Managing Director & Partner
Many large capital projects experience severe delays and cost overruns. This is true in a range of industries—from shipbuilding to infrastructure—and in the private and public sectors. The average delayed large capital project in the oil and gas industry, for example, runs $700 million over budget and takes 44% longer to complete than anticipated. When these big projects run into trouble, they can inflict major damage on corporate balance sheets.
Determined to complete their large capital projects on time and within budget, owners typically rely on contracts with aggressive timelines and fixed delivery dates. But these strict contracts can often backfire, setting up an adversarial relationship between owners and contractors, while creating a high-pressure environment that stresses both processes and resources.
In fact, success in large capital project management depends on timely and accurate decision making. To make these decisions, owners need complete transparency into the detailed workings of the large capital project. They cannot get this high level of visibility without first building an open and collaborative relationship with contractors who feel comfortable sharing information in real time about both successes and setbacks.
These two elements—transparency and collaboration—are the bedrock of any successful large capital project.
Here are some specific approaches that owners can use to improve their large capital project management capabilities:
Large capital project schedules and completion dates are too often based on managerial ambitions, contractual objections, or even wishful thinking. These schedules quickly become detached from reality and lose all credibility. Owners can avoid such problems by eliminating dates from the initial scheduling process altogether—focusing on what needs to be done and why actions should take place in a certain order. Once planners have identified the best and most logical sequence of actions, they can work backwards to reintroduce realistic dates.
Many large capital projects suffer from low productivity, faulty planning, and poor collaboration between contractors and owners. Traditional lean planning principles can improve communication, facilitate problem solving, and help keep plans on time and within budget. Digital lean planning has even greater potential to improve productivity while controlling costs.
Effective large capital project management depends on breaking through organizational boundaries to enable cross-functional collaboration and radical transparency. An effective approach is a sort of digital situation room, bringing together everyone involved and discussing processes, routines, and the effectiveness of digital tools. Instead of blaming messengers who share bad news, managers should reward employees who bring issues to their attention so they can devote all necessary resources to find innovative solutions.
Stage gate reviews are frequently burdened with rigid bureaucratic rules and procedures that create crippling project bottlenecks. On the flip side, overly optimistic project managers sometimes fast-track large capital projects through stage gates without giving due attention to risk registers or detailed scheduling tools. By evaluating their current situation, organizations can work toward the best stage gate decision process for each project, team, and moment in time. That way, they can eliminate the burden of bureaucracy and introduce strategic decisions that teams can understand, commit to, and trust.