Decision
How does your company make its major capital project decisions, such as those with an installed cost of over $10M? Does it consider and incorporate all risks and opportunities? Is it a methodological approach or is it relatively adhoc where only economics are truly considered?
Of course, the decisions are often straight forward and ultimately no decision at all. AFE (approval for expenditure) is provided, and the engineering begins. But just as often, important factors are overlooked, which could have had material influence on the decision. Or, that decision ultimately leads to a series of other critical decisions. For example, which technology should we deploy? Which process? Which location should we build? Which route should we use?
The answers to these decisions could have significant implications – and impacts – to internal and external stakeholders, to the environment, to your company’s reputation and goals, and to its bottom line. Major project decisions are complex. In our experience, while significant effort will go into the economics, including how to leverage external funding, less goes into thinking about the array of ESG and sustainability related risks.
When a more thorough, systematic review of all potential environmental, social, operational, and broader economic risks are considered across all stages of the project – construction through to decommissioning – as well as “upstream” and “downstream” of operations outside of plant gates, some incredible value can be generated.
A tool designed and built to achieve this is called life-cycle value assessment (LCVA). Originally created out of the previous consulting arm of the Pembina Institute, it builds off the fundamentals of life-cycle assessment methodology while considering a complete set of potential risks that could be incurred within any type of project. Having helped develop and apply LCVA from 2003-2013, as well as supporting and facilitating over 100 decisions in the resource sector across Canada, it is unfortunate to continue to see decisions in the resource sector still primarily only include NPV and capital costs with only a cursory consideration of ESG risks.
One of the main benefits of LCVA was not even the tool itself, rather having the tool as a reason to being together a multidisciplinary internal team to wrestle with a decision together and align on a path forward.
While the process always helped to identify risks that were not previously considered, one of the key features is how results are presented. Effectively framing the key issues uncovered within each option is key to not only help with the decision, but also to be used as a tool for presenting to senior management. Specifically, stacking options from least costly to most costly and capturing the priority risks and benefits across each crystallizes the decision: is the incremental cost to reduce the risks and gain benefits of the more costly options worth it to your company? In essence what this does is monetize ESG benefits. As all decisions are value-driven to a large extent, this squarely puts into focus the value of ESG to your company and its senior executives.
As a project manager and team leader, such an approach, regardless of the process you use, can provide numerous benefits:
- Identify risks otherwise not appreciated.
- Increase confidence in the recommended decision.
- Create team cohesion and alignment through gathering all perspectives.
- Embed ESG values and associated corporate goals into decision making.
- Provide a simple yet comprehensive summary of the decision.
- Support external communication and engagement efforts.
Hopefully your company already has a robust process in place to make major project decisions. In today’s complex business environment, this is no longer a nice-to-have, rather a necessity. Given this, it is important to know that effective, yet straightforward tools, exist to provide this support while helping to provide the confidence necessary to chart your company’s path forward one project at a time.
Design
So now that you’ve made the decision, the real work begins. In today’s fast paced pressure-cooker business environment, the next step for most is straight to engineering – whether internal or external. Critically however, this is where the biggest opportunity lies to reduce costs, as the further you get down the engineering path the further you are locked into design.
As soon as possible after the decision is made is the time to consider innovative thinking and design ideas: Innovation that will reduce life-cycle costs including capital outlay. And, if you followed an effective decision-making approach as laid out above, you have a gold mine of information to inform the design thinking based on the suite risks already identified. And given the importance of diversity of perspectives, this is where a cross-disciplinary team can be gathered to generate ideas on how to ideally eliminate, if not materially reduce, the risks. Asking proactive questions such as “how do we eliminate risk or challenge X” is a great way of developing these ideas, as well as linking your company’s corporate goals such as a given percent reduction in GHGs by 2030. The team assembled should include representatives of those affected by the decision, such as operations, HSE, and project managers. This is not only important to get a unique blend of creativity and quality but also to create ownership and accountability for the associated actions required. As any idea is only as good as its ability to be implemented, having a clear implementation plan for the top ideas with associated accountability is the pre-requisite for success. Whether taking the time to make the best decision possible or the time to consider the best possible design, unfortunately this typically goes against the grain of a prevailing culture of lowest-cost option with typically overstreched teams with no time. This has really always been the case, however, and given the success seen in the past, based on personal facilitation of better decision and design, we know it is possible. The answer, of course and as always, is leadership.