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Hats off

“$2,000?!”

I couldn’t believe what I saw.

It was the day rate on Julie’s invoice.

Julie was a consultant who had been hired as a project manager to drive a complex CapEx project. An Australian lady who, despite her small stature, was totally at ease barking instructions to anyone of any size, age, or seniority.

I was young and knew precisely nothing about anything.

Think this guy, but 20 years ago:

Despite my questionable hairstyle, I was responsible for monitoring the costs of this big project. Julie’s $2,000 day rate had stunned me when I saw her agreement. It’s a sizable day rate today, but 20 years ago? It was huge.

So big that I couldn’t conceive how it could be right. I wondered if a ‘0’ had been misplaced. Or perhaps it was some kind of sweetheart deal with someone she knew in the business.

Why did we need a project manager anyway?

I carried this disbelief around for months. I watched her chair the project meetings, but she never seemed to do anything other than run down the GANTT chart and check in with action owners.

I even started to question whether I should make a career change and become a consulting project manager.

It wasn’t long before I discovered how wrong I was.

A few months into this complex project, cracks were showing. The estate team was flagging delays due to construction issues. IT was missing their milestones. Nearly every workstream had a big issue. The cost forecast spiralled. We started to feel the heat from the steering group above us.

Julie jumped into gear. She was a force of nature in diagnosing and resolving issues. She put several work streams of the project into ‘intensive care’, meaning daily calls. And I talked to her three times per week to get the cost forecast back on plan.

Within a few weeks, she had it back on its original timeline, specification, and budget. She didn’t manage the project… she brute-forced it into submission.

Without her drive and coordination, that project would have been late, over budget, and probably poorly delivered.

It was the first time I’d seen world-class project management in action. She was worth every dollar of the $2,000 and then some.

It made me truly appreciate the value of a great PM.

Don’t Get Left Holding the Bag: Ensuring CapEx Delivers

So, here we are at the end of a five-week series on Capital Expenditure:

• In week 1, we set out the fundamentals of managing CapEx

• In week 2, we defined the CapEx envelope

• In week 3, we prioritized projects within the envelope

• And, last week, we covered the process to approve the projects and write the checks

So far, you have done the easy bit.

Seriously, how much can go wrong? You haven’t actually spent any money yet.

Well, you could have picked the wrong project. Mis-forecasted the benefits. Chosen the wrong project manager. I could go on…

But you won’t know any of this until the project goes live. By this stage, if you’ve approved the project, it’s because you think the business case and execution plan are tight.

But despite all the work needed to get a CapEx project to this stage, it’s just the end of the beginning. The real work starts now.

Nobody remembers the approval process. They remember if the damn thing worked.

What does ‘success’ mean?

From first principles, a successful project is defined by being delivered:

• On Time = Fully commissioned and operational by the agreed launch date

• On Budget = Total spend (internal + external) within approved CapEx

• On Spec = Delivers promised business case outcomes, not just asset function

Defining what success looks like against each of these dimensions is critical. It avoids ambiguity (or excuses) later:

• “I hit the budget if you exclude the internally allocated IT costs.”

• “The machine was installed on time, it just took longer to commission than we thought.”

• “Operations did their bit, it’s not my fault the sales team didn’t deliver.”

If any of these slip, the IRR slips, and the CFO ends up holding the bag.

Three War Stories (Where I was left holding the bag)

Let’s bring this to life. Here are three CapEx horror movies. One failure on each of the three dimensions:

Failure #1: Late - Dead on Arrival

The Plot: This was a project to install new manufacturing capacity to capture new growth. It was scheduled to be live by September. Issues getting the machinery working properly meant it took two months of additional trials and commissioning before the new capacity was live. The business case had been built on new volume from a critical customer for a seasonal uplift. November was too late, meaning we let the customer down (and f*cked up their Christmas).

The Outcome: We’d capture the $20m revenue uplift next Christmas, but a 2-month delay had cost us a full 12 months of payback math. And we had one p*ssed off customer.

Failure #2: Budget Blowout

The Plot: It was the second time this project manager had been back to the CapEx committee for an ‘overspend approval’. The first one took the project from $13m to $17m. This one would take it to $19m. 50% over. There were many reasons for this, but the main one is that the project team miscalculated the space they needed for the new equipment on their drawings.

I’m still not sure how. But I do know that the only fix was to build an extension to our factory. This was identified early enough that it could be constructed at the same time the supplier was building the machine. But not early enough to catch the original CapEx approval.

The Outcome: We had a $6m overspend to eat and no additional ROI.

Failure #3: Off Spec & Underperforming Equipment

The Plot: We’d installed this new equipment that we were expecting to add additional capacity AND save $5m of cost on existing volume through faster running times. It was the cost saving that had underwritten the business case.

Once we installed the machine, we had the capacity we needed for growth. But we weren’t getting the run speeds we were promised. Meaning that the $5m of cost savings were trapped. The equipment manufacturer blamed our business, claiming that we had modified the equipment.

The Outcome: Our contracts didn’t protect us adequately, and we ended up having a legal squabble with the supplier.

OK, so I lied.

These might be three examples. But here’s the twist. They are actually all the same project.

Yes, a project that had originally been expected to:

• Cost $13m

• Deliver $5m of annual cost savings within 9 months

• Create capacity for additional volume benefits (up to $5m)

Actually:

• Cost $19m

• Delivered zero cost savings

• It did deliver capacity, but too late to catch the volume uplift

More importantly, we also had a very p*ssed off customer.

The consequence was our relationship with that customer got tendered for contract, putting our base business at risk. We had to invest in additional price reduction to retain our business. Wiping out the extra profit we expected on the higher level of volumes.

40% IRR became zero.

I didn’t pick three failures out of one project because I was short of stories. I have dozens.

But I like this one because it is easy to think there is a trade-off between budget, time, and spec. That if you can fix two of the three, you can let the other run loose. That can be true, but often. It’s not as simple as that.

More appropriately, there are well-managed and badly managed projects.

Badly managed projects tend to go wrong in many ways. If the equipment doesn’t work properly, then the project is more likely to run late, and they’ll spend money to fix it. The CapEx doomloop. They are so hard to contain once they start going wrong:

Equipment misfire → delay → cost overrun → value erosion → customer impact → commercial fallout

The nuclear fallout from a bad CapEx project is huge.

This is exactly why conventional sensitivity analysis doesn’t work. The risks don’t just line up and present themselves in isolation. Execution risks compound. They aren’t additive.

Oh, and yes, that project manager (let’s call him Jason) got smoked.

Respecting Project Management

The lesson in all of this is:

1. Quality of project management is the single biggest success factor in a CapEx project. Get it right, and it’ll solve all the other problems

2. Project management is a skill. It can be learned

3. While it is led by one person (the project manager), it is the domain of the whole team

So, in short. You need a Julie. Which leads to the next question…

How do you spot a Julie?

They are hard to find. Because you don’t really know you have a Julie, until sh*t hits the fan (by which point it’s too late if your Julie turns out to be a Jason.)

7 Signs You’ve Got a Julie:

1. Treats small problems like big ones

2. Knows every inch of the project

3. Doesn’t do the work, manages the work

4. Obsessive about details (to the point of annoying)

5. Never says, “I’ll check.” They already know.

6. One-page summary? Nailed. Deep dive? Got it.

7. Makes everyone around them better

That’s right. Julies have an uncomfortable intensity.

CapEx Project Management

Good CapEx project management needs more than Julie, though. She will need the right support and project governance around her:

• A Steering Group formed of the right senior group of people, who are engaged and meet regularly. Julie reports into this group. Issues are addressed weekly.

• A Project Team formed of the right expertise and resources. The team reports to Julie for this project. Issues are flagged daily.

• Go/No-Go Gates. Fewer the better. But they must be sacred.

• Simple Dashboards/RAG Reporting. Workstreams report their RAG and issues to Julie. Julie resolves what she can and takes what she can’t to the steering group.

• Fast Escalation. Issues age like milk. Fix them while they are freshest. Have channels through the steering group to unblock issues quickly.

• In-Project Monitoring. Use leading indicators: milestone drift, stakeholder pulse taking, slippage.

Done well, this looks like Julie micro-managing the details of the project. And synthesizing the 2 or 3 key issues she cannot solve alone. Rapidly accessing the support she needs from the steering group to keep a project moving before it gets constipated.

When it hits the fan

And what about when you find out that the Julie you thought you had is, in fact, a Jason? Or, despite having a Julie, the project is heading south?

The Fix-Playbook:

1. Emergency Steering Group. Set context, make it real, and set urgency. Start by making it clear that everyone in the room will be embarrassed by the current trajectory.

2. Ruthless Review. By this point, the business case has been undermined. Focus on what you have learned that you didn’t know when the business case was set. So, question everything.

3. Appoint a Fixer. If your Julie turned out to be a Jason, put a Julie on the project. That could be a different project manager (internal or external). Or someone from the Steerco. Or in a small business or extreme circumstances, get your hands dirty yourself.

4. Reforecast Honestly. For the love of god, don’t get this wrong twice. Make sure you have surfaced all the issues. That doesn’t mean lazily padding your budgets and timelines. Be specific, clear, and ruthless about what comes next.

5. Kill if you must. Not often, but occasionally, a project just needs to die. Yes, it's embarrassing, and yes, it's expensive. But as the saying goes, ‘sometimes your first loss is your best loss.’

The CFO is the Last Line of Defense

When a CapEx project fails, the CEO turns to one person: you. Not the project sponsor. Not the ops lead. You.

Why? Because they assume you had governance in place. That you saw it coming. That you built a system to surface the smoke before the fire. If you’re not close to execution, you’re not managing risk.

All the sh*t from a CapEx project rolls down hill. And at the bottom of the hill are you, your team, and your cashflow forecasts.

So good project management and governance are what stands between you and a smelly snowball landing on your lap.

The effect of this is that if you don’t have a Julie or your business is too small to merit this kind of structure, you should pick up the slack as the CFO.

Make sure the basic project discipline and monitoring are there, and keep a close eye on it yourself.

Net-net

Throughout this series, we’ve covered CapEx from strategy to selection, from approval to execution. But it’s here, in execution, where reputations are made or broken.

Great CapEx management can provide a real moat for business. Extending competitive advantage, building capacity, new capabilities, or cost advantages.

So, doing this well is a great source of sustainable value creation. And doing it badly… well… you’ve heard what that can look like throughout this series.

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