Cutting Capex in a crisis

The Capex reduction funnel is a key tool used to optimise project cost

The first stage is to evaluate the possibility of cancellation or postponement

Optimisation funnel

If project cancellation is not possible, follow a five-step process:

Optimisation funnel

Case study

Recent application of the funnel methodology: Major CIS steel producer with >$5bn Capex portfolio

Our client had a $5bn Capex portfolio for 2020-21, comprising of expansion projects and a complex set of interrelated sustaining capital spend. They needed to make big cuts to Capex budget to meet investor expectations but did not have any robust methodology or framework to cut costs quickly or to ensure alignment within the organisation. We were engaged to demonstrate the value of our five-step approach.

Client achieved

$25m in savings across a trial set of $450m in sustaining capital spend over a two-week engagement:

• Slag pit complex construction potential 2020-21 budget reduction by 34% due to budget reconciliation and construction optimisation
• Compressor construction potential 2020-21 budget reduction by 37% due to the major part of payment movement to 2022 via payment period extension in the contract from 30 days to 120 days and contingency costs adjustments