Fewer overruns, less delay: How one industrial products company enabled real-time cost reduction with effective capital project controls
Help reduce widespread cost overruns and schedule delays on capital projects
New cost, schedule & change management processes, procedures, policies & controls. Implementation of supporting software & adoption of new procedures
Elimination of 15 % cost overruns on capital projects while strengthening the capital project management team’s control & visibility of budgets & risk
Alarmed by the recurring capital project cost overruns and schedule delays he saw, the president of an industrial products company sought help from Protiviti’s capital project management experts. The ensuing collaboration resulted in process and systems upgrades that helped the company eliminate significant cost overruns that afflicted the majority of its previous capital projects.
Today, the capital project team’s visibility into costs is sharper than ever, and the company is equipped with the real-time data management, forecasting, reporting and change management capabilities it needs to ensure that capital projects remain on time and on budget. “The president recognised there was a problem and was open-minded about the recommendations we shared with him,” notes Protiviti Director Jon Critelli. “He also demonstrated the commitment necessary to maximise the returns on the improvements his company invested in.”
A Red Flag Rises
Shortly after joining the company, the president began noticing that many of the firm’s capital projects were running 12 to 15 percent over budget while extending beyond scheduled completion dates. When he could not obtain a cogent explanation for these issues from the capital projects team, the president reached out to Protiviti to confirm the magnitude of the problem and to diagnose the cause of the pervasive overruns and delays.
A subsequent diagnostic review confirmed that the president’s assessment was correct, and identified three key improvements – capital project management organisational restructuring, project management processes and technology improvements, and the use of new capital project contracting approaches – all of which would eliminate the issues causing the pervasive budget and schedule performance challenges. The company’s president decided to move ahead with each of these improvements.
The recommended process improvements targeted the company’s day-to-day capital project management activities, primarily in the areas of cost, schedule and change management. The president also sought Protiviti’s assistance with the implementation of a project management software application. Executing both efforts simultaneously meant that select processes would be optimised prior to being implemented, and thus disruptions to daily capital project management activities would be limited.
Managing Change, Optimising Improvements
With the process redesign and project management software implementation completed, the company was eager to apply its new capabilities to a capital project that was still in the planning and budgeting phase. At that point, it became clear that while the tools and capabilities were there, adoption by the capital projects team was inconsistent. The president knew he would need additional assistance to ensure broad adoption and optimisation of these new processes and tools. In response to his request, Protiviti provided a team member with deep project controls expertise and capital project management experience to work closely with the capital projects team and provide day-to-day project controls services.
In addition to providing software-related support and training, the Protiviti team collaborated with the company’s capital projects team to design and implement a new monthly reporting approach that shared much more detailed, real-time information related to schedule, budget and forecasting updates as well as remediation plans when needed.
Sharing these real-time reports and project updates was not easy for the capital projects team members. Employees often feel reluctant to reveal this type of real-time information when a project is over budget or behind schedule. However, the team realised that doing so enabled them to engage in a more constructive dialogue about the project’s current status. The sharing of real-time information also allowed the capital projects team to gain the trust of management, who understood that they were receiving the real story on which they could base decisions, and not just a hopeful forecast. These reports also helped to address less noticeable issues before they became major challenges. That proved to be the case with the very first capital project that was performed using the redesigned processes and technology: The project came in only 3 percent over budget, an overage that was due primarily to unforeseen environmental and engineering hurdles, rather than any project management missteps. The reduction in cost overruns amounted to roughly three times the cost of the process improvements.
Today the company has a more clear and detailed view into and better control over its capital project costs. Previously, the capital projects team utilised summary-level budget monitoring and reporting; now it has immediate access to detailed costs across all facets of capital projects. With this new level of detail, the team has the ability to challenge costs more effectively and to exert greater control over costs on a real-time basis.
Reducing capital project cost overruns and schedule delays requires a multifaceted effort that addresses process, technology and cultural issues. Even the most carefully planned process and technology improvements can fall short if change management hurdles are not cleared. By understanding and committing to all of the improvements – procedural and behavioural – that needed to be implemented, the president of the industrial products company ensured that his organisation’s capital projects are far less likely to set alarm bells ringing.