Ageing population and automation threatening prosperity of EU

08 May 2017 Consultancy.uk

The European Union enjoys a long period of peace, prosperity and social growth across Europe. While near term risks, particularly from Brexit contagion are creating uncertainty, with various election cycles in the coming year seen as a test, the long-term picture for the EU too contains a number of risks, from increasing dependence of the old on the young for their bread, to the young finding themselves out-competed by robots.

The European Union was born at the signing of the Treaty of Rome in March 1957, following a period of considerable instability in Europe. The union has borne considerable fruit, from a long period of peace to prosperity for its people. The financial crisis, and the turbulence it brought to countries across Europe, has in part covered over the successes of the union; the region generates around a fifth of global GDP, and is a world leader in areas such as gender equality, renewable energy utilisation, and the social welfare gap is one of the lowest with most member states supporting those that, for whatever reason, cannot support themselves.

Today the EU faces a number of additional challenges, particularly the decision by English voters to leave; and, while Dutch and French voters have come out in favour of remaining, elections in Europe's powerhouse Germany later this year, remain decisive. In a new report from McKinsey & Company’s McKinsey Global institute, titled ‘Rome Redux: new priorities for the European Union at 60’, Europe's economy is considered in relation to the US, as well as some additional, long-term threats.

Addition of EU member states and growth

Prosperity through membership

The EU has, since its founding, enjoyed considerable expansion to its economic and social sphere, increasing from its 6 founding members’ 186 million inhabitants and $2 trillion in economic output to 12 members and 348 million inhabitants, with an output of $9 trillion, by 1992. In 2016 the Union still has 28 members, with a population of around 515 million and total GDP in the order of $15 trillion.

EU economies performs well on per capita terms since founding

The EU, with its many additions along the way, as new members joined the union, has enjoyed a strong – averaged over all member states – adjusted purchasing power parity growth in itself and when compared to the US.

Since the 1970s the EU 28 has kept in step, at a somewhat higher level, to trends seen in the US. It is only since around 2000 that EU-15 countries have begun to see lower rates of performance, with stagnation occurring in the years that followed the crisis, even while the EU-28 as a whole has continued to perform well.

Real investment is the only component of EU GDP

One of the reasons for the lower level of GDP growth activity across the EU-28 is, according to the consulting firm’s analysis, the result of a drop off in investment in the region. Investments, as a component of GDP indexed against 2007 fell sharply immediately after the financial crisis, and remained in the dip in the intervening years. Exports, imports and government consumption have all since surpassed the index mark, while household consumption has remained stable.

The drop in investment reflects three areas of slowdown, including government austerity programmes seeing reduced investment from states, with public investment down €34 billion below 2008 levels in 2015; the collapse of the housing bubble seeing household investment down €118 billion; and corporate investment failing by €109 billion.

EU seniors are living longer

Future trends

Aside from the challenge associated with the decision by the UK to leave the union, the EU faces a number of longer-term challenges related to demographics, digitalisation and automation.

Across Europe low fertility rates, coupled with increased life expectancy and a relatively low effective retirement age, means that the increasingly large numbers of old people are becoming dependent on younger generations for their daily bread. Life expectancy averages almost 80 in the EU, above the US’ average of 78 but below the almost 83 average in Japan. The retirement age, however, in the EU has fallen to around 64, somewhat below the average of 66 in the US and almost 70 in Japan.

Particularly Italy, Germany and Portugal are facing almost parity in terms of workers to aged dependants. Policies in the area of retirement age are likely to become issues of contention in the coming decade as younger workers see more and more of their tax dollars going to a group that already enjoyed higher incomes, access to housing and quality of life than the group itself is able to maintain in current conditions.

Half of workplace activities in Europe could be automated

European works face further challenges, with automation likely to affect (negatively in the short terms at least) employment levels with the wider EU. The region is somewhat more protected from the effects of automation, as the number of work activities that can be fully automated is more limited, largely because the economy is extensively focused on knowledge and expertise intensive fields – fields in which current technology tend to be less easily automated.

Across the ‘Big 5’ EU economies, around 46% of activities could be fully automated, leading to a loss of 60 million full-time equivalent positions and $1.9 trillion in displaced wages. This is not considering the wider EU economies, in which considerable levels of automation too could take place. The regions high wages on average and rapidly decreasing automation costs, create a perfect storm of implementation – potentially further negatively affecting the regions already high levels of unemployment – particularly among its youth – if historic trends (which too involved ‘lost generations’) do not come to pass.

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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.”