Sustaining Capital Project Sanction / Authorization Duration – Just Give Me the Money!

IPA recently published the results from a joint industry study on authorization durations and trends. IPA routinely collects detailed information on the timing, steps, and process for the authorization of each project we evaluate, but we had never before used that information to develop quantitative metrics about this critical phase in a project’s life. Why is it so critical?

It often takes longer than planned!

A majority of projects require longer than planned to receive full funding. This can disrupt the remaining project phases—later than expected release of funds for detailed engineering and construction can mean losing resources to other projects, or incurring added costs for bridge funding or mobilization and demobilization. Having good data on duration norms will allow teams to set better expectations around this project milestone, which will then enable a smoother and more predictable start to the execution phase.

The level of authority can significantly affect the time required for authorization.

Each company has different approval levels, meaning that different amounts of capital can be approved at the site level, versus a central business unit level, versus the CEO or board of directors level. Anecdotally, many companies seem to think their approval levels are not optimized, which can lead to some gaming. In other words, the company that allows projects up to $5 million to be approved at the site level may notice a suspiciously frequent number of projects estimated at $4.95 million…

Making the right decision at authorization is critical to project success.

Most importantly, making the right decision at authorization—determining whether a project is ready to move forward, or should be recycled for more definition—is critical to project success. If companies are too hasty in their decision-making, or fail to recognize project risk characteristics that warrant more attention, their projects may go off the rails. Conversely, a process that is too lengthy and burdensome for straightforward, well defined projects can discourage project personnel and wreak havoc with resource planning.

The study developed norms for authorization durations based on project size and other characteristics, identified practices that can speed the authorization process, and established optimal approval levels based on project size. The study also identified areas where companies are making rational decisions (e.g., projects with very poor levels of Front-End Loading do take longer in the authorization phase, indicating that companies correctly recognize the issues these projects face), and where companies are perhaps less cognizant of risk factors (e.g., greenfield projects have the fastest authorization durations of any project type, even though they often have unique stakeholder issues that other project types, such as expansion or revamp projects, do not face).

The study remains open to new participants.

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