Volatility key economic concern for global executives in 2016

02 May 2016 Consultancy.uk

Volatility remains a key concern for global executives, a new report finds. Perceptions about the global economy remains stable, however. Executives remain cautious, seeking to head off disruption to their businesses from, among others, changing consumer behaviour, digitalisation and increased cross-border competition. Relentless focus on costs and margins is top of the agenda for many, as are adapting to volatility and acquisitions. Climate change and corporate citizenship are of least concern to executives in 2016.

The EY survey, titled ‘Global Capital Confidence Barometer’, explores the current confidence of executives across a range of metrics, as well as their appetite for M&A. The survey involves 1,700 executives in 45 countries; nearly 50% are CEOs, CFOs and other C-level executives. Respondents represent 18 sectors, with company sizes ranging across segments: $500 million (16%); $500 million-$999.9 million (25%); $1 billion-$2.9 billion (21%); $3 billion-$4.9 billion (12%); and greater than $5 billion (26%).

Macroeconomic perception
The global economic environment is slowing, as the global growth engine – China – transforms from investment and export focused growth, to an internal consumption and services focused growth model. One of world’s largest economic regions, Europe, continues to mire in relative stagnation, while the US is managing only modest growth. 

With few economics performing sufficiently bright to support global economic expansion, and with no current major crisis, executives report a picture of stability regarding the state of the global economy today. 48% expect real GDP growth to be in line with that of 2015, while 36% expect modest improvement. The expectation for modest decline has increased from 3% last year to 14% this year. 

Four key indicators
The global economic picture has, since the excessive volatility around China at the start of the year and continued uncertainty about the direction of the global economy, become less optimistic across a range of indicators. 

When asked about corporate earnings, for instance, last year 72% said they expected an improvement, while this year only 41% expect advancement and 53% expect stability. Short-term market stability too has seen improvement expectations fall off, dropping from 69% a year ago to 47% in the most recent survey. Credit availability too has been on the decline, according to respondents, falling from 72% expecting improvement last year to 48% expecting improvement this year. Only equity valuations has remained stable.

Economic risks
In terms of risks being faced by respondents, seen to affect businesses over the coming 6-12 months, volatility rates highest, in both economic and political situations. The top rated risk is ‘increased global and regional political instability’, cited by 29% of respondents, followed by ‘increased volatility in commodities and currencies’, cited by 26%. The ‘economic and political situation in the European Union’ comes in at 14%, with the ‘slowing growth in key emerging markets’ next on the list at 11%. 

Disruptive businesses
Internally to businesses, outside of the macroeconomic conditions they face, a number of challenges are affecting their competitiveness. The top rated challenge is ‘changing customer behaviour and expectations, cited as a potential disruption in the coming 12 months by 24% of respondents, followed by ‘advances in technology and digitalisation, cited by 21%. Further issues cited by the respondents are ‘sector convergence and increased competitiveness from companies in other sectors’, as cited by 17%, and ‘increased globalisation, cited by 13%. 

According to the authors, “While these developments pose a major challenge, they also provide opportunities as companies seek to carve out new markets to boost their own revenues and earnings. Those companies taking a proactive attitude to perpetual change and challenges to their core business will be best positioned to take advantage of new market opportunities.”

Boardroom agenda
The survey also asks executives about their current top level boardroom agenda items over the past six months. Of critical concern for 44% of respondents is ‘cost reduction/improving margins’, cited once by 44% of respondents, followed by ‘increased volatility in commodities and currencies’, as cited by 35%. The ‘impact of digital technology on your business model’ continues to loom large on the agenda of boardroom executives, cited by 33%. Acquisitions too remain relatively favourable on the boardroom agenda, as cited by 28% of respondents. The items of least concern, relatively, are ‘climate change’ and ‘corporate citizenship/wider stakeholder engagement’, cited by 21% and 22% respectively. 

Pip McCrostie, EY’s Global Vice Chair at its Transaction Advisory Services, says that “While executives view the global economy as relatively stable, they need to create their own tailwinds in a prolonged low growth environment. A key challenge for executives is to maintain a strong grip on costs, while identifying new sources of revenue. Acquisitions, as well as alliances, are part of the corporate growth agenda for the foreseeable future.”

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Project management industry adds £156 billion of value to UK economy

15 April 2019 Consultancy.uk

Project management has grown into one of UK’s largest areas of business over the past decade, amid the increasing ‘projectification’ of work. With the gross value added to the UK economy by project management estimated to be £156 billion, this trend is likely to continue in the coming era.

Despite the huge success of project management in recent years, until now there has been relatively little data available on the size of project activity. As a result, there has been a great deal of debate on things like the number of people involved in the sector, the number of projects, and how it contributes to economic output. Due to this need for clarity, APM, the UK’s professional body for project management (the largest organisation of its kind in Europe, with 28,000 individual members) commissioned economists from PwC to shed light on the industry's economic impact.

The research concluded that the profession makes a more significant contribution to the UK economy than the financial services sector. 2.13 million full-time equivalent workers (FTEs) were employed in the UK project management sector, generating £156.5 billion of annual gross value added (GVA). In comparison, the financial services sector contributes £115 billion, and the construction industry adds £113 billion.

Gross value added to UK economy

Commenting on the discovery, Debbie Dore, Chief Executive of APM said, “Project management runs as a ‘golden thread’ through businesses, helping to develop new services, driving strategic change and sector-wide reform.”

Who is a ‘project manager’?

To reach these estimates, PwC’s researchers used detailed models to map out the value of project management activity. They ultimately defined relevant ‘projects’ as “temporary, non-routine endeavours or rolling programmes of change designed to produce a distinct product, service or end result… [with] a defined beginning and end, a specific scope, a ring-fenced budget, [and] an identified and potentially dedicated team with a project manager in charge.”

Building on this, they then went on to define what the act of project management actually is. The job consists of applying “processes, methods, knowledge, skills and experience” so that clients can meet their objectives and bring about planned outputs or outcomes. The analysts added that this includes “initiating the project, planning, executing, controlling, quality assuring and closing the work of an identified and dedicated team according to a specified budget and timeframe.”

Importantly, it should be noted that the profession is not exclusive to only roles explicitly labelled as ‘project manager’, but to any role where specialist project management skills are used. This means that across sectors these roles can have very different titles, from the self-explanatory contract managers of procurement, or the campaign managers of advertising, to the likes of festival co-ordinators in the events sector, and many more. The roles in question also span all strategic levels of the profession, from strategic to tactical and operational positions.

Gross value added of project management profession

From a sector perspective, the financial and professional services, construction and healthcare industries make up almost two-thirds of the total project management GVA. At the same time, understandably, the UK Government has a huge project portfolio, which further drives the size of the GVA the sector contributes, thanks to megaprojects like HS2 and Crossrail.

Commenting on this to the report’s authors, Oliver Dowden, Minister for Implementation remarked, “Project delivery is at the heart of all Government activity, whether it’s building roads and rail, strengthening our armed forces, modernising IT or transforming the way government provides public services to citizens. Getting these projects right is essential if we are to ensure that we build a country that works for everyone.”

Throughout 2019, 26 major government projects were delivered, representing a fifth of the overall Government Major Projects Portfolio (GMPP) of 133 projects. According to the IPA annual report 2017-18, these represented a whole life cost of £423 billion. In addition to this were a plethora of smaller scale projects, and those in early development.

Elsewhere, with the increasing digitalisation of the economy impacting entities of all shapes and sizes, IT and digital transformations tended to dominate the projects of the UK scene alongside new product development projects, with a respective 55% and 46% of organisations in the research sample having undertaken these types of project in the past year. At the same time, this varied across sectors, and unsurprisingly, in the construction and local government sectors, fixed capital projects were the main project type undertaken.

Outlook

Looking to the future, 40% of business leaders expect project management will grow in the coming years due to the increased use of projects – or the ‘projectification’ of the UK. In a trend that has been witnessed elsewhere, organisations have to rapidly and continuously change in the digital age of business, driving the need for project management.

Outlook for project management services

An increased focus on value over cost – especially in the construction sector – and a forecast increase in the number of international projects are predicted to be key drivers of growth, according to the expert contributors. However, this will not happen in the absence of challenges; more than half of organisations expressed concern over the perceived impact of political uncertainty in the UK. Skills and capability shortages were also cited as a potential barrier by a third of organisations.

With regard to budgets, meanwhile, a third of those surveyed by PwC said they expect the size of project budgets will increase in the coming three years, while 40% anticipate a growth in project size. As the profession continues to mature, and as the recognition of the importance of good project management grows, it is expected that a greater proportion of project work will gain more distinct attribution to the profession itself, giving more recognition and appreciation to the role of the project manager.

Speaking on the findings of the study, Sandie Grimshaw, a Partner at PwC, concluded, “The project management profession is relatively new compared to some other professions, such as lawyers, teachers and doctors. However, as project management is a core competence vital to organisations in the UK, the profession is critical and will continue to grow in stature.”