The Project Gap

The Project Gap

What is the project gap? Do you have one, or more, in your energy development project? The best explanation of the project gap is the differential between what the project was desired to achieve and what it actually delivered. This is not evident in the shape of the project. In almost every case that will end up being almost as it was designed. So the outward appearance, the physical structure, the geothermal installation, the wind tower, the tidal generator, the pipes and cables all look just like it did on the plan. No, in order to find the project gap you must look at the intangibles, and those are time and cost. Yes, there will most likely be physical indicators that a gap occurred in your project intentions, a cable that did not go quite in the same place as the design, some materials that were not quite as specified, but such things are only the scars, not the cause.

The intangibles are time and cost, but these are not known until after the project is completed and the numbers added up. In many cases projects are completed within time and budget, but often that is due to revised scheduling or absorption of the contingency in the budget. In some cases however, the whole project budget has to be increased, the developer has to go back to the stakeholders for more money! Simply because of the project gap. In many cases the gaps are revealed as blowouts that go well over budget or time, unfortunately that applies to four out of five large scale projects.

So what are these gaps and how do you find them? Unfortunately, for the most part, they are invisible. Not because they cannot be seen, but because the project’s owners cannot see them. They are the issues that arise during project execution that were not planned for, or mitigated against. They are revealed, as they drop out of the project execution as design errors, installation errors, contractual issues and disynergies that were hidden in the project, often as far back as the first pre-FEED design and planning. For the most part they can be avoided, or at least mitigated against, as long as you are expecting them, but their effect can be catastrophic to the intangibles, cost and time. Mainly costs, because time over-runs in a project have a cost effect in long term profitability. You can never get back the losses from missing first production targets.

The bottom line is the profitability of the project, and whilst the object may be the extraction of heat energy from a geothermal site, or generation of electricity, the reason that a project even exists is to make a profit. It needs to deliver that energy to the consumer in a cost reductive way so they will purchase it and it needs to deliver to the shareholders in the development or operating company a margin to make their investment worthwhile.

Project gaps erode that profitability. But “Hang on a minute” you may say, “all projects have contingency in the budget, both in time and cost for this!”. “Yes, true”, I would answer “but contingency is not there to cover for inadequate design, bad planning or poor execution”. Confused? Since I have just said that these project gaps are invisible?

You may well be confused, but the issue here is; that we do not know, what we do not know. Let me give you a classic personal example. I was in discussions with an operator intending to undertake a new energy development. The person responsible for the development came from a corporate background and had never been involved in an actual energy extraction construction project. This was my entire background and so I offered to review their project plan once it was delivered from the pre-FEED design company in a few weeks’ time. The weeks passed and I contacted them again to see how the pre-FEED design was getting on, only to be advised that the job was done and had been accepted, so my services would not be required. But why was it accepted without review? Because, as he said, it “looked like” they did a good job! The document they delivered looked impressive. You see, you do not know, what you do not know. I will be watching this project as it develops. I hope that no gaps will be discovered, but the chances are not good.

To effectively minimise the impacts of the Project Gap does not require procedural reviews, audits or any of the other management tools we are all familiar with, because the root cause is not hiding there. It is hiding in the minds of the Management Teams, Project Directors and Corporate Management. It is learning to think outside the parameters of your understanding, looking beyond what you know to realise that actually, you don’t know.

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