Quality Drives ROIC

A 4-Part Blog Series
 

November 11, 2022

It’s November and that means it’s World Quality Month! Like other companies who are in the business of providing solutions, we pride ourselves on the quality of our work and the positive impact that quality makes in our organization. We know we couldn’t deliver the highest levels of quality to our clients without our people, processes, and technologies.

In celebration of World Quality Month, we have developed this article as the first in a four-part Middough blog series called Quality Drives ROIC. In this series, we will discuss how an effective quality management system is critical to optimizing ROIC (Return on Invested Capital), in each of the following four CapEx project phases:

Project Quality Tenets

As a CapEx project is progressed from selection to completion, it is important to remember a few critical tenets of quality. Keeping them as a basis for all actions helps improve the predictability of achieving planned ROIC.

  1. Follow a formal quality process
  2. Know your customer goals and expectations
  3. Leverage lessons learned
  4. Quality and innovation are mutually dependent
  5. Quality implementation improves predictability


Phase I: Identify, Assess, Select  

Across all industries, companies struggle to deliver CapEx projects with the planned quality, on time and per budget. According to a recent McKinsey consulting report, “Most capital projects experience significant time and cost overruns. In fact, cost and schedule overruns compared with original estimates frequently exceed 50%... Companies must ensure they are sourcing the right projects with the right partners.” (Source: “How Capex Management Can Drive Performance,” McKinsey, June 2022). 

Suffice it to say, many times the struggle results from selecting the right project to execute with the right teammates and a consistent process.  Success requires a comprehensive group of professionals, with the appropriate levels of expertise, important data and lessons learned, and tools for analysis and modeling.   Financially sound decisions require flexibility in thought and design to conceptualize and analyze project options relating to: scope, scale, and implementation timing. With today’s supply chain challenges, expertise attrition, demand for speed, and market volatility, organizations are facing even more challenging times assembling and committing those critical resources to perform a quality effort.  

Internal corporate technical and management subject matter expertise used to identify, assess and select projects are very scarce resources. That leadership and operational expertise are many times wearing many hats and / or consumed with mega project efforts and sometimes not available for the appropriate quality of diligence.  This condition unintentionally contributes to bias just due to bandwidth. As a result, a worthy midsize and small cap projects in the portfolio are often rejected. A corporation’s CapEx project selections should be analyzed from a portfolio approach, rather than a siloed perspective to optimize ROIC across the entire portfolio and eliminate bias.

Historically in Phase I, the identification, assessment, and selection of a CapEx investment was carried out by the project owner and their internal experts. Today that collective group must often be augmented with expertise from outside the owner’s organization for concept development, feasibility and risk analysis and in manufacturing environments, even major equipment option consideration. Although the decision to augment is many times driven by the constraints mentioned above, it also proves to be very valuable to bring in the third-party teammates who typically provide additional objective views, lessons learned, and innovative alternatives from cross-industry experience.

Choosing trusted partners with the project delivery expertise, technical and unit operation knowledge, cost and scheduling tools, coupled with a quality management system to keep the process organized from the start leads to better quality decision making and can prove invaluable to ultimately achieving the planned ROIC. 


Performance You Trust™ 

Middough’s commitment to quality results in trusted performance recognized by our clients. We encourage each of our team members to assume personal responsibility for continuous improvement and compliance with our quality processes. Middough fills gaps in client resources and front-end expertise. Our MAPP™ (Middough Advanced Project Procedures) quality management system provides the structure and rigor necessary to consistently deliver value and help to reduce the risk and uncertainty of capital allocation and expenditure on major projects. If you want to optimize your capital investment for the highest ROIC, see how we can help. 

Please come back for part two in this 4-part series where we share some best practices for the Define stage of delivering quality capex project solutions.