Pacesetter project performance

Nick J. Lavingia, Ph.D., P.E., Project Management Consultant, CHEVRON

Industry benchmarking has shown that the difference in cost and schedule between best and worst projects can be as much as 30% and the total cost of ownership over the life of the plant can be astronomical. In today's competitive business environment this can mean a difference between a profitable company versus the one that becomes a takeover target.

This practical paper addresses management of limited and scarce capital resources for consistent Pacesetter Project Performance. It begins with a project management process and describes activities, deliverables, and organizations required to effectively manage these projects. Emphasis is placed on Front End Loading (FEL), where a multifunctional team defines and freezes the scope of work prior to full funding.

Decision and Risk Analysis and Project Execution Planning tools to help select the right projects and execute them with excellence are discussed.

Project Management Best Practices that help to optimize cost, schedule, performance and safety aspects of any project are also discussed.

This paper discusses proven techniques that can help achieve consistent Pacesetter Project Performance.

Project Management's Impact on the Bottom Line

Effective project management improves Return on Capital Employed (ROCE) by increasing revenues, decreasing expenses, and reducing capital employed. ROCE is a common metric in the industry to measure capital efficiency.

Projects are the vehicle by which we turn business opportunities into valued business assets. Successful projects are defined as the ones that are delivered on time, within budget, and meet established business objectives. If a company builds good projects, it can increase its revenues, decrease life-cycle costs (operating and maintenance costs), and use less capital to achieve its business goals.

Project Management Process

In order for any project management system to be successful, it needs to follow a structured Project Management Process that facilitates the optimal use of resources (people, money, and technology) over the life of a project to maximize value. The desired outcomes of this process are to select the right projects by improving decision-making and to improve project outcomes through excellence in execution.

Exhibit 1 summarizes the deliverables of a structured five-phase Project Management Process, which are:

Phase 1—Identify and Assess Business Opportunity

Phase 2—Select from Alternatives

Phase 3—Develop Preferred Alternative for Full Funding

Phase 4—Execute (Detail Design, Procurement, and Construction)

Phase 5—Operate and Evaluate

The first three phases of the process prior to the full funding step are referred to as Front End Loading (FEL) and are crucial in determining project success.

In order to effectively execute any project, roles, and responsibilities of the key team members needs to be defined. Key positions in the Project Management Process are:

1. Project Sponsor—responsible for providing leadership and accountable for the ultimate outcome of the project.

2. General Project Manager—represents the business unit and is the interface with operating organization.

3. Project Manager—responsible for overall design, procurement, and construction.

4. Design Manager—coordinates design and procurement efforts on the project.

5. Construction Manager—coordinates construction activities on the project.

6. Operating Representative—represents the operating organization that will inherit the completed facility.

7. Maintenance Coordinator—represents the organization that is responsible for ongoing maintenance of the facility.

Decision and Risk Analysis (D&RA)

Decision and Risk Analysis (D&RA) is a process to compare and decide among various alternatives by quantifying risks and uncertainties inherent in financial outcomes (i.e., NPV, ROR, Payout) of the alternatives. Tools such as Strengths, Weaknesses, Opportunities and Threats (SWOT) Analysis, Decision Hierarchy, Strategy Table, Influence Diagram, Decision Tree, and Tornado Diagram are used to communicate optimistic and pessimistic outcomes of any decision.

Exhibit 1.

Exhibit 1

Project Execution Planning (PEP)

A Project Execution Plan (PEP) is a tool for strategic planning that is used to maximize the probability of project success. Once a good quality decision is made using the D&RA process, the multifunctional project team should kick off the project with a PEP workshop. The topics covered in a PEP workshop are (Westney):

   Part A: Defining the Vision of Success

• Business Goals

• Project Objectives and Drivers

• Scope ofWork

 Part B: Defining the Strategy for Success

• Management Level Plan

• Risk Management Plan

• Organization Plan

• Contract Plan

• Best Practices Implementation Plan

• Team Performance Management Plan

   Part C: Defining the Tools for Success

• Time Management Plan

• Cost Management Plan

• Quality Management Plan

• Safety and Environmental Management Plan

• Materials Management Plan

• Communications Management Plan

Project Management Best Practices (PMBP)

Project Management Best Practices (PMBP) in conjunction with a systematic Project Management Process can help achieve Pacesetter Performance. Implementation of PMBP can optimize cost, schedule, performance, and safety aspects of any project. Independent Project Analysis (IPA) Inc. has statistically shown the benefits of implementing these best practices based on their vast database of past-completed projects in the industry. The optimum time for implementing all the PMBP is during FEL prior to full funding of the project.

The PMBP are summarized below:

Classes of Plant Quality

This practice establishes characteristics of the facility needed to meet business goals and is an excellent alignment tool for the project team. It sets criteria for Capacity, Plant Life, Product Quality, Flexibility, Marginal Investment Criteria, Expandability, Reliability, Controls, and Maintenance philosophy.

Technology Selection

A formal, systematic process by which a project searches for new technology that may be superior to the one currently employed. The new technology may give competitive advantage to the company. This process can also be used for equipment and materials selection.

Value Engineering

Value Engineering is a creative and organized method for optimizing the cost and performance of a facility. The purpose of Value Engineering is to improve decision-making in design and construction and to obtain lowest life-cycle cost without reducing quality. A multidiscipline team headed up by an independent Value Engineering consultant identifies items that may not add value or are not aligned with the basic project objectives.

Design to Capacity

Equipment is often specified with a “Design Factor.” This factor can result in oversized equipment and can be compounded as the design passes from one engineering discipline to another and then on to the supplier. This factor can add investment cost but may not provide a return if this “Extra Capacity” is not fully utilized. This practice reduces the “Excess Fat” that does not meet project objectives.

Equipment Supplier and Contractor Alliances

Equipment Supplier Alliance is defined as a long-term, mutually beneficial relationship between the owner and one qualified supplier of highly engineered equipment. With this process the supplier is involved “up front” developing a long-term association based on performance, trust, respect, and commitment.

The same process can be used for Contractor Alliances.

Project Standards

Engineering standards and specifications can affect manufacturing efficiency, product quality, operating costs, and employee safety. However, sometimes the cost of a facility is increased by the application of codes, standards, and specifications that exceed the actual needs of the specific facility to be designed.

Waste Minimization

A stream-by-stream process analysis is used to develop concepts and proposals to reduce or eliminate each non-useful stream. The goal should be prevention, recycle or reuse, reduction, and treatment as a last option.

Energy Optimization

Energy Optimization is a methodology for optimizing capital cost, operating cost, and operability of process unit, utility system, or manufacturing site through thermodynamic analysis.

Constructability

The Construction Industry Institute (CII) defines Constructability as “The optimum use of construction knowledge and experience in planning, design, procurement, and field operations to achieve overall project objectives.“Analysis of the design is usually performed by experienced construction managers to reduce costs or save time in the construction phase.

Process Hazards Analysis

Process Hazards Analysis addresses hazards of the process, identification of any previous incidents, engineering and administrative controls, consequences of failure of controls, facility sitting, and human factors.

Zero Injury Techniques

CII‘s “Zero Injury Techniques” produces excellent safety performance on construction projects. They are applicable to both large and small capital and maintenance projects and all sizes of contractors regardless of labor affiliation. The techniques are generally compatible with other safety programs that may be used at various facilities.

CII has identified five high-impact zero injury safety techniques such as safety preproject and pretask planning, safety training and orientation, safety incentives, alcohol and substance abuse program, and accident and incident investigation.

Predictive Maintenance

Predictive Maintenance is an approach to maintaining plant whereby equipment is monitored and repairs effected as indicated before failure. Predictive Maintenance makes use of advances in sensor and instrumentation technology to monitor characteristics such as heat, lubrication, vibration, cracking, and noise.

Reliability Modeling

Reliability Modeling is the use of computer simulation to explore relationship between the maximum production rates and design and operational factors such as quality, yield, capacity, production transitions, maintenance practices, safety, and environmental concerns. This tool can simulate operating factors and can help determine the value of sparing, bypass, and alternative operating modes contemplated in the design and factor it into the life-cycle cost.

3-D CAD

3-D CAD is a computer model that enables 3-D visualization and thereby eliminates errors, potential interference, and ambiguity caused by traditional 2-D representations.

Peer Review

The goal of a peer review is to constructively challenge the project team's assumptions, alternatives considered, decision logic, and path forward. Peer Reviews are also an excellent mechanism to share lessons learned across the corporation.

Pre-AFE Assessment

This is an assessment of project progress and quality performed at the end of Phase 3 of the Project Management Process. It rates the project against IPA database of similar projects and recommends cost contingency and schedule.

Post-Project Assessment

Comparison of end of project data to the pre-AFE data that is used to update the IPA database that will help improve cost estimates and schedules for future projects.

Business Evaluation

Business Evaluation is conducted two to three years after project completion to validate volumes, prices, margins, operating costs, and economic indicators. The Project Sponsor is responsible for this review. This practice brings accountability into the overall Project Management Process.

Summary

With the implementation of a structured Project Management Process, Decision and Risk Analysis, Project Execution Planning and application of Project Management Best Practices, a company can achieve consistent Pacesetter Project Performance—faster, cheaper, better, and safer projects than the competition.

Reference

Westney, Richard E. The Strategic Project Planner. Marcel Dekker, Inc.

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI or any listed author.

Proceedings of the Project Management Institute Annual Seminars & Symposium
November 1–10, 2001 • Nashville,Tenn.,USA

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