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Business Success through Excellence in Project Management
(Better, Cheaper, Faster and Safer Projects)
Process and Tools that Enable Project Teams to Achieve World-Class Performance and thereby Improve Profitability of the Company
Dr. Nick J. Lavingia, P.E.Project Management Consultant
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Dr. Nick J. Lavingia, P.E.Project Management ConsultantChevron
Nick has over 30 years of Global Project Engineering, Management, Consulting and Training experience in the Chemical, Petroleum and Air Pollution Control industry. As a Project Management Consultant at Chevron, he provides Consultation and Training to Project Professionals worldwide.
Nick has a B.S. and M.S. in Chemical & Petroleum-Refining Engineering and a Ph.D. in Engineering Economics & Management from the Colorado School of Mines. He is a registered Professional Chemical Engineer in the State of California. Nick has published and presented many papers at technical organizations and is a recipient of industry award from Pathfinder for outstanding Contribution to the advancement of Project Management Technology and Chevron Chairman’s award for implementing Value Engineering throughout the corporation.
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AgendaI. Project Management’s Impact on the Bottom Line
Improve ROCE and TSR
II. Project Development & Execution ProcessEffective Communication Between Decision Makers, Multifunctional Project Team and Stakeholders
III. Value Improving and Best Practices Optimize Cost, Schedule, Performance and Safety aspects of any project
IV. Total Cost ManagementPlan, Schedule, Estimate, Monitor and Report
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Refinery.jpg
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Business Case for Improvement
Improved Capital Stewardship
Lower Costs
More Projects
Better Projects
Improved ROCE
Higher Earnings Growth
Higher P/E
Higher Market Confidence
Improved TSR
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Project Management’s Impact on the Bottom Line
Project Management Improves ROCE byIncreasing Revenues, Decreasing Expenses,and Reducing Capital Employed
REVENUE MINUS EXPENSES
CAPITAL EMPLOYED= ROCE
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Project Management Leads to Pacesetter Performance(Cheaper, Faster, and More Predictable)
1.25
1
0.750.75 1 1.25
Execution Schedule
Faci
lity
Cos
t
Industry Average
Indu
stry
Ave
rage
30%Improvement
30% Improvement
PacesetterPacesetterCompanyCompany
Company XCompany X
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Project Development & Execution Process
A Process that Facilitates the OptimalUse of Resources (Dollars, People andTechnology) 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 Decisions10
Project Management Vision
High
HighLow Mid
Random Success• Good Projects• Average Execution
Consistent Success• Good Projects• Good Execution
Success Unlikely• Poor Projects• Poor Execution
Random Success• Poor Projects• Good Execution
DecisionQuality Mid
Execution Quality
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PHASE 2SELECT fromAlternatives
Determine Project Feasibility andAlignment withBusiness Strategy
Project Development & Execution Process
PHASE 1IDENTIFY & Assess
Opportunities
Finalize Project Scope, Cost and Schedule and Get the Project Funded
Select thePreferred Project Development Option
Evaluate Asset to Ensure Performance to Specifications and Maximum Return to the Shareholders
PHASE 3DEVELOP Preferred
Alternative
PHASE 4EXECUTE
(Detail EPC)
PHASE 5OPERATE &
Evaluate
Produce an Operating Asset Consistent with Scope, Cost and Schedule
AFE
AFE = Appropriation For Expenditure12
Project Management’s Impact on Creating Value
Phase 1Opportunity
Identified
Phase 2Generate &
Select Alternatives
Phase 4Execute
Phase 5Operate
Value Identification Value Realization
Phase 3Develop
Preferred Alternative
Poor Project Definition
Good Project
Definition
Poor Project
Execution
Good Project
ExecutionA
B
C
D
VALU
E
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Influence vs. Expenditures
Major Influence Rapidly Decreasing Influence Low Influence
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INFL
UEN
CE
Front End Loading
Final Authorization
EXPEND
ITUR
ES
IDENTIFYDSP
Gate
DSP
GateSELECTDSP
GateDEVELOPDSP
GateEXECUTE OPERATEDSP
GateGateGateGate
Front End Loading DSP = Decision Support Package
PHASE 2SELECT fromAlternatives
Clearly Frame Goal
Test for Strategic Fit
Preliminary Overall Plan
Preliminary Assessment
~1 % Engng.
Phase 1 Estimate
Project Development & Execution Process
PHASE 1IDENTIFY & Assess
OpportunitiesFully Define Scope
Develop Detailed Execution Plans
Refine Estimate
Submit Funding for Approval
~25 % Engng.
Phase 3 Est. (+/- 10 % Accuracy)
Generate Alternatives
Preliminary Development of Alternatives
Develop Expected Value
Identify Preferred Alternative
Phase 2 Est.
Operate Asset
Monitor & Evaluate Performance
Identify New Opportunities
PHASE 3DEVELOP Preferred
Alternative
PHASE 4EXECUTE
(Detail EPC)
PHASE 5OPERATE &
Evaluate
Implement Execution Plan
Min. Changes
Finalize Operating Plan
Business Plan for Phase 5
Project Review
AFE
AFE = Appropriation For Expenditure15
Project Performance Drivers per IPA
1. Use of Multifunctional Integrated Teams
2. Best Practical Front End Loading (Phases 1, 2 and 3)
3. Use of Applicable Value Improving / Best Practices
4. Scope Management and Control
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Management’s Role (1)
Accountability—Business evaluation should be conducted 1 to 2 years after project completion and Project Sponsor should be held accountable for the financial outcome.
Accessibility—Management should actively participate in gate keeping meetings at the end of each phase of the Process and communicate frequently with the project team.
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Management’s Role (2)
Leadership—Management should establish clear expectations and objectives for the project team.
Resources—Provide resources of right people and funding to support the project team.
Behaviors—Demonstrate visible support and provide positive consequences for following Process, Best Practices and sharing Lessons Learned.
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Key Players
• Decision Makers• Multifunctional Project Team
--Business, Technical, Operations and Maintenance
• Stakeholders• Contractors• Vendors / Suppliers
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Value Improving / Best Practices
Value Improving / Best Practices are toolsto improve project planning and execution. In conjunction with a structured Processthey can optimize:
• Cost• Schedule• Performance• Safety
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Impact of FEL & VIPs (from IPA)
1.0
1.1
1.2
0.9
Rel
ativ
e C
apita
l Cos
t
Best Practical Good Fair Poor
Industry Average Cost = 1.0
FEL Improvement plus VIPs
FEL Improvement Only
FEL Rating
RELATIVE CAPITAL COST AS A FUNCTION OF FEL
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Value Improving / Best Practices
• Pre-Funding Assessment
• Value Improving Practices by IPA
• Peer Review
(Share)
• Decision & Risk Analysis
• Project Execution Planning
• Lessons Learned(Seek)
Legend: AFE = Appropriation for ExpenditureD = Decision Point PFD = Process Flow Diagram IPA = Independent Project Analysis, Inc. P&ID = Piping & Instrumentation Diagram
P&ID$
EST AFEPFDD D D DD$ EST
Phase 1IDENTIFY & Assess
Opportunities
Phase 2SELECT fromAlternatives
Phase 3 DEVELOP Preferred Alternative
Phase 4EXECUTE
(Detail EPC)
Phase 5OPERATE &
Evaluate
• Post Project Assessment
• Business Evaluation
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Project Execution Planning--Part A(The Strategic Project Planner by Richard Westney)
Defining the business goals that will determine project success
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Project Execution Planning--Part B(The Strategic Project Planner by Richard Westney)
Defining major phases, milestones, risks, organization, staffing and best practices to be used
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Project Execution Planning--Part C(The Strategic Project Planner by Richard Westney)
How time, cost, quality and resources will be managed
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Total Cost Management
•Contracting/Procurement(Strategy)
•Cost Control/Forecasting(WBS)
•Progress reporting
•Finance/Audit
Phase 1IDENTIFY & Assess
Opportunities
Phase 2SELECT fromAlternatives
Phase 3DEVELOP Preferred Alternative
Phase 4EXECUTE
(Detail EPC)
Phase 5OPERATE &
Evaluate
• Economic Analysis(NPV, ROR, Payout)
• Cost Estimating(Conceptual)
• Planning/Scheduling(Milestone)
• Benchmarking(Cost / Capacity)
Legend: AFE = Appropriation for Expenditure NPV = Net Present Value PFD = Process Flow DiagramD = Decision Point ROR = Rate of Return P&ID = Piping & Instrumentation DiagramEPC = Engineer, Procure & Construct CPM = Critical Path Method WBS = Work Breakdown Structure
P&ID$
EST AFEPFDD D D DD$ EST
(Funding +/- 10% Accuracy) (Definitive)
(CPM Bar Chart) (CPM Resource Loaded) (Monitor & Update)
(Pre-Funding Assessment) (Post-Project Assessment)
(Pre-Qualification) (Award / Monitor)
Performance Measurement(Establish Progress Payments) (Earned Value)
(Establish Cost Accounts & Budgets) (Trend / Forecast)
(Closeout)
(Cost Collection / Analysis)
(Set Pacesetter Target)
(Asset Accounting)(Capital versus Expense)
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Summary
Structured Process, Management’s active role,application of Value Improving / Best Practicesand Total Cost Management can help achieveWorld-Class Project Performance:• Better• Cheaper• Faster• SaferPROJECTS
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