Business engagement throughout the entire capital project development process is vital as high project costs and unstable markets make project success more challenging. That was a key message sounded by analysts and industry representatives who attended the 24th annual Independent Project Analysis (IPA), Inc., Industry Benchmarking Consortium (IBC) conference, from March 31 to April 3, 2014, in Leesburg, Virginia, to share ideas on how to deliver successful projects.
IPA President and CEO Edward Merrow said the goal of the annual IBC gathering “is to support continuous improvement” by measuring project performance, conducting research, and finding and sharing practices that “drive excellence in capital projects.” A requirement for each of the IBC member companies in attendance is the shared understanding that “we are here in order to make our projects better.”
As is customary during the 4-day conference, members were briefed on their downstream and plant-based project performance as benchmarked by IPA over the past year. Presentations were delivered announcing top performers and addressing emerging industry issues and trends. Forum attendees also participated in facilitated discussions to share insights and Best Practices, offer topics for future research, and network with other forum and IBC participants.
Unique to the 2014 IBC conference was the attendance of a select group of non-IBC member mining firms who were invited to attend a separate Miners Forum to discuss mining, minerals, and metals industry challenges and trends such as falling commodity prices and fast rising engineering and equipment costs.
Much discussion centered on the difficulties companies face and the practices they use during the first phase of the project development process, Front-End Loading (FEL) 1. In his keynote address, Jim Fitterling, Executive Vice President of the Dow Chemical Company, said that Dow’s successful capital projects have benefited from a “business-centric mindset” that forces business to work with project teams on challenging issues in which there is conflict. Given the ongoing economic uncertainties, he said, “speed of execution is critical.” Following Fitterling’s remarks, IPA President Ed Merrow led a panel of business executives who elaborated on the successes and pitfalls their business and project teams have found early in project development.
Among the several new IPA studies presented at the conference was the complex processes that go into setting the foundation for selecting the right projects by the end of FEL 1. The study examined the drivers of FEL 1 decision quality, including opportunity framing, analysis of alternatives, and initial cost benefit analysis findings that factor into whether business decides if further work on a project is justified. The study also examined the governance and gatekeeping practices followed by some IBC companies in attendance.
The study determined that while most companies have “moderate” decision-making quality in FEL 1, decision quality can be improved. The study’s lead, IPA COO Paul Barshop, said a key to improvement is having everyone involved in FEL 1, including business, corporate management, engineering, and operations. For instance, limiting the involvement of the cost estimating function and using unreliable initial cost estimates increases the risk of unanticipated cost growth later in project definition. “No one knows its basis, but everyone remembers the number,” Barshop said of the initial cost estimate. “It undermines the relationship between the business and project teams.” Ultimately, a strong work process and strong gatekeeping are characteristic of high FEL 1 gate decision quality.
Several other selected research studies were presented to the IBC:
Managing Projects With Limited Resources
With economic pressures and competition for talent causing project resource limitations, the study examined the flow of information through project teams and the benefits of owner-led or owner support teams versus contractor-led and under-resourced teams. The study found that “the flow of information is at the core of developing and executing capital projects” and, therefore, “teams must be staffed and organized to facilitate the production and movement of information.” The negative effects of resource limitations should not be underestimated, the study concluded.
Taking Classes of Facility Quality (CFQ) Sessions to the Next Level
A CFQ session is a meeting among business, engineering, and project area experts to discuss and define a project’s boundary conditions and trade-offs to focus FEL 2 activities and reduce the potential for wasteful spending. In 2012, IPA elevated CFQ from a Value Improving Practice (VIP) to a core practice for aligning business requirements. However, CFQ session benefits have not been quantified to understand how they can be improved to drive better project outcomes.
The study found that CFQs drive better definition at FEL 2 and FEL 3 when performed from mid-FEL 1 to mid- to late FEL 2. Qualities of a successful CFQ include: a structured and repeatable process, with a facilitated workshop process being most effective; required attendance of business, engineering, site manufacturing, operations, and other key project experts; and a system of documentation “to ensure all topics are discussed and conflicts are resolved prior to scope closure.”
Site-Based Engineering Contracting Best Practices
Based on interviews with IBC member construction managers, the study identified main practices that have a measured effect on productivity in the field, such as involving construction managers in FEL and using detailed portfolio-level resource plans to ensure the availability of resources for construction plans.
Site-Based Portfolio Management Practices
The study set out to gain a better understanding of site-based project portfolio management practices that are correlated with improved project outcomes. A strong foundation for effective site-based project portfolio management involves focusing on all of the following practices in conjunction with one another: assembling the right information for project framing documents, including specific cross-functional teams in project development; establishing opportunity ranking methods; and ensuring regular reviews.
This article originally appeared in the IPA Newsletter 2014-Q2 (Volume 6, Issue 2).