INDEPENDENT PROJECT ANALYSIS, INCORPORATED · PDF fileINDEPENDENT PROJECT ANALYSIS,...

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INDEPENDENT PROJECT ANALYSIS, INCORPORATEDINDEPENDENT PROJECT ANALYSIS, INCORPORATED

Bellingham, WABellingham, WAFebruary 25, 2004February 25, 2004

Research and MetricsResearch and MetricsMeasuringMeasuring

Capital ProjectCapital ProjectBest PracticesBest Practices

NWCC MeetingNWCC MeetingPresented by: Carlos TapiaPresented by: Carlos Tapia

CONFIDENTIAL 2 INDEPENDENT PROJECT ANALYSIS

Focus

• In this presentation we will focus on capitalproject Best Practices identified and researchedthrough the IPA methodology

• These Best Practices have been quantified andtheir effect on projects has been measured

• IPA clients routinely apply this knowledge in thedefinition and execution of their capital projectportfolio

• What are the keys to successful projectexecution?

3CONFIDENTIAL INDEPENDENT PROJECT ANALYSIS

0% 20% 40% 60% 80% 100%

All Objectives

Operability

Cost & Sched. Pred.

Schedule Pred.

Cost Pred.

Cost & Schedule

Cost

Schedule

% Projects Meeting Performance Objectives

Few Projects Meet All Objectives


Outline

• IPA Background

• Best Practices: Research and Metrics

• Special Study: Labor Productivity

• The Challenge


IPA Corporate Background

• Founded in 1987 to provide a unique project researchcapability for the chemical process, petroleum, andminerals industries

• Staff includes engineers, economists, scientists,statisticians, and operations researchers with mostmembers holding an advanced degree

• Offices in the United States, The Netherlands, China, andAustralia

• Mission is to improve competitiveness of our customers byimproving their use of capital

• Devoted exclusively to the analysis of capital projects as afield of empirical research


IPA’s Customers

• Petroleum Industry

• Chemical Industry

• Pharmaceutical Industry

• Pulp & Paper Industry

• Specialty chemicals and consumer products

• Mining, Minerals Processing and Metals

• Contractors


Clients Represented in the IPA Databases

Abbott LaboratoriesABB LummusAbitibi-ConsolidatedAEC EastAgipAGRA SimonsAIOCAIR LiquideAir ProductsAKZO NobelAlcanAlcoaAlyeskaAMECAmerada HessAmoseasAnadarkoAppeylArmy Corps of EngineersAstraZenecaAtlantic LNGAtoFinaAustralian Magnesium Corp.Australian PaperBASFBayerBechtelBE&KBHP BillitonBluewaterBorealisBritish BorneoBritish GasBritish Nuclear FuelsBPBristol-Myers SquibbCaltexCargill Dow PolymersChevron TexacoChina Three Gorges ProjectDevelopment Corp.

ChiyodaCITGOClark Refining & MarketingCNRLCodelcoCondea VistaColonial Pipeline CompanyComalco (Rio Tinto)ComincoConocoPhillipsCRICSR Timber ProductsCYTECDeBeers DiamondsDegussa-HülsDepartment of Defense (US)DofascoDow Chemical CompanyDSMDuPontDuPont Dow ElastomersEastman Chemical Co.EC ErdolchemieEdison CompanyEichleay EngineeringElf AtochemEli Lilly & Co.EntergyEnterprise Oil Ltd.ExxonMobilFluor DanielFlorida Power & LightFMC CorporationFoster WheelerGaz De FranceGeneral ElectricGlaxoWellcomeHammersley ironHoffman-La RocheHoneywellHusky Oil

PEMEXPetrobrasPetrokemyaPetróleos de VenezuelaPharmaciaPillsburyPortland PipelinePotlatchProcter & Gamble Co.Qatar General Petroleum Co.Quimica FluorRepsol YPFRhodiaRohm & HaasRoyal Dutch Shell GroupSouth Australian MagnesiumSAPPISasolSaudi AramcoShell Oil CompanyShell CanadaShell MIningSolutiaSolvaySouthern Natural GasStatoilStepanStone & WebsterSuncor EnergySunocoSyncrudeTotalFinaElfToyoUnion Carbide CorporationUnocalUS GypsumUS SteelValeroWellmanWeyerhaeuserWMCWoodside

ICIIluka ResourcesIncitecInland Paperboard & PackagingInternational PaperIscorJacobsJGCKellogg Brown & RootKeymaKimberly ClarkKochKodakKvaernerLasmoLTV SteelLundin MalaysiaLyondell CitgoMagnesium Intl. Ltd.Malaysian Refining Co.Marathon AshlandMarathon OilMeadMerck & Company, Inc.MerialMillikenMontellMorton InternationalNAOCNederlandse Aardoilie Mj.Noranda FalconbridgeNorsk HydroNorth Star SteelNova ChemicalsNycomed AmershamOricaOwens Corning


Outline

• IPA Background



• The Challenge


Elements of Capital Effectiveness

SAFETY

BETTERROI

Key Performance Indicators

Fast CycleTime

Low Cost

Facility

Quality

Business Strategy

Technology Strategy

Alignmentof

Functions

LeadingTechnology

Use ofValue Improving

Practices

Front-EndLoading

OptimalScope forBusiness

Needs

ExecutedWith

MinimumChange

Discipline

Timely Involvement ofContractors/Vendors

Key Leading Indicators


Benchmarking

IPADatabases

Project Evaluations

Project SystemMonitoring

Contingencies

ScheduleHistories

CostHistories

Project Definition

Technical Characteristics

ManagementStrategies

Performance

Application of the IPA Methodology


KEY PROJECT PRACTICES

Project Performance Inputs

ParametricStatistical

Techniques

Project Performance Outputs

The Approach: Linking Inputs to Outputs

KEY PROJECT RESULTS


FEL VIPs TeamPractices

ProjectControls

Cost Schedule OperationalPerformance



Techniques



Technology

Safety


Outline• IPA Background


– Safety First

– Front-End Loading

– VIPs

– Teams and Core Competencies

– Project Controls


• The Challenge


Drivers of Project Safety

• IPA research has identified a set of primarydrivers of project safety:

– Excellent Front-End Loading

– Strong, interactive new-hire safety orientationeffort

– Craft worker review of the safety program

– Pre-task planning after changes

– Individual recognition awards for safety



ProjectControls




Techniques



Technology

Safety


Front-End Loading (FEL) is the process by whichan owner develops a detailed definition of the

scope of a capital project to meet business objectives

-- Why

-- What

-- When

-- Where

-- How

-- Who

What Is Front-End Loading?


FEL isthe primary

Best Practicein project execution

What Is Front-End Loading?


Capital Project Life Cycle

EXECUTION

Business Appraisal

Phase

CYCLETIME

ConceptualPlanning

Basic ProjectPlanning

DetailedEngineering

Construction

Startup andTurnover

Operations

Value Creation

ValueProduction

Value Addition

ValueMaintenance

Front-End Loading


FEL Rating

0.8

0.9

1.0

1.1

1.2

Rel

ativ

e C

apita

l Cos

t(P

roje

ct C

ost /

Indu

stry

Avg

. Cos

t)

Industry Average Cost

FEL Drives Absolute Cost Performance

FairBest Practical ScreeningGood Poor


0.85

0.90

0.95

1.00

1.05

1.10

1.15

3 4 5 6 7 8 9

Front-End Loading

Industry Average

Better Definition Shortens Project Schedule Durations

Rel

ativ

e Sc

hedu

le

(Indu

stry

Ave

rage

= 1

.0)

FairBest Practical ScreeningGood Poor

Cycle Time

ExecutionSchedule

Construction


VIPsFEL TeamPractices

ProjectControls




Techniques



Technology

Safety


Value Improving Practices

• Formal, documentedpractices that use arepeatable work process

• VIPs are almost alwaysfacilitated by specialistsoutside the project team

VIPs are out-of-the-ordinary practices used to improvecost, schedule, and/or reliability of capital projects

0.8

0.9

1.0

1.1

1.2

3 4 5 6 7 8 9FEL Rating

Rel

ativ

e C

apita

l Cos

t

FairBestPractical

ScreeningGood Poor

FEL improvement onlyIndustry Average

FEL improvement plus VIPs


Technology SelectionProcess Simplification (Value Engineering 1)Classes of Facility QualityWaste MinimizationConstructability Review (1)

Process Reliability ModelingMinimum Standards and SpecificationsPredictive MaintenanceDesign-to-Capacity

Energy Optimization3-D CAD (through execute)Value Engineering (2)Constructability Review (2)

Constructability Review (3)

Explore Appraise/Select

Define Execute Operate

Project Phase

Authorization

Pote

ntia

l to

Impa

ct V

alue

Value Improving Practices


TeamPractices:

TeamDevelopment

FEL VIPsProject

Controls




Techniques



Technology

Safety


Team Development• IPA research and work has shown that well developed

and integrated project teams are a key driver of projectsuccess

– Increased cost effectiveness

– Faster projects

• Project teams must be formed during FEL and remainstable through execution

• Characteristics of a well developed project team:– Clearly defined project objectives

– Strong project manager with authority

– Functional representation from key stakeholders

– Clearly defined roles and responsibilities

– Guided by a clear project implementation process


TeamPractices:

CoreCompetencies

FEL VIPsProject

Controls




Techniques



Technology

Safety


Background

• Owner companies have downsized and outsourced variousengineering and project management functions for nearlytwo decades.

• The effects of downsizing on project performance and therationale for downsizing are not clearly understood.

• In 1992, IPA studied contractors’ role in Front-End Loading(FEL) and concluded that owner leadership during FEL is akey driver of project success.

• In 2002, IPA studied project competencies and founddistinct cost and schedule advantages to owners retainingcertain competencies in-house.


What Is a Core Competency?

A set of project functions or skills that are

a source of competitive advantage and

that cannot be effectively and reliablysecured from the market


Which competencies are considered Core by Owners?


Core Competencies• The following competencies are usually considered core

by owner companies:

– Convert research to project

– Formulation of business case

– Conceptual cost estimating (60/40)

– Conceptual Design

– Environmental/Permitting

– Safety

– Procurement and Contracts Admin.

– Project Management

– Commissioning and Startup

– Continuous Improvement


Non-Core Competencies• The following competencies are usually considered non-

core by owner companies:

– Detailed Engineering

– Construction


The Project Management Competencies

• All owners with successful capital project systemsconsider project management a core competency

• Most consider the supporting competencies core too:

– estimating

– scheduling

– procurement

– controls


Some Conclusions

• Competitive advantage for the project execution phaseis significantly more likely to reside with owners that:

– Build at least a core in-house detailed engineeringcapability for large projects

– Maintain a strong control function

– Use in-house construction managers when

> Portfolio of projects includes substantial revamp work

> Risk of changes during startup is high


How Do I MakeThe Right Sourcing Decision?

• I have to own the competency if I can’t buy it reliablyfrom the market.

• If I decide to get rid of the competency, I must be asavvy buyer.

– If I don’t do this in-house, can I be a savvy buyer?

• If I believe that I can perform this competency moreeffectively in-house than buying from the market, Imay decide to keep it.

– After factoring in the “valley” periods when some ofthose jobs might not be needed.> Need data!


ProjectControls





Techniques



Technology

Safety


-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

0 1 2 3 4 5 6 7 8

Weighted Control Practice Score

Good Project Control PracticesReduce Execution Schedule Slip

Perc

enta

ge S

ched

ule

Dev

iatio

n

Worse Better


Best Practices

• IPA has identified a set of Project Inputs thatwhen applied correctly constitute Best Practices

• Best Practices should be implemented primarilyduring project definition and maintained duringexecution

• The primary Project Inputs are:– FEL or Project Definition– Use of VIPs– Team Development– Project Controls– Use of New Technology

• “Class A” project systems implement thesepractices in a concerted manner


Outline

• IPA Background



• The Challenge


Keys to Better Productivity

• Detailed execution planning is the single mostimportant driver of better field productivity

– Execution planning has been progressively outsourcedto contractors

• But the data are clear: owner execution planning andcontrol are central to securing good labor productivity

• The principal role of the engineering contractor is toprovide timely, high-quality engineering documents toconstruction; it is not to take the place of the owner inthe execution planning process


• Project Executionplanning

–detailed schedules

• Soils

• Health and Safetyrequirements

• Engineering status

• Equipment specs

• Key VIPs

Front-EndLoading

Front-EndLoading

ExecutionFactors

ExecutionFactors Other DriversOther Drivers

More Construction

for the Money

More Construction

for the Money

• Use of Integrated 3D• Working weather windows• Effects of overtime• Role of supervision• Union/open shop effects• Importance of schedule

maintenance• Control planning

Components of Improved Labor Productivity

• Quantitativeweather effects


Outline

• IPA Background



• The Challenge


BEST BEST BEST PRACTICESPRACTICESPRACTICES

What Really Matters?

Strategy

Process People


The Challenge in Capital Project Execution

• In the last 15 years, the process industry has madesignificant progress understanding the value of BestPractices in capital project execution

• However, the key challenge remains on the integrationof processes and organization (within which BestPractices reside)

• The truly successful project systems have managedto master a process that is supported by a strongproject organization (resources, core competencies,integrated teams); Best Practices are then insertedinto both the process and the organization at the righttime and level

THE AMERICAS THE AMERICAS EUROPE EUROPE AUSTRALIA AUSTRALIA CHINA CHINA

INDEPENDENT PROJECT ANALYSIS, INCORPORATEDINDEPENDENT PROJECT ANALYSIS, INCORPORATEDwww.www.ipaglobalipaglobal.com.com

Research and MetricsResearch and MetricsMeasuringMeasuring

Capital ProjectCapital ProjectBest PracticesBest Practices

Presented by: Carlos TapiaPresented by: Carlos Tapiactapiactapia@@ipaglobalipaglobal.com.com

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