Capital programs are key to the strategic success for those who own large capital assets in the power industry. Owners with large investments in plants, facilities and infrastructure live and die based on the performance of those assets. This is why there is an emphasis on modernization, upgrades and major modifications to these assets. Getting the most return on investment (ROI) from the capital program is critical to success for owners. So leaving ROI “on the table” so to speak is not a practice that leads to long term success, but that is what happens when projects are managed in the typical fashion.
The complexity of the business in the power industry has led many to organize around narrowly defined functions that largely ignore opportunities to create synergies. This is true in the way most organizations manage projects. The concept of division of labor and the idea no one can be an expert in everything has driven this more or less standard organization. However, in reality the issue is much related to the organizational silos created and the natural barriers that prevent cross-functional collaboration in the development of effective programs and processes. This need not be the case.
Expanding the View of Projects
Project management and therefore the value created through implementation of capital projects is often limited by the view of the project lifecycle. The lifecycle of any project has a beginning and an end. However how is the total value of that project fully implemented and recognized by the owner? It is actually throughout the lifecycle of the improved or new asset, and for practical reasons a line is drawn to indicate this is where managing the implementation of the project ends. It is where we tell the project manager his job is finished. This in itself is not bad on a project by project basis, but if there is not a more expansive view of the project and its benefits to the organization, stakeholders and shareholders, the full ROI is not realized because project management program and processes are limited to project implementation only instead of being based on the entire lifecycle of the capital asset enhancement.
Let’s look at some areas where a narrow view may miss opportunity. Figure 1 depicts the typical implementation lifecycle of a project. It begins with an initiation phase, followed by a study phase, then design, installation and closeout phase. While many project management organizations have gone to great lengths to document and proceduralize the approach with many additional steps, this process is reflective of most project implementations whether it is a major IT initiative or new plant.
A more expansive view of a project lifecycle would include steps leading up to the project initiation. For example, the upgrade of an aging plant may be driven by a companywide asset management program that calls for the replacement of aging components, or a regulatory change that dictates and modification due to an environment concern. Or even a safety issue may be the corporate motivation driving the project. The point here is while these drive the initiation of the project, these are not recognized in the project management process, nor by the project managers in general. These other systems are managed outside the project implementation process even though intimately part of the project lifecycle.
On the back end of the project and through each of the major steps there are similar aspects critical to the project and it ultimate ROI. By limiting our view of the project from the point of view of the organization supporting the project implementation we artificial limit opportunities to improve ROI and collaboration through a grander corporate view of the project management program.
As a case in point BCP has a successful practice in supporting utilities and others with special tax treatment of certain project expenditures that can be classified by the IRS tax code as research and experimentation. R&E costs are present in most every capital project. These services have produced tens of millions of dollars of savings for BCP customers. This work is most often done for the corporate tax departments and invariably is done as a “look back” at the project sometimes years after project closeout. What might be gained if the costs were properly classified, captured and separated where necessary through enhanced project management processes? In most cases this “in process” capture of necessary information is not the case due to the organizational silos and a narrowly constructed view of the project’s lifecycle. A project management program that recognized the needs of the corporate tax department would significantly enhance ROIs for individual projects.
In additional to the more expansive view of a project lifecycle that will produce “game changing” results, similar gains can be realized through better integration of the required project delivery functions. Integrating functions also will produce a steady stream of continuous improvements when sharing of lessons learned, success and failures is accomplished in a non-threatening way corporately.
Recently a BCP customer has been wrestling with several functional areas in project management. One of the issues management would like to address is improving the early project cost estimates so decisions can be made on more realistic costs since there are multiple projects competing for limited funds. This particular customer has multiple operating facilities of various ages each with organizations at the remote locations responsible for delivering completed capital projects. This customer can benefit from more guidance on estimating as part of conceptual project development, a change of culture, but also from tighter integration on a number of levels.
First, integration across the multiple locations with a method of capturing lessons learned and documenting these so they are not relearned separately through experience at each location by each individual. Capturing this knowledge corporately is not always simple, but produces substantial benefits when working with executives in the decision making process. A process for applying methodologies used in determining root causes and monitoring performance with appropriate metrics would be a starting point.
The second level of integration is with the other project management functions that use and support the development of conceptual project estimates. Working more closely with those that provide input information for the conceptual project estimate and working with those that use those costs for producing budgets, etc. broaden the estimator’s understanding much in the same way broadening the view of the project lifecycle creates opportunities.
Getting More from Service Providers
Today it is the exception not the rule that organizations are internally self-sufficient in managing the implementation of projects. Most organizations use contract service providers in any number of ways to assure the capacity to execute the capital program. If an owner intends to use service providers a few steps are recommended to make sure the maximum ROI for those projects are received through the contracted services. Any loss of efficiency or effectiveness here detracts from the ROI.
In selecting service providers make sure the appropriate capacity to accomplish the objectives exists. This includes not only the quantities and experience needed, but also the service provider must have the ability to integrate the various functions while working seamlessly with the owner’s project management staff.
Assure the supplier understands the owner’s project management processes and has in place a method to not only provide the needed expertise, but to deliver support that is trained and ready to work. This includes temporary staffs that understand existing procedures, policies and practices. Tapping into the organizational knowledge gained through lessons learned developed in the improvement processes should also be considered.
It always helps to select a supplier that is infinitely familiar with the owner’s business, the industry and specific technologies.
Enhancements to the classic project management programs and processes should be sought in three areas:
- Seek opportunities by expanding one’s view of project lifecycles seeking to look beyond the edges of project delivery and implementation to the value chain of the project lifecycle across the organization.
- Look for opportunities to integrate project management functions locally and corporately to better manage the entire effort as a learning organization.
- Demand more from contract service providers in the areas of 1. and 2. by assuring they have the organizational capacity, expertise, and experience to deliver what is needed while working seamlessly in the owner’s organization.
Article by Chris Staubus, General Manager – Utility Services