When it’s time to get serious about capital investment for heavy industrial facilities, does your organization employ a phase gate approach or does it just engineer the project and go?

After more than three decades as a facility planning and project execution consultant working primarily in the agricultural industrial space, I know which option I recommend.

The phase gate approach, sometimes called the stage gate approach, is a planned, multi-structured method of identifying engineering requirements for large, complex, industrial capital projects. The step-by-step process forces stakeholders to consider all scenarios and risks, which will ideally result in a high degree of confidence that the project will be executed and controlled within schedule and budget.

The process runs a capital project concept through a series of rigorous phases that are separated by decision points. After completing a set of prescribed tasks, key questions must be answered and evaluated before the gate swings open, allowing the project to advance to the next phase. The pauses allow stakeholders to make informed decisions about whether to approve, modify, or abandon a project plan before major costs are incurred.

Below is a simplified outline of the four phases commonly used with the phase gate approach.

Phase 1 – The Business Case

• The client sees the need for a new product or to increase the manufacturing capacity of an existing product. A key early question: Will the project be mostly schedule driven or cost driven?
• The client’s business development and marketing staff make the business case internally before the executive stakeholders give approval to move forward.

Phase 2 – Preliminary Engineering

• An engineering consultant who is experienced with the phase gate process launches a detailed evaluation of the project’s engineering activities to better understand the costs and risks.
• Project teams identify technology and equipment needed to produce the product and the lead times needed for obtaining equipment.
• Site options for the project are considered, which typically intersect with transportation and logistics considerations.
• Site options are evaluated before preliminary plans are produced for the civil, structural, mechanical, electrical, and piping needs of the project. Regulatory compliance is also factored in.
• A preliminary cost estimate is reached with a contingency range of plus or minus 30 percent.
• Planned construction methodology is identified.
• The client makes a go/no-go decision before advancing to the next phase.

Phase 3 - Detailed Engineering

• Engineering deliverables are prepared, sometimes to a status that can be shared with contractors IFB/IFR (issue for bid/issue for review). Plans can range from old-school hand sketches to detailed drawings, depending on the needs of the client and complexity of the project.
• The constructability of the project is evaluated.
• A revised capital cost estimate is prepared with a tighter contingency range of 5 percent to 20 percent.
• Executive stakeholders review updated reports and risk assessments and make a final decision whether to greenlight the project.

Phase 4 – Execution

• Equipment procurement and pre-construction planning activities begin.
• Engineering deliverables are fully executed to a IFC (issue for construction) status.
• Construction, commissioning, start-up, and operations activities take place.
• Often, a project closeout evaluation is done after completion.

The phase gate system can be tailored to the needs of a specific industrial client by expanding the number and complexity of associated tasks and subtasks.

I have seen the approach work very well for capital project planning, but client leadership must be fully on-board and committed to closely following the tasks of each phase. The problems I’ve seen crop up are usually the result of clients taking short cuts or skipping steps.

Some argue the phase gate approach can be overly rigid or can stifle creativity. From my experience, identifying challenges early gives engineers and consultants more options to think outside the box when finding solutions. With the right team in place, the phase gate process can encourage collaboration and new ideas.

Engineering on-the-go may work, especially if overshot budgets and blown deadlines are acceptable. For most organizations, they’re not.