Mc Kinsey (27 pages).
Projects 5.0 is a new model for the delivery of large capital projects in heavy industry. In this report, we make the case for a radically different approach in the sector, and outline the six fundamental changes that could transform project-delivery performance.
Cost and performance benchmarks in many industries have been redefined in recent years, as incumbents and new market entrants alike adopt new technologies or unconventional operating models. In space flight, for example, the cost of putting a payload into orbit has fallen by 75 percent.
Applying the same underlying principles to large capital projects in heavy industries could achieve a similar step change in performance, with the potential to reduce actual project cost and time by 30 to 50 percent, more than doubling project returns. Yet the sector has struggled to achieve even moderate rates of productivity improvement or to deliver projects on time; a recent survey of senior project executives found that on average, projects overrun their budgets and schedules by 30 to 45 percent.
The coronavirus crisis has further accelerated the urgency for change. Lockdowns, labor shortages, and supply-chain disruptions have set construction programs back by months. The prospect of a long, uncertain period of recovery is forcing companies to rethink future project plans.
At the root of the sector’s unenviable record is a project-delivery model that has remained largely unchanged for a quarter of a century or more. It is a model plagued by issues and inefficiencies: a lack of integrated systems thinking; prioritizing shortterm cost management over long-term outcomes; poor communication between stakeholders; and bespoke projects and rigid planning systems that struggle to identify or adapt to changing demands.
Industry leaders are experimenting with a growing list of new technologies and processes, from digital twins to artificial intelligence–(AI–) enabled planning algorithms. A real transformation of capital-project delivery will require more than targeted interventions, however. At best, narrowly focused tools and technologies can address only a small part of the overall value at stake. At worst, poor technology and process deployment can end up adding unnecessary complexity and confusion to a project.
In this report, we make the case for Projects 5.0, a clean-sheet approach to capital-project delivery. Projects 5.0 is so named because it builds on the Fourth Industrial Revolution’s advances, which introduced automation, machine learning, smart technologies, and the Internet of Things into conventional manufacturing and industrial practices. Incorporating these techniques into a broader set of changes—including stronger partnership networks, greater agility and flexibility, and thoughtful future-proofing—promises to unlock capital projects’ full potential to deliver lasting value.