December 2022 - Markus Schwarzer

Capital Projects: Project Pre-Mortem. Anticipate Failure To Win

Business Case Disappoints

The original business case guranteed financial returns. Moreover, certain productivity improvements. But expectations were not met.
This could indeed be due to an inadequate business case.

Especially, if the business case was indeed overly optimistic. A great case study is the Edinburgh Tram Inquiry. It established that inadequate business case analysis was a major contributory factor to not meeting expected outcomes.

Capital Projects Success Rate

Only 60% of capital projects meet all their objectives after completion. That success rate is not much better than a 50/50 coin-flip.
How can future disappointment be prevented? How can the risk of failure be reduced?
One way of avoiding future pain is to carry out a Capital Project Pre-Mortem.

What is a Project Pre-Mortem?

The project pre-mortem is the opposite of a post-mortem.
Generally, a post mortem is carried ot to detect the cause of death.
A pre-mortem is quite the opposite.
Esssentially, placing oneself into the future and looking back.
To anticipate the future. Comparable to imaginary time travel.

Risk Reduction

The pre-mortem method is a fine risk reduction tool.
Gary Klein, a cognitive psychologist, developed the pre-mortem method to asses project risks before actually starting a project.
Apparently, it is Daniel Kahneman’s favorite approach to making better decisions.

Capital Project Pre-Mortem

The pre-mortem helps to identify risks at the early planning stage of a capital project.
Basically, a simple yet effective process that increases the chances of success.
Surprisingly, one prepares for failure to achieve success.

Pre-Mortem Process

Capital projects have many internal and external variables.
It’s difficult to foresee all possible obstacles. A crystal ball is usually not at hand.
However, with this method, one can envisage unfavorable outcomes.
Working on a large data storage project with a German car manufacturer I applied the pre-mortem process regularly.

How does it work?

The stepped process is straightforward:

Firstly, the pre-mortem team meets before a project starts.
Secondly, the team imagines what could happen to cause the project to fail.

Then, the team then works backward to create a plan to prevent potential obstacles. Therefore increase the chances of success.

An effective way of combatting cognitive bias. Reducing project risk. At the outset.

Team Rules

Consequently, each team member must be able to voice their opinion. Without repercussions. Quite the opposite. They ought to be applauded for their courage and insight.

Addionally, this an excellent opportunity to gather vital insights about team dynamics. Before engaging in the actual project.

“Teams solve problems collectively and share accountability for the outcomes are better at meeting deadlines than those teams that rely on individuals to make decisions.”*

It is also advantageous to invite independent team members that can add the outsider’s view and act as the devil’s advocate.

Pre-Mortem Benefits

Helps future project teams to identify potential negative outcome complications early
Keeps over-optimism at bay. It prevents focussing narrowly on pet projects
Spots weaknesses in the capital project assumptions that had not been considered
Alerts for early signs of stress once the project gets underway

But, Does The Pre-Mortem Deliver?

Yes, it does. The Boston Consulting Group (BCG) in conjunction with Oxford Global Projects conducted an international survey of over a hundred capital project managers. The survey identified 5 best practice lessons from high-performing capital projects during Covid-19.

Specifically, BCG identified the Project Pre-Mortem process for pre-emptive risk assessment.
Envisaging future states based on past experiences creates laernings for project success. Positive or negative. Problems can be identified before they arise.

“Teams must become proficient in sophisticated risk assessment techniques that will force them to search for the impact of unknowns instead of relying solely on experience.”*

Summary

It’s about pain avoidance.

The pre-mortem method helps to iron out potential problems before the real investment is made.
It avoids a painful post-mortem once the asset has been commissioned and results are not meeting the forecasted ROIC.
The prospective hindsight process helps project teams to identify risks at the outset.

It aids to reduce potential project failure. Particularly when there is a chunk of investment money at stake.

Check out how the 4Vs could bolster your decison making

*Boston Consulting Group, Lessons from High-Performing Capital Projects amid COVID-19 October 2020

Capital Projects: The 4 Vs. Bolster Decision Making

Often capital projects run over schedule, over budget and under the financial forceast.

The promised value is elusive. Obviously, some decisons were not as good as they could have been.

Bolster Decision making with the 4 Vs

Dr James Abdey developed the 4 Vs method. A neat thinking tool.
It helps me on my decision making path. An excellent process to start one’s own decision process. It gets the thinking into starting blocks. And it works well in the capital project space.

Is Data is the new Oil?

Clive Humby coined the phrase “Data is the new oil”.
Oil has no intrinsic value per se. It only becomes valuable when converted into materials. Such as petrol, jet fuel or plastics.
Although, one might argue oil is a commodity and data an asset.
Data needs to back and boost good decision making.

Purpose of Data

Generally, data helps us to back up our decisions. We use it to monitor, review and analyse:

trends
patterns
rate of change
outliers – which can be the story or a red herring

4 Vs

James Abdey recommends the 4 Vs to inspire data-based decision making:

One V builds onto the next V into a decision funnel. Helping to gain a true 360° data view of the situation.

1 Volume

Often we are overwhelmed with the sheer volume of data. It is daunting to walk through the data jungle. We want to cut out the noise. Disregard the irrelevant. Home in on the essential data.
Dismiss distractions.
Experience tells us. Evidently, decision making without the correct data is likely to deliver unsatisfactory results.

2 Velocity

During the initial diagnostic process, data keeps changing like sand dunes.
Data generation and collection speed are critical to reach meaningful conclusions.
Static data remains normally unchanged e.g., an operating manual for a capital item such as a truck. Dynamic data is in constant flux. Such as operational data e.g., mileage, fuel use, breakdowns etc.
This might ring a bell for spreadsheet users. Spreadsheets are great for static data sets. However, capturing changing data becomes increasingly more complex and challenging to maintain.

3 Variety

Data can be collected from a variety of diverse sources in order to answer specific questions. A truck normally has an in-built, custom-made information system that relates directly to vehicle related data (e.g., fuel efficiencies).
Combined with an fleet tracking GPS device can capture specific asset (driving analytics, e.g., road user charges) related data.
To be relevant in the decision-making process, data needs to be fit for purpose.

4 Value

Data is a precious business asset. Simply put, it costs less to ensure quality inputs than it does to correct flawed outputs.
For example: manufacturers can cut maintenance costs and minimize downtime with the use of real-time sensor data and predictive analytics. Through anticipating equipment failure, one can plan timely repairs or replacements.
Vibration Analysis (VA) is a good example. A powerful diagnostic tool that can detect current and future equipment failure. VA compares normal versus irregular vibration.
Just like a doctor listen to the sounds coming out of our chest. VA data can diagnose the ‘health’ of a machine by ‘listening’ to the vibrations that it generates.
Data needs to increase the probability of success and boost decision-making value.

Data Integrity

Given the current environment of heightened uncertainty, it is vital that data can be trusted.
Data source reliability and data precision are fundamental for the analytical process.
How trustworthy is the accumulated data of an asset through its life cycle? Error checking assists in preserving the validity and accuracy of data. Seeking affirmation is a universal method for ensuring data integrity.

Data Communication

Data tells stories. Stories help us to bridge the gap from the unknown to the known. Consquently, it guides us to fact-based decision-making.
Communicating data in simple language bolsters the interpretation of data and our decison making.

Data Visualisation

Given these points, data visuals (charts, graphs and maps) are useful tools.
This is something I use all the time.
The old saying ‘A picture paints a thousand words’ applies.
Visuals paint the trends, outliers, and patterns.

Another great Project Tool

Another great way to improve decision making before making commitments. Try the Project Pre-Mortem.

Credits
Clive Humby, Chief Data Scientist of the consumer insights company Starcount 
James Abdey, Associate Academic Director, The London School of Economics
and Political Science

Markus Schwarzer

Markus Schwarzer

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