Pursuing Capital Efficiency

RT-394 defined capital effectiveness at the corporate and portfolio levels (FR-394, in press):

• Corporate Capital Effectiveness: The organization’s ability to select and deploy capital allocation opportunities that lead to the achievement of the strategic business outcomes and benefits considering the existing constraints.
• Portfolio Capital Effectiveness: The organization’s ability to select and deploy capital projects that lead to the achievement of the strategic business outcomes and benefits considering the existing constraints.
   

RT-394 also defined capital efficiency at the corporate and project levels (FR-394, in press):

• Corporate Capital Efficiency: The organization’s ability to use and invest in its resources to deliver and continuously manage assets that optimize the strategic business outcomes and benefits.
• Project Capital Efficiency: The organization’s ability to define, develop, execute, and manage the delivery of a competitive project that optimizes strategic returns considering its safety, financial, schedule, social, quality, and/or environmental goals over its lifecycle.

RT-394 identified and defined six inputs from corporate management necessary to identify, select, and manage projects, as well as 34 activities for portfolio management (IR394-2, p. 103). The team assigned these inputs and activities to the following four key portfolio management stages:

1. Preparation: This stage details the people, processes, and technology necessary to manage and accomplish the objectives of the capital project portfolio, in alignment with corporate goals and corporate capital plan.
2. Exploration: This stage evaluates the portfolio’s existing projects and generates viable new capital projects that could potentially meet corporate goals, ongoing needs, comply with environmental, social, and governance standards/regulations, capture business and market opportunities, and improve financial returns.
3. Optimization: This stage prioritizes and selects projects from the Portfolio Viable Projects and ongoing projects by determining those to be approved, removed, accelerated, or deferred. This leads to the creation of proposals for new large projects, requests for new small projects, approval for ongoing project continuation, or ongoing projects cancellation/deferral. This selection and optimization cycle considers the corporate strategy and goals, in alignment with the Corporate Capital Plan.
4. Transition to Project Management: The following stage defines the stages and activities that will ensure the proper transition from a portfolio of projects to the evaluation of projects on an individual basis.
   • Large Project: This stage establishes the framework to conceptualize one of the large new projects identified at the end of the Portfolio Optimization stage and listed in the Selected Portfolio Viable Projects as well as to be the basis of communication with the project team.
   • Small Project: This stage establishes the framework to conceptualize one of the small new projects identified at the end of the Portfolio Optimization stage and listed in the Selected Portfolio Viable Projects, as well as to be the basis of communication with the project team.
   • Project Continuation: This stage establishes the framework to capture the portfolio management output for a continuing project and be the basis of communication with the project team. Given that the project should continue, some improvements could have been identified during the “Exploration” and “Optimization” phases.
   • Project Cancellation/Deferral: This stage establishes the framework to capture the portfolio management output for a cancelled or deferred project and be the basis of communication with the project team.

Figure 1 illustrates the relationship between corporate management, the identified portfolio management stages, and project management.

Figure 1. The Relationship between Corporate Management, the Identified Portfolio Management Stages, and Project Management

RT-394 also identified and defined 49 information inputs and outputs at the corporate, portfolio, and project levels, and mapped their relationships. This framework ensures that a structured approach to portfolio management is maintained from an information perspective. It also establishes a common lexicon for communications between the business and project teams.

Additionally, the team identified and defined 31 functions necessary to identify, select, and manage projects. The team assigned the functions across the 34 activities for portfolio management it had established in order to create an integrated approach to portfolio management.

With Implementation Resource 394-2, the team consolidated all of its findings in a structured and integrated framework, provided in an interactive Acrobat tool (IR394-2).

RT-394 identified and defined the benefits of cross-functional collaboration for owner, contractors, suppliers, and service providers involved in the identification, selection, and/or management of capital projects. Key benefits included increased alignment, improved decision-making, and enhanced transparency and accountability. Moreover, Final Report 394 details stakeholder-specific benefits, such as better business strategy for owners, and better innovation dissemination for suppliers (FR-394, in press).

RT-394 identified and defined 12 key business-project integration practices:

1. Corporate capital academy
2. Organic and open office space
3. Integrative team/function
4. Transparent portfolio information management system
5. Consistent portfolio management chronology
6. Corporate excellence team
7. Improvement team/department
8. Corporate summit
9. Subject matter expert representatives
10. Project opportunity plan
11. Project steering committee
12. Frequent “state of the system” meetings
     

Final Report 394 describes these practices in detail (FR-394, in press).