technical session innovative project management...
TRANSCRIPT
Technical SessionInnovative Project Management Approach from FEL-HUC
Pathman ArulampalamSenior General Manager, DevelopmentsHess Exploration & Production Malaysia
Ushering a New Era of Project Delivery Using Operations Science
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Good morning. The subject of our talk is about a new technical framework which improves the results achieved in the execution and delivery of large capital projects. We call this technical framework Project Production Management. It is based on Operations Science, which is a well-established scientific discipline of industrial engineering. The outline of the talk is as follows: We first explain that there capital project performance continues to poorer than what is possible, despite many years of developing and implementing new best practices over the last 50-100 years. We next trace some of the reasons for this, giving a brief history of some key developments in project management. The history is conveniently thought of as being divided into 3 Eras. We explain the key technical developments of each Era. We make the argument in this presentation that the newest Era is based on the application of Project Production management and operations science to projects to improve project results, and explain the key differences with previous approaches. Finally we briefly summarize some of the results that have been achieved.
Source: McKinsey & Company’s public annual reports; IHS Herald Global Projects Database
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There have been many tools and techniques developed over the last 100 years, to improve project management and execution Because after decades of trying different things, if we look at the results achieved, the data doesn’t show any substantial improvement in project outcomes The slide shows some recent McKinsey research which shows that 98% of major capital projects don’t meet their budget or schedule objectives. The McKinsey study is one example of several published studies that most major capital projects do not meet their initial budget or schedule objectives. When they overrun their targets, the overruns are not small, but very large, as shown in the slide. The average cost overrun is 80% of budget and the average schedule is 20 months behind original schedule. Other published studies show similar statistics.
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One clue can be obtained looking at past academic research studying the productivity of the engineering and construction industry. The graph summarizes research by Professor Paul Teicholz of Stanford University. It compares the productivity of the construction industry in the US with the productivity of a basket of manufacturing industries over roughly the last 50years. On the x-axis is time, and the y-axis shows productivity measured to 1964 levels, with 1964 levels set at 100% What it shows is that while the productivity of manufacturing has improved several hundred percent over that period, construction productivity has been approximately flat and not improved. So there is a gap in productivity of the engineering and construction industry and other industries. We argue this is a contributing factor to the poor results achieved in project outcomes reported by McKinsey and others.
The Engineering & Construction industry incumbents have not improved productivity and have not closed ‘the Gap’ with others in over 50 years
Source: The Economist - August 17, 2017
The Engineering & Construction Performance Gap
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This gap in productivity performance poor productivity performance of engineering and construction has been generally observed. A more general comparison between enginerering and construction and several other industries, beyond manufacturing was reported in the Economist, remarking on the same phenomenon. So we have established there is a gap in productivity performance in engineering and construction and other industries, and this must be responsible at least in part for the poor results reported by McKinsey and others in capital project delivery that I reported at the beginning of the presentation. How did we reach this state of affairs? I’ll discuss it next.
1910’sEra-1 Productivity
1960’sEra-2 Predictability
2000’sEra-3 Profitability
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We have looked at the last 100 years at the history of new methods and tools that have been developed and applied in project management. We think the that time period – the last 100 years - can be divided in 3 distinct Eras, each emphasizing different areas of focus. On the slide, we show 3 different book covers that are good examples of the frame of thinking of the period of time. The first Era we call Era -1 from the early 1900s to about 1940, and is represented by the “Principles of Scientific Management” by Frederick Taylor. This Era focused on productivity, mainly the productivity of human labor, and developed tools and metrics to understand and increase productivity of humans. The second period we call Era 2 – from the 1940s to the early 2000s, and is best represented by the Project Management Body of Knowledge, published by the Project Management Institute. Era-2 recognizing project outcomes were not meeting objectives and with outcomes unpredictable, and it started with the US Department of Defense launched several initiatives that are the foundation of modern project management. Era-3 evolvedin response to the claims and disputes coming out of Era-2. Era-3 views projects as production systems enabling the application of operations management / research principles and methods. We believe the Journal of Project Production Managmenet published by the Project Production Institute is an example of the areas of focus of this time period. I’m going to summarize the key findings and results for each Era, starting with Era 1.
Key Attributes Era 1 (Scientific Management)
-Separation of planning from doing
-Advent of functional support foreman
-Development of Bar Chart (H. Gantt)
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Era 1 started with Taylor’s studies. Taylor believed workers would not work. In response he separated planning from doing – this led to today’s Project Functional organization. Taylor also implemented various measures including time and motion study to address the issue. Measures used today like “time on tools”, and the use of planning supervisors and site foreman today started in this time period. In addition scheduling tools, like the Gantt chart, developed by Henry Gantt, a peer of Taylor were developed in this period. We’ll move on next to Era 2.
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Era 2 started with the US department of defence concerned at the beginning of World War 2 that their large operations and logistics in their projects were not leading to predictable outcomes. They developed a number of project management practices used today – Critial Path Method (CPM), Program Evaluation and Review Technique (PERT), work breakdown structure. These developments, and many other developments developed in following years, have been summarized and explained in the Project Management Body of Knowledge, published by the Project Management Institute, and now coming into its sixth edition.
Evolution of the Project Management “Iron Triangle”
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An example of a familiar concept that every project manager is familiar with is the tradeoff between scope/quality, cost and schedule. This idea was originally develpe by the US Departmetn of Defence, with the underlying assumptions explained in a number of technical reports, that have now been forgotten by most people, or perhaps never even known.
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One of the clear statements included in the Project Management Body of Knowledge is what is considered to be ”In Project Management” and what is “outside Project Management”. I want to draw your attention to this statement which has been in all editions of the Project Management Body of Knowledge – that the scientific and dtechnical discipline of operations management – the analysis and optimization of operations and production is outside the scope of project management. This leads us from Era 2 to Era 3.
Product-Process Matrix – modified from Schmenneter (1993)
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Operations Science – the science of the management and execution of operations and production is a well-established in industrial engineering. It has been applied in many industrial areas, in fact any industry where there are complex sequences of activities that must be synchronized and coordinated, such as telecommunications networks, manufacturing, service operations (like airports), urban traffic management. The slide shows an early book from the 1950s, on the analysis of queues and inventories, and the left hand side shows one of the fundamental ideas – classifying different types of production processes and the types of products that are best made. Any large capital projects incorporated products of different types and different volumes – ranging from high volume standardized products like fasteners or welds to which conventional mass manufacturing techniques can be applied to optimize production and delivery to engineerted to order, highly unique products. Era 3 is the time period where such knowledge, not previously applied in project management, is applied to all the different types of production used in capital projects to optimize project delivery.
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A number of the key books of operations science, on which Project Production Management are shown here, From left to right: Queueing theory and inventory analysis was pioneered by Philip Morse in the 1950s. In the 2000s Supply chain science, which most in supply chain management in capital projects are not aware of, was written. The most comprehensive summary is Factory Physics which describes all the operations science principles in Project Production Management.
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The basic differences between Era 2 conventional project management and Era 3 Project Production Management is shown here. Era 2 conventional project management, summarized on the top row captues the thinking about trading off the allocation of scope, schedule and resources to achieve targets on cost and time. Era 3 project production management recognizes additional levers available to optimize project execution, viewing projects as temporary production systems, and applying the methods of operations science to optimize the means of producton. Era 2 project management does not explicitly acknowledge or handle very well the role of variability in affecting all aspects of activity. Project Production Management, recognizes that variability affects many aspects of project activities. The way to handle variability which can be thought of as a type of risk to be managed, is to buffer it. There are only three types of buffer – capacity, inventory and time. Operations Science gives the mathematical relationships to allocate the cheapest and most effective type of buffer to handle variability. In addition we can take steps to design processes to minimize variability to the extent possible. PPM offers a new way of thinking of projects as production systems and gives a new set of tools to improve project execution and performance.
PPM at Hess
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Leveraging Bakken Knowledge
Owning LPC – Metrics Driven & People Focused
Manage Value Stream to Drive Efficiencies
CR PPA SV
STD Process Bakken EngagementsOperating Rhythm Daily, Weekly, Quarterly Lookaheads
Legacy Planning
LPC Assessments linked to PESTD Work & Training LPC Metrics – Leading Indicators for Delivery
Utica VSM – Manage WIP, Inventory, Cycle Time
Why is this important• This is Operational Physics – it is a science
– For our industry it as important to understand this just like it is important to understand fluid flow, the laws of thermodynamics etc.
It’s a science that can used by you or happen to you…which would you prefer?
Need to understand the operational science our work is governed by…for example do target dates drive the rate of work or does the rate of work drive target dates?
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For further information: go to Project Production Institute @
https://projectproduction.org/