Risk in Mega Projects Seminar and Workshop Mega

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Risk in Mega Projects Seminar and Workshop Mega Projects Life Cycle: Project Execution and

Risk in Mega Projects Seminar and Workshop Mega Projects Life Cycle: Project Execution and Delivery Process 5 - 7, 2007 Trondheim, Norway Dr. George Jergeas PEng. Professor of Project Management University of Calgary, Alberta 1

References This section is based on presentations by: • Dr. Nick Lavingia, PE, Chevron

References This section is based on presentations by: • Dr. Nick Lavingia, PE, Chevron • Bill Watson, VP Engineering and Project Management, Husky Energy • Public Works and Services Canada PDS part of the Aker group

Agenda ■ This presentation is in two parts 1. Oil and gas industry experience

Agenda ■ This presentation is in two parts 1. Oil and gas industry experience 2. Infrastructure projects best practice 3

Project Development & Execution Process (PDEP) in the Oil and Gas part of the

Project Development & Execution Process (PDEP) in the Oil and Gas part of the Aker group

Structured and Gated Process Effective Communication Between Decision Makers, Multifunctional Project Team and Stakeholders

Structured and Gated Process Effective Communication Between Decision Makers, Multifunctional Project Team and Stakeholders part of the Aker group

Objectives To Gain: ■ Understanding of the PDE Process and framework for more effective

Objectives To Gain: ■ Understanding of the PDE Process and framework for more effective delivery of projects and programs, based on shared experience & lessons learned ■ Structured and Gated Process to ensure Effective Communication Between Decision Makers, Multifunctional Project Team and Stakeholders ■ Understanding of processes and sub-processes associated with the PDE Process ■ Understanding of the opportunities for improving PM practices & the barriers to be overcome 6

Project Development & Execution Process (PDEP) A Process that Facilitates the Optimal Use of

Project Development & Execution Process (PDEP) 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 7

Project Phases PHASE 1 IDENTIFY & Assess Opportunities Determine Project Feasibility and Alignment with

Project Phases PHASE 1 IDENTIFY & Assess Opportunities Determine Project Feasibility and Alignment with Business Strategy -Feasibility 1 PHASE 2 AFE 2 PHASE 3 SELECT from Alternatives DEVELOP Preferred Alternative Select the Preferred Project Development Option Finalize Project Scope, Cost and Schedule and Get the Project Funded -DBM - Application -FEED -Long-Leads - Reg. Approval - AFE 8 3 PHASE 4 EXECUTE (Detail EPC) Produce an Operating Asset Consistent with Scope, Cost and Schedule - Detailed Design - Procurement - Fabrication -Construction -Commissioning 4 PHASE 5 OPERATE & Evaluate Asset to Ensure Performance to Specification s and Maximum Return to the Shareholders -Start-Up - Perf’m Testing - De-bottleneck 5

Project Phases Screening Feasibility DBM FEED Regulatory Approval Pre-AFE 9

Project Phases Screening Feasibility DBM FEED Regulatory Approval Pre-AFE 9

Project Development & Execution Process (PDEP) AFE PHASE 1 IDENTIFY & Assess Opportunities Clearly

Project Development & Execution Process (PDEP) AFE PHASE 1 IDENTIFY & Assess Opportunities Clearly Frame Goal Test for Strategic Fit Preliminary Overall Plan Preliminary Assessment ~1 % Engng. Phase 1 Estimate 1 PHASE 2 SELECT from Alternatives 2 PHASE 3 DEVELOP Preferred Alternative Generate Alternatives Fully Define Scope Preliminary Development of Alternatives Develop Detailed Execution Plans Develop Expected Value Identify Preferred Alternative Phase 2 Est. AFE = Appropriation For Expenditure 3 PHASE 4 EXECUTE (Detail EPC) Implement Execution Plan Min. Changes Finalize Refine Estimate Operating Plan Submit Funding for Approval ~25 % Engng. Business Plan for Phase 5 Phase 3 Est. (+/10 % Accuracy) Project Review 10 4 PHASE 5 5 OPERATE & Evaluate Operate Asset Monitor & Evaluate Performance Identify New Opportunities

Phase 1 Flow Chart: Identify Recycle Strategic Business Assessment Quality Review Define Opportunity Identify

Phase 1 Flow Chart: Identify Recycle Strategic Business Assessment Quality Review Define Opportunity Identify Stakeholders Plan for Phase 2 Yes OK? Concept Evaluation No Identify Expectations IDEA Phase 1 Estimate Develop Project Specific Business Objectives Develop Conceptual Scope Frame Project Assess Current Situation 11 To Phase 2

Phase 1 Deliverables Business Objectives & Priorities Business Objectives & Project Framework Process Preliminary

Phase 1 Deliverables Business Objectives & Priorities Business Objectives & Project Framework Process Preliminary Block Flow Diagram, Preliminary Capacity Site / Infrastructure Preliminary Site Selection, Integration, Development Plan Execution Defining Vision of Success Risk Analysis Strategic Risk Assessment Permit / Regulatory requirements Preliminary Permitting Plan Contracting Estimate Phase 1 Estimate (High Contingency & Wide Accuracy) Schedule Preliminary Milestone Schedule Resource Plan for Phase 2 Resources Economics Preliminary NPV, ROR, DPI, Payout 12

ASSESS Typical Assess Phase Events • Determine project feasibility and alignment with business strategy

ASSESS Typical Assess Phase Events • Determine project feasibility and alignment with business strategy • Define business objectives • Identify technology options • Determine market feasibility • Preliminary risk identification and mitigation planning • Establish preliminary HS&E issues • Develop project execution plan for next phase • Develop a work plan for the Select phase • Identify joint ventures/partner issues & opportunities • Develop a +/- 40% cost estimate ( ~/= 5% of total Engineering) • Incorporate shared learnings from After Action Reviews on similar projects executed by Husky & Competitors 13

Phase 2 Flow Chart: Select Recycle Pre AFE Approval From Phase 1 Appoint Project

Phase 2 Flow Chart: Select Recycle Pre AFE Approval From Phase 1 Appoint Project Sponsor, GPM, PM and Op. Rep. To Phase 3 Prepare Pre AFE Review Phase 1 Package Establish Objectives and Priorities Plan for Phase 3 Yes OK? No Project Self-Evaluation Begin Execution Planning Phase 2 Estimate Generate and Evaluate Alternatives Select and Refine Alternative 14

Phase 2 Deliverables Business Objectives & Priorities Preliminary Facility & Project Objectives Process PFDs,

Phase 2 Deliverables Business Objectives & Priorities Preliminary Facility & Project Objectives Process PFDs, Equipment List, Technology Selected Site / Infrastructure Site Selected, Utility Balances Execution Defining Strategy for Success Risk Analysis Project Risk Assessment Permit / Regulatory requirements Detailed Permitting Plan Contracting Preliminary Contracting Plan Estimate Phase 2 Estimate (Moderate Contingency & Moderate Accuracy) Schedule CPM Schedule Resource Plan for Phase 3 Resources Economics Updated NPV, ROR, DPI, Payout 15

SELECT • • • • Typical Select Phase Events Select the preferred development option(s)

SELECT • • • • Typical Select Phase Events Select the preferred development option(s) Identify critical and major equipment needs Refine HS&E assessment Submit permit application(s) Update Market feasibility and partnering plan Develop Exit strategy Update Cost Estimates to +/- 25% (5 -10% of Engineering) Update Risk identification and Mitigation plan Conduct a Peer Review - as appropriate Update Market feasibility and partnering plan Adjust core/extended project team membership Update project execution plan for next phase Develop a work plan for the next Phase (definition) 16

Phase 3 Flow Chart: Develop Recycle AFE Approval From Phase 2 Finalize Execution Plan

Phase 3 Flow Chart: Develop Recycle AFE Approval From Phase 2 Finalize Execution Plan Build Project Team Continue Execution Planning Yes No Update Permitting for Selected Alternative OK? IPA and Self-Evaluation Define Project Phase 3 Estimate 17 To Phase 4

Phase 3 Deliverables Business Objectives & Priorities Final Facility & Project Objectives Process P&IDs

Phase 3 Deliverables Business Objectives & Priorities Final Facility & Project Objectives Process P&IDs Site / Infrastructure Final Plot Plan, One Lines Execution Defining Tools for Success Risk Analysis Finalize Project Risk Assessment Permit / Regulatory Requirements Update Detailed Permitting Plan Contracting Detailed Contracting Plan Estimate Phase 3 Estimate (+/- 10% Accuracy) Schedule Resource Loaded CPM Schedule Resource Plan for Phase 4 Resources Economics Final NPV, ROR, DPI, Payout 18

DEFINE • • • Typical Define Phase Events Finalize Project Scope, Cost and Schedule

DEFINE • • • Typical Define Phase Events Finalize Project Scope, Cost and Schedule Prepare project AFE approval Prepare Decision Support Package (DSP) for project sanction • Secure partner approvals if appropriate Finalize the Project Execution Plan (PEP) • Update project team membership • • Conduct independent peer review Finalize cost estimates to +/- 10% (up to 20% of total Engineering) Conduct value engineering - as appropriate Finalize risk identification and mitigation plan Finalize the Design Basis Memorandum (DBM) • Conduct After Action Review - as appropriate • • 19

Phase 4 Flow Chart: Execute Recycle Turnover From Phase 3 Implement Execution Plan Detailed

Phase 4 Flow Chart: Execute Recycle Turnover From Phase 3 Implement Execution Plan Detailed Design Operations Planning Procurement Training Construction Commissioning 20 To Phase 5

Phase 4 Deliverables Business Objectives & Priorities Deliver Operating Asset Process Trained Personnel Site

Phase 4 Deliverables Business Objectives & Priorities Deliver Operating Asset Process Trained Personnel Site / Infrastructure Manage Progress Execution Implement Plan with Minimal Changes Risk Analysis Manage Project Risk Register Permit / Regulatory Requirements Manage Project Permit Schedule Contracting Execute Contracting Plan Estimate Monitor & Control Estimate Schedule Monitor & Control CPM Schedule Resource Plan for Phase 5 Resources Economics Monitor NPV, ROR, DPI, Payout 21

Organization for PDEP Phase 4 -Execution SBU Strategy Project Goals Marketing Public Relations Human

Organization for PDEP Phase 4 -Execution SBU Strategy Project Goals Marketing Public Relations Human Resources Corp. Strategy Project Sponsor Business Planning General Project Manager Operations Manufacturing Technical Maintenance Finance Project Manager Safety Execution Team Consultants Safety Specialists Purchasing Environmental Metrics Regulation IPA Process Engineering Project Finance Constructability/ Construction Materials Management 22 Design

EXECUTE Typical Execute Phase Events EXECUTE • Execute project execution plan • Deliver operating

EXECUTE Typical Execute Phase Events EXECUTE • Execute project execution plan • Deliver operating asset consistent with scope, cost & schedule • Implement project controls and reports on project metrics and status • Implement HS&E plan • Implement contracting strategy • Implement value practices • Commission and startup 23 • Conduct After Action Review

Phase 5 Flow Chart: Operate From Phase 4 Start-Up Post Project Assessment Full Operation

Phase 5 Flow Chart: Operate From Phase 4 Start-Up Post Project Assessment Full Operation Business Evaluation 24

Phase 5 Deliverables Business Objectives & Priorities Business Evaluation & Benchmark Performance Process Look

Phase 5 Deliverables Business Objectives & Priorities Business Evaluation & Benchmark Performance Process Look for Debottlenecking Opportunities Site / Infrastructure Look for Debottlenecking Opportunities Execution Share Lessons Learned Risk Analysis Update Risk database Permit / Regulatory Requirements Update Permitting Database Contracting Update Contractor Database Estimate Update Cost Database Schedule Update Schedule Database Resource Plan Update Resource Database Economics Validate NPV, ROR, DPI, Payout 25

OPERATE Typical Operate Phase Events OPERATE • Operate and Evaluate the asset to ensure

OPERATE Typical Operate Phase Events OPERATE • Operate and Evaluate the asset to ensure performance to • • • specifications and maximum return to shareholders Conduct a final After Action Review and capture shared learnings Post appraise / evaluate the actual asset operation and business results versus the performance targets. The evaluation will be conducted under the approval market environment (pricing etc) and under the current market conditions. Identify potential improvement opportunities for future projects Develop a reservoir depletion plan - as appropriate Identify new opportunities Turn over operating documentation 26

Achieving World-Class Performance EXECUTION Diligently implement PDEP, Key Project Management Principles, and Project Management

Achieving World-Class Performance EXECUTION Diligently implement PDEP, Key Project Management Principles, and Project Management Best Practices. Strive for zero incidents. COST Final capital cost at least 10 percent below industry norm. SCHEDULE Final engineering/construction schedule amongst the best achieved by a similar project in the database. ATTAINMENT Attainment achieved at 100% design capacity per project objectives. 27

Project Delivery System for Infrastructure Projects part of the Aker group

Project Delivery System for Infrastructure Projects part of the Aker group

Project Delivery System âA framework within which projects are developed, acquired or implemented, and

Project Delivery System âA framework within which projects are developed, acquired or implemented, and put into service â A series of project phases from inception to completion 29

Project Delivery System (PDS) ■ The six phases are: ● Planning ● Definition ●

Project Delivery System (PDS) ■ The six phases are: ● Planning ● Definition ● Implementation ● Commissioning ● Operation ● Evaluation 30

PROJECT DELIVERY SYSTEM Planning phase Built works Commissioning Evaluation Report Investment Analysis Report Implementation

PROJECT DELIVERY SYSTEM Planning phase Built works Commissioning Evaluation Report Investment Analysis Report Implementation Definition Phase Project Brief Comm. Report Operation Evaluation Facility in use 31

Phase 1 part of the Aker group

Phase 1 part of the Aker group

Objectives ■ Identify and define in detail the client investment opportunity, need or problem

Objectives ■ Identify and define in detail the client investment opportunity, need or problem ■ Assess all feasible alternatives ■ Define organization and any required controls ■ Establish the project budget and completion date ■ Specify criteria for evaluating the project 33

Five Steps 1. Project Initiation 2. Client Opportunity/Need Identification 3. Regulatory Considerations 4. Options

Five Steps 1. Project Initiation 2. Client Opportunity/Need Identification 3. Regulatory Considerations 4. Options Analysis 5. Owner/Investor Approval 34

Main Out Put: IAR ■ Investment Analysis Report (feasibility) ● To ascertain whether the

Main Out Put: IAR ■ Investment Analysis Report (feasibility) ● To ascertain whether the concept for a project is technically and/or economically feasible for further study ● Identify the optimum solution 35

Phase 2 part of the Aker group

Phase 2 part of the Aker group

PROJECT DELIVERY SYSTEM Planning Built works Commissioning Evaluation Report Investment Analysis Report Implementation Definition

PROJECT DELIVERY SYSTEM Planning Built works Commissioning Evaluation Report Investment Analysis Report Implementation Definition Project Brief Comm. Report Operation Evaluation Facility in use 37

2. Objectives ■ Translate the IAR into verifiable technical criteria ■ Prepare Project Brief

2. Objectives ■ Translate the IAR into verifiable technical criteria ■ Prepare Project Brief or Scope definition ■ Define implementation management controls strategies, including project ■ Transfer responsibility to the PM ■ Select best alternative, technology, capacities and site location ■ Choose consultant 38

Two Major Steps 1. Production of the Project Brief/Scope Definition 1. Option Refinement 2.

Two Major Steps 1. Production of the Project Brief/Scope Definition 1. Option Refinement 2. 3. 4. 5. 6. Resource Strategy Project Team/WBS Project Funding Agreement Regulatory Concerns User Requirement Definition/Project Brief 39

Two Major Steps 2 - Consultant Selection ● ● ● Project Terms of Reference

Two Major Steps 2 - Consultant Selection ● ● ● Project Terms of Reference Consultant Service Agreement preparation Consultant Selection Consultant Contract Proponent Debrief 40

Phase 3 part of the Aker group

Phase 3 part of the Aker group

PROJECT DELIVERY SYSTEM Planning Built works Commissioning Evaluation Report Investment Analysis Report Implementation Definition

PROJECT DELIVERY SYSTEM Planning Built works Commissioning Evaluation Report Investment Analysis Report Implementation Definition Project Brief Comm. Report Operation Evaluation Facility in use 42

Implementation 1. Design 2. Tendering and award 3. Construction part of the Aker group

Implementation 1. Design 2. Tendering and award 3. Construction part of the Aker group

Design Objective ■ The objective is to design the project in detail, obtain necessary

Design Objective ■ The objective is to design the project in detail, obtain necessary approvals, estimate costs and prepare drawings and specification. 44

Design ■ Prepare: ● a concept design ● a detailed design drawings, specifications and

Design ■ Prepare: ● a concept design ● a detailed design drawings, specifications and schedules ● bills of quantities (if needed) ● final cost estimates ● time schedule 45

Design: 7 Steps ■ Set up design team ■ Define project control criteria ■

Design: 7 Steps ■ Set up design team ■ Define project control criteria ■ Pre-design report ■ Concept design ■ Design development ■ Project Approval ■ Construction documents 46

Tendering Purpose ■ To select a contractor, or a number of contractors who will

Tendering Purpose ■ To select a contractor, or a number of contractors who will unconditionally meet all of the terms and conditions set out in the tender documents at a competitive market price. Implementation 47

Contracting Policy Contracting shall be conducted to: ■ Stand the test of public scrutiny

Contracting Policy Contracting shall be conducted to: ■ Stand the test of public scrutiny in matters of prudence and probity, facilitate access, encourage competition, and reflect fairness in the spending of public funds. ■ Ensure the pre-eminence of operational requirements. 48

Contracting Policy ■ Three ingredients ● Honesty ● Fairness ● Best Value ■ Public

Contracting Policy ■ Three ingredients ● Honesty ● Fairness ● Best Value ■ Public sector and private sector contract are fundamentally administered in the same way ■ More later about bidding. Implementation - Design 49

Construction Purpose: To physically construct the project within the agreed limits of cost and

Construction Purpose: To physically construct the project within the agreed limits of cost and time, and to specified quality within safe and healthy environment. ● Construction is the most expensive, intensive and difficult phase 50

Construction Activities ■ To plan, coordinate and control site operations ■ Planning includes the

Construction Activities ■ To plan, coordinate and control site operations ■ Planning includes the formulation of: ● Time schedules ● Site organization ● Labour resources plan ● Equipment plan ● Material delivery plan 51

Construction Activities ■ Site operations include ● All temporary and permanent construction works, and

Construction Activities ■ Site operations include ● All temporary and permanent construction works, and supply of all built-in furniture and equipment ● The coordination of subcontractors ● General supervision/inspection 52

Main Activities During Construction 1. Start-up meeting 2. Management 3. Construction process 4. Post

Main Activities During Construction 1. Start-up meeting 2. Management 3. Construction process 4. Post construction 5. Contract closure 53

Phase 4 54

Phase 4 54

PROJECT DELIVERY SYSTEM Planning Built works Commissioning Evaluation Report Investment Analysis Report Implementation Definition

PROJECT DELIVERY SYSTEM Planning Built works Commissioning Evaluation Report Investment Analysis Report Implementation Definition Project Brief Comm. Report Operation Evaluation Facility in use 55

Commissioning ■ The process of advancing an installation from the state of static completion

Commissioning ■ The process of advancing an installation from the state of static completion to full working order in accordance with the design intent. 56

Why Do You Commission? ■Commission From two Perspectives ●The Engineering Perspective ●The Contractual Perspective

Why Do You Commission? ■Commission From two Perspectives ●The Engineering Perspective ●The Contractual Perspective 57

Engineering Perspective ■ Ensure the design intent has been met relative to the design

Engineering Perspective ■ Ensure the design intent has been met relative to the design specifications. ■ Ensure the design intent will meet the operational requirements relative to: ● Program ● O&M ● Cost ● Safety 58

Contractual Perspective ■Ensure contractual responsibilities in terms of supply and installation versus design are

Contractual Perspective ■Ensure contractual responsibilities in terms of supply and installation versus design are not compromised or negated. 59

Phase 5 60

Phase 5 60

PROJECT DELIVERY SYSTEM Planning Built works Commissioning Evaluation Report Investment Analysis Report Implementation Definition

PROJECT DELIVERY SYSTEM Planning Built works Commissioning Evaluation Report Investment Analysis Report Implementation Definition Project Brief Comm. Report Operation Evaluation Facility in use 61

Objectives ■ Establish and ensure reliable (operating systems) in the facility ■ Establish, test

Objectives ■ Establish and ensure reliable (operating systems) in the facility ■ Establish, test and record the operating performance of the systems ■ Maintain adequate operation and maintenance records ■ Establish a preventative maintenance program ■ Identify an operating and maintenance budget ■ Respond to specific requests for services from the Client 62

Phase 6 63

Phase 6 63

PROJECT DELIVERY SYSTEM Planning Built works Commissioning Evaluation Report Investment Analysis Report Implementation Definition

PROJECT DELIVERY SYSTEM Planning Built works Commissioning Evaluation Report Investment Analysis Report Implementation Definition Project Brief Comm. Report Operation Evaluation Facility in use 64

Objectives ■ Four main objectives: 1. To assess the project in specific terms, comparing

Objectives ■ Four main objectives: 1. To assess the project in specific terms, comparing planned and actual; 2. To compare the actual performance with the plans and the appropriate norms considered, in order to determine any variances; 65

Objectives 3. 4. To clearly identify variances outside acceptable limits, so they can be

Objectives 3. 4. To clearly identify variances outside acceptable limits, so they can be reviewed for further action; and To record the project performance for: ● Management review ● Sharing with other regions, and ● Contributing to PWGSC’s lessons learned database 66

3. Types of Evaluation 1. Project evaluation 2. Contractor evaluation 3. Consultant evaluation 67

3. Types of Evaluation 1. Project evaluation 2. Contractor evaluation 3. Consultant evaluation 67

What We Learned q A good framework to deliver a Quality end product, on

What We Learned q A good framework to deliver a Quality end product, on time and within budget to client satisfaction q Procedural guide and reference for project team members and managers q Basis for training q Best practices are implemented q Achieves good working environment q Due diligence is exercised 68

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