BIM and The Smartest Guys in the Room
A Cautionary Tale of Incentive-Driven Complexity at Enron, and how it relates to BIM and Construction
For a long while now I’ve been thinking about why BIM and Information Management (IM) hasn’t been adopted widely in construction, along with the many who have witnessed the benefits on construction projects.
The answer I have right now is complexity. The complexity of how we communicate about and implement BIM and IM creates a hurdle to scaled adoption in the industry. That has led me on a search for why. Which then took me to Enron.
What was Enron?
Enron is the focus of the book “The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron” written by Bethany McLean and Peter Elkind.
The Enron Corporation was founded in America in 1985 as a merger between two regional companies. It was an energy, commodities, and services company which at its peak employed 20,600 staff, with claimed revenues of $101 billion during 2000. It was named “America’s Most Innovative Company” for 6 running years. We can all agree this sounds like a roaring success, but…
Downfall
In 2001 it was revealed that its reported financial position was maintained by endemic, systematic accounting fraud. This is now known as the ‘Enron scandal’. Since then this name has become synonymous with fraud and corruption.
Eventually the company filed for bankruptcy in late 2001 due to enormous depts.
What is contained below is a view on how misaligned incentives and conflicts of interests created complexity and ultimately impacted thousands of people across the globe. It’s worth reading the book to get the bigger picture of this remarkable story of greed and corruption, but today we’ll focus on complexity.
Conflict of Interest
According to Investopedia:
A conflict of interest occurs when an entity or individual becomes unreliable because of a clash between personal (or self-serving) interests and professional duties or responsibilities. Such a conflict occurs when a company or person has a vested interest—such as money, status, knowledge, relationships, oreb reputation—which puts into question whether their actions, judgment, or decision-making can be unbiased.
The Enron scandal serves as a stark reminder of how conflicts of interest and misaligned incentives can encourage excessive complexity, leading to failure. The conflict and misalignment occurs when it benefits the individual or entity to create complexity in order to advance their own interests, rather that because it is necessary or serves other stakeholders. In the case of Enron this was to serve greed and hide fraud.
Misaligned Incentives
1. Consultant Fees: Enron’s use of intricate financial instruments and special purpose entities (SPEs) was heavily driven by the substantial fees that external consultants and auditors could earn from them. These consultants designed complex financial structures that made it challenging to assess the company’s true financial health while reaping significant financial rewards for their services.
2. Executive Compensation: Enron executives were incentivised through bonuses and stock options tied to the company’s short-term performance. This created a culture where maintaining the appearance of high profitability was prioritised over long-term sustainability and transparency. The executives engaged in risky financial manoeuvres to boost stock prices temporarily, in turn increasing their own personal compensation.
3. Market Perception: The complexity of Enron’s financial practices was also aimed at manipulating market perception. By creating a façade of stability and profitability, Enron kept its stock prices artificially high, attracting more investment and further incentivising deceptive practices.
Which led to excess complexity in…
1. Opaque Financial Statements: Enron’s financial statements became so complex that they obscured the true financial condition of the company. Investors, analysts, and regulators found it nearly impossible to understand the extent of Enron’s liabilities and the real performance of its business operations.
2. Confusing Structures: The use of numerous Special Purpose Vehicles (SPVs) - a subsidiary created by a parent company to isolate financial risk - and complex derivatives created a financial maze that was nearly impenetrable to outsiders. These structures were intentionally designed to hide debt and inflate earnings.
3. False Sense of Security: The complexity of Enron’s financial arrangements gave a false sense of security and stability. This misled investors and stakeholders into believing that the company was more robust and profitable than it actually was.
Which brought about…
1. Corporate Collapse: When the true nature of Enron’s financial practices was exposed, the company swiftly collapsed, leading to one of the largest bankruptcies in history. The impact hit thousands of employees, investors, and other stakeholders.
2. Legal Repercussions: Key executives and consultants faced significant legal consequences. Several high-ranking executives were convicted of fraud and other charges, receiving lengthy prison sentences. The scandal also led to the dissolution of Arthur Andersen, Enron’s consultant auditing firm.
3. Regulatory Changes: The Enron scandal prompted major regulatory changes, most notably the Sarbanes-Oxley Act of 2002. This legislation aimed to increase transparency and accountability in corporate financial reporting, hopefully preventing similar scandals in the future.
What can be learned for BIM and Construction?
The scale, impact, and behaviours at play in the Enron example are staggering. I’ve used a very extreme example to make my argument.
I’m not suggesting this level of corruption exists within our industry, not in BIM anyway. I’m not suggesting that there are fraudulent or malicious actors. And I’m not saying that construction’s poor adoption of BIM and Information Management are all the fault of consultants in our space.
However, I am suggesting that there is danger of conflict of interest and misaligned incentives when there is a system in place which exists to support itself.
BIM and Information Management professionals have forged a path within construction as innovators and early adopters of technology and processes. This was absolutely necessary to take construction on this journey. However, in order to maximise the value to the whole industry the late adopters and laggards need to be included in order to scale. However, complexity creates a high hurdle.
And herein lies the rub. Whether conscious or not, it can be in the BIM or IM professional’s interest to maintain complexity so that they continue to be rewarded for their specialism.
Consider, for example, that BIM has it’s own language - The BIM Lexicon Problem - which is not inclusive, and can create a them and us dynamic in conversations.
The impacts of specialist driven complexity in BIM and Construction
To make my position clear, in general, overcomplexity in BIM and IM are the result of unconscious behaviour. Communication problems are common. However, unconsciously or consciously, complexity is present and it’s impacts are easy to see.
Specialist-Driven Complexity
This is akin to how consultants at Enron created overly complex financial structures to their benefit -BIM specialists can sometimes introduce unnecessary complexity which benefits themselves. Such complexity in BIM can lead to increased fees or salaries and serve as a means of ensuring job security for those involved.
Obscured True Value
When BIM and Information Management systems become overly intricate, the true value and benefits of these approaches can become obscured. This complexity makes it difficult for stakeholders to understand and effectively use the systems, similar to how Enron's financial complexity concealed its actual performance. As a result, the return on investment in these systems may not be fully understood, affecting the scale and efficiency of their implementation.
Short-Term Gains, Long-Term Problems
Enron's executives focused on immediate rewards at the expense of long-term stability. In the context of BIM, short-term thinking and reward can lead to systems that, while initially rewarding, may ultimately result in increased costs, extended project timelines, and heightened risks and operational issues over the long term.
I understand this subject can be emotive, leave a comment so we can discuss it.
What can we do about it?
This can feel a little doom and gloom, but it’s really not. The industry is at a turning point at which Information Management needs to reach scale. Complexity is not a dirty word but BIM specialists need to work on ensuring complexity has a genuine purpose, driven by end-user requirements, and that we communicate effectively to reduce the hurdles to adoption by our construction teams.
Managing and reducing complexity in BIM and Information Management will be the focus of a future article. I did cover the subject briefly in a previous post, which you can read here.
Join the conversation
Recently I’ve posted on this subject on both LinkedIn and X, and the conversation has been very interesting. You can follow the main posts here, and join in if you wish:
LinkedIn Poll:
LinkedIn Post:
In the interest of balance, with the help of ChatGPT I’ve summarised the responses from the poll (thanks to all those who responded):
Summary of Responses
The responses to the LinkedIn post on the adoption of Building Information Modeling (BIM) and Information Management (IM) in construction highlight several key points:
Government and Standards:
Government mandates standards for delivery but fails to provide guidance on post-handover use, leading to implementation issues.
Delivery teams (contractors and designers) are left to navigate these standards, causing a burden on them to upskill others to meet compliance.
Industry Adoption and Challenges:
There is a lack of professional accountability from non-digital/BIM professionals in adhering to the ISO 19650 process.
The broader industry does not recognize the value of BIM and IM deliverables, often delegating responsibilities to "BIM specialists."
Education and training for non-digital roles are insufficient, contributing to poor adoption rates.
Management and Perception:
Directors and senior managers often view BIM as an overhead without a "Digital First" mindset.
Demonstrating tangible benefits such as cost savings, safety improvements, and quality standards through real case studies can help shift this perception.
Standards and Complexity:
Existing standards are complex, leading to misinterpretation and implementation challenges.
What do you think? Click through the posts above, or start the conversation below:
Wrapping Up
The Enron scandal serves as a powerful (though extreme!) reminder of the dangers of allowing greed to drive complexity. In the construction industry, it is crucial to ensure that BIM and Information Management implementations are driven by genuine project needs and long-term value, rather than short-term incentives.
A action everyone can take is to insist on plain, inclusive, language. It’s no good to be the ‘Smartest Guys in the Room’ if no one else can follow.
Fantastically written, as always Neil. Thank you!
I think there is something in the area of misaligned incentives through enthusiasm i.e. wanting to do something because we can (and it is fun to do) as opposed to really understanding the value. That is why I think lean training is so important. That provides the structure for assessing an improvement opportunity rather than a more ad-hoc approach. That will ultimately help people make better decisions, chase the improvements that add value, but also have the right business support in place.
That said, there is a place for experimenting and testing ideas. So to avoid hampering innovation there needs to be an understanding of the difference between the two and when to stop experimenting and bring in the lean improvement process.