McKinsey: Geopolitical risks expected to impact profits globally

20 June 2016 Consultancy.uk

Executives are increasingly concerned about geopolitical instability, globally and domestically, on their profitability – however, few are deploying strategies that deal with the associated problems effectively.

In a new study from McKinsey & Company, the global advisory firm considers the risks to global businesses that are perceived by the minds of 1,300+ executive respondents representing the full range of regions, industries, company sizes, functional specialties, and tenures. To adjust for differences in response rates, the data was weighted by the contribution of each respondent’s nation to global GDP.

Changing risk appetite

Business risks
Risks from geopolitical instability on global business have risen markedly over the past three years. Last year 84% of respondents expected trends within the geopolitical sphere to impact global business in the next five years, while in 2013 this expectation was shared by 61% of respondents.

While geopolitical instability is the headline result of the study, respondents also rate trends relating to the development of new technologies empowering consumers and communities as important to very important, at 84% in 2015, up from 78% in 2013. Cybersecurity risks and challenges are also trending higher, at 81% of respondents from 69% in 2013, as well as the adoption of big data and other data-driven management techniques, up from 65% to 79%.

Geopolitical situationGeopolitical risks
The research further finds that the negative outlook on global geopolitical instability has been trending up since 2009, when 10% were very negative while 28% were somewhat negative. By 2015, 57% in total held a negative stance, with 17% reaching very negative. Domestic political instability or gridlock has also seen an increase in recent years, up from 51% in 2013 to 58% last year.

Unprepared
In terms of dealing with the geopolitical risks, few companies have taken steps. Less than one-third of executives say an understanding of these factors is extremely or very well integrated into overall strategy – and only 13% say their companies have taken active steps to address the risks from either geopolitical or domestic political instability.

Dealing with the fallout

Companies have stepped up their capabilities to adopt big data and other data-driven management techniques, at 54% of respondents, as well as developing technologies that empower consumers and communities, at 53% of respondents. Companies are also taking steps to address greater cybersecurity risks and challenges.

Grappling instability
The report also considers the kinds of strategies companies are using to deal with geopolitical threats, in light of their respective effectiveness. The method most commonly used by respondents is an ad hoc internal analyses as events occur, which was cited by 43% of respondents – only 29% of respondents rate the method as very effective. Specialised external resources, such as think-tanks, were cited by 40% as important – while 29% said the measure was very effective.

Popular methods to address geostrategic risks

The methods least used, such as established communication or engagement with external experts or advisory firms (eg, annual board presentations), were used by 30% - although deemed effective by 39%. The integration of risk analysis into formal risk processes was cited by 24% as used – while 45% said it was very effective. The most effective methods, Comprehensive scenario methodologies, which are integrated into strategic-planning process, was said to be used by 18% - and was cited as very effective by 52% of users.

Cyber risks 
Although political and geopolitical issues now take precedence, they’re not the only trends that have risen in importance in the past two years. Executives are increasingly aware, too, of the impact that technological developments could have on global business and on their companies’ profitability. There are two sides to these technology trends, which represent both challenges and opportunities for companies in the years ahead.

Cybersecurity on profit

Cybersecurity threats are set to create the most harm in the financial services industry, at 17% citing a very negative impact on profitability, while 36% cite somewhat negative. Manufacturing too, is expecting to be hit, at 11% seeing a very negative impact on profitability while 31% cite a significant impact. By contrast, in the high tech/telecom industry, 16% see the trend as very positive on profit and 19% somewhat profitable.

According to the consultants, “Cybersecurity’s effects also vary across sectors, but its prominence in the latest survey underscores that security must be a default mind-set for all executives, regardless of what business they’re in. While companies tend to guard their technological expertise (and their vulnerabilities in particular), an important way to confront the cybersecurity challenge is collaborating with other companies—even their competitors—by reporting breaches, identifying common trends and technological weaknesses, and sharing best practices on how to address them.”

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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.”