Getting capital projects back on track: Six elements of a successful
turnaround
Leaders
don’t want their projects to be in a turnaround situation, but that often
happens. Here are some tactics for resolving problems quickly.
The first signs of a distressed project are clear. Cost begins to creep
and the project rapidly consumes the float that planners built into the
schedule. As work progresses, important milestone dates continue to slip and
each forecast of projected expenses is higher than the last. Team meetings are
less productive and people become skeptical that progress reports truly reflect
realities in the field. As frustration builds, enthusiasm wanes.
Even the most seasoned managers may miss
early signals that their project is in trouble because of cognitive bias. Some
convince themselves that things aren’t as bad as they seem, or simply don’t see
that a turnaround is imminent. Others blame factors beyond their control, such
as poor weather. When managers do intervene, their response is typically
muted—often a series of isolated initiatives that have little impact. By the
time they take more decisive action, the project has veered into dangerous
territory.
With capital projects becoming more
expensive and complicated each year, managers can’t afford to repeat these
mistakes. So how can they improve? There’s no secret formula that will work in
every instance, since each project faces unique challenges. But our research on
distressed projects, combined with interviews with internal and external
experts, suggests that leaders of successful turnarounds implement some common
tactics.1Here
are the main elements.
Develop
a recovery plan and realign stakeholders
When setting a new course for a troubled
project, many companies don’t know where to begin. A good first step involves
determining where the project truly stands with respect to milestones, budget,
and scheduling. In the process, they’ll have to ask difficult questions to
learn from past mistakes and avoid repeating them. What went wrong and how do
we change things? How can we make better and more timely decisions? The main
goal is to identify the exact reasons the project went south, rather than just
making a general claim that teams were underperforming. Often, it’s very
effective to have fresh eyes independently review a project’s status, diagnose
problems, and make forecasts about the outlook. An in-house team that hasn’t
been intimately associated with the project, or external experts in the
construction or capital-projects sectors, might be a good choice for this task.
As outsiders who don’t have a stake in the game, they won’t hesitate to speak
up if they see that the project doesn’t measure up to the vision in the
original project plan.
Once stakeholders have an accurate picture
of a project, including the areas where it is broken and dysfunctional, they
can craft a recovery strategy that identifies major problems, their root
causes, and possible solutions. In many cases, companies revisit the ambitious
goals in the original project plan. As they establish a new baseline to create
a challenging but achievable vision for success, they should focus on schedule,
cost, and quality. They will also need to manage commercial aspects of the
project—for instance, by developing strategies for quickly processing change
orders. Recovery plans will always include safety targets, especially for
construction sites where employees have been injured or narrowly escaped
danger.
In addition to defining new targets and
milestones, the project-recovery strategy should outline the execution approach
and key enablers. That might include a new system for bonuses and incentives,
or major changes in the project’s organizational structure. For instance, a
construction team that has responsibility for an entire site is sometimes
tasked with managing both processing plants and utilities. Usually, the
original organization for such projects is purely functional—a single
construction or engineering team covering all facilities, for example. If
multiple problems arise, these teams will be spread so thin that the most
critical facilities won’t receive the attention they deserve. In cases like
that, companies should consider creating a new organizational plan in which
each critical or near-critical facility has its own teams dedicated to
implementing effective solutions, as needed.
Once the strategy is defined, companies
must align all project stakeholders and win their buy-in. In some cases,
they’ll need to create incentives for stakeholders to increase their commitment
to the project. If a contractor is behind, for instance, leaders might need to
revise the incentives outlined in the project-recovery strategy to encourage
more rapid work. At one $750 million energy project, leaders created a new
retention-bonus program for welders to combat high attrition rates that were at
the heart of some schedule slippage. The subsequent increase in retention boosted productivity.
When developing a recovery plan, the most
difficult conversations invariably focus on costs and schedule. But our
interview panelists stressed that it was extremely important to put all facts
and benchmarks on the table. Without that information, critical stakeholders
will question the details within the plan and withhold their support. Some
discussions will relate to project leadership and will frequently result in new
appointments or a shift in responsibilities.
Install
new leadership to encourage progress
On distressed projects, top executives
must often acknowledge that the original project leaders are ineffective—a
serious problem that necessitates immediate change. According to our interview
panelists, even very experienced leaders may lack one or more critical skills.
Their main weaknesses might include indecisiveness, failure to maintain the
trust of important project stakeholders, approximation in planning activities
and following through, and the inability to get people to work as a team. Others
withhold information, or aren’t entirely candid when asked about the project’s
status. And some don’t adhere to standard processes. Such problems can
interfere with progress and create a toxic culture in which line managers and
others follow their example.
The implications of these findings are
clear: executives must install new leadership, rather than trying to protect
managers or shield them from criticism. This shift is the only way to drive
progress, interject needed enthusiasm, and help the team implement the changes
that it has struggled to make.
Since team members may be disillusioned,
the new leaders face a tough situation. They must quickly connect with critical
staff, from functional managers to crew foremen and line supervisors, through
one-on-one conversations or group meetings. To make these discussions count,
leaders should focus on facts—where the project is, why targets are not being
met, obstacles encountered, and other difficult topics.
Above all, leaders must convey a new
vision and aspirations for the project, as well as concrete solutions that show
they won’t repeat past mistakes. If they only make vague statements about the
need for alignment or avoid discussions about major problems, they’ll rapidly
lose the battle. New leaders should also focus on the future, including the
project’s goal. This positive outlook can go a long way when trying to
reenergize jaded teams.
Stabilize
the project
After establishing new leadership and
creating a recovery strategy, teams may take months to stabilize a large
project in distress. Consider the case of a turnaround at a large refinery. The
project leader had a detailed recovery plan that required extensive groundwork.
One major goal involved restructuring the engineering, procurement, and construction-management
teams, as well as the owner’s team, to increase the focus on the critical path
for priority facilities. As a first step, the project leader negotiated for
approximately 60 new staff, assigned them responsibilities, and set them to
work. These activities, which included the identification and mobilization of
new resources, required two months.
The recovery plan also called for improved
governance, since leaders wanted to reduce bureaucracy and encourage more rapid
and effective decision making. The project leader spent the first three months
adjusting the new agenda and shifting the composition of key meetings before
they were satisfactory. To improve interactions with stakeholders—another major
goal—he worked with the team to evaluate and
implement new performance-management tools. These solutions, in combination with the improved governance
system, increased transparency and facilitated decision making.
As in most projects, the recovery plan
included some activities designed to score quick wins and mitigate short-term
risks, including those related to the supply chain, fabrication, and contractor
management. Almost immediately, the project leader created a list of 20
critical solutions and implemented them within the first 30 days of the
stabilization process. For example, he rebalanced the scope of work to
eliminate bottlenecks for contractors and arranged to airfreight some critical
materials.
Finally, the recovery strategy called for
creating a new schedule sequence that would help compensate for lost time on
critical tasks. The project leader brought in a new construction manager to
lead a team review of the three most critical facilities. The team’s main goal
was to determine the optimal construction methods. It evaluated different
cranes and lifting techniques to increase the number of work fronts. The team
also identified more efficient methods for erecting steel and piping. In many
cases, it also pointed out skill and process gaps that subcontractors had to
address if they wanted to increase field productivity. By identifying these opportunities, the team created
more than 12 weeks of new schedule float.
The stabilization phase is of utmost
importance in turnarounds. If new leaders demonstrate that they’re willing to
make big changes, tackle problems, and work with contractors within their first
few weeks, they’ll help the project gain momentum. But if they can’t report any
major accomplishments or progress after 30 days, companies will know that they
have a new—and larger—problem to fix.
Install
an operating model with a dual focus
Strong project leaders can manage the
unexpected problems that usually pop up each week. These problems may involve
trouble-shooting the late delivery of equipment or materials, resolving an
engineering problem, or resolving a quality problem. But the best project
leaders will also dedicate significant time and resources to capture float or
buffers—elements that will make the project more robust and protect against
unforeseen events.
Most project leaders recognize the
importance of being strategic, rather than just tactical, since they know that
new opportunities to cut costs and reduce timelines always arise as the project
transitions from early construction to bulk construction and again from
late-stage construction into precommissioning and commissioning. But leaders
often become so focused on their day-to-day work that strategy takes a back
seat. They can overcome this bias by establishing an operating model with a
dual focus. In addition to optimizing day-to-day performance management and
capturing short-term value, they must engage in medium- to long-term strategy
development.
For this operating model to work, project
leaders should establish a full-time team of highly skilled staff who can
recognize and capture strategic opportunities. Team members should have the
right mix of operations, construction, engineering, and planning skills. For
best results, they should report to the project leader, who can provide rapid
access to the information and resources required to implement their recommended
strategies.
In one case, the project leader dedicated
a team of four highly experienced staff to identify opportunities to reduce
costs and timelines. The team analyzed activities that needed to occur about 6
to 12 months out, as well as those that were in no-man’s land because they
didn’t fall under a line manager’s responsibilities. The leader spent about one
or two hours with the team each day to discuss their findings. For example, the
project plans for construction and commissioning were originally separate,
since they were contracted to different parties. The team realized that it
might be able to reduce the project timeline dramatically if it created an
integrated plan. By considering construction and commissioning together, the
team significantly reduced the schedule. The team also recognized that it could
capture long-term savings and reduce rework if it set up a boot camp to help
contractors improve welding productivity.
Take
active ownership of the turnaround
As they monitor performance, leaders will
inevitably discover that some contractors are missing their targets. All too
often, however, they’ll just silently acknowledge the failings because they
think that interventions will create more chaos or because they fear potential
liabilities, such as penalties imposed for missing deadlines. Later, leaders
regret not taking more decisive action.
If a contractor is struggling, leaders
won’t make progress by pointing fingers or assigning blame. A much better
solution involves serving as an active partner in the problem-solving process
and mobilizing additional resources when necessary. Such cooperation may be the
most difficult and delicate part of any turnaround. Managed poorly, they could
alienate critical contractors. But if managed well, they could be one of the
primary improvement levers.
On one project, a contractor failed to
meet earth-movement targets for reasons beyond its control, including poor soil
conditions, bad weather, and untrained staff. Rather than issuing penalties,
managers on the owner’s team collaborated with the contractor to develop
solutions. The owner’s team agreed to purchase more equipment to alleviate
bottlenecks, changed the strategy for disposing of unusable earth as spoil, and
searched for alternative sources of competent material. These efforts helped
double the quantity of earth moved—even tripling it on some days—allowing the
contractor to reach its established goals. When the construction team saw these
results, it agreed to new earth-moving targets that were more ambitious than
the original goals.
In more extreme cases, project leaders
might have to take more interventionist measures, such as descoping a
contractor’s work by reassigning some responsibilities to another one. They
might also ask contractors to replace their project leaders or supervisors, or
second resources into the contractors’ organization to bolster performance.
Ensure
transparency
The same scene often plays out in
progress-review meetings on troubled projects. Instead of reaching alignment on
future milestones and resolving the issues that impede performance,
participants hold long debates about which group has the best or most recent
information. Then they spend time reconciling their progress reports or
providing rationales to explain why they’re lagging on performance metrics.
The only way to avoid this morass is by
creating a common report that describes progress on major performance metrics,
with a special focus on those essential to project success. While common reports
can benefit any project, they are especially critical for turnarounds, where
struggling teams tend to rely on intuition when making difficult choices.
In one schedule-driven turnaround, the
team had to complete work on eight critical and near-critical facilities. To
track progress, it created a simple report that showed the weekly and
cumulative progress, both actual and target, for major trades at each facility.
This report helped the team focus on priority activities.
Teams can also increase transparency by
establishing very clear metrics. On one pipeline project, leaders originally
relied on a “stoplight” system to assess progress. They didn’t look at facts to
see if the project was on track—they simply made a qualitative assessment for
each goal. If they felt they were behind schedule, they’d put an icon of a
yellow light next to the task; missed goals were supposed to get a red light.
But few tasks received these warning symbols, since managers were inclined to
be overly optimistic or rationalize missed deadlines. To increase the rigor of
their assessments, the team switched to more quantified metrics. For instance,
they assigned red lights to any milestones that the team missed by more than
two weeks. This shift changed meeting dynamics, since the data-driven metrics
eliminated endless debates over whose progress reports were most accurate.
That said, ensuring transparency is not
just a matter of tools—it’s first and foremost a matter of choice. In too many
instances, project leaders consciously avoid raising difficult issues with key
stakeholders, often because they fear overreaction. Some leaders also hope that
they can buy more time to improve the project’s outlook, but this strategy is
rarely effective. In our interview panel, not a single project leader regretted
surfacing issues early. Time is a scarce resource in any project, and rapid
action is fundamental to success. Almost all the seasoned leaders we
interviewed said that the best communication strategies involved fearlessly
exposing a project’s weaknesses. By bringing the issues to light, they were
more likely to find solutions and deliver the desired outcomes.
Project plans aren’t written in stone. If
the original strategy isn’t working, top executives must intervene by staging
an intensive turnaround. But it’s not enough to set new objectives and declare
a break with the past. Project leaders should also ensure that their
turnarounds contain the basic elements essential for success, from a clear
recovery strategy to full transparency. Without this structured approach,
they’ll inevitably repeat past mistakes.
By Mark
Kuvshinikov, John Levene, and Filippo Rossi
https://www.mckinsey.com/industries/capital-projects-and-infrastructure/our-insights/getting-capital-projects-back-on-track-six-elements-of-a-successful-turnaround?cid=other-eml-alt-mip-mck-oth-1807&hlkid=012f23950149426785e8e64e420836e1&hctky=1627601&hdpid=0310f04e-c0e3-41e4-9fe1-033d4b0af50a
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