Infrastructure Developments: Lessons From Successful Industrial - - PowerPoint PPT Presentation

Infrastructure Developments: Lessons From Successful Industrial Project Practices

IP30 Panel Discussion Sydney

Petros Kapoulitsas 21 July 2015

CONFIDENTIAL 2 INDEPENDENT PROJECT ANALYSIS

• Companies are good stewards of capital when they

consistently identify and develop the most promising investments and execute them well

• Capital stewardship excellence is achieved through a

structured, disciplined project development process that ensures capital effectiveness

• Successful asset creation is a source of competitive

advantage and involves:

‒ Choosing the right opportunity ‒ Then doing everything right

Creating Successful Assets Through Capital Stewardship

CONFIDENTIAL 3 INDEPENDENT PROJECT ANALYSIS

• More than 65 percent of industry megaprojects

executed over the past decade have suffered disappointing outcomes

• Both the successes and failures indicate that lead

sponsors largely control the results

• The problems these projects face can be controlled

and the chances of success improve greatly

Failure is Common to Large Industrial and Infrastructure Projects

IPA has investigated the practices and changes sponsors must make to significantly improve the outcomes of these projects

 Cost overran by more than 25 percent, the cost performance was 25 percent worse than industry average, the execution schedule slipped by more than 25 percent, the schedule performance was more than 50 percent higher than industry average, or the project was suffering from significant operations problems more than a year after startup.

CONFIDENTIAL 4 INDEPENDENT PROJECT ANALYSIS

15%

COST PERFORMANCE PERFORMANCE PROBLEMS SCHEDULE PERFORMANCE SCHEDULE SLIP COST GROWTH

1.4 1.0 1.2 0% 10% 30% 20% 0% 40% 0% 60% 1.1 10% 20% 30%

The Reality of Megaprojects: The Effects of Our Choices

30% 1.3 45% 75%

What were the causes of failure? (65 percent of projects) What drove these successes? (35 percent of projects)

Data from IPA Megaprojects database: >500 industrial and infrastructure projects with $3.6 billion average cost, executed during the past decade

CONFIDENTIAL 5 INDEPENDENT PROJECT ANALYSIS

• Unrealistic schedule pressure – calendar rather than

fundamentals drive the schedule

• Shaping errors and omissions

‒ Stakeholder alignment failures ‒ Inadequate definition and understanding of project context ‒ Unclear objectives

• Lack of team integration and functional cooperation
• Risk transfer to contractors and partners
• Poor front end development

The Root Causes of Failure

CONFIDENTIAL 6 INDEPENDENT PROJECT ANALYSIS

Project Management: The Science of Planning Combined with the Art of Reacting to Surprise

• Planning process is a science - known and repeatable

and can have predictable results

• Errors and omissions in the planning process will

generate surprises in construction;

‒ Too many surprises and project management becomes

• verwhelmed and defeated
• Large projects are very fragile and not very forgiving
• f planning errors and omissions

They usually fail due to deficiencies in the information generation, flow and consumption process

CONFIDENTIAL 7 INDEPENDENT PROJECT ANALYSIS

Defining the Information Streams

Perform Adequate Work for Each Phase, In the Right Order

Shaping Process Business-Driven

Project Context Potential Value Stakeholder Alignment Comparative Advantage Partner Issues

Complete Scope

FEL 2B

Select Scope

FEL 2A

Define Project

FEL 3

Start Up & Operate Execute Authorisation

Project Process Project-Driven

Scope Closure Core Team is Formed

Basic Data Process Science-Driven Basic Data Development

About 2/3 of the project cycle is spent producing, using and moving information from one information producer/consumer to another

FEL – Front-End Loading

CONFIDENTIAL 8 INDEPENDENT PROJECT ANALYSIS

• A comprehensive set of parameters that govern the

design

• The development of complete and correct Basic Data

may require years of work

‒ If schedule does not allow for adequate basic data development errors and omissions will occur

• Basic Data can be very expensive

‒ Compromising on data quality does not make sense for large projects

• Accountability for Basic Data package must be

established early

• Educate all decision-makers that getting the Basic

Data right is essential to success

Basic Data: Foundation of Scope Development and Outcomes

CONFIDENTIAL 9 INDEPENDENT PROJECT ANALYSIS

Project Governance Project Context Potential Value Stakeholder Alignment Comparative Advantage

Shaping: Value Creation, Allocation and Alignment

• n Objectives

Understand the context Assess the potential value Review the comparative advantage Identify and understand the stakeholders Establish the rules with the partner(s)

Each step builds on the previous steps!

CONFIDENTIAL 10 INDEPENDENT PROJECT ANALYSIS

Characteristics of Successful Projects

The most successful asset-intensive companies:

Take time to find the right project – define and understand the project context and the gross measures; ensure integrated information flow Avoid marginal projects entering the Scoping Phase Develop realistic early estimates based on understanding of project development and risk Fully staff project teams from start of Scoping Phase; maintain project leadership through execution Don’t finish scoping until Shaping and Basic Data are resolved Respect the innate sequence of work to be done – the project’s needs drive the schedule, not the calendar

Successful projects exist for all industry sectors, all continents, for simple or complex scopes, with or without partners, and across all contracting approaches

CONFIDENTIAL 11 INDEPENDENT PROJECT ANALYSIS

• Poor governance, inadequate project selection and

planning practices and poor performance outcomes undermine Australia’s infrastructure needs

• Infrastructure projects, like many capital investments,

are usually viewed within the context of a budget and schedule against a defined scope

• Thinking about projects as something we build

focuses on the construction side of a project

• A more useful way is to conceptualise infrastructure

projects as the development, flow, and use of information, culminating (finally) in the physical assembly and startup of the asset

Improving Infrastructure Projects (1)

CONFIDENTIAL 12 INDEPENDENT PROJECT ANALYSIS

• Key Productivity Commission Inquiry Findings on

Infrastructure

‒ ..It is essential to reform governance and institutional arrangements for public infrastructure to promote better decision making in project selection…. ‒ Data problems limit analysis and benchmarking….

• We need a methodology and technology for quickly

and effectively assessing the information status of an infrastructure development at any point in its evolution

• Improvement in practices and performance can only

be realised through effective measurement

Improving Infrastructure Projects (2)

CONFIDENTIAL 13 INDEPENDENT PROJECT ANALYSIS

• When the sponsor does not want to wait for Basic

Data development?

• When the stakeholders are not on board?
• When a function does not cooperate?
• When the Basic Data are incomplete and project

pressed to proceed to planning and beyond?

• When the scope is incomplete
• When the objectives are not clear?

How Does the Information Perspective Help?

United States Independent Project Analysis, Inc. 44426 Atwater Drive Ashburn, VA 20147 USA +1 703 729 8300

Petros Kapoulitsas

+61 434 201 555 pkapoulitsas@IPAglobal.com www.IPAglobal.com

United Kingdom Independent Project Analysis, Ltd. Wellington House—First Floor Worton Drive Reading RG2 0TG United Kingdom +44 118 920 7800 Singapore Independent Project Analysis, Pte Ltd.

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