Capital Investments: Achieve Success with New Technology
16 July 2008
Topics: capital investments, financial analysis, process
development, project management, new technology, troubled projects,
lessons learned, progressive elaboration, risk management, scope
development
Many projects fail to deliver results on time and on budget. Others fail to deliver the desired outcome. Why? And what can we do about it?
A number of influential studies have highlighted the roots causes of project failure. The studied looked information technology, manufacturing, and the oil, gas, chemicals, and minerals industries.
The Standish Group issued a report in 2004 that showed that 18% of information technology projects fail and 53% run over time and over budget, with less than 30% succeeding.
Between 1979 and 1981, the Rand Corporation investigated process plants that used new technology. They looked at 34 firms (such as Exxon, Dow Chemical, and many other large oil and chemical producers). The researchers saw that new technology often runs over cost and fails to perform well.
Charles River Associates conducted a similar study of mining projects, and they found that less than 70% of process plants recovering minerals and metals achieved design capacity in the first year. In fact, many plants required up to four years to reach capacity or never reached design throughput.
This video brings this topic into focus and provides suggestions for improvement.
The most important answers to achieving more successful projects include:
- Learn from the past by conducting "lessons learned" reviews
- Launch projects with adequate support
- Perform adequate engineer and business analysis before committing major funding
1. Learn from the Past
The Project Management Institute teaches that best practice is to conduct periodic reviews to understand and to document what worked and did not work on projects. These “lessons learned” guide future work.
David Davis, a senior executive with Tate & Lyle PLC in the United Kingdom, and an expert on dealing with troubled projects, authored an important article for Harvard Business Review in 1985. Mr. Davis stated, “Senior managers’ most important task in dealing with … project[s] is … encourage[ing] honest and frank disclosure…”
2. Launch Projects with Clear Charters, Adequate Resources, and Strong Sponsorship
Many projects start out on the wrong foot, because management fails to clarify what the project will delivery. Other projects flounder, because managers neglect quantifying the project’s benefits or vetting those benefits with stakeholders.
Time invested up front to clarify what will be done, for whom, and why, pays big benefits. If you’re a project manager, make sure you understand the economic factors that driver your project; such metrics can enable you to steer a project through all phases.
3. Adequately Define the Scope, Benefits, and Risks before Funding any Project
Organizations need to perform an adequate amount of design and engineering before fully committing major funding. The Rand study, mentioned earlier, showed that projects that are budgeted before they are well understood seriously overrun their budgets. And projects that experience cost runs face extreme pressure to achieve results with insufficient resources.
It is far better to take more time and use more resources to thoroughly evaluate your preliminary design. Equally important, the project team should identify project risks. Early identification can enable the team to modify the scope or to provide funding if risk mitigation is impractical.
Conclusion
In conclusion, applying good project management principles can prevent projects from running over budget and falling behind schedule.
References:
Rand report: A Review of Cost Estimation in New Technologies 1979
Rand report: Understanding Cost Growth and Performance Shortfalls in Pioneer Process Plants 1981
Rand paper: Cost Growth in New Process Facilities 1983
Rand report: Pioneer Plants Study User’s Manual 1983
Rand report: Understanding Process Plant Schedule Slippage and Startup Costs 1986
David Davis, "New Projects: Beware of False Economies," Harvard Business Review, Mar-Apr 1985, p. 95-101.
Start-up of New Mine, Mill-Concentrator, and Processing Plants for Copper, Lead, Zinc, and Nickel: Survey and Analysis, 2 volumes, Charles River Associates, Boston, MA, 1979, CRA report 464.