Project programs with a number of projects over an extended period of time lend a particularly good opportunity to measure, refine and continuously improve.
With a sustaining capital budget of between $100 and $400 million a year, this client established a measurement and continuous improvement process that improved the value they received on every dollar they spent.
This chemical company regularly spent $400 million a year on capital projects — completing between 40 and 80 each year. Spread across three sites in North America, the projects ranged in size from $100 thousand to $80 million in Total Installed Costs (TIC), and took between nine and 30 months to complete. Due to the numbers of projects and the people and contractors involved each with their own drivers and experiences and expectations, the company’s capital spending process was rife with waste and inefficiencies. It was difficult for management to know whether their money was being spent effectively or even if it was being spent on the right projects.
Over the next three years, the company invested a significant amount of time, effort and management attention to drastically improving their capital spending processes. They began with standardizing the people involved in house as well as the primary engineering and construction contractors from outside. The new players then set up standard work processes by which the projects were prioritized, engineered and built. The changes were significant and deep and impacted a number of established empires, but were absolutely essential for the process improvements to come.
Now, it was a natural progression to measure, analyze, compare and continuously improve the company’s capital project processes. What emerged was a capital spending process benchmarked as an industry best that was able to squeeze out the maximum realized value for each capital dollar spent.
What followed was an impressive march forward. The organization began by rigorously measuring:
There was no hiding poor performance and mediocrity. The process drove accountability at every level. As a variation on the old saying goes, “what gets measured, gets improved.”
As processes were standardized, more and more was measured — engineering and procurement, the construction budget, the schedule performance. They captured how long it took to issue documents and solicit bids and award contracts; and how much it cost to install units of concrete and pipe and instruments and equipment.
The data was collected and compared from year to year, project to project, and from one division and department to another. Friendly competitions ensued and within a few years, the organization had developed a clear understanding of every facet of a successful project. Estimate and schedule forecasts improved and productivity and efficiency across the board rose dramatically.
In addition, the project management teams developed a broad and deep understanding of how projects came together and what to expect in terms of time and cost. It gave them the opportunity to identify potential problems before they fully matured. Now the project management teams could head off issues and start looking forward rather than looking back on what went wrong last month or last year. Patterns developed and new project managers had lots of examples and data to learn from.
Focussing the organization’s attention and setting the stage and the infrastructure to be able to measure these things was hard work. But the payoff for this company meant they were delivering between 10 and 40% more for their capital dollar. In effect their $400 million a year budget now provided $450 to $500 million of new facilities a year. That’s a fabulous investment by anyone’s measure.