Yes…I said it. For some reason, nobody else will. Is it arrogance or ignorance? Why does it take so long to approve capital projects? I have spent the last twenty-four years of my career advising customers on capital projects. There are three critical responsibilities for a capital project manager.
- Manage the Budget – We all understand the key to successful capital investment is Return on Capital. There are other reasons to invest but the main reason is to generate more cash for the business. This requires prudence to ensure maximum ROC.
- Be on Time – When the capital is late, the ROC is delayed because revenue can’t be generated. The sooner the capital is in place, the sooner it can begin generating revenue. In some cases, having it in place allows for ample debug or run time on the equipment, ensuring it is ready for production.
- Manage Risk – This is done many ways, but the focus is on anything that negatively impacts numbers 1 and 2. Most risk involves the selection of outside vendors, part design changes, and component availability, each of which can delay the program and cause equipment redesign.
We get bullied into thinking that most risk to the organization is external. In my experience being involved in over 500 capital projects, the biggest risk comes before the project even starts. Executive teams sit on the approvals for capital funding for months. I don’t think anyone is telling them that they are costing their company millions of dollars in wasted time and expedite fees because of this delay. It is really dumbfounding.
An example: The company is awarded a new program for a new engine platform. There is a clear date indicated for the Start of Production (SOP). At this point, they know that a capital investment will be required to produce the new product. The team at the plant level puts together the justification for the capital investment based on the budget estimate from the proposal provided to the customer. I think this is where the disconnect begins. It should be noted that the capital is often woefully underestimated, leaving the manufacturing group to deal with consequences.
The capital investment proposal is then sent to Headquarters for executive approval. HQ is like the black hole for funding approval. Weeks go by without a peep. Oh, wait, the board is meeting next month and will review. Turns out, there was a crisis that required the board’s full attention, so it will be reviewed next month. Chances are, the plant was behind in getting the capital investment proposal sent to HQ. This happens most often because they are required to run current production (generate revenue) and likely were not fully aware of the new program. In the meantime, the SOP is not changing. So, what happens time and again is that after months of no approval, the signatures are received, and it is “go time.” Now the plant scrambles to get the vendors kicked off and actually align the resources. Turns out, the vendors are busy and won’t be able to hit the original timing. The executive puts pressure on the plant to hit the dates. The plant scrambles to find another vendor that can hit the timing. The plant chooses another vendor that says they can hit the timing, but that they have no experience with. Sure enough, the new vendor is not able to do it faster and causes additional delays. Adding to the issue is that the quality of equipment is suspect, causing quality and start-up issues. The plant works weekends and overtime to make up for lost ground. They somehow make the deadline but are absolutely exhausted. My question to executives: Does nobody at the plant let you know that the delay in approving the capital investment causes complete chaos at the plant level? I don’t get it. It plays out this way nearly every time. The poor engineers that have to make it work end up exhausted.
Here is the deal. You know the investment is necessary to produce the new program. Push the go button and get out of the way. I sincerely believe that executives are unaware of the money and time unnecessarily wasted as a result of delayed approval. I mean, really, the board meets once per month. Is there not another process that can be implemented to avoid putting the plant through hell? Another common issue is that so-and-so is on vacation and their signature is required. Seriously? In my career, I have never experienced one of these executives not approving the investment. They always sign when they get around to it.
The bottom line is that there has to be a better way. It is low hanging fruit that will improve ROC, but more importantly improve job satisfaction for the folks at the plant making it all happen. The plant folks sit shaking their heads in disbelief about the lack of urgency. They say, “Do these guys not see what is going on?” I believe the answer is no, they don’t. Otherwise, they would act accordingly or communicate about the delay. If you want to win more often, stop causing unnecessary chaos in your companies.