Jan-2022

Impact of not integrating capex in shutdowns

Capital projects must comply more with detailed practices and principles.

DAVID FLEMING and Joao Alexandre dos Reis
T.A. Cook Consultants

Article Summary

Many companies remain too traditional in their approach to integrating capital projects and maintenance into an STO (shutdown, turnaround and outage) event. Capital projects additions to STO events are growing and can frequently exceed 40% of the total hours. Scope and processes remain separated, however, as the two organisations work in silos and execute with different contractors. An environment now exists where late and poorly integrated capital projects are tolerated, despite being responsible for most major overruns. This article looks at reasons why and provides suggestions on how this can be changed.

STOs are now an integral part of business strategic planning. Gone are the ‘good old days’ of stopping production of assets/plant to carry out legal inspections, routine maintenance tasks, and a few small projects. No longer a liability, an STO is now an opportunity and a major contributor to increased margins for the business. Management has changed its requirements and expectations from simply ‘fix it’ to ‘improve it’. Commercially it is now more attractive to utilise these planned downtime opportunities to complete tied-in scope of capital projects and equipment modifications.

STOs are now large, complex and due to their short duration, unpredictable events. Capital projects and equipment modifications have become a major influence on complexity, risk, and overall success in achieving business goals during STOs. Ninety percent of STOs fail to meet their planned objectives, whether it be in safety, scope, cost, duration, or future equipment reliability.

Scope creep, minimal front-end loading (FEL) time, poor resourcing, ineffective processes, and poor contractor performance are all common reasons for STO shortfalls, but insufficient integration of capital projects is now the most prominent. As a result, significant sums of money and time are wasted through redundant scope, labour inefficiencies, logistics, contracts, and schedule issues. The business impact can be enormous.

Trends in the sector are moving in opposite directions. On one hand, skills and experience are diminishing, while at the same time STO events are happening at longer intervals with greater complexity. To address this mismatch, does the future lie in stopping trends towards mega-STOs and moving to shorter, sharper, more agile events? Questioning the current mentality towards integration of capex, would this really make a huge difference, or will we just see the same problems on a smaller scale and more often? Probably, unless we make a conscious effort to change.

There are clear differences between capex and maintenance FEL: upgrade versus like-for-like change, different target dates (commissioning date versus first mechanical day), organisational structures, skills and competencies, separate budgets, measured in days rather than hours, static scope versus dynamic scope, and an approval process to the next phase as reliant on available funding as technical completion to name but a few. These differences are really not that significant in the grand scheme of things — they are no obstacle to effective integration (see Figure 1).

It is not rocket science; it is simple process alignment and collaboration, is it not? However, we continually experience the same issues with integration: late budget approvals leading to late scope, planning lacking detail, poor communication, higher overheads due to duplication in logistics, contracts and services. Transparency in progress is always a mystery and the re-development of a schedule after months of optimising is a certainty. But why is this the norm?

Reasons why capex integration is typically so poor
Business impact underestimated
Companies are generally good at focusing on the large flagship project that will deliver future financial benefits, but very rarely does an STO event achieve flagship status. Strangely, business impact is often underestimated, with site leadership failing to understand their roles and responsibilities when preparing an STO. When no immediate risk to business is made evident to site leadership, the STO event does not appear on their radar as a priority for much of the preparation process. The STO is too often treated as an event or series of event initiatives, not a site initiative that demands site priority, effective leadership, and an integrated approach. Resource planning is poor, with many participants lacking the experience or skills to provide a quality deliverable. STO events are a major drain on margins, but the seniority required of the lead role is undervalued and commitment to collaborate in general is poor, usually until it is too late.

No collaboration
The interface between the capital project and STO teams appears to be one of the most difficult to manage. The two groups lack a common framework and a common understanding of the value in collaboration on key issues such as roles and responsibilities, work principles and processes, milestones, interfaces, and risks. Maintenance and projects prepare in their own organisational silos and report separately, usually with different objectives and key measurements. Project timelines are more focused on funds committed or funds spent to date and not the amount of project work completed.

Conflicting milestones
STO events require a specialised project management methodology in order to be successful. Due to the complexity of the process and the resources involved, the tools and techniques of project management are uniquely adaptable to activities associated with the STO process. The short duration of execution demands detail in the preparation. The conflict is that the key interfaces and milestones for the capital project FEL are not aligned with the STO phases to enable effective collaboration.

Late scope
Prioritisation of the project portfolio to enable timely delivery of the issue for construction (IFC) packages in alignment with key STO milestones and deliverables is not a key consideration when approving funding and selecting the correct make-or-buy strategy to deliver the engineering. Timelines are often overly optimistic, with an engineering resource that is reducing in numbers and experience, but still expected to deliver. The outcome is in excess of 50-60% of IFC packages are provided after scope freeze, some as late as a month before the execution date. Commercial decisions make this an acceptable practice. This not only dramatically increases project risk, it also removes any opportunity to merge similar work scope requirements to achieve more competitive contracts.

Planning lacks detail
The short duration of execution makes measurement of time in hours and shifts more applicable to the STO event than to a capital project. This conflicting level of detail at the outset of planning is another challenge to delivering an integrated solution. Maintenance plans are measured in labour hours. Project construction plans are measured in days. Planning at a detailed level is not a prerequisite for capex teams and they do not see the need or the benefit. A general reluctance to change, as well as more complicated cultural issues and clashes, work against project teams’ likelihood to adopt more detailed STO principles and processes. Having participated over many years in discussions on the benefits of detailed planning and the use of a CMMS or equivalent to plan for anything other than tracking costs has frequently resulted in miserable failure.