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December 2010
Establishing Critical Success Measurements for Engineering Small Capital Projects
By Richard Pomaville

     Imagine for a moment that your organization faces an extremely tight capital budget and regulatory and environmental pressures to make significant modifications to stay in business. At the same time, imagine your business is also working to upgrade existing facilities, build new plants, and demonstrate growth for both continued support of those projects along with new capital funding from your shareholders.

     Meanwhile, you have carved out tough capital dollars for ongoing small capital projects and these may consume at least 50 percent of your capital budget. Oh, wait a minute, we’re not imagining here!

     A current industry focus is ensuring that the appropriate amount of Front End Loading (FEL) is completed on major capital projects, and is measured against other like companies for Best in Class. Small capital projects risk wasting a significant portion of allocated capital dollars when there are not solid and consistent Project Success Measurements utilized to demonstrate if the project truly was successful.

     In practice, large capital projects use in-depth estimating tools and methodologies to predict costs prior to capital funding at the various gates of a project. Smaller capital projects often do not have access to estimating tools, with costs frequently being a best guess prepared after a few phone calls. Unfortunately, all too often a project’s estimated total isn’t a scientific or professional approach at all, but rather determined based on a person’s signing authority to commit capital dollars, or a known amount as a ceiling for general project approval.

     If you believe in the saying “If you can’t measure, you can’t manage,” then here are some important considerations:

 

• Do you know if your organization’s spending of allocated capital dollars for small projects are in control?

• Do you know what percentage of these projects are more than 10 percent over or under budget?

• Do you have measurements in place, against benchmarked expectations, to compare the allocated capital dollars for small projects?

• Is the capital spending on your small capital projects consistently over budget?

• Do your projects come in on time, on budget, but deliver little value or don’t meet the customer’s expectations?

• Is anybody really monitoring this at all?

 

BENEFITS OF MEASURING

Benefit 1: The first benefit of establishing a measurement process is your capital dollars will be managed much more effectively. Suddenly someone is watching how effectively the dollars are being utilized and measured against key targets and compared to their peers and competing departments. The results of how your project stacks up against other projects are on your company’s internal public display. Waste is reduced, freeing up dollars for other value-added projects. “Back of an envelope” and other non-professional estimating methods will have to go away.

 

Benefit 2: The second benefit for establishing a measurement process is improved planning and utilization of professional estimating tools or services within your organization. Guessing and gut feel don’t cut it. Establishing a project budget based on signing authority, or knowing if it exceeds a certain amount that it probably won’t be funded, is real yet very wasteful. The project team needs to have a believable estimate with a probability of hitting the budget. The estimated cost for the project needs to be based on solid data used by professional estimators and other sources.

 

Benefit 3: The third benefit for establishing a measurement process is the collection of historical data on completed projects. Statistical analysis tools and process may be utilized after numerous projects are completed. With the analysis, trends can be identified, targets can be set for annual personal or department goals, incentivized programs can be implemented to drive preferred behaviors, and the data can be analyzed for discovery of what works well, and what needs improvement. Real opportunities for improvement may be realized by utilizing the power of Lean/Six Sigma methodologies relying on data and facts which are credible and verifiable.

     In the end, critical project success measurements and processes deliver a sustainable control plan for your organization.

     Content contributed by NouvEON, a management consulting firm. For more information, visit www.nouveon.com. To contact NouvEON’s expert, e-mail him at rpomaville@nouveon.com or follow on Twitter@NouvEON.

Senior Managing Consultant at NouvEON
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