Insight – Optimise   

Failing to optimise

Value is uncovered early in the project cycle or mostly not at all. Value is generated through optimisation at both the business and the project levels across all areas, systems and assets.

At the business level an optimised result is generally expected whether it has been requested or not; or whether there is awareness that there is a cost and time dimension to optimisation and appropriate budgeting has occurred.

It is far easier to simply jump on the first option that looks like working and just get on with it only to scream later when outcomes don’t match expectations. What optimisation that does occur is often left to engineering consultants and contractors and/or suppliers who mostly show little motivation in that direction since they live in a world where turnover and reputation makes money rather than changes and variations despite what a lot of people believe. Even if requested to optimise they mostly take a rather narrow perspective since that is not their normal business.

So what typically happens is that when cost estimates start to spiral there is a scramble to optimise (meaning cut scope or simply choose cheaper alternatives). At the project level, unfortunately cost escalation mostly does not manifest until it is time to make the all-important financial investment decision which typically is at the end of the Feasibility study or FEED or more often well into execution when change is increasingly more costly.

Changes come mostly from the Owners side. This may be surprising but consultants and contractors typically suggest or request changes and /or clarifications but do not make changes unless left to their own devices. So as the project progresses, especially in an inadequately defined project, Owners are placed under increasing pressure whilst Consultants, Contractors / Suppliers await clarification and/or direction from the Owner, all whilst chalking up costs. The Owner is typically under resourced and increasingly makes poorer choices or simply passes the decision making down the supply chain where it often becomes mostly an educated best guess especially where new technology is involved. Little wonder that project cost and schedule escalate, quality goes down and operational problems go up all of which lead to failed projects.

Surprisingly the solution is actually quite simple. Invest in the Start. Work done in the early stages of a project is the cheapest. Depending upon size and complexity pre-financial investment decision costs are typically between 5% and 10% of the total project cost and it costs even less (usually 0.5% to 1%) to arrive at an informed and balanced initial decision to invest in the next tranche of work or not. In fact that is the only decision that needs to be made. As long as the decision steps are relatively small the cost exposure remains relatively low.

Optimisation is all about options. The more diverse the net, especially in terms of experience, the more options it finds. However care must be taken to focus option studies which to be effective requires depth and diversity in experience as well as appropriate methodologies and systems.

Ask us for details