Redefining Project Success
Project success has always been defined as reaching start-Up “on time, on budget”. More specifically, it means the key drivers to start-up have been successfully met – the initial cost to implement the project (budget) and the time from implementation to cash flow (time). When a project reaches start-up, “on-time, on budget”, it’s cause for celebration, and once congratulations are exchanged, project managers tend to move on to “rinse and repeat” on another project.
However, if we were to lift this veil of success and monitor these projects in operations, we might see that the veneer of success has some cracks from the typical sacrifices made to achieve this “on-time, on-budget” success. We might see that to adhere to the original budget, project scope or product quality was sacrificed, resulting in a higher operating cost (OPEX) than was initially expected. We might find that operations are not running efficiently, and because of these inefficiencies, the cost of operators or equipment is not in line with the original assumptions. We might also see that the time taken to reach total production was prolonged, resulting in a lower net cash flow for the initial year of production.
These typical examples of operational issues significantly impact the overall project economics. All other things being equal, inefficiencies that result in a 10% increase in OPEX have a 17% decrease in the overall project Net Present Value (NPV) when considering a 25-year project lifecycle – a near doubling in lost value. Likewise, if the costs of prolonging the start-up phase, and the resultant delay to production revenue, are tallied, we would find a significant decrease in the overall project NPV simply due to delayed revenue.
To address the issues caused by the sacrifices made to achieve “success”, an operational efficiency company could be contracted to come into the facility, find the sources of inefficiency, and implement changes. While beneficial, the process can be time-consuming and costly and, quite reasonably, should not be necessary for a new facility that was professionally managed to become a “successful” start-up. The natural question we should be asking is: why our measure of project success does not include operational success?
Kaizen Institute redefines project success as “on-time, on-budget and on-target” for operational efficiency. By combining 35 years of Continuous Improvement expertise with over 75 years of project management experience, we have honed the process of injecting our KAIZEN™ Continuous Improvement methodologies into the front end of project management processes to ensure that upon completion of a project, your company is ready for vertical start-up, with maximized efficiency that includes “bottom line” operational success.
In our fast-moving world of inflation challenges and supply chain interruptions, operational success has never been a more critical aspect of project success.
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