Properly Prepare for Project Slowdown

An effective plan maximizes value retained and enhances restart efforts.

By Nat D. Schatz, Pathfinder, LLC

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In tough times chemical companies often have placed capital projects on hold. Investments in such projects then typically rebound over time as overall economic conditions improve. After all, demand for more-efficient production facilities and need to replace aging assets provide compelling ongoing drivers for such capital outlays.

Unfortunately, many firms in their haste to minimize costs "sunk" into projects shut off the resource "valve" to the projects. They disband project teams, immediately lay off people, and halt funding activities without bringing the project to a logical stopping point for efficient project restart. This results in a waste of company funds.

Instead, developing a project slowdown/restart plan (PSRP) can maximize efficiency in the use of capital.

Consider a PSRP whenever projects either are being slowed down or placed on hold until economic conditions improve enough for restarting them. In most cases teams have completed considerable planning work and expended significant hours and costs in developing technical documents, project execution plans (PEP), cost estimates, schedules, etc. — valuable work that shouldn't go to waste.

A PSRP is as important for a stalled project as a PEP is for a project that's moving ahead. Without it the project team flounders, wondering what it should be doing, what the deadlines are, how documents should be packaged, etc. The PSRP defines these for the slowdown period and also in preparation for eventual restart of the project.

Key Details
Besides information already documented in the latest PEP revision, the PSRP typically includes:

Project slowdown reasoning. What project, company or marketplace issues (e.g., pricing, volume, increased raw material costs) have led to the slowdown or hold?
Restart timing expectations/assumptions. Based on current information, what's the project's expected ramp-up or restart time (one to six months, six to12 months, or longer)?
Slowdown/restart schedule. Given the ramp-up or restart expectations/assumptions, what's the schedule to slow down the project and effectively reestablish traction to achieve the targeted project completion date?
Contract strategy. In most cases contracts already have been awarded for support services and possibly equipment and material purchases. How will these contracts be addressed to maximize the benefit to the project and the company? (Will the contracts be extended? What about storage and maintenance of equipment and materials?)
Resource retention plan. What's the strategy to retain/reassign team resources or ensure they're available when the project is restarted? (Will management commit to keeping key project team members and put them on other projects during the slowdown period?)
Capital reduction strategy. How will remaining project team members minimize non-value-added capital spending during the slowdown period?

Categorization
When investment funds are tight, chemical companies generally reevaluate projects and place them into one of five categories:

1. Going forward — present execution plans are maintained for strategic, regulatory or other reasons, for example, for regional market penetration or environmental or safety compliance.
2. Short-term hold — restart is likely in one to six months when specific market conditions improve, e.g., stronger growth in a developing country.
3. Recycled — long-term economic trends might change the scope or execution planning, requiring reassessment, e.g., of whether a positive but marginal profit margin will hold up or whether lower-cost materials and equipment will be available.

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