Competitive Assessment of Projects

This article focuses on Project Selection and Prioritization and provides a case study demonstrating how AP-Networks significantly improves value creation from your existing project portfolio.

?Project Selection and Prioritization

Project Selection and Prioritization is the largest area of value lost within a Project delivery system in the industry. This is because of inaccurate inputs and assumptions. Many assumptions ultimately are discovered to be invalid, and yet they were the basis for a given project’s approval from the beginning. The traditional annual funding cycle leading to approved projects does not work well to capture value as a business environment evolves. The value gap is evident when the organization leaves approved projects on the development list even though their inputs, assumptions, and business drivers may have significantly changed, or new critical information has become available. At times, even backlogged projects that have been evaluated do not get a rigorous re-evaluation prior to development.

As time progresses, critical operating projects, as well as new project ideas, are identified.?This happens against the backdrop of a changing business environment. Spending thresholds also change, impacting the project funding cycle, which leads to delays in decision-making and subsequent project approvals.?There are changes in the workload for the project organization, leading to inefficient execution. These dynamic challenges contribute to a significant value loss for the facility or asset.

Asset Performance Networks’ research shows that owners who have a consistent, quantitative, evidence-based process to identify, select, and prioritize projects will maximize the value delivered by their project portfolio. This process must be repeatable and elastic. There are many reasons this is difficult to attain, including:

A)??

The Process of Identifying Projects Continues to be Challenging

Stakeholders often have primary responsibilities outside of the project identification process. This leads to missed opportunities for identification, and project organizations are then pressured to deliver projects in compressed timelines or with impacts not fully understood when approved. The alternative is a project not approved because of late identification, and the plant still loses value. This creates the perception that somehow the project's organization is not delivering value.

?B)???Evaluating Projects with Incomplete Information

In addition to proper identification, many facilities and owners benefit from a more consistent, structured method to evaluate and prioritize projects. A common theme is the lack of understanding or agreement on what the objectives are — what problems need to be solved and what business opportunities must be captured. Ultimately the value that needs to be optimized is not fully understood. Successful organizations apply analytical tools and structured processes in order to identify the projects that provide the most value to the enterprise while considering factors like risk management, alternatives, and disruptions to continued operations.

C)??Determining and Shifting Project Priorities

Giving the right projects high priority on the approved projects list and assigning limited resources is a difficult task, particularly as business conditions change. COVID-19, for instance, provided significant changes to business conditions, in some cases bringing operations to a standstill while in other industries causing operations to be unable to meet demand.

Projects are sequential in nature and are based on a set of unknowns that become knowns as the project progresses in its development process. Shifting business conditions and other factors cause other projects to take priority and slows development or leads to the shelving of previously selected projects for a significant period of time. Thus, many assumptions become invalidated, causing wasteful recycle, inefficient use of resources, and leads to failed projects developed based on information that is no longer valid.

?AP-Networks’ VCAP Program Provides Solutions

One main focus of VCAP – the Value and Competitiveness Assessment of Projects – is to evaluate the identification, selection, and prioritization process and illuminate areas of opportunity. A key component of VCAP is providing the client with an improved recommended process, and the subsequent improvement value is quantified. Important aspects of the assessment methodology are:

§?Determination of alignment with business drivers and needs

§?Consideration of benefits, costs, and risks

§?Applicability to a wide range of projects

§?Scalability to the project portfolio

§?Resolution to differentiate between projects with marginal benefits

§?Manageability and repeatability

Case Study

AP-Networks worked with a petrochemical client, whose plant-based project expenditures were above leadership expectations. By applying the VCAP program, AP-Networks found a bias in the selection process where minor projects less than $1MM were being approved and funded early without formal review or scrutiny. The lack of process and project review were the primary drivers of higher overall spending as compared to the VCAP benchmarking compared to Industry.?This also prevented moving forward with payback projects, which would have added more valuable benefits to the plant and organization.

The bias to approve and fund minor discretionary projects early led to a loss in value. Many of the projects executed were not needed or had to be delayed/deferred due to ongoing operations that were not considered when approved.

Along with industry comparison benchmarks, AP-Networks provided detailed recommendations to develop and implement processes, which would evaluate all types of projects going forward and include risk evaluation in the decision-making process.?The end result was a plant that ensured high NPV projects are selected instead of lower priority capital maintenance that can be deferred.

VCAP by AP-Networks determined that by improving in these areas, the site could save 14% of its annual capital budget, including 6% savings in minor projects.

Asset Performance Networks is the trusted leader for improving asset and operational performance in petroleum, chemical, and manufacturing companies worldwide. We work with our client’s most critical assets—their people, processes, and production facilities — in order to help them achieve safe, competitive, predictable outcomes on their high-risk events — namely capital projects and turnarounds.

This article authored by TJ Felts — Senior Associate and subject matter expert in projects—highlights a component of AP-Networks’ benchmarking and data analytics offerings. VCAP enables clients to achieve more competitive project outcomes by leveraging our robust data analytics and benchmarking —utilizing the most comprehensive project and turnaround database in the industry.