Restarting Suspended Capital Projects the Right Way
Challenges and Lessons Learned on Successfully Restarting Suspended Projects
Companies in the process industries spend billions of dollars annually to develop and execute capital projects and maintain their capital assets. However, market volatility, driven by events such as the lasting effects of the 2008 global financial crisis and the recent plunge in oil prices, has muddied the waters with respect to investment economics. A tightening market often drives cash flow constraints and, in some instances, drives businesses to suspend capital projects during project planning and scope definition―or even during execution.
Decisions to stop capital projects with the intent to restart them when economic conditions improve are not uncommon. In fact, this project restart approach appears to have become more prominent in the aftermath of the global financial crisis. Several projects in the chemicals and refining industries that had been stopped during the crisis have been, or are, in the process of restarting. In contrast, exploration and production (E&P) companies are entering a period of capital investment turbulence. Faced with serious cash flow constraints, E&P companies are feeling pressure to suspend numerous ongoing capital investments.In 2010, IPA facilitated a roundtable discussion among industry experts on how to stop and restart projects. Since then, IPA has evaluated projects of various types and sizes that were stopped and later restarted. IPA has captured challenges, lessons learned, and recommendations on successfully restarting suspended projects. Here, we present some key recommendations to help businesses and capital project teams better prepare for and respond to these challenges. We begin with what ought to be done before projects are suspended. Recommendations for restarting capital projects successfully follow.
Recommendations for Restarting Capital Projects Successfully
Reach a Natural Stopping Point
It is easier to restart a project that was suspended immediately after the completion of a phase, such as scope development, project planning, or even detailed engineering. Suspending a project before the start of execution requires completion of all basic design deliverables, including plot plans, soil and underground analysis, site utility and infrastructure analysis, equipment specifications, issue-for-design P&IDs, and electrical drawings. It is also recommended that any required environmental assessments are completed and permitting issues are fully addressed before a project is suspended.Suspending a project after the start of execution (but before construction starts) necessitates completion of all detailed engineering activities (construction packages) and all equipment and bulk materials procurement activities. The extra effort and associated cost to reach a natural stopping point will typically be more than counterbalanced by a timely and effective restart.
Document the Suspended Project Status in Detail
To facilitate a smooth restart, develop a final project status report that documents the status and location of deliverables. The status report should include a decision log documenting the key decisions that drove project suspension, plus lessons learned from all stakeholders. The report should also list all activities that were not completed, as well as all activities expected to be completed just before suspending the project. For example, the report should include details on the storage of any equipment or materials that were delivered to the site during project suspension.
Maintain Project Team (and Contractor) Continuity
Good team development and continuity from project definition through execution drives good performance for all projects. This applies especially to projects being considered for suspension and restart. Maintaining team continuity, especially for key functions like project manager, engineering leads, cost estimator, project controls, and operations, is crucial; otherwise, prior completed work is more likely to be revisited and redone by the new team members. Similarly, continuity of the contractor team facilitates timely restarts. Retaining the contractor team is likely to reduce design changes and minimize any ambiguity in accepting responsibility for any design changes.
IPA evaluations of well-defined chemical projects ranging in value between US$20 million to $400 million that restarted without key team member turnover were found, on average, to have competitive cost and schedule outcomes, minimal cost growth, and limited execution slip (after adjusting for idle time). In contrast, projects with similar characteristics that had team member turnover as a result of the suspension incurred major changes and had issues in execution, resulting in measurable cost growth and significant schedule slip (even after adjusting for idle time); these projects also experienced early operation issues.
Develop a Restart Plan
Prior to project suspension, the team should develop a restart plan that covers the business and project objectives, priorities, and targets. The restart plan should also include the updated cost estimate and schedule, updated execution plan, and detailed restart activities and corresponding resources. Resource availability is critical for timely restart. In addition, the plan should include provision for long-term storage and check-up on any equipment or materials already procured. The restart plan should be developed, reviewed, and approved by all stakeholders at project suspension, not merely prior to project restart. Providing a cost estimate regarding suspension activities and getting business approval at suspension (rather than before restart) strengthens alignment on the stop and restart strategy and facilitates cost control for the remainder of the project. Projects that had detailed restart plans developed and approved at suspension (not just prior to restart) exhibited fewer issues in execution, minimal cost growth, and limited execution slip, and achieved competitive cost and schedule outcomes, on average (after adjusting for idle time).
Develop a Risk Analysis and Risk Mitigation Plan for Restart
A risk analysis and mitigation plan should be developed that focuses on specific suspension and restart risks, in addition to other project execution risks. The team needs to be aware of and closely monitor such risks if a project is to restart successfully. Like the restart plan, the risk analysis and mitigation plan should be developed prior to project suspension.
Recognize That Stopping / Restarting in Construction Can Be a Major Challenge for Site Logistics and Resources
At the time construction is suspended, value preservation is usually lower priority than cash preservation. Thus, expectations of orderly suspension followed by effective restart of construction are typically unrealistic from a cost, schedule, and operability perspective. Common issues involve equipment and materials preservation. Construction sites have a poor record of preserving materials over long periods; material value deteriorates because of inadequate protection against corrosion, contamination, or “misplacement,” as in unrecorded “borrowing” and use by others. Projects are able to restart quickly if procurement and materials delivery is allowed to progress and advance plans are made for an adequate laydown area or warehouse storage. Tight control of stored materials helps ensure preservation and inhibits “borrowing.” Secure storage, record keeping, and thorough inspection and testing of materials before installation can prevent delays, extensive rework, and issues in startup or early operation.
Recommendations for Effective Project Restarts
Reconfirm Business and Project Objectives, Priorities, Targets, and Success Criteria
The business and project objectives, priorities, updated targets, success criteria, and updated execution plan for restart should be reestablished based on an updated economic or market analysis after all issues that drove the suspension have been addressed. As the first step in the restart process, these elements should also be reviewed and approved by all stakeholders to confirm stakeholder alignment.
Reconfirm the Design Basis and Update the Risk Mitigation Plan
Reconfirming the design criteria and deliverables is the basis for the restart work. The team should also revisit the risk mitigation plan and update the risk register because new project risks may have evolved during the suspension period, such as a reshaped market environment, new site requirements, and permit requirement modifications. In summary, clearly documenting the decisions that led to the suspension and restart strategy at the end of a phase (not mid-phase) and creating thorough restart and risk mitigation plans are key activities for a smooth stop/restart process. These practices, in conjunction with strong team development, good project definition, and application of good project controls during execution (the fundamental practices that drive project performance), have been shown to drive successful restarted projects.