Associating The Value of

Automation With Project Funding

Dave Woll

Vice President

ARC Advisory Group

dwoll@arcweb.com

2© ARC Advisory Group

Best Practice Development Process

Understand issue

• Recast as actionable

Perform Research

• Primary Research

• Direct Interviews

• Deploy Web-Survey

Analyze Research

• Organize into Performance Measures and Practices

• Identify Leader’s Performance Measures

• Compile Associated Practices

• Order Results & Classify into Leaders/Competitors/Followers

• Construct a Maturity Matrix

• Review in Orlando Forum Session

Develop and Publish

3© ARC Advisory Group

The Issue

Assignment:

• “Best Practices to show $$ benefits associated with investments in automation”

Approach:

• Develop a Best Practice Report based on “ Associating the Value of Automation with Project Funding”

Initial findings:

• The degree to which projects satisfy their original justification varies widely between Leaders, Competitors and Followers

• The understanding of the value of automation varies widely between Leaders, Competitors and Followers

• The degree to which projects are funded varies widely between Leaders, Competitors and Followers

• At the Leader level there is a correlation between all three

4© ARC Advisory Group

Performance Analysis Projects Satisfying Initial Justification

Leaders are More Satisfied with Their Projects

0% 25

%

50

%

75

%

100

%

Followers

Competitors

Leaders21% - 40%

41% - 60%

61% - 80%

81% - 100%

5© ARC Advisory Group

Performance Analysis Understanding of the Value of Automation

Leaders Better Understand Project Value

0% 25% 50% 75% 100%

Followers

Competitors

Leaders

Excellent

Good

Fair

Poor

6© ARC Advisory Group

Performance Analysis Percentage of Projects Funded

Leaders Get More Projects Funded

0% 25% 50% 75% 100

%

Followers

Competitors

Leaders

0% - 20%

21% - 40%

41% - 60%

61% - 80%

81% - 100%

7© ARC Advisory Group

Performance Analysis Effectiveness of Controlling Capital Projects

Leaders are More Effective in Controlling Projects

0% 25% 50% 75% 100

%

Followers

Competitors

Leaders

Somewhat

Dissatisfied

Somewhat

Satisfied

Completely

Satisfied

8© ARC Advisory Group

Performance Analysis Predictability of Original Cost & Schedule

Leaders are Better Able to Predict Project Costs & Schedule

0% 25% 50% 75% 100%

Followers

Competitors

Leaders

Excellent

Good

Fair

Poor

9© ARC Advisory Group

Performance Analysis Safety Record

0% 25% 50% 75% 100%

Followers

Competitors

Leaders

Good

Excellent

Projects Following Leaders’ Best Practices have a Superior Safety Record

10© ARC Advisory Group

Best Practice: Include Value of Non-Quantifiable

Benefits – HSE, In-Direct Benefits and Lifecycle

Most Companies include Non-Quantifiable Benefits

0% 25% 50% 75% 100

%

Followers

Competitors

Leaders

No

Partially

Completely

11© ARC Advisory Group

Best Practice: Include Lifecycle Value

Most Companies now include Lifecycle Value

0% 25% 50% 75% 100%

Followers

Competitors

Leaders

Other

No

Yes

12© ARC Advisory Group

Best Practice: Process for Controlling Capital

Projects

Decision-driven predominant

Surprising how many companies use "Regular Reviews“ (over one third)

0% 25

%

50

%

75

%

100

%

Followers

Competitors

Leaders

Other

Activity-driven

Decision-driven

Regular reviews

13© ARC Advisory Group

Best Practice: The Use of Front End Loading

Relative Time spent

Leaders focus more on Design basis

0% 20% 40% 60% 80% 100%

Followers

Competitors

Leaders Project Design BasisDefinition

Business Needs Definition

Project Execution Planning

Capital AlternativeAnalysis

Project Risk Analysis

14© ARC Advisory Group

Best Practice: The Use of Front End Loading

Project Risk Analysis

Red shows amount of time Respondents spent doing Risk Analysis

Research suggests Leaders spend less time on Risk Analysis

0% 25% 50% 75% 100%

Followers

Competitors

Leaders

1

2

15© ARC Advisory Group

Best Practice: Automation of Front End Loading

Leaders use internally developed tools to manage front-end loading

0% 25

%

50

%

75

%

100

%

Followers

Competitors

Leaders

Not Automated

Excel

Internal Tool

Commercial Tool

16© ARC Advisory Group

Best Practice: Dedicated Project Champion

Most users keep same project manager for duration of project

0% 25% 50% 75% 100%

Followers

Competitors

Leaders

Other

No

Yes

17© ARC Advisory Group

Best Practice: Independent Project Analysis

Membership

Leaders and competitors are more likely to be members of IPA

0% 25% 50% 75% 100%

Followers

Competitors

Leaders

No

Yes

18© ARC Advisory Group

Best Practice: Major Companies Assume Project

Control, Estimate and Market Fit Responsibility

Most Leaders take primary project responsibility

0% 25% 50% 75% 100

%

Followers

Competitors

Leaders

Sometimes

Always

19© ARC Advisory Group

Best Practice: Benefit Identification and

Estimation for Small Projects

From a Leader perspective

• Consultant, the Financial Balance, and Rules of Thumb are used equally

• Best Operator and Simulation are used about half as much

0% 25

%

50

%

75

%

100

%

Followers

Competitors

Leaders

A dynamic

process model

Best Operator

Consultant

estimates

Data Reduction

Financial &

Energy/Mass

BalanceRules of thumb

Safety Margin

Reduction

Simulation

Supplier estimates

Test Bed Results

Other

20© ARC Advisory Group

Best Practice: Benefit Identification and

Estimation for Medium Projects

From a Leader perspective:

• Most use the Consultant approach

• Rules of Thumb and Simulation are used about one third as much

0% 25

%

50

%

75

%

100

%

Followers

Competitors

Leaders

A dynamic

process model

Best Operator

Consultant

estimates

Data Reduction

Financial &

Energy/Mass

BalanceRules of thumb

Safety Margin

Reduction

Simulation

Supplier estimates

Test Bed Results

Other

21© ARC Advisory Group

Best Practice: Benefit Identification and

Estimation for Large Projects

From a Leader perspective

• Simulation is used about 38% of the time

• Dynamic Simulation and Consultants are used 25% of the time

• Safety Margin Reduction is used 13% of the time

0% 25

%

50

%

75

%

100

%

Followers

Competitors

Leaders

A dynamic

process model

Best Operator

Consultant

estimates

Data Reduction

Financial &

Energy/Mass

BalanceRules of thumb

Safety Margin

Reduction

Simulation

Supplier estimates

Test Bed Results

Other

22© ARC Advisory Group

Best Practice: Calculation for Economic Return

Research Shows that ROI is Dominant

0% 25

%

50

%

75

%

100

%

Followers

Competitors

Leaders Other

Economic Value

Added (EVA)

Return on Capital

Employed (ROCE)

Return on

Invested Capital

(ROIC)Return on

Investment (ROI)

23© ARC Advisory Group

Best Practice: Automated Economic Return

Leaders use more internal tools

0% 25

%

50

%

75

%

10

0%

Followers

Competitors

Leaders

Not Automated

Excel

Internal Tool

Commercial Tool

24© ARC Advisory Group

Best Practices Reference

The Elements of Project Systems Excellence – Edward Merrow, Founder and President of Independent Project Analysis Inc.

DuPont’s Role in Capital Projects –James Porter, VP Engineering and Operations

Weyerhaeuser Capital Management Process - Steven Harker, Project Bench marker

ChevronTexaco Project Development and Execution Process - Joe Gregory, Projects Coordinator

http://www.nap.edu/catalog.php?record_id=10343

25© ARC Advisory Group

Thank You.For more information, contact the author at dwoll@arcweb.com or visit our web pages at

www.arcweb.com