Top 5 Reasons for Project Failure.
We have compiled five main reasons for steel project abandonment. The following five issues are [in MCI's experience] the main reasons why capital investment projects in the steel sector do not go ahead as intended.
The top 5 reasons are:
- There is no consulting budget. It may be that consulting fees have not been given due consideration or that agreement cannot be reached concerning responsibility for paying independent advisers. From time to time however most consultancies receive client approaches which quickly stall at the proposal stage because thought has not been given to the cost of the feasibility appraisal. For avoidance of doubt, MCI would stress that this matter is not typically a cost issue - but rather, a more fundamental commitment problem.
- The project lacks credibility from the outset. Most commonly, the credibility issues concern price projections, cost assumptions, capital expenditure estimates, the extent of competition and / or the strategic coherence of the investment plan. In these instances, a high-level review of the existing preliminary documentation usually identifies the main issues relatively early on during the project evaluation.
- The project is investment-led rather than market-driven. Here, we usually find that the domestic market for the product in question is either questionable or very small. [In MCI's experience, most examples of such failures have actually been in specialty steels.]
- There are no financial or strategic investors. Whilst it is usually the case that attractive steel sector investments do manage to find 3rd party funding, it is nonetheless also the case that (i) absence of a strategic investor [including provision of know-how] or (ii) timing issues across the steel cycle [when potential investors may have least liquidity] can also stop a project dead.
- There is an 'Act of God' or other major event that takes place that is outside of human control and scuppers the investment. Whilst such events do tend to be rare, MCI's consultants were nonetheless involved in two large project appraisals where final report delivery took place around the time of a crisis of this sort. [One of these events was the Russian rouble collapse of August 1998. The other was the global liquidity crisis which started in the summer of 2008]. These crises led to major delays (4 years plus) or complete abandonment of multi-billion dollar steel plant modernisation plans that had practically been given the green light to proceed.
What learning can be gained from these examples? Whilst MCI cannot prevent Acts of God we can nonetheless suggest that project sponsors might (prior to project initiation) carefully consider the following factors.
- Think about the consulting and other project outlays [e.g. EIAs] and your overall committment to the project in terms of management time and other resources
- Make an approach to one or more strategic or financial investors [as early as possible]
- Consider the strategic and market rationale for the investment
- Base important investment planning assumptions on independent sources of information [rather than on information supplied by parties with a vested project interest]
- Remember that surprises happen - so make sure you have appropriate contract exit clauses and insurances.
For further project planning advice, feel free to contact us for a no-obligation discussion. Call us on +44 775 149 0885