PMI EMEA Congress 2011 - Session PRJ11

Generating Opportunities from ConstraintsEthics for Project Success

Michela Ruffa, PMP© - Director at Large – PMI © Northern Italy ChapterStefano Setti, PMP© - Director at Large – PMI © Northern Italy ChapterRezzato and Devnya Projects

Comparison of two success stories with a different Project Management approach

Matteo Maconi PMP® – Direttore Generale CTG Spa (Italcementi Group)

Milano, 29 gennaio 2016

Venti di Futurothe PMI-NIC 20th Anniversary

Assemblea dei Soci 2016

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Italcementi Group at a glance

The world’s fifth largest cement producer

A worldwide presence in 22 countries

An overall staff of 18,000 people

A consolidated production capacity of approximately 61 million tons

2014 annual sales exceeding 4.1 billion Euro

The first cement company to be listed on the Italian Stock Exchange since 1925

Over 150 years-old successful business strategy implemented by a family-driven company at its fifth

generation

Italcementi Group subsidiary organized into 2

main Divisions

CTG – Centro Tecnico di Gruppo

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Research&

Development

Technical Operations

Strategic R&D projects: materials, products, solutions,

applications and technologies; environmental impact reduction

and support to the Sustainable Development action plan.

Monitoring of operating plants performance

Operational support and technical assistance to Group Subsidiaries

Management of strategic industrial Investments

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CONTENTS

Project Context

Project Execution

Conclusions

Rezzato and Devnya ProjectsComparison of two success stories with a different Project Management approach

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Similar Context for Both the Projects Brownfield projects

Revamping of existing obsolete production lines with marginal capacity increase

Congested areas and complex tie-in with the existing facilities

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Similar Context for Both the Projects Brownfield projects

Revamping of existing obsolete production lines with marginal capacity increase

Congested areas and complex tie-in with the existing facilities

Similar strategic background Raw material availability Strategic position Reduction of variable costs – readjustment of industrial network substantial reduction of the actual environmental footprint

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Similar Context for Both the Projects Brownfield projects

Revamping of existing obsolete production lines with marginal capacity increase

Congested areas and complex tie-in with the existing facilities Similar strategic background

Raw material availability Strategic position Reduction of variable costs – readjustment of industrial network substantial reduction of the actual environmental footprint

Complex relation with local community and local authorities Many local constraints superimposed to both the projects Stakeholders management

REZZATO

DEVNYA

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Similar Context for Both the Projects Brownfield projects

Revamping of existing obsolete production lines with marginal capacity increase

Congested areas and complex tie-in with the existing facilities Similar strategic background

Raw material availability Strategic position Reduction of variable costs – readjustment of industrial network substantial reduction of the actual environmental footprint

Complex relation with local community and local authorities Many local constraints superimposed to both the projects Stakeholders management

Stringent Owner requirements Minimization of the total investment cost within a given target Minimization of production cost Utilization of innovative technical solutions Respect of present BAT being ready for future SD evolution

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CONTENTS

Project Context

Project Execution

Conclusions

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REZZATO

Direct Execution with central interface coordination by ITALCEMENTI/CTG

35 main purchase orders with 5 major packages covering 90% of the investment: Detailed Design

[one multidisciplinary Italian contractor] Technology Equipment

[one European supplier selected through competitive bid]

Main Control System Medium Voltage Distribution Construction

[one Italian General Contractor covering the whole construction scope]

EUROPEAN MAIN CONTENT [made in Italy centered]

DEVNYA

Full Scope EPC Contract on Lump Sum Turn Key basis assigned through competitive bid

ITALCEMENTI/CTG Project Management and Supervision

CHINESE MAIN CONTENT

Project Execution Strategy

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1

REZZATO

Direct control over the planning and execution

Higher flexibility/shorter decision process

Easier communications

DEVNYA

Risk transfer on EPC Contractor Lighter Project Management

Organization Single reference for all Project

aspects with integral responsibility

Higher risk of cost overrun Complex coordination of interfaces Huge organization effort and higher

Project Management cost Complex contract management

Very complex communication (language + cultural background)

Integration of Chinese contractor with local reality (contractors and regulations)

Reduced control and visibility over decisional process

Strength/weakness of the two approaches

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REZZATO

Common reference on EU standards

DEVNYA

Single point of responsibility on the EPC contractor

Complex coordination of several subcontractors

Management of congested areas (due to local lay-out constraints) and concurrent operation of existing plant

Communication Gap between Chinese and European

standards Difficult interface with local

bureaucracy Big effort from owner Project

Management team to ensure proper working conditions

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Health, Safety and Environment

REZZATO

Direct control over the engineering execution

Familiarity with EU standards and local norms

Easier inspection and quality control

DEVNYA

Single point of responsibility on the EPC contractor

Owner direct responsibility in front of the Construction Contractor

Complex interface management between vendors and construction

Very complex communication due to different techincal approach and geographical distance

Difficult and time consuming management of the local content (“bulgarization” of the design through local engineering companies)

Limited control on expediting and inspection of the material and quality control

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Engineering and Supply

REZZATO

General Contractor representing a single point of responsibility for all the construction disciplines (integrated approach)

Strict control on planning and progress and wider room for owner direct intervention

DEVNYA

Experienced Chinese manpower installing “their own” equipment (high productivity)

Integrated management and responsibility over the supply chain

Complex contract management Owner direct responsibility to grant

the availability of engineering and equipment

Lack of “cement experienced” subcontractors (learning curve)

Limited possibility to import Chinese manpower

Complex management of local subcontractors

Difficult integration of Chinese manpower with local sub-contractors (language and cultural background gap)

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Construction

Some Snapshots from the Jobsites…

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REZZATO

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DEVNYASome Snapshots from the Jobsites…

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RAW GRINDING + BURNING LINE COST

NOMINAL ANNUAL CLINKER PRODUCTION

COMPARISON OF UNITARY RATES FOR MAIN COST VOICESDEVNYA REZZATO

[ratio vs. DEVNYA]

Unit Rates for Civil Construction (Euro/m3 materials + manpower)

557 1305[2,34]

Unit rates for equipment (Euro/kg) 4,6 7,1[1,54]

Unit rates for structural steel(Euro/kg)

1,6 2,7[1,69]

Labor Cost “all in” (Euro/MHR) 19,5 50,4[2,58]

Erection Productivity (hours/ton steel) 74,3 41,7[0,56]

Erection unit rate(Euro/kg steel)

1,4 2,1[1,5]

DEVNYA = 82,2 €/Ton

REZZATO = 111,8 €/Ton [1,36 x Devnya]

Costs

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1

REZZATO PROJECT COMPLETED IN LINE WITH THE BASELINE SCHEDULE [start up 25 months from equipment purchase order]

DEVNYA PROJECT CUMULATED 5 MONTHS OVERALL DELAY AGAINST THE CONTRACTUAL BASELINE [baseline = 26 months from Contract – Actual duration = 31 months from Contract signature]

Difficult start up - excellent respect of the updated forecast since May 2013

Substantial respect of the baseline with few minor adjustments along the execution – progress gap in the close out mainly due to postponement of ancillary activities after start up

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Time

REZZATO

NEED OF VERY ACCURATE BASIC DESIGN AND MANAGEMENT TOOLS: Positive return on the approach provided that a very accurate and detailed preparation and planning is carried out before the start of the execution phase

Packaged approach is a winning strategy BUT maximum attention to the RISK OF FORCING SUPPLIERS OUT OF THEIR “USUAL” SCOPE LIMITS

DEVNYA

Ensure the IN DEEP UNDERSTANDING OF THE PROJECT CONTEXT by the EPC contractor through the definition of pre-agreements with local contractors

INVEST IN COMMUNICATION SKILLS through cultural mediators able to facilitate the mutual understanding

Detailed verification and joint review of the project schedule before the signature of the contract to ensure ADEQUATE CONTROL TOOLS ARE IN PLACE SINCE DAY 1

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Lessons learnt

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CONTENTS

Project Context

Project Execution

Conclusions

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Conclusions The correct choice of the purchasing and execution strategy in addition

to a very strict control of engineering, construction and commissioning is fundamental to respect time and costs

The projects of the new line in Rezzato and Devnya represent a strong effort to arrange technological innovation, sustainability and project execution proceeding at the same pace for the success of the initiative

The Project context plays a key role in the definition of the Project Execution Strategy

Adoption of Chinese contractors requires an additional Project Management effort and wider time contingencies usually not properly taken into account in the selection process and cost comparison

Virtuous integration of Chinese and European content is possible provided that adequate preparation work is carried out

For innovative technology applications and complex revamping/brownfield works, European/Italian suppliers/contractors do have a significant advantage vs. low cost countries competitors