Executives see geopolitics and Chinese slowdown as main risks

11 April 2016 Consultancy.uk

A new report into global executive sentiment finds that sentiment about the global economy remains gloomy, particularly in the Asia-Pacific region. While Chinese executives are positive that the country can meet its five year annual growth plan of 6.5%, global executives are more cautious. The slowdown in the Chinese economy is, according to executives, the biggest risk to global economic growth, followed by geopolitical instability. Changes in consumer expectations, talent scarcity and the rollout of new technologies are also factors affecting projected growth in a range of sectors. 

To explore global sentiment, McKinsey & Company releases a quarterly economic conditions snapshot. The latest is titled ‘Economic Conditions Snapshot, 2016’, and explores changes in global economic sentiment, the growth prospects of the Chinese economy, global risks as well as risks affecting specific industries. The survey involved 2,772 respondents representing the full range of regions, industries, company sizes, functional specialties, and tenures.

Global economic outlook
The global economy had a bumpy start to the year. The Chinese stock market fell considerably causing jitters across global exchanges, while the country’s economic growth is expected to remain below 7%. Hikes to the US base interest rates have created further jitters for many investors. Brazil has slid into recession and political turmoil, while Russia, and other oil dependent countries, are bearing the brunt of poor diversification and a sustained low oil price.

The survey highlights that developed and emerging market respondents continue to hold a negative, rather than a positive, view on the world economy. 51% of the emerging market respondents, for March 2016, said that global economic conditions are worse compared to six months ago, up from 49% in December last year. For developing market respondents, the increase was considerably starker, up from 30% in December last year to 47% in March of this year. Both groups are still considerably more positive about economic conditions than in September last year, when 56% of developed market respondents and 76% of developed market respondents said global conditions were worse than half a year earlier.

Domestic economic outlook
In terms of the concern about home economies, the results show that Asia-Pacific respondents are gloomier about current conditions than three months earlier. In December last year, 31% of Asia-Pacific respondents said things were worse than six months earlier, while 35% said things were better. In March, 46% of respondents said things were worse than six months earlier and 19% said things were better.

Europe too has seen a fall in sentiment about current economic conditions compared to the previous period. In December, 22% said conditions were worse than six months earlier, while in March this had risen to 33%. In December 46% said that their domestic economy was performing better than six months earlier, which, by March, has fallen to 32%. The North American respondents are only slightly less optimistic about the current domestic picture compared to six month earlier, in relation to that of December.

Global economic risks
The survey also considers the biggest threats currently affecting the near-term of global economic growth. The list is topped by a slowdown in China’s economy, cited by 47% of respondents, followed by global instability, at 46% of respondents. A slowdown in global trade was cited by 27% of respondents as a risk, while increased economic volatility came in at 23% of respondents. The political circus, particularly in the US, was cited by 19% of respondents, while asset bubbles came in at number seven. The lowest areas of risk include inflation, cited by 3%, increased capital costs, cited by 4%, and extreme weather events, cited by 5%.

The China question
This quarter's report specifically explores what has become a global hot topic: the growth of the Chinese economy. In the latest survey, those in China remain mostly downbeat: 57% say economic conditions at home have worsened in the past six months, while only 12% say conditions are better. Unemployment has recently emerged as a concern. Just over half of respondents in China believe the Chinese unemployment rate will increase in the next six months, up from 35% in December.

Respondents were also asked whether they believed China would meet its current five year plan’s “medium high” GDP growth target of 6.5 % annually. The results show a disparity between domestic respondents, looking from within, and those looking at China from without. The majority are those looking from without are in the unlikely camp, with 44% that believe it is somewhat unlikely and 11% that it is very unlikely. Those from the outside camp that believe it is very likely tally 6% and those that believe it is somewhat likely tally 28%. For respondents within the Chinese market, 36% say that is somewhat likely, and 22% say that it is very likely that the plan’s ambition will be met.

Industrial risks
The research also considers the risks affecting the growth in different industries over the next 12 months. Top of the list for the retail sector is low consumer demand, cited by 67% of sector respondents, followed by changing consumer needs/or expectations at 64%. The high tech/telecom industry cites risks in the scarcity of talent, cited by 47%, followed by fast pace of technological changes in the industry at 41%.

Professional services too are not finding the talent they need, easily, while their customer needs and/or expectations too are changing, as cited by 38% of respondents. Financial services are facing changes in customer expectations as well as the rapid development of technology, both cited by 36% of respondents.

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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.”