The financial sense in hiring consultants for expensive projects

NAIROBI: The common question that gets asked in business is, ‘Why?’ That’s a good question, but an equally valid question is, ‘Why not?’— Jeff Bezos.

Last week, we looked at the dilemma of the continuous loop — which is where a business person seeking funds to build a factory needs funding to achieve this, but to obtain the funds, s/he needs to start building the factory.

Today, we will explore how to prevent the loop. How can a business owner possibly prevent this loop from coming into existence when the financing system ensures it?

Here is a winning answer: get a professional who knows how to navigate the capital projects maze, and you will discover that getting financing can be smooth sailing.

Before you jump at the first offer though, it would be beneficial to think about what a good capital projects advisor should offer.

Last year, a survey conducted by PwC on capital projects that experience delays in sub-Saharan Africa (SSA) found that projects in Eastern Africa experience the greatest delays at up to six months or more.

The top three causes of delay were found to be internal issues, funding-related issues, and local skills gaps.

Internal risks faced by capital project players range from inadequate pre-engineering, to weak project engineering; internal procurement issues involving staff and processes to weak governance; poor planning, unrealistic expectations on timing, and scope change.

On the other hand, financial risks facing capital projects include capital rationing, delays in release of funds, and failure to provide promised and approved funds. These are a lot of risks for a single entity to consider all by itself, especially if it intends to deliver on the job it was tendered to perform.

LOWEST COST

Going back to the illustration of the manufacturing business, it would mean that a business owner would need to constantly consider the risks that would hinder his or her contractor from efficiently executing and completing the project, before, during and after engagement.

Though every contractor tendering for the job would claim the ability to manage all risks at the lowest cost, not all would be able to do this.

The business owner would therefore need to keep an eye on what could go wrong, and ensure the contractor fulfils his or her task.

In other words, the project would need to be closely monitored by a party independent of the contractor to blow the whistle in the event things go wrong. How would the entrepreneur be able to tell if the contractor is fulfilling duties as per contracted terms? One would need to be an expert in project management at the least. And have plenty of time.

It makes more economic sense to hire an independent advisor to keep a close eye on the progress of things. Taking the example of building a manufacturing factory, the business owner may decide to do away with an independent project advisor. But the role of project management in construction projects is becoming indispensable as projects get bigger and more complex.

Engaging a capital projects consultant early on can eliminate up to half your redundant costs. Your advisor should be knowledgeable about the dynamics of such projects, and can guide you on how to run your project on a budget before you are funded, thus demonstrating the seriousness of your project without replicating tasks.

Is it possible for a capital project to run as scheduled and within budget? Yes. You may ask why you should pay a consultant – with money you do not have – to advise you on a project you came up with. Well, can you afford not to?

The writer is strategy and operations consultant at PwC Advisory.

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