The petroleum industry has the worst track record of any industrial sector in its complex projects with just over one project in five being successful. (Source: Edward W. Merrow and Neeraj Nandurkikar, Leading Complex Projects). As an industry, what do we need to do to change the performance of our capital projects? If we want to continue to attract capital for capital projects in upstream, midstream, downstream and chemical we need extraordinary leadership and collaboration at all phases and levels of our organizations.
Throughout our project experience, we have heard many things on the nature of Capital Projects such as:
- “Never really knew what the critical path was or what would be the next problem.”
- “The schedule was wrong from the beginning…never realistic.”
- “Engineering designs did not take into account how to actually build the thing.”
- “The contractor was not able to deliver on productivity.”
- “Leadership had no idea how to manage performance or lead teams.”
The solutions start with enhanced collaboration and partnership with the EPC community. The time to have the best influence on the results of a capital project are during FEL2 and 3 and the design of the project. During “Design” is where you develop your performance improvement plan with your EPC’s. To find out other factors to enhance construction productivity during the planning phases, details provided at the bottom.
Insights: Mega Capital Projects
- There are more than 2,500 capital and maintenance projects active in the US now, representing $393 billion in investment.
- Looking ahead, there are more than 10,000 projects globally in the planning and engineering phase representing a potential $1.7 trillion in investment.
- In North America, there are 1,388 oil and gas capital projects in the planning and engineering phase for a total of $557 billion.
(Source: Industrial Information Resources/PetroChemical Update, May 2018)
- On average, projects with budgets above US $1 billion, commonly referred to as ‘megaprojects’ in the industry, are delivered one year behind schedule, and run 30% over budget. If this trend continues, US $5 trillion in value will be destroyed in the projects currently announced around the world.
(Source: The Art of Project Leadership: Delivering the World’s Largest Projects, McKinsey & Co., September 2017)
We also made the following observations:
- 94% FEED Quality was Average or Below Average
- 80% Missed Detailed Engineering Deadlines
- 75% Contractors not Following Schedule
- 63% Sr. Contractor Project Manager Replaced
- 53% Missed FEED Milestone Dates
We believe leaders matter in areas of engagement, safety, productivity, creativity, effort, communication, teamwork, culture, retention and development to name a few. Through a core sampling of our mega capital projects, we asked; “What percent of leaders were rated adequate or less than adequate?
Front line was rated 95% adequate or less than. Contractors came in at 65%. Owners at 60% and Engineers at 56%.
FEED is the stage to set your team, performance culture and performance management plan. This will drive creation of business value and influence value creation and performance culture.
We have identified a number of FEED Best Practices. Some of which are:
- Forming one integrated team
- Timely and effective decision making
- The right combination of challenge/honesty and collaboration
- Contractors in early
- Aligned contracts
What is the right leadership style to deliver a mega capital project? How do you prioritize? – On Project experience? On Technical expertise? On Emotional intelligence?
Through our research and experience, we can explain some of the reasons for success and failure of for example, a leader for a mega capital project. We have identified some attributes necessary for the successful delivery of a mega project.
We also weigh in on contractor partnerships successes and failures. One of the failures identified is that relationships are managed by the contract. On the success side, openness and collaborative discussions were prevalent as well as a shared vision and shared metrics of success.
If you want to predict the capability (and probable outcome) of a project team or construction project all you need to do is sit in on a series of key management meetings and some frontline meetings and keenly observe.
You will see how leaders treat people, what and how data and facts are used to inform decision making, how different parties speak to each other, and how critical actions are dealt with. In the end you will clearly see the level of focus, accountability, and trust that exists and that will tell you how the project will end.
For the full PowerPoint report on “Insights: Mega Capital Projects”, can be requested at YnVzZGV2QHJsZ2ludGVybmF0aW9uYWwuY29t.
For an example of our Capital Project success in pipelines, click here.
For podcasts on capital projects and other Continuous Improvement topics specifically for the oil and gas industry; please visit http://rlg.to/ci4life.
(On these podcasts, RLG’s Rick Heyland interviews industry experts such as, Brad Farrow, CEO RLG International, Tjalling Terpstra, Shell Project Director, Bill Ambrose, Former SVP Transocean, and Chris Miller, Retired Chevron Project Director.)