Capital projects are high stakes endeavors. Before the pandemic, Proudfoot’s research showed that the average budget of a capital project typically overran by 65% and 50% of projects reported significant completion delays.
The stakes are even higher now as governments rely on the transformative potential of infrastructure activity, in part, to get their economies back on track. Take the example of the mining industry. Projects have been greenlit in 2021 after a steady decline in activity in the previous 12 months. According to the Global Mining Report 2021, the capital expenditure of 20 leading miners is expected to rise by 23% in 2021 to US$58 billion, the highest since 2015. This is supported by higher sustaining CAPEX and increased project expenditure after deferrals from 2020 due to COVID-191.
A common misconception in project management is that there is always time to get a project over budget and running behind schedule back on track. Proudfoot former CEO Pam Hackett says, “That’s how we end up with a project that is over-budget or late. By the time people realize that things are out of control, it’s too late to recover.”
So how do you avoid reaching the point of no return? By proactively managing capital project risk. There are three main considerations for leaders to take note of as they manage project risk — deciding which projects to fund, keeping a project on-schedule, and guaranteeing the expected results and return on the investment (ROI):
1.Choose the right project to fund in the first place
No organization has a limitless supply of financial or staffing resources. To a large extent, the successful completion of any capital project starts at the very beginning with the choice of the project. The most common examples that come to mind are infrastructure projects—such as roads and bridges. However, any large outlay of expenditure—such as upgrading old equipment, revamping a legacy IT system or integrating a new acquisition—are examples of complex undertakings with various moving parts that could potentially destabilize cash flows and the best laid plans.
Such internal projects involve significant fund outlays and require careful risk assessment.
Some questions to ask include: what are the proposed expenditure and the estimated benefits? What are the cash flow projections?
2.Keep current projects to plan and on-schedule
By its very nature, capital project management and execution cuts across different business functions and business units. It is important to design the proper controls and put them in place at the beginning of the project life cycle. Right from the start, the plan should take into account details like resource allocation and likely risks in relation to the specific project stage but should also involve regular (re)assessment of risk at project milestones to make sure progress and risk remains within acceptable limits.
On top of that, there are many processes critical to successful project delivery, and you need to clearly define these in the project execution plans. This helps ensure that there is accountability at each level in the organization.
3.Guarantee expected results and ROI
Implement a structured readiness and operational ramp-up plan early in the project life cycle: this is the best de-risking strategy. Regular check-ins will help the project keep to the plan as much as possible; then once the project reaches steady state, you will see stable capital expenditure and free cash flows.
Manage to Engage — People Matter
Across all three phases, there is one common denominator: people. People are your biggest asset when extracting more value from any capital project. Research indicates that an under-engaged workforce can be anywhere from 65% to 85% depending on the country of your business operations. Leaders must ask themselves: how can we expect an under-engaged workforce to keep projects on track?
Project managers and leaders see technology as a silver bullet. And yes, while capital projects do need robust Integrated Project Planning and state-of-the-art project management methodologies and robust technology, it is important to remember that engagement underpins everything.
Here are three things you can do to engage your people more actively for project success:
- Lead with a strong vision. Align people to a macro and micro vision from the start. Make the expectations and direction of the project clear. This lays down clear responsibilities for every member and stakeholder of the project.
- Implement an MI-9 scorecard in your organization. The workplace scorecard of the future will score all nine elements of an engaged workforce – it provides a framework that covers fair trade, cause, clean and meaningful infrastructure, confidence, connection, collaboration, community, capability, and freedom. The vision with MI-9 is that in the future, it will be your people who complete the scorecard – the many, not the few.
- Create a comprehensive stakeholder engagement plan. How you engage your stakeholders from the start will help deal with any issues that come later. For example, once the initial start-up energy has dissipated, under-engaged people or task force members may skip regular briefings or schedule reviews. You need buy-in — and managing to engage is key to getting that buy-in.
As the world limps back to normalcy, the task of rebuilding economies and livelihoods requires companies to invest in capital projects again, and to ensure that projects are running to schedule, on time and to budget. This will help kick-start key economic activity.
But projects need to be run well. And this involves strategic thinking, practical application of management operating systems and active management. Finally, with businesses asking employees and workers to step back into mines and construction sites and re-start other capital projects, they must get employee buy-in and retain it.