Addressing major capital project challenges

Front-end planning, environmentalist engagement and information management

As projects grow in scope and cost, so does the risk of failure. Add to this growing public scrutiny; health, safety and environment (HSE) concerns; and labour shortages, and it’s surprising that mega-projects ever get off the ground.

The bad news is that all types of mega-projects – whether a large-scale offshore wind farm project, oil sands development, iron ore mine or LNG facility – face massive challenges leading to schedules slipping and immense cost overruns. The good news is that they aren’t doomed to failure – by putting the proper tools, people and processes in place, and effectively managing all stakeholders, projects can and will be successful.

Rising costs – mitigating cost overruns with front-end planning

Recently in Canada, a major oil sands project was completed and expected to have cost overruns approaching 40% or close to US$5 billion. Unfortunately, this is not an uncommon scenario for projects of this scope. A significant irony of mega-projects is that most are executed on lump sum or fixed price contracts to put a ceiling on costs. The reality is that no lump sum contract ever comes in under budget, but most do come in over budget. The reason for this is significant changes are often made after contracting. Change leads to cost overruns and project delays. Proper front-end planning combined with systems to manage change will help to mitigate these types of risks.

Industry research shows that projects with more intensive front-end planning efforts performed more than 10% better in terms of cost, 7% better in schedule performance and 5% better in change orders. For major capital projects exceeding $1 billion in total installed cost, a 10% improvement in cost performance, directly attributable to an intensive front-end planning effort, presents $100 million in potential savings. There is a significant body of literature on the functions involved in front end planning and processes that can be used in the planning of capital projects, but it is worth underscoring the significance of planning to overall long-term project and operational success. A brief diagram of the front end planning or FEED process can be found in Figure 1 above, as indicated by FEL 1, FEL 2 and FEL 3.

Some companies even adopt a FEL 0 phase, where they familiarise themselves with the geography, climate and culture of the project location (Merrow, 2011).

As a project moves through front-end planning, three cornerstones of project success will be established: People, Processes and Systems. As with all projects, success is contingent on having the right people, processes and systems in place, and most importantly, recognising the interdependence of the three pillars to each other.

Without knowing the details, it’s difficult to know why a particular project goes wrong; but the likelihood of success or failure begins with front-end planning. For example:

Did the failed project mentioned earlier include the correct people, processes, and systems to guide evolving project information through the proper channels, starting with front-end planning?

Did project stakeholders have the required visibility needed to make decisions and keep up to speed on changing requirements, new design revisions, and changes in resourcing constraints?

Were processes and systems in place to allow project managers to recognise and manage the downstream effects of change on resources and the schedule?

Were processes and systems established to manage interfaces and ensure construction and fabrication was successfully completed the first time without costly rework?

Did project managers have the visibility necessary to optimise their labour resources in a time when labour is in short supply and high demand?

It may sound like a bit of an over-simplification but it all starts at the beginning; by empowering the right people through well-designed processes and supporting the processes with well-implemented and integrated systems early in the planning or FEED stages, success is achievable. Putting tools and processes in place that provide transparency for project teams will help them better manage information and resources, predict future issues and overcome huge and costly issues down the road.

Environmentalist resistance and social media

Recently it seems there has been a powerful increase in capital project protest from environmental and community groups. NIMBY-ism (Not In My Back Yard) has complicated mega-projects dramatically. This type of resistance reduced to its simplest form is a stakeholder engagement issue.

Thinking back a few years to the Arab spring, one key thing stood out. With the rise of the Internet, the general public now has a very real and very powerful mechanism for getting a message out. Social networking with tools such as Facebook, Twitter and blogs give anyone and everyone a voice – it’s free, fast, personal and built to spread information quickly. As history has shown, it can definitely support a movement – whether political, environmental or otherwise.

I’m a big advocate of information sharing, but I’m reminded of the telephone game from my childhood, where a group of people take turns whispering a message into the ear of the person next to them. By the time the last person in the group speaks the message out loud, the message has changed dramatically from the first whispering. The story gets altered every time it gets retold.

As a project team looking to build a major capital project, identifying and understanding project stakeholders is key to moving the project forward. From the PMBOK (Project Management Book of Knowledge) a stakeholder is a person or organisation that:

Is actively involved in the project

Has interests that may be positively or negatively affected by the performance or completion of the project

May exert influence over the project, its deliverables, or its team members

The rise of social media has provided a mechanism to increase stakeholder power for community groups and environmental groups who are often opposed to the project. Sometimes this opposition is based on an “interpretation” of the truth, rather than reality. This definitely adds complexity to the process of executing a major capital project, whether a pipeline, an oil sands project, an offshore LNG project, a wind farm, a mine, or any project that will be disruptive to stakeholders in some manner. The rise in power is neither inherently good nor inherently bad – often it is very good and helps ensure better-quality projects.

Either way, it is a reality and does require awareness and attention by project owners.

Project teams must engage these very real stakeholders in a way to help control information about the project and provide healthy dialogue based on verifiable information – good information spreads just as rapidly as bad information – think again of the telephone game. If project owners fail to tell the story, someone else will tell it for them, and the likelihood of inaccuracy is heightened.

As a result, companies must find ways to effectively manage the rise in public engagement, as well as address stricter regulatory issues and environmental compliance requirements.

This is where implementing a robust project information control system will help. Information systems built on industry best practices allow organisations to automate and enable processes that will improve governance, risk and compliance procedures, and provide a mechanism to improve stakeholder communication. Projects will always have stakeholders whose goals are very different and even opposed to the goals of the company. By putting processes in place to ensure transparency and visibility project teams can spend less time reacting to bad or misleading information and spend more time engaging in positive and constructive conversation. To be successful, strong information management processes and systems must be implemented as a key part of front-end planning or FEED.

By arming project teams with the best information, the stakeholder noise will be reduced and companies can focus on delivering better quality projects. 

About the Author

Mark Anderson is responsible for Business Development at Coreworx. Being involved with project stakeholders around the world, Mark has a keen awareness of the trials and opportunities, as well as the economic and social impact of capital projects. His experience includes running several companies in the Oil and Gas industry, as well as more than 10 years’ sales experience in Software and the Oil and Gas industries. He is always interested in listening to and learning from project experts and passing his learned observations and experience on to help others.

About Coreworx

Coreworx provides integrated project information and cost control software solutions for projects in the Oil & Gas, Power, Mining and Infrastructure sectors. The Coreworx solution is a proven enterprise application suite that enables EPCs and Owner/Operators to automate best practices, mitigate business risks and improve performance to budget throughout the entire project lifecycle.

Founded in 1997, Coreworx Inc. services a portfolio of projects valued at over $500 billion across more than 50 countries, on more than 600 capital projects with nearly 70,000 users and offices in Kitchener, Calgary, Halifax, Houston (USA), and Perth (Australia).

www.coreworx.com

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