THE AMERICAS THE AMERICAS EUROPE EUROPE AUSTRALIA AUSTRALIA CHINA CHINA
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
CONFIDENTIAL 4 INDEPENDENT PROJECT ANALYSIS
Outline
• IPA Background
• Best Practices: Research and Metrics
• Special Study: Labor Productivity
• The Challenge
CONFIDENTIAL 5 INDEPENDENT PROJECT ANALYSIS
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
CONFIDENTIAL 6 INDEPENDENT PROJECT ANALYSIS
IPA’s Customers
• Petroleum Industry
• Chemical Industry
• Pharmaceutical Industry
• Pulp & Paper Industry
• Specialty chemicals and consumer products
• Mining, Minerals Processing and Metals
• Contractors
7CONFIDENTIAL INDEPENDENT PROJECT ANALYSIS
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
CONFIDENTIAL 8 INDEPENDENT PROJECT ANALYSIS
Outline
• IPA Background
• Best Practices: Research and Metrics
• Special Study: Labor Productivity
• The Challenge
9CONFIDENTIAL INDEPENDENT PROJECT ANALYSIS
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
10CONFIDENTIAL INDEPENDENT PROJECT ANALYSIS
Benchmarking
IPADatabases
Project Evaluations
Project SystemMonitoring
Contingencies
ScheduleHistories
CostHistories
Project Definition
Technical Characteristics
ManagementStrategies
Performance
Application of the IPA Methodology
11CONFIDENTIAL INDEPENDENT PROJECT ANALYSIS
KEY PROJECT PRACTICES
Project Performance Inputs
ParametricStatistical
Techniques
Project Performance Outputs
The Approach: Linking Inputs to Outputs
KEY PROJECT RESULTS
12CONFIDENTIAL INDEPENDENT PROJECT ANALYSIS
FEL VIPs TeamPractices
ProjectControls
Cost Schedule OperationalPerformance
Project Performance Inputs
ParametricStatistical
Techniques
Project Performance Outputs
The Approach: Linking Inputs to Outputs
Technology
Safety
CONFIDENTIAL 13 INDEPENDENT PROJECT ANALYSIS
Outline• IPA Background
• Best Practices: Research and Metrics
– Safety First
– Front-End Loading
– VIPs
– Teams and Core Competencies
– Project Controls
• Special Study: Labor Productivity
• The Challenge
CONFIDENTIAL 14 INDEPENDENT PROJECT ANALYSIS
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
15CONFIDENTIAL INDEPENDENT PROJECT ANALYSIS
FEL VIPs TeamPractices
ProjectControls
Cost Schedule OperationalPerformance
Project Performance Inputs
ParametricStatistical
Techniques
Project Performance Outputs
The Approach: Linking Inputs to Outputs
Technology
Safety
CONFIDENTIAL 16 INDEPENDENT PROJECT ANALYSIS
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?
CONFIDENTIAL 17 INDEPENDENT PROJECT ANALYSIS
FEL isthe primary
Best Practicein project execution
What Is Front-End Loading?
18CONFIDENTIAL INDEPENDENT PROJECT ANALYSIS
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
19CONFIDENTIAL INDEPENDENT PROJECT ANALYSIS
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
20CONFIDENTIAL INDEPENDENT PROJECT ANALYSIS
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
21CONFIDENTIAL INDEPENDENT PROJECT ANALYSIS
VIPsFEL TeamPractices
ProjectControls
Cost Schedule OperationalPerformance
Project Performance Inputs
ParametricStatistical
Techniques
Project Performance Outputs
The Approach: Linking Inputs to Outputs
Technology
Safety
CONFIDENTIAL 22 INDEPENDENT PROJECT ANALYSIS
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
23CONFIDENTIAL INDEPENDENT PROJECT ANALYSIS
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
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
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INDEPENDENT PROJECT ANALYSIS, INCORPORATEDINDEPENDENT PROJECT ANALYSIS, INCORPORATEDwww.www.ipaglobalipaglobal.com.com
Research and MetricsResearch and MetricsMeasuringMeasuring
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Presented by: Carlos TapiaPresented by: Carlos Tapiactapiactapia@@ipaglobalipaglobal.com.com