Improving Environmental Performance and Value Capture in Capital Project Execution
Tremendous time, effort and resources are expended every day to develop and execute major capital projects. These ventures present unique challenges for owners and investors. Indeed, according to industry expert Ed Merrow, 65 percent of all global mega?projects (over $1 billion) can ultimately be classified as failures characterized by cost overruns, lengthy delays, significant waste or the like. Yet growing size and complexity represent only one part of the story when it comes to chronic delays and overruns.
Project managers continue to prioritize cost and schedule imperatives at the expense of meaningful planning for possible environmental risks. Analysis of a sample from Goldman Sachs’ list of the top global mega-projects (ERM, ‘Understanding the Business Case for Sustainable Development’, Rio+20 Position Paper, January 2010) revealed that over 70 percent of delays were caused by sustainability issues – significantly higher than both commercial and technical factors (63 percent and 21 percent respectively). While sustainability considerations have driven a sea change in corporate attitudes toward environmental management in recent years, this has yet to translate into a rigorous approach to environmental performance in the case of capital projects.
Even where sufficient will exists, successfully managing the environmental aspects of complex capital projects can represent a considerable challenge – especially when anticipated effects are significant, requiring formal impact assessments, permits, and regulatory or stakeholder consultation. At the same time, companies must recognize that exceptional environmental performance has now become an essential element of doing business. Beyond simple compliance with minimum legal and regulatory requirements, the delivery of a capital project can – and should – serve as a valuable opportunity to drive broader organizational change and a reduction in overall environmental footprint. Crucially, this need not generate additional costs. A “design for sustainability” approach typically seeks to incorporate the use of new technology or innovations, as well as adherence to best practices for identifying options to reduce resource consumption and the production of waste. Value otherwise left on the table can be recovered through a systematic and structured process of integrating environmental performance at each phase in the project implementation model.
As a science and innovation company, we have operational experience with major capital projects, as well as a commitment to supporting and promoting sustainability advances through the DuPont Sustainable Solutions (DSS) business. Through our background with capital project execution and consultation across multiple industries, we have learned that regulatory?driven waste reduction projects are typically more expensive in the long run than voluntary initiatives – sometimes significantly – and often achieve the same environmental benefits. On the other hand, a disciplined and strategic approach to managing the environmental aspects of a project, as well as identifying opportunities to minimize impacts and maximize the potential value that such opportunities may deliver in terms of reductions in energy use, water consumption, emissions or waste production, can represent a compelling business case. An intelligent, forward-looking strategy can deliver better focus during the life of a project, better environmental outcomes, and better results.
If the benefits are clear, how can companies improve their integration of environmental performance into capital project execution? The first step is to understand what an effective management approach should look like. For us, this involves five key components. First, that environmental improvement opportunities are addressed early in the project cycle and throughout the project life. Secondly, that projects are aligned with, and contribute to, the achievement of corporate environmental goals. Thirdly, that the environmental process is fully integrated with project implementation, and aligned with the parallel business planning process. Fourthly, that continuous improvement concepts, tools, and procedures are employed. And finally, that ownership and accountability is guaranteed at the project and business levels. Implementing a robust framework geared towards achieving this desired state will involve a coherent set of standards and procedures to guide environmental integration work, as well as appropriate tools and methodologies to ensure rigor and discipline in addressing environmental needs.
The framework centers on three key elements: managing environmental aspects, managing energy aspects, and establishing and enacting a control plan and performance metrics. The first involves the application of project environmental guidelines, which are used to identify impacts, scrutinize designs for optimal performance, and ensure alignment with corporate environmental goals. The second involves a best practice approach to energy consumption, featuring detailed energy balances, identification and prioritization of specific savings opportunities, the use of value improving practices, and formal energy reviews. The third involves a commitment to effective governance. This is achieved by linking environmental outcomes to corporate strategy through the use of key management metrics and an audit mechanism employing “action trigger points,” reinforcing ownership and accountability, and employing inputs from environmental and energy work streams to proactively manage impacts.
Unfortunately, many companies developing and executing major capital projects typically overlook this final component. But without well organized and efficient governance processes, environmental performance will not be fully integrated throughout the full project lifecycle. Environmental improvement opportunities addressed at the planning stage will not be realized during implementation, nor adjusted to take into account new data crucial to staying ahead of evolving conditions on the ground. Similarly, project leaders will not be held accountable for translating planning targets into concrete contributions to broader corporate environmental goals. Cultural and behavioral elements are critical to driving performance and sustainability. Successful integration of environmental performance into capital project execution demands not just having the right policies and procedures in place, but also having project managers who act as environmental stewards and drive continuous improvement on a daily basis. These “soft” leadership practices are key to instilling a genuine sense of ownership and accountability in project teams.
Ultimately, integrating environmental performance into capital project execution makes the difference between sustaining unwanted costs and realizing unanticipated savings. Setting aside the social imperative of minimizing environmental impacts, capital projects represent a microcosm of the broader business case for sustainability. The high failure rate of these projects serves as a warning about the financial consequences of not dealing adequately with environmental risks. At the same time, an integrated approach that not only proactively addresses risk, but also successfully reduces resource consumption and waste throughout a project’s lifecycle, is a clear win-win. What cannot be stressed enough is that the solution need not rely on expensive technical innovation. Incremental changes can add up to big benefits over time. Improvements in capital project performance cannot be driven by isolated environmental or sustainability departments. Rather, a “design for sustainability” approach is the key to identifying and grasping opportunities to capture value.
Bruce George is global solutions architect for DuPont Sustainable Solutions.
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