Understanding the 1-10-100 Rule in Capital Projects: A Strategy to Save Time, Money, and Headaches

?

In the fast-paced world of manufacturing, capital projects are vital to sustaining growth, expanding capabilities, and maintaining competitive advantage. However, anyone involved in these projects knows they come with inherent risks—especially when it comes to costly delays and corrections. I wanted to write about this topic because I receive more that 100 questions about it in the past weeks.

?

The "1-10-100 Rule" offers a simple yet powerful framework to understand the escalating costs associated with identifying and fixing issues at different stages of a project. Learning by heart this rule, project teams, managers, a other stakeholders can better control costs, improve project outcomes, and ultimately drive greater value for their company.

?

What Is the 1-10-100 Rule?

The origin of the 1-10-100 rule isn’t credited to a single inventor but is thought to have evolved from principles in quality management and lean manufacturing. This concept is often associated with Total Quality Management (TQM) and Continuous Improvement practices, which emphasize the importance of catching defects early to minimize costs.

Dr. Joseph Juran (1904-2008), a pioneer in quality management, developed the Cost of Poor Quality (COPQ) concept, which helped to frame how issues escalate in cost as they move further along the production or project cycle. Similarly, the 1-10-100 rule reflects these ideas and has been widely adopted across industries to emphasize the financial benefits of quality control, proactive planning, and early problem-solving.

The rule's specific formulation has been popularized over time by quality experts, Lean Six Sigma practitioners, and organizations emphasizing the cost savings of preventive actions, especially in manufacturing and capital projects.

?

The 1-10-100 Rule provides a financial lens on problem-solving in capital projects, illustrating how costs balloon the later issues are discovered.

?

Here’s the breakdown:

1. $1 at the Design Stage This is the ideal stage to identify issues. When a problem is caught during the design phase, it might only cost $1 to fix. At this point, making adjustments to plans, schematics, or schedules is straightforward. By investing in thorough planning and early testing, you prevent issues from growing into costly errors down the line. Effective design-stage practices, such as simulations, cross-functional reviews, and risk assessments, save money by pinpointing potential issues before they become expensive obstacles.
2. $10 at the Construction Stage If a problem slips past the design phase, it often becomes noticeable during construction or implementation. At this stage, the cost to fix an issue can rise to $10 due to factors like wasted materials, rework, and potential schedule delays. For instance, reordering materials, adjusting equipment placement, or rewiring infrastructure can all add significant time and labor costs to a project. The more complex the fix, the more costly it becomes, underscoring the need for early detection and collaboration among design and construction teams.
3. $100 at the Operational Stage The highest costs come into play when a problem is not discovered until the project has been completed and is in operation. Here, costs to address the issue can skyrocket to $100 due to downtime, production loss, costly retrofits, and even potential safety concerns. Unresolved issues can disrupt productivity and cause reputational damage if they affect customer deliveries or quality. At this stage, what might have been a simple fix in the design phase now becomes a costly overhaul, often involving complex scheduling to minimize impact on operations.

The Value of Preventive Measures

The 1-10-100 Rule highlights the importance of catching issues early. By emphasizing detailed planning, rigorous testing, and comprehensive design reviews, companies can effectively mitigate risks. Here are some best practices to support early issue identification:

• Brainstorm thoroughly and thoughtfully: "The more brain is on the table the better"
• Incorporate Cross-Functional Reviews: Involve all relevant stakeholders, from design engineers, quality managers, production, sanitation teams, and, obviously, end-users, in the review process to catch potential issues from all different angles.
• Utilize Advanced Simulations: Run simulations and modeling tools that replicate real-world conditions to identify potential design flaws or performance issues. Sometimes this is difficult, but AutoCad, Solidworks, Revit and other tools can help and provide great advance for visualizing the product, project, or materials in study.
• Implement a Continuous Feedback Loop and document it: Encourage open communication among all project phases to catch minor issues before they escalate. Feedback from one phase can help improve processes in the next.

?

Real-World Impact of Applying the 1-10-100 Rule

Imagine a manufacturer building a new production line. During the design phase, the engineers spots a potential issue with the line's electrical layout, preventing an overload risk. The fix costs $1,000. If this issue were discovered only during installation, the cost might rise easily $10,000, involving construction delays and electrical rework. But if this flaw was identified only after the line was live, it could cost $100,000 or more, including production downtime, rushed repairs, potential safety fines, and being more negative, possible deaths.

?

Summary: Small Investments at the correct time, Big Savings in the future

The 1-10-100 Rule is a reminder of the value of early investment in project design and planning.

For capital project teams, a proactive approach can make the difference between a smoothly run project and one plagued with avoidable costs and delays. By incorporating thorough design practices, proactive testing, and collaborative reviews, companies in the manufacturing industry can leverage this rule to save substantial time and money, ensuring projects are completed efficiently and cost-effectively.

Understanding and applying the 1-10-100 Rule in your next capital project can prevent minor issues from becoming major problems—and bring substantial value to your organization.

Please comment if you are applying these principles to your projects.