Excess manufacturing capacity resulting from the building boom of the 1990s has largely been absorbed, and companies are adding new capacity in North America while growth-oriented companies continue to add new capacity to serve emerging growth markets.
With this rebound in construction activity, companies are taking great care to ensure that large capital projects are managed holistically to deliver the expected capability while meeting or exceeding deadlines and coming in at or under budget. This paper outlines an approach to large capital project delivery that emphasizes a best-in-class process to deliver capital projects while controlling costs and improving chances of success.
Our blueprint to optimize large capital project delivery—based on experience gained from hundreds of projects spanning billions of dollars of spend and resulting in millions in realized savings—can be categorized by three major recommendations:
Early Collaboration between Strategy, Engineering, and Procurement:The biggest way to drive substantial value is to bring procurement to the table with engineering, manufacturing, and strategic planning early (before engaging in design) to identify the highest value streams in the project to maximize savings and effectiveness.
Define Division of Labor:You can’t handle a large capital project on your own. Leverage market intelligence to define the best delivery model for your project and the optimal division of labor between the EPCM firm or general contractor (and indeed whether to separate engineering and construction management services), internal resources, and other external expert partners.
Actively Manage Construction Costs:Understand the major construction costs buckets and their drivers, and proactively employ optimal contracting models to balance price, performance, incentives, and balance of risk between parties. But don’t stop there—actively audit the project to detect issues early and plan ahead for overage and unexpected issues.
Construction spending and new capital investment is finally on the rise after years of relative dormancy. It is important to proactively prepare for upcoming capital projects with a holistic and integrated approach that links the strategic capital planning process with the engineering and procurement functions. If not, you may be at increased risk of not meeting on-time delivery targets, and you are likely leaving millions of dollars of savings opportunity on the table.