Achieving Exellence in Delivery of Mega Projects

Achieving Exellence in Delivery of Mega Projects

1. Slide 1 Achieving Excellence in the Delivery of Mega Projects APEGGA Fall PD Days September 2007 Dr. George Jergeas PEng. Professor of Project Management University of Calgary

2. Slide 2 Learning Objectives At the end of this course, participants will: Be better equipped for more effective delivery of mega projects Have an understanding of the opportunities for improvement to project management practices and the obstacles to successful completion Have more insight into the research and development in project management from around the world

3. Slide 3 Schedule Introduction Mega project: Definition, Challenges and overruns Project Delivery Systems: Project Delivery and Execution Process EPC business Joint Ventures and types of contracts Project Charter and interactive front end planning Characteristics of fast tracked projects Value Improving Practices and Best practices Building and aligning the project team Key success factors

4. Slide 4 George F. Jergeas BSc Civil Engineering – 1975 Civil Engineering contractor – 1975 -1986 MSc Construction Management, Loughborough, UK - 1982 PhD Construction Management, Loughborough, UK - 1989 Claim Consultant, Revay and Associates Ltd., 1989 - 1994 Professor, University of Calgary, Alberta, Canada,1994 - present Interests: Team alignment and partnering, risk management, avoidance and resolution of disputes, project performance and auditing and project management training.

5. Slide 5 Defining Mega Projects Cost > $1 billion plus Significant interfaces / complexity Many players with different interests and motives Most significant issues & risks must be managed at a level above the project team Fast tracked

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7. Slide 7 Mega Project Challenges The task of managing a craft mix of 10,000 workers working in pairs doing at least two different activities per day results in a never ending 100,000 individual jobs in a 10 day shift Each job requires a combination of the correct, materials, location, access, tools, equipment, scaffold, safety, quality, rigging, consumables, welding, x-ray and many other inputs to allow the worker to get his job done. This task belong to management which to date has not been able to plan, organize or execute

8. Slide 8 Causes for Cost and Schedule overruns Unrealistic or overly optimistic original (AFE) cost estimate and schedules The under appreciation of project complexity, interfaces, interdependencies and risks. Underestimating the cost to attract and maintain labor. Underestimating the direct and indirect costs of overtime. Craft wage increases to attract personnel to the location. Regional and national demands on labor, including that from other mega projects. Under estimation of the labor productivity loss associated with working in cold weather climates and locations with severely shorter daylight hours in northern. Shortages of skilled labor Lower than anticipated labor productivity due to mismanagement of the construction phase. High labor turnover mainly due to the harsh working environment and competition between employers attracting labor. Underestimating Transportation costs (including custom cost) for permanent materials, construction equipment, personal, staff, etc. Environmental and regulatory compliance costs are not given sufficient consideration. Material cost for both permanent facilities and temporary facilities are not sufficiently escalated during the project budget development phase.

9. Slide 9 Causes for Cost and Schedule overruns 2. Incomplete scope definition or inadequate Front End Loading Mainly due to the fast-tracking nature of mega projects an Ongoing changing customer requirements. Lack of understanding of the cumulative impact of scope changes on project cost and schedule. Fast-tracking: The practice of pushing work to the field early puts construction under an unrealistic compressed schedule with increased overtime requirements and often with little or no cost consideration for the field cost.

10. Slide 10 Causes for Cost and Schedule overruns 3. Inappropriate project strategies for the mega oil sands environment Some project strategies deployed do not properly consider the level of scope definition, the fast track nature of the mega project environment, market condition, owner participation, owner control and owner risk. Improper or late consideration of the following project strategies adds to cost overruns (ECI, 2002): Project management strategies such as risk management, project control, change control, communications, organization and responsibilities. Contract strategies relating to management, design, construction and commissioning services. Design strategies such as contributions from client business, operation, project team, contractors and suppliers. Procurement strategies including preferred suppliers, progressing, inspection and expediting, receipt, storage and management, spares and documentation. Construction strategies including site management and organization, site layout, power, utilities and drainage, work breakdown structure, construction method, off-site prefabrication and assembly, schedule and milestones, industrial relations, and pre-commissioning. Commissioning strategies including responsibilities, schedule and integration with construction, resources, training and validation, engineering and trade support, and provision of operating materials.

11. Slide 11 Causes for Cost and Schedule overruns 4. Mismanagement of the construction phase : Later than anticipated engineering, vendor data, equipment and material deliveries. Poor project controls. Nobody on the project has single point responsibility except the client who does not control much of the work. Inadequate plan of execution and poorly defined tasks and division of responsibility. Lack of knowledgeable leadership in the engineering, procurement, construction and start-up of mega/major facilities. Inexperienced or poorly equipped project management personnel and supervisors coupled with the inability to understand, plan, adapt, implement project management procedures or systems. Lack of standardization and fit-for-purpose including inadequate use of shop fabrication, modularization strategy and constructability reviews. Poor communication, team work and alignment between the players leading to adversarial relationships and protracted disputes. Poor site organization and layout leading to excessive time wastage and productivity loss during construction. Joint venture (JV) of project partners, contractors and engineering firms that are not aligned or not set up to work effectively.

12. Slide 12 Industrial Construction Projects

13. Slide 13 PHASE 2 SELECT from Alternatives Clearly Frame Goal Test for Strategic Fit Preliminary Overall Plan Preliminary Assessment ~1 % Engng. Phase 1 Estimate Project Development & Execution Process (PDEP) PHASE 1 IDENTIFY & 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 3 DEVELOP Preferred Alternative PHASE 4 EXECUTE (Detail EPC) PHASE 5 OPERATE & 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

14. Slide 14 PHASE 2 SELECT from Alternatives Determine Project Feasibility and Alignment with Business Strategy Project Phases in the EPC Business PHASE 1 IDENTIFY & Assess Opportunities Finalize Project Scope, Cost and Schedule and Get the Project Funded Select the Preferred Project Development Option Evaluate Asset to Ensure Performance to Specifications and Maximum Return to the Shareholders PHASE 3 DEVELOP Preferred Alternative PHASE 4 EXECUTE (Detail EPC) PHASE 5 OPERATE & Evaluate Produce an Operating Asset Consistent with Scope, Cost and Schedule 1 2 3 4 5 AFE DBM Application - AFE(F/E) FEED Long-Leads - Reg. Approval - AFE - Detailed Design - Procurement - Fabrication Construction Commissioning -Start-Up - Perf’m Testing - De-bottleneck Feasibility

15. Slide 15 Front-Planning The front-end period up to the point of official endorsement (project sanction) to proceed, where AFE for full budget funding occurs, and contract ratification with a major EPC contractor for project execution takes place:

16. Slide 16 The Feasibility Study A very comprehensive document Considerable amount of work to scope the project, select the technologies to be used and present a business case Lots of time and effort: What Owner wanted to do How much it would cost What the economics of the investment would be and What the risks might be

17. Slide 17 The Feasibility Study No sufficient level of detailed work done to achieve the level of accuracy and confidence that the owners decision makers place in it when a project is approved. To achieve a level of accuracy of the estimate of 10-15%, we need a 30% engineering completion The right 30% - not just any 30% in particular considerable technical information/ engineering is required from equipment vendors

18. Slide 18 The Feasibility Study Limited input from Operations May be unknown at this time Operations input is invaluable when considering: Plant and equipment layout Equipment selection Determining the ongoing operations costs and staffing needs Laying out the pre-commissioning and commissioning requirements and costs, start-up and early production projections.

19. Slide 19 The Feasibility Study Downplays or overlooks Organizational Performance - both at the Joint Venture level and at the Project level New companies with new and unproven technology in industry new to partners Complexity on complexity Benchmarking and Risk Analysis services External reviews Several concerns are usually raised Cost and schedule projections are not aggressively challenged

20. Slide 20 The Feasibility Study Not challenged aggressiveness of start-up and the production ramp up curves that follows start-up Optimism and a lack of meaningful operations input contributes to false hopes on the part of the owners Overlooking potential impact of new technology and the inefficiencies and problems that could result from a new joint venture and sometimes new players

21. Slide 21 The Feasibility Study It is not easy to determine just how seriously the project team take the concerns that are raised in the external reviews and respond to them. In some instances the concerns are not referred to at all and in others, while there is an acknowledgement of the concerns and the issues, there is only a comment that they are being addressed and that mitigating actions will be taken.

22. Slide 22 Delays in Engineering Early delays in achieving key milestones such as: Substantial Completion of Engineering Freezing Process Flow Diagram’s (PFD’s) P&ID issued for design Delays do not seem to be reflected on final project completion date Fast-tracking the fast-track!

23. Slide 23 Delays in Engineering Before the production of construction drawings can be taken, a number of development steps must be completed: Production of PFDs - show the logic of the various chemical steps that will be used in the new facility. The quantities of each of the process streams will be shown Review and approval of owner before the next development step is released

24. Slide 24 Delays in Engineering Develop the Process and Instrument Diagrams (P&IDs): Identify all the pieces of equipment required for the process to work Identify all piping required together with identification number, size, wall thickness and metallurgy, valve locations and type as well as control logic and hook-up P&IDs contain critical engineering detail that must be agreed upon before the construction drawings can be started

25. Slide 25 Delays in Engineering Series of extensive, time-consuming reviews - by the engineering consultant and the owner before P&IDs are approved and the detailed discipline engineering can begin at earnest. What is worrisome is that the PFD’s and P&ID’s Milestones are some of the first Milestones on the Schedule and it is only once they have been reached that succeeding activities can be started. In fact the Engineering build up can only take place once these early Milestones have been achieved - hence their importance.

26. Slide 26 Delays in Engineering This undoubtedly would put pressure on the completion of the succeeding activities. The delay in Engineering can also be caused by: Additional work by the steady stream of trends Either adding to original scope or requiring work already completed to be re-done Slower build-up of the engineering workforce than planned Lower engineering productivity than expected Whatever the reason(s), how do Project Managers react?

27. Slide 27 Trend System A Trend is a management tool to monitor and manage variations in cost, scope, time (schedule) and quality. This trend process gives the project manager and his team a series of snapshots on a monthly basis as to what extent the cost and schedule targets may be changing. The purpose of a “trend system” is to ensure the project management team is provided with information on an ongoing basis as to why and by how much the project costs be anticipated to vary from the approved AFE or budget. Ideally if all the cost trends are added together with the original AFE value, they should indicate how much the final cost would be. A trend is initiated whenever it is anticipated that a change (either positive or negative) from the original estimate/budget is expected to occur.

28. Slide 28 Trend System Normal practice is that all changes to the base (AFE) be documented so that the potential cost and schedule impact can be flagged and estimated. This gives the PM a series of snapshots as the project develops as to whether and to what extent time and cost may be affected. History has shown that while the trends flag individual activity changes, they do not give the full picture.

29. Slide 29 Trend System (cont.) Invariably, subsequent project re-estimates and assessments indicate higher levels of cost variations than would be expected from the trend indications. Trends are classified in four ways: Design development Changes to the estimate Estimate Omissions Changes in Execution Strategy

30. Slide 30 Trend System (cont.) When a trend is raised, the originator has to indicate not only the estimated cost of the trend but the schedule impact of the trend on the activity being trended. It is quite likely- especially in the first few months of the project- that the schedule impact resulting from individual trends would not change the Mechanical Completion and Start-up dates PM can mitigate the delays, by adding people ...

31. Slide 31 Trend System (cont.) However, the PM should regularly be assessing the cumulative effects of the trends on the overall schedule. As the number of trends climbs, one thing is certain - more work and more costs are being added to the project, and more hours must be spent before the project is completed. This means that either the end dates slip or the additional work identified will take away from the flexibility that was originally in the schedule (if any) thus making the probability of achieving the schedule less likely

32. Slide 32 Cost Allowances and Contingencies. To cover for design changes, material quantity increases Historical and risk based covers for money that is going to be needed, but cannot be allocated to specific activities or areas at this early stage The PM should be “running down” the allowances and contingencies according to some agreed upon plan The run down of the allowances should match the additional costs being identified through the trend process. With the huge number of trends raised at this early stage, it may well be that the allowances are proving to be inadequate for additional costs being identified. Warning signal to the PM that events are not evolving as expected

33. Slide 33 1 3 5 7 9 WHELMING Overwhelming Odds

34. Slide 34 H S A D 90 Degrees in the Shade E

35. Slide 35 Interactive Planning: Project Charter

36. Slide 36 Project Charter A statement of the project goal and direction Front-end planning tool Inter-active planning tool with clients and sub-contractors Use with modification to suit

37. Slide 37 State the Opportunity Describe the opportunity at a high level and any related work that has been done to date Short, crisp and to the point

38. Slide 38 State Project Goal A statement of purpose and direction Captures the business aim or purpose of the project in one or two sentences. Action oriented Short and simple Understandable

39. Slide 39 Develop Project Objectives These are business objectives for doing the project. They Should be SMART objectives if possible i.e., Specific, Measurable, Achievable, Result-oriented, Time-bound They describe why we’re doing the project Examples: Eliminate data redundancy Reduce elapsed time of invoice payment from x days to y days Reduce headcount in Accounts Payable by x FTES

40. Slide 40 Project Scope Project scope defines the boundaries of what we’re doing and explicitly states what we’re not doing. Identify and assess feasible alternatives Select best alternative (solution) 1st level of the Work Breakdown Structure In Scope Out of Scope

41. Slide 41 Scope Out of Scope: On the frame: In scope:

42. Slide 42 Success Criteria How will we know if we are successful? Or How can this project fail? List the criteria that will be used to measure the success of the project. Examples: This project will be considered successfully completed when: Acceptance Testing has been successfully completed no later than “day month year” The project sponsor has signed the project closure memo no later than “day month year” The final cost of the project does not exceed $xxx,xxx Project expectations: Project on time Within budget According to specifications Happy client And…

43. Slide 43 Critical Success Factors List the factors that are essential to achievement of the success criteria. If a Critical Success Factor is not achieved the success criteria will not be achieved. If mitigation strategies can be put in place the issue is not a critical success factor. Example Approval to start the project must be received no later than “day month year” “Business person X” must be dedicated full time to the project from “day month year” to “day month year” Required infrastructure must be in place by “day month year”

44. Slide 44 Identify Assumptions List any key assumptions that you have made in order to determine scope, schedule or cost

45. Slide 45 Identify Risks Each project will have its own risks Helps think through the project process and issues associated with execution Identifies resource needs Identifies potential delays and the impact of these delays Potential cost overruns can be predicted and resolved

46. Slide 46 Identify Risks What could go wrong (harm, loss, opportunities and threats) Internal and external risks Sources of risk: product, technology, people (misunderstandings, skills), project management etc.

47. Slide 47 Likelihood of Occurrence Low High Med Low High Med Impact on Project Must Respond! Respond Perhaps Respond Perhaps Respond Probably Respond Respond Probably Accept Perhaps Respond Perhaps Respond Prioritize the Risks  

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49. Slide 49 Project Organization 1. Project Structure Develop a diagram illustrating the various internal/external resources and their roles for the implementation phase or the next phase. 2. Stakeholders Groups or individuals who have vested interest in the process or outcome. Affected by the project Can affect your success Roles must be identified at the start of the project Needs and expectations must be communicated and influenced

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51. Slide 51 Benefits A complete cost/benefit analysis will be done at the end of this phase (Front End) Tangible benefits. Should be quantifiable in terms of dollars such as increase in production, reduction in headcount, increase in revenue, reduced hardware. Intangible benefits. Are not quantifiable in terms of hard dollars but still be measurable such as increased customer satisfaction, increased productivity, better ability to respond quickly in competitive situation.

52. Slide 52 Budget Estimate only the phase(s) that is known at this time. If a ballpark estimate for the entire project is required, ask for help. The budget should be broken down at the high level illustrated in “Scope” section.

53. Slide 53 Budget Phase/Scope Component Effort (Hours) Cost Total

54. Slide 54 High Level Project Plan Provide target date for major Milestones

55. Slide 55 Milestone Schedule Milestone Date Probability

56. Slide 56 Workshop: Project Charter Mixed groups to create the following for your Project: State the problem/need/opportunity Develop project goal Develop project objectives Scope Success criteria Critical success factors Identify assumptions and risks Project organization Project structure Identify stakeholders Benefits Budgets Milestones

57. Slide 57 Project Charter Project Name: Project Manager: Opportunity Goal Objectives Scope Success Criteria Critical Success factors

58. Slide 58 Project Charter Project Name: Project Manager: Assumptions Risks (See attachment) Project Organization 1. Project Structure (See attachment) 2. Stakeholders (See attachment) Benefits Budget (See attachment) Milestones (See attachment)

59. Slide 59 B.S. B.A. Ph. D. Three Degrees Below Zero

60. Slide 60 Characteristics of Fast – Tracked Projects

61. Slide 61 Reference This presentation is based on the European Construction Institute (ECI) - UK ECI Manual The Fast Track Manual A guide to Schedule Reduction for Client and Contractors on Engineering and Construction Projects

62. Slide 62 Introduction Takes place more quickly than normal A difficult and often stressful route to follow Projects ranged from 4 - 36 months Schedule reduction 10 - 29% Cost increase 10 - 20%

63. Slide 63 “A managerial approach to the achievement of early project delivery, involving the application of innovations in the management of construction procurement and recent advances in the process that, bringing into play; The integration of construction and design phases The involvement of the contractor in both the design and construction phases Overlapping of work packages to enable construction of sections of the project to proceed while the design for other sections is being progressed The employment of the expertise of suppliers in design and construction Kwakye, 1991 Definitions

64. Slide 64 Reasons for Fast Track Urgent requirements by client To maximize profit or limit loss Imposed deadline Start of academic year End of current lease New legislation Minimize disruption of services

65. Slide 65 Key Success factors The calibre of individuals and their working relationships The adequacy of the definition of the project Strategy adopted and systems for implementation The passion to succeed on the part of key participants

66. Slide 66 Work Package Overlap Work packages are progressed in parallel Overlap the stages for each work package Early Decisions Experienced judgement and empowerment Commence design before scope has been defined Must accept wrong decisions General Principles

67. Slide 67 Integrated Project Team Main parties are combined into a single organization and participate to the limit of their capability in achieving the project objectives Partnering/Building and sustaining team Benefits Availability of additional expertise Avoiding learning curve errors Reduction in the overall workload Commitment to the project definition and schedule Design and construction developed together General Principles

68. Slide 68 Additional Staff More labour will be needed at peak period as a consequence of scheduling activities in parallel More management resource will be needed to deal with interface and progress issues arising from inter-dependencies between disciplines and between design, procurement and construction Schedule Reduction Techniques Project must be managed in an efficient manner making full use of project management and schedule reduction techniques Procurement Strategy Early selection of subcontractors and vendors General Principles

69. Slide 69 Additional Risks Decisions based on limited information, cannot always be right first time A structured and thorough risk management process needed General Principles

70. Slide 70 Characteristics that Support Strategy Ownership Client support Project sponsor or champion Stakeholder support and commitment Organization Project team needs to be simple, clear and devoid of rigid hierarchy If parent organization has a functional matrix structure, the functional line must be subordinate to the project management (task) line for the duration of the project team

71. Slide 71 Desirable Team Characteristics Honesty - Openness - Trust Anticipation and avoidance of issues rather than waiting for them to turn into problems Mutual support - issue resolution, coaching No blame culture Access to all parties, no communication barriers Lean organization, which aids communications and speeds decision taking Full time members Authorized and empowered team members Decision making on the spot without referring Characteristics that Support Strategy

72. Slide 72 People and Relationships Technical competence Decisiveness - self starter - can do - flexibility Ability to forecast outcome and act accordingly See the big picture Willing to collaborate Enthusiasm Strong leadership Managerial competence Openness Characteristics that Support Strategy

73. Slide 73 Motivation Create a team culture that avoid de-motivation of individuals who are keen to succeed, but are prevented by the organization, procedures,….. Working part of a team, working equally hard and supporting each other Appoint key positions to individuals known to be good motivators Early identification and removal of under-performing individuals Team building and partnering sessions Incentive/penalty clauses Characteristics that Support Strategy

74. Slide 74 Contractual arrangements Achieve win-win situation Pre-selected, preferred contractor Reimbursable basis, with incentives Lump-sum can also be used Partnering Up front agreement for payment for changes and extras Characteristics that Support Strategy

75. Slide 75 Communications More informal communication - face-to-face Barriers should be removed - information flows directly between the parties regardless of parent organization and level of hierarchy Responsibility for communication lies with the individual who has made a decision Frequency and progress meetings Frequent and concise reporting. Characteristics that Support Strategy

76. Slide 76 i i Circles under the eyes

77. Slide 77 Value Improvement Practices

78. Slide 78 Value Improving and Best Practices Value Improving and Best Practices are tools to improve project planning and execution. In conjunction with a structured Project Development and Execution Process they can optimize : Cost Schedule Performance Safety

79. Slide 79 Pre-Funding Assessment Value Improving Practices by IPA Peer Review (Share) Decision & Risk Analysis Project Execution Planning Lessons Learned (Seek) Legend: AFE = Appropriation for Expenditure D = Decision Point PFD = Process Flow Diagram IPA = Independent Project Analysis, Inc. P&ID = Piping & Instrumentation Diagram P&ID $ EST AFE PFD D D D D D $ EST Phase 1 IDENTIFY & Assess Opportunities Phase 2 SELECT from Alternatives Phase 3 DEVELOP Preferred Alternative Phase 4 EXECUTE (Detail EPC) Phase 5 OPERATE & Evaluate Value Improving and Best Practices Post Project Assessment Business Evaluation

80. Slide 80 Value Improving Practices by IPA* Classes of Plant Quality Technology Selection Process Simplification Design to Capacity - System Levels Constructability Customized Standards Waste Minimization Energy Optimization Process Reliability Modeling 3-D CAD Phase 1 Identify & Assess Opportunities Phase 2 Generate & Select Alternatives Phase 3 Develop Preferred Alternative Phase 4 Execute Phase 5 Operate & Evaluate Value Engineering - Equipment Sizing Predictive Maintenance Legend: AFE = Appropriation Request CAD = Computer Aided Design PFD = Process Flow Diagram D = Decision Point P&ID = Piping & Instrumentation Diagram P&ID $ EST AFE PFD D D D D D $ EST * IPA’s Value Improving Practices are Statistically Correlated with added value.

81. Slide 81 Value Improving Practices A formal structured approach to determining the "best value" scope for the project Force re-testing of earlier assumptions

82. Slide 82 Value Improving Practices (VIPs) Independent Project Analysis (IPA) VIPs Technology Selection Process Simplification Classes of Facility Quality Waste Minimization Constructability Reviews Process Reliability Modeling Minimum Standards & Specifications Predictive Maintenance Design-to-Capacity Energy Optimization 3-D CAD Value Engineering

83. Independent Project Analysis Inc. (IPA) Research and consulting group. Project database - 2500+ projects included Cost Schedule Time to Commission and Start-up Others Project Evaluation - predict key project outcomes and risk areas. Cost effectiveness and contingency allowance EPC schedule required Start-up and operational performance expected FEL effectiveness Use of VIPs

84. Slide 84 Value Improving Practices (VIPs) Independent Project Analysis (IPA) VIPs Technology Selection Process Simplification Classes of Facility Quality Waste Minimization Constructability Reviews Process Reliability Modeling Minimum Standards & Specifications Predictive Maintenance Design-to-Capacity Energy Optimization 3-D CAD Value Engineering

85. Slide 85 Identify Define Evaluate Execute Select G G G G G O A L S Phase 1 Phase 2 Phase 3 Phase 5 Phase 4 Conceptual Studies FEL 1 FEL 2 FEL 3 FEED EPC Lessons Learned PS Process Simplification Workshop Could be part of VE process

86. Slide 86 Process Simplification “A disciplined analytical method for reducing investment costs--and often operating costs as well—by combining or eliminating one or more unnecessary process steps. This VIP uses the traditional Value Engineering methodology (Functional Analysis) to focus on process steps rather than individual equipment”. Analyses systems to combine or eliminate chemical or physical processing steps Many industrial standard designs are "one design fits all" and therefore include steps that do not apply to all facilities Selection criteria—Use this VIP if: Project involves large number of process steps There are alternative options for performing process function Documents required: PFDs and cost estimate Who should attend: Project Team and Process Representatives When Used: PDEP Phase 2 or 3

87. Slide 87 Design to Capacity All equipment capacities reviewed and sized to match project objectives Design margins Basic design parameters (e.g. CW/air temperature) No "gold plating" No “fat” as protection against unspecified risks or contingencies Industry Standard "one size fits all" sizing rules not used

88. Slide 88 Barriers To Implementing VIP’s Cultural Western societies’ "ready, fire, aim" approach to most activities Lack of experience Benefits not well understood Unsure of how and when to implement Complacency with the status quo "We already do it" feeling “It’s already optimized” We don't have the time The drive to minimize engineering costs Lack of trust between parties

89. Slide 89 Barriers To Implementing VIP’s Lack of understanding about the other parties business Aversion to take risks Systemic over-design The right people not involved or not involved at the right time

90. Slide 90 Value Improving Practices (VIPs) Keys to successful implementation of VIPs Clearly defined & aligned project objectives Facilitated, structured process Timely intervention in the design process Participation by the right people Follow-up

91. Slide 91 Construction Industry Institute (CII) Best Practices Alignment Benchmarking & Metrics Change Management Constructability Design Effectiveness Disputes Prevention & Resolution Implementation of products Materials Management Partnering Planning for Startup Pre-Project Planning Quality Management Team Building Zero Accidents Techniques

92. Slide 92 Construction Industry Institute (CII) Best Practices Alignment Benchmarking & Metrics Change Management Constructability Design Effectiveness Disputes Prevention & Resolution Implementation of Products Materials Management Partnering Planning for Startup Pre-Project Planning - (Project Definition Rating Index, PDRI) Quality Management - (Lessons Learned Process) Team Building Zero Accidents Techniques

93. Slide 93 Constructability CII Definition Constructability is the optimum use of construction knowledge and experience in planning, design, procurement, and field operations to achieve overall project objectives. CII is an important to industry

94. Slide 94 Constructability Keys to Success Constructability programs (not just constructability reviews) are made an integral part of project execution plans (how, who, when, etc.) Early involvement by knowledgeable construction staff which should be considered in development of contracting strategy Project schedules must be construction sensitive Site layouts promote efficient construction

95. Slide 95 Constructability Keys to Success Design approaches should consider: Standard design elements Configuration to enable efficient construction Module/preassembly designs to facilitate fabrication, transport, and installation Availability & accessibility of personnel, material, and equipment Facilitating construction under adverse weather conditions Utilizing innovative construction methods

96. Slide 96 Constructability Early involvement of construction, maintenance, and operations in the design of the facilities Involve the customer (construction and operations) in the design and get their "real" needs satisfied Don't make the designer guess at what everyone needs Cost and schedule savings in construction Cost and operability benefits during plant life

97. Slide 97 Constructability Plot Plan Development Site traffic plan, possible congestion Crane and transport access and location Preliminary modularization validation Temporary facilities and lay down areas

98. Slide 98 Constructability Develop Prefabrication, Preassembly, Modularization and Offsite Fabrication ( PPMOF) Identify what can be effectively modularized Weight and size Affects on field installation and pre-commissioning

99. Slide 99 Constructability Geotechnical Considerations Groundwater and soil conditions which impact excavation, piling and foundations Site testing requirements Fill types and availability

100. Slide 100 Constructability Model Reviews Validation of PPMOF plan Validation of erection sequencing Can I construct this design? Access during construction Platforms and scaffolding plans Efficient field weld out locations

101. Slide 101 Constructability Rigging and Lifts Identify lifting lug types and locations for design Identify equipment assembly requirements to support lifts Weather considerations

102. Slide 102 Constructability HSE in Design for Construction Identify special design considerations for fall arrest during construction Identify any hazardous products which require spill management or special handling

103. Slide 103 Construction Industry Institute (CII) Best Practices Alignment Benchmarking & Metrics Change Management Constructability Design Effectiveness Disputes Prevention & Resolution Implementation of Products Materials Management Partnering Planning for Startup Pre-Project Planning - (Project Definition Rating Index, PDRI) Quality Management - (Lessons Learned Process) Team Building Zero Accidents Techniques

104. Slide 104 Identify Define Evaluate Execute Select G G G G G O A L S Phase 1 Phase 2 Phase 3 Phase 5 Phase 4 Conceptual Studies FEL 1 FEL 2 FEL 3 FEED EPC Lessons Learned PDRI Project Definition Rating Index (PDRI) Very important and relevant tool

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110. Slide 110 Typical Use of PDRI Used throughout Phase 3 FEED for planning and tracking the progress of scope development Mandatory for projects over $250,000 Required deliverable for project sanction Target score of 200 or less (usually subtract the non-applicable items from the 1000 base and set a target of 20% of the revised base)

111. Slide 111 Value Engineering A disciplined approach used during design to eliminate or modify scope items that do not add value or meet business needs Performance Cost Value = Value engineering  Conventional cost cutting Value Engineering is one of the IPA Value Improving Practices

112. Slide 112 Value Engineering Achieving needed performance in respect of essential functions at minimum cost. Steps Define the object. What are the functions? Which functions are essential? What is required performance in regards to the functions? Can a lower cost object be used? Outside consultants as facilitators.

113. Slide 113 Value Engineering Need economic evaluation criteria to compare capital cost vs. operating cost (pay-out time, etc.) Functions (purpose) External: What the user requires or needs Cannot influence a lot Internal: How the object operates Can control and change

114. Slide 114 Value Engineering Application Define base case design Cost estimate for base case Generate alternatives Evaluate alternatives Technical feasibility Safety, health, environment impact Cost impact (capital and operating) Risks Select modifications to base which provide best value for money

115. Slide 115 Construction Industry Institute (CII) Best Practices Alignment Benchmarking & Metrics Change Management Constructability Design Effectiveness Disputes Prevention & Resolution Implementation of Products Materials Management Partnering Planning for Startup Pre-Project Planning - (Project Definition Rating Index, PDRI) Quality Management - (Lessons Learned Process) Team Building Zero Accidents Techniques

116. Slide 116 Identify Define Evaluate Execute Select G G G G G O A L S Phase 1 Phase 2 Phase 3 Phase 5 Phase 4 Conceptual Studies FEED EPC LL Lessons Learned Process Important and difficult issue

117. Slide 117 HISTORYHISTORYHISTORY History Repeats Itself

118. Slide 118 Lessons Learned Process Objective To improve project performance over time by communicating and institutionalizing: The things we did that were successful and should be repeated The things that we did that were not successful and should not be repeated

119. Slide 119 Keys to Success Have a simple, written procedure Management accountability to follow it Focus on significant lessons Place in a searchable database Don’t wait until the end to collect data Provide solutions Institutionalize by changing policies, standards, specifications, procedures, etc. Lessons Learned Process

120. Slide 120 Problems To Avoid Too much (or too little) information Redundancy Problems listed but no solution No one responsible to maintain database Database not user-friendly Lessons Learned Process

121. Slide 121 Lessons Learned: The Practice One thing we have learned from history is that we do not learn from history. This close out report is typically written by the most junior staff remaining at the end of the job and is not really subject to much effort or critical review. Managers of New Projects, do not often spend much time reading close out reports. This can cause major (avoidable) execution problems in projects and is a huge frustration for all concerned but especially senior management who have to explain this to the shareholders.

122. Slide 122 Lessons Learned: The Practice How do we manage this problem? Formalize the lessons Learned process Keep a high visibility of these issues (particularly in the beginning of a project) in the monthly reporting Include progress on these issues as staff deliverables in appraisals Remain open minded to input from contractors & partners Keep abreast of what is going on in your industry outside your own project Ensure the independent project team reviews & reports on this aspect of the project execution performance. Develop a “sharing” Culture.

123. Slide 123 hea dac he Splitting Headache

124. Slide 124 Project Partnering

125. Slide 125 Effective Communication & Alignment Process A method dealing with organizational risk and interface management

126. Slide 126 Partnering : A structured approach for transforming contractual relationships into a cohesive, co-operative project team with common goals and established procedures for resolving issues or disputes in a timely manner.

127. Slide 127 Teambuilding Workshops on project and program levels Problem Resolution Monitoring Success Completion Build and Sustain Project Teams On going Support

128. Slide 128 Guiding Principles: Example Rockyview General Hospital Capital Project - 2004 We, the team of the Redevelopment Project, recognizing the unique nature of this project, commit to creating an environment of trust and open communication to deliver a quality project, which meets or exceeds each stakeholder group’s requirements. We commit to maintaining a seamless, positive, and optimistic work environment in which all partners' goals can be achieved. The following goals and objectives were agreed and recorded as the Partnering Team Charter for the project. Produce a project that is safe in its design, construction, maintenance and use. Create a safe-working environment resulting in zero lost-time incidents. Minimize the inconvenience to the patients, visitors, care providers and protect the facility, community and the environment. Design and construct a project of optimum quality, which is functional, flexible, maintainable, sustainable and of which we are proud. Goal of project is to have zero claims. Provide a non-confrontational forum for the resolution of any disputes that arise. Encourage innovation and creativity. Understand each party's role within the project team and develop good relationships based upon trust, respect and honesty. Manage the project effectively, efficiently and manage stakeholder change requests. Incorporate and share lessons learned from other projects and gained from outside sources/experience. Maintain positive, cooperative relationships through; clear and open communication, no surprises, no hidden agendas, minimum delays of paperwork, and resolution of problems quickly at the lowest level. Prepare, update, and share common project schedule. Deliver project on schedule and within budget. Co-ordinate efficiently with other hospital projects as much as possible. Empowerment of all team members to allow decision making at all levels. Improve budget management by regular review and tracking of cost accounts and early communication of cost overruns and changes. Manage scope changes in a fair and timely manner. Acknowledge the requirements connected with infection, prevention and control. 19. Have fun and create an enjoyable work environment.

129. Slide 129

130. Slide 130 Team Alignment Overall Problems, issues or concerns 1. Communications 2. The flow of information 4. Cooperation 5. 6. Responses to problems 7. Disputes/problems 8. Problems are resolved 3. The timeliness of information 9. Construction safety performance 10. Design and construction quality 11. Value for money 12. Public Complaints

131. Slide 131 Team Alignment by Company Problems, issues or concerns 1. Communications 2. The flow of information 4. Cooperation 5. 6. Responses to problems 7. Disputes/problems 8. Problems are resolved 3. The timeliness of information 9. Construction safety performance 10. Design and construction quality 11. Value for money 12. Public Complaints

132. Slide 132 Resources Available 1. 2. Stage One Within 2 days Names: 1. __________ 2. __________ Stage Two Within 3 days Names: 1. _________ 2. _________ Stage Three Within 5 days Names: 1. __________ 2. __________ Issue Resolution Mechanism Problem becomes apparent Solution to problem offered by those who are directly involved with it If problem not resolved, go to stage two. If solution agreed, do not go to stage two. If changes affect other project parties, record them into a form for circulation. Problem discussed at progress meeting. Solution to problem offered by project team. If solution to problem cannot be agreed at progress meeting, go to stage three. If solution agreed, do not go to stage three. Solution to problem recorded in meeting minutes. A resolution committee comprising a representative from each of the project parties is formed. Problem resolution meeting called for committee. Mutual way forward for project greed by resolution committee. Statement of way forward recorded and issued. Finish Finish Finish Mediation Arbitration Litigation Problem Identified

133. Key Success Factors

134. Slide 134 Mega Project Challenges Location Execution

135. Slide 135 Location Challenges Logistics & Transportation Infrastructure Extended supply lines Labour resources Winter

136. Slide 136 Execution Challenges Project size & complexity Project cost structure Operating Capital Project schedule High risk ventures

137. Slide 137 Key to Project Success Effective early planning Early involvement of key contractors & suppliers Partner involvement; proper project governance Decision making responsibilities clearly defined Comprehensive Project Execution Plan Critical Issues / Risks Identification Define local & global issues Early identification & management Stewardship of mitigation plans Share Risks Contracting arrangements Use international marketplace Harmonize stakeholder goals Create larger markets Supply Chain relationships Effective Communication & Alignment Process Clear statement of project objectives & goals; communication throughout project team Rigorous Stewardship Process Use of Steering Committees and Approval Boards

138. Slide 138 Key to Project Success Early Definition of Scope  Achievable Cost & Schedule Early design and design optimization involving owner, contractors and key suppliers Continuous market monitoring & periodic cost surveys Schedule validation using historic norms Appropriate Contracting Strategies Use of Program Management Contractor Multiple large contracts vs. consortium  interface management Lump sum vs. reimbursable compensation Effective work Breakdown structure Vertical splits vs. horizontal splits Early Contractor evaluation

139. Slide 139 Key to Project Success Proper Execution Strategy Applicability of Phased execution Comparison to historic norms Use of modularization Early identification of constraints  engineering, manpower, supervision, camp, logistics, material deliveries Construction Planning & Management Plot layout & work sequencing Construction infrastructure planning Labor management  Productivity enhancement Workforce/workface planning Collaboration agreements Rework limitation Adopt construction readiness strategies Work force development Materials Management Critical equipment identification Vendor participation Transportation & Logistics Laydown & storage

140. APENDIX EPC Company Joint Ventures Contractual arrangements For review only by attendees

141. Slide 141 WHAT IS AN “EPC” COMPANY? “Company which provides integrated Engineering, Procurement and Construction Services to deliver completed facilities (“project”) to multiple clients”

142. Slide 142 “EPC” ENGINEERING DEFINED Engineering design, in all project phases Engineering design systems and tools Procurement of commodity and fabricated materials Construction planning Integrated “EPC” planning and scheduling “As-built” technical definition of the completed project (regulatory)

143. Slide 143 EPC VERSUS CONSULTING Normal Characteristics EPC Company Consulting Company Can Engineer, Procure and Construct * complete projects Provide Engineering, Procurement or Construction services only Specialized by facility type or industry (e.g. tank farms, power industry) Specialized by technical competency (e.g. civil engineering, international logistics) Many large firms, few small Few large, many small * All EPC’s subcontract some construction work. Some “EPCM’s” sub-contract all construction work to multiple construction contractors.

144. Slide 144 WHY ARE THERE EPC COMPANIES? EPC is not core business for owners Specialists in project execution Specialists in “Technologies” Access to large resource levels Access to diverse resources (Internationally) Access to fluctuating resource levels

145. Slide 145 TYPICAL PROJECT COST STRUCTURE TOTAL CAPITAL COST $ Millions Manhours Mechanical Equipment 75 Bulk Materials (Structural Steel, Piping, etc.) 85 Construction (Module Assembly, Site) 175 200,000 Field Non-Manual 1,800,000 Craft “Engineering” Cost 50 500,000 Home Office Owners Cost 40 Contingency 75 TOTAL PROJECT 500

146. Slide 146 TYPICAL PROJECT PERSONNEL RESOURCES FEL 1 FEL 2 FEL 3 Start-up & Commissioning “EP” “C” Project Phase EP (300 People) C (2,000 People) Owner Personnel EPC Personnel & Sub-Contractors Resources

147. Slide 147 EPC CORPORATE ORGANIZATION CHART

148. Slide 148 CORPORATE DEPARTMENTS ENGINEERING - Design, Etc. PROCUREMENT - Managing The Supply Chain - Buying - Expediting - Inspecting - Logistics - Contract Formation - Contract Administration CONSTRUCTION (H.O.) - Construction Strategy Development - Construction Planning - Construction Scheduling QUALITY - Procedural Auditing - Continuous Improvement - Value-improving Processes (Vip’s) HEALTH, SAFETY & ENVIRONMENTAL - Workplace, Environmental Compliance and Improvement BUSINESS DEVELOPMENT - Strategic Marketing Management - Prime Contract Administration - Sales - Sales Proposals

149. Slide 149 ENGINEERING DISCIPLINES & SPECIALITIES PROJECT ENGINEERING TECHNICAL CO-ORDINATION WORK PLANNING SCOPE (OF WORK) CONTROL COST & PROGRESS MONITORING MATERIAL REQUISITIONING CONSTRUCTION PACKAGE DEFINITION (“EWP”: “CWP”) CIVIL/STRUCTURAL/ARCHITECTURAL ENGINEERING CIVIL ENGINEERING (AND DESIGN) * STRUCTURAL ENGINEERING * MATERIAL SPECIFICATION * BUILDING, SIZING / SPECIFICATION * PROCESS ENGINEERING TECHNOLOGY SPECIALISTS UNIT OPERATIONS PROCESS SIMULATION SYSTEM FLOWSHEET DEVELOPMENT * PROCESS CONTROL SYSTEMS ENGINEERING “FIELD” INSTRUMENTATION SELECTION ELECTRONIC INSTRUMENTATION SYSTEM DESIGN * AUTOMATION SPECIFICATION AUTOMATION DESIGN MECHANICAL ENGINEERING EQUIPMENT SPECIFICATION AND DESIGN EQUIPMENT TYPE SPECIALISTS * (ROTATING MACHINERY, PRESSURE VESSELS, ETC.) METALLURGY SELECTION * SAFETY SYSTEM MANAGEMENT (LOSS CONTROL) * ELECTRICAL ENGINEERING POWER SYSTEM DESIGN EQUIPMENT SPECIFICATION * POWER DISTRIBUTION DESIGN (“WIRING”) INSTRUMENTATION DISTRIBUTION DESIGN PIPING ENGINEERING OVERALL PLANT LAYOUT (3D-MODEL) PIPING MATERIAL SELECTION (BY “CLASSIFICATION”) * PIPING LAYOUT DESIGN PIPING STRESS ANALYSIS * PIPING MATERIAL TRACKING / CONTROL *HEAVY REGULATORY REQUIREMENTS FOR P.ENG.

150. Slide 150 Joint Ventures / Subcontractor Relationships Joint Venture

151. Slide 151 Joint Ventures / Subcontractor Relationships Contractor / Subcontractor

152. Slide 152 Why Have A Joint Venture / Subcontractor Relationship? Technology Sharing Risk Sharing Resource Sharing Politics

153. Slide 153 Types of Contracts Reimbursable Reimbursable with Fixed Fee Unit Price Fixed Price Engineering with Reimbursable Procurement & Construction Fixed Price (Lump Sum) Incentive / Penalties Build Own Operate Transfer (BOOT) or P3 Design Build

154. Slide 154 Payment Arrangements Type Main Advantages Main Disadvantages Reimbursable Schedule Maximum owner input Loose control of costs Reimbursable & Fixed Fee Schedule Owner input Some control over hours (Engineering Cost) Loose control of costs Unit Price Cost relates to quantity of work Normally not applicable to engineering Fixed Price Engineering Schedule Engineering costs controlled Owner control of equipment purchases Owner involvement limited Requires good Scope Definition (Schedule delay?) Fixed Price EPC Total cost fixed Competitive bids Long bidding schedule Requires good Scope Definition Minimum Owner involvement

155. Slide 155