Unflagging Asian demand and record commodity prices are encouraging resources companies to expand production and ease bottlenecks at ports and railways. New project activity is widespread.
However, much of the ultimate return from these projects is being locked-in right now —during project design and delivery. Sub-optimum design decisions and project overruns can eat away much of the value of these new projects.
Now more than ever, resources companies need to focus on clever project design and disciplined execution to ensure healthy returns from their investments.
Optimisation of CAPEX design
The design phase almost always offers huge potential for improvement, particularly in its early stages. What's needed is rigorous review of the business case, the flowsheet and the detailed design. A design review process has several advantages:
"It facilitates optimisation of the economics before money is spent. This includes testing whether the asset fits the market requirement, reviewing the idle capacity versus risk tradeoffs, assessing if the 'nice to haves' and design contingencies are really required, and ensuring the detailed design specification delivers operational requirements.
"Key people need to input early. It is critical to avoid the all too common situation where the senior operations people have too little involvement in the early stages, and it becomes too expensive or too late for them to effect changes to the design.
"It builds an understanding of the business imperatives in the engineering team. If the engineering team has decided early-on to reduce the scope to improve project returns, there may be less risk of 'scope creep' later in the project.
Major project delivery
The real challenge is executing the design on time and within budget. Our experience indicates four key factors to get right:
1.Have clear points of ultimate accountability. Projects entail a wide range of functions working together closely to deliver the working operation. However, someone needs to be clearly accountable for all the components coming together.
One approach is to make each Area Manager responsible for delivery of their particular area. This includes making sure the detailed design is done, materials are ordered and being expedited to site, the people and equipment are getting to site and being ultimately responsible for the final solution working. In the absence of a conductor, project problems can result in finger-pointing exercises.
2.Get key people onboard early, and provide adequate coaching and training for people with less experience. Just-in-time resourcing can be ‘penny-wise and pound foolish - when major costs and operational timelines are at stake.
3.Ensure the project "wiring" supports a relentless focus on on-time delivery within budget. Plans need to be cascaded to the daily detail with clear operating standards/targets. Area Managers need simple reporting of daily and weekly cost and timeline variances. Structured meetings need to identify corrective actions and make sure they happen.
4.Identify and manage the schedule and cost opportunities and risks. If potential wins remain hidden, they may be lost due to lack of action or used to offset hidden risks. Similarly if risks and contingencies are not in the open, they are more difficult to manage and progress cannot be gauged. Transparency allows project managers and business owners to ensure the right focus and resources are applied to high priority opportunities and risks.
How many times do we hear about capital projects that are overdue and over budget? Yet capital project costs and schedules need not be like a runaway train.
When capital projects are completed, nothing looks better than coming in on time and on budget.
Ian Woods is a Principal of operational improvement firm Partners in Performance.
