How Chemicals Projects Can Minimize Changes During Execution

A recent IPA study found that chemicals projects executed during the past decade spent about 6 percent of their total installed cost (TIC) on late changes, translating to billions of dollars wasted each year. Although it is commonly acknowledged that changes during execution destroy capital effectiveness and project value, chemicals projects continue to make changes. The IPA study found that three out of four chemicals projects make major late changes—and half make multiple changes! Major late changes lead to higher costs and longer execution durations, as well as cost growth and schedule slip.

What Are Late Changes and Why Do They Occur?

IPA defines major late changes as any change that occurs after full authorization funding that adds (or subtracts) more than 1 month to the project schedule or more than 0.5 percent to the project’s cost. Late changes have greater effects on project results than typically estimated at the time of the change and encompass both scope changes (changes to functionality) and design changes.

Capital projects companies typically do not understand the root causes of changes, and many do not track them systematically. A common misperception is that business drives most changes and thus there is little that teams can do to avoid them. However, business only accounts for about a quarter of late changes. Business makes changes to a project’s scope or functionality, like changing the site location or doubling the planned capacity. As shown in Figure 1, most late changes are design changes. These changes result when design was not done correctly or not done thoroughly in the first place. They are typically needed to make the facility work or to ensure safety. For example, a design change could arise if a project team didn’t do soil borings and later finds that the foundations require piles and the design must be changed to include them.

It is not possible to avoid all late changes. The inclusion of contingency in capital project estimates reflects this reality. We can, however, reduce the number of major late changes because many are under the team’s control and can be avoided by following Best Practices.

Best Practices That Minimize Changes Made in Execution

Let’s take a look at some of the Best Practices that reduce execution phase changes in chemicals projects.

Clear Objectives and Trade-Offs

Projects in the chemicals sector made more changes when trade-offs among objectives were not clearly articulated (Figure 2). Missing business input during FEL does not allow for clarity and leads to scope changes. One way to achieve a clear understanding of trade-offs for chemicals projects is to hold a Business and Engineering Alignment Meeting (BEAM). BEAM facilitates early alignment with the business and leads to fewer major late changes for chemicals projects.

Team Development and Continuity

Having an integrated team (including all key team members) and maintaining that team throughout the project lifecycle is highly leveraging to minimize changes for chemicals projects. (See Figure 3.) Projects that were missing functional input made more changes on average than projects that had integrated teams. Staff experience and workload also plays a part. Project managers with more experience and with more time to devote to the project have projects with fewer late changes. Construction manager time on the job is also important—construction managers with more concurrent projects had more changes on their projects. Finally, avoiding turnover, especially of key team members like the project manager, is critical to avoiding changes in execution. The more key functions that turn over, the more likely a project is to have late changes. Moreover, project manager turnover, especially for teams that aren’t integrated, and multiple turnovers can be devastating to project outcomes.

Thorough Front-End Planning

Poor quality Front-End Loading (FEL) continues to drive late changes in the chemicals sector: the worse a project’s definition, the more likely it is to have major late changes that erode the project’s benefits and prevent it from meeting its objectives (Figure 4).

The good news is that projects that have better definition in the three main FEL components (site definition, engineering definition, and project execution planning) have few major late changes. Having incomplete basic design at the start of execution increases design errors for chemicals projects, and—not surprisingly—design errors lead to higher project costs as these errors are addressed with major late changes in execution.

Good Project Controls

Although project controls cannot make up for poor project definition and unintegrated teams, good project controls can help to minimize late changes. Several project controls practices have been shown to reduce major late changes, including:

• Estimate validation
• Comprehensive physical progressing
• Frequent detailed status reporting
• Having an owner controls specialist on the team

Where Do We Go From Here?

The vast majority of recent chemicals projects experienced major late change after authorization. Most of the changes were required to meet the project’s intended functionality and came at a significant cost. Given these changes are largely self inflicted (i.e., in the hands of the project team), many can be avoided though the use of proven Best Practices during project definition and maintaining control in execution. Finally, many companies lack a solid change management process to categorize changes and decide if the change is acceptable. Understanding why change happens is the first step toward improvement.