What Went Wrong?

One of the most difficult situations is when a decision maker faces the three Ws (WWW) What Went Wrong?
The situation becomes more devastating for the investors who invested billions.

One example of this is the world’s biggest mining company BHP who had put one of their big assets in USA up for sale in October 2014 after a slump in oil prices. BHP bought the assets from Chesapeake Energy Corp. in 2011 for $4.75 billion but was later forced to cut their value by nearly $3 billion due to falling prices. Similarly, The largest U.S. coal producer Peabody Energy filed for bankruptcy protection in April 2016, after a sharp drop in coal prices left it unable to service debt of $10.1 billion.

Let’s be honest that few analysts would suggest these big drops in Oil and Coal prices. However, definitely, all of us (with no market analysis experince) were aware it would drop considering the market conditions. The question was how much?

Before about 10 years, I was on the same position to give a consultancy advice for another big energy and mining company. The required report purpose was a new fresh eye review. I was new to the team. I read all related reports by big consultants since 1970s. All promising. However, with comments about serious challenges. I even found another two big risky points not mentioned before. I talked with my manager about them. The advice is you should discuss it with the main consultant ( a big company name). I discussed and the consultant took it with his ego. He is right, and this young man is wrong. I asked my manager to refer it to their headquarter to give their view on my points. They involved and sent someone. He protected his company and commit to their consultant view. My manager adopted the company report. I escalated it to the next level. The project director advised simply that he will raise both reports to the steering committee for next gate review. The committee was from experts from inside and outside the company from all over the world. The review was about more than USD10 billion investment. After full week of meetings and reviews, the decision came out with no go as I recommended. On this case we knew the result by now because, the other partners decided to go for it. This investment is still struggling to date to generate profit after scraping two mega projects from the big program and changing the program concept completely.

In the above cases, we knew the results of the made decisions which was negative. Definitely there are positive decisions too in the same companies. The lesson learnt for me, when billions decision is in the corner, is to involve different thinking and different level of people. It cost nothing comparing to the billions on the table.

These problems are expected considering the market changes. However, What Went Wrong? They knew it or actually, they don’t.

I’m sure all decision makers will have a third-party report supporting their decisions. The question is how much data they include on it? and what they did not include? And on top of that what in-house skills do you have to manage the consultants before submitting final reports.

Lets make it sample, on the Shale Gas investment above, the oil prices were high. The provided analysis was considering big drop. However, I don’t think they consider at all the reports that the actual oil barrel cost in the GCC countries is from USD25 to USD45. Did they analyse these prices? Did they analyse the fact that no one will accept to lose their market share and do nothing about it.

Similarly, here in GCC, there are big decisions to be made considering the market tournament and dynamic changes. Reviewing the latest released data for two big contractors who are struggling can give us some insight what’s needed to be done.

Arabtec announced loss of AED 2.35Bn and AED 3.4Bn for 2015 and 2016 respectively. Drake & Skull announced the loss of AED 939M and AED 787M for 2015, 2016 respectively. However, lets focus on the positive news from all of that. The common outcome is the magic word restructuring. However, restructuring has many methods. If the restructuring will not change what drive to this position, it means we did not put our finger on sth yet or we did not yet understand What Went Wrong?

The main common factors we can easily identify in such situation are the following:

1. Lack of live project management system.
2. Lack of PPM governance or at least skills to implement it.
3. Lack of split of authority between governance and management.
4. Lack of alignment or works in Silos mode.
5. Lack of predictability and use of big data.
6. Lack of initiative & leadership (firefighting and reactionary mode of operation).
7. Lack of new blood within the management.
8. Lack of business process improvement and new methods.
9. Lack of know how record.
10. Lack of skilled staff and continue training.

Let’s be fair, any decision maker dream is to have very good team, good system and good data to work with. The Outcome of these three Gs should be the following:

• Achieve Strategic goals without unnecessary rework or waste
• Putting positive cash flow as main driver reporting for all.
• Predict and respond quickly to changing project and market conditions.
• Creative solutions to deal with complexity of projects and technology environments.
• Courage to admit mistakes and course correction or cancel failing projects in a timely manner.
• Know who implementation mode by replicate successful projects.
• Maximising productively and collaboratively
• Removing Cross-Functional barriers and bottlenecks in the business processes.

The above is clear. We need integrated management system for Enterprise Project Portfolio Management to brings significant business benefits and achieve organisation strategic goals by concentrating on the successful portfolios.

Let’s review the following recent successful model for John Holland – an international engineering contractor who faced some challenges on the last year because the lack of alignment on their procurement process. This issue, might cost them a claim of hundreds of millions. They had new management on 2015 after Chinese company bought them from CIMIC Group, formerly Leighton Holdings sold them. The new management developed new business model to achieve growth, vertical integration and the ability to generate projects through development, investment and acquisition. They decided to implement a new system to achieve that by having online project-wide platform to provide structure to their projects, guide their staff and partners towards a degree of standardization across the business. It would help with inter-company collaboration, document control practices, and workflow-driven reviews and approvals. They recently migrated a portfolio of 30+ existing projects from a legacy platform to new online platform. This new capability would allow John Holland to get bigger and more contracts considering the limited market skills on engineering and construction by standardising their processes and procedures which make it easy for new staff to use it to deliver high quality projects.

Finally, what’s about organisations where there is limited transparency on their decisions making and projects’ results assessment. Here the challenge is more and if there is no immediate actions, they are dragging the market down and the changes on the contractors and investors side will not achieve its full goals if the public sector is not starting to adopt these new systems too.

So Where are you now?

Did you reach to the stage “What Went Wrong?”

If not, you are lucky. Don’t be late and proceed to find out how to avoid it and how to implement your new system.

Best wishes for all

Ziad Albasir

 

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