THE AMERICAS THE AMERICAS EUROPE EUROPE AUSTRALIA AUSTRALIA CHINA CHINA INDEPENDENT PROJECT ANALYSIS, INCORPORATED INDEPENDENT PROJECT ANALYSIS, INCORPORATED Bellingham, WA Bellingham, WA February 25, 2004 February 25, 2004 Research and Metrics Research and Metrics Measuring Measuring Capital Project Capital Project Best Practices Best Practices NWCC Meeting NWCC Meeting Presented by: Carlos Tapia Presented by: Carlos Tapia
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THE AMERICAS THE AMERICAS EUROPE EUROPE AUSTRALIA AUSTRALIA CHINA CHINA
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
24CONFIDENTIAL INDEPENDENT PROJECT ANALYSIS
TeamPractices:
TeamDevelopment
FEL VIPsProject
Controls
Cost Schedule OperationalPerformance
Project Performance Inputs
ParametricStatistical
Techniques
Project Performance Outputs
The Approach: Linking Inputs to Outputs
Technology
Safety
CONFIDENTIAL 25 INDEPENDENT PROJECT ANALYSIS
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
26CONFIDENTIAL INDEPENDENT PROJECT ANALYSIS
TeamPractices:
CoreCompetencies
FEL VIPsProject
Controls
Cost Schedule OperationalPerformance
Project Performance Inputs
ParametricStatistical
Techniques
Project Performance Outputs
The Approach: Linking Inputs to Outputs
Technology
Safety
CONFIDENTIAL 27 INDEPENDENT PROJECT ANALYSIS
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.
CONFIDENTIAL 28 INDEPENDENT PROJECT ANALYSIS
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
CONFIDENTIAL 29 INDEPENDENT PROJECT ANALYSIS
Which competencies are considered Core by Owners?
CONFIDENTIAL 30 INDEPENDENT PROJECT ANALYSIS
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
CONFIDENTIAL 31 INDEPENDENT PROJECT ANALYSIS
Non-Core Competencies• The following competencies are usually considered non-
core by owner companies:
– Detailed Engineering
– Construction
CONFIDENTIAL 32 INDEPENDENT PROJECT ANALYSIS
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
CONFIDENTIAL 33 INDEPENDENT PROJECT ANALYSIS
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
CONFIDENTIAL 34 INDEPENDENT PROJECT ANALYSIS
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!
35CONFIDENTIAL INDEPENDENT PROJECT ANALYSIS
ProjectControls
FEL VIPs TeamPractices
Cost Schedule OperationalPerformance
Project Performance Inputs
ParametricStatistical
Techniques
Project Performance Outputs
The Approach: Linking Inputs to Outputs
Technology
Safety
36CONFIDENTIAL INDEPENDENT PROJECT ANALYSIS
-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
CONFIDENTIAL 37 INDEPENDENT PROJECT ANALYSIS
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
CONFIDENTIAL 38 INDEPENDENT PROJECT ANALYSIS
Outline
• IPA Background
• Best Practices: Research and Metrics
• Special Study: Labor Productivity
• The Challenge
CONFIDENTIAL 39 INDEPENDENT PROJECT ANALYSIS
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
40CONFIDENTIAL INDEPENDENT PROJECT ANALYSIS
• 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
CONFIDENTIAL 41 INDEPENDENT PROJECT ANALYSIS
Outline
• IPA Background
• Best Practices: Research and Metrics
• Special Study: Labor Productivity
• The Challenge
CONFIDENTIAL 42 INDEPENDENT PROJECT ANALYSIS
BEST BEST BEST PRACTICESPRACTICESPRACTICES
What Really Matters?
Strategy
Process People
CONFIDENTIAL 43 INDEPENDENT PROJECT ANALYSIS
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