Five critical requirements for successHow to keep your capital project on time and on budget
How to keep your capital project on time and on budget
By Ian Pearce
October 19, 2021
Courtesy of Ian Pearce
Four out of five greenfield mining projects are either late and/or over budget by more than 40 per cent. Rates of return are usually in the single digits. In my experience, mining companies must fulfill five essential requirements if they want to improve the likelihood of delivering a successful project.
1. Build a proven team
This is the single most important factor. The right team, which includes members who have a proven track record in defining and executing projects, is critical. Experience in conducting studies is not enough. This point goes for all phases of defining and delivery of the project.
2. Define the project
Successful projects use defined gates that delineate the work and deliverables for each of the phases. Each gate includes a formal review process to determine the status of the project; advance the project; revise the scope of the project; or end the project.
Projects go through five phases: definition, execution, commissioning, production and closure. The definition, execution and commissioning phases relate to getting the project up and running. Operations are defined by production and closure phases.
At the definition, execution and commissioning phases, six essential questions must be answered:
» Why? The answer to this question is the business case.
» Where? This answer leads to an understanding of location and impacts.
» What? This answer provides the scope of facilities.
» How? The answer to this helps to define the services (work) required to place the facilities so that operations can begin.
» Who? This response identifies all the parties involved.
» When? The answer to this clarifies the timelines and the relationship between the activities.
The completion of the feasibility phase is what gives a project the clarity to arrange finances, but in no way is it a trigger that defines the project as “execution ready.” The feasibility document contains time-sensitive market information, so there should not be a gap of more than six months between the feasibility study and execution.
What is still required, beyond the feasibility document, are plans detailing the work and the deliverables for the execution phase. The work to create the deliverables list involves providing extra detail around what, how, by whom, and when.
The deliverables are then supported by a critical path analysis (CPA) of the master schedule. Think of the CPA as the foundation of the schedule of work. It is also the basis upon which to do all resource planning. The CPA lays out which tasks must be completed on time for the project to come in on schedule. It also identifies which tasks may offer schedule flexibility, reflected as excess float in the schedule.
This attention to detail in the definition phase will help projects manage risks and seize future opportunities. Remember that one needs to spend at least 10 per cent of the total installed cost of a project to get it to the “execution-ready” stage. So, on a billion-dollar project, one needs to spend at least $100 million in defining that project. Skimping on the definition, just sets a project up for problems and possible failure.
3. Establish the tools required to manage, control and report on the project
Each work stream or function requires customized tools that can be used to forecast and manage scope in a timely and integrated way. Tracking engineering, procurement, deliveries, quality, contracts, schedule, costs and risk can be done using existing planning and scheduling tools available in the open market.
It is a common mistake to take operational practices and procedures and try to modify them for use on a project. Projects should not be run on annual operating budgets; they require their own cost accounting processes and financial accounting practices – ones that will differ from those typically used in operations. Having project cost accounting usually means having a separate accounting system, frequently generated reports, specialized forecasting and tracking procedures (often tied to KPIs).
4. Understand the drivers to productivity through all stages of a project
The main activities of any project are typically, engineering, procurement and contract formation, delivery of materials and equipment, contract execution and the installation of all the equipment and materials. This culminates in the commissioning and handover of the project to the operations team. Each of these areas of activity needs to be understood and to have related productivity drivers (value driver trees) established and managed, as efficiency is the main tool available to projects to deliver on time and budget.
For example, deciding when to mobilize the field activities has a huge influence on productivity. Field mobilization, which can include bringing in heavy machinery and drilling equipment and beginning camp construction, occurs when engineering and associated activities are around 30 to 60 per cent complete. At that point, the company has a clear understanding and has made a commitment around basic aspects of the project but can still incorporate some flexibility to account for unforeseen situations.
Keep in mind that earthworks are not the same as mining. While both can make use of heavy machinery to dig and move earth, it is not recommended to mobilize mining fleets early for this purpose. This results in equipment damage and/or poor productivity. Employ specialized earthworks fleets to prepare the site and the ground. Save the mining fleet for mining. Efficient execution advances the schedule, resulting in lower costs.
5. Transition from bulk construction through systems completion and commissioning to ramp up
Commissioning and ramp up of projects need a different approach to that of steady-state operations. Contracts must set out the terms for management of construction teams. Assembly of most of the equipment from vendors’ shops and fabricators occurs on-site. These activities require a proper commissioning phase with planned and discrete deliverables, which are outlined as early as possible, preferably when you are defining the detailed execution plan. Lack of planning can lead to equipment damages, in long downtimes and claims for extra work from contractors. Modifications, without a full understanding, can lead to not achieving nameplate capacities.
Unfortunately, there are no silver bullets to project planning. Success lies in doing work up-front and relying on the judgement of a knowledgeable and experienced team.
Ian Pearce serves as advisor and non-executive director to both public and private companies in the energy, mining and metals sectors. This column is an edited version of his keynote address at the Capital Projects Symposium 2020, which is available to view at academy.cim.org. Click here to register for the Capital Projects Symposium 2022.