Investment projects are critical in asset-intensive industries in order to be successful in the long-term. With global capital expenditures standing at approximately more than $10 trillion per year and expected to rise over the coming years, it’s therefore vital to get these projects right from the start.
Yet only one in every three projects actually meets the objectives set when the project was authorised. Added to that, 40% of projects fail, mainly because they run over budget or duration, or due to missed production targets over more than two years. However, carried out correctly, investment projects are a huge opportunity for companies to markedly improve their performance. Through our work across multiple industries, we have identified six ‘golden rules’ companies should adhere to in order to successfully plan, execute and complete CAPEX projects:
By Thomas Glöckner
Regardless of size of the company, funds are usually limited, so deciding where to invest money and resources should always start by looking carefully at what is in the best interests of the business. Every project should first be rigorously assessed, conducting a thorough analysis of all the risks and design assumptions with the use of additional experts. Each project investment must also align with the company’s short-and-medium term goals. By applying these lean and agile project management practices, project schedules can be reduced significantly by as much as 30%. This is in line with the shift towards more smaller projects.
Establishing a project management office, procurement, supply chain, logistics, risk tracking and stakeholder/ESG (environmental, social and governance) outcomes from the outset enables the required focus, resourcing and standardised reporting on progress. This provides the necessary insights for quick and effective decision-making. The use of project management expertise can also deliver significant cost savings. This means setting out a clear project definition, including cost and schedule estimates, and scope from the start.
The target is to minimise capital expenditure, thus significantly
reducing the risk. Project managers should have a clear
understanding of the engineering, commercial and managerial
disciplines, as well as a thorough grasp of the codes and
regulations that have to be adhered to. They must also be able to
acquire and manage the resources required in a timely manner.
Additionally, they should be able to react quickly to any changes
that happen during the project’s lifecycle.
The entire budget-to-pay (B2P) process must also be reviewed. The
gains from this approach are primarily through avoiding costs (e.g.
by reducing budget overruns). Having an established procurement
practice, supported by a strong logistics chain will reduce risks
and add significant value to the project by protecting and
safeguarding the overall schedule. This includes alignment of CAPEX
management with the company, and investment allocation. Projects
also need to have clearly defined stages. As well as an appointment
of an end-to-end champion, responsible for the entire project
lifecycle, risk-management tools need to be applied too.
Key to driving more value from infrastructure CAPEX projects is establishing a strong foundation for the operating phase by ensuring the team achieves its productivity goals during the construction stage. Taking proactive steps in detailed planning, alignment and execution will streamline the processes required during this phase along with rigorous risk management.
Operational excellence is achieved through the systematic management of all processes. Companies that adhere to this standard improve manufacturing processes, asset reliability, and quality of products and services. This results in improved asset utilisation and throughput, increased reliability of equipment, and safe and reliable operations.