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Per Willy HetlandStatoil Project Academy

Project owner

General contractor

Project functional units/Sub-suppliers

Engineering contractor

Contractual governance

2

The new wave in project management New realities for managing projects New leadership principles New project challenges New competencies Shift in mindsets Change of behaviour Excerpts from Statoil Project Executive Programme

3

Maturity

Time1950 2000

Enhancing Business Value

Execution Excellence

4

CorporateBusinessStrategies

LeadershipPrinciples

New ProjectChallenges

NewCompetencies

Shift inMindset

Change ofBehaviour

ProjectBusiness Value

5

Stimulating new ideas and creativity Chasing business opportunities Challenging accepted truths Entering unfamiliar territory Setting ambitious targets

That increase uncertainties and risk simultaneously sharpen personal accountabilities to deliver as promised

6

Increasing variety and complexity New technology New business practices Unfamiliar locations Turbulent geopolitical contexts

That require new and enhanced project competencies

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Craft and apply project execution strategies that: Enhance business value Over the complete project life cycle Considering uncertainties, risks and opportunities By applying the new leadership principles

The new world for project managers requires a step change from the past practices where focus was on delivering projects as specified on time and within budget to deliver project business value

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THE PAST

ConceptDevelopment

BusinessStrategy

Project Execution Planning

Quality (Performance)

Time Cost

Deliver as specified on time and within budget

Comply with prescriptive project execution proceedures

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THE PRESENT

ConceptDevelopment

BusinessStrategy

Project Execution Planning

Quality (Performance)

Time Cost

Strategy

Execution

Stage gated approach to reduce risks

Align project execution to project strategy

10

THE FUTURE

•New Project Challenge (1)

•Shift in Mindset (2)

•Added Knowledge (3)

•Change of Behaviour (4)

12

34

Leadership driven project value enhancement

Drive project business value and master risks

PE AlumniM0 ME

M1

M2 M3

M4

Conte

xt

Context

Conte

xt Context

Turning Business Opportunities into Project Strategies

Exp

lora

tive

Beh

avio

r

Adapting to geo-political context

Adaptive Behavior

Driving Execution

Excellence

Skills

Skills

Skills Skills

New Knowledge

Del

ive

ry-o

rien

ted

Be

hav

ior

CHANGE OF BEHAVIOR

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Project strategies Project environments The project supply chain Project eco-systems Project contract archetypes Conventional pricing Conventional dilemmas Alignment of interests Incentive contracts

13

Project

ExecutionSanction Hand over

Development Implementation

Value p

otentia

l

Value cre

ation

Value delivery

Business o

pportunity

Productio

n start-up

Abandon

Hand over

Sanction

Development planning

The project owner perspective

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ProjectBusiness case

Corporate

Supplier’s external project environment

Supplier’s internal project environment

External environment

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EC

IC

CVNV

FCMS

MaterialTake Off

Vendorinformation

Drawings

Materials

Modules

Services

Horizontal ties

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Vertical ties

O

V

FC

IC

Project owner

1st tier suppliers

2nd tiersuppliers

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The General Contractor StructureProject owner

General contractor

Project functional units/Sub-suppliers

Engineering contractor

Contractual governance

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LegalAspects

Aspects ofTrust

CommercialAspects

IncentivisedConcepts

ConventionalPricing

RelationalContracts

PartneringContracts

MarketContracts

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Probability

Cost

+ -Motivational effect

EV(P) EV(0) EVC

-+

Competition Moral hazardHRLR

Client net benefit

Riskpremium

PriceBasedContract

CostBased Contract

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Owner interests

Supplier interests(fixed price contracts)

Supplier interests(reimbursable contracts)

Conventional pricing formats

Incentivised contracts

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Contractor’sProfit margin

Contractor’s Costs

Fixed price bid

Estimated Contract costs

Calculated Profit margin

Calculated Risk premium

Risk Cap

Risk free “bid”

Client incentive

Contractor incentive

Gai

n s

har

ing

Risk transferredto customer

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Vive la difference! Projects are different Strategies are different – effectiveness or efficiency Strategies are different - determinism or dynamism Strategies are different - implications for project risks

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• Projects are different• Project environments are different• Project strategies are different

DEFENSIVE

ADAPTIVE

OFFENSIVE

RobustnessResilience

VersatileMalleable

Agile

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Closed Open

More of the same(status quo)

Incremental improvement

Don’t know what to doBut can’t stay here(quo vadis)

Radical change

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Customize

Standardize

Reuse Innovate

Increasing efficiency

Increasing effectiveness

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Fuzzy specifications

Functional specifications

Stretched targetsPROJECT OBJECTIVES

Guidelines

Value engineering

Re-engineeringDefensive concepts

Adaptive concepts

Offensive concepts

DEFINITIVE CONCEPTS

OPTION VALUE

PROJECT DYNAMICS

PROJECT PROCESSES

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Detailed specifications

Fuzzy specifications

Stretched targets

Functional specifications

Moving targets

Defensive concepts

Adaptive concepts

Offensive concepts

Definitive concepts

Project sanction

Incr

ea

sin

g e

xecu

tion

ris

ks

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Project internal decisions Project external decisions One-directional state variables Two-directional state variables

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Ran

dom

var

iatio

ns

Doi

ng th

ings

righ

t

Doi

ng th

e rig

ht th

ings

Doing things w

rong

Doing the wrong things

IMP

AC

T O

N C

AP

EX

, LC

P, N

PW

+

_

Opportunitymanagement

Riskmanagement

FREEDOM TO ACT

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INTENTIONALDISRUPTIVE

INTENTIONALSUPPORTIVE

IMPACT ON CAPEX (-), LCP, NPW

+

_

Proactive involvement

Constructivedialogue

Reactive critique

Interference

Attack

Incompetence

Risk management

Opportunity management

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IMPACT ON CAPEX (-), LCP, NPW+

_

FORCE OF VARIABLE

Planned for

Cost of Risk buffer Worse case

scenarioCost of resiliencemeasure if activated

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IMPACT ON CAPEX (-), LCP, NPW+

_

FORCE OF VARIABLE

Decrease Increase

Sales prices

Factor prices

Planned for

Break even

Loss

Bancroft

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Offensive management of uncertainties Contractor influence on CAPEX Influence on Life Cycle Profit, LCP Influence on Net Present Worth, NPW

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NPW

EVCE

Cost of risk

p

p

p

NPW

NPW

CE EV

Cost of risk

Cost of risk

Reduce risksIncrease opportunities

DEFENSIVESTRATEGIES

OFFENSIVESTRATEGIES

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CAPEX

TIME

Influ

ence

San

ctio

n

Co

ntr

act

awar

d

Give away value potentialIn lump sum contracts

Potential risks inDecision variables• Owner’s decisions• Contractor decisions• Effects of sunk cost

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1

2

3

4 5

6

7

1 Start production 4 Planned downtime2 Production built-up 5 Unplanned downtime3 Plateau production 6 Start tail production

7 Abandoning

Added value

Pro

ject

san

ctio

n

LCP

TIME

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Option value: Investments in future extensions

Corporate risk exposure: Portfolio relevant risks Corporate strategy risk Reputation risk

Sanction Hand over TIME

NPW

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Clients don’t buy project deliveries anymore

They buy project business value