Setting Up Projects Early Is Critical to Business Success

René Klerian-Ramírez

No matter where owner companies are in their capital improvement journey, they increasingly realize critical decisions must be made early in a project’s life cycle, and, consequently, those companies have started to shift their focus from doing the project right to doing the right project right. Companies realize that to develop a successful project it is essential to make the right critical business decisions early in the project life cycle (in the business planning phase). Many factors go into making project decisions early on.

These factors include the availability of business and financial information, basic and contextual project data, use of new technology, staffing requirements, and developing reasonably accurate early cost and schedule estimates. The robustness of a project’s business case depends on this information and these decisions, and if key elements have not been properly evaluated, then the project’s business objectives are likely unrealistic.

Challenges of the Business Phase

A weak business case can cause a great deal of harm to a capital project. Unfortunately, projects with less than robust business cases are not at all uncommon. More than other decisions points, there is no agreed upon standard of what constitutes an adequate—much less ideal—business case for new projects. There is considerable variability not only from company to company but also from project to project within a company. Finally, assurance processes tend to focus on technical case development rather than business case development (but again with lots of variability across and within companies).

Determining Project Viability

Once a company decides a capital project is appropriate to address a need or take advantage of an opportunity, critical issues must be considered to determine if the proposed solution has a viable business case:

  • Business Basics (Planning Process and Deliverables): the business case defines the assumptions and knowledge necessary to develop a financial case to support investment in a particular project. Although there are slight differences between owner companies regarding the type of business information required to justify a project, a few attributes must be included in some manner because of the structure of the economic return analysis. Project aspects that need to be assessed include comparative advantage, strategic fit, technology, financing, and commercial terms.
  • Financials: the financials cover the various assumptions and principles driving the business case and the understanding of the business phase estimate. These attributes include revenue and cost projections, estimates of the required investment, assumptions regarding the economic life of the asset, and an estimate of the cost of capital required to support the business opportunity. The integrity and quality of these attributes have a large effect on the probability of project success.
  • Location Factors: the level of understanding of local requirements, site characteristics, and local operating procedures influences the outcomes of an opportunity. Location factors explore the context in which the new opportunity will be executed (environmental and regulatory requirements, local labor market, existing site issues, plant operations acceptance issues, etc.).
  • Scope Framing: IPA research has found that certain practices followed (or omitted) in the process of determining project viability are causally related to project results. Poor conceptual engineering can harm a business case by making a project lose its competitive advantage over the long term. The project may meet the objectives but may not yield the maximum return possible without effective conceptual engineering. That is, activities that are not fully completed or exhausted during conceptual engineering cannot be made up during detailed scope definition. For example, failure to adequately consider OSBL, utilities, and/or offsites; risk management plans; work scopes; and so on will likely end up harming the business case.

How IPA Improves Projects in the Business Development Phase

IPA analyses early in the project life cycle can be tailored to the company’s specific needs by assembling the right combination of IPA products. For example, after completing an Early Cost and Schedule Benchmarking study for a major new-to-region low-carbon project, IPA conducted a Project Viability Assessment to identify key shaping gaps and recommendations to strengthen the project’s business case and minimize execution risk. Examples of available products that may be combined to address a company’s specific needs include:

  • Business and Engineering Alignment Meeting (BEAM) is a structured and repeatable process, usually done as a workshop, that brings together the business sponsor and core project team members to align on project parameters.
  • Product Unit Cost Benchmark (PUCB) provides a realistic cost comparison basis for your early estimate. It represents how much capital Industry has paid, on average, per unit of product.
  • Project Viability Assessment (PVA) assesses the strength and feasibility of your project’s business case.
  • Cost & Schedule Risk Analysis (CSRA) provides probabilistic cost and schedule outcomes and most likely range of results based on the quality of the estimates and other project characteristics.
  • Project Team Staffing provides optimal headcount by function for an effective project team and guides companies in setting up their project teams to serve as the foundation for project success.

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