Keeping a capital project on schedule and within budget is often easier said than done. With so many moving parts, risk management is critical. However, many industrial construction companies fail to successfully incorporate project controls, which are important for gathering and analyzing data to monitor project costs and schedules while minimizing the potential for risks.
According to an analysis by the Construction Industry Institute, only 5.4% of 975 capital projects evaluated met stakeholder goals for cost and schedule. The primary risk to a project is a lack of scope definition. Without a properly defined project scope, adequate project controls cannot be established. Project controls and risk management strategies are critical in identifying and mitigating potential risks such as schedule delays and limiting change orders to ensure the best results.
Below, we detail early-stage and execution-stage project controls to incorporate as well as the benefits of using an engineering, procurement, and construction (EPC) delivery “mindset” to ensure capital project success.
Project Controls in Front-End Planning and Execution
Project controls are defined for each stage in the capital project life cycle. The earliest project phases include front-end planning, which is important for detailing project objectives and defining the project scope. During this planning, the project owner works with the contractor to establish a strong scope and reduce the potential for future change orders or other costly plan modifications.
This is important because even at this stage, a successful project relies on management teams that can assess cash flow accrual and expenditures through each phase of the project. Being able to incorporate these estimates alongside schedule requirements and risk management procedures creates project controls that can identify and mitigate issues such as cost overruns before they happen.
The following project controls are often included in the front-end planning stage of a capital project:
- Work Breakdown Structure (WBS): Before a contract is awarded, a Work Breakdown Structure should be defined. An effective WBS organizes tasks and deliverables into smaller components to make project execution more manageable. This visual diagram is helpful for project owners to identify what’s necessary for successful project completion.
- Project Execution Plans (PEP): A Project Execution Plan is a primary project document that allows a contractor to outline plans to monitor, control, and execute a capital project. The PEP highlights the major elements of the project, including scope definition, project scheduling, and financial requirements. Throughout the project, progress should be assessed against the PEP to ensure the project is staying on track.
- Schedule of Values (SOV): A Schedule of Values is a document that breaks down the cost of each billable item of work on the project. Billable items can include materials, labor, or equipment. This list encompasses the total contract sum of the project and allows project owners and stakeholders to see each item’s percentage of completion. When change orders occur, the SOV should be updated for project completion accuracy.
- Project reporting schedules: These are documents that highlight the reports or deliverables required from a contract, including the format, type, and frequency in which they will be provided. Project owners will often have internal reporting cycles that can be communicated with contractors to ensure alignment. Expectations for contractor reporting are often contractually set via reporting schedules.
It’s also important to implement project controls during the execution stage of the project to ensure that work is being completed according to plan. Having these controls in place helps mitigate any risks that might arise due to changes or delays that occur during detail design or construction. Some of these execution-stage project controls include:
- Earned value management: This is a project management approach that objectively measures the performance of the project using an integrated schedule and budget that aligns with a project’s WBS. It’s important to determine any variances between planned value, earned value, and actual cost to avoid cost overruns. Any discrepancies can be shown through an earned value analysis, which is typically depicted on a graph using S-curve plots.
- Change management procedures: Change orders commonly occur in capital projects and should be included in front-end planning to avoid cost and schedule overruns during execution. Regular meetings should be established between the contractor and the project owner to discuss changes, and effective workflows for processing and implementing changes should also be developed. In addition to these procedures, a written change request should include a detailed description of the change along with supporting documentation, a change number, the requestor’s name, the date initiated, change type, payment terms, schedule impact, and total cost and hours by discipline.
- Contractor project reports: The contractor should routinely provide reports to the project owner and stakeholders regarding progress measurements, cash flow, performance, manpower, and quantity and commodity. Identifying and tracking quantities for design is especially important for the engineering stage to help eliminate future construction schedule delays and cost overruns.
Benefits of EPC for Project Controls and Risk Management
With proper planning, any project can be a success, but the EPC method provides another level of structure and certainty to project execution. The EPC structure helps establish a fully integrated project schedule from the start. Since there is overlap and consistent communication between the engineering, procurement, and construction teams, the contractor and the project owner can establish and evaluate cash flow projections and potential risks from the earliest stages.
Using the EPC delivery structure also creates a higher level of constructability in the project. Designers and engineers who focus on construction execution help minimize safety concerns and therefore risk factors for delays. There is also significant prior data regarding procurement and construction team performance. Schedules are developed based on prior work successes, and the execution planning team is the same from front-end planning to construction.
EPC management also helps eliminate density issues where too many people are working at one physical point on the construction site. This improves risk management by avoiding safety and execution issues that can cause delays due to manpower buildup.
H+M Industrial EPC: Your Partner in Capital Project Management
At H+M Industrial EPC, our collaborative teamwork, superior work processes, and quality management system allow us to incorporate the most effective and efficient project controls and risk management processes to help reduce timeline delays and cost overruns.