Small capital projects, typically defined as projects valued at less than $50 million though often less than $5 million, can account for up to 50 percent of an organization’s total capital-expenditure (capex) spend. The need for such projects is often driven by a complex diversity of factors, from growth to maintenance to health, safety, and environmental compliance. However, when looked at collectively, this large and complex spend category typically receives insufficient management attention or control, causing inefficient capital allocation and poorly prioritized project portfolios.
What we do
Through McKinsey’s extensive experience on hundreds of small capex and portfolio studies across a wide range of sectors, including materials, energy, pharma, and retail, we have developed an approach that consistently delivers at least 15 to 30 percent capex savings. This includes:
- Execution of our proven four-step portfolio-scrubbing and optimization process,
- Partnering our global bench of expert practitioners with clients’ teams, and
- Use of our proprietary tools and methodologies to optimize project efficiencies.
Examples of our work
Our innovative approach to sustaining capex consistently helps clients reduce their capital spend:
- Reduced sustaining capex by 37 percent for a mining client with mine-to-port operations in North America and Asia Pacific, with more than 200 planned capital projects each year and a sustaining capital budget of $300 million. We helped the client refine its budget target based on the age of its infrastructure and prioritize projects for detailed optimization.
- Delivered $185 million in sustaining capital reductions in just 8 weeks for a large basic-materials client with a portfolio of more than 2,000 projects and $800 million in planned annual spend. The results exceeded the client’s reduction targets and optimized risk and return for the company.
- Reduced maintenance and the capital budget by more than 20 percent for an oil and gas company at two of their large, complex refineries in the Europe, Middle East, and Africa region.
- Reduced addressed capex by 25 percent and improved the net present value of projects by 15 percent or more, through small capital portfolio optimization for a diversified chemicals company in North America with almost $1 billion in annual small capex spending. We designed a new stage-gate process and trained a team of internal change agents to continue the rollout.