focusing on the

achievement of the performance required. These contributions highlighted the

importance of linking corporate and purchasing strategies even at an operational and

tactical level. A significant step forward was made with Nollet et al. (2005). They

analyzed the hierarchical process for strategy making as made by seven sequential

“steps”, and they also individuated three main level of decisions by which linking

corporate and purchasing strategies: strategic, tactical, operational. Notwithstanding this

framework has two important limitations: it does not consider the environment as

affecting the strategic levels, it focuses mainly on a traditional manufacturing

company3.

Research Question - RQ1

The first part of this research was aimed at formulating a model to understand the

process by which a procurement strategy is set-up in an EPC company. For this reason

the first research question was stated:

RQ - 1 How is the Procurement Strategy related to those of other strategic

levels within an EPC Company?

2 For conciseness reasons in this abstract only the second stream of research is reviewed. In the second

chapter of this thesis a deep review of each stream can be found.

3 No contributions about EPC companies were found.

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However, in the EPC companies, beyond the traditional strategic levels4, there is

another “strategic level”: the project strategy. This makes it necessary to review the

project strategy literature, to understand its role in the strategy making process.

Setting-up the Procurement Strategy

According to Artto et al. (2007), it is possible to find three main tracks of project

literature that refer, implicitly or explicitly, to the concept of project strategy. These

tracks can be considered as three different viewpoints of project strategy:

• Projects as subordinate to the parent organizations5;

• Projects as autonomous organizations connected loosely or tightly to a parent

organization6;

• Projects as organizations that are not subjected to clearly defined governance or

authority setting in relation to their surrounding organizations or stakeholder

organizations7.

This review of the project-strategy literature was really helpful to understand the

elements that give a contribution in project-strategy making. The elaboration of a sound

project strategy, comes from: the guidelines coming from the Business Unit Strategy

(first track); the analysis of some Relevant Contextual Factors (third track); the

interaction between project and functional strategies in terms of project execution and

project management (second track). These results were matched with those of a parallel

research, whose aim was to identify the procurement strategies to be used, depending

on some relevant contextual factors. This study defined indeed the relations existing

among Procurement Strategies, Contextual Factors and Buying Behaviours. By taking

into account all of the above entities and relations, a strategy making model was

developed (Figure 2).

4 Indeed, three main strategic levels have become well accepted in a traditional firm: Corporate Level

Strategy; Business Unit Strategy; Functional Level Strategy.

5 Turner J.R., (1999); Morris and Jamieson, (2004), Griffin A. and Page A.L., (1996); Anderson D.K. and

Merna A., (2003); Anderson D.K. and Merna A.,(2005); Milosevic D.Z. and Svrinnaboon S., (2006).

6 Bettis R. A. and Hitt M. A., (1995); Loch C., (2000); Lam et al., (2004), Pulkkinen V.P.,(2005), McGrath

R.G., MacMillan I., (2000) McGrath ME, (1996), Bryson J. M., Delbecq C. Q., (1979).

7 Dzeng R. and Wen K., (2005); Miller R. Lessard D., (2001); Lampel J., (2001); Milosevic D.Z.,

(1989);Kollveit B. J. et al., (2004); Engwall M., (2003); Miller R. and Floricel S., (2001).

XX

Procurement

Contextual

Factors

Buying

Behaviours

B.U.

Strategy

Project

Strategy

Procurement

Strategy

Project

Characteristics/ Contextual

Factors

Contextual

Factors

Figure 1 - Procurement Strategy set-up

Research Strategy - Single-Case Study

Yin (1994), suggested that a case study research is appropriate when the researcher tries

to understand a phenomenon, not under his control, by answering at “how” and “why”

questions. Yin (1994) specifies that a single case study has to be used when it represents

the critical case (or extreme case) in testing a well-formulated theory. The single case is

helpful to determine whether a theory’s propositions are correct or whether some

alternatives set of explanations might be more relevant. For all of these reason, the

research strategy was to adopt a single-case study through a focused interview. The

interviewee selected was a Project Audit Manager8 of one of the Best-in-Class Italian

EPC Companies (in order to consider an extreme case). The single-case study

confirmed the construct validity. However, it allowed to improve and complete the

above mentioned strategy-making model (Figure 2). Each of the hypothesized relations

among the strategic levels was confirmed and in addition it was pointed out that:

• The Business Unit strategy comes directly from the CEO’s guidelines, and in

turn it directly affects the project strategy;

• The Procurement strategy is directly fed by the CEO strategy on the basis of the

characteristics of the project that the company is going to perform in the future;

• The Buying Behaviors depend on the Procurement strategy chosen, but they are

adapted on the basis of the project strategy.

8 The Project Audit Managers in this company have a deep knowledge of the company’s strategy.

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ProcurementContextual

Factors

Buying

Behaviours

CEO Strategy

B.U. Strategy

Consistency

CF

CF

Project Strategy

Procurement

Strategy

Project

Characteristics/ Contextual

Factors

Strategic

Projects

Figure 2 - Procurement strategy set-up (Tested Model)

Research Value

The main contribution of this research, mainly theoretical, was the formal definition of a

procurement strategy-making process in an EPC context, disregarded by the literature.

The single-case confirmed the validity of a model based on the concepts of Contextual

Factors, Strategic Levels and relationships among them, Buying Behaviours. This result

also highlights that a procurement strategy cannot be deemed as a stand-alone entity,

but it has to be considered as an entity interacting with all of the strategic levels within a

company. A strategy can be defined indeed as “a continuous process by which: goals

are determined; resources are allocated; a pattern of cohesive actions is promoted by

the organization in developing competitive advantages” (Evered, 1983). In the process

above all of these elements can be found: the project goals (the competitive advantage

of an EPC company is based on projects, of course) are shaped by the BU strategy, the

resources are allocated by the CEO strategy to the business processes (engineering,

procurement and construction), a pattern of cohesive actions is promoted (the pattern of

buying behaviours is promoted by the procurement strategy, coherently with the project

strategy), in developing competitive advantages.

Further Research

Further researches using a “replication” logic, may employ multiple-case studies in

order to verify the external validity of this study. Not only, it will be worthwhile to

determine exactly the contextual factors involved for each strategic level and their

overlapping.

Procurement and Deviations

Once the strategy making process was clarified, the second step was to understand the

dynamic relationship existing among procurement and projects usually performed by an

EPC company. In fact, in EPC companies the procurement plays a key role in project

execution, indeed it is a crucial phase of the project execution. However, the experience

confirms that during project execution it is possible (and, irrespective of the amount of

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planning, really very common) that the actual performance, in terms of time, cost, and

quality, differs considerably from that desired. The causes of these deviations can vary a

lot. Indeed, the business processes (engineering, procurement and construction) are

often accountable for project deviations. The procurement phase, such the other project

phases, can considerably contribute in originating deviations from desired performance.

On the other hand, once a deviation from desired performance is discovered, the

possible actions that a project manager can undertake to reduce or eliminate the

deviation vary a lot. In particular, re-planning is probably the most used practice to

reduce deviations. Because of its great impact on project performance, procurement can

also be used as a leverage to reduce or, possibly, eliminate the deviations from the

desired performance caused by the procurement, by the other project phases, or by

external factors. The objective of this second research is to understand how the

procurement can be considered as a factor to cause and a leverage to recover EPC

project deviations. The analysis of the literature highlighted indeed a total lack about

this topic. For this reason two research questions with their sub-questions are stated:

RQ - 2 How can procurement contribute in originating deviations from the

desired performance during the project execution?

a. How can procurement strategies contribute in originating deviations

from the desired performance during the project execution?

b. How can procurement process contribute in originating deviations from

the desired performance during the project execution?

RQ - 3 How can procurement be used to re-align the actual project

performance to those desired?

c. How can procurement strategies be used to re-align the actual project

performance to those desired?

d. How can procurement process be used to re-align the actual project

performance to those desired?

Framework

The procurement was supposed to affect the project performance through the two

leverages identified: procurement strategy and procurement process. They both were

supposed to affect the procurement contribution to Project Performance in terms of

time, cost and quality.

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BuyingBehaviours

ProcurementStrategy

Procurementcontribution to

Project

Performance

Figure 3 - Procurement Impact on Project Performance

The remedial actions, that the procurement was supposed to undertake in order to

recover project deviations, are procurement strategies and procurement process

modifications. Indeed, these modifications can be considered as actions to re-align the

performance with those obtainable with a specific procurement leverages positioning. In

particular, these modifications can be undertaken (Figure 4): within the same

acquisition, to purchase later items within the same project, to purchase item in further

projects (Lesson Learned).

Figure 4 - Procurement as a Cause and Leverage

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Research Strategy - Multiple-Case Study

Once again, the research characteristics suggest to use a case-study research in order to

answer the RQ2 and the RQ3. However, for these research questions does not exist a

critical (or extreme) case to be tested, but there was the need for a more compelling

evidence and more robustness, that can be guaranteed only by using a multiple-case

study approach (Herriot and Fireston, 1983). However, to conduct a multiple-case study

it is necessary to select the sample. This problem regards the selection of the companies

and the interviewees within the company. In particular, in order to have a greater

significance of the results, it was decided to focus on the Best-in-Class EPC companies.

More difficult was the selection of the interviewees. This research focuses mainly on the

relationship existing between procurement and deviations occurring in EPC projects.

For these reasons the ideal interviewee must have two main characteristics:

− A deep knowledge of project-related issues;

− A deep knowledge of the procurement strategies and process;

− An overall vision on the projects performed by the company.

In order to be sure that the interviewee had the second and the third characteristics, it

was decided to interview Procurement Managers (that have a multi-project vision), but

in order to satisfy also the first constraint it was necessary to let managers operating on

projects (for example project managers, project audit managers,…) share in the

interview. In addition, in order to rule out the eventuality of misunderstandings, few

days after the interview a detailed report was sent to the interviewee to have a feedback.

A cross-analysis of the results allowed to point out some interesting results.

Procurement Strategies Originating Deviations

Table 1 shows the different strategies selected by the company as causing performance

deviations in projects9.

STRATEGY COMPANY

TIM

E

CO

ST

QU

AL

ITY

1 2 3

Reduce the Number of Suppliers X X X

Finding New Suppliers

X X

Negotiation

X

Improvement and Development of the Supplier

X

Alternative Materials / Components / Products

X

Table 1 - Strategies originating deviations

9 A red cell means that the main guideline was selected by the all of the companies involved, a yellow

cell means that the main guideline was selected by two companies, instead a green cell means that the

main guideline was selected only by one company.

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The strategy “Reduce the Number of Suppliers” was selected by the three companies as

causing both time and cost deviations. The aim of this strategy is to decrease the

number of suppliers which are having business for a specific product or set of products.

However, all the companies pointed out that this strategy leads to a virtual increase of

the supplier’s bargaining power because the supplier, aware that it is not in competition

with a high number of competitors, places high value and time to the sale, affecting time

and cost performance.

The strategy “Finding New Suppliers” was selected by two companies as affecting the

quality performance. The aim of this strategy is to find more suitable suppliers

(especially in terms of costs), or to widen the number of potential suppliers, because of

the increased level of competitiveness within that market that a larger number of

suppliers will lead to. However, new suppliers, often coming from emergent countries,

usually have not enough expertise to assure the quality level required by the buying

companies; to be more precise when they provide the items during the project

execution, the quality level of the items is often not aligned with that contractually

agreed10

. Only Company Two did not select this strategy and specified that this strategy

is usually followed by the strategy “Improvement and Development of the Supplier”, in

order to reduce the possibility of scarce quality.

The strategy “Negotiation” was selected only by one company as affecting time and

cost performance. The objective of this strategy is to deal with the suppliers in order to

get the most favourable conditions in terms of price and service. However, the

Company Two pointed out that an overexploitation of negotiation leads to an antagonist

supplier behavior: the supplier places higher value and time to the sale in revenge for

the opportunistic behavior of the buying company. The companies that did not select

this main guideline, specified that it is not used because they are aware of the antagonist

relationship that this strategy leads to.

The strategy “Improvement and Development of the Supplier” was selected by one

company as affecting the project quality. Indeed, this guideline is used to improve and

develop the performance of a supplier that is willing to assure low cost. However, this

strategy can lead to unsatisfactory quality performance when it is constrained by the

project: the time at disposal to develop the supplier is not enough to assure the right

performance improvement. Moreover, the short time at disposal in project contexts

should not be enough to select the supplier whose performance has to be improved.

Finally, the strategy “Alternative Materials / Components / Products” was selected only

by the Company Three as affecting the quality performance: when the company tried to

use alternative components, had to face with quality deviations in projects. This

probably happens because the company performs projects where the clients require high

components reliability (low project novelty, in particular low average number of new

components designed) and, when the company tried to experiment with new solutions,

faced with non-conformities.

10

The quality performance in the EPC industry is deemed as a qualifier performance (Hill, 2000).

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Process Phases Originating Deviations

Table 2 shows the phases of the procurement process selected by the three companies as

affecting the project performance11

.

# PROCUREMENT PROCESS

PERFORMANCE

TIM

E

CO

ST

QU

AL

ITY

1 Material Take Off

2 Supplier Research

3 Market Price Prediction

4 Supplier Qualification

5 Purchase Requisition

6 Supplier Selection and Final Choice

7 Development of The System Supporting The Relations

8 Order Management And Inspection

9 Shipping

10 Knowledge Management

Table 2 - Process Phases Originating Deviations

The Material Take Off is often deemed as a phase under the engineering domain,

however this is the phase that also activates the procurement process and requires a

continuous interaction between engineering and procurement (accountable for the

component “Matching with other Buys”). This phase was deemed as accountable for

time delays in projects because of the long time that the activities of designing the

technical solution and matching with other buys require to be performed, time that is

usually longer than that planned. As can be seen this phase was selected by all of the

companies interviewed.

The phase of Supplier Research was selected by the three companies as causing time

delays. In particular, the Evaluation of Client’s Constraints is mainly accountable for

time delays: it is often difficult to find suppliers that satisfy all the client’s constraints,

and the impact of this phase grows as much as the constraints imposed by the client

grow.

All of the three companies highlighted the strong impact that the phase of Supplier

Qualification can have on causing time delays in projects; for this reason each company

always resorts to suppliers already qualified, in order to gain time. However, the second

company selected the phase of supplier qualification as accountable for time delays also

for another reason: the procurement sometimes does not perform correctly this phase

because are often qualified suppliers, with scarce engineering capabilities, that are not

11

A red cell means that the main guideline was selected by the all of the companies involved, a yellow

cell means that the main guideline was selected by two companies, instead a green cell means that the

main guideline was selected only by one company.

XXVII

capable to provide exhaustive technical drawings. This situation implies difficulties to

obtain on time high-quality technical drawings: as a result this phase was selected as

causing time delays and quality deviations in projects by the second company.

However, this situation was considered even by the other two companies (though as

affecting only the time performance, but not the quality performance), that instead

consider the phase Purchase Requisition as very time consuming especially when the

suppliers involved have scarce engineering capabilities. This difference is due to the

different process structuring among the companies. For all of these reasons the first and

the third company selected the phase Purchase Requisition, instead the second company

selected the phase Supplier Qualification.

The phase of Supplier Selection and Final Choice was selected by all of the companies

as affecting the time performance for the same reason: during this phase takes place the

technical and commercial offers-alignment that is very time-consuming. Indeed, the

technical alignment is as much accountable for time delays as the technical complexity

of the item to be bought grows, but it is necessary to highlight that each technical

modification leads to a review of the commercial-contractual agreements that extends

the already long time.

Finally, the phase Order Management and Inspection was selected by the three

companies as causing time delays: the inspection sub-phase can be very time consuming

(especially in event of consecutive non-conformities), in order to assure the quality level

required by the client. However the second company selected the Order Management

and Inspection phase as causing even quality deviations: if this phase is not performed

deeply (or not performed, e.g. wave of inspection) or outsourced, it can originate quality

deviations.

Procurement Strategy as a Leverage

Table 3 shows how procurement strategies are used as a leverage to recover

performance deviations (“Y” means that the leverage is used, “N” that the leverage is

not used).

COMPANY PROCUREMENT STRATEGIES MODIFICATIONS

Within the same Acquisition To Purchase Later Items Lesson Learned

1 Y Y Y

2 N N Y

3 Y Y Y

Table 3 - Procurement Strategy as a Leverage

As can be noted, the first and the third companies interviewed use to modify

procurement strategies in all of the three possible ways: within the same acquisition, to

purchase later items in the same project, and as Lessons Learned. Instead the second

company does not use to modify strategies during project execution, because of the high

rigidity of the strategies: once a strategy have been implemented, the “switching-costs”

are considered very high. However, in “no-choice” circumstances (supplier failure,

force majeure,…) the company, irrespective of the high costs involved, uses to modify

the strategies. All of the companies involved use to modify the strategies as Lessons

Learned.

XXVIII

Procurement Process as a Leverage

Table 4 shows how the three companies use to modify the procurement process to

recover project deviations deviations (“Y” means that the leverage is used, “N” that the

leverage is not used).

COMPANY PROCUREMENT PROCESS MODIFICATIONS

Within the same Acquisition To Purchase Later Items Lesson Learned

1 N N Y

2 Y Y N

3 Y Y N

Table 4 - Procurement Process as a Leverage

The second and the third companies use to modify the procurement process both within

the same acquisition and to purchase later item in the same project; notwithstanding

they do not modify the procurement process ex-post: when the procurement process is

more flexible, it is not likely to be modified as a lesson learned because the company

can modify it in progress. Instead the first company, though showed a high flexibility in

strategy changing (however a strategy change leads to a process change as highlighted

in the third chapter), does not use to modify the process in progress: the procurement

process is frozen, it is only possible to modify the priority level for each procurement

phase. This company instead use to modify the process as a Lesson Learned.

Leverage Effectiveness

Table 5 shows which project deviation enables to use a recovering action, having

reference to the procurement, for each company. The first company uses procurement to

recover time and cost deviations; the second company uses procurement to recover time

and quality deviations; the third company uses procurement to recover only time

deviations. This findings highlights that all the companies use the procurement as a

leverage to reduce time delays, the Company One uses it also to recover cost deviations;

the Company Two uses it also to recover quality deviations. Surprisingly only one

company (Company One), uses procurement leverages to recover cost deviations: the

other companies interviewed highlighted that they usually do not face with cost

overruns (their efforts are already aimed at reducing costs).

COMPANY TIME COST QUALITY

1 X X

2 X X

3 X

Table 5 - Deviations enabling recovering actions

These results were confirmed by the results in following tables, explaining the

effectiveness of each action implemented. Tables 6, 7, and 8 show the effectiveness of

each leverage, detailed for each company. The grey cells, indicate exceptional situations

(“no-choice” situations, Company Two), and little modifications (“priorities

modifications” for process phase, Company One). There were not found differences in

the use of strategy or process modifications between modifications within the same

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acquisition and modifications to purchase later items; for this reason they were grouped

into one cluster of actions named “modifications during project execution”.

LEVERAGE - COMPANY ONE PERFORMANCE AFFECTED

TIME COST QUALITY

Modifications during

Project Execution

Procurement

Strategy

TIME ORIENTED +1 -1 0

COST ORIENTED -1 +1 0

QUALITY ORIENTED - - -

Procurement

Process

TIME ORIENTED +2 -1 0

COST ORIENTED - - -

QUALITY ORIENTED - - -

Lesson Learned

Procurement

Strategy

TIME ORIENTED +1 0 0

COST ORIENTED 0 +2 0

QUALITY ORIENTED - - -

Procurement

Process

TIME ORIENTED +1 0 0

COST ORIENTED 0 +2 0

QUALITY ORIENTED - - -

Table 6 - Leverage Effectiveness - Company One

LEVERAGE - COMPANY TWO PERFORMANCE AFFECTED

TIME COST QUALITY

Modifications within

the same acquisition

Procurement

Strategy

TIME ORIENTED +1 -1 0

COST ORIENTED - - -

QUALITY ORIENTED - - -

Procurement

Process

TIME ORIENTED +1 -1 -1

COST ORIENTED - - -

QUALITY ORIENTED -1 -1 +1

Lesson Learned

Procurement

Strategy

TIME ORIENTED +1 0 0

COST ORIENTED +1 0 0

QUALITY ORIENTED +1 0 0

Procurement

Process

TIME ORIENTED - - -

COST ORIENTED - - -

QUALITY ORIENTED - - -

Table 7 - Leverage Effectiveness - Company Two

XXX

LEVERAGE - COMPANY THREE PERFORMANCE AFFECTED

TIME COST QUALITY

Modifications within

the same acquisition

Procurement

Strategy

TIME ORIENTED +1 -1 0

COST ORIENTED - - -

QUALITY ORIENTED - - -

Procurement

Process

TIME ORIENTED +1 -1 0

COST ORIENTED - - -

QUALITY ORIENTED - - -

Lesson Learned

Procurement

Strategy

TIME ORIENTED +1 0 0

COST ORIENTED 0 +1 0

QUALITY ORIENTED - - -

Procurement

Process

TIME ORIENTED - - -

COST ORIENTED - - -

QUALITY ORIENTED - - -

Table 8 - Leverage Effectiveness - Company Three

The most interesting result is that each recovering action, undertaken during project

execution and aimed at recovering a specific performance, leads to the worsening of

another performance (or other two performance if the performance recovered is

quality): each recovering action during project execution, exploits the trade-offs among

performance. The Lessons Learned instead are aimed at improving those performance

deemed as improvable, in company’s perception. Moreover, the modifications as

Lessons Learned do not exploit trade-offs among performance, they can be considered

as structural modifications, exploiting another trade-off curve aimed at improving a

specific performance, without worsening another one. Another surprising result is that

the Company One attributed high effectiveness to process modifications: these

modifications are undertaken only if they originate a great positive impact on time

performance, without too much worsening cost performance.

Conclusions

The analysis of the results also shows that the three companies use three different

strategies to handle with project deviations. In particular, when Company One (Figure

5) faces time or cost deviations in projects, uses to modify only the procurement

strategies12

.

Figure 5 - Company One

12

As it is highlighted in the third chapter, each strategy leads to a process structuring in terms of phases

to be performed and how deeply they have to be performed .

XXXI

Company Two (Figure 6) instead, does not use to modify the procurement strategies

during project execution, in order to recover time and quality deviations. The

interviewees highlighted that the procurement strategies are characterized by high

rigidity (they imply high “switching costs”) and for this reason any change during the

project execution is not allowed.

Figure 6 - Company Two

The third company (Figure 7) instead uses the most flexible strategy: when necessary it

can change both procurement process and procurement strategy to handle with time

deviations.

Figure 7 - Company Three

It is worthwhile to point out that both Company One (that does not modify procurement

process during project execution) and Company Two (hat does not modify procurement

strategies during project execution), highlighted that a more flexible strategy (that

would allow to modify all of the procurement leverages), should make possible to

recover a higher number of deviations with higher effectiveness. However, these

different strategies adopted to handle with project deviations reflect different

“guidelines” coming from top-levels within the organization: top-levels within the

organization decide which strategy has to be adopted drawing the line at the

modifications that the procurement function may employ to handle with project

performance deviations.

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Research Value

This research gave a worthwhile contribution, with both managerial and theoretical

implications. In particular, it was established a framework, based on the concept of

procurement leverages, to handle with project deviations. It was also pointed out that

performance deviations can be recovered, during project execution, only by exploiting

trade-offs among performance. The modifications as Lessons Learned instead, do not

lead to the exploitation of trade-offs among performance, they can be considered as

structural modifications, exploiting another trade-off curve aimed at improving a

specific performance, without worsening another one. The results also highlighted three

different strategies to handle with project deviations: strategies modifications, process

modifications, and combined modifications, depending on the situation. These findings

allow valuable further research.

Further Research

It should be worthwhile to repeat the same analysis changing the focus. It should be

interesting to widen the analysis, focusing on individual EPC projects that faced

performance deviations. By doing so, it will be possible to match each strategy and

process modification to specific effectiveness. By analyzing single projects, it will be

possible to construct a valid tool, based on historical experiences, to handle with project

deviations.