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I have spent much of my career, dating back to 1970, in and around capital projects. This predates my entry into the pulp and paper industry around 1974. If I was not up to my elbows in capital projects, from my perch elsewhere they were fluttering about me.
Categorically, I can say capital projects are political 99% of the time. They ensnare both internal and external politics. When I say "internal" it is obvious what I mean (I hope). When I say "external" there is a double meaning: (1) external to the mill but internal to the company and (2) external to the company and cognizant within the affected community. Politics, internal or external, and rational decision making are often mutually exclusive. Hence many capital projects are done for reasons that will not stand up to rigorous engineering economics scrutiny.
Particularly destructive can be early claims made without thorough analysis. These can originate at the mill and be floated up to management. Alternatively, a CEO or other high ranking official, can make a statement to stockholders, the community or the board which is not pursued and will cause this person to lose face.
At this point, if there is no reality check, fiction takes over.
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Due to the nature of a capital project, when fiction takes over, it can become self perpetuating and grow to fantastic proportions. Unfortunately, when reality sets in, it is far down the road and it arrives with a crash.
What is the nature of the crash? Depends on the nature of the fiction. Most often, it is a budget that is blown. Sometimes separately, but often in concert with the blown budget, the schedule is blown. Even worse is when, upon startup, it is discovered that the expected performance of the project requires violation of the common laws of physics and/or chemistry. There have been projects that ignored environmental regulations, which can cause untold amounts of grief, even when it is unintentional.
How do you tell if a project has a chance of being found out to be fiction (Note: such projects do not "become" fiction; they were fiction from day one, it's just that no one knew it)? Look at its source and how much planning went into making the first announcement about it. Legend has it that a long time ago a CEO was flying across the country, looked out the window of his plane, saw a point where a couple of rivers joined and said to others on board, "Someone should build a mill there." Ten years later his company did, a mill that struggled mightily for forty years and then was shut. Who knows if this is a true story or not--no doubt all the witnesses to that alleged statement are dead now--but it serves as a great illustration of the kinds of shaky foundations upon which many projects rest.
Who is best at sorting the fiction from the fact in capital projects? I think the very large companies do a fairly good job. This occurs because they nearly always have projects underway and hence have developed an internal cadre of experts to vet them. Other, smaller companies who are in a strong growth spurt do a good job, too. This vetting lasts as long as the growth spurt does, then it is lost.
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The companies who are the worst at sorting fact from fiction are old line companies in slow growth grades. These companies usually have a strong cadre of operating personnel who think they know how to do capital projects--after all, what could possibly go wrong? (Old Jim smiles, for here, for over twenty years, he has made a nice income being an expert witness in the lawsuits that necessarily follow).
The sobering truth is this: any given capital project has a stronger likelihood of being built on a foundation of shaky political pronouncements than not. Be careful as you proceed, no matter your role. Be very careful.
For safety this week, capital projects bring out the best and worst in safety procedure adjustments. Examine what needs to be done carefully and do not let it become swept up in the politics. Here, lives, not merely careers, are at stake.
Be safe and we will talk next week.
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Jim Thompson is back again...with a new book on a taboo subject: the personalities in the pulp & paper industry. Jim has written in the past on many subjects based on his four plus decades in the worldwide pulp and paper industry. This new book is packed full of information valuable to the senior member of the industry as well as the recent entrant. A must for every pulp and paper library.
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