Challenge

A leading Australian construction materials manufacturer was spending $70-130M in capital projects year on year, while not getting value for the capital deployed.

Key challenges included:

• Consistent budget and project overspend
• Capital project business cases not achieved – poor ROI across the budget
• Large pool of ageing and non-performing assets
• Poor visibility of portfolio delivery at leadership level

The business engaged us to deliver a plan to reset the capital deployment framework ensuring that Capex was deployed on projects with highest ROI, priority assets to mitigate business risk and that project approvals and delivery was executed diligently.

Approach

We based stay-in-business Capex on an asset criticality review, complementing this with a prioritisation of growth capex projects into a 5-year investment plan. Project approvals and delivery was addressed by rolling out a capital governance framework.

1. Asset criticality review

• Established a baseline with an asset criticality review, categorising asset condition and risk for the business
• The asset heat maps across 28 factories did not only give a clear prioritisation basis for capital planning, but provided a systemised tool for ongoing asset monitoring and management

2. 5-year capital investment plan

• Based on asset criticality, developed 5-year stay-in-business plan, deferring opinion-based low-risk proposals for asset replacement and prioritising high-risk assets
• Overlaying growth investment ambitions in a multi year sequence, while aligning with business strategies and prioritising based on risk and return on investment value
• Combining the ‘bottom-up’ unconstrained capex plans with a top-down ‘affordable’ capex target enables decision making on investment timing and sequence while constraining annual capital spend
• Designed a 5-year investment plan, delivering both growth ambitions and asset risk mitigation. The plan delivered a $35M annual capex investment reduction vs. historical (unconstraint) spend

3. Governance structure

Designed and implemented a governance structure addressing key causes of misdirected capex investment through, scope development and benefits quantification, project resource allocation, project budget approvals and delivery progress reporting.

Impact

$35M

Annual Capex investment reduced vs. historical year-on-year spend

20%

Annual Capex budget overspend eliminated  (~$13M annually)

Asset risk mitigated

Due to prioritised capital investment, guided by a business-wide asset criticality review across 28 manufacturing sites

2x ROI

Doubled return on investment for capital deployed across the business