What is the leading cause of capital project cost & schedule overruns?
The undisputed answer the world over is POOR SCOPE DEFINITION.
The level of scope definition in a project is the greatest driver of cost and schedule certainty.
Front End Planning
Front end planning is often considered the single most important process in the capital project life cycle.
It is focused on achieving sufficient scope definition to address risk and make a decision to committing resources that will maximize the potential for project success
Front end planning is known by many other names including:
- Front end loading, or FEL
- Pre-project planning, and
- Project development just to name a few
This process is generally defined in three main phases:
- Feasibly, which is primarily focused on
- defining business objectives and
- identifying potential alternatives
- Concept, concerned with
- evaluating and selecting the best alternative
- Detailed scope, which is focused on
- defining the technical scope of the project,
- further developing project execution plans, and
- developing a cost estimate and schedule for project authorization
Simply put, front end planning involves:
- Performing the right project
- Scoping out the right product
- And selecting the right way to execute
Scope definition refers to documenting this scope of work to form an organized plan.
Reasons for Poor Scope Definition
It is intuitive that starting execution with a well-defined scope should improve project results. Nevertheless, there are some common misconceptions and behaviors that lead to poorly defined scope.
The top five reasons or behaviors that contribute to poor scope definition include:
- Pressure to get product to market faster.
A common misconception is that you’ll get product to market faster by compressing every phase, including the planning effort.
We’ve seen this surface through statements like:
- “front end planning will just slow down this project”, or
- “we’re on a fast-track schedule”
- Restricting key resource involvement.
As an example, we have worked with organizations where Operations & Maintenance resources are stretched very thin. Their culture has evolved such that Operations & Maintenance will openly admit that they only assign resources to a capital project once funding and approval of the project is a sure thing. The opportunity cost for the organization is that key scope requirements are missed during front end planning from a lack of involvement of these key resources.
- Lack of in-house design or planning capability.
Owners can successfully address this issue by engaging specialized consultants and engineers. However, the challenge is to ensure the owner’s team remains active in planning throughout the project and doesn’t simply hand off the planning effort to the contractor and then disengage.
- Overly optimistic leadership
This is commonly seen with projects that appear on the surface to repetitive and lead to optimistic statements like “this will be simple. We’ve done this hundreds of times.”
- Financial pressure to minimize planning costs
Without a doubt, it’s a careful balancing act to ensure you don’t overspend on front end planning for projects that end up getting cancelled. One of the main benefits of a well-defined front end planning process with gate reviews is to identify projects that don’t meet your strategic objectives and cancel these as early as possible.
However, projects that proceed beyond the early gate reviews need sufficient funding to ensure a well-defined scope is achieved.
Research by the Construction Industry Institute shows that projects that perform statistically better in terms of cost and schedule invest 3-5% of the total installed cost during front end planning.
With an understanding of the major contributors to poor scope definition, it raises the question when we look at our past projects:
Had we done a better job of scope definition, would we have improved the performance of the project?
By Sandra MacGillivray