Integrating PM cultures for project success
The Entergy Corporation, headquartered in New Orleans, Louisiana has over 15,000 employees with annual revenues in excess of $10 Billion. It has been in operation for over 85 years and has $25 Billion in assets and is one of the largest electric utility companies in the United States. Its operations are spread over the States of Louisiana, Mississippi, Arkansas and Texas. Entergy has over 2.7 million customers in these four states and has over 30,000 megawatts of generation capacity.
The Engineering, Management and Capital Construction (EMCC) department of the corporation is an integral part of the Transmission Business Unit. The main focus of the EMCC department is to provide project scoping, design, material and equipment specification, and procurement as well as project and construction management for transmission projects across four states. The EMCC department is responsible for approximately 15,000 miles of high-tension lines ranging in rating from 69kV to 500kV. There are over 4,400 substations under its control.
Within the EMCC department a Project Management Office (PMO) has been established to develop and implement project management processes. The PMO is comprised of four Program Managers; each being responsible for projects within a State. These Program Managers report to the Manager of the Project Management Office. The EMCC department functions as a matrix organization in which the design and construction teams report to their functional leads as well as to Project Managers who work for the Program Managers.
The matrix organizational structure allows for the efficient execution of the various types of projects undertaken by EMCC. However, the landscape of the electric utility business has changed dramatically over the past decade and this has caused EMCC and PMO to modify its internal project management processes to meet the challenges of executing a greater number of projects with fewer resources. This is in part due to Entergy's focus on system reliability and a shift towards deregulated utility markets. These challenges lie not only in adjusting internal project management processes but also in integrating them with vendors, engineering consultants, construction contractors and client organizations. This paper focuses on the challenges faced in integrating project management cultures and steps taken to overcome them. Lessons learned and metrics on the effectiveness of the various initiatives will be presented.
Impacts of Deregulation
Over the past decade, the electric utility markets in some States have been deregulated. These States include California and Texas and other States are likely to have deregulated electric utility markets in the future. Deregulation provided the opportunity for Independent Power Producers (IPPs) to enter the electric utility market. The IPPs are predominantly Energy Companies who build their own power generation facilities and substations and then seek Entergy's approval to connect to its grid.
Consequently, EMCC is tasked with building new substations and transmission lines as well as upgrading existing facilities. The IPPs and their preferred vendors have their own unique project management methodologies and the challenge facing EMCC and its PMO was the integration of these methodologies to ensure that project budgets and completion dates were met while satisfying Entergy's stringent safety practices.
With the influx of projects from IPPs, EMCC's budget for capital projects has increased dramatically since 2000. This increased workload has placed new demands on the PMO resources. A graph showing the impact of IPP work on the capital budget is presented in Figure 1. As can be seen from Figure 1, beginning in 2000, IPP projects have increased the capital budget of EMCC. In 2000, IPP projects accounted for about 15% of the total EMCC capital budget. This figure increased to 28% in 2001, peaking at 38% in 2002. The IPP projects not only increased the project workload but also introduced some new concerns for PMO. Since these projects were usually executed on a fast-track basis, challenges in dealing with testing, rework and scope changes needed to be addressed.
Figure 1: Impact of IPP Projects on the EMCC Capital Budget
Non IPP Customers
Apart from the IPP customers, EMCC also has internal customers within Entergy as well as external industrial, commercial, and State customers. Work generated by internal customers comes from a variety of sources. These sources include Entergy's Transmission Planning department, Entergy's Asset Preservation department, and Entergy's Distribution department. Typical industrial customers include petrochemical refineries, steel and aluminum plants as well as paper mills. Commercial customer projects are typically land development projects requiring relocation of transmission lines. State projects include highway projects that require relocation of transmission lines.
The non-IPP projects place unique project management demands on EMCC's Project Management Office. Projects from both internal and external customers are characterized by certain stringent requirements. These include little voltage fluctuation and high power service reliability during the execution of projects. All external customers (industrial, commercial, and state) usually insist on detailed cost estimates to within +/-10% for their projects even though little project data is available.
The main characteristic of the projects generated by EMCC internal customers is that they be executed with minimum outages during the summer peak months. Consequently these projects are schedule driven with the major emphasis being placed on achieving scheduled completion dates. The challenge on these projects is to meet schedule commitments while controlling overtime costs and employing efficient work methods.
There is an abundance of published literature (Giridhar & Ramesh 1998, Rad & Raghavan 2000) on the significance of effective team building and its impact on the success of projects. Any forum that allows for project team members to make a contribution to the overall goal of the project will provide a sense of ownership and pride. In fact, Poremba (1998) advocates the use of “design charettes” early on projects to foster better team participation and team building among the various members on a project team.
One of the key factors contributing to effective team building is a mutual respect and understanding of the points of view of the different team members. This fact was underscored when project teams were formed between PMO and the Independent Power Producers (IPP). In some cases, the IPP would contract the design and construction of substation facilities and Entergy would then own, operate and maintain the facility. This situation poses some unique challenges to the team building effort.
IPPs are driven to construct and commission their new facilities in the most cost-effective and expedient manner. From an investment standpoint, the goal is to begin generating revenues from the new facility in the most optimum time. EMCC's viewpoint is that proper supervision of the design, construction and commissioning needs to be performed in order to optimize the reliability and operability of the facility and to minimize its risks when it absorbs a new asset. EMCC has strongly recommended the use of commissioning teams comprising team members from all parties associated with the project. This measure has minimized some of the commissioning issues that typically plague start-up activities at the end of a project.
One common issue encountered in the forgoing scenario, is the fact that both EMCC and PMO specifies certain tests be conducted and inspections of major equipment be overseen by PMO staff. The IPPs on the other hand, rely on the reputation of its Engineering, Procurement and Construction (EPC) contractors and vendors and trusts that the deliverables meets EMCC specifications. This has been a major source of contentiousness and, in some cases, IPPs have challenged the costs of inspections and testing as supplied by EMCC.
Entergy, in fulfilling the Federal Energy Regulatory Commission (FERC) mandates to participate in IPP projects, has been willing to work within the requirements of IPPs. An example is the review of engineering and design data. Because the IPP projects are executed on a fast track basis, information on a total design package may not available for EMCC to review all at once. Consequently, EMCC staff may not readily visualize the total design layout and thus they may not be able to perform comprehensive reviews. Since information is provided to EMCC in a piece-meal fashion, there is often rework and inefficient work tied to the review of submitted data. The willingness of EMCC to be flexible and review data in this fashion is not always reciprocated by some IPPs as far as testing and inspection issues are concerned.
Notwithstanding the forgoing circumstances, there are some IPP driven projects on which team building efforts were successful. The major difference on these projects is that EMCC, instead of an EPC contractor, was tasked by the IPP with designing and managing the construction of new facilities. In this scenario, issues with equipment testing and inspections were not present. Moreover, since the IPP and EMCC shared the common goal of designing, building and commissioning a reliable and cost effective facility, both parties were able to harness their individual assets to ensure project success.
Since most IPP projects involve upgrading, rebuilding, or building new transmission lines, activities relating to environmental assessments and addressing the concerns of public officials became mandatory. The experience of EMCC in executing these types of projects provides a great benefit to the project team. EMCC is able to handle permit applications and make presentations to utility commissions and local officials. This is an example of how, with the right teaming approach, both EMCC and IPPs are able to leverage the resources of each other to ensure that permits are granted and that the political hurdles were safely passed. In this scenario it is possible for the IPP to step in and bear the costs of a constructed facility and for EMCC to use its expertise to address some of the regulatory issues.
To this end, it can be seen that a key ingredient for successful team building among team members is the mutual understanding of the interests of each team member. Working together to ensure that these interests are not jeopardized should be the objective of all team members. EMCC staff has found that team building successes are more easily realized when team members have common goals and have focussed their efforts on creating singularity of purpose among team members. This scenario allows for the optimum utilization of the resources of individual team members.
Incentive Schemes and Safety
Construction accidents not only cause pain and suffering for employees and their families but also has a financial impact on companies and the overall national economy. In the United States, the direct and indirect costs of construction accidents are estimated to cost on an average of $17 Billion annually. In Entergy's utility operations, “slips and falls” alone have resulted in an average of 31 Occupational Safety and Health Association (OSHA) recordable accidents per year since 1997 at cost of about $295,000 to the company. Entergy has in place numerous safety programs including a six-sigma effort aimed at reducing accident incidents. Other companies have successfully implemented similar programs. In fact, statistics from the National Safety Council show an approximately 50% drop in construction accident rates from the 1950's to the 1990's (Hinze 1997).
It should be noted that all of the team members on projects executed by EMCC and its PMO have participated in safety programs and are fully knowledgeable of OSHA safety requirements. The major challenge from the EMCC PMO perspective is how to integrate safety compliance with payment schemes so that the interest of all team members is optimized. This objective was met through contractual arrangements that depended on the type of services being offered.
Due to the wave of IPP work over the last three years, EMCC entered into a contract with an engineering consultant firm so that they could offer design and contract management services. The unique aspect of the partnership was a open book EPC contract that allowed EMCC to review the basis of all estimates to the lowest levels so they could be explained to the IPP customer at the appropriate level of detail. This resulted in a fixed price contract to perform time critical projects and more importantly minimized the risk to the IPP customers. Another important aspect of the partnership were the incentive clauses that allowed for mutual sharing of any cost savings due to better management and execution of the EPC contracts. Entergy's portion of the cost savings was then passed on to the IPP customer since Entergy executed these contracts for the customer at actual cost.
EMCC provides construction management and does not have construction equipment and resources. One of its main concerns is to ensure that it retains the services of reputable construction firms that can safely construct facilities at competitive prices. To meet this objective, EMCC entered into a contractual agreement with a large construction company. This agreement was structured to ensure that both EMCC and the construction contractor were able to effectively leverage their resources. Thus, clauses were in place to ensure that goals relating to construction costs, schedule, quality of work and safety were set and that rewards for meeting these goals were available. Specific metrics or Key Performance Indicators (KPI's) were then developed and used to measure the performance of the construction contracts.
One metric that is used to assess the safety compliance records of construction crews is the Recordable Accident Incident (RAI) rate. A RAI is any on-the-job injury that requires medical attention. An example of a RAI is an injury that needs a plaster or some topological treatment such as a spray or ointment. A RAI index can be derived that considers the number of RAI in relation to the total number of exposed man-hours. This ratio can be obtained for previous years and then be used to set targets for current work periods. Once the target RAI is set, then upper and lower limits can be determined. An illustration of this concept is shown in Figure 2.
Figure 2: Recordable Accident Incident (RAI) indices used to set Safety Goals
Apart from the RAI index, other safety compliance metrics are available. Another index that is commonly used by EMCC is the Lost Work Day Incident Rate (LWDIR). As the name implies a Lost Work Day Incident is any incident that results in injury causing a worker to miss work for a day or more. Like the RAI, a LWDIR target rate is set by analyzing past data and studying site safety practices. Both the RAI and LWDIR indices are tracked throughout a project and thorough investigations are conducted for each incident in order to prevent future occurrences. All field personnel participate in all of EMCC's safety courses and initiatives. Examples of some basic safety practices include “tailboard” meetings at the start of each workday.
Another metric used by EMCC to assess the performance of the entire project team is their ability to complete projects within stipulated budgets. The greater the projected savings on a project, the higher is its cost performance index score. Cost performance indices range from a low of 1 to a high of 3. These indices are computed on a monthly basis and an example of monthly report by State is shown in Figure 3.
As can be seen from Figure 3, both the IPP projects as well as the capital projects in Texas and Louisiana have cost performance indices greater than the target of 2 for sample data set. Consequently, from a bonus and incentive standpoint, project teams from these two States will reap the greatest rewards for the sample period shown.
To this end, it can be seen that there are a variety of metrics that can be used to assess safety and cost performance. Other metrics for schedule performance and work quality measured as rework, can also be used. These metrics allow for different project team members to work together to maximize their benefits.
Figure 3: Sample Cost Performance Indices Report
Process Based Project Management
In order to ensure that all engineers are trained on consistent project management practices, EMCC has adopted a process-based project management approach. The major innovation is that the activities within each project management subject area like risk management or change management are treated as a process. Through the use of process models, project team members are able to consistently apply project management principles across all of EMCC projects. Training on all of the key project management processes is conducted to all team members.
The process-based approach provides an additional advantage as it not only provides details of the activities to be completed but it also provides details on the roles and responsibilities of project team members (Johnson et al., 2002). Function Allocation Diagrams (FAD's) can be generated that show information such as data, documentation, application systems, organizational units, inputs and outputs as well as roles and responsibilities. An example of a FAD for project scope planning and definition is shown in Figure 4. The FAD also contains information on documents, lists and other explicit knowledge, the application system that is used in the performance of the function, and links to document templates.
The process based approach towards project management allows EMCC to easily adapt its processes to meet the preferences and styles of other project team members who may include established EPC companies and vendors who may already have their own project management processes. The impacts of process changes could be readily determined by EMCC from an analysis of the impacted FAD's and associated processes.
An example of this situation is when the amount of project data available at the start of a project is not adequate to provide cost estimates with required confidence limits. This is usually the case with the more than 250 major industrial customers in Southeast Louisiana between Baton Rouge and the mouth of the Mississippi River. Herein are some of the largest corporations in the State and they have extensive project management processes and expertise and therefore demand highly skilled EMCC project management staff. By having well documented processes that are easy to communicate, EMCC staff can use it to negotiate with its customers on the data requirements that are needed to furnish reliable cost estimates.
Figure 4: Example of Function Allocation Diagram (Johnson et al: 2002)
The Entergy Corporation and EMCC have had to meet a number of challenges over the past three years. These challenges have partly been due to the influx of IPP projects and the need to integrate the project management philosophies of the various project team members. In response to these challenges, EMCC has had to retool its own internal project management processes and to seek out unique partnerships and contractual agreements that would allow all parties to maximize their gains. This goal has been met by aggressively tracking and controlling schedules and construction deliverables. Moreover, specific metrics for monitoring cost performance were developed and used for assessing the performance of team members. In particular site safety that has been a key core value of the company has been aggressively tracked and monitored.
To this end, it can be seen that the successful integration of project management cultures has to be approached in a multi-faceted manner. Not withstanding the importance of safety, cost, schedule and work quality, a key ingredient is successful team building. As illustrated in this paper, effective team building comes from a commonality of purpose and a mutual respect and understanding of each of the project team member's viewpoints. EMCC believes that it has overcome some of the major hurdles towards the successful integration of project management cultures and is continuously working to improve its ability to successfully execute projects.
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