Capital Projects

Perhaps the most pertinent challenge today for CEOs lies within capital allocation. Where can capital be best spent to maximise capital effectiveness, and where can new drivers of cost savings be found?

At the outset of the pandemic, many organisations suspended a large share of capital projects.

Due to necessity, it was imperative to review their capital budget, mapping and prioritising upcoming projects and identifying projects to be considered for revision or right‑sizing.

Understandably, when money is tight, the easy answer is often to stop these projects. However, this affects future operations and often reduces productivity when demand and production ramp back up. Organisations need to understand how current economic pressure affects available capital, dictating how much planned spend needs to decrease.

Adaptive system

A typical client challenge is the homogenous treatment of all projects in a portfolio.

Substantial capital effectiveness can be achieved by categorising projects based on their scale and complexity and applying tailored and adaptive investment decision processes. Our approach not only enables clients to achieve better outcomes for the same capital spend, and/or optimise their spend while not compromising outcomes, but also speeds up the time to market and time to benefits.

We work with our client partners to increase investment returns through full classification, transparency and control of the project portfolio, active optimisation of capital allocation to meet corporate goals, aligned with budgeting processes, adaptive stage‑gate process for project development with appropriate assurance and governance standards and a single source of truth for all users with convenient progress‑tracking reports across growth and sustaining capital.

Where there is more to be gained for a contractor from contingency than successful completion, inefficiency can become the norm. What steps can you take before your next project gets off the ground?

Owners believe that contracts effectively transfer project risks to contractors. This is a dangerous mindset – risk can never truly be transferred to contracted partners; it always remains with the owner.

Most contracts work against the fundamental requirements for high performance as they fail to align, motivate or adequately resource teams. To protect owners and deliver successful projects, the barriers to achieving partnership and high productivity must be understood and addressed.

Without alignment, decisions made by default, rather than through mutual problem‑solving, often benefit one at the expense of another. Rarely do teams understand how their performance impacts the ability of other teams on their critical path to deliver on time and, hence, the overall project.

Performance‑based contracts

We know collaborative and performance‑based contracts reduced project uncertainty, actual costs by ~4% and time to completion by ~1%. We help our clients develop performance‑based contracts that promote the right behaviour, where contractors are rewarded through demonstrating productivity improvement and realised (not forecasted) risk reduction.

Our view is that every project can be successful if it is fully and truly collaborative, and we craft contracting strategies and incentives design to ensure this is met.

Across the industry, there is great momentum for organisations to assess how to use digital tools to substantially improve and reduce both construction costs and delays. Yet with the pace of technology and workplace norms both in full acceleration to meet them, how can they choose the right path?

The sudden and necessary adoption of remote work has, in many cases, shown surprising benefits and demonstrated the power of digital. Rather than reverting to the ‘old normal’, companies should identify what works well and institutionalise these practices to lock‑in benefits.

Moving forward, parts of capital projects will continue to be run remotely, with the aid of digital visualisation tools. Expect evolving improvements on remote project controls tied with digital capabilities. We expect that as hybrid solutions become commonplace and reduce the need for travel, long‑standing barriers will be removed for a new norm of experts from all over the world working temporarily on a capital project.

Tested tools

As this momentum gathers, clients tell us they are already being bombarded with new digital solutions that promise to revolutionise the way projects work. While this is a positive step in some ways, potential clients have expressed to us a lack of simple tools in the marketplace that unlock frontline performance and shed light on actual construction progress.

Our method to address this challenge relies on focused and results‑based digital interventions, and a tested set of digital tools to improve frontline productivity, reduce supervisor administrative time and increase the visibility of performance in real time for project teams to make fact‑based and timely decisions. We enable the returns on digital investment by helping our clients make the cultural shifts, build capabilities and develop 'fit for purpose' processes.

Reducing your carbon footprint is no longer a question of 'why', but 'how'. With many organisations seeking to shift or change course from grid electricity to renewable energy, now is the time to begin embedding energy decisions during your design phase.

Project optimisation challenges within Capital are a great opportunity for organisations today to consider energy usage and carbon emissions.

By understanding your expected energy and emissions profile, you can begin to factor in how to modify patterns and improve your project financials. We expect to see far greater momentum in this direction across capital‑intensive sectors, with deeper evaluations on carbon print and renewable energy projects.

With lifetime costs of renewable hybrids now lower than fossil fuels, many organisations are seizing this opportunity and actively building renewables into their capital project design to lower operating and capital costs.

Taking a new approach

We believe that incorporating newer technologies and considering your energy requirements early leads to greater flexibility down the line, which can result in a significant reduction in carbon footprint and energy costs while increasing overall project returns.

Innovation within renewable energy is accelerating at such a pace that it makes sense to widen your options now rather than follow a traditional approach.