Here’s a conversation with Finario’s own Mike Evans on why post-completion reviews are so important, and how to get them implemented based on his senior finance experience working with a multinational industrial company and leading consultancy/advisory brand.
When we think about post completion reviews and continuous improvement, what — from your perspective — are the typical impediments to doing something that everyone recognizes is so important?
I think a big part of the problem is focus: you’ve got all the costs for a project in-hand and you think you’re finished, but you’re not. Obviously, getting costs in, closing them out, moving them to fixed assets, etc. are repetitive tasks, but you’re not done yet. It’s important to ask: Did the project meet its financial goals and its operational goals? What could we have done better? Did we get the value expected for the money spent? To answer these questions, there needs to be a post-completion process in place. If you don’t take the time to do this, then you are missing a huge opportunity to improve and really consigning your organization to a kind of “groundhog day” hell in which the same sort of problems keep happening over and over again.
The place to start is by explaining that it’s not about assigning blame. That’s as big a deterrent as anything. It’s about creating a culture of continuous learning and improvement.
Another thing to consider, is moving away from an “all or nothing” approach. You may not need to mandate a post-completion review on every single project. As a general rule, the larger the project, the more out of the ordinary it is, the more important, it’s going to be to do a review. Start by establishing a rule on when it’s required. Typically this will be both size (i.e. total cost) and category (e.g. growth, maintenance,…) dependent. In addition to setting consistent standards, this will help ensure that you’re not missing the data you might want for reference class forecasting.
You mentioned reference class forecasting — the ability to use prior performance as a more accurate predictor of what things will cost, how timelines will pan out, and the ROI that can be realistically expected — as a motivation for pushing for better post-completion review compliance. Can you expand on that?
Absolutely. Conducting reviews does more than just assure that you’re using the assets of the company wisely. You’re also ensuring that the next time you have a large project that has similar characteristics, you’ll have something to look back at it to help understand and predict what you can expect. This can be particularly helpful if you have a complex, geographically distributed organization. Somebody on the other side of the world can access this data and insight and leverage its value.
So aside from just “fear of accountability,” what are some other hurdles to making post-completion reviews the norm?
Having one repository of all Capex data is probably the biggest hurdle. Because, while having management buy-in is obviously critical, you have to make it easy for people to do it … or, at least, easier.
Creating a “single source of truth” can be huge. You’ve got all the actuals. You’ve got the original budget idea fleshed out to a proposal, which is going to say, why did we do this, what was expected, and here are the financials behind it. If the ROI model that was used “travels” along with the project projections and rationale, it makes it a whole lot easier to compare.
I’ve seen it first-hand: If you’re having to round things up … if there wasn’t good actual capture … if you don’t have insight into the project-level information, it will be very hard for you to do a proper post-completion review. Just the thought of having to collect data can be a huge deterrent to compliance. That’s why having a purpose-built solution for Capex, like Finario, that brings all these pieces together can be such a significant difference-maker.
Another hurdle can be in getting the “shop floor” folks to comply. For example, if the motivation to purchase an expensive new machine at a manufacturing plant was to decrease downtime on the existing machine, you need the guys on the floor to track their labor hours (before and after), maintenance “performance” of the new machine, its throughput, etc. That’s why we need to be very detailed when we write this up — which rarely succeeds if it’s not SIMPLE.
So how do you know when the right amount of time has passed to be able to do a proper post-completion review.
I think some of this is going to depend on what type of project it is. If it’s a new gantry crane, for example, that’s fairly easy. It’s usually put into use and useful right away. If it’s a new or upgraded piece of machinery, it may take a few cycles to see the output of the machine, and there may be a learning curve relative to its deployment as people are trained on it. Again, it’s important to establish specific guidelines that make sense for your business and have a system to help make it easy for folks to follow the policy.
So, is there a correlation between how much time elapses before being able to gauge ROI and the likelihood that a post completion review is going to take place as it should?
Yes, there can be. That’s the danger. But with some investments you’re going to have to wait. For most projects, I’d say a minimum of three months to six months is about right for a post-completion review. If it’s something large, like a new building or facility, it can be a year or two to see the output. Now, you should have an idea of what is trending if you look over several months, maybe that’s enough. But, you know, the larger the investment, the more complex it is, the longer you’re going to have to wait to do it. Best practice is often to have a few steps to the post-completion review. For example, there can be an initial review relatively soon after spending has been completed that looks at cost and operational issues. Then one or more later steps that focus on ROI, after there has been enough time to observe actual operational performance in relation to the cash flow projections.
Do you have any experience where the absence of doing a proper post-completion review was believed to have contributed to a project that was considered a “mistake” or missed opportunity?
I worked with a large global manufacturer where there was a push for a large expansion project. This led to a multi-million dollar investment in another country, and in a space that was out of its “wheelhouse.” What wasn’t factored into the forecast for the project was the cyclical nature of the company’s LOB. Fast forward, prices nosedived, the plant couldn’t run in the way it was supposed to, and there was an added impairment charge, which basically meant they couldn’t take typical depreciation. So, they had to accelerate it to over five years. It was not a pretty sight and, as a result, the task of a post-completion review was — as you might say — swept under the rug.
Now, to be clear, organizations take risks all the time that sometimes don’t pan out. So it’s not an indictment of them. My point is, if proper post-completion reviews were the norm, the management team could have had a clearer recognition of what could go wrong and looked more closely, perhaps challenging the ROI assumptions, considering the macro trends in their sector, understanding the impact of volatility, etc. Perhaps that would’ve led them to start at a smaller scale, consider a phased-approach, put contingencies plans in place, or simply acquire vs. build.
To make matters worse, several years later this same company had a significant opportunity in yet another country. Having been burned on their expansion project, they chose not to pursue it. This was unfortunate, in my view. The project was very well documented and rationalized. But, because there wasn’t a post-completion review from the prior project I spoke of, leadership couldn’t attribute where it went right, and where it went wrong, and perhaps see the new proposal in a different light. Or in other words, they didn’t have visibility into the history and insights that would have given them the confidence to go forward, and as a result a major opportunity may have been missed.
You inferred earlier that post-completion reviews on maintenance or regulatory projects may be less urgent but are there lessons to be learned on those kinds of things too?
On the safety and regulatory side, you need to be doing these reviews to make sure you met the desired/required goal. Sure, you can confirm you spent the money, but are we safer now? If an inspector shows up and you still haven’t met the standard requirements and are shut down, that would be bad!
One last question: you mentioned the value of having a purpose-built Capex solution in the “finance stack” for facilitating post-completion reviews. What are some of the other advantages of having such a solution?
Well, the best way to look at it is an interconnected process that just so happens to “end” with a post-completion review. If you start with something like zero-based budgeting, in which individual projects have to be defended for funding vs. “competing” for a share of a somewhat arbitrarily carved share of the pie, then you need the right tools. Just as with post-completion reviews, if you have a solution like Finario, you can eliminate much of the “pain” of getting started insomuch that you have the templates, automation, and financial intelligence built-in to vastly streamline the process. Similarly, if you do ROI modeling and risk analysis for capital planning, you want to apply consistent criteria across projects. Moreover, you get the most value from doing the modeling if you leverage it across the decision making process and — yes — include it in your post-completion reviews.
Lastly, and yet another connected thought, if you want to truly be able to do a proper analysis and be able to proactively compare projects in your portfolio at any given time, you need the data to do so. That data needs to be project-level data vs. rollups and go beyond the current fiscal year, which is a limitation of many if not all solutions that aren’t Capex-specific.
At the end of the day, everything we’ve talked about is driven by the same objectives: lower costs, drive growth, and continuously improve so you can deliver on management and shareholder expectations.