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Weyerhaeuser Capital Management Process
Steven Harker, Project Benchmarker Weyerhaeuser Corporation
Weyerhaeuser is a 100-year-old forest products company. It is one of the first to have started reforestation and one of the first companies to really push the sustainable forestry initiative. In 1995, knowing that it had some problems in its capital system, the company started looking at different capital systems, among them being those presented today by DuPont and ChevronTexaco.
Independent Project Analysis, Inc., began working with Weyerhaeuser at this juncture. It highlighted three deficiencies in the company’s planning process:
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First, there was unclear business accountability. We had sawmills, structured wood, pulp and paper, and packaging operations. They all wanted to get money and do their own projects. But individual operations have an agenda that doesn’t always correspond to corporate goals.
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The second was that our capital allocation process lacked discipline. We had no set procedures.
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Finally, there was a strong perception of a company demand for cost predictability. To get that you can inflate your estimates. So a lot of our projects ended up coming under budget. Everybody seemed to be happy, but they didn’t realize that that budget was really inflated.
So the company built on the work that DuPont, Dow, ChevronTexaco, and others have done with IPA. Internally, we also did benchmarking to determine what we did really well and in what areas we didn’t. Out of this grew a system we call Process to Achieve Capital Excellence (PACE). We use a front-end loading
index to measure how well we are doing in our front-end development of a project.
Weyerhaeuser doesn’t use a lot of new technology, but we do well at using existing technology and enhancing it. We’re also fairly good at keeping our people on board the projects. We find that important in making sure that our projects are successful. We have improved our use of value-improving processes on our different projects. We are still having some design changes.
We’ve made some significant progress in IPA measures of cost index through our process organization. Safety is a very core business and competency in the Weyerhaeuser Company, and we’ve made some pretty good improvements there, but we are not where we want to be in safety yet.
Again, you need to make sure you are doing the right project and then make sure you are doing the project right. You have to make sure that you look at both of those. We looked at what we thought was our opportunity in development of projects—that is, doing the right project. We felt like we had a 40 percent opportunity there.
For our larger projects, we feel it is very important to have owner representation. We have a project manager on board who is a trained project manager, who is involved 100 percent of the time. We have some in-house engineering. We also use outside engineering consultants. We’ve done well at having good team representation. On all of our major projects, we had 100 percent team representation.
We feel it is very important for the owner to take responsibility for project controls, and that includes the estimate review. We don’t have a large in-house estimating department, but we have professionals who review every estimate that comes from the consulting firms and make sure they are validated.
We use various people for safety, but we feel it is very important to have them on board 100 percent of the time on our larger projects.
Some of our construction management is done in-house; sometimes we use consultants, sometimes we use a contractor. But we feel it is important to have that owner’s representation in the construction management. At the same time we feel it is important to have operations and maintenance represented to provide their expertise and their buy-in to the project, since they will be there to operate it and run it. We typically have in-house procurement. We have contracts in place with people like BE&K and other engineering and construction firms so we don’t have to spend a lot of time going out for bid all the time.
It used to be that gatekeeping was just kind of a pass-through formality, but now it is a more serious event. We have a CEO in Weyerhaeuser who takes it very seriously. He has an engineering background, so he understands that end of the businesses. He reviews every project over $7.5 million at least twice. On the smaller projects we have an organization matrix where business leaders and vice presidents do that as well. We want to make sure that we are aligned with our business strategy.
When we do projects we want to understand what the key bets are for that project, what is going to be needed to make the project a success. One is always cost of the project. But it is the other key bets of productivity and other financial key bets that make it successful, and we make sure we track those. There is always the need for clear and concise decision making in our processes. Gate 0 in Figure 6-1 is very important for us. This is our strategic validation: to say that we have really aligned with our core businesses. For example, in the sawmill industry we decided we wanted to look at getting more recovery out of our logs to lumber, because the curved sawing technology was out there.
But you want to make sure that you are not overspending. If the idea is to get more yield, do we also want more production? How does that affect the other businesses? It used to be that the solid-wood side and the pulp and paper side were separate businesses. They didn’t really talk together. So here we are putting in curved saws, and we are actually reducing the number of chips going to our pulp mills. With the PACE process we were able to understand what the impact was on that. At the same time we have less sawdust to go to our energy units where we make steam and electricity. So the PACE process (Figure 6-1) helps to look at the overall strategy of what you are doing, its effects, and how each project will also affect other business areas and other projects.
Phase 1 is opportunity analysis. We look at how we develop the business strategy into an opportunity and look at different alternatives. Phase 2 is feasibility, where we are now putting our financials in place for these different alternatives and we are going to surface the best alternative that meets this business need. Phase 3 is our proposal development, where we are putting more project definition together. This is more of your engineering-type function at this time. Phase 4 is the implementation, and phase 5 is the initial operation assessment. Phase 5 is about a year after our original start-up, so we can go back and assess how we did on the project and report back.
The strategic gates are gate 0, the point of strategic validation, and gate 3, the appropriation request. The first three in Figure 6-1 are the front-end loading areas, and then the execution of the last two phases that we have, high leverage gates. Our CEO is the decision maker at gate 0 and gate 2 for larger projects. We only have about 10 to 15 of those a year. For projects over $20 million, it is a board of directors’ decision and the CEO reviews every gate. We don’t want to have the project completely designed before authorization at gate 3, but we need to have enough to be able to develop a good estimate and a good schedule.
Value-improving practices are an important process in projects. We focus on three: (1) technology selection, (2) process simplification (or, how can we make it easier to maintain?) and (3) how can we make it more effective? Other questions are, What is the quality we are looking for? Are we looking for a 20-year life or a 10-year life in each facility, in each area? We spend a lot of time on the constructability reviews here as well.
We feel we are about halfway in our journey. We’ve made some significant changes. It is not easy. We bring new businesses on and we’ve had mergers and acquisitions. By the way, they follow this PACE process as well. There is also a phase-gated process whenever we’re buying and selling new timber or facilities.
We’ve made great efforts in reducing our costs in the execution, as well as making sure we are doing the right projects.
Steve Harker is the project benchmarking manager for Weyerhaeuser Corporation. He is an electrical engineering graduate of the University of Utah. He started his career with General Electric. His responsibilities include project definition at the beginning of the projects, collecting the data, and coaching the project teams. He is a licensed professional engineer in California.
