THE COST OF DELAY

WHAT CAN WE HELP Y0U ACHIEVE?

Accelerating Production Expansion to Maximize Value

Executive Summary

The project team was facing challenges in conveying the urgency of a critical production expansion initiative. Although the necessity of the project was acknowledged, many within the organization did not see the need for immediate action. K Carpenter Associates (KCA) assessed the situation and determined that delaying the decision could result in hard dollar costs ranging from $10 million for a one-month delay to $60 million for a two-month delay.

The Challenge

The client was managing multiple competing projects across their operational assets, all vying for limited budget and resources. While it was widely accepted that a debottlenecking project was necessary and economically viable, the significance of its timing and magnitude was overshadowed by other priorities. The project team enlisted KCA to help identify the optimal technology solution and assess the impact of decision timing on the project's outcomes.

Our Approach

  • Production Deferral Analysis: We developed a production deferral model to evaluate the impact of operational constraints on production levels.

  • Solution Identification: We identified the most economically beneficial solution to alleviate the production bottleneck and proposed a secondary option should the primary technology prove ineffective.

  • Cost of Delay Assessment: We calculated the financial implications of delaying the decision, focusing on the associated costs due to deferred production.

How We Did It

  • IDM™ "Lite" Process: KCA conducted an IDM™ "Lite" session to frame the alternatives for production expansion and address the uncertainties tied to each option.

  • Comprehensive Modeling: The assessment included a range of costs for each alternative and their impact on production. Each option influenced the production profile differently over the multi-year span.

  • Cash Flow Analysis: We evaluated the changes in production against commodity price assumptions to determine cash flows and discounted values.

  • Alternative Selection: A preferred solution, pending technical validation, and a backup alternative were identified.

  • Timing Assessment: We also assessed the timing of adopting and implementing the solution against the production profile to calculate the cost of any delays

The Solution

KCA facilitated a half-day framing session with a small team to define the technology options and the key uncertainties associated with each. When we modeled the alternatives against the production forecast, the potential value of removing production constraints was evident, totaling billions of dollars. What became clear, and new to the discussion, was the critical importance of making a timely decision.

Following KCA’s assessment, the insights were immediately communicated to senior management and asset partners. They swiftly approved a short-term, skid-based solution while the longer-term technology was tested and a permanent fix was fabricated. By implementing the temporary solution, most production constraints were lifted, effectively avoiding a $60 million loss due to deferred production.

The client continued to develop and deploy the permanent solution as testing validated the technology.