CAN BUSINESS DEVELOPMENT AND PROJECT TEAMS PLAY NICE IN THE SANDBOX?

BEST PRACTICES FOR PROJECT DEVELOPMENT

FINDINGS OF 7TH EPC ROUNDTABLE

Scott Diehl, PFI Project Consultants Canada

Agenda

Introduction

Background

Findings of the Roundtable

Next EPC Roundtable Topic – May 2015

Introduction

Introduction

Scott Diehl, P.ENG, M.ENG, PMP

Executive Associate at Pathfinder Project Consultants Canada

30 years Industry experience in Capital Project Management

Provides customized PM training, independent project reviews, facilitation

Improve outcomes through project cost and schedule control, and effective project team management

Diverse experience: gas and oil production/processing, electric generation and transmission, oil/gas transmission pipelines, water and wastewater utilities, alternative energy sector, mining and oil sands

Active member in PMI, AACE, CII, COAA

Education:

Project Management Professional (PMP) Certified 2001

Masters of Engineering, University of Calgary, 1995

B. Sc., Mechanical Engineering, University of Waterloo, 1984

Co-Authors of this Presentation

Special Thanks to:

Dries Brand - Husky Energy

Kaushik Das, TransCanada Corp.

Heather Rambow, TCB Projects Ltd

Diana Nada, University of Calgary

Vincent Chiew, Axis Cogni-Solve Ltd

Peter Maidment, Revay and Associates

Carl Massicotte, Equinox Engineering

Background

EPC Roundtable Background

PMI-SAC Sponsors EPC Roundtable (meets face-to-face annually)

Seven sessions held from 2010 to 2014

Forum for open discussions about methods to improve outcomes of Capital Projects

Participation from Owners, Engineering Contractors, Construction Contractors, Academics

May 2014 EPC Roundtable Session

May 2014: PMI-SAC EPC Roundtable special session

25 industry experts participated in open discussion

Key findings are Best Practices that can be applied within Alberta’s Oil & Gas Industry

Project Development Practicesfor Large Capital Projects

Roundtable Format

Objective: to identify Best Practices for Project Development

Focus: activities performed during Front End Loading (FEL) phases of major construction projects by:

Business Development (BD)

Project Development (PD)

Project Teams

How Big is the Problem?

Ed Merrow (founder of Independent Project Analysis – IPA)

Approximately 65% of all very large to mega-scale projects fail to meet business and project goals and objectives due to insufficient planning on a thorough and objective basis

The Sandbox - Project Team’s Perception

Business Development makes commitments to Cost and Schedule too early without adequate consultation

The Salesman

The Sandbox –Business Development’s Perception

Project Teams “pad” estimates & schedules to “insure” against overruns during execution.

This makes projects harder to “sell” both internally and to end customers

The Technical Expert

Roundtable Themes

The Roundtable addressed three themes:

1. Project Team Communications

2. Obtaining Funding for Project Development

3. Combining Business Competitiveness with Planning Realism

THEME 1 – Project Team Communications

Project Team Communications –What is the Current State?

Communication Lacking – Inadequate communication between functional groups

Basis of Scope/Estimate/Schedule Incomplete - The basis of the cost estimate and schedule are not fully communicated to decision-makers

Funding decisions made without complete awareness of the major risks

Deliverables - Project Planning Team has no clear vision of deliverables required during FEL, and critical activities required to get them there

Project Team Communications –How can we do Better?

Define Roles - Better defined roles on the team using tools such as RACI, alignment meetings, etc.

Decision Logs - Use a signed-off decision log to avoid critical revisiting of decisions later in project

Define Deliverables - Clearly defined deliverables for each FEL Phase that are customized for scope of the project

Face to Face Meetings - The team needs some “facetime” to be “integrated”

Project Team Communications –How can we do Better?

Set expectations for interactions within our Project Team – Ensure major reviews of the estimate and schedule and hold people accountable to complete these

Ensure results are documented & issues are followed up

Facilitated by Non-Project

Team Member for Objectivity

Project Team Communications –How can we do Better?

Conduct a kickoff and alignment meeting at start of each Phase - Include all Functional Groups, any service providers that will work on upcoming phase, Gatekeeper, and the Project Sponsor.

Document results so each stage of project is managed as a mini project with a well-understood plan that all participants buy into

Project Team Communications –How can we do Better?

Preserve the Business Case - Ensure that business case is not diluted/altered by Project Development team

Hold periodic review meetings between technical and commercial teams to maintain alignment

Foster Trust and Open communication between BD, PD and the Team

Use the Charter - Revisit Project Charter as required to reconfirm the business objectives and obtain key stakeholder approval

THEME 2 – Obtaining Funding for Project Development

Obtaining Funding for Project Development – What is the Current State?

Lack of Funding for Planning – Construction Industry Institute (CII) recommends that by end of FEL-2 Phase, Owners should generally have invested ~5% to 15% of overall Engineering Costs

Can equate to about 1% to 3% of Project TIC

Many owners do not commit these funds

Tendency to try to “short cut” FEL-2 on basis of “our project is exception/special”

Tendency to “short cut” the Engineering because “we’ve done it before”

Obtaining Funding for Project Development – What is the Current State?

Management wants FEL Fast and Cheap –

“Management wants it on the back of a napkin in 2 weeks!”“I heard our competitor has done it faster & cheaper!”

Project Teams reluctant to “push back” with facts!

Obtaining Funding for Project Development – What is the Current State?

Projects are Funded before planning is Complete –Owners sometimes biased - based on an early unclassified estimates produced in FEL 1 or FEL-2

Project team sees remaining FEL effort as “check the box” activities that aren’t mandatory to get to Execution Phase

At Execution, team finds that sufficient planning has not been done

Obtaining Funding for Project Development – What is the Current State?

Projects that should be cancelled for the good of the business are re-planned unnecessarily- Project cancellation decisions are avoided

If the business case is not there, project sponsors and executive have to make the right decision to cancel project

Obtaining Funding for Project Development – How can we do better?

Enforce a Consistent Governance Policy - Develop and implement a Capital Management Guideline/ Policy to describe how capital will be governed, Stage Gate Review Policies, requirements for AFE preparation, roles and responsibilities, etc.

Don’t Under Estimate the Effort Required for Planning - Ask the important questions:

How many options do we have to study?

How complex is the analysis?

What resources do we need to complete the planning (Internal and External)?

Obtaining Funding for Project Development – How can we do better?

Empower Accountable Planning teams – Allocate sufficient funds for FEL activities and then define deliverables the team is accountable for

“Here is your deliverable list and your time to complete them”

Challenge team to define scope well - Use Industry Standard Tools to measure scope definitionduring FEL and have the team respond to results (Ex: CII PDRI)

THEME 3 – Combining Market Competitiveness with Planning Realism

Combining Competitiveness with Realism– What is the Current State?

Market Driven Changes - Changes to project scope occur throughout FEL – often driven by customer demands and changing market conditions

Results in rework, and often development of multiple options in parallel

Requires hasty rework for the entire project team, that is often unplanned

Combining Competitiveness with Realism– What is the Current State?

The “Cave in” Syndrome - For some projects, the team feels they have done their jobs thoroughly and cost estimate and schedule were developed properly

There still may be unilateral decisions by executives to reduce cost and collapse schedule withoutcorresponding reduction in scope

If collapse animation is not appropriate- here is alternate

Combining Competitiveness with Realism– What can we do Better?

Align Business Objectives with Project Scope – BD must communicate the external environment back to project team

Need to answer fundamental questions: Are we trying to get first to market?

Are we to trying to deliver project at lowest possible cost?

Are we trying to build the project at high-quality standard?

Critical for project stakeholders to align and agree on business objectives, e.g. by signing off on Project Charter in FEL1, which in turn will determine project drivers and steer vital execution considerations

Combining Competitiveness with Realism– What can we do Better?

Communicate the Scope and Basis of Estimate/ Schedule - Project Manager (with support of Project Team) needs to communicate cost estimates, basis of estimate, and risk analysis more accurately to stakeholders

Senior management, who makes funding decisions, needs to align more closely to project planners

To get accurate understanding of project risks & opportunities when they make final decision to sanction funds or cancel

Combining Competitiveness with Realism– What can we do Better?

Use Benchmarking Data to Verify Early Estimates -Owner organizations need to develop & maintain reliable benchmarking data - assists in early cost estimates

Benchmarks come from careful analysis of actual past projects

Will reduce effort to estimate in early development phases, and encourage realism and competiveness within risk tolerance of organization

Benefits of Best Practices for Project Development

Benefits of Best Practices

In the opinion of EPC Roundtable members, adoption of these Best Practices can:

Improve coordination and reduce conflicts between Business Development and the Project Teams

Improve predictability of project results

Improve our portfolio management practices by funding projects that have the greatest benefit to the business

Next EPC Roundtable

May 2015 in Calgary

Top 3 Future Topics Ranked by Participants

1. Best practices for small projects throughout the project lifecycle (scalable processes that are proven,)

2. Owner-EPC Collaboration (optimal contracting models, to maximise efficiencies, minimise cost, improve schedule)

3. Effective Project Reporting (Status reporting and progress measurement)

Question & Answer

Contact Information

Scott DiehlPFI Project Consultants Canada

Suite 477-918-16 Ave NW

Calgary, Alberta T2M 0K3

T - (403) 874 - 6196

F - (403) 775 - 4166

consulting@pathfinderinc.com

www.pathfinderinc.com

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