slide 1 risk in mega projects seminar and workshop mega projects life cycle: project execution and...

Risk in Mega Projects Seminar and Workshop

Mega Projects Life Cycle: Project Execution and Delivery Process

5 - 7, 2007

Trondheim, Norway

Dr. George Jergeas PEng.Professor of Project Management

University of Calgary, Alberta

part of the Aker group

References

This section is based on presentations by:

• Dr. Nick Lavingia, PE, Chevron

•Bill Watson, VP Engineering and Project Management, Husky Energy

• Public Works and Services Canada PDS

Agenda

■ This presentation is in two parts

1. Oil and gas industry experience

2. Infrastructure projects best practice


Project Development & Execution Process (PDEP)

in the Oil and Gas


Structured and Gated Process

Effective Communication Between Decision Makers, Multifunctional Project Team and Stakeholders

Objectives

To Gain:

■ Understanding of the PDE Process and framework for more effective delivery of projects and programs, based on shared experience & lessons learned

■ Structured and Gated Process to ensure Effective Communication Between Decision Makers, Multifunctional Project Team and Stakeholders

■ Understanding of processes and sub-processes associated with the PDE Process

■ Understanding of the opportunities for improving PM practices & the barriers to be overcome


A Process that Facilitates the Optimal Use of Resources (Dollars, People and Technology) Over the Life of an Asset / Project to Maximize Value.

Desired Outcome

■ Select the Right Projects by Improving Decision Making

■ Improve Project Outcomes through Excellence in Execution of Decisions

PHASE 2SELECT fromAlternatives

Determine Project Feasibility andAlignment withBusiness Strategy

Project Phases

PHASE 1IDENTIFY & Assess

Opportunities

Finalize Project Scope, Cost and Schedule and Get the Project Funded

Select thePreferred Project Development Option

Evaluate Asset to Ensure Performance to Specifications and Maximum Return to the Shareholders

PHASE 3DEVELOP Preferred

Alternative

PHASE 4EXECUTE

(Detail EPC)

PHASE 5OPERATE &

Evaluate

Produce an Operating Asset Consistent with Scope, Cost and Schedule

1 2 3 4 5

AFE

-DBM- Application

-FEED-Long-Leads

- Reg. Approval- AFE

- Detailed Design- Procurement

- Fabrication-Construction

-Commissioning

-Start-Up - Perf’m Testing- De-bottleneck

-Feasibility

Project Phases

DBM

Feasibility

Regulatory Approval

AFE

Screening

FEED

Pre-AFE

PHASE 2SELECT fromAlternatives

Clearly Frame Goal

Test for Strategic Fit

Preliminary Overall Plan

Preliminary Assessment

~1 % Engng.

Phase 1 Estimate


PHASE 1IDENTIFY & Assess

Opportunities

Fully Define Scope

Develop Detailed Execution Plans

Refine Estimate

Submit Funding for Approval

~25 % Engng.

Phase 3 Est. (+/- 10 % Accuracy)

Generate Alternatives

Preliminary Development of Alternatives

Develop Expected Value

Identify Preferred Alternative

Phase 2 Est.

Operate Asset

Monitor & Evaluate Performance

Identify New Opportunities

PHASE 3DEVELOP Preferred

Alternative

PHASE 4EXECUTE

(Detail EPC)

PHASE 5OPERATE &

Evaluate

Implement Execution Plan

Min. Changes

Finalize Operating Plan

Business Plan for Phase 5

Project Review

1 2 3 4 5

AFE

AFE = Appropriation For Expenditure

Phase 1 Flow Chart: Identify

DefineOpportunity

IdentifyStakeholders

IdentifyExpectations

FrameProject

Develop ProjectSpecific Business

Objectives

Plan forPhase 2

ConceptEvaluation

DevelopConceptual

Scope

Assess CurrentSituation

Phase 1Estimate

StrategicBusiness

Assessment

OK?

Yes

No

QualityReview

IDEA

To Phase 2

Recycle

Phase 1 Deliverables

Business Objectives & Priorities Business Objectives & Project Framework

Process Preliminary Block Flow Diagram, Preliminary Capacity

Site / Infrastructure Preliminary Site Selection, Integration, Development Plan

Execution Defining Vision of Success

Risk Analysis Strategic Risk Assessment

Permit / Regulatory requirements Preliminary Permitting Plan

Contracting

Estimate Phase 1 Estimate (High Contingency & Wide Accuracy)

Schedule Preliminary Milestone Schedule

Resource Plan Plan for Phase 2 Resources

Economics Preliminary NPV, ROR, DPI, Payout

Typical AssessAssessPhase Events

• Determine project feasibility and alignment with business strategy

• Define business objectives

• Identify technology options

• Determine market feasibility

• Preliminary risk identification and mitigation planning

• Establish preliminary HS&E issues

• Develop project execution plan for next phase

• Develop a work plan for the Select phase

• Identify joint ventures/partner issues & opportunities

• Develop a +/- 40% cost estimate ( ~/= 5% of total Engineering)

• Incorporate shared learnings from After Action Reviewson similar projects executed by Husky & Competitors

ASSESS

Phase 2 Flow Chart: Select

BeginExecutionPlanning

Prepare Pre AFE

Plan forPhase 3

Select and RefineAlternative

ProjectSelf-Evaluation

Pre AFEApproval

OK?

Yes

No

EstablishObjectives and

Priorities

ReviewPhase 1Package

Appoint ProjectSponsor, GPM,

PM and Op. Rep.

Generate andEvaluate

Alternatives

Phase 2Estimate

From Phase 1To Phase 3

Recycle

Phase 2 DeliverablesBusiness Objectives & Priorities Preliminary Facility & Project Objectives

Process PFDs, Equipment List, Technology Selected

Site / Infrastructure Site Selected, Utility Balances

Execution Defining Strategy for Success

Risk Analysis Project Risk Assessment

Permit / Regulatory requirements Detailed Permitting Plan

Contracting Preliminary Contracting Plan

Estimate Phase 2 Estimate (Moderate Contingency & Moderate Accuracy)

Schedule CPM Schedule


Economics Updated NPV, ROR, DPI, Payout

Typical SelectSelect Phase Events

• Select the preferred development option(s)• Identify critical and major equipment needs• Refine HS&E assessment • Submit permit application(s)• Update Market feasibility and partnering plan• Develop Exit strategy• Update Cost Estimates to +/- 25% (5-10% of Engineering)• Update Risk identification and Mitigation plan• Conduct a Peer Review - as appropriate• Update Market feasibility and partnering plan• Adjust core/extended project team membership• Update project execution plan for next phase• Develop a work plan for the next Phase (definition)

SELECT

Phase 3 Flow Chart: Develop

UpdatePermitting for

Selected Alternative

FinalizeExecution

Plan

Phase 3Estimate

AFEApproval

OK?

Yes

No

ContinueExecutionPlanning

BuildProjectTeam

DefineProject

IPA andSelf-Evaluation

From Phase 2 To Phase 4

Recycle

Phase 3 Deliverables

Business Objectives & Priorities Final Facility & Project Objectives

Process P&IDs

Site / Infrastructure Final Plot Plan, One Lines

Execution Defining Tools for Success

Risk Analysis Finalize Project Risk Assessment

Permit / Regulatory Requirements Update Detailed Permitting Plan

Contracting Detailed Contracting Plan

Estimate Phase 3 Estimate (+/- 10% Accuracy)

Schedule Resource Loaded CPM Schedule


Economics Final NPV, ROR, DPI, Payout

Typical DefineDefine Phase Events

• Finalize Project Scope, Cost and Schedule

• Prepare project AFE approval

• Prepare Decision Support Package (DSP) for project sanction

• Secure partner approvals if appropriate

• Finalize the Project Execution Plan (PEP)

• Update project team membership

• Conduct independent peer review

• Finalize cost estimates to +/- 10% (up to 20% of total Engineering)

• Conduct value engineering - as appropriate

• Finalize risk identification and mitigation plan

• Finalize the Design Basis Memorandum (DBM)

• Conduct After Action Review - as appropriate

DEFINE

Phase 4 Flow Chart: Execute

Turnover

Construction

Procurement

Training

OperationsPlanning

Commissioning

Detailed Design

ImplementExecution Plan

From Phase 3

To Phase 5

Recycle

Phase 4 DeliverablesBusiness Objectives & Priorities Deliver Operating Asset

Process Trained Personnel

Site / Infrastructure Manage Progress

Execution Implement Plan with Minimal Changes

Risk Analysis Manage Project Risk Register

Permit / Regulatory Requirements Manage Project Permit Schedule

Contracting Execute Contracting Plan

Estimate Monitor & Control Estimate

Schedule Monitor & Control CPM Schedule


Economics Monitor NPV, ROR, DPI, Payout

Organization for PDEP Phase 4 -- Execution

GeneralProject Manager

Project Manager

Execution Team

Business

Technical

Manufacturing

Corp. Strategy

Planning

Operations

Maintenance

Safety

Consultants

Specialists

Purchasing

DesignConstructability/Construction

Materials Management

Process Engineering

Project Finance

Metrics

IPA

Regulation

Environmental

Safety

Finance

Human Resources

Public Relations

MarketingProject

Sponsor

Project GoalsSBU Strategy

EXECUTE

• Execute project execution plan

• Deliver operating asset consistent with scope, cost & schedule

• Implement project controls and reports on project metrics and status

• Implement HS&E plan

• Implement contracting strategy

• Implement value practices

• Commission and startup

• Conduct After Action Review

EXECUTETypical ExecuteExecute Phase Events

Phase 5 Flow Chart: Operate

FullOperation

Post ProjectAssessment

Start-Up

Business Evaluation

From Phase 4

Phase 5 DeliverablesBusiness Objectives & Priorities Business Evaluation & Benchmark

Performance

Process Look for Debottlenecking Opportunities

Site / Infrastructure Look for Debottlenecking Opportunities

Execution Share Lessons Learned

Risk Analysis Update Risk database

Permit / Regulatory Requirements Update Permitting Database

Contracting Update Contractor Database

Estimate Update Cost Database

Schedule Update Schedule Database

Resource Plan Update Resource Database

Economics Validate NPV, ROR, DPI, Payout

OPERATE

• Operate and Evaluate the asset to ensure performance to specifications and maximum return to shareholders

• Conduct a final After Action Review and capture shared learnings

• Post appraise / evaluate the actual asset operation and business results versus the performance targets. The evaluation will be conducted under the approval market environment (pricing etc) and under the current market conditions.

• Identify potential improvement opportunities for future projects

• Develop a reservoir depletion plan - as appropriate

• Identify new opportunities

• Turn over operating documentation

OPERATE Typical OperateOperate Phase Events

Achieving World-Class Performance

EXECUTION

Diligently implement PDEP, Key Project Management Principles, and Project Management Best Practices. Strive for zero incidents.

COST

Final capital cost at least 10 percent below industry norm.

SCHEDULE

Final engineering/construction schedule amongst the best achieved by a similar project in the database.

ATTAINMENT

Attainment achieved at 100% design capacity per project objectives.


Project Delivery System for Infrastructure Projects

Project Delivery System

A framework within which projects are developed, acquired or implemented, and put into service

A series of project phases from inception to completion

Project Delivery System (PDS)

■ The six phases are:● Planning● Definition● Implementation● Commissioning● Operation● Evaluation

Planningphase

Operation

Evaluation

DefinitionPhase

Implementation

Commissioning

Investment

Analysis Report

EvaluationReport

Facility inuse

Comm.Report

Built works Project Brief

PROJECT DELIVERY SYSTEM


Phase 1

Objectives

■ Identify and define in detail the client investment opportunity, need or problem

■ Assess all feasible alternatives

■ Define organization and any required controls

■ Establish the project budget and completion date

■ Specify criteria for evaluating the project

Five Steps

1. Project Initiation2. Client Opportunity/Need

Identification3. Regulatory Considerations4. Options Analysis5. Owner/Investor Approval

Main Out Put: IAR

■ Investment Analysis Report (feasibility) ● To ascertain whether the concept for a project is

technically and/or economically feasible for further study

● Identify the optimum solution


Phase 2

Planning

Operation

Evaluation

Definition

Implementation

Commissioning

Investment

Analysis Report

EvaluationReport

Facility inuse

Comm.Report



2. Objectives

■ Translate the IAR into verifiable technical criteria

■ Prepare Project Brief or Scope definition

■ Define implementation strategies, including project management controls

■ Transfer responsibility to the PM

■ Select best alternative, technology, capacities and site location

■ Choose consultant

Two Major Steps

1. Production of the Project Brief/Scope Definition

● Option Refinement● Resource Strategy● Project Team/WBS● Project Funding Agreement● Regulatory Concerns● User Requirement Definition/Project Brief

Two Major Steps

2- Consultant Selection

● Project Terms of Reference● Consultant Service Agreement preparation● Consultant Selection● Consultant Contract● Proponent Debrief


Phase 3

Planning

Operation

Evaluation

Definition

Implementation

Commissioning

Investment

Analysis Report

EvaluationReport

Facility inuse

Comm.Report




Implementation

1. Design

2. Tendering and award

3. Construction

Design

Objective

■ The objective is to design the project in detail, obtain necessary approvals, estimate costs and prepare drawings and specification.

Design

■ Prepare:●a concept design●a detailed design drawings, specifications

and schedules●bills of quantities (if needed)●final cost estimates●time schedule

Design: 7 Steps

■ Set up design team

■ Define project control criteria

■ Pre-design report

■ Concept design

■ Design development

■ Project Approval

■ Construction documents

Tendering

Purpose■ To select a contractor, or a number of contractors who

will unconditionally meet all of the terms and conditions set out in the tender documents at a competitive market price.

Implementation

Contracting Policy

Contracting shall be conducted to:

■ Stand the test of public scrutiny in matters of prudence and probity, facilitate access, encourage competition, and reflect fairness in the spending of public funds.

■ Ensure the pre-eminence of operational requirements.

Contracting Policy

■ Three ingredients● Honesty● Fairness● Best Value

■ Public sector and private sector contract are fundamentally administered in the same way

■ More later about bidding.

Implementation - Design

Construction

Purpose: To physically construct the project within the agreed limits of cost and time, and to specified quality within safe and healthy environment.

● Construction is the most expensive, intensive and difficult phase

Construction

Activities

■ To plan, coordinate and control site operations

■ Planning includes the formulation of:● Time schedules● Site organization● Labour resources plan● Equipment plan● Material delivery plan

Construction

Activities

■ Site operations include● All temporary and permanent construction works,

and supply of all built-in furniture and equipment● The coordination of subcontractors● General supervision/inspection

Main Activities During Construction

1. Start-up meeting

2. Management

3. Construction process

4. Post construction

5. Contract closure

Phase 4

Planning

Operation

Evaluation

Definition

Implementation

Commissioning

Investment

Analysis Report

EvaluationReport

Facility inuse

Comm.Report



Commissioning

■The process of advancing an installation from the state of static completion to full working order in accordance with the design intent.

Why Do You Commission?

■Commission From two Perspectives●The Engineering Perspective●The Contractual Perspective

Engineering Perspective

■ Ensure the design intent has been met relative to the design specifications.

■ Ensure the design intent will meet the operational requirements relative to:● Program● O&M● Cost● Safety

Contractual Perspective

■Ensure contractual responsibilities in terms of supply and installation versus design are not compromised or negated.

Phase 5

Planning

Operation

Evaluation

Definition

Implementation

Commissioning

Investment

Analysis Report

EvaluationReport

Facility inuse

Comm.Report



Objectives

■ Establish and ensure reliable (operating systems) in the facility

■ Establish, test and record the operating performance of the systems

■ Maintain adequate operation and maintenance records

■ Establish a preventative maintenance program

■ Identify an operating and maintenance budget

■ Respond to specific requests for services from the Client

Phase 6

Planning

Operation

Evaluation

Definition

Implementation

Commissioning

Investment

Analysis Report

EvaluationReport

Facility inuse

Comm.Report



Objectives

■ Four main objectives:

1. To assess the project in specific terms, comparing planned and actual;

2. To compare the actual performance with the plans and the appropriate norms considered, in order to determine any variances;

Objectives

3. To clearly identify variances outside acceptable limits, so they can be reviewed for further action; and

4. To record the project performance for: ● Management review● Sharing with other regions, and● Contributing to PWGSC’s lessons learned database

3. Types of Evaluation

1. Project evaluation

2. Contractor evaluation

3. Consultant evaluation

What We Learned

A good framework to deliver a Quality end product, on time and within budget to client satisfaction Procedural guide and reference for project team members

and managers Basis for training

Best practices are implemented

Achieves good working environment

Due diligence is exercised

slide 1 risk in mega projects seminar and workshop mega projects life cycle: project execution and...

Documents

project execution

asset project

project review12345afeafe

project outcomes

multifunctional project

delivery process

execution of decisionsphase

preferredalternative