Quality Drives ROIC Pt. 3


Author: Carl Wendell | December 12, 2022

Quality-driven CapEx solutions help to reduce the risk and uncertainty of capital allocation and expenditure on major projects. In Part 1 of our 4-part series, Quality Drives ROIC, we identified five critical tenets of project quality and discussed the positive impact that following a quality process has in objectively selecting the best projects for optimizing Return on Invested Capital (ROIC). We also shared why it is valuable to bring in the third-party teammates as early as the identification stage of a CapEx investment. At Middough, we call this the Identify-Assess-Select phase.

In Part 2, we provided insight into how project teams should partner with their clients through quality-driven engagement in what we call the Define phase, and the elements required to be successful as you look to implement.

In this part of the series, we will talk about the elements needed to help minimize risk and optimize ROIC during execution, the importance of keeping the team together, and the impact of following a quality management system during the execution phase.

When completed through a quality process, the final product of the Define phase is a deliverable with plant production yield and facility program requirements that are clear with expectations that allow the team to understand how to maximize the ROIC as they progress into the Execute phase. The project delivery approach has been agreed upon, a Level I preliminary Engineering, Procurement, and Construction/master implementation schedule has been developed, and a work breakdown structure is in place to steer the detailed design and long lead procurement. The Total Installed Cost estimate is + /- 20% and the contingency and corresponding risk register are available for use in advancing the detailed engineering.

Continuing into Part 3, the Execute phase is a major step.  So much takes place in this phase and the cost of decisions have significant impact on the final ROIC. Following a quality management system remains vital to developing the design detail, purchasing major equipment and material, proper constructability, and constructing the systems and facility for efficient occupancy and operation. Lack of regimen leads to poor decision-making, implementation errors and changing approaches that lead to rework, delays, and erosion of ROIC. 

Most traditional project delivery methodologies have relatively well-defined gates, and the project stakeholders must now be accustomed to some level of regimen for assessing scope, being focused on priorities, evaluating risk, and making decisions. Keeping the team together and following a regimen are the best ways to make thorough decisions earlier and have the biggest impact on cost, schedule, safety, quality, and project harmony.  

Quality Execution

The following elements help minimize risk and optimize ROIC during execution:

  1. An Executive Steering Team should be developed for managing the high-level expectations and challenges associated with a major CapEx project or program.  CapEx is complex. An upper echelon group of stakeholders not involved in the day-to-day project execution must be engaged to support nimble decision-making, meet with agreed-upon regularity, and be available for the project team to escalate issues. Communication has the biggest impact on success, and it starts at the top.
  2. Professional Project Management requires following a quality management process that does not skip steps.  Risk and reward must be assessed and managed through the Execute phase. 
  3. Virtual Design & Construction Collaboration has advanced to help avoid clashes and improve communication. 3D modeling software should be used for multi-discipline engineering and incorporation of vendor-provided information and laser scans, thus helping optimize design, avoid conflicts, and enhance the detail needed for procurement, construction, and start-up. 4D visualization and logistics affords optimum constructability, integrated scheduling, and progress tracking.
  4.  As the project progresses into the Execute phase a fresh Interactive Planning & Scheduling session is an important tool for aligning objectives and engaging all the stakeholders in the kick-off of a significant capital project with a major capital investment. Long-lead material and equipment, permitting, start-up, tie-ins, and operational considerations should all be aired stakeholders with a cross-section of expertise and opinion.
  5.  One Critical Path Schedule must be maintained and used to help control decision making and change. Schedules become complex on major CapEx projects. Supply chain impacts will force workarounds and alternatives.  The design and construction team experience and input must be leveraged and kept in sync with purchasing and progress. Realistic predecessor and successor logic must be managed to be successful. 
  6. Earned Value Management is necessary for CapEx investment to be successful. Coupled with an accurate baseline budget and schedule are realistic tracking of schedule and budget performance and progress. This often involves many stakeholders and having a project controls team involved that can plan, train, track, and keep progress measurement objective.
  7. Start-up Plan.  Planning for commissioning and start-up begins in the Define stage and should mature early in the Execute phase.  It must be developed and managed by a dedicated team to be successful. Technology, software, supply chain challenges, and the demand for more and more AI and data makes it even more critical. If the production process is not started up on time or a facility cannot be occupied, the impacts on ROIC are, of course, serious.
  8. Long-Lead Procurement and Expediting is essential. This is not new, but current supply chain challenges have driven the need for more checking and tracking. In addition to equipment having longer lead times, components of that equipment and bulk materials can also delay the Execute and Operate phases. It is important to develop a team with international reach, execute solid contracts, and follow a system for ordering, expediting, maintaining orderly inventory, and protecting material and equipment after receipt. Late, missing, or damaged material delays completion and has a snowball effect.
  9. Capital Cost Control Estimate management is crucial.  In our experience, too many clients use a combination of sources to track progress.  One version of the truth is best.  An internal group familiar with the process, or your EPCM agent should track the baseline estimate against the buyout.  This provides the best opportunity for truly assessing the costs per the work breakdown structure, helps flag budget gaps, and provides proper transparency of the use of contingency and reserves when necessary.
  10. Safety and Quality both need plans for design, engineering, procurement, construction, and start-up. Most CapEx teams understand the importance of safety but lacking a similar rigor toward quality can have similar impact.  Impacts from an injured worker, or the financial and schedule cost from a failed design or constructed system, all take unnecessary tolls on project success.  

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 into our Execute (Phase 3) and Operate (Phase 4) phases.

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