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Week of 30 Jan 2017: Keeping Capital Project Costs Low

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There are a number of actions by mill owners that drive up the costs of capital projects. We'll wrap up this month by touching on these.

A capital project represents a change. We are going to spend some money in order to do things in the future differently from what we have done in the past. We are going to exploit an opportunity we see--or something else. No matter what; it is change.

On the wall in my office, I have a chart. It is a matrix--only the first line matters but I will share it all. It goes like this: Vision+Skills+Incentives+Resources+Action Plan=Change. Then it goes through an exercise that eliminates each one of these, starting with vision. Eliminate vision and one has confusion. Eliminate skills and one has anxiety. Eliminate incentives and one has resistance. Eliminate resources and one has frustration. Eliminate the action plan and one has false starts.

I could probably stop right here and say I have completed my message. However, let's unpack this a bit.


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Over the years, I have seen projects missing any one of the elements outlined above. I have even seen some projects missing several of these elements. They have all been disasters in one form or another.

Vision is a tough one. When a project forms, the idea comes from somewhere, from someone who is influential in the company. The vision is seldom a perfect one, for it is based on personal experiences; it is not a collection of all possible experiences. In an ideal world, you would hire a strong outside facilitator to solicit internal and external ideas for a vision of the project and then have this facilitator gather a team of appropriate internal people to hammer out a solid vision for the project. I have seen too many projects advance with a flawed vision.

Skills can be hired. The challenge is to recognize your team's deficiency in skills (most teams, at the start anyway, are deficient).

Incentives. One of the biggest incentives for in-house staff is to be assured they won't be fired at the end of the project. The personnel mortality rate on capital projects is very high and most people know this.

Resources. Nearly every project I have been on has at least started out too optimistically about the resource levels required. Usually this is corrected, but often it is not corrected soon enough. The risk here is fairly low, but if ignored, a lack of resources can become the elephant in the room.


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Action Plan. "Of course, everyone knows how to do a capital project." Wrong! The Action Plan should be prepared directly on the heels of the Vision exercise. And it doesn't just include buying stuff and installing stuff--it includes hiring (if necessary), training (no question that it is necessary), raw material procurement plan and the product sales plan. Everything involved to make the project successful belongs in the action plan.

This all seems simple enough and if you follow it faithfully, you will keep your capital project costs low. Yet I have seen very large companies, which from the outside you would think know better, mess this up in an extraordinary fashion. Over the years, I have seen more messes than successes.

With the five columns I have written this month, you can, if you follow them, produce a successful project. However, some will still fail, either because they did not read these columns or did not believe them.

Our quiz this week is an open-ended question. You may take it here.

For safety this week, for goodness sake, if you can't do anything else right, at least don't get anyone hurt.

Be safe and we will talk next week.


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