Projects involving large capital expenditures, such as the development of oil or natural-gas fields, power plants, and metal-ore mines, have become significantly more challenging in recent years. First, they have become larger and more complex. Demographic shifts and the industrialization of large developing economies have led to greater demand for energy and raw materials, and thus for increased production. Second, these resources are increasingly sourced from less accessible parts of the world, often in emerging markets, where business operations face unique challenges. In addition, extremely promising markets attract multiple competitors, further raising development costs at a time when credit is less available than in the past. Finally, dramatic swings in commodity prices affect the economics of large-project development.
These changes are not going away. Investment in large-capex projects is expected to increase dramatically in the coming years, requiring greater coordination among a larger number of market participants. (See Exhibit 1.) As a result, any problems that occur during development—such as delays, cost overruns, and quality issues—have a correspondingly larger effect on the financial performance of these companies, as well as on engineering, procurement, and construction (EPC) contractors and engineering, procurement, and construction management (EPCM) contractors.
In response, companies have sought to implement quality control programs, to issue more frequent project-status updates, and to transfer a larger component of the risk to outside contractors. While such measures can help, they are superficial and ultimately insufficient, because they do not address the core need for a new approach to project management.
The Boston Consulting Group has developed a more comprehensive approach—the BCG LPM Octagon—which comprises eight key levers that companies can pull to fundamentally improve large-capex-project management. These practices can help companies ensure that their large projects are completed on time, on budget, and within expected quality parameters.