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Don’t Let Your Major Capital Project be Like the Song that Doesn’t End
On June 9, 2016 / By Alan Quintero

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Concept of time is money, old watch on a pile of coins

When my kids were little we used to sing “The Song that Doesn’t End” together at the top of our lungs (much to the chagrin of their mother). If you don’t know the song, the lyrics at the end of the verse run into the lyrics at the beginning so that you can keep singing the song forever.

A recent study of energy “megaprojects” shows that 64% run over budget, and 73% have schedule delays.   But this doesn’t have to be the case if one follows some simple (although difficult to implement) rules.

1. Choose a prime contractor wisely.

Most companies do not have the expertise to manage a project with internal resources.  A prime contractor engages with the project owner and executes the project’s primary scope either by themselves or by hiring and managing sub-contractors.

Whether you are choosing a shipyard for a major rig upgrade, or a company like Trenegy for a major IT project, choosing the right prime contractor is key.  In this important role, picking the lowest bidder is not always the best choice.

Would you hire a company to install a pool in your backyard based strictly on price?  If you would not do that, why would you choose a prime contractor for your company’s major capital project that way?  You would be surprised how many companies take this approach and end up paying more in the long run.

2. Have a well-defined plan.

Have you ever started a home project only to find yourself making six trips to Lowe’s to get the right parts to finish the job? I know I have. Making a good plan prior to starting the “honey-do” project would have probably eliminated the additional time and cost.  Now multiply that effect by a thousand (or a million…or more!). That’s the effect of a poor plan on a major capital project.

A good plan should include some basic concepts:

  • A realistic time and cost estimate free of optimism bias. These estimates should include the possible effects (both positive and negative) of risks and opportunities identified during the risk assessment (see below).
  • A comprehensive risk assessment to identify potential risks and opportunities that could affect the project’s schedule and cost.
  • A detailed inventory of resources required to complete the project (including resources that may be needed to address the risks identified above) and a plan of how to acquire them.

3. Make sure your capital project is a capital project.

Many companies fall into the trap of accumulating deferred maintenance as they prepare for a capital project.  They think, “this small maintenance item won’t interfere with the project’s critical path, and we’ll have more time during the project than during operations.”  This line of thought is a fallacy. When possible, maintenance is better performed during operations.  Consider this example:

A home owner decides to change the air conditioner air filter while a contractor is in to do a major kitchen remodel.  He thinks, “I’ll be at home then and it is such a small project that it won’t affect the kitchen remodel.”  While the remodel is going on, the homeowner borrows the ladder to install the air filter – which forces the kitchen contractor to delay the installation of a cabinet and causes a day’s delay.  A few days later, the kitchen contractor paints the whole kitchen, fouling the air filter the home owner just installed (and causing the home owner to have to install another one after the project).

Although this example is extreme, it illustrates that the scope of capital projects should include only the capital work scope for which the project was planned.

4. Know where you are (and where you are going).

Great real-time tracking is necessary to ensure course corrections can be made during a project so it ends on time and under budget.  To know if your tracking is effective you should know the answer to these questions at any point during project execution:

  • Where are we today (against the schedule, the scope, and the budget)?
  • How much longer will it take to complete the remaining scope?
  • What will it cost to complete the project?

If you cannot answer these questions confidently, then your tracking needs to be improved.

5. Be complete at completion.

Almost everyone who has bought a new home has developed a list of “punch list items” (quality deficiencies or incomplete scope) to be corrected or completed by the home builder before closing on the home.  Many home owners have allowed these “punch list items” to roll past the closing date with the promise of the builder completing them sometime in the future.  If you have been in this situation, which of these “punch list items” was the builder more motivated to complete?

Your original plan and continuous tracking should include provisions for completion of “punch list items” during the planned execution of a major capital project. It is more likely that the prime contractor will act on these items prior to the project end date.  A project should be as complete as possible by the completion date.

Although these rules seem simple, they are not easy to implement and require discipline and a deliberate approach to realize the desired results.

This is the fourth in a series of articles on operational excellence. Trenegy helps companies successfully manage operational excellence using a proprietary methodology. We help our clients get value of out their new programs quickly and relatively painlessly.