Mega-projects - how to increase confidence in delivery and success - - PowerPoint PPT Presentation
10th PwC and Minex Moscow Mining Club meeting Mining investment process and project management Mega-projects - how to increase confidence in delivery and success MOSCOW MINING CLUB What well discuss today Why do projects fail?
MOSCOW MINING CLUB
10th PwC and Minex Moscow Mining Club meeting Mining investment process and project management
PwC
What we’ll discuss today
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PwC
The vast majority of failures are due to managerial aspects
Only 2.5% of companies deliver their projects within the deadline, costs, scope and with the benefits expected for the business.
Technical problems Suppliers’ failures
8%
Inappropriate/inadequate resources Inadequate Project Environment Inadequate Planning/ Monitoring Lack of clear
Directly related to managerial aspects Directly related to technical aspects
Lack of management (organizational)
4% 4% 10% 11% 15% 20% 36%
Technical and managerial aspects
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PwC
How do Companies React?
Establishment of Capital Project ‘Center of Excellence’ / Centralized PMO
Group support including:
inform future investments and risk profile of major capital projects;
and procurement committees
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Mining Industry Best Practice Front end loading – phased project planning
Pre-concept Concept Pre-feasibility Feasibility Implementation
resources
criteria
and scope
and scenarios
wins
economics
and portfolio
risk and effort required
engineering
logistics
management
Post Imp. Review
real
Concept Feasibility Pre-feasibility
Front End Loading Influence Approval Expenditures Mechanical Completion
Implementation Detailed Design Construction Start Up
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Constantly Refine Cost and Contingency Estimating
Confidential - For the sole use and benefit of Minex
Class 5
0%-2%
Class 4
1%-15%
Estimate Amount Project Definition 3%-5% Schematic Design 15%-20% Design Development 35%-45% Construction Documents 90%-100%
Construction Cost Estimate Accuracy Ranges
Class 3
10%-40%
Class 2
40%-70%
Class 1
70%-100%
Estimate Amount Adapted from the AACE Cost Estimate Classification System
+15%
+20%
+30%
+50% <+100%
Nominal Level of Design Detail
0% 100%
PwC
Scalable Governance / Delivery Models
Avoid a ‘One Size fits all’ approach Capital investment risk scenarios
Mega Project The mega project is an order of magnitude (or more) larger than the typical project for the
One-Time Large or Very Large Project Capital projects are not executed as a normal course of business and this is a single capital investment. Program of Small and Medium Projects The program involves a collection of projects for meeting a specific objective (e.g. growth or regulatory) Capital Intensive Routine Projects The asset base for the company requires steady capital investment to maintain production.
Margin OH/Risk Capex Feed/Opex$ Time
Margin OH/Risk Capex Feed/Opex$
Time $ Time
Margin OH/Risk Capex Feed/Opex$ Time
Margin OH/Risk Capex Feed/OpexSlide 9
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Scalable project governance and delivery model
Routine Projects Small Projects Medium Projects Large Projects Very Large Projects Megaprojects
Business Case Approval Authority Execution Tools, Systems, and Processes Oversight and Assurance Basic to simple support Business unit Comprehensive and detailed analysis Divisional and executive Board Division or department Capital project cross-functional group Basic office Standard project and ERP systems Custom Dept. reports ‘Flash’ reports PMO, Steering Committee Board Independent Audits
($ vary) (< $10m) ($10m-$100m) ($10om-$250m) ($250m-$1b) (> $1b) Slide 10
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Effective Project Governance Structures
Execution Oversight Assurance
Project Sponsor Project Director Project Controls Engineering Procurement Owner’s Engineer Consultants EPC Vendor Subcontractors Fabricators Material Suppliers Quality Management Commissioning EHS Executive Steering Committee External Program Advisory Board Construction Slide 12
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Procedural framework
Project life-cycle Project Elements
Evaluation Design Development Production Turn-over M & O Organization design and HR management Project resource plan,
responsibilities Mobilize and manage project labor Demobilization Operations staff planning Ongoing requirements / skill review Procurement and contract management Contract strategy Contractor qualification and evaluation Contractor selection and negotiation Contract compliance review Trouble-shoot and punch-list Vendor qualification and selection Scope and change management Project and scope definition Detailed design and scope freeze Change control Owner acceptance Asset change management Cost management Project estimate Project cost baseline Cost control and Cost to Complete Modeling Final payment / retention release M & O budgeting Schedule management Project schedule requirements Project schedule baseline Schedule management and data analytics Completion checklist Ongoing maintenance Business systems and technology Project systems strategy Implement project systems System support and maintenance Transition to enterprise asset management Risk and issue management Risk and issue management plan Risk and issue tracking and resolution Confirm issue resolution Ongoing issue management QA / QC, Safety Management Health and Safety plan Design review, method statements Training, Safety Assessments, Independent testing and inspection Safety file handover O&M Manuals Communication, reporting and regulatory Stakeholder assessment and reporting requirements Project status and regulatory filings Permits, Licensing Project performance Asset performance Project close-out Operations and financial reporting
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Establish contracting strategy selection criteria
Define objectives and establish parameters (scope, cost, schedule, etc.) Segregate scope (self performed, alliance vs. contractor) Evaluate delivery options (EPC, EPCM, Multi-prime, etc.) Evaluate pricing options (lump sum, cost +, incentives, etc.) Evaluate award
negotiated, Etc.)
Contract strategy
Loading (FEL)
project costs
restrictions, strategic, regulatory/political factors
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Standard Project ‘tool box’ to Accelerate Project
Types of training Media Northern Trust benefits Tier 1—Learn from co-location (face-to-face)Enabling Systems, and Tools (Reporting) Integrated Performance Analytics Governance and Risk Frameworks Cost to Complete Models Process and Procedures
High Performing Teams:
accelerators, frameworks, tools and proprietary methods.
and lessons learned.
team accelerate analytics and early warnings
As a Result:
stages
mobilization and start-up
predictable,
higher level of confidence
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Real-Time Integrated Scheduling
Group - high level schedule
Division - Level 1/2 schedules with some level of integration between projects Program/Region – Level 2 integrated schedules Project – Detailed level 3-4 schedules (standard WBS coding)
Project 1 Project 2 Project 3 Project 4
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Programme Value Chain
Invoice Management Module, Depiction of a Potential Invoice Dispute Process+ Invoice Management Module Legal Team Consortium Project Management Team Dispute Invoice / Portion of Invoice Submit NotificationVariance / Dash-boards Three Week Look-aheads Analytics
Contractor Programmes CM Mini-Programmes Start-up & Commissioning PMP, Level 3/4 programmes Design Programs
Inputs (raw data) Site Outputs
Level 1 programme Oversight Authorities - Public Audits Client Executive Leadership / Dashboards Strategy (what-if’s) Contracts / Commercial Quantitative Risk Assessment Client Level 2 Programmes
Management Outputs Working Tool (‘shadow program’)
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Cost to Complete
Description Formulae P02 - Boiler Total Approved Budget (B)+(C) 21,307,113,033 R Proposed Budget (A)=(B)+(C)+(D) 21,260,530,901 R Original Contract Value (B) 19,913,189,751 R Contingency (C) 1,393,923,282 R Strategical Spares (D) 176,276,269 R Approved CSI Cost Savings (E)Contracted work & variable price elements Earned value trends Changes pending and agreed Risk Weighted CPM and scenario analysis Quantified risks & mitigation costs Forex Inflation Interest during construction Risk weighted cost estimate
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Modeling Risks Using Monte Carlo
possibilities are simulated.
distribution range
Optimistic – The best possible outcome if the risk occurs Most Likely – The most likely outcome if the risk occurs Pessimistic – The worst possible outcome if the risk occurs
Pessimistic Most Likely Optimistic
Triangular Distribution : When each risk
defined distribution (three point estimate), randomly Each risk has a unique distribution
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Notes: Change Order 105 Chronology : Base on the document and records management system log dated August, 2011
Description Observations Actions
This chart illustrates the documents, e-mails, testing, meetings and events that are relevant to the negotiations of root-cause analysis Based on the assessed risks, there were large periods of time when SEC did not respond to specific requests, causing delays. Issue notice of delay, notify insurers, and underwriters of SEC failure, and quantify damages resulting from delay.
Risk and Issue Management
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Project Execution Executive Project Management
Contract and Change Mgt Project Controls
Executive PM
Medupi Organisation Assessment and Re-Alignment
Project Execution Director
Site CM Site Serv Mgr Commissioning & Integration Eng & Config Mgr Qual Controls Mgr FIDIC Engineer Proj Controls Mgr Commercial Mgt Mgr Project Support Mgr Scheduling Cost Assurance Deputiy Project Dir. External S/H Mgt & Reporting
Boiler & Mechanical Turbines Electrical Controls & Instrumentation Civil & Buildings Coal & Ash Balance of Plant Coal, Water, Tx, Gx
LDM
QS
LDM
DM
LDM
MG
LDM PS LDM
TC
LDM
RG
LDM
NP
LDM
BS
SHE & Q Mgr Site Director Gap Attack Lead
Project Support
Estimating TBD Risk Claims Variations Contract Admin HR C Fourie / V Admin Doc Mgt Procurement Document/ Issue Mgt TBD IM Finance
Mining & Energy
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Mining
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Capital Project Review for an $1Bn Mine development
Funding / Partners Plant and equipment ownership Water & Power Rail, Port and pipeline Permitting Environmental and Closure Costs Community relations Man-Camps / force optimization Safety Owner vs Contractor operated Depreciation Taxation Foreign exchange rates Royalties and levies Emissions monitoring Consumer price indices Product split/price relativity Commodity proce Closure costs Development Factors Operational Factors Case Study 1
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Procurement and contracting strategy Misalignment of contracting strategy and risk appetite
Case Study 1
60% 0% 1% 39%
Contracts based on fixed price 1 - Contracts based on time and materials 2 - Contracts based on unit price Combination of 1 and 2 Actual split among different types of client’s contracts In this case client believed that all his contracts were with fixed price, however analysis revealed another situation
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Schedule Analytics Common ‘Tricks’, Tactics or Strategies
Case Study 1
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Schedule Analytics – Float Deterioration
Notes:
Description Observations Actions
This chart illustrates the trending of the total float for the various key components of the project. The platform rehabilitation work continues to lose float due to low contractor productivity. Engage with contractor to remedy the lackluster
being provided.
20 40 60 Total Float (Days)
Track Extension As-Planned Platform Rehabilitation Systems Upgrades
Most Critical Sub-Critical
Case Study 1
Port Rehabilitation Site Development
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Equipment and consumable lead times
Consumables are in short supply and lead times are rapidly returning to 2007 boom levels
2011 lead time outlook (years)
Gas generators Wagons Reclaimers Tyres Large Haul trucks Crushers Barges Locomotives Grinding mills Draglines Ship Loaders Rope Shovels
5 1 2 3 4
2007 delivery time Current delivery time Normal delivery time
Heavy equipment lead time Consumables demand / supply
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
98 105 117 120 127 135 143 155 165 175 185 Demand Supply Global Tyre Sypply/Demand (Thousands of 40’’ to 63’’ Units)
Case Study 1
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Description Observations Actions
This graphic shows the percentage of open ends (i.e. activities without predecessors or successors) in the updates analyzed in this report. Then number of open ends has been substantially reduced in the last two updates. This is a good trend and indicates that the team is taking steps forward to enhance the quality of the schedule.duration overruns . Ensure that open ends in the schedule are kept to a minimum.
Schedule Analytics – Logic Check
Notes:
8% 7% 4% 5% 2% 3% 3% 10% 5% 1% 0% 2% 4% 6% 8% 10% 12% 31-Jan-12 29-Feb-12 31-Mar-12 30-Apr-12 31-May-12 Data Date No Predecessors No Successors
Case Study 1
Description Observations Actions
This graphic shows the number of each relationship type in the schedule updates
to be linked to an incomplete task (e.g. not a completed task, LOE, etc.) There are a number of start to finish task in the schedule the usage of which is highly discouraged due to the ambiguous nature of the tie. Eliminate SF relationships where possible and replace these with more suitable schedule ties (e.g. FS, SS).path.
Schedule Analytics - Relationship Tie Check
Notes:
Case Study 1
Description Observations Actions
This graphic summarizes the various constraint types in the schedule. Hard constraints which
accurately report the project's critical path. As of the May 2012 update, all hard constraints have been eliminated with the overall number of constraints dropping as well. This is a positive trend in the quality of the schedule. Excessive use of constraints impedes ability to determine the project’s critical path Increasing constraints could indicate ‘lazy’/ bad scheduling
Schedule Analytics - Hard Constraint Check
Notes:
Case Study 1
Description Observations Actions
This chart shows the distribution of the float values reported in the schedule for all of the remaining tasks. Over 50% of tasks have over 70 days of float. For a project with only 13 months of remaining duration, this percentage is excessive and may be an indication of missing logic ties. Ensure that all tasks are properly linked to the project's completion milestone and that the float is accurately reported
Schedule Analytics - High Float Check
Notes:
Case Study 1
Description Observations Actions
This chart shows the distribution of the durations reported in the schedule for all of the remaining tasks. Since the schedule is updated on a monthly basis, the target should be to have as many activities as possible with a duration of one month or less. In the latest update, about 60% of tasks fall into that category. Where possible, tasks should be broken down into a higher level of detail to improve the ability to track progress on a monthly basis.
Schedule Analytics - High Duration check
Notes:
Case Study 1
Schedule Analytics - Early Finish count
Notes: Analysis is based on contractor submissions from 5700 to 5702
Description Observations Actions
This chart illustrates the planned early completion date of all activities , window by window. The wave of activities appears to shift indicating that slow progression and failure to meet planned progress Identify root cause of progress slippage, issue warnings for non-performance, or revised projections to reflect realistic progress 500 1000 1500 2000
Activity Count
Case Study 1
500 1000 1500 2000 M-10 J-10 J-10 A-10 S-10 O-10 N-10 D-10 J-11 F-11 M-11 A-11 M-11 J-11 J-11 A-11 S-11 O-11 N-11 D-11 J-12 F-12 M-12 A-12 M-12 J-12 J-12 A-12 S-12 O-12 N-12 D-12 J-13 F-13 M-13 A-13 M-13 J-13 J-13 A-13 S-13 O-13 N-13 D-13 J-14
Activity Count
M- 10 J- 10 J- 10 A- 10 S- 10 O- 10 N- 10 D- 10 J- 11 F- 11 M- 11 A- 11 M- 11 J- 11 J- 11 A- 11 S- 11 O- 11 N- 11 D- 11 J- 12 F- 12 M- 12 A- 12 M- 12 J- 12 J- 12 A- 12 S- 12 O- 12 N- 12 D- 12 J- 13 F- 13 M- 13 A- 13 M- 13 J- 13 J- 13 A- 13 S- 13 O- 13 N- 13 D- 13 J- 14 7/23/2010 0 597 208 141 102 849 569 467456 476 337 340 183 139 94 102 97 119 44 5 33 6 7 37 8 4 2 2 12 12 1 4 1 1 4 3 8/27/2010 0 390 198 153 974 722 474476 544 359 377 216 213 105 105 123 125 40 15 35 6 13 33 8 4 2 2 12 12 1 4 1 1 4 3 9/24/2010 0 470 186 122 681 640556 711 559 241 248 159 67 128 74 96 44 13 39 20 9 29 8 4 2 7 8 10 1 5 3 1 6 10/22/2010 0 413 157 110 802641 772 468 226 276 323 91 135 48 91 56 15 20 24 14 1 6 4 2 6 8 7 4 5 3 6 11/26/2010 0 658 150 914761 849 513 324 268 265 132 87 107 106 62 14 16 25 18 10 13 4 1 7 12 9 2 2 9 3 6 12/17/2010 0 794 139967 871 615 379 296 269 142 92 111 57 112 27 14 25 18 9 13 4 3 5 12 10 2 3 9 3 1 6
Early finish activity count - sample schedule slippage
Description Observations Actions
This chart illustrates the planned early completion date of all activities , window by window. The wave of activities appears to shift indicating that slow progression and failure to meet planned progress Identify root cause of progress slippage, issue warnings for non-performance, or revised projections to reflect realistic progress
July 2010 update forecasted 467 activity completions for January 2011 December 2010 update forecasted 1395 activity completions for January 2011 Variance = 928
Case Study 1
Description Observations Actions
This chart illustrates the distribution of activities performed within their as-planned duration by Wick’s law contractor H & P were relatively accurate in predicting the majority of their task durations. G & E activities however , show significant duration overruns .
Schedule Analytics - Task Duration Variance
Notes: Analysis is based on contractor submissions to update 5751
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0%
10 20 30 40 50
Percentage of Activities
Days Between Original Duration and Actual Duration ENER VOSE DOMD TOSH
30% - Less than or Equal to Original Duration 70% - Greater than Original Duration in Port tasks
Mechanical Civil/Structure Railway Port
Case Study 1
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Schedule Analytics – Integrity checks
Assessment Area Criteria
Schedule Update Jan-12 Feb-12 Mar-12 Apr-12 May-12
<5% missing ties
0%
<5%
No SF relationships
<5%
<5% Acts with excessive float
No negative float
<5% with excessive duration
planned dates < DD or actual >
95% of monthly targets achieved
Delays in CP accurately reflected
Case Study 1
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Energy
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Refinery Modernization / Expansion
Modernization/ expansion to diversify products and improve product yields.
Due to repeated funding requests client required validation of cost and schedule Forecasts
to establish required contingency to ensure P80 confidence level
Case Study 2
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Cost and schedule validation
Design Completion Quantity Estimation Performance Factor / Output Assumptions Contingency Management Establish Completion Level
drawings
Sums
Establish Confidence Level
Estimates
Take-Offs
Verify P/F Assumptions
Outputs
Degradation
disruption and Inefficiency
Identify ‘soft spots’
Completion
Durations
undefined scope
Remaining Contingency
confidence in remaining UAP
content of worst-case scenario assumptions
Schedule Durations/ Logic Cost to Completion
Case Study 2
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Cost validation (qualitative)
Project Design
Estimate Schedule Risk
Quantity Perf. Factor Indirects CPM PRA Cost Schedule
12PS
GOHT
OSBL
Coker
SRC
PMT
Case Study 2
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Quantitative Risk Analysis
Stakeholder Input Develop Risk Model Run Simulation Vet Data Generate Reports Risk Response
Gather data:
Quantitative Model
(Class 1, 2, 3, 4, or 5)
Monte-Carlo (@Risk)
Review Results
(AACEi, DOE, ANSI, ASPE)
Summarize Output
present to steering groups
Risk Mitigation
Case Study 2
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Monte-Carlo Simulation (Results Distribution)
Distribution of rolling a pair of dice a 1000 times Case Study 2
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Quantitative Risk Assessment Distribution of building a project 1000 times.
P90 = $1.57Bn P50 = $1.55Bn
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Risk Weighted Contingency Confidence model
Confidence Forecast + UAP ($M) Forecast + UAP +Discrete Risks ($M) 0% $ 8,692.31 $ 8,818.85 5% $ 8,880.34 $ 8,961.37 10% $ 8,934.22 $ 9,004.27 15% $ 8,961.11 $ 9,038.06 20% $ 8,986.39 $ 9,067.49 25% $ 9,007.90 $ 9,090.49 30% $ 9,028.86 $ 9,111.90 35% $ 9,045.76 $ 9,127.08 40% $ 9,063.55 $ 9,142.84 45% $ 9,075.98 $ 9,159.37 50% $ 9,094.21 $ 9,173.02 55% $ 9,109.87 $ 9,195.27 60% $ 9,126.12 $ 9,214.58 65% $ 9,148.78 $ 9,233.08 70% $ 9,167.78 $ 9,254.97 75% $ 9,193.81 $ 9,280.19 80% $ 9,219.84 $ 9,310.05 85% $ 9,249.40 $ 9,342.35 90% $ 9,293.65 $ 9,387.51 95% $ 9,349.05 $ 9,440.45 100% $ 9,609.42 $ 9,725.96
What we did
funding cap of $9bn
level with, and without discretely monetized risks
Benefit to Client
based decision support.
controls and realistic baseline.
Case Study 2
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CP&I – Selected thought leadership
Risk management and schedule management on mega-projects. Since your day-to-day business is construction, you know construction projects are inherently risky. Managing this risk is essential and, like any other important management or oversight function, is either done well or it is a wasted effort that can risk everything. Capital project owners have focused on improving governance structures; yet too many projects still fail to deliver on cost, schedule or quality commitments. The consequence of failure can be public embarrassment and disappointed stakeholders Quantitative risk analysis. As major capital projects are subjected to greater regulatory and political scrutiny, the pressure on contractors to meet tight schedule and budgetary constraints
impacts, which leads to an erosion of confidence in reaching those targets. Having a systematic quantitative risk analysis process in place to gauge the confidence level of the project’s cost and schedule is important for establishing realistic expectations. Schedule analytics tools As capital project spend increases and aggressive deadlines are built into project schedules, the reliance on accurate, transparent and meaningful schedule practices is growing. Too often, major projects suffer from missed milestones, schedule slippage and delays with no way of determining recovery plans or realistic forecast completion dates. Optimizing capital project delivery. A major US utility was finalizing its plans to construct new plants costing several billion dollars. Working in a highly regulated environment, the client recognized the importance of a strong control environment to manage the project. The client requested a governance readiness review to determine whether its systems and controls could support a project of this magnitude and complexity.
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