Recently, Independent Project Analysis (IPA) partnered with the sustainability department of a major integrated oil company to study the effect of core sustainability practices on capital project outcomes. IPA’s robust database of capital projects all over the world, combined with our research expertise, allowed us to measure the company’s sustainability approaches against other major companies and pinpoint areas that should be maintained or strengthened on future projects.
Sustainability is increasingly a key metric for capital projects, both in developing and developed countries around the world. As companies invest overseas or in their own backyards, sustainability issues must be well managed for a business to acquire and maintain its “social license to operate.” This social license “mandates” that to move a major project forward smoothly, the company must demonstrate it is a conscientious partner to the community.
Sustainability is commonly cited on corporate websites as a key value or practice, and companies are under pressure to demonstrate leadership in this area, which can encompass environmental preservation, heritage conservation, economic advancement, and institutional capacity building. However, the topic can be nebulous and difficult to measure. IPA was able to measure the integrated oil company’s sustainability approaches compared to others:
- From IPA’s database of more than 18,000 capital projects, we identified a sample of about 200 projects globally that faced similar sustainability concerns
- Representation of 49 owner companies, including major international companies and national companies in the oil and gas exploration and production, mining and minerals, chemicals, refining and distribution industries
- Projects averaging total costs of approximately half a billion dollars, with many multi-billion dollar investments
Projects averaging total costs of approximately half a billion dollars, with many multi-billion dollar investments
In assessing the data from these projects and considering a diverse array of sustainability practices, IPA identified several practices that can correlate with improved project results—or conversely, that if neglected are associated with significant project issues. The practices cover diverse stakeholder engagement, community investment, communication, and more. Each practice must be implemented at the correct time in the project life and follow an established process to be effective.
Our analysis for the major oil company answered the following questions:
- How frequently was each sustainability practice applied by the company’s projects?
- Were individual sustainability practices applied at the right time in early project development or initiated too late to be fully effective?
- How does using each practice compare with industry norms?
- Were the practices applied ad hoc by the project team, or did business managers direct that a structured process be followed?
- Was there a difference in project results between companies that applied sustainability practices versus those that did not?
Sustainability Practices Do Add Project Value
The last question was the most groundbreaking. Previous industry efforts have largely not succeeded in quantifying how investment in sustainability pays off, given the challenges in calculating the value of a risk averted. However, the IPA study was able to link the optimal use of sustainability practices to reductions in project risk and, hence, better project outcomes.
This conclusion was reached not just through case studies but through creating metrics for planning, cost growth, and schedule slip and research done by experienced IPA project analysts. As a result, business leaders can quantify the importance of using these practices, communicate the value of the sustainability group and their contributions to the development of capital projects, and more accurately predict project risk should these practices not be performed at the right time.