How Effective Project Planning & Implementation
Impacts an Operating Company’s Market Value
Chris Luther
Camargo Associate...
COMPELLING STATEMENTS
►

Many define those ambitions with compelling statements like:

“Our capital effectiveness must
be ...
FOCUSING ON

“Capital Effectiveness”
Equals
Project Actuals
Industry Benchmark
(Where 1.0 is the Average)

TM

© Camargo A...
CAPITAL EFFECTIVENESS

Quintiles

Capital Plan
$

Capital
Effectiveness
Measurement
(SAY)

# Of Companies
Benchmarked
(100...
W HAT DOES THIS MEAN?

►

If capital effectiveness = 1.6
► 60% more costly than “peer” group

►

If capital effectiveness ...
CAPITAL PROJECT W ORK PROCESS
Planning

Execution
Project Authorization

1

2

3

4

4

5

Concept

Options

Preliminary
D...
WHAT IS THE MAIN THING?

►

Using Interviews

►

Complex Problem Analysis

►

System Dynamics Analysis

►

Lean Analysis
C...
TM

© Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impacts an Operating...
TM

© Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impacts an Operating...
OWNER I NPUT & D ECISION MAKING
Quality Of
Owner’s Input
And Decision
Making

Reasons for NOT Achieving Top Quintile Perfo...
S YSTEM M ODEL C OMMUNICATION
Require
detailed
information
on decisions
timing

Current
priorities
trivialize
projects

Ef...
MAIN ISSUE

“Lack of critical decision
making and obtaining critical
information to co-ordinate and
create synergy with fa...
CAPITAL PROJECT W ORK PROCESS

►

Quality of Critical Owner’s Input / Decisions

1

TM

2

3

4

4

5

© Camargo Associate...
CAPITAL PROJECT W ORK PROCESS

Waves of Critical Owner’s
Input and Decisions
3
1
TM

4

4

5

2

© Camargo Associates, LLC...
CAPITAL PROJECT W ORK PROCESS
►

Quality of Critical Owner’s Input / Decisions

1

2

3

4

4

5
Cost and
Schedule
Growth
...
PREMISE:
► “No

one knows their business better than the owner”

►

Major owner’s sources of input / knowledge
Business Un...
IT TAKES TWO…
Owner’s Expertise

TM

Partner’s Expertise

© Camargo Associates, LLC. All Rights Reserved. | How Effective ...
“ THE DOUBLE BET”

Hi

Bias
Solution

TOTAL JOINT
SOLUTION

Low

Low Value

One Sided
Solution

Low

Company
Owner
Underst...
New
Knowledge
Innovation
Technology
Sharing

TM

© Camargo Associates, LLC. All Rights Reserved. | How Effective Project P...
OWNER’ S CRITICAL I NPUT

►

►

P&IDs

►

Process Description

►

Process Flow Description

►

Control Strategies

►

TM

...
DIFFICULTY GETTING OWNER’ S I NPUT

► Lack

of Resources

► Lack

of Time

► Uptime
► Urgent

vs. Important

► Junior

vs....
HOW DOES “ NETPOINT” H ELP?
► More

detailed scheduling around input / review

► Allows

smaller meeting schedules to brea...
FINANCIAL I MPACT TO COMPANY “ A”
Real Company “A”

Market Cap

$13.4 B

Revenue

$16.6 B

Net Income

$1.3 B

Capital Pro...
CAPITAL PROJECT

DELIVERY

I MPROVEMENT

►

Using CAPM – Capital Asset Pricing Model to determine the
Intrinsic value of t...
CAPITAL PROJECT

DELIVERY

I MPROVEMENT

Company "A"
200
180
160
140
120

Current Stock Price

100

183

80

144

Intrinsi...
IMPACT
►

Company “A”- Private sector
► Capital Expenditures Savings over 20 years
► - $ 26.4 B
► NPV (12%) -$ 17.2 B

►

...
IT TAKES TWO…

TM

© Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impac...
Groups of
Knowledge
Coming
Together

TM

© Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning ...
How Effective Project Planning & Implementation
Impacts an Operating Company’s Market Value
Chris Luther
Camargo Associate...
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Camargo Associates, LLC - Capital Project Delivery Improvement

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How Effective Project Planning & Implementation
Impacts an Operating Company’s Market Value.

W. Christopher “Chris” Luther, PE

Camargo Associates, LLC was founded by W. Christopher “Chris” Luther, an accomplished leader with assertive entrepreneurial drive and exceptional skills in building strong, long-term project relationships. With over 40 years of global experience in technical engineering, architecture, procurement, construction, and start-ups, Mr. Luther formed the foundation of successes in management responsibilities in complex engineering and construction fields.


About Camargo Associates, LLC

Camargo Associates, LLC provides unique management consulting services that lead to successful outcomes of engineering, construction and industrial projects at lower costs, leading to increased shareholder value. Our executive consultants are experts in assessing and understanding benchmarking initiatives, leading to quantifiable and concrete actionable improvements.

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Camargo Associates, LLC - Capital Project Delivery Improvement

  1. 1. How Effective Project Planning & Implementation Impacts an Operating Company’s Market Value Chris Luther Camargo Associates, LLC www.CamargoAssociates.com TM © 2013-2014. All Rights Reserved
  2. 2. COMPELLING STATEMENTS ► Many define those ambitions with compelling statements like: “Our capital effectiveness must be in the top quintile.” “Our capital predictability must be in the top quintile” “There will be no accidents or incidents, period” TM © Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impacts an Operating Company’s Market Value
  3. 3. FOCUSING ON “Capital Effectiveness” Equals Project Actuals Industry Benchmark (Where 1.0 is the Average) TM © Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impacts an Operating Company’s Market Value
  4. 4. CAPITAL EFFECTIVENESS Quintiles Capital Plan $ Capital Effectiveness Measurement (SAY) # Of Companies Benchmarked (1000 SAY) 5th 1.6 B 1.6 50 1.2 50 1.0 50 0.9 50 0.7 50 4th 3rd 1.0 B 2nd 1st .7 B Capital Effectiveness TM © Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impacts an Operating Company’s Market Value
  5. 5. W HAT DOES THIS MEAN? ► If capital effectiveness = 1.6 ► 60% more costly than “peer” group ► If capital effectiveness = 0.85 ► 15% less costly than “peer” group TM © Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impacts an Operating Company’s Market Value
  6. 6. CAPITAL PROJECT W ORK PROCESS Planning Execution Project Authorization 1 2 3 4 4 5 Concept Options Preliminary Design Detail Engineering Construction Start-Up Procurement 2% 1½% 3.5% 93% Effective Project Cost Distribution (Normal Distribution) TM © Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impacts an Operating Company’s Market Value
  7. 7. WHAT IS THE MAIN THING? ► Using Interviews ► Complex Problem Analysis ► System Dynamics Analysis ► Lean Analysis CONCLUSION TM © Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impacts an Operating Company’s Market Value
  8. 8. TM © Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impacts an Operating Company’s Market Value
  9. 9. TM © Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impacts an Operating Company’s Market Value
  10. 10. OWNER I NPUT & D ECISION MAKING Quality Of Owner’s Input And Decision Making Reasons for NOT Achieving Top Quintile Performance TM © Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impacts an Operating Company’s Market Value
  11. 11. S YSTEM M ODEL C OMMUNICATION Require detailed information on decisions timing Current priorities trivialize projects Effective re-occurring communication between groups My other accountabilities keep me busy Understanding the of impact of poor communication I believe my input is critical If work slows down we’ll have more time I actively lead in project communication No-one holds me accountable Lack of corporate funding to work on projects Individual and/or group who is responsible TM Top Quintile Performance Communication metrics should be in place Pre-existing corp. alignment is strong Corporate Strategy I will have to win them over with a reluctant engineering group Fear of decision failing I maintain a strong, trusting relationship with project group Contractual issues © Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impacts an Operating Company’s Market Value
  12. 12. MAIN ISSUE “Lack of critical decision making and obtaining critical information to co-ordinate and create synergy with fast moving decisions” TM © Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impacts an Operating Company’s Market Value
  13. 13. CAPITAL PROJECT W ORK PROCESS ► Quality of Critical Owner’s Input / Decisions 1 TM 2 3 4 4 5 © Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impacts an Operating Company’s Market Value
  14. 14. CAPITAL PROJECT W ORK PROCESS Waves of Critical Owner’s Input and Decisions 3 1 TM 4 4 5 2 © Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impacts an Operating Company’s Market Value
  15. 15. CAPITAL PROJECT W ORK PROCESS ► Quality of Critical Owner’s Input / Decisions 1 2 3 4 4 5 Cost and Schedule Growth 1% 0.5% 2% Grows from 93% to 110% or more Project Cost Distribution 4th and 5th Quintile Owners TM © Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impacts an Operating Company’s Market Value
  16. 16. PREMISE: ► “No one knows their business better than the owner” ► Major owner’s sources of input / knowledge Business Unit Operations / Production Maintenance Engineering Projects Health, Safety, Environment More TM © Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impacts an Operating Company’s Market Value
  17. 17. IT TAKES TWO… Owner’s Expertise TM Partner’s Expertise © Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impacts an Operating Company’s Market Value
  18. 18. “ THE DOUBLE BET” Hi Bias Solution TOTAL JOINT SOLUTION Low Low Value One Sided Solution Low Company Owner Understanding Of What They Need Hi Partner Understanding of What the Operating Company Needs TM © Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impacts an Operating Company’s Market Value
  19. 19. New Knowledge Innovation Technology Sharing TM © Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impacts an Operating Company’s Market Value
  20. 20. OWNER’ S CRITICAL I NPUT ► ► P&IDs ► Process Description ► Process Flow Description ► Control Strategies ► TM Scope of Work Hazard Review © Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impacts an Operating Company’s Market Value
  21. 21. DIFFICULTY GETTING OWNER’ S I NPUT ► Lack of Resources ► Lack of Time ► Uptime ► Urgent vs. Important ► Junior vs. Senior Expertise ► Poor Engagement ► Wasteful TM Meetings © Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impacts an Operating Company’s Market Value
  22. 22. HOW DOES “ NETPOINT” H ELP? ► More detailed scheduling around input / review ► Allows smaller meeting schedules to break down details ► “Slicing the Salami” ► Process ► Hazards ► PFDs ► Control & Safety ► P&IDs ► Others ► Improves TM process safety input / reviews © Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impacts an Operating Company’s Market Value
  23. 23. FINANCIAL I MPACT TO COMPANY “ A” Real Company “A” Market Cap $13.4 B Revenue $16.6 B Net Income $1.3 B Capital Project Spending $ 1.2 B PP&E $ 4.4 B Depreciation $ 0.5 B Share Price 1-1-14 # of Shares Outstanding Average PE TM $90 149 MM 10.2 x © Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impacts an Operating Company’s Market Value
  24. 24. CAPITAL PROJECT DELIVERY I MPROVEMENT ► Using CAPM – Capital Asset Pricing Model to determine the Intrinsic value of the stock assuming a “capital effectiveness” of 1.4 ► Reassessed the value using a capital effectiveness of 1.0 changing the capital spending over a two year period (2014 thru 2015) ► ► Analysis variables: ► Capital Spending ► Free cash flow ► Depreciation ► Earnings Assumptions of the future performance based on past: ► ► ► TM Revenue Growth of 10% per yr. (conservative) over 10 years, Then a terminal growth of 4% (very conservative) for the next 10 years NPV of 12% © Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impacts an Operating Company’s Market Value
  25. 25. CAPITAL PROJECT DELIVERY I MPROVEMENT Company "A" 200 180 160 140 120 Current Stock Price 100 183 80 144 Intrinsic value (1.4) Intrinsic value (1.0) 60 90 40 20 0 Current Stock Price Intrinsic value (1.4) Intrinsic value (1.0) TM © Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impacts an Operating Company’s Market Value
  26. 26. IMPACT ► Company “A”- Private sector ► Capital Expenditures Savings over 20 years ► - $ 26.4 B ► NPV (12%) -$ 17.2 B ► Public Sector – Benefit Cost Ratio ► $ 1.2 B capital spending ( annual) ► ► TM NPV (4%) -$ 18.5 B Savings BCR = 1.34, means that the benefits outweigh the costs by 34% © Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impacts an Operating Company’s Market Value
  27. 27. IT TAKES TWO… TM © Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impacts an Operating Company’s Market Value
  28. 28. Groups of Knowledge Coming Together TM © Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impacts an Operating Company’s Market Value
  29. 29. How Effective Project Planning & Implementation Impacts an Operating Company’s Market Value Chris Luther Camargo Associates, LLC www.CamargoAssociates.com TM © 2013-2014. All Rights Reserved

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