Overcoming Common Capital Project Challenges
1/13/2022
Insights
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Although every capital project is unique, all projects have several common obstacles, regardless of factors like project size, type, complexity, delivery method, and owner constraints. Without proper work processes and project management tools and procedures, these challenges can ultimately cause schedule and budget overruns, interfering with project goals and objectives.

Let’s take a deeper look into what we have identified as some of the most common capital project challenges and how they can be addressed to minimize risk and contribute to capital project success.

Common Capital Project Challenges

Below we present seven common capital project challenges, their potential impacts on capital projects, and best practices for overcoming or mitigating them. 

Scope Development and Front-End Planning

“The quality of project definition at authorization is the best indicator of whether a project will come in on time, on budget, and meet specifications. A project with strong definition has done the work to identify the scope of work, has planned how the work will get done and is prepared to start the execution stage.” 

- Capital Projects, Paul Barshop, p. 109

Problem:

Project scope is a critical aspect of capital project planning, as it establishes all project deliverables, tasks, deadlines, and costs. A poorly defined scope is often the result of pressure to quickly begin project execution, lack of in-house design or planning abilities, or financial pressure to minimize the cost of planning.

Potential Project Impacts:

  • Higher prices paid due to added contingencies and numerous change orders
  • Unreliable project cost estimates and, consequently, lack of certainty surrounding overall project costs and project viability

Best Practices:

  • Work with contractors with strong front-end planning experience.
  • Involve constructability and supply chain management experts early on to help identify issues and develop mitigation plans.
  • Utilize a methodical and systematic approach for collecting project requirements to ensure all requirements are captured up front or identify any information gaps.
  • Ensure early stakeholder involvement and communication to ensure alignment from the beginning.

Change Management

A data analysis study conducted by the CII concluded that projects cannot endure numerous changes that amount to a significant portion of the original scope without suffering a significant decline in overall cost performance.

Problem:

Even with a highly detailed, well-defined scope, project changes are always possible. Numerous change orders or poor change management procedures introduce risk and can have serious consequences regarding project success. Change management involves change identification, planning, evaluation, and implementation, and thus, should be emphasized throughout the entire project life cycle, from front-end planning through construction.

Potential Project Impacts:

  • Schedule delays
  • Cost overruns
  • Increased facility downtime

Best Practices:

During front-end planning:

  • Establish clear, detailed agreements defining scope, cost, schedule, and Project Execution Plan (PEP).
  • Establish and agree upon change tolerances, change criteria, and approval requirements.

During detail engineering and design:

  • Incorporate highly established change management work processes as part of the PEP.
  • Establish and freeze a baseline project scope.
  • Identify any potential changes as early as possible.
  • Implement a strong identification and capture culture.

During construction:

  • Ensure contractor-project owner alignment.
  • Communicate consistently and regularly.
  • Diligently use a change log.
  • Incorporate appropriate change criteria while assessing budget and schedule impacts.

Budget Management

“As many as 90% of major capital projects suffer from an average of approximately 28% budget overruns. This in turn extends the rate of return of capital invested to achieve organizational growth, and significantly erodes the intended benefit of the delivered asset.”

- Deloitte

Problem:

Cost overruns on capital projects are an ongoing and challenging issue for businesses and negatively affect the return shareholders see on capital investments. Cost overruns can originate from several different sources, such as late or poor scope definition, poor communication, design errors, unexpected site conditions, issues with supply chain alignment, and scope creep.

Potential Project Impacts:

  • Cost overruns

Best Practices:

  • Develop a clear and strong scope definition to reduce the likelihood of change orders during project execution
  • Maintain frequent and consistent communication between all stakeholders and team members.
  • Utilize strong project controls during the pre-contract and bid phase as well as the project execution phase.

Safety

“Eliminating injuries and illness in the workplace has been found to enhance project business results via reduced cost and schedule, to lead a positive culture on the work site.”

- CII

Problem:

By nature, the construction industry is faced with higher injury rates than many other industry sectors. Safety is one of the most potentially harmful and damaging capital project challenges. Safety extends beyond the protection of the construction workforce to all operational personnel as well as the surrounding community. 

Potential Project Impacts:

  • Injuries, illnesses, and fatalities
  • Cost and schedule delays
  • Facility downtime

Best Practices:

  • Incorporate a detailed, systematic Behavior-Based Safety program that places focus on continuous improvement and education.
  • Incorporate an Extra Hazardous Work program that addresses risk factors such as commissioning, confined spaces, demolition, electrical, energy isolation, environment, excavation, falls, flammables, and lifting.
  • Identify crucial and high-risk activities early on to allow time to develop highly effective mitigation plans.
  • Ensure senior management has a strong commitment to safety to ensure risks are taken seriously and mitigated effectively.

Team Alignment and Collaboration

“Alignment is the condition where appropriate project participants are working within acceptable tolerances to develop and meet a uniformly defined and understood set of project objectives.”

- CII

Problem:

Insufficient communication and a lack of alignment between the contractor, the contractor’s team, and stakeholders can cause a myriad of problems throughout a capital project’s life cycle. Poor alignment or collaboration, especially during early project phases, can have a domino effect and can greatly impact project performance and success.

Potential Project Impacts:

  • Excessive change orders
  • Schedule delays
  • Cost overruns
  • Poor contractor performance or trust

Best Practices:

  • Ensure early stakeholder and team alignment during the front-end planning phase.
  • Involve all disciplines and functions in early project stages to gain team alignment. Early involvement of construction personnel can ensure designs promote construction feasibility and efficiency.
  • Incorporate strong project controls. Utilizing an integrated location, such as a dashboard, to view all project data and information provides all parties with the real-time data necessary to make quick and informed decisions.
  • Communicate consistently and regularly to continue ensuring alignment between all parties.

Schedule Management

In a three-year 2015 global construction survey, only 25% of all projects came within 10% of their original deadlines.

Problem:

Schedule management is one of the most common capital project challenges, as the schedule is often a significant driving factor for project owners. Delays can happen for reasons beyond an owner’s control—weather, climate, and unexpected site conditions can set a project back by days or weeks. However, much of the time, delays occur due to poor front-end planning at the beginning of a project. 

Potential Project Impacts:

  • Schedule delays
  • Increased labor costs
  • Increased facility downtime
  • Rushed project execution causing quality and safety risks

Best Practices:

  • Set realistic schedule expectations from the beginning.
  • Incorporate strong project controls.
  • Develop a robust definition of scope and execution plan as early as possible.
  • Use advanced scheduling tools such as Primavera P6v18.
  • Utilize effective and efficient change management work processes.
  • Communicate consistently and regularly.
  • Use the schedule as an integrated tool during project execution and review the schedule regularly.
  • Create an early and robust procurement management plan to establish a strategic procurement schedule to ensure timely deliveries to help maintain construction timelines.

Contractor Performance and Trust

In a 2015 survey, only 31% of respondents said they have a high level of trust in their contractors, while 60% reported a moderate level of trust and 9% reported a low level of trust.

Problem:

Historically, there has been a pattern of tense relationships and lack of trust between project owners and contractors that ultimately impact project performance. 

Potential Project Impacts:

  • Communication and alignment challenges that can greatly impact project performance
  • Schedule delays

Best Practices:

  • Work with well-established contractors that are known within the industry to not only deliver project success but to treat the goals of project owners as their own.
  • Look for contractors with familiarity with the area and type of work that is being performed.
  • Find contractors that provide full transparency throughout the project life cycle and consistent and strong reporting, ideally weekly. 
  • Establish a clear and consistent line of communication that works for all parties on day one. 
  • Develop clear project reporting schedules during the pre-contract and bid phase to establish the ideal frequency of contractor reports.
  • Contractors should communicate regularly with the project owner about the progress of their project and should routinely provide reports, including progress measurements, manpower histograms, quantity/commodity curves, performance reports, daily headcounts, cost reports/breakdowns, and cash flow reports. 
  • Contractors should align early on with stakeholders regarding driving factors, requirements, and criteria for project success.

H+M Industrial EPC: Delivering Capital Project Success Since 1988

At H+M Industrial EPC, we provide leading capital project services to the energy, chemicals, and terminal and logistics industries through our well-established work processes, highly experienced team, and strong communication and reporting techniques. Our integrated dashboard and weekly project controls reports provide you full visibility into your project’s performance to help ensure we meet your project’s objectives—on time and within budget. We work closely with you to understand your goals and overcome any capital project challenges that may arise.

About the Author

To find out more about H+M Industrial EPC  and how we can help mitigate common capital project challenges, contact us today.

To find out more about the advantages and disadvantages of turnkey projects and how H+M Industrial EPC can meet your capital project needs, contact us through our website today.

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The H+M Industrial Team

For over three decades, we have provided best-in-class capital project management services to Energy and Chemical industries through our proven EPC approach. We are dedicated to providing trust, experience, and efficiency through all stages of engineering, procurement, and construction--on budget and on time.

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