Quality Drives ROIC Pt. 2

A 4-PART BLOG SERIES

Author: Carl Wendell | November 28, 2022

Quality-driven CapEx solutions help to reduce the risk and uncertainty of capital allocation and expenditure on major projects. In celebration of World Quality Month 2022, we bring you Part 2 of our 4-part series, Quality Drives ROIC. In Part 1 of the series, we discussed the positive impact that following a quality process has in objectively selecting the optimum projects for Return on Invested Capital (ROIC) during the Identify-Assess-Select phase.

In Part 2 of this series, we provide an overview of how project teams should partner with their clients through quality-driven engagement in the Define phase.

Continuing into the Define phase, following the same quality management system used in Identify-Assess-Select phase, affords consistency in CapEx project definition and development. By the time a CapEx project has made it from the Select stage, there is preliminary agreement that the opportunity is worth further consideration.

During the Define phase, the project team and corporate decision makers will either endorse and proceed with development into the Execution phase and ultimately the Operation phase, delay the decision, or veto it altogether.

Defining the baseline of the scope, scale, schedule, and cost to deliver what was conceptually selected takes place now. Properly vetting risks and uncertainties, assessing scope alternatives, and understanding the “time to market” feasibility to achieve the conceptual ROIC is furthered in this phase.


Implementation

Implementation requires a structured approach, rigor, and discipline to further define the project that supports the business opportunity.  This is a very difficult phase as constraints on participants’ time and the business market demands always test a team’s ability to comply with a proper process.   It requires the following elements to be successful:

  1. A qualified Business Sponsor with authority to make decisions must be assigned and stay engaged during the entire Definition process and commit or secure the resources to do the same. Business short-cuts lead to risks, and projects that skip important preliminary definition elements lead to costly overruns later.
  2. Professional Project Management following a quality management process that does not skip steps.  Risk and reward must be assessed and managed through the entire process. This requires that a project manager be assigned and allowed to hold the team accountable for developing the defined support documentation necessary to comply with corporate steps or stage-gates.
  3. Stakeholder Team composition and availability is important and Subject Matter Experts (SMEs) should be assigned to project teams to guide and mentor design, equipment, and process flow, as well as for early consideration of execution of the project. Also essential is the team being allowed to remain available throughout the process, per the schedule, to have the time and to “stress test” assumptions.  
  4. A Schedule is critical.  Planning for critical decisions, milestones, and their timelines is essential. Market demands will typically pressure teams to again skip steps, and a schedule with the clearly defined milestones, their timing, their dependency, and assignment will help keep people aligned, accountable, and on track.
  5. Capital Cost Estimate development rigor is vital. Assumptions are always made, but they should be well-documented and include collective input.  As the scope, schedule, cost of a business opportunity and multiple options are considered, the cost estimating team must be allowed to keep up. It takes input from past successes and lessons learned from representatives from the business side as well as the CapEx implementation team, current supply chain data, and adequate time.
  6. A Project Charter is a simple but powerful tool shared at project kick-off that clearly defines the mission, the stakeholders, responsibilities, deliverables, schedule, and the desired outcome.  Remember that one of the Define phase goals is to affirm the business case and the CapEx investment required to achieve it. Aligning the team immediately and memorializing it is critical.


The Quality Process 

A Quality Process that defines the required elements necessary to complete the Define phase is typically used to guide the process. At Middough every phase of project development is governed by Middough’s Advanced Project Procedures (MAPP™) and its quality assurance and quality control elements. In most project processes, the Define phase of the project delivery process includes project kick-off, design, construction cost estimating/preliminary supply chain considerations, and schedule definition.

Project kick-off aligns the stakeholders’ teams with the expectations, intent, and goals of the project, focusing on the client’s ROIC and why the project has been selected for further development. A standardized kick-off agenda that leverages lessons learned will prove to reduce risk and uncertainties.

A key element to delivering ROIC is the assignment of resources with industry specific design, procurement, construction, and operations experience related to the project type and location. Participants must be made available to share critical thinking and lessons learned from operations, value-add from previous projects, risk management, and financial funding leadership.  Many businesses augment the CapEx project team with outside resources, and although that is very valuable, a client should not rely solely on external vendors that may be biased on a particular technology, equipment, or project delivery approach.

It is important to leverage the quality process as it relates to the level of project development necessary at this phase. The resources must be controlled to keep the work at the conceptual level without getting too far in the weeds.  Developing too much detail is not a productive use of time and funds, and vice versa, too little thought can result in unnecessary risk and cost later.

Development and use of a risk register during this phase is also essential.  Although early, documenting the collective team’s ideas around risk, mitigation, and associated contingencies is very important in making business decisions to proceed or stop.  Having a simple objectively developed document is a powerful business tool.


Project Delivery Methodology

Clients in most industries do not agree on the project delivery approach early enough. It is critical that even during the Define stage that it be considered.  Schedule development using a series of workshops can significantly improve the likelihood of success. Although early, getting an idea of how the project will be bought, built, commissioned, and started-up drives communication and the seriousness of the project or program.  Considering project delivery methods helps the team assess and align expectations, risk and the associated cost of managing risk earlier.


Construction Capital Cost Estimating

The most critical deliverable of the Design stage of the Define phase is the Capital Cost Estimate. At Middough, we leverage our proven estimating tools based on AACE guidelines and our team members’ experience to deliver estimates that are accurate commensurate to the level of design detail. Each estimate is developed and reviewed by a team with applicable construction experience. We perform probabilistic analysis of estimates to determine Minimum, Most Likely, and Maximum percentage values of the major cost accounts based on design development. The outcome of our analysis provides the percentage of contingency that should be applied to the estimate to achieve a defined confidence interval of budget completion.

Performance You Trust™ 

Middough’s commitment to quality results in trusted performance recognized by our clients. We encourage each Middough team member to assume personal responsibility for continuous improvement and compliance with our quality processes.  The return on quality starts with the adoption of our core values, proceeds into the CapEx process during Phase 1, the Identify, Assess, and Select phase; adds Definition and feasibility in Phase 2, and continues along the entire path of the project delivery process.

We hope you will take away some useful information, and we invite your feedback and comments on LinkedIn. Please read part three in this 4-part series where we share some best practices for the Execute stage of delivering quality CapEx project solutions.