We’ve been in difficult situations before, but nothing compared to our current crisis. And this will certainly not be the last time we’ll encounter major disruption and challenges. Many companies survived the last global economic crisis of 2008, and came out in better shape. So what can we learn from them? And how can a smart and solid CAPEX strategy help you come out stronger of the current situation?
By Joao Reis
1. Spend smart
You'll probably need to quickly reduce spending in order to control cash flow. Therefore, now more than ever, you need to apply a robust selection process for all your projects – the ongoing ones and the projects that are due to be started. Project rationales need to be backed up by solid data. A strong ‘challenge-in’ process is to be followed instead of a more typical ‘challenge-out’ process. You'll need to balance both your immediate survival (financial focus) and your future competitiveness (market focus).
2. Control minor CAPEX
Most companies are good at focusing on the large flagship projects but, in contrast, the myriad of minor CAPEX projects mostly fly under the radar. While in isolation these projects are not significant, when aggregated they can accumulate to total values that easily compare with larger projects. An easy solution would be to simply apply a carpet cancelation of these minor projects. However, that could dramatically affect some critical projects (like some HSE related projects). Clear roles and responsibilities need to be supported by an unambiguous set of rules that allow a quick and effective decision on which minor projects to either keep, postpone or cancel.
3. Focus on efficiency
When money abounds it's easy to get away with less than optimal processes. When money is tight and every cent counts efficiency becomes the center of attention. A cost hunting mentality must be enforced at all levels. From top management to field supervision. From engineering to procurement all the way through to construction.
4. Take the chance to change
Yes, crises can be opportunities but only if you master the art of change management. With the right change strategy you can take advantage of the very obvious motivation, even obligation, of your teams to create new habits and new ways of working. Change is complex and demanding because you have to balance both soft components - culture and mindsets - and hard components – organization, processes and systems. Mastering change is a tough job, but your people are never going to be more motivated than now.
5. Prepare for the future
Don't forget the lessons learned once you're out of the water. We will face other crises in the future and you'll need to sustain the changes you've implemented. The smarter companies are the ones who are always alert, keeping a sense of urgency at all times and never take their hands of the wheel. Don't just make this ‘the new initiative’ flavor of the month. Take your teams to the next level and perpetuate change by keeping them there.
It is both essential to act fast to navigate through this crisis and to ensure your project focus is sustainable, no matter what you face in the future. To quote Warren Buffet "Only when the tide goes out do you discover who's been swimming naked." Right now razor sharp strategies and a steady hand at the realm are essential in ensuring CAPEX positively contributes to both short term survival and long term sustainability.