How to extract more value from your infrastructure CAPEX projects post-crisis?
Leaders have always dealt with the critical challenge of delivering CAPEX projects on time and to budget.
However, the COVID-19 crisis has radically changed the landscape and presented several new challenges for the future, demanding new strategies, investments and tools. Before the Coronavirus pandemic, the average budget of a capital project typically overran by 65 per cent. A further 50 per cent of projects reported completion delays . Budget blowouts and schedule overruns can negatively impact the overall financial performance of a company and ultimately affect the share price. This was before a global pandemic – imagine how high the stakes are now. Leaders have always dealt with the critical challenge of delivering CAPEX projects on time and to budget. However, the COVID-19 crisis has radically changed the landscape and presented several new challenges for the future, demanding new strategies, investments and tools. Before the Coronavirus pandemic, the average budget of a capital project typically overran by 65 per cent. A further 50 per cent of projects reported completion delays . Budget blowouts and schedule overruns can negatively impact the overall financial performance of a company and ultimately affect the share price. This was before a global pandemic – imagine how high the stakes are now.
The infrastructure industry hasn’t been immune from the disruption caused by the crisis. The construction industry faces lengthy suspensions, with many organizations halting thousands of projects across the globe. Even the telecommunications industry has taken a hit, with fibre construction being paused, effectively curtailing the progress of the sector amidst a ramp-up of digital acceleration and data traffic across the globe.
As governments continue to roll out lockdowns and restrictions, more and more projects face uncertainties in both completion of ongoing work and new project financing. An example of this is in India, which is currently undergoing a level of pressure the industry hasn’t faced, not even during the Global Financial Crisis of 2008. Analysts expect the government’s ability to fund projects to be impacted for the next couple of years and are already warning investors to refrain from exploring opportunities within infrastructure CAPEX.
On the other hand, other governments, like the United Kingdom, have declared their plan to recover the economy will focus on infrastructure development. For global leaders hedging their economy bets on CAPEX, nothing would be more devastating than spending unnecessary funds on projects that run over budget. The organizations that will be responsible for these projects must focus on keeping all stakeholders engaged in finishing their project to the timelines agreed with local governments and to the allocated budgets promised for each, regardless of new COVID-19 regulations or newly implemented procedures to ensure the health and safety of everyone involved.
However, not it is not the crisis alone that has caused problems for delivery of capital projects. Delivery of capital projects is a complex undertaking at the best of times. A PwC study showed that construction projects able to come in under budget were a golden exception in an industry that otherwise sees 95 percent of projects going over schedules and costs. The report highlighted a need for large-scale transformation across the board, to simplify infrastructure programs and afford more efficient and higher-value project delivery for all involved.
So, the question for infrastructure leaders is, where to next?
Five areas to prioritize in managing your capital projects
Infrastructure leaders will need to resolve some critical issues in the post-COVID world to ensure a more sustainable future. It’s time to improve the management of capital projects and strive to create a new industry standard where project blowouts and overruns are not so frequent. From choosing the right projects to adapting operational management process, and then guaranteeing the return on the investment, here are five areas that will help accelerate transformation in infrastructure CAPEX projects:
1. Portfolio management – choosing the right projects
Companies of all sizes have a limited supply. Deciding where to invest your money and resources begins with centralized scrutiny to determine what is best for the business. Infrastructure leaders must have a regular review of the project portfolio using scenario reviews, highlighting assumptions and constraints. Every project in the portfolio should have a proper realistic assessment, an analysis of risks and design assumptions that include additional experts, and each project investments must align with short-and-medium term goals.
By applying these lean and agile project management concepts, we can effectively compress project schedules by as much as 30 percent. To ensure accurate visibility on the critical areas of the project, leaders should invest in developing a ‘ResultsHub’. A ‘ResultsHub’ includes a Project Management Office (PMO), procurement, supply chain, logistics, risk tracking and stakeholder / ESG outcomes to allow adequate focus, resourcing and standardized reporting on progress that enables insights for quick and effective decision-making.
2. Planning and execution – the devil is in the details.
To drive more value from your infrastructure CAPEX projects, detailed planning, and reliable performance are essential. Leaders must start with a comprehensive project plan that includes several critical elements including:
- A list of crucial outputs and an extensive schedule, with detailed construction packages, for vendor specifications on long-lead items;
- A sequenced site readiness plan, including all services and personnel logistics, that recognizes current COVID-19 requirements;
- A schedule of purchase order issue and delivery dates to the site;
- An optimized construction schedule where performance assumptions are validated;
- An all-inclusive and sequenced site mobilization and commissioning plan, coordinated across stakeholders;
- A hand over plan and staged ramp-up schedule based on OEM recommendations.
As part of your planning process, you must also prioritize alignment. Misalignment of priorities wastes efforts and will affect the schedule as the project progresses. As the first step in project design, establish early alignment on clearly defined goals, identifying all stakeholders, budget, spending schedule and post-project cashflow expectations. By developing a formal plan with a detailed internal review, you can determine what project outcomes must be achieved and which risks must be avoided. An excellent example of this is in Infrastructure NSW, the independent industry entity that advises the New South Wales government on infrastructure CAPEX projects. They are uniquely positioned to help streamline the management of CAPEX work through the government for the benefit of leaders and the state, supporting by proposing detailed plans, increasing accountability and conducting expert reviews of ongoing work to help projects stay on track.
3. Procurement processes that deliver clarity.
Having an established procurement practice, supported by a robust logistics chain, reduces risks and adds significant value to your project by protecting and safeguarding the overall schedule. Well-designed procurement processes must account for several things from the specifics of the supply market to the capability of the organization and project. These must be valued across three primary areas of focus for procurement in infrastructure CAPEX projects. Firstly, ensure that everyone understands the project goals and priorities. Secondly, ensure that there is a universal contract language that everyone understands to avoid room for ambiguity. Finally, validate delivery dates on a short interval control basis and track them through the logistics chain. Use a scorecard to forecast and monitor vendor performance and show supply risks – this is particularly important in the post-COVID world.
4. Active supervision and going #HeadsUp.
Part of driving more value from your infrastructure CAPEX projects is to build a strong foundation for the operating phase by ensuring your team set out to achieve productivity goals during the construction phase of an investment project. Taking proactive steps in detailed planning, alignment, and execution will help to create streamlined processes during this phase. However, to keep projects on schedule, we need to ensure that supervision, communication, and connection between leaders and their staff are adequate.
Frontline management and supervision capability is the highlight of Proudfoot’s #HeadsUP leadership movement (headsup.global), a guiding framework projects to keep teams focused on the overall schedule, especially if they are working remotely. #HeadsUP calls for managers and supervisors to check-in regularly with their teams through a 1.5.30 Connect culture. Check-in once a day to review plans, current status, discuss and resolve potential issues. Follow this with a weekly review of accomplishments versus the program, KPI trends and status of deliverables.
Lastly, perform monthly analysis of performance and objectives versus the overall schedule. The communication provided by 1.5.30 is then supported by Active Behaviors, both from management and from the team. TheActive Management Behaviors (AMB) ensure employee engagement and talent development. The Active Team Behaviors (ATB) support the team’s alignment with leadership as well as provide empowerment, accountability and ownership of the activities at hand. The #HeadsUp leadership program delivers engaged, enabled, and energized teams with successful projects.
5. Ongoing operational excellence for stability and high performance.
There are high expectations for return on the investment for every infrastructure project. However, newly commissioned and completed projects can experience some new performance barriers during the start-up phase due to a combination of unresolved or undetected issues from the design or construction phases. Furthermore, operating errors may occur when new teams attempt to perform new installations initially.
We can speed up your road to stability and operational excellence by anticipating issues from actively managing the project schedule through the ResultsHub. The ResultsHub will utilize #HeadsUp thinking and AMBs or ATBs to support productivity, ensure stakeholder alignment and support an integrated MOS; to help you design the operational framework and promote active supervision among managers to reduce errors and improve performance.
As part of your ongoing operational excellence strategy, developing new modes of operation, focusing on improvement versus capital injection solutions, accelerating the development of internal project management skills, and building the right partnerships will create the operational capacity to support future project management requirements.
A new future
In summary, managing infrastructure CAPEX projects is a complex process that has only become that much more challenging because of the recent COVID-19 pandemic that has paused activities for prolonged periods or indefinitely. As countries start to emerge from various lockdowns, the restarting and ramping-up of projects is now in sight. To move projects along, infrastructure leaders have much to consider in avoiding further budget blowouts and schedule overruns.
There is always a silver lining. In the new post-COVID world, it is not a matter of returning to what was before. This is the time to turn previous challenges into opportunity and to adopt a new standard as part of a reboot to transform and do things differently. This is time for change and as a result, better, value-adding capital projects.
Following the above five steps will better position you to manage your project portfolio with operational excellence and results in mind.