Identification of business-project management processes that improve capital efficiency of downstream and chemical projects

Abstract An important performance measure to evaluate capital expenditure and return on investment (ROI) is capital efficiency. In the downstream and chemicals sector, capital efficiency becomes even more critical. Indeed, this sector is asset-intensive and capital projects carried out there can be large, complex and require significant investment of capital and time. Project capital efficiency can be impacted by how well the business unit aligns with the project unit, as they collaborate in the early project phases to determine how the project will be built and operated. This research aimed to identify business-project management processes that help improve project capital efficiency. The study assembled a 17-expert panel to define project capital efficiency with its four key improvement areas. The panel identified 28 management processes that lead to improvement in project capital efficiency if they are implemented effectively by business and project units in early project phases. A survey was used to determine the relative importance of these management processes. Researchers quantitatively analysed, ranked and compared the relative importance. Findings indicate that 23 management processes are very important to project capital efficiency and four of them are perceived differently in their relative importance by the two units.


Introduction
The oil and gas industry is asset-intensive (PwC 2015) and its downstream and chemicals sector relates to refining, petrochemical, special chemical and industrial chemical (CII 2016).Capital projects in this sector can be large and complex (Jones and Pujad o 2006).As they usually require significant investments of capital and time (Kim and Choi 2019), these projects can be seen as high-risk business ventures (Barutha et al. 2021).When they start to operate, their profitability is subject to external factors such as feedstock prices and market demand (Magdirila 2016;V atavu et al. 2018).Therefore, both the project development and operation have impacts on the efficiency of the capital invested.However, these capital projects often underperform.Among 500 capital projects analysed by Ernst & Young (EY), 60% had schedule delays and 38% experienced cost overruns that may have led to a significant impact on their financial performance (Fane 2020).In addition, the return on the investment of capital projects in this industry sector is around 2.45% (CSI Market 2021), with no sign of improvement (Satapathy and Volkenborn 2019).Also, stakeholders in this sector now have to consider reducing emissions as a long-term sustainable goal (Maurer 2021).To be successful, project owners in this sector have to keep costs down and projects performing better than previously (Hamilton et al. 2019).That is, they must improve project capital efficiency.
What is also critical to a project's success is the strategic alignment between the business and project units (Srivannaboon and Milosevic 2006).In the early project phases, such an alignment leads to key decisions on the capital project development and operation that directly impact project capital efficiency.
Before alignment is achieved, both units have to interact and collaborate via management processes (Yun et al. 2012).These management processes integrate different expertise and functions required to define and develop the project (Kumaraswamy et al. 2005).The implementation outcomethe alignment between business strategy and project execution (Barshop 2016)is vital to the capital project and its success (Tsai and Chi 2015).However, non-alignment between business and project units does occur in downstream and chemical projects (Hamdan and Jaafar 2014) and it can be one of the biggest contributing factors to project failure (Stanleigh 2012).
Although the need of improving capital efficiency and the importance of business-project alignment have been acknowledged, there have yet to be efforts to connect them to enhance the value created for capital projects.This study aims to identify business-project management processes that, if implemented effectively during the early project phases, improve the capital efficiency of downstream and chemical projects.The identification of management processes is a novel contribution as they are a comprehensive set of cross-functional practices that connect both business and project units for strategic alignment in the early project phases with a collective objectiveto improve project capital efficiency.
that an organization demonstrates capital efficiency if it undertakes capital projects with positive net present value (NPV).EnerCom (2018) emphasized that capital efficiency focuses on the return companies obtain on their recent capital expenditures.Similarly, Prieto (2014) underlined that capital efficiency is about getting the maximum return.In the same industry, capital efficiency is defined as a measure of a company's ability to select, deploy and manage capital investments that maximize shareholder value that begins with the corporate strategy (Caletka 2016).Better capital efficiency is related to hard choices on new projects, reduced growth investment and more sales from the assets (Shell 2014).For capital expenditure on refineries, an oilrefining project is more capital-efficient if less capital is spent while generating the same production capacity (Johnson and Chang 2018).
Just as capital efficiency has been defined at different levels, so too has it been measured at different levels.However, due to the difficulty and imprecision, Gao and Yu (2020) suggested not measuring capital efficiency in aggregation at the company level.Management executives may measure it at both portfolio and project levels (Shah 2012).However, focusing on the project level not only captures efficiency in project execution (Scott-Young and Samson 2008) but also involves portfolio and corporate management to ensure the project itself meets business objectives (Kissi et al. 2013).Regarding the capital efficiency metrics, Biddle et al. (2009) used the NPV.Ramsey (1970) used both NPV and internal rate of return (IRR).In terms of IRR, Goedhart et al. (2015) considered it to be one of the most important metrics to benchmark the efficiency of capital investment.McDonald (2019) used a variant measure, the ratio between NPV and Capital Expenditure (CAPEX) as the metric.Another measure is return on investment (ROI).Caletka (2016) defined the ROI as a ratio of the revenue over the capital investment, whereas Prieto (2014) used the quotient of Net Operating Profit After Taxes (NOPAT) and the invested capital.Besides, Yin et al. (2022) learned that industry practitioners benchmark the cost of major processing units and project phase to assess the efficient use of the capital investment via interviews.

Capital efficiency in sustainability
The United Nations (2015) announced the 2030 Agenda for Sustainable Development with 17 sustainable development goals (SDGs).The oil and gas industry has been mapped to these goals and is considered to have the potential to contribute to all 17 SDGs (UNDP, IFC, & IPIECA 2017).One challenge in measuring capital efficiency is that sustainable projects have economic, social and environmental benefits (Zuo et al. 2012;Morfaw 2014); whereas social and environmental benefits are not directly measurable by financial measures (Michaelides et al. 2014).This means that measures, such as NPV, IRR or ROI are no longer the only measures to assess sustainable projects.Thus, innovative ways to examine capital efficiency are needed.The Center for Sustainable Business (2020) developed the return on sustainability investment (ROSI) method.It starts with embedding sustainability actions into core business strategies that lead to improvements in nine business areas.Improvement in one area can be expressed in one or multiple benefits in different quantitative measures.Benefits are aggregated to represent the value created for the organization and society (Eckerle et al. 2020).Each business improvement area is a medium or link between actions and financial performance.The improvement areas in this method suggested a new way of examining capital efficiency.
If it is used at project level, then project performance areas can be used to establish the link (Ingle and Mahesh 2022).

Business-project management processes
A management process is defined as the process of setting goals, planning, and controlling the organizing and leading of an activity (Kumar 2018).Implementing it requires different functional roles and expertise because no single entity in an organization has either all the knowledge or skills to handle all matters (Son and Rojas 2011).For a capital project, its development starts in the Business Planning phase as an investment option (Gibson 1994).The project goes through the Front End Planning phase after it is officially initiated and it continues by successfully passing the total project budget authorization for design and construction (Park 2017).These early project phases are critical for (1) translating the business objectives to project definition for development (Merrow 2011); (2) verifying the project within the portfolio to maximize the returns (Voehl et al. 2017); (3) ensuring the alignment between business objectives and project execution (Kissi et al. 2013); and 4) making key project decisions for long-term success (Collins et al. 2017).These efforts require expertise and collaboration from business and project units and well-fined management processes could link them for better project outcomes (Nguyen and Do 2021).Yun (2013) identified 40 management processes that require business and project units to collaborate.However, they focused on collaboration (rather than alignment) to improve the project execution performance.

Research gaps
Management processes are particularly important in the early project phases.They are the mechanisms that bind the business and project units to collaboratively define, develop and implement the project.Collaboration and strategic alignment of business and project units positively influence project performance, including capital efficiency.However, the business-project management processes that impact project capital efficiency are yet to be systematically identified and their importance to project capital efficiency needs to be assessed to guide their implementation.Also, as capital efficiency has been examined in numerous ways, it is important to first define project capital efficiency and its improvement areas before identifying the business-project management processes and assessing their importance.

Research methodology
This research was carried out in three steps with two instrumentsa subject matter expert (SME) panel and a questionnaire survey.The SME panel was established (1) to define project capital efficiency with the associated key improvement areas and (2) to identify the business-project management processes that improve project capital efficiency.A questionnaire survey was developed (3) to assess the relative importance of the businessproject management processes to project capital efficiency.

SME panel
The SME panel consisted of 17 experts with experience in developing capital projects in the downstream and chemicals sector from owners, contractors and service providers.With researchers acting as facilitators (Varga-Atkins et al. 2011), the panel utilized protocols of qualitative research methods to accomplish the research goals.In the step of defining project capital efficiency and its key improvement areas, it followed the Focus Group protocol until the decisions were made to ensure the interaction was maximized and the discussion was thorough (Kitzinger 1994;Krueger and Casey 2015).In the identification step, it used procedures of the Nominal Group Technique including (1) silent (individual) nomination; (2) master list construction (roundrobin listing); (3) overlapping or congruent items merger; and (4) evaluation of items (O'Neil and Jackson 1983;Harvey and Holmes 2012).These procedures ensured that the applied tasks, practices or processes were gleaned, summarized, refined and assessed until they were fully developed and identified as management processes.The panel sat through a total of 15 bi-weekly working sessions.Each session lasted between one and two hours.Table 1 presents information concerning the panelists.

Questionnaire survey
A survey questionnaire was developed to collect data for assessing the importance of the management processes.It used a tenpoint, Likert scale ranging from slightly important (1 and 2), moderately important (3 and 4), important (5 and 6), very important (7 and 8) to extremely important (9 and 10).
Respondents were asked to provide their expert perception of the importance of each business-project management process to project capital efficiency and assign a value between 1 and 10.The definition and key improvement areas of project capital efficiency and management process descriptions were also included in the survey.
In data collection, techniques of non-probability sampling were used as they are more feasible in construction research compared to random sampling methods (Abowitz and Toole 2010).First, purposive sampling was used to select experts who had experience in developing capital projects in the downstream and chemicals sector (Dharmapalan et al. 2021).A total of 44 experts from 23 owner companies, 15 contractors and 6 service providers were identified, contacted and invited to participate in the survey.Next, experts were asked to refer the survey to peer experts who possessed the same experience in the sector within their companies for more responses.This step is snowball sampling, or chain-referral sampling, which is a non-probability sampling method used to recruit additional survey respondents (Patton 2014).During a 4-week data-collection period, a total of 81 surveys were received; 63 were considered valid and used in the data analysis.Table 2 presents the summary of valid survey responses.
In this research, the business unit included senior and functional management personnel, and the project unit consisted of project management personnel in the owner's project team (Yun 2013).The project unit also comprised contractors and service providers who provide input in early project phases (Badiru and Osisanya 2013) and contribute to project success through their performance (Kasabreh and Tarawneh 2021).

Defining project capital efficiency and its key improvement areas
In this research, project capital efficiency was defined as the measure of an organization's ability to define, develop, and manage a competitive project that optimizes ROI over its lifecycle.This definition applies to profit-driven and sustainable projects.Owners still need to understand how well their capital is used on sustainable projects, even though the goal is not to maximize returns from the project.
It has been acknowledged that metrics such as NPV, IRR or ROI were used to measure capital efficiency.However, considering that (1) capital efficiency is more than financial return and none of these measures goes beyond that, and (2) sustainable projects have other focuses besides the financial return, the SME panel determined to use improvement areas around the capital project to connect the business-project management process and project capital efficiency.Prieto (2014) suggested nine areas that can be worked on by the capital project owner and its contractors to enhance the capital efficiency of the project.Based on these areas, the panel developed four key improvement areas with 10 sub-areas and they are considered media that link the business-project management processes and project capital efficiency.This means that if a management process can positively impact one or more sub-areas in the key improvement areas, it is considered to have a contribution to the improvement of project capital efficiency.This method of using key improvement areas of project capital efficiency resembles the methodology of making use of business improvement areas to capture the returns of sustainable actions proposed by Eckerle et al. (2020).Figure 1 presents the key improvement areas, and the parenthesis indicates the positive impact in the sub-areas.

Identification of management processes that impact project capital efficiency
The business-project management processes to be identified are the ones that should be implemented in the early project phases.The Business Planning phase and Feasibility and Concept stages in the Front End Planning phase are considered critical early phases for the implementation by the SME panel.Figure 2 presents the implementation duration in a phased project time- (Yun 2013).The SMEs took four moves to identify the management processes: (1) collecting the existingeither well-defined or undefinedmanagement processes (tasks, best practices or work functions with brief descriptions) in experts' respective organizations; (2) compiling the initial list of management processes that apply in the early project phases; (3) consolidating the list by merging similar management processes; (4) assessing their impact links to key improvement areas and mapping them to the corresponding areas.The panel initially started with 76 management processes collected from their organizations.By following the procedure, the list was finalized with 28 items in 2 categories and 4 groups.Table 3 presents the final list of management processes and their impacts on different key improvement areas.
It should be noted that mapping the business-project management processes to the project capital efficiency key improvement areas only reflects the impact links, such a connection does not indicate a quantification and the number of links should not be construed as the magnitude of total impacts or importance to the project capital efficiency.
Further, the panel used a total of seven sessions to complete the description, assessment questions, and list of stakeholders for each management process.The description lays out the scope for instruction; the questions are meant as a checklist to assess the implementation effort by both business and project units for alignment; the list advises who should be involved in the management process.For the 28 management processes, the panel developed a total of 125 questions. Figure 3 presents an example management process.

Survey: data analysis
The data of 63 surveys were analysed by using the Statistical Package for Social Science (SPSS version 26.0 for Windows, SPSS Inc., Chicago, IL).First, Cronbach's alpha (a) was used to measure the internal consistency of the data (Bonett and Wright 2015).This coefficient typically ranges from 0 to 1 and a value greater than 0.9 indicates excellent consistency (George and Mallery 2003).The calculated a was 0.950 for the survey data.Second, the mean values of the management processes were calculated and ranked for the total sample and two units.A management process with a smaller standard deviation (SD) received a higher ranking when the mean values were tied.The ranking indicated the relative importance of the management processes as perceived by the industrial professionals.Third, a one-sample t-test of the mean values was performed for the total sample against a test value of 7.0 (the lower end of the 'Very Important'  range) at a significance level of 0.05.Fourth, the mean values of business and project units were compared, Welch's t-test was used due to the unequal sample sizes of the two units (Delacre et al. 2017).Lastly, the absolute difference in the mean values between the two groups was calculated and ranked.Project Scope Development (B.4.1) is the most important management process to project capital efficiency per survey respondents.Project scope may change significantly in the Front End Planning phase as the feasibility study goes deeper until the project concept is agreed upon by both business and project units.Thus, implementing this management process ensures that (1) there is a plan that leads the scope definition effort under changing and uncertain circumstances, (2) such a plan can be reviewed to ensure the project stays in line with the goals and strategies defined at the corporate and portfolio levels and (3) relevant project stakeholders stay informed and aligned on the project scope.When the project moves to Detailed Scope, the last sub-phase of the Front End Planning, it will have a better scope definition level to achieve efficient capital use.Defining the project scope is crucial to project success (Xia et al. 2016) and a well-defined project scope improves project performance (Collins et al. 2017).Thus, it is critical to implement such a management process early to assure the scope definition can be fully and well defined.

Presented in
The second management process is (B.3.1)Project Objectives Definition and Alignment.Project objectives may mean different things to the business unit and project unit.The project team might prefer to focus on preventing cost overruns and schedule delays in the engineering, procurement and construction phases.Stakeholders in the business unit might focus on achieving objectives in operational performance, production capacity, as well as sales levels and revenues during certain market windows.Different objectives are set based on their different interest areas and these objectives are not necessarily in competing natures.However, there are interdependencies among them.It is important and necessary to first define all business and execution objectives and then optimize them for better project results.Besides, primary project drivers and project priorities (such as health and safety, cost, schedule, quality, sustainability, etc.) should be set and aligned as well.Implementing this management process echoes the claim that for a project to be well managed, its objectives should be set and in line with the organization's objectives (Institute of Leadership and Management 2013).The third important management process is Project CAPEX and Investment Return Analysis (A.1.5).This management process analyses the expected expenditures and revenues and provides a vision of the investment returns.It helps the project owner to understand if this project is a good investment choice and whether it passes the minimum requirement (e.g.hurdle rate) set internally.By performing the analysis, this process helps improve major project development decisions (including phase duration, milestone dates, operation life cycle, plan for expansion, etc.) for better capital efficiency.Regardless the project is business-driven or not, this process remains important because the owner always needs to know if its capital is efficiently invested even though pursuing profit is not the priority.As emphasized by Lucchesi (2019), performing robust economic valuation is critical to ensure project development success under dynamic market conditions with ever-changing variables.
The fourth management process is Corporate Capital Planning (A.1.1)which is also tied to the financial aspect of the project.Capital projects and their expenditures and revenues have significant influences on the corporate's cash flow.Planning for the required budget can reduce such impacts and optimize the cash flow.So, the project will not be affected due to the unavailability of funds at critical project phase gates.Capital planning at the corporate level is a required technique that   assists in assessing the feasibility of the project (Al-Mutairi et al. 2018).Thus, the company should plan the budget accordingly to support the project selected for development (Bierman and Smidt 2014).
The fifth is Project Risk Assessment (A.1.6).Here, business and project units examine not only project execution risks but also the commercial, financial, and environmental risks.It is important to point out that risk inputs are from different units due to their functions or expertise, whereas understanding the risks and planning for risk mitigation should be based on risk assessment collectively done by both units.This process also includes a periodic review plan as the risks and their impacts could change as the project progresses.This process is important because it promotes alignment between the business and project units on risks the risks that are considered vital (Fink 2016) and can impact all areas of project capital efficiency.
On the management process list, the one with the least importance is Benchmarking Expectations (B3.8) and the means of other management processes are all larger than 7 (the lower portion of the 'Very Important' range).This confirmed that all management processes identified by the SME panel and mapped to the key improvement areas were considered important by the survey respondents.Also, such a finding verified that the number of impact links to the key improvement areas should not be understood as the magnitude of the total impact on the project capital efficiency.For instance, Benchmarking Expectations (B3.8) requires the business and project units to discuss and align on what project attributes should be benchmarked, what are the benchmarks, and when to benchmark.Decisions for benchmarking may have impacts on all key improvement areas of project capital efficiency.However, this management process itself was considered less important compared to others by surveys.
The mean values from the survey data were tested against the value 7 (the lower portion of the 'Very Important' range).The group result shows that 27 out of 28 have mean values larger than 7; 23 of them are significantly different from the testing value at the confident level of 0.05, which means they are considered very important to project capital efficiency.Mean values of both the business and project units were calculated and compared.The absolute difference in the means between the two groups was calculated and ranked from largest to smallest.The higher the ranking the further apart from their perceptions.Welch's t-test results indicated that the different perceptions on the importance of four management processes, including Project Target Setting (B.3.4),Integrated Project Controls Expectations (B.3.6),Project Value Assurance Review (A.2.4) and Project CAPEX and Investment Return Analysis (A.1.5),between the two groups are significant at a 0.05 confident level.This means that the business and project professionals are not aligned regarding the importance of these four management processes.This could further hinder their implementation efforts for several reasons.First, such a different perception could impact the prioritization of the management processes in the overall goal settings that benefits the implementation performance (Gerhardt and Luzadis 2009).Second, it may introduce unbalanced resource allocation that the under-resourced side will impede the progress of management processes (Kanfer et al. 1994).Third, it could lead to different expectations of the outcome of each management process and one team with a higher expectation might be disappointed with the collaboration (Locke and Latham 2013).

Conclusion
The objective of this study was to identify business-project management processes that impact project capital efficiency.An SME panel defined project capital efficiency in a manner that applies to profit-driven, regulatory, and sustainability-driven projects.Four key capital efficiency improvement areas were identified.These areas were used to determine a total of 28 management processes that impact project capital efficiency.Then, a survey was used to verify and validate these management processes to project capital efficiency.The identification and assessment of these management processes are important contributions to the body of knowledge since the collaboration and strategic alignment between the business and project units on these set of cross-functional processes are critical to improving project capital efficiency.The identification, characterization and assessment of these management processes not only fills a salient research gap but also facilitates their implementation.The process descriptions, implementation questions, and stakeholder lists allow business and project units to go beyond collaboration and achieve alignment.The findings indicated that 23 management processes are considered very important.The Top 5 management processes on the ranked list should be given higher priority for implementation due to their importance.Also, different perceptions between business and project units were identified in four management processes; further addressing them could close perception gaps and lead to alignment between the units and better implementation outcomes.

Practical application
Findings in this research have important practical contributions.The management processes identified should be used as a basis of the business-project meetings or workshops that are often conducted during the early project phases.One example of such a meeting or workshop is a Business-Engineering Alignment Meeting (BEAM) (IPA, 2020).Implementing these management processes effectively promotes thorough discussions between the business and project units on how the project should be defined and delivered.So, the implementation of these practices first helps to improve the effectiveness of the cross-functional collaboration between the two units.It then provides opportunities to address the needs of both the business strategies and project execution.Also, the management processes can be repeatedly discussed in multiple meetings or workshops until the alignment between the business and project units is achieved.The outcomes of their implementation help build a better foundation for project planning, lead to more predictable project execution, and drive the project to more competitiveness by reflecting efficient use of the capital investment.

Limitations and future research
The management processes in this research were identified in the context of capital project development in the downstream and chemicals sector.Other industry sectors may use similar management processes, however, their descriptions, assessment questions, and especially their relative importance could vary and should be re-examined before implementation.
Future research is suggested in two directions.First, a framework to assess the implementation effort of management processes should be developed.It should use the assessment questions developed in this research with weighting factors to produce an overall score.The framework score should be correlated with project capital efficiency metrics to further validate the framework.Second, measures to quantify the key improvement areas and sub-areas should be developed to enable a full chain assessment of the value of all benefits created by implementing the management processes on a capital project.

Figure 1 .
Figure 1.Key Improvement areas of project capital efficiency.

Figure 2 .
Figure 2. Implementation of business-project management processes in Phased Project Timeline.Ã The width of the project phase does not indicate its actual length or duration of the phase and project phases may overlap.
b Result indicates the mean values of the two groups are significantly different at the level of 0.05 (two-tailed).

Figure 3 .
Figure 3. Detail of example management process.

Table 1 .
Information of members in the SME panel.

Table 2 .
Summary of survey responses.

Table 3 .
List of business-project management processes and their links to key improvement areas.

Table 4 .
Ranking and comparison of means of management processes.Result obtained from the one-sample t-test is insignificant at the level of 0.05 (two-tailed).