Implement Lean Project Management and phase gate process
Many chemical suppliers have effective stage gate processes to manage large projects. However, we observed that this rarely happens for smaller projects. A common challenge is to apply a method that applies to all projects to manage projects, which leads to frustration and process or bureaucratic overload.
Companies with effective portfolio management adjust their approach to the size and complexity of the project. They apply strict levels based on size and complexity: for smaller, simpler projects, for example, they simplify the number of stage gates and stakeholders. By redeploying engineering and project managers to the most complex or expensive projects, they maximize value.
We also found that when it comes to smaller projects, chemical suppliers often miss a key step in Governance: stress testing or challenging the assumptions behind the proposed goals and calculations. Examples include the use of cost estimation benchmarks rather than precise project specific calculations, or the absence of multiple design solutions. Stress testing provides another opportunity to verify that the project will truly meet business objectives. This is best done by experts independent of the project team. In our experience, formally introducing and ensuring external and independent challenges at each level is critical to delivering the required optimization and execution results.
Use effective procurement and contractor management processes
Many chemical suppliers describe their outstanding ability in capital procurement management. In reality, many companies fail to integrate purchasing professionals into the front end of the project life cycle. As a result, they miss the opportunity to integrate the latest supply market insights or technological advances.
When it comes to purchasing products and materials, the best performing companies create clear product roadmaps that allow them to bundle similar products on different projects and sites. They use advanced analytical tools such as clean sheet cost models to facilitate supplier discussions. Finally, these companies want to expand their supply markets to include global suppliers to take advantage of the best technology or labor markets.
Best practice companies can also effectively manage contractors who manufacture, install or replace capital equipment. They will find the most suitable contracting mode (for example, switching between the cost plus method and the lump sum method), rather than always sticking to the same contracting mode. Their decisions are based on clarity of project scope, understanding of project execution risks, and natural ownership of risks. They carefully assess the capabilities of contractors and select the contractors who can deploy the most efficient and effective personnel. Finally, they realized that no matter what contracting mode is adopted, effective owner supervision is crucial. It not only alleviates the typical information asymmetry between the owner and the contractor, but also creates space for the additional profit of the contractor.
Building sustainable organizational Enablers
One of the most important success factors in effective small and medium-sized capital project management is that senior managers make it a priority. Leading companies actively manage their processes through regular performance dialogue between project teams and senior management.
In addition, these companies do not regard the optimization of small and medium capital projects as a one-time event. High performing companies invest in team capabilities to promote project optimization and higher execution standards across the company. They invest and train a group of project and portfolio management experts. They have also created centers of excellence that they use to train small project teams from different production locations to make more effective use of the resources they use. Over time, the training program can be extended to the whole company. This approach spreads expertise to all sites, which is essential for small projects that are usually driven at the site level, as opposed to large projects that headquarters focuses on. Using this “capital expenditure Institute” approach, a company conducts thorough training and guidance for each project team in the pre feasibility and feasibility stages. This effort led to a substantial improvement in the quality of the project.