8 factors that predict capital project success

Planning and software can lead to CPM prosperity.

By Sheila Kennedy, contributing editor

In brief:

  • Capital project management (CPM) success requires astute planning, structured controls, and effective delivery.
  • With the right planning and tools, capital projects are manageable
  • View some of the critical success factors.

Capital projects, whether for new construction or capital improvements, are unique not only in investment size and consequence, but also in complexity. Capital project management (CPM) success requires astute planning, structured controls, and effective delivery. Software tools and best practice strategies increase the likelihood of positive outcomes.

Kuehne Chemical (www.kuehnecompany.com), based in South Kearny, New Jersey, manages its capital projects internally. Outside expertise is typically used for engineering design, according to Richard Wilkes, director of corporate engineering for Kuehne. The manufacturer of sodium hypochlorite (bleach), sodium hydroxide (caustic soda), and chlorine is currently developing a new brine-to-bleach facility.

Figure 1. Kuehne Chemical’s 350 ft steel pipe bridge project was a $260,000 capital investment.
Figure 1. Kuehne Chemical’s 350 ft steel pipe bridge project was a $260,000 capital investment. (Source: Kuehne Chemical)

“We recently completed the fabrication and installation of a new pipe bridge section to connect a new process to an existing one,” says Wilkes. “The steel structure is approximately 350 ft long. It is a four-tier bridge, 17 ft clear to grade, approximately 6 ft wide on the pipe bearing area, and has a 3 ft wide catwalk along one side. It was a $260,000 investment.” (Figure 1)

Capital projects in some sectors are particularly complex. In the global oil and gas industry, sizable investments are being made in unconventional resources like shale oil, oil sands, and deepwater projects. Owner/operators in this industry are dealing with multiple joint venture partners; engineering, procurement and construction (EPC) firms; contractors; and suppliers, making collaboration among the stakeholders crucial, according to Rick Nicholson, group vice president of IDC Energy Insights (www.idc-ei.com).

“The industry has continued to increase its capital spending over the past two to three years, creating an even greater need for improved processes and technologies to manage large capital projects,” says Nicholson. “These projects are so large and require so much capital that they can directly create or destroy shareholder value.”

Capital project success factors

With the right planning, structure, execution, and change management, capital projects are more likely to meet or even exceed expectations. “I hate to throw out a cliché, but being on time, on budget, of quality, and getting the ‘customer’ to invite you back are the most important factors for successful capital project management,” says Kuehne’s Wilkes. “Doing it right the first time is essential.” Following are some of the critical success factors.

Companies should put in place processes and analytics that identify risks earlier in the project life cycle.

Pre-planning: Effective pre-project planning is a primary factor in CPM success. It’s where the vision is transformed into realizable goals, taking numerous and wide-ranging considerations into account.

“The most important success factor would be the front-end loading. This should be consistent and aligned with business goals,” says Glenn Kmecz, global practice leader for capital effectiveness and contractor safety management at DuPont Sustainable Solutions (www.dupont.com). “Each capital project has unique attributes and numerous challenges. There are many factors that need to be considered in order to deliver an effective project, such as technology selection, contractor selection, government permits, materials sourcing, operations readiness, and environmental impacts, to name a few. Therefore, we advocate for owner organizations to perform a thorough assessment of each project and then ensure that processes and specific actions are considered from the very beginning to account for these specificities,” adds Kmecz.

Risk planning: Risks are best mitigated by recognizing them upfront and managing them throughout the entire project life cycle. “Companies should put in place processes and analytics that identify risks earlier in the project life cycle, provide visibility into risks by executive management as well as project teams, enable continuous risk analysis and reporting throughout the project life cycle, and syndicate certain risks across the project portfolio,” says IDC’s Nicholson.

Resource planning: Kmecz recommends staffing project teams for success. This includes the establishment of cross-functional management teams. “By having a diverse team, it is more likely that business goals will be met and the project will run smoothly. Contractors must also be thoroughly vetted in order to ensure that they will be compliant with the expectations of the owner organization, especially as it pertains to safety, health and the environment,” he explains.

Asset integrity planning: Capital projects deliver greater savings down the line when operational and asset integrity is addressed at the front end. “Organizations that operate chemical companies, refineries, utilities or other industrial plants consider the operational integrity of the facility to be a high priority,” says Paul Marconi, senior project manager for asset integrity management (AIM) at Intertek (www.intertek.com). “We encourage companies to incorporate AIM into their capital projects, beginning at design phase.”

The failure to implement effective AIM has consequences ranging from the extreme (death or injury to personnel or the community) to production losses, work stoppage, plant outages, environmental cleanup costs, fines and legal fees, and damage to the brand and corporate identity, says Marconi.

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Expectations planning: Another increasingly prevalent issue in CPM is the lack of consideration of local stakeholders, according to Kmecz. “For multinationals, the manner in which they conduct their business can have a significant impact on the host community,” says Kmecz. “By liaising with external stakeholders and ensuring that their needs are met, it is possible for companies to lower operational costs, solidify cost-effective supply chains, build a highly skilled workforce, ensure a well-maintained infrastructure, and stimulate local economic development. This can become a competitive differentiator and drive sustainable growth.”

Project structure: No two projects are alike, but following a consistent project structure ensures that key steps are not overlooked in the plan. “One of the problems or challenges that we see in the energy industry is inconsistency in the management of capital projects within a large company,” says Nicholson. “Without a standard project portfolio management (PPM) tool and corresponding enterprise PPM framework, the success of projects is often determined by the skills and experience of the project manager assigned to the project. With an enterprise PPM framework and standard tool, it's easier to ensure that best practices are used across all projects.”

Sheila Kennedy is a professional freelance writer specializing in industrial and technical topics.Sheila Kennedy is a professional freelance writer specializing in industrial and technical topics. She established Additive Communications in 2003 to serve software, technology, and service providers in industries such as manufacturing and utilities, and became a contributing editor and Technology Toolbox columnist for Plant Services in 2004. Prior to Additive Communications, she had 11 years of experience implementing industrial information systems. Kennedy earned her B.S. at Purdue University and her MBA at the University of Phoenix. She can be reached at sheila@addcomm.com.

Project execution: Project monitoring and management of costs and schedules are extremely important, according to Kmecz. “We believe that the scheduler and controller/cost-monitoring roles in a project are critical. Not only do they set up a project execution timeline, but they monitor day-to-day progress and can alert the proper channels immediately as issues arise, allowing for mitigation,” he says.

“Gatekeeping should be performed between phases to ensure that all work has been performed correctly before moving forward,” adds Kmecz. “If this is not done, the risk of inflated budgets, long delays and safety or environmental incidents is significantly increased.”

Change management: Proactive scope control and change management protects the investment. “Aside from the lack of adequate front-end loading, the most common mistake we have seen is the inability to cope with change once the project is underway,” says Kmecz. “Changes in scope or personnel made late in projects introduce new risk, and this is generally not allocated the same amount of attention as risks that present themselves during the front-end loading stage. Further, such change can precipitate communication breakdowns, mismanagement and assumptions on progress that are disconnected from reality. These symptoms of inadequate change management can lead to significant loss of value.”

In the end, projects should be executed with as little change as possible, as any change can have a ripple effect on the entire project, potentially leading to massive changes and risk in other aspects of the project, Kmecz explains. “For example, if you change a technology that generates more heat, this may require changes in ventilation, which then may require redesign of the room in which the technology is housed; keep in mind that most of this work is often completed by multiple contractors, and you can see how complexity can easily lead to confusion and increased risk,” he says.

Software tools ease CPM

A range of software is available to simplify CPM. “In the plan/design/build phase, one of the most important software tools is PPM,” says IDC’s Nicholson. “In the operations and maintenance phase, one of the most important software tools is enterprise asset management (EAM). Across both phases (the asset life cycle), one of the most important software tools is enterprise content management (ECM), which typically includes collaboration capabilities. We believe that these three tools form the core capabilities for CPM. We see EAM software coming into play when equipment is being procured and installed for the project, and becoming increasingly important in the lead-up to commissioning of the project. At commissioning/hand-over, EAM takes over as the primary software tool,” he adds.

Recent software and technology advancements are further streamlining the task. “I'd say that advanced EAM capabilities in the areas of asset analytics and mobility are making CPM easier and more effective,” says Nicholson.

Kuehne uses spreadsheet, project, and word processing software to manage its projects, in addition to a computerized maintenance management system (CMMS). “Project strategy and feasibility studies are heavily aligned with our CMMS” explains Wilkes. “We use it for failure mode and effects analysis (FMEA), and we use the historical data for cost of change out and install.”

The CMMS is also used in project design and development. “The system allows us to schedule the tie-ins for the new bridge, plan the outage to accomplish the tie-in, and kit the parts to complete the task,” says Wilkes. “For project execution, the CMMS keeps track of the purchase orders (POs) and the work orders against the project and lets us review received, as well as open, POs.”

Benefits of AIM in CPM

Asset integrity management is a strategy designed to maximize asset reliability, availability and maintainability while protecting health, safety, and the environment. It is most effective when it commences at the inception of a capital project. “Most of the pieces of AIM were previously established, like risk-based inspections, which took off in the 1990s. It’s the packaging of the pieces into an AIM program that is a new concept,” says Intertek’s Marconi.

Effective AIM strategies encompass data and document collection; benchmarking and analytics; testing and inspections; process and safety evaluation and optimization; and establishing the key performance indicators, data management systems, operational controls and documents required to support an ongoing AIM program. Intertek recommends conducting AIM using an entity’s existing data management tools and software, if possible.

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Figure 2. Addressing the best ways to control corrosion loops at the front end ensures savings down the line from less downtime and lower inspection costs.
Figure 2. Addressing the best ways to control corrosion loops at the front end ensures savings down the line from less downtime and lower inspection costs. (Source: Intertek)

“The key is to design AIM upfront in the capital project, so that once the asset is operational, AIM will lower its operating costs,” says Marconi. “For instance, if you address the best ways to control corrosion loops at the front end, and design the plant and equipment to do periodic testing and make the equipment more accessible, then there will be savings down the line from less downtime and lower inspection costs.” (Figure 2)

DuPont’s Kmecz agrees that AIM due diligence should begin as part of the front-end loading process and continue thereafter. “Early involvement from the integrated project team is essential to ensure that all of the operational considerations are taken into account prior to design. After the design process begins and the asset proceeds into construction, changes resulting from operating team input can significantly affect the cost and schedule of the project,” says Kmecz.

“AIM delivers the most return on investment (ROI) when it begins at project conception and remains active through all stages of the asset’s life — from design and operation through decommissioning,” says Marconi. “Ideally, AIM will start in the design phase under the capital expenditures budget and continue through the operations phase with the operational expenditures budget.”

Kuehne factors AIM into its capital projects. “The consolidation of similar equipment and the selection of equipment for AIM play roles,” says Wilkes.

Final recommendations

With the right planning and tools, capital projects are manageable. “Do your homework, watch out for the details, do it right the first time, and get all the input you can from the project stakeholders,” recommends Kuehne’s Wilkes.

Figure 3. Proper planning, project controls and delivery enhance asset and operational integrity.
Figure 3. Proper planning, project controls and delivery enhance asset and operational integrity. (Source: Intertek)

“Don't assume that, because there is a system or process for project creation in place, the project will be a success,” says DuPont’s Kmecz. “Leadership must take an active role to ensure that the systems and processes are executed and implemented in the most effective manner. It is important that everyone on site is fully aligned with the goals of the project and that mechanisms exist to ensure accountability and responsibility of all workers on site,” he adds.

To increase a project’s long-term value, Intertek’s Marconi encourages adding AIM to CPM. “Bring AIM into the project as early as possible and conduct it across the asset’s life in order to get the most ROI. If you need outside assistance, look for a service provider that is a one-stop shop for all AIM activities,” says Marconi (Figure 3).

IDC’s Nicholson suggests a functional and holistic approach. “Companies should consider improvements such as putting more emphasis on early stage planning, using more sophisticated risk management, adopting an enterprise PPM framework, and improving collaboration among stakeholders,” he says.