How to Create a World-Class Project Management Organization?

Nick Lavingia 1

How to Create a World-Class Project Management Organization?

Dr. Nick J. Lavingia, P.E.

Chevron

Project Management Consultant

APEGGA Annual Conference, Calgary

April 26-27, 2007

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Dr. Nick J. Lavingia, P.E.Project Management ConsultantChevron

Nick has over 30 years of Global Project Engineering, Management, Consulting and Training experience in the Energy industry. As a Project Management Consultant at Chevron, he provides Consultation and Training to Project Professionals worldwide.

Nick has a B.S. and M.S. in Chemical & Petroleum-Refining Engineering and a Ph.D. in Engineering Economics & Management from the Colorado School of Mines. He is a registered Professional Chemical Engineer in the State of California.

Nick is a member of Project Management subcommittee for Athabasca Oil Sands expansion project. He has published and presented many papers at technical organizations and is a recipient of industry award from Pathfinder for outstanding Contribution to the advancement of Project Management Technology and Chevron Chairman’s award for implementing Value Engineering throughout the corporation.

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Agenda

• Business Case for Improvement

• Five Steps to Success:

Step 1: Common Language (PMI’s PMBOK)

Step 2: Common Project Development & Execution Process

Step 3: Application of Value Improving / Best Practices

Step 4: Total Cost Management

Step 5: Training & Certification

• Summary

• Q&A

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Business Case for Improvement

Improved Capital Stewardship

Lower Costs

More Projects

Better Projects

Improved ROCE

Higher Earnings Growth

Higher P/E

Higher Market Confidence

Improved TSR

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Project Management’s Impact on the Bottom Line

Project Management Improves ROCE by

Increasing Revenues, Decreasing Expenses,

and Reducing Capital Employed

REVENUE MINUS EXPENSES

CAPITAL EMPLOYED= ROCE

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Project Management Leads to Pacesetter Performance (Cheaper, Faster, and More Predictable)

1.25

1

0.750.75 1 1.25

Execution Schedule

Fac

ilit

y C

ost Industry Average

Ind

us

try

Ave

rag

e

30%Improvement

30% Improvement

PacesetterPacesetter CompanyCompany

Company XCompany X

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Step 1. Common Language

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PMI’s PMBOK

Project Management Skills from PMBOK:

--Project Integration Management

--Project Scope Management

--Project Time Management

--Project Cost Management

--Project Quality Management

--Project Human Resource Management

--Project Communications Management

--Project Risk Management

--Project Procurement Management

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Step 2. Common Project Development & Execution Process

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Project Development & Execution Process

A Process that Facilitates the Optimal

Use of Resources (Dollars, People and

Technology) Over the Life of an Asset /

Project to Maximize Value.

Desired Outcome• Select the Right Projects by Improving Decision

Making • Improve Project Outcomes through Excellence

in Execution of Decisions

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High

HighLow Mid

Random Success• Good Projects• Average Execution

Consistent Success• Good Projects• Good Execution

Success Unlikely• Poor Projects• Poor Execution

Random Success• Poor Projects• Good Execution

Decision

Quality

Execution Quality

Mid

Project Management Vision

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PHASE 2SELECT fromAlternatives

Determine Project Feasibility andAlignment withBusiness Strategy

Project Development & Execution Process

PHASE 1IDENTIFY & Assess

Opportunities

Finalize Project Scope, Cost and Schedule and Get the Project Funded

Select thePreferred Project Development Option

Evaluate Asset to Ensure Performance to Specifications and Maximum Return to the Shareholders

PHASE 3DEVELOP Preferred

Alternative

PHASE 4EXECUTE

(Detail EPC)

PHASE 5OPERATE &

Evaluate

Produce an Operating Asset Consistent with Scope, Cost and Schedule

1 2 3 4 5

AFE

AFE = Appropriation For Expenditure

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VA

LU

EProject Management’s Impact on Creating Value

Phase 1Opportunity

Identified

Phase 2Generate &

Select Alternatives

Phase 4Execute

Phase 5Operate

Value Identification Value Realization

Phase 3Develop

Preferred Alternative

Poor Project Definition

Good Project

Definition

Poor Project Execution

Good Project

ExecutionA

B

C

DAFE

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PHASE 2SELECT fromAlternatives

Clearly Frame Goal

Test for Strategic Fit

Preliminary Overall Plan

Preliminary Assessment

~1 % Engng.

Phase 1 Estimate

Project Development & Execution Process

PHASE 1IDENTIFY & 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 3DEVELOP Preferred

Alternative

PHASE 4EXECUTE

(Detail EPC)

PHASE 5OPERATE &

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

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INF

LU

EN

CE

Front End Loading

Major Influence Rapidly Decreasing Influence Low Influence

EX

PE

ND

ITU

RE

S

Final Authorization

IDENTIFYDSP

Gate

DSP

GateSELECTDSP

GateDEVELOPDSP

GateEXECUTE OPERATEDSP

GateGateGateGate

Influence vs. Expenditures

Front End Loading DSP = Decision Support Package

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Key Players

• Decision Makers

• Multifunctional Project Team

--Business, Technical, Operations and Maintenance

• Stakeholders

• Contractors

• Vendors / Suppliers

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Management’s Role (1)

Accountability—Business evaluation should be conducted 1 to 2 years after project completion and Project Sponsor should be held accountable for the financial outcome.

Accessibility—Management should actively participate in gate keeping meetings at the end of each phase of the Project Management Process and communicate frequently with the project team.

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Management’s Role (2)

Leadership—Management should establish clear expectations and objectives for the project team.

Resources—Provide resources of right people and funding to support the project team.

Behaviors—Demonstrate visible support and provide positive consequences for following Project Management Process, Best Practices and sharing Lessons Learned.

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Step 3. Application of Value Improving / Best Practices

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Value Improving / Best Practices

Value Improving / Best Practices are tools to improve project planning and execution. In conjunction with a structured Project Management Process they can optimize:

• Cost

• Schedule

• Performance

• Safety

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• 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 AFEPFD D D D D D$

EST

Phase 1IDENTIFY & Assess

Opportunities

Phase 2SELECT fromAlternatives

Phase 3 DEVELOP Preferred Alternative

Phase 4EXECUTE

(Detail EPC)

Phase 5OPERATE &

Evaluate

Value Improving / Best Practices

• Post Project Assessment

• Business Evaluation

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Step 4. Total Cost Management

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•Contracting/Procurement (Strategy)

•Cost Control/Forecasting (WBS)

•Progress reporting

•Finance/Audit

Total Cost Management

Phase 1IDENTIFY & Assess

Opportunities

Phase 2SELECT fromAlternatives

Phase 3DEVELOP Preferred Alternative

Phase 4EXECUTE

(Detail EPC)

Phase 5 OPERATE &

Evaluate

• Economic Analysis (NPV, ROR, Payout)

• Cost Estimating (Conceptual)

• Planning/Scheduling (Milestone)

• Benchmarking (Cost / Capacity)

Legend: AFE = Appropriation for Expenditure NPV = Net Present Value PFD = Process Flow DiagramD = Decision Point ROR = Rate of Return P&ID = Piping & Instrumentation DiagramEPC = Engineer, Procure & Construct CPM = Critical Path Method WBS = Work Breakdown Structure

P&ID$

EST AFEPFD D D D D D$

EST

(Funding +/- 10% Accuracy) (Definitive)

(CPM Bar Chart) (CPM Resource Loaded) (Monitor & Update)

(Pre-Funding Assessment) (Post-Project Assessment)

(Pre-Qualification) (Award / Monitor)

Performance Measurement (Establish Progress Payments)

(Earned Value)

(Establish Cost Accounts & Budgets) (Trend / Forecast)

(Closeout)

(Cost Collection / Analysis)

(Set Pacesetter Target)

(Asset Accounting) (Capital versus Expense)

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Step 5. Training and Certification

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Training

• Project Management Skills from PMBOK--Project Integration Management--Project Scope Management--Project Time Management--Project Cost Management--Project Quality Management--Project Human Resource Management--Project Communications Management--Project Risk Management--Project Procurement Management

• Business Decision & Risk Analysis • Leadership Roles & Behaviors

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Certification

• All Decision Makers should be certified in:-- Overview of PMBOK Areas -- Business Decision & Risk Analysis-- Leadership Roles & Behaviors

• All Project Professionals should be certified in:-- PMBOK Areas-- Business Decision & Risk Analysis-- Leadership Roles & Behaviors

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Summary

Common Language, Common Project Development & Execution Process, Application of Value Improving / Best Practices, Total Cost Management and Training / Certification can help create a World-Class Project Management Organization that Delivers:

• Better

• Cheaper

• Faster

• Safer

PROJECTS