Studies have demonstrated that up to 94% of capital projects fail to meet cost and/or delivery milestones. Subsequently, this poor execution creates a gap between the actual asset performance and the expected commercial outcomes. Although the project is technically completed, it remains in a startup mode, resulting in a loss of 20-40% of potential capability.
Why is it so challenging to achieve a vertical startup and reach the expected outcome within the targeted timeframe?
Here are the top three issues we often encounter:
Cost overruns and benefit shortfalls are frequently encountered due to underestimating expenses and overestimating revenues. These shortcomings are influenced by psychological biases and strategic manipulation.
The “inside view” decision-making approach emphasizes unique project details, contributing to the planning fallacy – underestimating costs despite previous failures. Additionally, the anchoring and adjustment bias skews initial plans, leading to unrealistically low subsequent estimates. Incentives can become misaligned when project champions prioritize personal success or divisional interests over company-wide objectives.
To address this, executives should adopt an “outside view” approach, leveraging reference-class forecasting for realistic estimates. Aligning incentives with accurate rewards and shared financial risk can enhance project outcomes.
Often, capital projects commence as comprehensive business initiatives – processes are to be harmonized, and new work methodologies should be introduced. However, as funds dwindle or deadlines loom, the focus often narrows to the technical solutions. This oversight results in neglecting organizational aspects such as behaviours, operating protocols, training, and alignment. By project completion, it may appear finished, but it remains in a startup state.
To counter this bias, it’s essential to involve diverse stakeholders early on and foster cross-functional collaboration. Rather than viewing the project team as a mere task force, consider it a performance force, dedicated to ensuring the asset operates precisely as designed from commissioning.
Establishing an operating model centred on a cross-functional team focusing on the right metrics is paramount for successful startup right from commissioning. Team members must be trained upfront in required skills and knowledge. Frequently, the utilized KPIs are too general and lack focus on specific Real-Time Metrics. These metrics should be transactional and technical, evaluated daily by the cross-functional team to identify genuine root causes. Tackling these will lead to improvements in technical aspects, behavioural elements, capacity issues, or actor capabilities within the process.
In conclusion, an effectively executed vertical startup process runs in tandem with design and commissioning, tackling the aforementioned issues ahead of startup to ensure the project realizes its commercial objectives.