A real-world framework for driving capital project success Capital Projects provides an empirically-based framework for capital project strategy and implementation, based on the histories of over 20,000 capital projects ranging from $50,000 to $40 billion. Derived from the detailed, carefully normalized database at preeminent project consultancy IPA, this solid framework is applicable to all types of capital investment projects large and small, in any sector, including technology, life sciences, petroleum, consumer products, and more. Although grounded in empirical research and rigorous data analysis, this book is not an academic discussion or a conceptual dissertation; it's a practical, actionable, on-the-ground guide to making your project succeed. Clear discussion tackles the challenges that cause capital projects to fail or underperform, and lays out exactly what it takes to successfully manage a project using real-world methods that apply at any level. Businesses report that 60 percent of their projects fail to meet all business objectives, and IPA's database shows that projects' final average net present value undershoots initial estimates by 28 percent. This book provides concrete, actionable solutions to help you avoid the pitfalls and lead the way toward a more positive outcome. * Avoid the missteps that make capital projects fail * Learn the specific practices that drive project success * Understand what effective capital project management entails * Discover real-world best practices that generate more value from capital When capital projects fail, it is almost always preventable. Inefficiency, underestimated timelines, and unforeseen costs are the primary weights that drag a project down and they are all avoidable with good management. Capital Projects gives you the insight and practical tools you need to drive a successful project.
Acknowledgments ix 1 Falling Short of Expectations: How Executives Struggle to Deliver the Value from Their Capital Projects 1 Background and Basis for the Book 5 Capital Projects Create Value 6 Most Projects Create Less Value Than Expected 7 Results Apply to All Types of Projects 7 Sources of Value Erosion Are Not Limited to Cost and Schedule Overruns 8 How to Deliver the Value Promised 10 2 Why the Stage-Gate Process Is the Best Tool Executives Can Use to Get the Most Value from Their Capital Projects 15 A Necessary Process 19 How Does the Process Work? 20 What Is the Role of Executives in the Process? 25 Stage-Gates and Executive Control 29 3 The Project Frame: Understand the Opportunity before Starting a Project 31 Typical Contents of a Project Frame 34 Unlock Value by Finding a Better Option 35 How to Develop a Project Frame 37 Use the Frame for Executive Alignment and Endorsement 45 4 The Critical Project Sponsor Role 51 Who Is the Project Sponsor? 56 Overview of Project Sponsor Role 58 Assign a Project Sponsor as the Initial Business Case Is Developed 59 Requirements for a Strong Project Sponsor 59 Choosing the Right Project Sponsor 69 5 The Single Most Important Thing an Executive Can Do to Make Any Capital Project Succeed: Define Clear Objectives 75 Business Objectives versus Project Objectives 79 Developing Clear Objectives 79 Communicating the Objectives 84 Prioritizing the Objectives 87 6 The Executive s Role in Building and Supporting High-Performing Project Teams 91 Executive Leaders Lead 94 Invest in a Strong Owner Project Team 96 Why You Need a Functionally Integrated Team 97 Help the Project Manager Get the Resources for a Functionally Integrated Team 99 Do Not Outsource the Owner Team Role 100 More Experienced Project Teams Do Better Projects 102 Strategies for Coping with Staffing Shortages 102 Executives Working Together to Support the Project 104 7 Project Definition: The Fundamental Capital Project Concept Every Executive Must Understand 107 Strong Project Definition Preserves Value and Produces Better Assets 112 Executives Control the Quality of Project Definition 115 Understand the Cost of Weak Project Definition 116 Be Careful When Trading Fast Schedule for Strong Project Definition 118 Reduce the Number of Schedule-Driven Projects 122 More Project Definition Is Not Necessarily Better 122 8 It s Going to Cost How Much!?! A Guide to Help Executives Avoid Capital Cost Surprises 125 Key Concepts to Understand about Capital Cost Estimate Accuracy 128 Factor the Cost Estimate Range into Decision Making 129 Improve Project Definition to Narrow the Cost Estimate Range 136 Follow These Rules to Get Contingency Right 140 9 Using a Project Steering Committee to Improve Executive Decision Making 147 How to Build a Strong Steering Committee 150 Who to Include in the Steering Committee 152 Run the Steering Committee Efficiently 154 Make Decisions at the Right Level 155 Do Not Dilute Project Sponsor Accountability 156 10 Risk Management: A Mechanism to Understand Project Risk and Decide What to Do 159 Risk Management: Identify, Analyze, and Manage Individual Risks 164 Practices for Getting the Most from Risk Management 166 Scrutinize Risks to Decide Whether They Are Worth Taking 167 Understand That the Estimate of the Risk Is Probably Too Low 168 Be Careful with Making Late Changes in Response to Business Risk 169 Strong Risk Management Does Not Substitute for Strong Project Definition 171 11 Approve, Recycle, Cancel, or Hold: Making Good Stage-Gate Decisions 173 Capital Investment Decisions Are Made at the Stage-Gates 176 Three Gates Provide Adequate Control 177 The Business Question Asked and Answered at Each Stage-Gate 179 Use Your Early Stage-Gates Better 180 Four Choices for the Stage-Gate Decision 181 Information Used in an Investment Decision 182 Rules for Strong Gates 183 The Slippery Slope of Granting Exceptions to Stage-Gate Deliverables 189 12 Executive Role, Executive Control: 12 Essential Rules 193 Rule 1: Use the Stage-Gate Process 195 Rule 2: Start by Framing the Project 195 Rule 3: Ensure Project Sponsor Involvement 196 Rule 4: Develop Clear Objectives 196 Rule 5: Invest in Owner Teams and Provide the Support They Need 197 Rule 6: Reach a Strong Level of Project Definition 198 Rule 7: Factor the Accuracy of the Capital Cost Estimate into Decision Making 199 Rule 8: Set Contingency in Accordance with Project Risk 199 Rule 9: Build an Effective Steering Committee 200 Rule 10: Use a Robust Risk Management Process 200 Rule 11: Keep the Stage-Gates Strong 200 Rule 12: Be Coachable 201 Glossary 203 Index 207
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