INTERNATIONAL JOURNAL OF

PROJECT
MANAGEMENT
International Journal of Project Management 22 (2004) 545–551
www.elsevier.com/locate/ijproman

The importance of the early phase: the case of construction

and building projects
a,* b,1
Bjørn Johs. Kolltveit , Kjell Grønhaug
a
Norwegian School of Management, P.O. Box 580, 1302 Sandvika, Norway
b
Norwegian School of Economics and Business Administration, Helleveien 5, 5045 Bergen, Norway
Received 24 June 2003; received in revised form 21 August 2003; accepted 2 March 2004

Abstract

The quality of the execution of the early project phases may dramatically influence the project performance. In spite of this, early
project phases have only attracted limited attention in past research. In this article we address two factors of key importance for
project performance, i.e. uncertainty and the influence of project stakeholders. To shed light on the challenges encountered in the
early phase we also report findings from a large-scale research project in the construction and building industry. We highlight
managerial and theoretical implications.

2004 Published by Elsevier Ltd and IPMA.

Keywords: Construction and building industry; Projects; Value generation; Opportunities in the nature of the early phase

1. Introduction that, at this early stage of a project, little is known about

the project activities and project execution. This means
This article addresses the importance of the early that project uncertainty is at its highest during the early
phase of projects. In spite of the fact that past research stage of the project, especially for projects with a high
shows that how the early phase of a project is executed degree of novelty. Additionally, in the case of large and
may dramatically influence the project’s value genera- complex projects, many stakeholders can be involved.
tion, it is surprising to observe that this has almost been Stakeholders are individuals and/or organisations that
neglected in the Norwegian construction and building are involved in or may be affected by the project activ-
industry. Another observation is that the current un- ities [1], e.g. the project client, project sponsor, project
derstanding in this industry is limited as to which aspect manager and the employees involved in the project. The
of the early phase has greatest effect on total project various stakeholders have different interests in and am-
performance. Improved insight into the project’s early bitions for a project depending on the type of their in-
phase allows for better understanding of project value volvement in the same, and they influence the project
generation, stronger industrial involvement in the early according to what role they play in relation to the pro-
phase, improved decisions, and thus better project ject. The potential influence of the stakeholders, in
execution. particular the external stakeholders, is highest in the
The authors of this paper maintain that two factors in early phase, before a detailed agenda is set and the cost
particular affect project performance; uncertainty and involved for making changes is low. This implies that
the influence of the project stakeholders. The reason is the early phase of a project development is the most
important time for innovative activities and for planning
*
a project execution that will optimise project value
Corresponding author. Tel.: +47-67557755; fax: +47-67557678.
E-mail addresses: bjorn.kolltveit@bi.no (B.J. Kolltveit), kjell.
generation. In order to maximise this value generation it
gronhaug@nhh.no (K. Grønhaug). is sometimes necessary to allow for continuous innova-
1
Tel.: +47-55959460; fax: +47-55959430. tive activities through the execution phase as well. We

0263-7863/$30.00
2004 Published by Elsevier Ltd and IPMA.

doi:10.1016/j.ijproman.2004.03.002
546 B.J. Kolltveit, K. Grønhaug / International Journal of Project Management 22 (2004) 545–551

argue, however, that in the case of most major projects Oslofjord Tunnel and the Gardermoen Airport, are
in the construction and building industry, conceptual perceived as successful because the deviations in cost are
development and strategic planning should be concen- considered relatively small, and both were delivered on
trated to the early phase [2]. time. The other three projects show significant devia-
The rest of the article is organised as follows: in the tions both in cost and delivery time. The reported de-
next section we report some observations from the re- viations emphasise the challenge facing the Norwegian
search project, Bonus I, which primarily addresses the construction and building industry. This problem is not
opportunities hidden in the nature of the early phase of just a Norwegian phenomenon. Low productivity, ma-
major projects in the building industry. The ‘‘driving jor project deviations, low profitability, and reluctance
question’’ underlying this research project was: ‘‘How to initiate and implement new developments are also of
does the way the early phase is executed contribute to concern in the other Scandinavian countries, the UK
increased value generation’’ [3]. In this project, data and the US. These problems are, however, only partly
were gathered from many sources. Here we report on recognised by the industry itself. Moreover, the industry
this data collection and afterwards our findings. Finally will have to face increased international competition in
we draw conclusions and highlight various implications the future [6,7].
of these findings. Observations like these led some Norwegian indus-
trialists to initiate a study to evaluate
• the reliability of project execution, and
2. Projects in the Norwegian construction and building • industrial competitiveness in connection with the ex-
industry ecution of major and complex projects. This study
was undertaken during fall 1999.
The Norwegian construction and building industry is One of the major conclusions from this study was
one of the largest and most important industries in the that more effective execution of the early phase of major
country, with a turnover of NOK 330 billion and and complex projects would give a significant potential
roughly 300,000 employees. The industry is a project for greater project value generation [3]. This conclusion
business industry that undertakes several major and is founded primarily on the assumption that a high de-
complex projects every year. The term project business gree of project uncertainty exists in the early phase, and
implies that the parties use a tailor-made institutional on the fact that uncertainty, by its very nature, is asso-
form, i.e. project organisation, for most of their business ciated with both upside and downside risk [8]. In order
activities [4,5]. In recent years this industry has shown to improve the project results and financial margins the
some good project results, but too many of the projects project uncertainty must explicitly be taken into ac-
ended up with significant cost overruns and delayed count. We also claim that acceptance of a high degree of
delivery times. This is illustrated in the table below. uncertainty is a prerequisite for result improvement [9].
Table 1 shows the changes in cost from initial esti- The initial study by the industry led to the Bonus I
mate to actual cost for five completed large-scale Nor- project, on which the present paper is based.
wegian projects. Inspection of table one reveals
deviation in delivery time from planned delivery time at
start to actual delivery at completion. The deviations in 3. The Bonus I project
project cost vary from 6% saving to 160% overrun. It is
also seen that the delivery time varies from delivered as The purpose of this project was to gain insight into
scheduled to a time overrun of three years. Table 1 the importance of the early phase of major and complex
shows that the actual cost of the completed Oslofjord projects in the Norwegian construction and building
Tunnel project was 15% higher than the initial estimate industry.
adjusted for inflation. In this case, contractually agreed The project was conducted with active participation
changes are not included in the figure. The two projects, from seven major industrial companies and organisa-

Table 1
Cost and delivery time for construction projects
Project Cost start estimate Cost at completed Cost overrun in % Scheduled delivery Actual delivery
(mill NOK) project (mill NOK) date at the start
Romerikporten 800 2100 50 1998 1999
The National Bank Headquarters 1500 3900 160 1996 1998
The New National Hospital 2820 5340 89 1997 2000
The Oslofjord Tunnel 1100 1270 15 2000 2000
The Gardermoen Airport* 11,400 10,700 (6) 1998 1998
 B.J. Kolltveit, K. Grønhaug / International Journal of Project Management 22 (2004) 545–551 547

tions; Norsk Hydro, Statsbygg, Jernbaneverket, Vei- factors that obstruct the industry from exploiting the
direktoratet, NCC Norge AS, Veidekke ASA, Norcon- potential of the early phase. In sum, very detailed and
sult, and Norwegian Centre for Project Management. highly valid data were gathered for examination of the
The reason for doing so was to benefit from their actual research problem in question.
knowledge of this industry, and in particular from their
experience associated with the early project phases. The
Bonus I project established a Board on which all par- 4. Defining the early project phase
ticipating organisations were represented by one mem-
ber. The Project Board held 13 meetings, and worked to The term ‘‘early phase’’ has many definitions. This
some degree as a work group. The Board’s decisions made it necessary for the Bonus I project to arrive at a
were to a large extent based on consensus. The project common understanding of the term. Based on discus-
Work Group, consisting of seven members, was another sions in the Board, Work Group meetings and discus-
important organisational unit and was organised ac- sions with experts, it was concluded that for major
cording to the same principles as the project Board. This projects in the construction and building industry the
group held seven meetings. Detailed notes were taken at early phase should be defined as:
all Board and Work Group meetings. These notes were
‘‘The process and activities that lead to, and immediately follow,
distributed to and discussed within the participating the decision to undertake feasibility studies and to execute the
organisations and commented before the protocols were main project’’.
approved. This guaranteed, not only the quality of the
details, but also the validity of our observations. All This means that the early phase starts before the
minutes from the meetings are available [3]. decision to start the main project has been taken and
The Bonus I project arranged seminars with invited lasts until the activities and processes immediately fol-
speakers and experts from the industry. The expert lowing the decision to execute the project are completed.
seminars were organised as focus group discussions Further, it was concluded that for major projects in this
moderated by the first author, who has extensive expe- industry the project early phase can be divided into two
rience from the industry and from project work. De- sub-phases; the innovative sub-phase and the planning
tailed notes were taken at the seminars. Because of the sub-phase. In the innovative sub-phase the project
involvement and expertise of the participants and ex- owner, experts such as the architects, and the decision-
perts, and the numerous, varied and detailed data, we making local government are the key stakeholders [1].
are confident that a better understanding of the early This sub-phase continues until the project proposal has
phase of projects was obtained, which would not have been defined. The main tasks in this part of the early
been achieved by more ‘‘superficial’’ approaches. phase are feasibility studies, value analysis, formulation
In addition, data were gathered by means of a tailor- of project goals etc. The planning sub-phase starts when
made questionaire and followed up by personal inter- the project proposal is completed, and strategic choices
views addressing such questions as Bergly [7]. have to be made [3,7]. Important tasks in this sub-phase
• What activities are included in the early phase? are to develop project and contract strategies, establish
• How do the parties in the industry execute the early procedures for strategic risk management, benchmark-
phase? ing, planning, estimating etc. This phase lasts until a
The report from the study leading to the Bonus I decision is taken to execute the project [3]. The key
project is also available as a source of information. stakeholders in this sub-phase are the project owner,
Content analysis of the available documents, e.g. architects, contractors and sub-contractors. In this sub-
minutes, notes, reports etc., was used to identify perti- phase, at least the main representatives of the con-
nent observations that would enlighten our research struction industry should become actively involved in
problem. The analysis involved careful examination of the project development. This is illustrated in Fig. 1.
the various documents, implying categorization of the
type of information needed for our research, identifica-
tion of observations, chronological listing of the obser-
vations, and analysis of the listed observations Kolltveit (1)
et al. [3], and this paper. By this method, altogether 262
observations related to execution of the early phases of
major and complex projects in the Norwegian con-
struction and building industry were identified. Of these
observations 26 were related to the potential for in- T1 M1 M2 T2
creased value generation through more effective execu- Time
tion of the early phase, 193 to the degree of traditional
execution of the early phase, and the remaining 43 to Fig. 1. The early phase for major projects.
548 B.J. Kolltveit, K. Grønhaug / International Journal of Project Management 22 (2004) 545–551

Fig. 1 should be read as follows. The two small tri- take into account. To obtain insight into how the par-
angles illustrate two milestones, i.e. the decision to start ticipants in the Bonus I project perceive the early phase
the feasibility studies and the decision to execute the a group of 26 experts were asked the following question
main project. The point in time T2 marks the end of the at a seminar: ‘‘Do you believe that more effective execu-
early phase. Curve (1) illustrates that the early phase is tion of the early phase improves the potential for increased
part of the project life cycle. value generation?’’ 25 responses from this discussion
were reported in the notes from the seminar. In addition
there is the conclusion from the study that led to the
5. Findings Bonus I project. These observations were analysed and
grouped into three categories. The basis for this
In this section we report the major findings from the grouping relates to the participant’s perception of whe-
investigation. The findings are organised in four sections ther more effective execution of the early phase for
addressing: projects in the construction and building industry in-
• the challenges of the early project phase fluences the potential for project value generation posi-
• the participant’s interests in the early project phase tively. Fifty percent of the observations indicated clearly
• execution of the early project phase that more effective execution of the early phase of con-
• what prevents the parties from more effective execu- struction and building projects could have a positive
tion of the early project phase? influence on the project value generation. Fifty percent
of the observations gave vague indications of the same.
5.1. The challenges of the early phase An interesting observation is that none of the experts
indicated that the execution of the early phase have ‘‘no
As emphasized above, a high degree of uncertainty influence’’ on project performance (Table 2).
exists in the early stage of the project. An important In the report from the study that led to the Bonus I
reason for addressing this challenge of uncertainty is project it was clearly stated that more effective execution
that this early stage of a project is the phase when the of the early project phase give a potential for increased
‘‘technical concept’’ is developed. The technical concept value generation [13]. Based on this assertion we argue
is ‘‘an approved abstraction of the technical solution that the experts within the construction and building
that satisfies the functional, quality and capacity re- industry believe there is a potential for increased value
quirements’’ [2]. This implies that the decisions regard- generation by more effective execution of the early
ing the technical concept must be taken in the early phase.
project phase. Whether a project is perceived as suc- Examples of statements indicating clearly that more
cessful or not depends on whether the project object effective execution of the project’s early phase in the
functions in its business as expected. This in turn de- industry concerned have a positive influence on the
pends to a high degree on the suitability and function- potential for increased value generation are [3]:
ality of the technical concept of the project [2]. This ‘‘We do not utilize the potential for increased value
implies that effective development of the technical con- generation in the early phase’’
cept during the early phase and the quality of the con- ‘‘The project and the premises for value generation
ceptual decisions have a significant impact on future are defined in the early phase’’
value generation [10,11], and that effective strategic ‘‘We have no experience of allowing resources that
choices are required in order to exploit this potential for could exploit the potential of the early phase’’
value generation. Past studies have shown that ineffec- ‘‘The parties do not utilise the existing competence
tive execution of the early phase of major projects can during the early phase’’
lead to conceptual changes later during the implemen- ‘‘40% of all failures are caused by mistakes in the
tation phase, which may significantly increase the early phase’’
downside risk [2,12]. Andersen et al. [11] argue that the
project stakeholders are usually less qualified to deal
Table 2
with strategic conceptual issues that could have a sig-
The interests of the participants in the early phase
nificant impact on the project result than they are to
Category Observations
control the execution processes that have only a mar-
ginal effect on the project result. This lack of competence No positive influence 0%
reduces project upside risk and increases downside risk. Vague indications of an positive influence 50%
Clear indications of an influence 50%
R 100%
5.2. The industry’s interests in the early project phase Number of observations (n): 26
Observations related to whether more effective execution of the
Perception forms the participant’s ‘‘reality construc- project early phase will influence the potential for increased value
tions’’ and influences what they consider important and generation positively.
 B.J. Kolltveit, K. Grønhaug / International Journal of Project Management 22 (2004) 545–551 549

‘‘Not understanding the importance of the project Explanations offered to emphasize risk reductions
early phase results in limited resources for the early were such as:
phase work’’ • ‘‘The parties are afraid of new models of collabora-
‘‘There exists a low degree of flexibility and we do not tion’’
utilize the available potential’’. • ‘‘The organisational culture restricts collaboration
Examples of statements indicating vaguely that more between experts’’. These arguments were supported
effective execution of the project early phase in the ac- by other following observations, e.g.
tual industry will influence positively the potential for • ‘‘apply risk analyses in the early phase’’
increased value generation are [3]. • ‘‘provide a well-prepared basis for contracting’’
‘‘The construction industry is being very little in- Table 3 also shows that 28% of the observations
volved by the key actors in the early phase’’ contained in the column for traditional execution fit into
‘‘There is no tradition for involving more parties in the upper quadrant on the left side and indicate that
the early phase’’ some parties, although choosing a traditional execution
‘‘The early phase is the arena of the project owners’’ of the early phase, do actively exploit the opportunities
‘‘The work in the early project phase has low status’’ for increased value generation in this phase. Examples
of such observations are:
5.3. Execution of the early phase • ‘‘We have established criteria for choosing alterna-
tives’’
Table 3 refers to activities in the early phases. Alto- • ‘‘We have established breakdown methods that make
gether 193 observations were collected concerning how it possible to analyse the various elements of the pro-
the parties in the construction and building industry ject, including a thorough discussion between the
execute this early stage of the project execution. In ex- project manager and the estimator’’
amining these observations we apply the two dimen- Table 3 shows that only 21 out of 193 observations
sions; ‘‘degree of traditional execution’’, and ‘‘ seeking indicate an untraditional execution of the early phase in
opportunities’’. By the first dimension we mean to what order to optimise project value generation [3]. Examples
degree the involved parties execute the early phase as of untraditional execution given by the subjects involved
they always have done. The distribution of the obser- are:
vations in percentages is shown in Table 3. ‘‘Models for managing the opportunities in the na-
Table 3 should be read as follows. The observations ture of uncertainty’’
are grouped according the degree of traditional execu- ‘‘Interfaces are burdened with uncertainty, but the
tion and to what extent new opportunities are sought. owners of interfaces are also the owners of opportu-
Both dimensions are dichotomised and thus providing a nities’’
2
2 matrix. The bottom line shows that 172 of the total ‘‘We have to accept uncertainty’’.
of 193 observations relate to traditional execution. We Inspection of the bottom line of Table 3, showing
also see that among those that apply traditional execu- a distribution between traditional and untraditional
tion, the great majority – 72% emphasise low downside execution in the early project phase, reveals that the
risk as compared with only 14% among those who em- construction and building industry tends to be rather
phasize untraditional execution. conservative; an industry that carries out its business
Arguments for seeking low downside risk among as it always has done. The following statement, found to
those favouring traditional execution were such as: be common in the industry, supports this conclusion;
‘‘We need to to focus on risk reduction’’ ‘‘we undertake the early phase as we always have done’’,
‘‘Low risk for project cost and progress’’ and ‘‘there have been very few improvements in this
‘‘The parties (involved in the project) seek safe posi- industry in recent years’’. This conclusion is in accor-
tions and roles, an attitude that restricts the develop- dance with findings from other studies in the same
ment of new roles’’ industry [6].

Table 3
Execution of the early phase of major projects
Degree of traditional execution R

Traditional Untraditional
Seeking Actively seeking opportunities 28% 81% 34%
opportunities Seeking low downside risk 72% 19% 66%
R 100% 100% 100%
n¼ 172 21 193
550 B.J. Kolltveit, K. Grønhaug / International Journal of Project Management 22 (2004) 545–551

Table 4 this point of development the project database is in-

Factors that obstruct the industry from exploiting the potential of the complete, often making it irrelevant to use precise
early phase
methods for data measurement and analysis. It is well
Main groups of observations Number of observations known from research that the most important project
1. The industrial culture 63% decisions have to be taken in this phase [2], and that this
2. Contracts and incentives 12% stage of the project development is a time for conceptual
3. Competence 9% innovation and creativity [11]. Table 2 confirms that also
4. Management commitment 7%
5. Execution processes 4.5%
key personnel from the construction and building in-
6. Public frame conditions 4.5% dustry believe that a more effective execution of the early
R 100% phase have positive influence on the potential for in-
The total number of observations (n): 43 creased project value generation. Though the number of
observations in Table 2 is modest they are based on
conclusions from discussions between participating ex-
perts in this project. According to the present authors
5.4. What prevent the parties from more effective the observations are both valid and reliable for our
execution of the early project phase? particular research project.
An examination of the observations in Table 3 shows
Based on the conclusion that the construction and that 172 observations out of 193, or 89%, fall within
building industry is a very conservative industry, and traditional execution of the early phase, implying that
does not actively exploit the opportunities for value little initiative is shown in order to exploit the oppor-
generation in the early phase, the following question was tunities hidden in the nature of the early phase. Since the
asked: ‘‘What factors prevent the parties from executing importance of the early phase is well known, also within
the early phase more effectively?’’ the construction and building industry, it is a paradox
This question was the agenda for the Bonus I expert that the stakeholders in this industry show so little in-
seminar held on 6th February 2002 where 26 experts terest in exploiting the opportunities connected with the
participated. From the minutes we identified 43 state- early project phase. There could be several reasons for
ments pertinent to the above question. These 43 obser- this. One is that the project stakeholders may have in-
vations were grouped into six main categories. The centives that lead them in another direction [6]. Another
distribution of the observations is shown in Table 4. possible explanation could be, as indicated in our ob-
Table 4 shows that 63% of the observations relate to servations, is that the representatives from the actual
the industrial culture. Examples of such observations industry consider the early phase to be an arena for
are: other actors e.g. project owners, architects, local gov-
‘‘The culture restricts use of new models’’ ernment. This is, however, only the case in the innova-
‘‘We do it as we always have done’’ tive sub-phase. According to the present authors, the
‘‘We are afraid of early involvement’’ actors in this industry should actively try to become
‘‘The organisational culture is conservative’’ involved in the early innovative sub-phase. This could
‘‘The conservative industrial culture establishes barri- benefit all involved parties. The construction and
ers against exploiting the potential of the early phase’’ building industry also tends to overlook the planning
‘‘The industrial culture prevents development and sub-phase, where opportunities to influence project va-
composition of the right competence’’ lue generation already exist. Altogether, these observa-
From the above observations it seems reasonable to tions indicate that this industry tends to overlook the
conclude that the main reason for the company’s lack of opportunities hidden in the nature of the early project
interest in exploiting the opportunities hidden in the phase.
nature of uncertainty in the early project phase is the From Table 3 we see that 72% of the observations fit
industrial culture. in with the lower quadrant, indicating that the industry
Table 4 also shows that the involved experts indicated concerned is rather conservative and focuses on low risk.
contracts and incentives, competence, management Nevertheless construction projects suffer from devia-
commitment, the execution process, and public frame- tions in cost and delivery time, see Table 1. This is an-
work conditions as other factors that may limit the in- other paradox.
terest in the early phase. In the research project Bonus I a separate expert
seminar was arranged to address this problem and dis-
cuss which factors prevent the industry from exploiting
6. Discussion the opportunities connected with the early phase. Our
research shows clearly that the industrial culture is the
One of the fundamental problems associated with the most important factor that is most important in this
early phase is the high degree of uncertainty [8,11]. At context, see Table 4. This conclusion should be of major
 B.J. Kolltveit, K. Grønhaug / International Journal of Project Management 22 (2004) 545–551 551

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