Front End Definition Really Pays Off

Statistically, +75% of mega industrial projects around the globe fail – not only do they miss their targets on budget, schedule and operational performance, but they do so by appalling margins. Understandably, owner companies are not enthused to talk about these failures, maybe that’s why the industry as a whole does not seem to be learning from its mistakes and we see the same patterns emerge project after project.

A great article by Ahsan K, an award winning business leader and project director with top multinationals in the oil, gas, energy, petrochemical, fertilizer, marine storage and export terminal industries, and consultant with Consult 2050.

Ignoring The Importance Of Front End Definition

A staggering number of owner organizations ignore a structured, disciplined approach to Front End Definition (FED) in their anxiousness to flick projects over the fence to FEED or EPC contractors. This approach either bulldozes poorly conceived projects into execution or exposes them to late scope or concept changes, discovery of ill-defined contractual interfaces, ill understood risks and suboptimal execution strategies, all of which lead to either a total failure of the project or serious underperformance on cost, schedule, operating performance and safety.

The results constitute the business case for owner companies to acquire FED expertise, as the majority of global industrial mega project failures are attributed to poor FED capability or its execution on part of the owner. Evidence irrefutably points to one common denominator: A gap in the owner organization’s in-house expertise to execute appropriately scaled front end definition of the business venture or project that is led and predominantly delivered by the owners team with minimal or no contractor support. This gap on the owners side may be due to a combination of:

  • The lack of FED know how at the technical skill level
  • The lack of awareness of the FED process itself (how to scale up or scale down and still meet the intent of the FED process)
  • A tendency to cover the above gaps by inviting contractors to contribute in areas where they have no inside knowledge or expertise

The above results in a one size fit all approach by contractors that is sold to gullible owners who need to learn that contractors live in a different world and have radically different business drivers – either party is brought together by necessity, each plays its role to achieve its business objectives and moves on, full stop.

Front End Definition Really Pays Off

Owners and not contractors should make strategic calls on what project to do, where to do it, how to phase and execute it, what margins to expect and what the likely cost estimate, schedule for delivery and ROI would be given the overall risk profile associated with the project. This should be done following a structured FED process that is two pronged – one examines the business viability by looking at commercial and political aspects while the other examines the big picture of execution and delivery against the promises made by the business teams to the owners in terms of results.

All of this work should cost around 1% of the Total Installed Cost (TIC) and it is ironical how organizations will resist spending this 1% in the name of cost control and yet willingly jeopardize the 99% by going ahead with the concept without a FED whose very deliverables lay the foundation of the oncoming project phases. In simple words, the cost of FED for a multi billion dollar project is a few million dollars, and smart owners should be prepared to put that money on the table and consider that money well spent if it gives them a chance to walk away before sinking billions.

Over-Optimism Due To Internal Competition

One last word of caution, both the business and project leadership should be joined at the hip during the FED process and guard against the fallacies of fairy tale estimations and forecasts that invariably paint an over-optimistic picture to set up the venture for failure right from the start. Often this over-optimism is driven by internal competition amongst business units – a classic example is commercial deals that are signed off by business units without due consultation or regard to the project organization that is left to execute and deliver on promises made on their behalf.

Dedicated to Tom Hooft, the coolest Mega Project Director I have ever worked with.