Effective Project Planning Boosts Market Value
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Effective project planning and implementation can significantly impact a company's market value. Obtaining critical input and decisions from owners throughout the project process is key, as lack of engagement can lead to cost overruns. Improving an operating company's "capital effectiveness" from 1.4 to 1.0 could increase its stock price by over 30% according to financial modeling. Bringing together an owner's expertise with a partner's expertise results in better project outcomes that boost financial performance and shareholder value.
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Effective Project Planning Boosts Market Value
- 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. 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. 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. 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. 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. 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. 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. TM © Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impacts an Operating Company’s Market Value
- 9. TM © Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impacts an Operating Company’s Market Value
- 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. 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. 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. 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. 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. 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. 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. 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. “ 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. 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. 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. 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. 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. 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. 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. 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. 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. IT TAKES TWO… TM © Camargo Associates, LLC. All Rights Reserved. | How Effective Project Planning & Implementation Impacts an Operating Company’s Market Value
- 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. 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