The approach one takes to complex projects is often a critical determinant of success. A pivotal factor impacting this approach is one’s perception of the environment in which project-critical decisions are being made. In 2023 that environment was, for want of a better word, rather ‘stormy’.
As we transition into 2024, it’s imperative that we appreciate how the changing economic landscape – characterised by the Bank of England shifting interest rates c.14 times and the US Federal Reserve increasing rates some 11 times over the last couple of years, not to mention huge increases in inflation – has shaped our thinking over the last 12 months. This thinking has naturally impacted the formulation of business cases for these projects. One thing for certain is that the landscape of the last year presented unique challenges and opportunities, shaping the way senior executive teams and project sponsors navigated through high-risk, complex projects.
Therefore, within this article, we will be discussing:
- The Nature of Uncertainty
- Potentially Improving Inflation and Interest Rate News
- From 2023 Survival to 2024 Innovation and Growth
- Top Ten Strategic Shifts in Thinking for the Year Ahead
The Nature of Uncertainty on the Pricing of Complex Projects
Uncertainty increases both client and supplier tendency towards risk aversion and, therefore, the attitude to potential pricing premiums some might place on the whole life costs of work proposed. Of course, this is not just a statement about supplier pricing, it’s also relevant for any organisation that is looking to understand the estimated costs of the complex project ahead of them and whether these figures take into account the economic levers that are so important to the accuracy of predictive pricing.
Potentially Improving Inflation and Interest Rate News
Although the overall trend for inflation has been reducing over the last few months and interest rates are predicted to come down from the second quarter of this year, nothing can be taken for granted. For instance, increasing and escalating conflicts across the world can easily impact prices at home and trouble with Red Sea commercial routes and the increased tensions in major oil, technology and food production hubs can only add to the uncertainty of the future.
However, on the premise that economic conditions continue to improve, we take a look at how project sponsors can adapt their strategies to align with this outlook this year.
From 2023 Survival to 2024 Innovation and Growth
Against this backdrop we have dedicated this article to outlining the key strategies and approaches that were prevalent in 2023, examining their effectiveness and relevance in the context of the economic climate of the year and projecting forward throughout 2024 to the changes that are more likely to make this a year of innovation and growth.
Understanding these shifts is not just about adapting to change: it’s about leveraging the opportunities created by these changes to gain a competitive edge, drive innovation and achieve sustainable growth. As we explore these themes, we will touch upon various aspects ranging from investment strategies and technological innovations to talent management and ESG considerations, all of which are pivotal in shaping robust and resilient business cases for complex projects over the next twelve months.
Top Ten Strategic Shifts in Thinking for the Year Ahead
Adapting and accelerating approval of business cases for complex projects in this coming year, considering the forecast reduction in interest rates and inflation in the USA and UK, entails strategic shifts in various areas:
- Risk Appetite: The amount of risk that an organisation or project team is willing to take on in pursuit of its goals. It’s essentially how much risk organisations are comfortable with or can tolerate while trying to achieve a project’s objectives. This can vary greatly depending on the organisation’s strategy, the potential rewards of the project and their ability to manage and mitigate risks.
- 2023: Increasing interest rates and inflation caused project sponsors to adopt a cautious approach and limit perceived higher-risk ventures.
- 2024: With a more stable economic outlook, sponsors should consider increased risk-taking in new markets or innovative projects, capitalising on potentially lower costs of capital and a more receptive economic environment.
- Investment in Technology: New or updated technological tools, systems or software to improve the project’s performance. This could include buying advanced research or manufacturing equipment, implementing new software solutions or upgrading existing technology to make a project more efficient, effective and able to meet its goals.
- 2023: We saw that the financial constraints made investments in cutting-edge technology a lower priority.
- 2024: We are seeing increased confidence that sponsors are pivoting towards investing in advanced technologies which can offer long-term efficiency gains and competitive advantage, leveraging improving financial conditions.
- Capital Sourcing: The process of finding and securing the money needed to fund the project. This can involve looking for different ways to get financial support, like loans, investments from businesses or individuals, or even government grants. The aim is to gather enough funds to start and successfully complete the project.
- 2023: With higher borrowing costs projects often relied heavily on internal funding where it was available, along with the reality of projects being put on ice where it was not.
- 2024: The anticipated lower interest rates appear to be encouraging the exploration of diverse funding sources, including external debt financing, to leverage the benefits of forecasted lower interest rates.
- Project Scope and Expansion: Defining what the project will cover and potentially extending this coverage later. It involves deciding what tasks, goals and deliverables the project will include at the start and considering whether to add more tasks or goals as the project progresses. This can mean growing the project to include new features, reaching new markets or adding more complex elements to achieve bigger objectives.
- 2023: We saw the majority of projects being scoped conservatively to mitigate financial risk.
- 2024: It seems that the business environment is allowing for expanding project scopes and exploring additional features or markets, taking advantage of the more favourable economic conditions.
- Cost Management: Carefully controlling and planning how money is spent to ensure the project stays within its budget. It involves tracking all expenses, making sure they are necessary and finding ways to reduce costs without compromising the quality or success of the project.
- 2023: The focus appeared to be on stringent cost control due to economic pressures.
- 2024: Early indications are that there is increasing confidence for strategic spending in areas like R&D and marketing, which often drive future growth, that are directly benefiting from the expected economic upswing.
- Talent Management: Effectively handling all aspects related to the project team members. This includes hiring the right people, training them, making sure they are performing well and keeping them motivated and satisfied in their roles. The goal is to ensure that a project has skilled and committed individuals working on it to achieve its objectives successfully.
- 2023: The economic uncertainty was driving conservative hiring in project teams and internal client functions.
- 2024: This year presents an opportunity to attract and invest in top talent, enhancing project capabilities and innovation potential.
- Supply Chain Strategies: Planning and managing the entire process of getting the necessary materials and services from suppliers to the project. This involves choosing suppliers, negotiating costs, ensuring timely delivery of materials and managing any issues that arise. The goal is to ensure that all the necessary resources are available when needed, at the right cost and of the right quality to keep the project running smoothly.
- 2023: Supply chain disruptions necessitated a focus on resilience.
- 2024: As economic stability returns, there’s an opportunity to optimise supply chains for cost efficiency and agility. We are seeing an upturn in clients renegotiating terms with suppliers on the back of increased spend.
- Sustainability Focus: Ensuring that the project is carried out in a way that is environmentally responsible and mindful of long-term ecological impacts. It involves making decisions and taking actions that not only meet current needs but also protect and preserve resources for future generations, without causing harm to the environment. This can include using sustainable materials, reducing waste and considering the environmental impact of every aspect of the project.
- 2023: We saw that sustainability initiatives took more of a backseat, due to cost concerns.
- 2024: With the potential easing of economic pressures, we are already seeing clients starting to implement sustainability more deeply into projects, aligning with global trends and consumer expectations.
- Customer Engagement and Market Analysis: Interacting with potential customers to understand their needs and preferences and studying the market to understand trends, competition and customer behaviour. This involves communicating with customers, gathering feedback and using this information to make informed decisions about the project, ensuring it meets customer needs and succeeds in the market.
- 2023: High inflation appeared to be leading to cautious market expansion strategies.
- 2024: We have observed that project sponsors are increasingly looking to re-engage with market analysis and customer engagement strategies, tapping into potentially recovering markets.
- Long-term Planning: Making detailed plans for the future of the project. This involves thinking about and preparing for what needs to be done not just immediately, but also months or years down the line, to ensure the project’s success. It includes setting long-term goals, anticipating future challenges and making plans to address them.
- 2023: We very much saw that the focus was on short-term survival and profitability (or cost-cutting).
- 2024: With increased confidence in a more stable economic outlook, we are observing that project sponsors are refocusing on long-term strategic planning, aligning projects with future market trends and technological advancements.
Conclusion
Heading into the year, project sponsors face a critical shift in managing complex projects. It’s important to recognise the necessity of evolving strategies to align with what is hopefully an improving economic outlook and for sponsors to move from the cautious tactics of last year, dictated by fluctuating interest rates and inflation, to a more dynamic approach.
This means sensibly embracing risk, innovating in technology, diversifying funding, expanding project scope, refining cost management, investing in talent, optimising supply chains, focusing on sustainability, engaging with customers and adopting long-term strategic planning. These changes aren’t just advisable – they are essential for capitalising on improvements in the market positioning and competitiveness of your organisation in the wider market.
