The gates act as “hold points” at each stage, allowing us to review costs and information that have been gathered.
In this article, we’ll cover:
- The role of stage gate in project management.
- Minimum information and requirements before project execution.
- “Gates” and investment criteria.
- When to utilize a stage gate.
Stage Gate in Project Management: Understanding Its Role In Small Capital Projects
The stage gate process is a standard tool and approach employed by many owner companies. This process can help you optimize the amount of investment in a project, providing an efficient means of progressing your project through a funnel as you learn more about the project, allowing for a go/no-go decision. Owners frequently use the stage gate for project management purposes to help them control their capital allocation and ensure it’s meeting their objectives before proceeding.
The stage gate process typically consists of three front-end planning (FEP) or front-end loading (FEL) “gates”. In terms of what is developed at each gate, one of the most important pieces is the percentage estimate.
- FEL 1: Opportunity Identification and Assessment (Typically <5% of Eng cost - TIC Estimate +/- 50%)
- FEL 2: Scope Development and Conceptual Engineering (Typically 5-10% of Eng. Cost TIC Estimate +/- 20% to 30%)
- FEL 3/Front-End Engineering Design (FEED): Execution Planning and Basic Engineering (Typically 10-20% of Eng. Cost - TIC Estimate +/- 10% to 15%)
- Final Investment Decision (FID) → project execution
Each of the three gates must be passed before the project can proceed to project execution, which involves everything from detailed design and engineering to construction. However, not all owners will require a formal stage gate process for every project.
Most companies we work with have some form of stage gate system; however, it’s oftentimes only used for larger projects. There’s a bit of variability with how the stage gate process is used across our clients. Depending on size and complexity, you may choose to skip the first two phases (FEL 1 and FEL 2) and jump straight into FEL 3, or you may choose to jump straight into execution. Regardless of where you begin, you need to make sure you’ve thought through the things that need to be performed in the front end before execution.
Minimum Information and Requirements Before Execution
Even if you choose not to utilize a stage gate process, there are still certain things that need to be in place for project execution:
- Contract Type
- Scope of Work
- Piping and Instrumentation Diagrams (P&IDs)
- Specification of Equipment
- Location of Equipment
- Infrastructure Evaluation and Requirements
*Note: The above requirements for project execution will be expanded on in the future.
While most of our clients know this is needed, it can be tempting to get started without these minimum processes in place, particularly when schedule is a major driving factor.
If you enter project execution without performing these minimum processes and requirements, the design process will be highly inefficient. Without the above items, you can’t truly get started on engineering. If you get started without this information, there will be significant rework and change.
“Gates” and Investment Criteria
Considerations and decision criteria throughout the stage gate approval process vary from client to client, as they depend on project type, size, and facility-specific internal processes.
This process is called a “stage gate” because there are essentially physical “gates” that must be passed at the end of each phase (FEL 1, FEL 2, FEL 3). To pass through each gate and move on to the next stage, the project must meet certain criteria and obtain the required approvals to proceed. The thresholds and approvals required vary across owners. As a project owner, it’s typically your controlling mechanism for determining if the project meets your investment criteria. As the project progresses through this process, the decision is based on better and better information, providing a higher level of accuracy on the estimated costs.
The Ultimate Question: To Stage Gate or Not?
As we mentioned before, not all projects will need a formal stage gate for project management. At the end of the day, the decision of whether or not to utilize a stage gate should be part of the risk assessment for the project. Typically, this decision depends on things like:
- Project cost, size, and complexity: Using a stage gate process is typically advisable for large, higher complexity projects (e.g. multidisciplinary work; a high number of man-hours; a high number of mechanical, process, or tagged equipment, etc.)
- Project infrastructure: Some owners have stage gate built into their project infrastructure, so the stage gate process might be a necessary step in the project life cycle.
- Requirements of funding mechanism: Whether it’s the board of directors or local project owners, these decisions may depend on specific requirements of the funding mechanism.
H+M: Planning Ahead to Keep You Ahead
Whether your capital project requires a formal stage gate process, or you are looking to determine the minimum information requirements for an EPC proposal, H+M Industrial EPC’s strategic, client-oriented front-end planning services support you in making the best investment decision possible. Our in-house tools, resources, capabilities, and experience planning capital projects help guide you to the best project decisions.