Avoiding megaprojects pitfall
project teams and corporate together
How can the corporate structure support project development in a megaprojects environment? With a portfolio of more than US$45 billion dollars in capital expenditure just for projects already in execution, and with several other opportunities under study, in the following years, the company may face a capital investment much higher than what Vale was used to spending. To prepare for the challenge, the company is structuring its corporative departments to support project development and execution, beyond its regular roles of defining the project management standards and controlling project performance.
With the increased investments, controlling project development and execution performance is certainly a challenge, but it is not enough to guarantee successful results. The paper will demonstrate how the corporate departments decided to change their roles from exclusively defining, maintaining and controlling the use of corporate processes and standards, to include project support in different areas.
From the creation of the corporate project management office (PMO) in 2005 until now, many different tools and processes were developed to control Vale's portfolio and also to help project teams to apply the industry's best practices in project management. Currently, this department also uses its resources to help project teams through internal consultancy services and to apply a new tool: On-The-Job Training (OJT), which consists of a service in which the project team is trained by doing the work together with the corporate PMO's specialists. The main OJTs created are presented in this paper, with special focus on the FEL Methodology training.
The Challenges of a Megaprojects Portfolio
Vale's History and Position in the Global Market
Vale was created in 1942 by the Brazilian government and was privatized in 1997. Today, Vale is the second largest mining company in the world, the first in iron ore production, and has almost 140,000 employees in 37 countries, plus more than 50,000 employees working in the execution of its capital projects. The revenue in 2011 was US$60 billion, and the net profit was close to US$23 billion.
Following its expansion program, initiated in the middle of 2000, Vale started to invest in other countries beside Brazil, such as Peru, Argentina, Canada, Guinea, Mozambique, Australia, and Malaysia, among others. And, beyond its physical expansion, the projects' sizes also increased. Multi-billionaire projects became common on the company's portfolio, which only helped to increase the difficulties in the portfolio management. Exhibit 1 shows where Vale is established or investing today.
Exhibit 1 – Where Vale is present today.
The Project Management Model and the Corporate Structure
The amount of investment that has been put in place by the company since 2002 is much larger than the total amount invested in the entire company's history, and Vale had to create the adequate environment to allow the large projects to be adequately developed and executed. Standardizing the project management process was necessary, so the company could be confident that its investments would turn into good assets in the near future.
In this context, Vale started to develop its project management model. The first step occurred in 2005, when the company decided that it would build its processes and standards to align with the Front-End Loading (FEL) Methodology, a project development process characterized by three planning phases (FEL 1, FEL 2, and FEL 3), with decision gates between them—when the business can evaluate the market, the project, and the portfolio to authorize a project to move forward or not. Exhibit 2 shows the structure of the FEL Methodology, which represents the basis for project development in Vale.
Exhibit 2 – The principles of the FEL Methodology.
After that, one entire department (the corporate PMO) was created to take care of the development of the company's procedures and standards. The effort to develop an entire project management model continued, and in 2009, Vale's model had its first version released, with all the components that are present today.
The basic principles of Vale's methodology were defined as:
- Discipline and standardization;
- Continuous improvement;
- The effective use of performance indicators;
- Adequate technology;
- Continuous involvement with stakeholders; and
- Development and integration of the project teams.
Vale's model also defines a set of tools that were developed in order to guide project teams during the development and execution phases. Some of the tools are shown in Exhibit 3, as well as the phase when it is applicable.
Exhibit 3 – Some of the tools of Vale's Project Management Model – a simplified view.
The purpose of each tool is described as follows:
- The project manager's Logbook: a document that presents good management practices that must be applied by project managers in every project, to reduce risks and increase performance. Those practices were first identified by experienced project managers within the company and are annually updated.
- Integrated Risk Management: set of standards to help project teams to adequately assess a project's risks at each phase of the project life cycle. And beyond the standards, Vale also uses a tool for the quantitative risk analysis, which is used for the Monte Carlo simulation. More details about the Integrated Risk Management tool are provided in the next section, when the Risk Management internal consultancy work is explained.;
- Value Improving Practices (VIPs): are out-of-the-ordinary engineering practices in relation to industry standards; they consist of optimization studies, with application of specialized techniques and systems, seeking to use resources more efficiently, and maximize return on investment to shareholders. Vale defined a set of thirteen practices that can be used during project development, in order to improve its performance. More details about the VIPs are provided in the next section, when the VIPs OJT is presented.
- The Capital Projects Cockpit: an online tool that has all updated information about the company's capital projects, from FEL 1 to the start-up, available to all corporate levels. Constitutes a unique basis for all project information in Vale, and can be accessed worldwide.
- The Lessons Learned database: Vale created a database to keep all lessons learned provided by project teams. Those lessons learned are available in Vale's Capital Projects Portal, on the intranet, and can be used by every project in the company.
- The On-The-Job Training (OJT) services: the objectives and details of the OJT services are provided in the next section.
To manage such a robust project management model, Vale expanded the role of the corporate PMO. This department is placed in Vale's corporate structure under the Financial Executive Director, giving to the area the necessary independence to work in the interface between the Project Execution Department and the Business Units, as shown in Exhibit 4.
Exhibit 4 – Vale's Corporate Structure – a simplified view.
The business units are responsible for developing the FEL 1 and FEL 2 phases for the capital projects. Once a project is authorized to initiate the FEL 3 phase, it is handed over to the Capital Projects Department, which is responsible for developing this phase and is also responsible for construction. The final asset returns to the Business Unit once it starts up.
The corporate PMO is placed under the Finance Executive Director, which represents that the department is independent from the Business Units (FEL 1, FEL 2, and Operations) and the Capital Projects Department (FEL 3 and Execution). This is necessary in order to allow the corporate PMO to define the standards based on the industry's best practices (and not based on what projects could consider “comfortable”), and to audit the project's adherence to the Project Management Model.
Since the Corporate PMO was created, it has included several departments, each one designed to develop and maintain the standards and guides for each one of the main disciplines of Vale's Capital Projects Management Model. Today the following areas exist: Capex (budget), Planning and Control, Risk Assessment, Engineering, VIPs, Construction, Operational Readiness, FEL Methodology, Governance, and Knowledge Management. The other disciplines involved in project development and execution, like Health and Safety, Procurement, Environment, are managed by other corporate areas, outside the corporate PMO. The relationship between all the corporate departments and the PMO is discussed in the Interdependent Projects section.
The Standardization System – more than 1,000 Documents are Available
Beyond creating an entire department to develop, manage, and maintain the Project Management Model, Vale also developed a system to keep all standards and procedures in the company's intranet available globally. The system, called the Engineering Standardization System, was first created to keep all of Vale's engineering standards. As previously, the projects were managed in a decentralized manner, it was common that the projects hired the engineering contractors to develop the basic set of standards and design criteria for that particular project. Because this work was done almost simultaneously in different projects, the company was spending time and money to recreate documents that were very similar or, on other occasions, different design criteria were used for similar projects in different regions.
To save this time and money, Vale developed the Engineering Standardization System to keep the engineering guides and design criteria; more recently, the company also started using this system to keep all the project management procedures and templates. Today, this system has more than 900 engineering procedures and standards and more than 200 project management standards. In addition, when best practices are identified or when corrections are necessary, the use of a centralized system helps the company to quickly update the standards, and every project around the world has the opportunity to access the new standards online, in Portuguese and English.
The Auditing and Control Systems
Under the controlling role of the corporate PMO, some tools were developed to help the company verify how projects are developed and executed and to check the adherence of the project management practices to the company's standards. Three tools were created in order to assess how projects were performing:
- The Project Maturity Assessment: a multi-disciplinary group of professionals is in charge of evaluating all the company's capital projects at the end of FEL 2 and FEL 3 phases. The objective is to check the adherence to the best practices, identify gaps in the project development, and assess the risk of authorizing the project to move forward to the next phase;
- Project Management Excellence Check – CEG Proj: this tool aims to verify the adherence level of the capital projects to the good project management practices published in the Project Manager's Logbook and to Vale's Project Management Model.
These control tools help the company to assess how the capital projects are being developed and implemented and provide timely and accurate information to the business. However, as previously indicated, just checking and auditing the projects were not enough. The corporate PMO identified that, if the experience of its professionals was also used to help the project teams, the use of the resources would be more effective, and lessons learned would be shared more quickly. Beyond that, this represents a more proactive approach, better than just controlling the work that was done. The department then decided to create a series of tools to help the capital projects' development and execution — internal consulting and the On-The-Job Training, as will be explained in the next two sessions.
Internal Consulting and On-The-Job Training (OJT)
To spread the best practices and share the lessons learned among the company's project teams around the world, the corporate PMO created the internal consultancy and the On-The-Job (OJT) Training services, which proved to be effective ways to share experience from the corporate areas to project teams worldwide. When resources from the corporate PMO help project teams by asking questions and solving doubts, it is considered an internal consultancy service. This can be done every time a project needs help. But, beyond the internal consultancy support, the department also created the On-The-Job Training (OJT), a set of sessions in which specific and structured tools are applied. The main objective of the OJT is to train the project team by “doing it together” — the corporate PMO's areas of competence send professionals to the project site to apply those tools and, at the end of the work, a report is issued with the main recommendations for the project team.
Beyond providing these services, this different approach also helped to change the image that project teams had of the corporate PMO: the department was not only the one that was in charge of auditing the project teams, but now was also the one that could provide experienced professionals to help project teams to solve problems and to execute better projects. With this new approach, the department had the necessary environment to fully apply its tools to help project development and execution, as will be shown in the next topics.
The Integrated Risk Management discipline aims at minimizing project problems and flaws and preventing fatalities and rework. It also contributes to the project environment stability and competitiveness. The Integrated Risk Management methodology is applied in every one of Vale's capital projects, from the FEL 1 phase until the end of the start-up; and in each phase, the project's risk management evolves, gaining a more detailed analysis. The framework of the Integrated Risk Management process is presented in Exhibit 5.
Exhibit 5 – The Integrated Risk Management framework.
As well as the FEL Methodology, the Integrated Risk Analysis is called “integrated” because it helps the project team to analyze risks, threats, and opportunities in a multi-disciplinary context, involving: engineering, technology, environment, health and safety, planning, procurement, community relations, human resources, land management, strategy, and economic feasibility. The corporate PMO has one department that is responsible for developing the risk management procedures and maintaining the tools that are used, as the Monte Carlo Simulator is used for quantitative risk analysis. The same department is also responsible for facilitating risk identification sessions and for training project professionals in the risk management discipline.
In the last three years, the corporate PMO's Risk Assessment Department has participated in more than 50 risk identification sessions, running many Monte Carlo simulations at the end of FEL 3. Beyond helping project teams in the risk assessment and management, this department also feeds back the upper management showing the recurring risks in the company and the overall risk exposure of the portfolio.
The Operational Readiness is a systemic and structured approach that aims at preparing the project to start to operate. The Operational Readiness work starts right at the beginning of project development, that is, during the FEL 2 phase. This signifies that the Operational Readiness team is responsible for representing the “eye of the owner” over the project life cycle.
The corporate PMO created an area dedicated exclusively to developing the Operational Readiness tools and procedures, which help projects to be ready to operate, reducing schedule delays, problems during startup, and enhancing operability. The basic components of Vale's Operational Readiness Model are presented in Exhibit 6.
Exhibit 6 – The Operational Readiness' Technical Support – a simplified view.
The corporate PMO's department for the Operational Readiness discipline has applied in the last two years, more than 35 OJTs in Vale in projects around the world. The main OJTs performed were related to helping the project teams to make a self-assess (diagnosis) of the Operational Readiness, to develop the Operational Readiness Plan, to develop the Preliminary Commissioning Plan, and to develop the planned ramp-up curve.
Value Improving Practices
As already explained, the Value Improving Practices (VIPs) are out-of-the-ordinary engineering practices in relation to industry standards. Vale defined a set of thirteen practices that can be used during project development, in order to improve its performance. The effective use of the VIPs in capital projects can represent better predictability and competitiveness of the projects' outcomes. The list of VIPs that are used by Vale is presented in Table 1.
|Technology selection||Constructability||Design-to-capacity||Structural reliability and optimization|
|Process simplification||Process reliability simulation modeling||Energy optimization|
|Classes of facility quality||Customizing standards and specifications||Value engineering|
|Waste minimization||Predictive maintenance||3D CAD|
Table 1 - VIPs used in Vale.
The corporate PMO also created a department to develop the standards and guides for the application of VIPs in Vale. The VIPs team is responsible for applying the VIPs OJT, helping projects to improve their design, the construction strategy and sequencing and, therefore, improve their competitiveness. In the last three years, more than 54 VIPs were facilitated by the corporate PMO personnel or by external consultants (following Vale's standards). The main VIPs applied are the Constructability Reviews, Value Engineering, and Classes of Facility Quality.
Front-End Loading (FEL) OJT
Together with the creation of other OJT and internal consultancy services, the corporate PMO also created an OJT that aims at helping projects to have a better adherence to the company's FEL Methodology. This OJT supports projects in development of the FEL 2 and FEL 3 phases, and is divided into three steps, which can be performed at once or on different occasions, depending on the project team's availability. The three steps are: a basic training on the FEL Methodology, the support to help the project team to better plan the development phase, and a discussion with the project team about the recent lessons learned.
The FEL Methodology Training
The first step of the consultancy work is to present the basic training on the FEL Methodology, that details the development phases every project goes through (FEL 1, FEL 2, and FEL 3), the stage-gates processes and the main deliverables that must be developed by every project in each phase. The training also discusses the main risks of not following Vale's methodology, not making the big decisions in the right moment, and good practices applied by other companies that are fundamental for the success of megaprojects.
All project team members participate in the training, to gain alignment, and have the chance to discuss their doubts with the entire team. The training is the first step of the work because it was identified that, many times, some team members did not understand why they needed to develop one plan or deliverable. The perception, in these cases, was that the deliverable was necessary “because the methodology demands it,” while the main reason is that it is important for the project.
Planning the Project Development
When working with capital megaprojects, everything becomes huge. Only the development (or planning) phase (from FEL 1 to FEL 3) is much bigger than many other projects in other industries. For a capital megaproject with an estimated budget of more than US$ 1 billion, the FEL 2 and FEL 3 phases can last, each one, more than one year, and involve more than 150 people, from the owner side. Many different studies and services are planned, contracted, controlled, and paid during this period, such as: soil borings, environmental studies, conceptual engineering (FEL 2), basic engineering (FEL 3), land acquisition, logistic studies, and so forth. Until completing the development phase, a capital megaproject will have spent from 5% to 8% of its total budget, to develop all necessary studies before starting execution, according to industry data. For a project with a budget of US$5 billion, this can represent up to US$400 million! And the correct and timely development of all this work is fundamental to project success.
To help the project teams to manage all this work properly, the second step of the FEL Methodology OJT is to discuss all project deliverables defined in Vale's model to identify, select, and prioritize the main deliverables that must be developed. This discussion results in a customized project schedule that addresses all the project's particular characteristics, guaranteeing that the project manager and the team members understand the necessary time and resources to successfully prepare the project for execution. The project development schedule is developed based on the conceptual and basic engineering schedules, considering all the necessary interfaces to support the development of the environmental studies, the budget, the detailed planning for the execution phase, the strategic procurement packages, and so on.
The project development schedule developed during the OJT also has all the resources from the project team and the main points of contact from the contractors that are responsible for executing each activity, as well as Vale's corporate areas that must be contacted. So, at the end of the exercise, the project team has a detailed schedule of the development phase, with a complete network that involves the entire set of Vale's corporate departments. The entire company is tied up in the process!
This exercise was developed to improve the sharing/discussion of the company's lessons learned, and to show the project teams that Vale's Standardization System already has guidelines and procedures that aim at helping project professionals to avoid risks and to develop good work. During a meeting that lasts one day, the FEL Methodology OJT instructors present the main risks and problems faced by other Vale's projects in the last two days. For each risk or problem presented, the instructor shows the impacts that can happen on the project objectives if it happens. Also, the instructor shows the guidelines and procedures that were developed to prevent the same problems from happening in new projects, guiding the project team members in using the right tools and standards to prevent project fail.
Simultaneously, the instructor also facilitates a quick risk assessment session. For each risk or problem presented, the project team is asked if that risk can be considered to be significant for that specific project. If the team thinks so, the instructor helps them to highlight some responses that will be treated more deeply during the formal risk assessment exercises that are done later, as explained previously.
Actual Results and Expectations in the Short Term
Some numbers, qualitative perceptions, and feedbacks from project leaders show the results that were already achieved with the FEL Methodology OJT:
- In the last twelve months, several of the Vale's projects in the development phase requested and applied the FEL Methodology OJT. The total budgets of these projects totaled more than US$34 billion, which, in terms of budget, represents around 75% of the value of the portfolio in execution at this moment;
- Almost one fifth of the projects assessed identified that it would be necessary to review the duration of the development phase, so all the necessary work could be performed within the expected quality. This change in the plans was necessary to avoid the Fast Tracking practice that forces a project to start the development of the next phase without finishing the previous phase. This practice was used in some projects developed in the recent past, but proved to be responsible for poor predictability; so, Vale is reinforcing the adherence to the project management model to prevent projects to go through the same path;
- The third most relevant result perceived was that the FEL Methodology OJT provides an opportunity for the project team to discuss, within the entire group, the project's main risks, attention points, and weaknesses. Given the complicated routine of the project team members in this megaprojects environment, it is not usual for the entire team to sit together and address the main issues of every project discipline. As one outcome of the FEL Methodology OJT exercises, some project leaders realized that they needed external support or more time and resources in order to develop all the work that was necessary;
- Another result that contributes a lot for Vale's project community is the possibility to disseminate the lessons learned. As an outcome of the FEL Methodology OJT, the instructors deliver a report identifying the main attention points that can guide the work of the project team. Beyond that, it is important to highlight that, in some cases, projects that deal with different commodities can have the same problems — differently from what some project teams think;
- And, finally, the feedback from the FEL Methodology OJT, concerns and claims from project teams are collected to feed the Interdependent Projects program, explained below, informing the corporate areas about the needs of project teams. These feedbacks are important to motivate changes in the corporate procedures and to indicate the need for a better structure (more resources, for example) from corporate departments in order to better support project development and execution.
The New Frontier: The Interdependent Projects
As part of the challenge of defining the entire Project Management Model, defining only the technical standards, for example, for engineering, cost, and schedule estimates and operational readiness was not enough. The company identified that, to be successful in project development and execution, it was necessary to formalize the interface between the project teams and the corporate departments outside the corporate PMO, such as Human Resources, Environment, IT, Health and Safety, and so forth.
In 2010, the corporate PMO began a process of mapping interfaces and processes with corporate areas, in order to organize and systematize the products and services provided by these areas for the projects and vice versa. The corporate PMO started to work together with these corporate areas to:
- Define and structure (organize) the deliverables the corporate areas had to provide for capital projects and vice versa;
- Define the role of each area, considering the ideal time for action;
- Assist the organization of corporate areas to plan for their expansion or optimize their support to projects, when necessary; and
- Establish a network between corporate areas and projects.
This work is still in progress, and until now more than 20 corporate areas were involved. As a result of this work, many corporate departments realized that they have much more work to do for projects than expected and that the kinds of knowledge and experience needed are different when compared to operations. They decided to create specific departments only to support projects, and developed guides that describe the roles of the area and the deliverables that are developed at each phase of the project.
As presented, Vale realized that, to achieve competitive results in a megaproject environment, defining the standards and controlling project development and execution were not enough. To prevent risks and guarantee agility in the application of the lessons learned, the entire company must be involved, as the corporate departments, such as Human Resources, Health and Safety, and Procurement, and the corporate PMO. Additionally, by having the same professionals that develop the project management standards helping project development and execution, and also feeding the corporate departments with the projects' needs, Vale entered the continuous improvement cycle, when the entire process enhances the feedback and the whole system is integrated. By supporting the project teams around the world, the company is on the way to preventing risks and improving project outcomes.
©2012, André Choma & Sâmara Merrighi
Originally published as a part of the 2012 PMI Global Congress Proceedings – Vancouver, Canada