The complex situation of the projects

Rodrigo Dassori, Engineering Project Manager

During the last few years, the world has been subjected to critical situations never experienced, to which we are just adapting. First, today’s generations are footing the bill for the ecological damage that humanity has caused to the planet since the Industrial Revolution; second, we have to deal with the competition, rules and benefits that globalization has brought; and third, we have been subjected to a pandemic that for the first time in history was global in scope, which has socially and economically destabilized the world.

Thus, the development of new industrial and mining projects, immersed in this new reality, are exposed to multiple factors that make them increasingly expensive and complex.

Today, projects must be sustainable and respectful of communities. An increasingly informed public opinion, supported by social networks that quickly disseminate any situation that is considered inadequate, means that it is no longer enough just to comply with the legal framework defined for a project. Now more is expected and demanded, making them more expensive due to the need to take charge of the negative externalities they generate. Although it is not surprising that some projects are shipwrecked by a hypersensitivity closer to politics than to technical foundations.

In the particular case of Chile, the market has reacted with uncertainty to the threat of changes in the rules of the game. Tax reforms, pension reforms or changes to the mining royalty impact costs and open the possibility of postponing or diverting investments to other markets that are perceived as more stable.

In addition, equipment, materials and supplies are in a process of progressive price increases. As an example, the prices of concrete, oil, iron, steel, wood and other products have increased between 35% and 40% in recent years, according to the Chilean Chamber of Construction, and it is not expected that they will fall in the short term. By domino effect, offers of equipment and materials are received with increasingly shorter validity periods, increasing the risk of the investment.

On the other hand, the costs of accessing credit have also become more expensive due to the effect of the interest rate hikes that most central banks have adopted to curb inflation. This condition has negatively impacted the leverage of investments, which together with greater risk, has led to higher rates of return being demanded from projects. Being subjected to higher financial demands, small deviations in cost and time can quickly destroy value so that a project simply does not get done.

Finally, from the point of view of human capital, although the demand for professionals in the areas of engineering has increased, the access of more people to higher education and the advent of technologies that multiply productivity created the “mirage” that the future would overflow with specialized personnel, but the reality is different.  since the option of innovating in their own projects has made it difficult to access professionals available for hiring.

In this context, project management has never been as decisive as it is now. Under these more competitive and complex scenarios, what can we do to develop successful projects?

Within the scope of our management, human capital is what makes the difference. We must promote the spirit of self-improvement and effort. Reward those who do it best, promote training and encourage meritocracy. We must understand that great professionals are those who can make decisions in a timely manner. It is necessary to understand the importance of our actions, and perhaps more importantly, of our inactions. The best project manager is the one who surrounds himself with excellent work teams.

As far as the externalities of a project are concerned, the ball is now in the court of the political class, since they are the ones who have the responsibility to reach agreements so that Chile has clear rules in areas such as environmental regulations, mining royalties, a new constitution and tax and pension reforms. Time is passing and in the midst of global economic uncertainty, we continue to wait for the politicians’ offsides to end.