CII and Risk Management - Atoms for Peace and · PDF fileCII and Risk Management A...

CII and Risk Management

A Presentation to the International Atomic Energy Agency

September 6-8, 2016

Vienna, Austria

Stephen P. Mulva, Ph.D.

CII Director

Agenda

• About CII

• Project Risk Management

– Integrated Project Risk Assessment (IPRA)

– Probabilistic Risk Management

• International Readiness

• Megaprojects

• Project Complexity

• Alignment (Modeling and Simulation)

• Questions

2

Dr. Stephen P. Mulva

• Director of the Construction

Industry Institute

University of Texas at Austin

• Lecturer, Researcher, and

Consultant for capital projects

• Program Management Expert

• Former employee of Fluor

(Constructability Coordinator

and Field Engineer), Phillips

Petroleum, Bechtel, ePM, and

Texas State University

• A consortium of leading owners,

contractors, and academics working

collaboratively to improve the

constructed project and the capital

investment process.

• An organized research unit of the

Cockrell School of Engineering at

The University of Texas at Austin

(not for profit).

History

Organizational motivation was The Business

Roundtable’s Construction Industry Cost Effectiveness

(CICE) Project in 1982.

– Create a construction research institute of leading

companies to improve cost effectiveness and reduce

fragmentation of the U.S. industry.

Founded in 1983 by 28 organizations; now 130+

First structured owner-contractor-academic research

collaboration for the constructed project.

CII Today

• 130 + member companies

• Working with more than 55 universities, 800 +

research publications

• 20+ active research teams

• Affiliates in eight countries (Canada, Brazil, Norway,

UK, Saudi Arabia, South Africa, Singapore, and South

Korea)

• 12 active communities of practice

• Thousands of active participants

CII Organization

7

Owner CII Members

Abbott

Ameren

American Transmission

Anadarko Petroleum

Anglo American

Anheuser-Busch InBev

Aramco Services

ArcelorMittal

Architect of the Capitol

BP America

Cargill

Chevron

ConocoPhillips

Consolidated Edison

Dow Chemical

DTE Energy

DuPont

Eastman Chemical Company

Ecopetrol S. A.

Eli Lilly

Enbridge

Eskom Holdings

ExxonMobil

General Electric

General Motors

GlaxoSmithKline

Global Infrastructure Partners

Huntsman

Intel

Irving Oil

Kaiser Permanente

Koch Industries

LyondellBasell

Marathon Petroleum

NASA

NOVA Chemicals

Occidental Petroleum

ONEOK

Ontario Power Generation

Pacific Gas & Electric

Petrobras

PEMEX

Petronas

Phillips 66

Pioneer Natural Resources

Praxair

Procter & Gamble

Public Service Electric & Gas

Reliance Industries

SABIC

Sasol Technology

Shell Global Solutions US

Smithsonian Institution

Southern Company

Statoil

SunCoke Energy

Tennessee Valley Authority

TransCanada

U.S. Army Corps of Engineers

U.S. Dept. of Commerce/NIST/EL

U.S. Dept. of Defense/Tricare Mgmt.

U.S. Dept. of Energy

U.S. Dept. of Health & Human Srvcs.

U.S. Dept. of State

U.S Dept. of Veterans Affairs

U.S. General Services Administration

Vale

The Williams Companies

Contractor CII Members

Aecon Group

Affiliated Construction Services

Alstom Power

AMEC

AZCO

Autodesk

Baker Concrete Construction

Barton Malow

Bechtel Group

Bentley Systems

Bilfinger Industrial Services

Black & Veatch

Burns & McDonnell

Cannon Design

CB&I

CCC Group

CDI Engineering Solutions

CH2M HILL

Coreworx

CSA Central

Day & Zimmermann

Dresser-Rand Company

Emerson Process Management

Enstoa

eProject Management

Faithful+Gould

Fluor

Foster Wheeler USA

Gross Mechanical Contractors

Hargrove Engineers + Constructors

Hilti

Honeywell

IHI E&C International

IHS

International Rivers Consulting

Jacobs

JMJ Associates

JV Driver Projects

KBR

Kiewit

Lauren Engineers & Constructors

Leidos Constructors

Matrix Service

McCarthy Building Companies

McDermott International

Midwest Steel

Parsons

Pathfinder

PCL Constructors

POWER Engineers

PTAG

Quality Execution

Richard Industrial Group

The Robins Morton Group

S&B Engineers & Constructors

SBM Offshore

Skanska USA

SNC-Lavalin

Supreme Group

Technip

Tenova

TOYO-SETAL Engenharia

UniversalPegasus International

URS

Victaulic

Walbridge

Wanzek Construction

The Weitz Company

WESCO International

Wilhelm Construction

Wilbros United States Holding

Wood Group Mustang

WorleyParsons

Yates Construction

Zachry Holdings

Zurich

CII Member Resources

Safety Research - Zero Accidents Techniques

Implementing Active

Leading Indicators

Zero Injury

Economics

Owner’s Role in

Construction Safety

Making Zero

Accidents a Reality Real-time Pro-Active

Safety in Construction

Strategies to Enhance

Hazard Recognition

Safety Focus Drives Performance Improvement

CII Practices (Research Findings)

Project Planning Phase

• Attract and Maintain Skilled Workers

• Automated Identification

• Effective Use of Global Engineering Workforce

• Environmental Remediation Management

• Equitable Risk Allocation

• International Project Risk Assessment

• Leader Selection

• Modularization/Preassembly

• Organizational Work Structure

• Project Delivery and Contract Strategies

• Project Security

• Project Teams

• Technology Implementation

• Value Management

• Work Process Simulation

Design/Construction/Start-up Phases

• Craft Productivity Practices

• Design for Maintainability

• Design for Safety

• Construction Productivity Measurement

• Piping Design

Project Life Cycle

• Cost & Schedule Control

• Employee Incentives

• Fully Integrated & Automated Project

Processes (FIAPP)

• Information Integration

• Management of Education & Training

• Managing Workers’ Compensation

• Project Health Assessment

• Small Projects Execution

CII Best Practices

Processes or methods that, when executed effectively,

lead to enhanced project performance.

To qualify, a practice must be sufficiently proven through extensive

industry use and/or validation.

• Front End Planning

• Alignment

• Constructability

• Lessons Learned

• Materials Management

• Team Building

• Planning for Start-up

• Planning for Modularization

• Advanced Work Packaging

• Partnering

• Quality Management

• Change Management

• Disputes Resolution

• Zero Accidents Techniques

• Implementation of Products

• Benchmarking & Metrics

• Project Risk Assessment

CII Communities of Practice

Federal Facilities Delivery

Front End Planning

Globalization

Information Management

Modularization

Next-Generation Leaders

Performance Assessment

Project Controls

Quality Management

Risk Management

Safety

Sustainability

Project Risk Management

• The process to identify, assess, and manage risk. The project team evaluates risk exposure for potential project impact to provide focus for mitigation strategies

Initial Application

Conceptual &

Front End Planning Basic Detail

Startup &

Commissioning

Procurement

Construction

Operations

Engineering

Project Risk Management

Known,

Unknowns

Unknown,

Unknowns

Known

Uncertainty

The set of all possible outcomes, both favorable

and unfavorable, that exist for a given situation

Unfavorable

Side

Favorable

Side

“Risk” “Opportunity”

or

CII Risk Management: Proactive and Practical

The Risk Management Process

Identification

Assessment

Analysis

Mitigation

Evaluate

Results

• The risk management

process is iterative,

and must be adapted

to the project at hand

• Prudent reversible risk

vs. unacceptable risk

• Likelihood of

occurrence

• Severity of impact

Integrated Project Risk Assessment (IPRA)

Integrated Project Risk Assessment, IR181-21

• Provides a formal method for identifying and assessing risk

• Allows project teams to evaluate risk elements through the full project life cycle

• Provides assessment indicating critical risk factors for mitigation

• Provides structure for analysis

IPRA Tool Structure

IPRA Tool Structure

• Section I – Commercial

– I.A Business Plan

– I.B Finance/Funding

• Section II – Location*

– II.A Tax/Tariff

– II.B Political

– II.C Cultural

– II.D Legal

*”Country” in version 1.0

IPRA Tool Structure (continued)

• Section III – Facilities

– III.A Product Scope

– III.B Sourcing and Supply

– III.C Design/Engineering

– III.D Construction

– III.E Start-Up

• Section IV – Production/Operations

– IV.A People

– IV.B Legal

– IV.C Technical

Basic Components of IPRA Method

I.A7. Tax and Tariff

Taxes and tariffs impact projects and early identification of their repercussions is critical considering the entire life cycle of the venture. Most taxes and tariffs arise under statutes that are administered by governmental agencies and can provide for serious sanctions in case of violation. Calculation, administration, and reporting requirements related to taxes and tariffs are functions for which local expertise is often required (see Category C, Section II for a more detailed treatment of tax and tariff). Taxes and import duties need to be understood for investment, construction, and ongoing facility operation. Items to consider include:

Basis and rate of charges

Volatility for changes

Registration and applications

Nature of enforcement

Type of tax (income, business, VAT, corporate, technology, etc.)

Application of tax and duty laws and their specificity

Miscellaneous fees, levies, import duties, etc.

Other

Likelihood of Occurrence (L) Relative Impact (I)

NA 1 2 3 4 5 A B C D E

Very Low Very High Negligible Extreme Baseline

Coordinate

L, I Comments

E

E

D

E

D

D

D

CATEGORY

I.A BUSINESS PLAN

I.A.1 Business case

I.A.2 Economic model/

feasibility

I.A.3 Economic incentives/

barriers

I.A.4 Market/product

I.A.5 Standards and practices

I.A.6 Operations

I.A.7 Tax and tariff

IPRA Element Description

IPRA Risk Matrix

A B C D E

Negligible Extreme

Relative Impact (I)

Not Applicable

5

4

3

2

1

Very High

Very Low

Likelihood of

Occurrence (L)

IPRA: Most Common “Extreme” Risk Elements

1. Sources and form of funding (I.B1)

2. Estimate uncertainty (I.B3)

3. Business case (I.A1)

4. Insurance (I.B4)

5. Economic model/feasibility (I.A2)

6. Currency (I.B2)

7. Relationship with government/owner (II.B6)

8. Market/product (I.A4)

9. Traditions and business practices (II.C1)

10. Contract type and procedures (II.D4)

Probabilistic Risk Management

58 percent of

organizations employ

probabilistic risk

management

90 percent reported

ROI of at least 1:10

The return on their investment

in probabilistic approaches

ROI

26

37 percent reported

ROI of at least 1:100

Probabilistic Risk Register Tool

v

v

v

v

Level 3: Probabilistic Results

What is the range of cost or schedule?


How much contingency do I need and

when can I release it?

International Readiness

DO YOUR

BEST PRACTICES

HAVE A

PASSPORT?

International Readiness: The Nine Categories

International Readiness Passport Tool

Megaproject Impact Factor

(IF) Categories

• Category A – Location and Technology

– Four impact factors

• Category B – Team, Organization and

Communication

– Six impact factors

• Category C – Planning and Execution

Processes

– Thirteen impact factors

• Category D – Governance and Stakeholders

– Six impact factors

• Category E – Delivery Strategy

– Five impact factors

MPACT

(Mega-Project Assessment of Criticality Tool)

Section-I Mega-project

Information

Cover Sheet-

Capture

Assessment

Details

Session

Attendance

Sheet

Section-II

Mega-project Impact Factor

Criticality Assessment

Factor Survey

Findings

Factor

Description

Factor

Examples

Factor

Recommendations

Section-III

Output Reports

Summary

Assessment

Report

Detailed

Assessment

Report

34 Impact

Factors in 5

Categories

Megaproject: MPACT Tool Structure

*MPACT can be customized

Megaproject Impact Factor C2- Optimism Bias Consequences and Impact of this Factor on the Project

• The impacts of project risks were underestimated

• Project had unrealistic contingencies

• The team chose not to consider impact of a

nearby project, which was known when preparing

the estimates

• Planned labor productivity was assumed to be

high but ended up being very low, increasing

costs and durations

Megaproject Research Findings: C2 - Optimism Bias

Megaproject Impact Factor C2- Optimism Bias Mitigation Recommendation

• Establish a realistic risk assessment and

mitigation process.

• Define appropriate contingency levels relative to

the uncertainties and level of scope definition.

• Establish appropriate hold points during front end

planning to validate cost and schedule

assumptions.

Project Complexity

Project complexity is the degree of interrelatedness

between project attributes and interfaces, and their

consequential impacts on predictability and functionality.

39

The team found no useful definition of

complexity in the academic literature or

in construction industry publications.

Difficulty vs. Risk vs. Complexity

Difficulty Risk Complexity

Knowns

Manage

Strategies

Unknowns

Mitigate

Contingency

Expertise

Methods

Resources

40

Project Complexity: PCAM Tool Input

41

42

Project Complexity: PCAM Tool Output

43

Project Complexity: PCAM Tool Recommendations

Alignment?

• Communicate Too Much or Not Enough?

• Lines of Communication = (n(n-1))/2

# Project Team Members # Lines of Communication

7 21

15 105

50 1225

100 4950

500 124750

Alignment (Modeling and Simulation)

Source: ePM, LLC (2006) Exceptions (Galbraith 1974)

Alignment: Project Model

• Organizations

– Owner (Green)

– Contractor (Red)

– Sub (Blue)

– Other (Grey)

• Main Activities

– Facilities

– Responsibility

– Coordination

– Rework

AFD Award

Commence

Operations

Project View

COP China

Manager

(Jim Knudsen)

COP Asia

Manager

(Ryan Lance)

COP Worldwide

E&P Director

(Bill Berry)

Bohai Phase II

Project Manager

(Rick Geshay)

CNPC

President

CNOOC

President

(Wei Liucheng)

CNOOC

VP Offshore

(Zhou Shouwei)

CNOOC

VP Commercial

(Fu Chengyu)

Bohai Phase II

Project Manager

(Liu Defu)

Fluor Daniel

President

Marine & Offshore

Fluor Daniel

CEO

(Alan Boeckman)

Fluor Daniel

Bohai Phase II

Project Manager

Fluor Daniel

Bohai Phase II

Engineering Manager

Fluor Daniel

Bohai Phase II

Procurement Manager

Various Vendors

Various Suppliers

Various Fabricators

COP CEO

(Jim Mulva)

CNOOC

R&D Centers

CNOOC

Design Houses

CNOOC

Shipyards

CNOOC

Drill Rigs

COP China

Drilling Manager

COP China

Exploration Manager

COP China

Operations Manager

Business

Manager

HSE

Manager

Subsurface

Manager

Facilities

Manager

In-Country

Manager

QA/QC

Manager

Interface

Manager

Subsea

Manager

FPSO

Manager

CPC

Manager

PL 19-3/9 WP

Manager

PL 25-6 WP

Manager

Deputy Business

Manager

Deputy Facilities

Manager

(Simon Hu)

Deputy Subsea

Manager

Floating Systems

Manager

Production Systems

Manager

20042003 2005 2006 2007 2008

FEED Package

AFE PreparationProject

Sanction

Issue P.O.'s for Long Lead Items

Long Lead Items Manufacture & Testing Oversight

Detailed Engineering

Partner

Approval

Hull Fab. RFQ

Jacket Fab. RFQ

WP Topsides RFQ

FPSO Topsides RFQ

CPC Topsides RFQ

Subsea RFQ

Drilling

Jacket Dgn.

Hull Dgn. Hull Fabrication

Jacket Fabrication

WP Topsides Fabrication Oversight

FPSO Topsides Fabrication Oversight

CPC Topsides Fabrication Oversight

Subsea Installation Contract (SIC) Oversight

FPSO Integration

Jacket Tow/Set

WP HUC

CPC HUC

FPSO HUC

Operating Permit

Received

Bohai Phase II Baseline Model

55% Critical

Activities

Need to

Focus on: Controlling

Engineering

Planning for

Fabrication

Planning for

HUC

Duration 11 Months

Longer than

Anticipated

Alignment: Initial Simulation

Schedule Slippage

• Program

Organization

– Integrated

Program

Management

Organization

(PMO)

– Personnel from

ALL Companies

• Focus On:

– Reducing Project

Overhead

– Decision-Making

– Improving

Performance

AFD Award

Commence

Operations

Project View

COP China

Manager

(Jim Knudsen)

COP Asia

Manager

(Ryan Lance)

COP Worldwide

E&P Director

(Bill Berry)

Facilities

Manager

CNPC

President

CNOOC

President

(Wei Liucheng)

CNOOC

VP Offshore

(Zhou Shouwei)

CNOOC

VP Commercial

(Fu Chengyu)

Commercial

Manager

Fluor Daniel

President

Marine & Offshore

Fluor Daniel

CEO

(Alan Boeckman)

Engineering

Manager

Procurement

Manager

Various Vendors Various SuppliersVarious Fabricators

COP CEO

(Jim Mulva)

CNOOC

R&D Centers

Design

Houses

Fabrication

Yards

Drilling

Manager

COP China

Drilling

Manager

COP China

Exploration

Manager

COP China

Operations

Manager

HSE

Manager

Subsurface

Manager

QA/QC

Manager

Interface

Manager

FPSO

Topsides

Manager

CPC

Manager

WP

Manager

Business

Manager

20042003 2005 2006 2007 2008

FEED Package

AFE PreparationProject

Sanction

Issue P.O.'s for Long Lead Items

Long Lead Items Manufacture & Testing Oversight

Detailed Engineering

Partner

Approval

Hull Fab. RFQ

Jacket Fab. RFQ

WP Topsides RFQ

FPSO Topsides RFQ

CPC Topsides RFQ

Subsea RFQ

Drilling

Jacket Dgn.

Hull Dgn. Hull Fabrication

Jacket Fabrication

WP Topsides Fabrication Oversight

FPSO Topsides Fabrication Oversight

CPC Topsides Fabrication Oversight

Subsea Installation Contract (SIC) Oversight

FPSO Integration

Jacket Tow/Set

WP HUC

CPC HUC

FPSO HUC

Operating Permit

Received

Bohai Phase II Project Alliance Model

Bohai Phase II

Program Manager

Performance

Manager

HUC

Manager

Hull Engr.

Manager

FPSO

Hull

Manager

Jacket Engr.

Manager

FPSO Engr.

Manager

WP Engr.

Manager

CPC Engr.

Manager

Management Committee Meeting

Subsea Engr.

Manager

WP HUC

Specialist

CPC HUC

Specialist

FPSO HUC

Specialist Integrated Program Management Organization (PMO)

Alignment: Improved Project Model

37% Critical

Activities (Changed Critical

Path)

Shifted Focus

Toward:

Project

Sanction

FPSO EPC,

Integration,

HUC

Completion

Duration

2 Months

Shorter than

Anticipated

Alignment: Improved Project Simulation

Schedule Compression

Improvement

57% Increase in ROCE

20% Schedule Reduction

Tolerable Risk Levels

Alignment: Improved Results

Alignment:

Quantifying the Value

What is the Value of:

Great Project

Management?

Informed Decision-

Making via Simulation?

Integrated Business,

Operations, and Project

Functions?

Project Delay?

$1.11 Billion

6,097

Legacy

Reservoir Favorable Confirmed

UnfavorableUnconfirmed

High

Moderate

Secured / OBS

Unsecured

Secured / OBS

Unsecured

Poor

Moderate

Poor

Moderate

Poor

Moderate

Poor

Moderate

Operate (EPCI or D/B/B)

CR or LS(TK)

Outsource

On-Schedule

Late

Very Late

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On-Schedule

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On-Schedule

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On-Schedule

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Favorable Confirmed


High

Moderate

Secured / OBS

Unsecured

Secured / OBS

Unsecured

Poor

Moderate

Poor

Moderate

Poor

Moderate

Poor

Moderate


CR or LS(TK)

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Favorable Confirmed


High

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Unsecured

Secured / OBS

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Moderate

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Favorable Confirmed


High

Moderate

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Unsecured

Secured / OBS

Unsecured

Poor

Moderate

Poor

Moderate

Poor

Moderate

Poor

Moderate


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On-Schedule

Late


CR or LS(TK)

Outsource


CR or LS(TK)

Outsource

On-Schedule

Late

Very Late

On-Schedule

Late

Very Late

On-Schedule

Late


CR or LS(TK)

Outsource

On-Schedule

Late

Very Late

On-Schedule

Late

Very Late

On-Schedule

Late


CR or LS(TK)

Outsource


CR or LS(TK)

Outsource

On-Schedule

Late

Very Late

On-Schedule

Late

Very Late

On-Schedule

Late


CR or LS(TK)

Outsource

On-Schedule

Late

Very Late

On-Schedule

Late

Very Late

On-Schedule

Late


CR or LS(TK)

Outsource

On-Schedule

Late

Very Late

On-Schedule

Late

Very Late

On-Schedule

Late


CR or LS(TK)

Outsource

On-Schedule

Late

Very Late

On-Schedule

Late

Very Late

On-Schedule

Late


CR or LS(TK)

Outsource

On-Schedule

Late

Very Late

On-Schedule

Late

Very Late

On-Schedule

Late


CR or LS(TK)

Outsource

On-Schedule

Late

Very Late

On-Schedule

Late

Very Late

On-Schedule

Late


CR or LS(TK)

Outsource

On-Schedule

Late

Very Late

On-Schedule

Late

Very Late

On-Schedule

Late


CR or LS(TK)

Outsource


CR or LS(TK)

Outsource

On-Schedule

Late

Very Late

On-Schedule

Late

Very Late

On-Schedule

Late


CR or LS(TK)

Outsource

On-Schedule

Late

Very Late

On-Schedule

Late

Very Late

On-Schedule

Late


CR or LS(TK)

Outsource


CR or LS(TK)

Outsource

On-Schedule

Late

Very Late

On-Schedule

Late

Very Late

On-Schedule

Late


CR or LS(TK)

Outsource

On-Schedule

Late

Very Late

On-Schedule

Late

Very Late

On-Schedule

Late


CR or LS(TK)

Outsource


CR or LS(TK)

Outsource

On-Schedule

Late

Very Late

On-Schedule

Late

Very Late

On-Schedule

Late

Large

Reservoir

Small or No

Reservoir

COMMISSIONING / START-UP / RAMP-UPPROJECT EXECUTIONDELIVERY SYSTEMTECHNICAL /

PROJECT

SCOPE DEFINITION

DEBT FINANCING

STRUCTURE &

CURRENCY

FLUCTUATION

COMMODITY

PRICE RISK

RESERVOIR

APPRAISAL

DRILLING

GOVERNMENT

AND PARTNER

NEGOTIATIONS

SEISMIC

STUDIES /

RESERVOIR

MODELING

RESULTS

OperationsProjects

Projects

Projects

Business

Business

Business Operations

Operations

20,000

19,000

17,000

18,000

17,000

15,000

18,000

20,000

19,000

17,000

18,000

17,000

15,000

18,000

25,000

24,000

22,000

23,000

22,000

20,000

20,000

25,000

24,000

22,000

23,000

22,000

20,000

20,000

16,000

15,000

13,000

14,000

13,000

11,000

12,800

16,000

15,000

13,000

14,000

13,000

11,000

12,800

20,000

19,000

17,000

18,000

17,000

15,000

18,000

20,000

19,000

17,000

18,000

17,000

15,000

18,000

24,000

23,000

21,000

22,000

21,000

19,000

19,200

24,000

23,000

21,000

22,000

21,000

19,000

19,200

30,000

29,000

27,000

28,000

27,000

25,000

24,000

30,000

29,000

27,000

28,000

27,000

25,000

24,000

19,000

18,000

16,000

17,000

16,000

14,000

15,200

19,000

18,000

16,000

17,000

16,000

14,000

15,200

24,000

23,000

21,000

22,000

21,000

19,000

19,200

24,000

23,000

21,000

22,000

21,000

19,000

19,200

8,000

7,500

6,500

7,000

6,500

5,500

6,400

8,000

7,500

6,500

7,000

6,500

5,500

6,400

12,000

11,500

10,500

11,000

10,500

9,500

9,600

12,000

11,500

10,500

11,000

10,500

9,500

9,600

-1,000-300

-150

-1,200

-300

10,000

9,500

8,500

9,000

8,500

7,500

9,000

10,000

9,500

8,500

9,000

8,500

7,500

9,000

6,400

5,900

4,900

5,400

4,900

3,900

5,100

6,400

5,900

4,900

5,400

4,900

3,900

5,100

8,000

7,500

6,500

7,000

6,500

5,500

6,400

8,000

7,500

6,500

7,000

6,500

5,500

6,400

9,600

9,100

8,100

8,600

8,100

7,100

8,800

9,600

9,100

8,100

8,600

8,100

7,100

8,800

8,000

7,500

6,500

7,000

6,500

5,500

6,400

8,000

7,500

6,500

7,000

6,500

5,500

6,400

10,000

9,500

8,500

9,000

8,500

7,500

9,000

10,000

9,500

8,500

9,000

8,500

7,500

9,000

.2

.8

.7

.3

.2

.8

.2

.8

.7

.3

.2

.8

.2

.8

.7

.3

.2

.8

.2

.8

.7

.3

.2

.8

.5

.9

.1

.5

.7

.3

.5

.9

.1

.5

.7

.3

.3

.3

.4

19,600

17,600

24,600

22,600

15,600

13,600

19,600

17,600

23,600

21,600

29,600

27,600

18,600

16,600

23,600

21,600

11,800

10,800

7,800

6,800

9,800

8,800

6,200

5,200

7,800

6,800

9,400

8,400

7,800

6,800

9,800

8,800

11,60011,400

19,20019,080

24,20023,780

15,20014,960

19,20019,080

23,20022,800

29,20028,680

18,20017,900

23,20022,800

7,6007,480

9,6009,540

6,0005,910

7,6007,480

9,2009,160

7,6007,480

9,6009,540

22,840

18,256

21,465

27,504

21,820

25,799

9,128

7,166

8,539

10,952

9,128

10,405

9,4728,4255,808

23,63221,14914,714

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.3

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.3

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.3

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.3

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.3

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.3

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.3

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.2

.3

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.3

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.3

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.3

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.3

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.3

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.2

.3

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.3

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4,981

18,400

16,400

23,400

21,400

14,400

12,400

18,400

16,400

22,400

20,400

28,400

26,400

17,400

15,400

22,400

20,400

11,200

10,200

7,200

6,200

9,200

8,200

5,600

4,600

7,200

6,200

8,800

7,800

7,200

6,200

9,200

8,200

10,50010,320

17,00017,200

22,00021,600

13,00012,960

17,00017,200

21,00020,640

27,00026,400

16,00015,840

21,00020,640

6,5006,480

8,5008,600

4,9004,940

6,5006,480

8,1008,240

6,5006,480

8,5008,600

18,960

14,656

17,669

22,944

17,760

21,389

7,328

5,556

6,796

9,072

7,328

8,549

7,6736,8064,674

19,52917,45612,129

4,981

18,400

16,400

23,400

21,400

14,400

12,400

18,400

16,400

22,400

20,400

28,400

26,400

17,400

15,400

22,400

20,400

11,200

10,200

7,200

6,200

9,200

8,200

5,600

4,600

7,200

6,200

8,800

7,800

7,200

6,200

9,200

8,200

10,50010,320

17,00017,200

22,00021,600

13,00012,960

17,00017,200

21,00020,640

27,00026,400

16,00015,840

21,00020,640

6,5006,480

8,5008,600

4,9004,940

6,5006,480

8,1008,240

6,5006,480

8,5008,600

18,960

14,656

17,669

22,944

17,760

21,389

7,328

5,556

6,796

9,072

7,328

8,549

18,400

16,400

23,400

21,400

14,400

12,400

18,400

16,400

22,400

20,400

28,400

26,400

17,400

15,400

22,400

20,400

11,200

10,200

7,200

6,200

9,200

8,200

5,600

4,600

7,200

6,200

8,800

7,800

7,200

6,200

9,200

8,200

10,50010,320

17,00017,200

22,00021,600

13,00012,960

17,00017,200

21,00020,640

27,00026,400

16,00015,840

21,00020,640

6,5006,480

8,5008,600

4,9004,940

6,5006,480

8,1008,240

6,5006,480

8,5008,600

18,960

14,656

17,669

22,944

17,760

21,389

7,328

5,556

6,796

9,072

7,328

8,549

7,6736,8064,674

19,52917,45612,129

3,880

3,600

4,560

4,060

1,800

1,610

1,880

1,800

3,880

3,600

4,560

4,060

1,800

1,610

1,880

1,800

© ePM,

April 2003

S. Mulva

LEGEND

.5 ePM Historical Probabilities

.5 Baseline Probabilities

5,432 Expected Value w/ ePM

4,321 Baseline Expected Value

1,111 ePM Value Contribution

LEGEND

.5 ePM Historical Probabilities

.5 Baseline Probabilities

5,432 Expected Value w/ ePM

4,321 Baseline Expected Value

1,111 ePM Value Contribution

UPSTREAM PROJECTSample Expected Value Determination

Alignment: Interface Management

Mean: 0.18

Standard Deviation: 0.38

Mean: 0.04

Standard Deviation: 0.16

Formal IM (n=10) Informal IM (n=27)

p=0.25

Cost

Gro

wth

• Formal IM projects had lower mean of cost growth

and less standard deviation

“Coming together is a beginning; keeping together

is progress; working together is success”

Henry Ford

Questions?

Stephen Mulva, Ph.D.

Director, CII

[email protected]

+1.512.232.3013

mailto:[email protected]

CII and Risk Management: Exploring Opportunities

A Presentation to the International Atomic Energy Agency

September 6-8, 2016

Vienna, Austria

Stephen P. Mulva, Ph.D.

CII Director

Agenda

• Flash Track

• Advanced Work Packaging (AWP)

• Shipbuilding

• Relational Contracting

• Questions

57

Flash Track

This research team defines it as:

“A time-driven project which by necessity requires

a heightened degree of concurrency between

Engineering, Procurement and Construction.”

Flash Track: A Much Needed Clarification…

• Flash Track is NOT Fast Track nor simple Acceleration!

P

E

C

P

C1

C2

Cn

En

E2

E1

c

p

cPEpC

Schedule Savings

Cn

A Framework For Successful Flash Track:

cPEpC

P

C1

Fn

Cn

En

E2

E1

c

p

Committed involvement of downstream stakeholders

Procurement of strategic items and early engagement of suppliers

Parallel engineering

Parallel construction

& fabrications

Balance of procurement

Cn


cPEpC

P

C1

Fn

Cn

En

E2

E1

c

p





& fabrications


PEpC: Developed by RT 130

Cn


cPEpC

P

C1

Fn

Cn

En

E2

E1

c

p





& fabrications


cPEpC: Developed by RT 311

Cn


cPEpC

P

C1

Fn

Cn

En

E2

E1

c

p





& fabrications


Flash Track: Relational Contracting and Trust

Flash Track Tool: Readiness Assessment

Flash Track Tool: Readiness Dashboard

Flash Track Tool: Implementation

Guidelines

Advanced Work Packaging

Work planning that emphasizes construction requirements

Construction method Shipbuilding Construction

Stick Building

Block Building

Product Oriented

Overview of Modern Shipbuilding

?

Evolution of Shipbuilding

Shipbuilding and Construction Synergies

Interim Product Database (IPD)

• The construction of a structure/building consisting of a distinct set of standardized assemblies or modules, with each assembly being an interim product in the construction of the complete building.

• The sub-assemblies are grouped by production process similarity to establish interim product families.

• Sub-assembly product families are built in a manufacturing type environment and transported to the project site for installation.

• These elements are incorporated in an Interim Product Database (IPD) or Library of Designs - for “chunks” and “modules” that contains products and production processes that are easily reconfigurable for follow-on projects.


Traditional Design


Interim Product Database (IPD) – New Design


Interim Product Database (IPD)

PRODUCT ORIENTED

BLOCK BUILDING

STICK BUILDING

Total change in ship design

methodology driving significant

cultural changes throughout all

traditional shipbuilding operations,

management and organization.

Construction evolution

The design methodology has

remained unchanged since the

times of wooden vessels.

It has been enhanced with

computerization and adapted to

suit the changes in materials and

production equipment.

EVOLUTION

REVOLUTION

INTERIM

PRODUCT

STRUCTURE

The means

for change

Design methodology


Application to Construction

Collected Data Shipbuilding (Construction) (Japan)

Total Project Duration 36 mos. 7-10 mos.

Design Cost 10% 1%

Design Duration 50% 10-30%

Custom Design 84% 5-25%

Cost Overruns 23% 1-2% Schedule Overruns 29% 0%

n=19

*CII Benchmarking & Metrics Report ’12

12%*

38%*


Advanced Work Packaging (AWP)

• From AWP to Integrated Project Delivery

– Criteria-driven prototypical designs

Bundling

Relational Contracting

• D/B/B: Manage Projects Efficiently = Profits

• D/B: Complementary Goods and Services = Base

Product More Attractive (Nalebuff 1999)

– Microsoft Office, GM (vehicle, financing, Onstar, Visa card)

– Holidays (airfare, rental car, hotel)

– Design and Construction

• Bundling: the Economic Theory of Complements

– Price Discrimination

– Value Creation

Bundling (Design-Bid-Build)

1

1

0B

A0.50

Charge 0.50

Sell to 0.50

Make 0.25

1

1

0B

A

0.50

Charge 0.50

Sell to 0.50

Make 0.25

Independent Pricing: A Independent Pricing: B

1

1

0B

A0.50

Charge 0.50

Sell to 0.50

Make 0.25

1

1

0B

A

0.50

Charge 0.50

Sell to 0.50

Make 0.25

Independent Pricing: A Independent Pricing: B


• ‘A’ is Architecture and Engineering (A/E) Firm

• ‘B’ is General Contractor (GC)

• Fierce Competition on Price, Declining Profits

– Assume: Normalized Market of Size 1 (Facility Type or Territory)

– Assume: Production at 0 Marginal Cost

Bundling (Design-Build)

1

1

0B

A

0.50

Charge 1.00 for 2

Sell to 0.50

Make 0.50

(same as combined

Profits before)

1

1

0B

A

0.50

Entrant charges 0.50

Sells to 0.25

Makes 0.125

(half as much)

Coordinated Pricing of A & B Bundle Barrier to Market Entry

1

1

0B

A

0.50

Charge 1.00 for 2

Sell to 0.50

Make 0.50

(same as combined

Profits before)

1

1

0B

A

0.50

Entrant charges 0.50

Sells to 0.25

Makes 0.125

(half as much)

Coordinated Pricing of A & B Bundle Barrier to Market Entry


• Advantage: Coordinated Pricing Decisions

• Barrier to Market Entry (Profits Halved)

• Anecdotal Evidence: Industrial Sector D/B

Bundling (Integrated Project Delivery)

1

1

0B

A

0.50

Charge 0.80

for 2

Sell to 0.68

Make 0.544

(> @ 1)

1

1

0B

A

0.40

Entrant charges

0.40

Sells to 0.24

Makes 0.096

(23% < before)

0.40

Profit From a Cheaper Bundle Tougher Barrier to Market Entry

1

1

0B

A

0.50

Charge 0.80

for 2

Sell to 0.68

Make 0.544

(> @ 1)

1

1

0B

A

0.40

Entrant charges

0.40

Sells to 0.24

Makes 0.096

(23% < before)

0.40

Profit From a Cheaper Bundle Tougher Barrier to Market Entry


• Increased Value Creation

– Optimal: Fee Cut 20%, Profits Increase 9%

– Reality: Fee Cut of 6.9% - Preserve Profits (DBIA Data Validity)

• Barrier to Market Entry by ‘A’ or ‘B’ Firms

– Profits Decline by 23%

• ‘A-B’ Bundle Must Stay Intact or Risk Competing w/ Self

(Why Integrated D/B Firms do Better than Project Ventures)

Bundling (Integrated Project Delivery Plus)

Number of Enterprise Component Enterprise Enterprise Component

Components Price Seller's Price Market Share Profit Seller's Profit

2 1.45 1.72 0.63 0.91 0.64

3 2.09 2.64 0.70 1.47 0.78

4 2.84 3.68 0.76 2.15 0.88

5 3.63 4.70 0.79 2.88 0.95

6 4.48 5.76 0.82 3.69 1.02


• Bigger Bundle = Bigger Economic Advantage

– A/E Firms, GC’s, Mechanical Trades, Licensors, Vendors

– Uncoordinated Pricing = Dynamic Instability For Component Sellers

• First to Bigger Bundle Wins

Study and Findings

• Leading Integrated E/P/C (D/B) Firm

• 37 U.S. Gulf Coast Petrochemical Projects (1997-2001)

• Validated w/ CII Model Plant

Number of Complement % of Project % of Project

Complements Cost (Avg.) Savings

2 Process Equipment Vendors 32% 11.2%

3 Bulk Materials Suppliers 22% 16.6%

4 Field Indirect Services 19% 19.4%

5 Engineering and Management 15% 21.2%

6 Field Direct Labor 12% 22.0%

• Backward/Forward Trends Don’t Impact Price Discrimination

(Preconstruction, BOT Finance, O&M)

• Commercial Retail Program of 10 Stores (in TX, OK)

• 4-Firm Bundle: 2.1% Cost Savings over D/B, 80% Better Profits

Questions?

Stephen Mulva, Ph.D.

Director, CII

[email protected]

(512) 232-3013

mailto:[email protected]

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