030317MEZXR426JLP1-ApplyingCSCR.pptCONFIDENTIALApplyingCleanSheetCapitalRedesignatMethanexDiscussionwithLarryGoodyer26March2003Thisreportissolelyfortheuseofclientpersonnel.Nopartofitmaybecirculated,quotedorreproducedfordistributionoutsidetheclientorganisationwithoutpriorwrittenapprovalfromMcKinsey&Company.ThismaterialwasusedbyMcKinsey&Companyduringanoralpresentation;itisnotacompleterecordofthediscussion030317MEZXR426JLP1-ApplyingCSCR.ppt2SUMMARYBasedonwhatwereadaboutMethanex’sproposed$2billionMethanolfacilityontheBurrupPeninsula,weunderstandthatdespitesignificanteffortandthepromiseofgovernmentcommitmentsyouareunabletomaketheprojectreachacceptablefinancialreturns.Weunderstandthatyouareworriedinparticularaboutcapitalspend,theIRriskonlabourcostsandexchangeratemovementsWebelievethatMcKinsey&Companymaybeabletohelp.WehavesuccessfullyusedaprocessandtoolcalledCleanSheetCapitalRedesign(CSCR)tohelpourclientsachieveupto30%reductionincapitalcostsontheirmajorprojects.TheCSCRapproachhasbeensuccessfullyappliedtomanylargecapitalprojectsincludingbothgreenfieldconstructionandexpansionofminesandindustrialfacilitiesCSCRisasystematicprocessthatsignificantlyincreasesthevalueofmajorcapitalprojects•Valueisgeneratedacrossthreeanalyticalphases(testandrefinementofbusinesscase,overhauloftheprocessandengineeringforvalue),withthemajorityofthevalueofteninthefirstphase•KeyrolesareperformedbySeniorManagement,CSCRprojectmanagementandamulti-functionteam(includingconsultingsupport)•CSCRcomplementstheexistingplanningprocessthroughvalidatingkeyassumptions,providingdirection,challengingthedesignprocessandfeedingrecommendationsbackintotheprojectscopingandplanningactivity030317MEZXR426JLP1-ApplyingCSCR.ppt3OVERVIEWOFCLEANSHEETCAPITALREDESIGNWhatisCSCR?Whoisinvolvedandwhataretheirroles?Howdoesitfitintoexistingplanning?•AsystematicprocesstolinktheengineeringscopeanddesignofamajorcapitalprojectwiththecommercialstrategythroughthreeanalyticalphasesWhatdoesitdeliver?•Independentappraisalofproject’svalueandfact-basedassessmentofbusinesscase•Systematicidentificationandquantificationofrisk•Specificvalueimprovementleversandactionstomitigaterisks•Recommendation:Go,nogo,orfixitandhere’show•SeniorManagementandBoard-interviewedtoidentifykeyvaluedriversandprojectstrategyandmakecommercialdecisions•Cross-functionalteam,suppliersandexternalexperts-participateinbrainstormingsessionstoidentifyimprovementopportunities•McKinseyteammanagestheprocess,providesanindependentviewpoint,challengesandstretchesthethinking•CSCRcomplementstheexistingplanningprocessesthroughvalidatingkeyassumptions,providingdirection,andchallengingthedesignprocess030317MEZXR426JLP1-ApplyingCSCR.ppt4EXAMPLESOFSUCCESSFULAPPLICATIONOFCSCRImpactSituationApproach•Constructionofanironoremineandconcentrator•CompletedCSCRapproachwithclienttodevelopaleanerdesign•Reductionofcapexby$200m•Constructionofazincmineandconcentrator•Reviewedandtestedfeasibilitystudyofproject,setupprocesstoensuretheengineeringdesignwaslean,andreviewedthefinalengineeringdesign•NPVvalueincreasedfrommarginalto$300-500mwithadditional$250moptions•Constructionofagreenfieldaluminarefinery•Reviewedandtestedfeasibilitystudyofprojectandworkedcloselywithdesignteamsduringtheprocessdesignphase•NPVvalueincreasedfrom$100-200mto$1B•Constructionofabrewery•Testedthebusinesscasetoimproveth...
