The COVID-19 pandemic has had a major effect on capital projects and will likely continue to influence company portfolios for at least a year, if not longer. With revenue down across many industries, companies have dramatically cut capital portfolios and are (or will likely be) looking to reduce their costs. As a consequence, project organizations across the Industry will be faced with a mandate to reduce headcount. This is not a new situation to be in; in fact, many have been here before in times of crises, with the most recent example being the Global Financial Crisis. Unfortunately, past approaches to reducing capital projects staff have done serious, long-lasting damage to industry capability.
Historically, Reactions Placed More Emphasis on Reducing Cost Than Strategic, Informed Decisions
With the magnifying glass focused on keeping the company healthy in the short-term, the Industry’s approach to reducing capital projects staff was done with expedience in mind rather than long-term strategy. Few took the time to question what the right size and composition of the organization should be given the current portfolio and what might be required in the future. Consequently, staff across entire competencies were eliminated under the assumption that when work picked up again, the services could be purchased from the market. However, the reality is contractors faced similar challenges and responded in the same way as owners leaving the entire market devoid of the competencies required to effectively execute projects.
This approach to cost reduction did lasting damage to the projects Industry as a whole. All companies—owner and contractor alike—were left with major gaps in the core capabilities required to effectively execute projects. Because no one had staff in the roles, no one was developing personnel with the required capabilities for an extended period of time. Thus, when companies went looking for people to fill gaps, the talent they were seeking was not available because it simply did not exist.
We Must Make Staffing Decisions With a Long-Term View in Mind
The reality of the current situation is difficult decisions will have to be made as cost reductions are inevitable. So if you have to cut staff, how can you do better? What should you consider to make smarter staffing decisions?
- Assess the state of your project organization.
Start by taking stock of what you have. This means gaining a deep understanding of your people and your portfolio.
How many people in each function do you have across your organization? Do you have a clear, objective way of assessing each person’s knowledge, skills, and abilities? This information will equip you to understand what you have and compare it to what is needed now and in the future so you can make smarter, more strategic decisions.
Do you know what the critical mass is for your portfolio (i.e., the minimum owner staffing required to effectively execute the portfolio)? It is our experience that the majority of organizations tend to be understaffed for their portfolio. So, it is possible with cuts to the project portfolio, the organization may now be right-sized. Do you have an objective way of determining what is required for your portfolio?
- Do not completely eliminate any core competencies without fully understanding the consequences.
Once a competency is eliminated within an organization, it will take years to rebuild. This means companies must prioritize retaining a critical mass of staff in core competencies.
IPA has identified a set of owner core competencies required to effectively execute projects. Our research shows that projects staffed with owners in these functions achieve better definition up front, setting them up to deliver projects for an average of 22 percent lower cost than teams missing owners in any one of those functions. Maintaining staff in these functions helps ensure companies are positioned to effectively execute project work in the short and long terms.
In addition, other capabilities may be core to your business or provide your company with a comparative advantage. Again, maintenance of staff in these functions should be prioritized because once the competency is eliminated, it will take years to rebuild.
- Consider the state of the EPC Industry.
As mentioned above, the Industry’s typical mentality has been, “If I don’t keep it, I can just go to the market and buy it when I need it.” However, it is this exact thinking that created capability gaps in the past, and contractors have still not fully recovered. So, companies need to really think critically about current contractor capability; where contractors are weak, owners must be strong.
- Maintain a balance of experience.
It can be tempting when reducing capital projects staff to eliminate from either extreme—those that have been with the company the shortest amount of time since they do not have the same tenure as others or to eliminate the most experienced, typically most costly, staff. However, we would not recommend solely relying on any single strategy. Instead, we believe a balance of experience should be maintained to ensure those with experience and stronger capability can mentor and transfer knowledge to those with less experience.
By considering these issues and equipping organizations with the data necessary to assess the full picture, companies will be better positioned to make informed decisions about reducing capital projects staff and understand how they may affect the project organization’s ability to deliver capital effectively in the future.