Kevin notes that today 65% of projects over a billion dollars fail. Likewise, 35% of projects under $500 million have failed as well. By ‘failing’ he means that they are at least 25% over budget or late by at least 50% from the planned schedule. Both of these factors have significant impact on the project’s return on investment (ROI).
Not only is this valuable investment capital being wasted, but the process manufacturer or producer’s performance is also impacted—company profitability, shareholder value, ability to grow the business—everything is dragged down.
Over the past few years, Kevin notes that the original budget and schedule for capital projects have increased. While budgets are increasing, the actual expenditures are growing even faster–meaning larger and larger overruns. It seems the larger the project, the greater the probability of exceeding plan.
The first thing project teams need to do is bring the cost and schedule overruns back into line and get them closer to the original plan. Quite frankly, much of this could be done by following best practices developed by organizations such as the Construction Industry Institute that are already out there today.
Kevin emphasizes that simply following best practices probably won’t completely get these projects back on plan. He and the Emerson project services organization believe, simply hitting an escalating budget trend is not a big enough goal anyway.
Goals of reducing overall project budgets 20-30% are becoming common requests from process manufacturers and producers today. Together, we need to find ways to make project completion more predictable and reliable through a fundamental and transformational reset of design, engineering and project management.
Kevin describes this approach as Project Certainty to help enable top quartile performance in capital projects and focuses on eliminating costs, accommodating change even late in the project cycle and reducing complexity. Some examples of eliminating costs include reducing piping and module design costs through improved orifice metering technology, reducing rack room footprint and wiring through electronic marshalling and reducing project spares via spares optimization and reliability analysis.
These technologies can help also accommodate change and eliminate startup delays and shorten the overall startup time. And, rework and errors can be minimized with a project-engineering environment that keeps projects on track by efficiently and consistently translating project deliverables from multiple sources into project deliverables.
Kevin points out that automation is one of the smallest spend buckets on large greenfield projects yet smart decisions made early can impact cost well beyond the automation scope. This fact requires that we rethink historical practices around how project are executed. It requires strong leadership to transform work practices to achieve these objectives.
If you’re going to the May 2-5, 2016 Offshore Technology Conference in Houston, visit the Emerson team in booth number 5817 to discuss how these technologies and practices can improve your project’s performance. Register to receive a complementary OTC day pass for more on this and other oil and gas solutions.
Update: I’ve added the source of the 65% of megaprojects fail statistic in the post above.