Project owner Engineering contractor General contractor Project functional

Project owner Engineering contractor General contractor Project functional units/ Sub-suppliers Contractual governance Per Willy Hetland Statoil Project Academy

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

Maturity Enhancing Business Value Execution Excellence 1950 2000 Time

Corporate Business Strategies New Competencies Change of Behaviour New Project Challenges Leadership Principles Shift in Mindset Project Business Value

Ø Stimulating new ideas and creativity Ø Chasing business opportunities Ø Challenging accepted truths Ø Entering unfamiliar territory Ø Setting ambitious targets That increase uncertainties and risk simultaneously sharpen personal accountabilities to deliver as promised

Increasing variety and complexity Ø New technology Ø New business practices Ø Unfamiliar locations Ø Turbulent geopolitical contexts Ø That require new and enhanced project competencies

Craft and apply project execution strategies that: Ø Enhance business value Ø Over the complete project life cycle Ø Considering uncertainties, risks and opportunities Ø 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

THE PAST Deliver as specified on time and within budget Comply with prescriptive project execution proceedures Concept Development Business Strategy Project Execution Planning Quality (Performance) Time Cost 8

THE PRESENT Stage gated approach to reduce risks Align project execution to project strategy Concept Development Business Strategy Project Execution Planning Quality (Performance) Execution Time Cost 9

THE FUTURE Leadership driven project value enhancement Drive project business value and master risks 3 4 1 2 • New Project Challenge (1) • Shift in Mindset (2) • Added Knowledge (3) • Change of Behaviour (4) 10

nt ex t Co nte Co CHANGE OF BEHAVIOR xt ME Explorative Behavior M 4 ills Turning Business Opportunities into Project Strategies ills k S Sk M 1 New Knowledge M 2 Sk i ills M 3 Delivery-oriented Behavior M 0 PE Alumni Driving Execution Excellence Sk Adaptive Behavior t xt te ex on nt Adapting to geo-political context C Co 11

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

The project owner perspective i un ty t s si u B s ne op r po ue l a n te po V Development Sanction l tia ng i n an l p up t r on ry i ta e t t s v li n en ea r e r o i e m d c on v ct p ion e d e o o n lu lu el nct d odu a a a v n r V V Ab De Sa Ha P Project Execution Implementation Hand over

External environment Supplier’s internal project environment Supplier’s external project environment

Horizontal ties Vendor information CV Material Take Off Materials NV IC EC Services Drawings FC MS Modules

Vertical ties Project owner 1 st tier suppliers O V IC FC 2 nd tier suppliers

The General Contractor Structure Project owner Engineering contractor General contractor Project functional units/ Sub-suppliers Contractual governance

Commercial Aspects Incentivised Concepts Conventional Pricing Legal Aspects Market Contracts Relational Contracts Partnering Contracts Aspects of Trust

Probability Motivational effect + Price Based Contract - EV(P) EV(0) Competition HR Risk premium LR + - EVC Moral hazard Client net benefit Cost Based Contract

Supplier interests (fixed price contracts) Conventional pricing formats Supplier interests (reimbursable contracts) Incentivised contracts Owner interests

Contractor’s Profit margin Gain sharing Calculated Risk premium Estimated Contract costs Risk free “bid” Fixed price bid Calculated Profit margin Contractor’s Costs Client incentive Contractor incentive Risk Cap Risk transferred to customer

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

Projects are different • Project environments are different • Project strategies are different • Robustness Resilience DEFENSIVE ADAPTIVE OFFENSIVE Agile Versatile Malleable

More of the same (status quo) Closed Radical change Open Incremental improvement Don’t know what to do But can’t stay here (quo vadis)

Customize Increasing effectiveness Reuse Innovate Increasing efficiency Standardize

S JEC RO P B TO E TIV PR O C T Stretched targets Functional specifications Value engineering s ive S T EP C ON EC IV DE N S C I AM C Y TD P JE O R D ns efe t cep n o c ive apt d A s ept c n co e iv ens f f O PR O Guidelines Fuzzy specifications IT FIN JE C ES SE Re-engineering pts ce con ION T OP E LU A V S

Detailed specifications Defensive concepts Project sanction Fuzzy specifications Functional specifications Adaptive concepts Stretched targets Offensive concepts Moving targets Increasing execution risks Definitive concepts

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

g in e th gs ng i th g on wr ro w in th _ Do g in Do ng Do i g in Do th er s ng tt hi ig h rig ht ns io ria t ng s va th i om nd Ra IMPACT ON CAPEX, LCP, NPW + Opportunity management FREEDOM TO ACT Risk management

IMPACT ON CAPEX (-), LCP, NPW + Opportunity management Proactive involvement INTENTIONAL DISRUPTIVE Constructive dialogue Reactive critique Incompetence Interference Attack Risk management _ INTENTIONAL SUPPORTIVE

IMPACT ON CAPEX (-), LCP, NPW + Planned for FORCE OF VARIABLE Cost of Risk buffer Worse case scenario Cost of resilience measure if activated _

IMPACT ON CAPEX (-), LCP, NPW + Sales prices Planned for FORCE OF VARIABLE Decrease Increase Break even Factor prices Loss Bancroft _

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

p CE EV DEFENSIVE STRATEGIES p CE EV NPW p Cost of risk NPW Cost of risk Reduce risks OFFENSIVE STRATEGIES Increase opportunities NPW Cost of risk

Contract award I l nf ce n ue Sanction CAPEX Potential risks in Decision variables • Owner’s decisions • Contractor decisions • Effects of sunk cost Give away value potential In lump sum contracts TIME

1 Start production 2 Production built-up 3 Plateau production LCP 4 Planned downtime 5 Unplanned downtime 6 Start tail production 7 Abandoning Project sanction Added value 3 6 2 1 4 5 7 TIME

NPW Option value: Investments in future extensions Corporate risk exposure: Portfolio relevant risks Corporate strategy risk Reputation risk Sanction Hand over TIME

Ø Clients don’t buy project deliveries anymore Ø They buy project business value