Beyond Value Engineering: 59% Increase in IRR Across 30 Projects
The motivation behind Stroud Capital Projects comes from rejecting the notion that the project management we all learn will naturally lead projects toward some optimum balance of cost, quality and schedule. Instead, we focus on transforming projects by playing offence and looking for big upside, anchored by Zero-Based Analysis (ZBA). ZBA is a powerful analytical tool to rapidly determine the constraint-free, theoretical maximum potential of any project case. This routinely finds three to five times more opportunity than is currently visible and is the first step in unleashing your team to realize much more. With many more good options on the table, your team can focus on applying strong validation tools and driving towards firm decisions.
The solutions are your team’s and they own the success.
Transformation Results
Leaders often ask where the biggest upsides come from. The results of transformations with over 30 projects from the past ten years is shown. For each, the team partnered with Stroud to identify more opportunity than previously visible and ultimately increased IRR by an average of almost 60%, most in under 10 weeks. In addition, each project case became more certain as new potential downsides were uncovered and mitigated that would have otherwise destroyed value later.
Average IRR improvement of 59% across over 30 project transformations
Ranging from 12% to 125%
These 30+ projects were primarily in the energy and mining industries, and ranged from $50M to >$15BN. The timing of each project’s transformation effort partnering with Stroud varied broadly between early concept select all the way to greater than 75% constructed.
Sources of Upside
For each project transformation, the sources of upside achieved consistently fall into one of four categories. Considering the breadth of projects where this has been applied, this is reflective of what you could expect for any current or upcoming project:
1) Improved design decisions:
A physical change can be made to the design to yield more value while maintaining project objectives.
“An alternate pump selection enables a smaller pipeline size.”
2) Improved execution strategy:
A change can be made to the execution strategy of the project to drive more value.
“The resourcing peak can be reduced be re-sequencing these construction scopes.”
3) Improved estimate accuracy:
A numerical change can be made to the estimated economics of a design.
“New data shows that a lower unit cost for steel can be confidently applied.”
4) Downsides detected and mitigated:
An assumption in the project case is currently better than can be expected.
“The estimate includes fewer expansion joints than the latest study shows.”
What Makes the Difference
Playing Offense
Using ZBA to go well beyond benchmarking and brainstorming, you get ahead from the start with many more good options for improvement now available, not to mention no longer spending energy wondering what else may be out there. This enables prioritization of the highest value, lowest complexity and trade-off free opportunities first. Many times, locking in even a partial amount of any one of the largest opportunities can be worth more than dozens of other opportunities put together. This is how results in under 10 weeks is possible.
Driving to Decisions
No team wants a set of recommendations left on the table for them to handle. We know that the work is not done until decisions are made and results are locked-in through completion. Together we drive to decisions on top opportunities with a rapid, fact-based validation approach that your team owns. This eliminates the churn of debate, re-analysis and backsliding. Even where opportunities aren’t converted (we never expect to nor need to convert every one), a clear decision is made and documented to put each to rest.
Unleashing Your Team
Results only stick if your full team aligns on the target, analysis and decisions. By rallying around a successful state and enabling your people with mindsets, tools, capabilities and confidence, they take full ownership of the improvements and success.
What People are Saying
“Until now we have accepted that there is a trade-off between project timeline and cost. This team has proven otherwise, and our people plan to apply the approach Stroud has brought to every project going forward.”
General Manager, Regional Development
“Risks tended to drive our design decisions, and we treated cost as a consequence. This project shows how much can be achieved when we all take the mindsets and tools Stroud provides to directly control costs.”
Vice President, Project Resources
“There’s no way we would be having a conversation about how this valve is ultimately driving the pipeline thickness without the rigor of the process Stroud supports. Or the domino effect of how setting it to actuate slower can save us tens of millions.”
Director, Capital Projects
“The earlier benchmarking exercise gave us a ‘best possible’ scenario and suggested that we target getting halfway there. But finding the true Zero-Base with Stroud uncovered much more, and we achieved a real design that costs even less than the original ‘best possible’ case.”
Manager, Joint Venture & Strategy
“If we hadn’t done this transformation work, there wouldn’t have been a project.”
Executive Vice President, Major Projects
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