Stage/gate process

How do companies decide which projects to implement, without wasting large sums of money on dud projects?

When you’re working in the project delivery field, you’ll hear of terms such as project gating or phasing system. This is a common delivery approach that systematises what I covered in a previous blog on Making Decisions. I suggest you read that blog so you can understand the fundamentals. It may also help you make better decisions in your daily life.

I’ve drawn up a much more simplified schematic of the stage-gate system.

Stage-gate Project Development Schematic

Major companies generally adopt this type approach to filtering out good projects for implementation.

The “gate” in the schematic represents a point in time when a decision is made by an elected committee or board to sanction the outcomes of the investigation, allowing it to proceed to the next stage. There are times when the committee may decide to scrap the project or return it back into a previous stage. 

Let’s walk through the diagram.

In the first stage (Scoping), the aim is to brainstorm as many options as you can think of, followed by conducting a preliminary evaluation and then shortlisting the options down to say three to five of the best options. 

The second stage (Pre-feasibility) involves evaluating the five options using more detailed information and data so you can arrive at the single best option to go forward with.

The third stage (Feasibility) involves defining the single option in sufficient detail to allow a thorough plan for implementing the project, including identifying key risks and mitigation measures. It also involves preparing a fairly accurate cost estimate of the project. 

The fourth stage is the actual implementation of the project—construction.

In all stages, the cost estimate is included in the financial model to allow the company to confirm that they make money. 

A few key points to note:

• The real value of the project is created in the first two phases. This is when a really good idea is generated and selected for further investigation. A good idea identified here can create a whole lot more money for the company than optimising a lousy one in the feasibility stage. These first two stages are the “thinking outside the box” stages. Many Project Managers forget this and end up pushing forward pet options that have not been tested against a potentially new and ingenious solution.
• It is much more expensive to conduct a feasibility study and implement a project than it is to conduct a scoping and pre-feasibility study. Generally, if you can select a good option and be creative in your solutions during the early stages, you can potentially save a lot more money during the implementation stage or increase the revenue stream during operation.
• The risk profile goes down. As more and more detailed data is collected and further study is done, the numbers of risks are chipped away. At the feasibility stage, a thorough risk analysis of the single go-forward solution can dramatically reduce the risk profile of the project. The other benefit of risk reduction is that the cost estimate accuracy can be narrowed (I’ll cover cost estimating in another blog).

It’s important to keep in mind that the work required during each stage is complex. Over time, I’ll shed some light on some of the issues that engineer has to overcome during these stages.

There you have it—in a nutshell. You now know how major companies develop and select projects so they get a value-added project without major cost wastage.