Tag Archives: Net Present Value

 

It is commonly believed that the project stakeholders have delivered their project commitments once the asset had been successfully commissioned.

Given the fact that recent studies show that 65-80% of large capital projects in the mining and metals industry frequently experience performance issues and fail to meet their budgets and/or schedules, it’s no wonder why executives and owner teams are distracted from envisaging the outcomes beyond the commissioning phase. The stark reality is that a project can only be regarded as a success once the asset sustainably reaches name plate production within the projected timeframe.

Senior leadership needs to focus more on the strategic business case and outcomes of the project and enable the acceleration of operational and organizational maturity growth beyond ramp-up.  By focusing on “culture and systems of work by design” earlier in the project development cycle, prior to or during the detailed engineering phase, companies can experience a positive impact on Net Present Value (NPV) while positioning the future operational organization to enhance organizational capabilities and drive maturity growth.

Establishing the needed operational foundation that enables data-driven decision making, operational excellence and continuous improvement during capital project execution and post operational ramp-up, creates a culture that fosters long-term growth, resilience and scalability across the asset. Furthermore, the early investment in designing the “systems of working” with the supporting management operating systems, while integrating with today’s advancements in AI, automation, Digital Twins, EAM, ERP, IoT, robotics and other technologies positions the asset to emerge from the capital project at a much higher maturity stage and set of organizational capabilities. By leveraging the insights and efficiencies these systems and tools provide, mining and metals companies can not only optimize their immediate operations but also position themselves for sustained success in a rapidly evolving industry.

Yes, integrating management operating systems with AI, IoT and other enterprise platforms during capital project execution can have a positive impact on NPV and cash flow. “Systems of Working” help streamline project execution, reduce delays, and improve project scheduling, allowing the company to start generating revenue earlier than expected. Additionally, avoiding project delays reduces the discounting effect on future cash flows. These same systems can help identify and mitigate risks such as supply chain disruptions, equipment failures, and market fluctuations. By reducing these risks, companies can avoid unforeseen costs and improve project reliability.

Systems of working provide the project and operating teams the ability to improve operational efficiency by optimizing resource allocation, reducing downtime, and minimizing waste. Additionally, predictive maintenance supported by enabling technologies, process automation, and enhanced supply chain management can lower equipment failure rates, energy consumption, and labor costs, while helping owners to significantly reduce both capital and operational expenditures. Creating a “Culture by Design” with the supporting “Systems of Work” early in your capital project will directly impact the key drivers of NPV by improving operational efficiency, reducing costs, accelerating revenue generation, and lowering risks.

USC partners with your organization to accelerate Operational Maturity by helping your team create a Culture by Design supported by the needed Systems of Working

Since 1968, USC Consulting Group has been working with clients to address the challenges and avoid the pitfalls when creating cultural change and developing systems of working. While the integration of AI, IoT, MOS, EAM and ERP offers tremendous potential in capital project execution in the mining and metals industry, companies must carefully navigate the challenges. Addressing high costs, technical complexity, workforce readiness, and data management are key to overcoming hurdles. Strategic planning, phased implementation, and ongoing system monitoring are critical to successful integration and maximizing financial and operational benefits.

Mining and metals projects often vary in size, complexity, and location, which means the systems of working need to be scalable and adaptable to different environments. Inflexible systems may struggle to scale up or adapt to specific project needs, leading to inefficiencies and higher costs. Our seasoned consultants help the owner team to ensure compatibility with the project environment and to overcome scalability challenges.

The integration of AI, IoT, MOS, EAM and ERP introduces additional layers of complexity in project management, as these systems require continuous monitoring, optimization, and alignment with project objectives. Mismanagement of complex systems may lead to delays, cost overruns, and reduced system effectiveness. USC Consulting Group understands how your project and operating teams can best utilize the needed information while addressing the unique challenges of the mining and metals sector to ensure smoother execution and in-shift adjustments.

Employees and management may resist the changes required to implement these new systems of working, especially if they fear job displacement or lack understanding of the new ways of working. Cultural resistance can slow down or even derail the integration process, leading to project delays and inefficiencies. Our people bring effective change management strategies, including clear communication, training, and involving employees in the transition, that ease resistance.

Misalignment between project stakeholders can cause challenges. Lack of collaboration between the various teams can result in inefficiencies, process failures, or unmet project and/or operational goals. Ensuring early and continuous collaboration between project stakeholders and operational teams helps bridge the gap while ensuring a successful project completion and production ramp-up.

While the long-term benefits of integrating and implementing systems of working are substantial, measuring these benefits and calculating NPV and ROI can be complex, especially when the results are not immediately visible. Stakeholders may become skeptical if they don’t see immediate financial returns, leading to reduced support for continued investments. USC works with the owner’s team to establish clear KPIs and benchmarks for performance improvements, measure progress and demonstrate long-term value.

USC Helps You Tackle Key Challenges

Do you want to understand how creating a Culture by Design can accelerate the future asset to achieve the strategic business case and nameplate performance targets safely?

Want to find out more about how USC can help you uncover the hidden value loitering in your capital projects? Contact us today.

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Effective risk management, strategic planning, and operational excellence are crucial for minimizing NPV losses and maximizing project value.

Recent studies and industry reports suggest that a significant portion of mining projects may face challenges that impact net present value (NPV) negatively. Estimates range from 20% to 60% or more, highlighting the inherent risks and complexities involved in the mining industry. These challenges may include cost overruns, schedule delays, geological uncertainties, regulatory changes, and market fluctuations, among others.

In fact, in other reports, McKinsey says as many as 4 out of 5 mining projects come in late and over budget by an average of 43%. EY found that 64% ran over budget or schedule with the average cost overrun sitting at 39%, after studying 192 global mining and metals projects worth more than $1 billion.

How can mining projects improve project execution when it comes to budgets and timelines? Mining companies must grapple with many pain points – cost overruns, schedule delays, operational risks, supply chain disruptions, and geopolitical uncertainty.

One of the most critical areas involves owner-contractor relationships and creating a “culture by design” right from the beginning. Many owners outsource their projects to EPCMs that have historically operated in mining and are typically very engineering focused on getting the design as accurate as possible to maximize outcomes and benefits. While important, it only represents 35% or 40% of the total cost of a typical project and that’s not where we tend to see issues. The other 60%-65% of the scope is construction.

Organizational culture can significantly impact projects in several ways:

  1. Risk Management: prioritizing safety, compliance, and responsible resource management can lead to better risk identification and mitigation strategies, reducing the likelihood of costly incidents and delays.
  2. Employee Engagement: creating a positive and supportive culture to foster employee engagement, morale, and retention, leading to higher productivity, better teamwork, and lower turnover rates, which are critical for project success.
  3. Decision-Making Processes: promoting transparency, collaboration, and innovation can lead to more efficient decision-making processes, enabling quicker responses to project challenges and opportunities – maintaining “single source of the truth”.
  4. Adaptability: encouraging flexibility, learning, and continuous improvement enables organizations to navigate changing market conditions, regulatory requirements, and technological advancements more effectively.
  5. Stakeholder Relations: valuing relationships with stakeholders, including local communities, governments, and investors, can enhance trust, collaboration, and support for mining projects, reducing the risk of opposition or regulatory challenges.

In summary, positive mining capital project performance, characterized by effective organizational culture, cost management, revenue generation, risk mitigation, and optimal capital expenditure allocation, can enhance NPV by increasing cash flows and reducing project risk.

USC partners with your organization and coaches your people to significantly impact performance outcomes and get your capital projects over the line on-time and within budget.

USC works with Owner Teams to execute capital projects and prepare for operational readiness during the early stages of the capital project development process, typically prior to the start of the construction phase. Operational readiness activities should be integrated into project planning and execution to ensure early adoption of the desired project culture while building buy-in from the various project stakeholders. There are three key elements to successful projects and capturing NPV.

Culture: Corporate culture is the shared values, attitudes, and practices that define the owner’s project, operation and interactions with its employees and various stakeholders. Culture clashes often occur when people from different backgrounds are assembled.

In capital projects, this often occurs when stakeholders are not aligned around a common set of goals and priorities, potentially resulting in the creation of an unsafe environment and/or low productivity and poor-quality execution. The imperative in this situation is to align stakeholders and define a “culture by design” at the top and instill the culture from the bottom up – deliberately starting at the work activity level.

USC works with successful owner teams to begin this journey from the outset of the project, and usually with a high sense of urgency.

Governance: While most recognize the need for establishing a robust governance framework, with a measurable set of metrics, many fail to execute. Typically, governance frameworks include everything from policies, regulations, functions, processes, procedures, and responsibilities, as well as how project progress and execution performance are tracked and reported.

It is not uncommon for EPCs and sub-contractors to use their own processes and systems to track performance – leading to various versions of the truth on the project. Inconsistent and inaccurate information results in inaccurate project execution planning, ineffective execution, and inaccurate status reporting which in turn results in schedule slippage and costly overruns.

USC works with project stakeholders to ensure governance goes beyond the decision-making of a single project, by developing a “Truth Center” where priorities are set, planning is done, performance is integrated, measured and communicated. By creating a single source of the truth and defining detailed work activities, including who is responsible for what and when, stakeholders can avoid the typical project execution pitfalls. By providing consistency, certainty and coordination, owner teams add to the stability of the project.

Readiness: How many projects are delayed due to poorly defined feasibility studies, engineering delays, late recruitment of key personnel and/or procurement delays? These early delays are difficult to overcome during the project and have a severe impact on NPV.

Many organizations are unclear when to start working on operational readiness – long ramp up times and slow operational start-ups are NPV killers, even for well executed capital projects. Key operations personnel should join the project early in the engineering phase to ensure the operability and maintainability of engineering designs. Additionally, they should play a role in defining and designing the culture for the project. Initiating the design of the operational processes and defining operational system requirements no later than the beginning of the construction phase and completed before starting the commissioning phase.

USC brings 55+ years of experience in shaping organizations and designing and implementing management operating systems and processes to assist owner teams in mitigating start-up risks and unlocking hidden-value to accelerate ramp-up success.

USC Helps You Tackle Key Challenges

Do you want to understand how prepared your company is to manage project risks while accelerating work execution and operational ramp-up and what the key focus areas that will contribute to improved net present value?

Want to find out more about how USC can help you uncover the hidden-value lurking in your capital project?

For more information, let’s talk it through with a no obligation meeting with one of our executive team members. Email info@usccg.com to arrange a call.

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