Managing capital projects as a business

Managing Capital Projects as a Business

October 2011

The mining and energy industries in Australia are experiencing unprecedented levels of capital investment. This is a welcome sign of market health in these sectors: long-term investor confidence is high, resources are abundant and strategic Asian markets are geographically close.

However, new research from Accenture—based on in-depth interviews with leaders from the Australian mining, oil and gas industries—finds that there are significant challenges to be addressed as executives look to manage their projects and investments in the short term. The regulatory environment is fluid, costs are high, skills shortages are rampant and delivery schedules are frequently missed. Independent data suggests that many large capital projects around the world do not live up to expectations in terms of cost, schedule or performance—and Australia is no exception.

Although the interviewed executives were not unanimous in their assessments of industry challenges or about optimal paths forward, they did agree on the need for companies and governments to work together to increase the availability of skilled labor, streamline approvals, build capabilities and improve relations with the community.

Accenture believes that today’s large and complex undertakings in mining and energy need to be managed like businesses—and therefore, that capital projects executives must think and act like business owners, not just project managers. This can be accomplished by focusing on several key areas, corresponding to the capital projects lifecycle, that can reduce risk, improve ROI and support timely delivery. Governments have a vital role to play, as well, in providing a more stable and predictable business environment.

Promise and challenge

According to participants in the Accenture research study, Australia is attractive for long-term capital investment for several reasons including abundant natural resources, proximity to large markets and relative political and economic stability.

However, the long-term optimism among our study participants is dampened by a short-term sense of frustration with several issues. Executives view regulation as complex and fluid; the threat of new taxes affects planning and budgeting; and long and unpredictable government approval processes are causing project timelines to slip. Labor costs and talent availability, mentioned by 79 percent of participants, are also significant issues that can cause delivery delays and cost overruns.

Although many companies participating in this study are driving innovative practices from an operational and technological perspective, respondents also admit that project costs and schedules are frequently missed. They acknowledge a lack of value placed on planning and monitoring and, more generally, on the business “wrapper” that should surround a successful capital project. Accenture believes companies in the mining and energy industries need to prioritize upfront planning, underpinned by the right assumptions and involving the proper stakeholders to drive successful outcomes down the road.

Meeting these challenges will require concerted, coordinated efforts from the companies themselves, as well as from state and federal governments. The following are Accenture’s views as to what governments and industry can do to drive better ROI with large capital projects in Australian energy and mining.

Recommendations for government

Governments should focus on building a sustainable environment for capital investment—and can begin doing so with these recommended steps.

Streamline the approvals process. Most of our study participants actively support a rigorous and transparent government approvals process. They are not looking for shortcuts, but they do want simplicity, government accountability and clarity to support their industry and continue to attract investments to Australia. The biggest issue is the unpredictability of the approval process which, in turn, affects project schedules and costs.

Gaining clarity about the division of responsibilities between federal and state authorities is another important issue to address. Executives are looking for a more integrated approach to the management of approvals across government departments to help companies navigate the process and increase accountability for outcomes.

Support the right skills for the future. The Minerals Council of Australia estimates that, between now and 2020, there will be an additional talent need of 86,000 people in the mining sector alone. To address this shortfall, governments can continue to engage with the resources industry on skills development and help link these requirements with higher and continuing education.

Foster more industry consultation. Study participants cited industrial relations as a significant difficulty with operating in Australia. They want help from unions to stabilize pay rates and support short-term access to foreign labor. Recent government action may enable the resources industry to access short-term skills more easily via Enterprise Migration Agreements.

Executives are also seeking more regulatory certainty and better information about how potential legislation might affect their operations. Regulatory confidence is crucial when planning schedules and assessing risks, and earlier and more extensive consultation about proposed legislation would help.

Recommendations for the industry: Running capital projects like a business

Our executive interviewees consistently mentioned several frustrations not only with external factors—regulation, talent pools and rising costs—but also with the state of their internal capabilities to manage the complexities of capital projects over time. As one interviewee put it: “We always seem to underestimate how long it takes to get stuff done. We say we’ll do that in six months and it ends up taking nine. Well, why is that?”

Accenture believes that capital projects executives should increase their capabilities to manage initiatives as a business, not just as a project. Because of the unprecedented scale and complexity of capital projects in Australia, initiatives must be driven by a different set of key performance indicators (KPIs) and an intense focus on realistic, rigorous planning and monitoring. The following steps are critical.

Establish a business-level vision. An overall vision for a particular project is important, as is putting in place the strategy and organizational structure that can enable it. Establishing better key performance indicators can help—metrics that assess quality and not just timeliness. Our study respondents consistently stressed the “big four” KPIs of cost, safety, schedule and quality. However, additional indicators focused on outcomes and talent availability are also critical.

Set up processes and systems to support better project execution and mitigate risk. Organizations should set up capital project operating systems and processes at the point of project set-up to better enable KPI measurement, more effective information flow and improved risk management.

Technology can also help overcome issues with attracting talent to remote locations. Mining organizations should consider using IT to organize employees in remote operating centers or competence centers, with employees working in the same location responsible for activities in multiple sites—and able to share knowledge and skills to improve outcomes. Only core operational resources need to be on site in project locations.

Maintain a focus on best practices. Only 21 percent of the study respondents said that, in addition to meeting internal targets, assessing performance against the rest of the industry is the true measure of good practice and capital effectiveness. Companies need to look to broader industry practices. As one participant put it: “It’s one thing to set a budget and then measure yourself against it. But what if the budget was too fat or too skinny to start with? How does your budget compare to everyone else’s?”

Address key planning areas of the project earlier in the lifecycle. At present, the drive to meet cost and delivery schedules means that too many decisions are being made too late in the project lifecycle, which can cause confusion and—ironically—additional delays. Companies should take advantage of methodologies that drive more consistency and discipline in project management.

More timely talent planning is also important. In a market with talent constraints, companies should look for operations employees before they are needed so that the recruitment process does not slow delivery.


Conclusion
The complexity, scale and investment levels of Australian capital projects in the energy and mining industries are unprecedented. It is critical that these projects are managed with a new kind of business focus, not simply a project mentality, so that companies avoid underperformance or even failure. The Australian capital projects most likely to reap the greatest value from their investment will be managed as a business, with metrics and accountabilities established well before the asset is in operation. This will be the true measure of high performance in capital project management.

The full Accenture research report, “Getting Down to Business: Charting a new course for Capital Projects in Australian Mining and Energy,” can be found at www.accenture.com/energy or www.accenture.com/mining.


About the author
James Arnott is Accenture’s Australia Capital Projects lead.


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Managing Capital Projects as a Business in Australia - Accenture Outlook 
Running large capital initiatives as a business, not just as projects, can reduce risk, decrease costs and improve return on investment.
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