Worley Parsons PCDP - Module 01 - Introduction to Project Controls.pdf

PROJECT CONTROLS DEVELOPMENT PROGRAM

MODULE 1 - INTRODUCTION TO PROJECT CONTROLS

PCDP Module 1 - Introduction to Project Controls. Rev 0

SPECIAL ACKNOWLEDGMENTS & THANKS: The Project Controls R5 management team would like to thank the following persons for their continuous support and contribution to the development of this training module Ahmed Hammad, Tony Isaac, Mark Deverell, Abkar Bannayan, James Lee, Suwit Suriyo, John Armstrong and Walt Falgout.

This document has been prepared for the exclusive use of WorleyParsons. Copying this document without the permission of WorleyParsons is not permitted.

MODULE 1 - INTRODUCTION TO PROJECT CONTROLS Rev

Description

Originator

Review

Approved

Date

0

Released for Global Implementation

Humphrey Kerger

Project Controls R5 Management Team

Project Controls R5 Management Team)

Mar 2011

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I N T R O D U C T I O N TO P R O J E C T C O N T R O L S

Module Content 1.0 Project Controls Development Program

6

1.1 Introduction to the PCDP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6

1.2 Project Controls modular training program. . . . . . . . . . . . . . . . . . . . . . . . . .

6

1.3 PCDP Competency Assessment survey. . . . . . . . . . . . . . . . . . . . . . . . . . . .

9

1.4 Coaching program. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 10 1.5 Staff Rotation program. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . 11 1.6 Project Management modular training program. . . . . . . . . . . . . . . . . . . . . . . 12 1.7 EMS/WPMP training videos. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . 12 1.8 Estimating modular training program. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 1.9 External training programs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

2.0 Introduction to WPMP / EMS

13

2.1 WPMP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2.2 EMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 17

3.0 Preamble: Objectives & Assumptions

19

3.1 Methods, Philosophies & Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 3.2 Project and Contract formats. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.0 Project Breakdown Structures 4.1 Major Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20

22 22

4.2 Analysis.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 4.3 Project life-cycle.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 4.4 Coding Structures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 4.5 Project Breakdown concepts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 25 4.6 Segregated CBS/WBS concept. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

25

4.7 Integrated CBS/WBS concept. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 4.8 Managing EPCM contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

32

4.9 Control Accounts and Cost Centres. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 4.10 Contract Administration and Cost Control. . . . . . . . . . . . . . . . . . . . . . . . . .. 33

5.0 Enterprise Coding Structures

35

5.1 Enterprise Codes and Attributes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

36

5.2 Attribute Codes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

37

6.0 Project Initiaton

41

6.1 Baselines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 6.2 Tool selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ……………….. 41

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7.0 Schedule Development

44

7.1 Evaluate / Define Phase (FEED schedules). . . . . . . . . . . . . . . . . . . . . . . . . . . 44 7.2 Execute Phase.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . 46 7.3 Project Baseline - Control schedule.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

51

7.4 Project Baseline - Engineering.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 7.5 Control schedule - Procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 7.6 Control schedule - Construction.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 7.7 Control schedule - Commissioning.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

8.0 Schedule Control

57

8.1 Schedule Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 8.2 Schedule reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9.0 Progress Measurement

56

57

9.1 Engineering - Incremental Milestones method. . . . . . . . . . . . . . . . . . . . . . . .. 63 9.2 Procurement - Incremental Milestones method. . . . . . . . . . . . . . . . . . . . . . . . 65 9.3 Construction - Variety of methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 9.4 Commissioning - Incremental Milestones method . . . . . . . . . . . . . . . . . . . . . . 74 9.5 Earned Value for variable budgets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 9.6 EPCM: Consolidated progress. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 9.7 “House with the golden doors” scenario. . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 82

10.0 Cost Control

84

10.1 Engineering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 10.2 Procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . 86 10.3 Construction & Commissioning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

87

10.4 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 10.5 Contingencies & Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

11.0 Management of Project Change 11.1 Levels of change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

92 92

11.2 Prime contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 11.3 Prime contracts: E & EPCM Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 11.4 Prime contracts: Management & Support . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 11.5 Prime contracts: Procurement & Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 95 11.6 Prime contracts:Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 11.7 Prime contracts: Seeking approvals: PVNs and PCRs . . . . . . . . . . . . . . . . . 96 11.8 Client commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 11.9 Variances: budget and forecast impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

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12.0 Cost and Schedule Performance

103

12.1 Self performing contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

103

12.2 EPCM contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

103

12.3 Performance indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

104

12.4 Variance analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

104

12.5 Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

106

13.0 Project Reporting

107

14.0 Document Management & Control

109

14.1 Document Control.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

109

14.2 Electronic Document/Data Management.. . . . . . . . . . . . . . . . . . . . . . . . . . .

109

14.3 Document Management Plan.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

110

14.4 Distribution Matrices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

110

14.5 Quality Audits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

110

15.0 Capital Cost Estimating

111

15.1 Methodologies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

111

15.2 Estimate build up. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

112

15.3 What is Known? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

112

15.4 What Experience tells us?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

112

15.5 What is Unknown. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

113

15.6 Estimating classes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

113

15.7 Class 1 estimates: Order of Magnitude. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

114

15.8 Class 2 estimates: Screening. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

114

15.9 Class 3 estimates: Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

115

15.10 Class 4 estimates: Definitive. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

115

15.11 Accuracy ranges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

116

15.12 AACEI Estimating Classes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

117

16.0 Cost and Schedule Risk Analysis

118

16.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

118

16.2 Cost Risk analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

118

16.3 Schedule Risk analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

121

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1.0 PCDP - PROJECT CONTROLS DEVELOPMENT PROGRAM

1.1 INTRODUCTION TO THE PCDP

Whether you’re just beginning a new career, or you’re a seasoned professional, accepting a position in any WorleyParsons Project Controls department across the globe means you’re making a commitment to an ongoing learning process. Over the last 20 years, the industry has developed a general trend in the Project Management / Controls workforce which has resulted in a peak age group in the mid 50s’ with the next largest in the mid 20’s. This trend was, and still is, a major concern to the WorleyParsons Project Controls communities, as without sufficient development of our younger resources, many of our offices are going to experience a knowledge - gap in the near future. In addition to the potential skills and knowledge gap trend, most of our customers will have more stringent requirements and higher expectations of increasing the local content (skills & knowledge) on their projects. So where does our next generation of local Project Controllers come from? Project Controls is a relatively young discipline that has been influenced by the use of technology, creating a risk that system-skills (for instance Primavera) is becoming more of an entrance pre-requisite to Project Controls rather than project delivery background. Today, it is common to see a mix of young system literate people team-up with older, more experienced but less

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computer literate personnel. In order to accelerate the transfer of knowledge & maintain the commonality of Tools & Methods within the group amidst staff-growth and staffturnover, WorleyParsons has developed a program called the PCDP (Project Controls Development Program). The PCDP is a continuous development program, tailored for our business and using our language. It consists of :

• Annual competency assessment, to ’baseline’ the individual skills, knowledge & experience gaps;

• individual competency improvement targets based on the Gap analysis;

• a Development Program that can be customized to individual needs. Generally, there are three options to choose from when it comes to closing skills, knowledge and/or experience gaps: 1. Hands-on experience 2. Internal training 3. External training Since external courses run by consultants often fail to meet the specific WorleyParsons requirements, WorleyParsons

opted for a combination of the following competency development tools: 1. a comprehensive coaching program; 2. a variety of modular in-house developed and selected external training programs, addressing every aspect of Project Delivery; 3. Staff Rotation Plan to close experience gaps. The flowchart on the next page will outline the Overall PCDP concept. 1.2 PROJECT CONTROLS MODULAR TRAINING PROGRAM

The Project Controls training modules are designed to provide the participants with an overall introduction to the skills & knowledge required by Project Controllers when executing EPCM / PMC projects. All courses are written and delivered by WorleyParsons personnel. To compete in a global environment, WorleyParsons needs Project Controls professionals who are equipped with the full range of Project Controls skills and knowledge, armed with a solid base of good ethical values, who have been trained to think, to question, and who are able to “learn, unlearn and re-learn” all in the language which is understood by the rest of the world. As the external resource marketplace and education system mainly produces ’onedimensional’ Project Controls professionals (e.g. specialists in either Planning, Costing or Estimating), the prime focus of the PCDP will be on the development of a workforce with allround Project Controls capability

FLOWDIAGRAM - PROJECT CONTROLS DEVELOPMENT PROGRAM

1

2

3

4

5

INDUCTION

ASSESSMENT

ANALYSIS

DEVELOPMENT

TOOLS

• PCDP MODULE 1: “INTRODUCTION TO PROJECT CONTROLS”

• ANNUAL INDIVIDUAL COMPETENCY ASSESSMENT SURVEY

• INDIVIDUAL COMPETENCY GAP ANALYSIS

• DETERMINE COMPETENCY DEVELOPMENT TARGETS (KPI’s) — WHAT NEEDS TO BE DONE ?—

•

• CUSTOMIZED INDIVIDUAL COMPETENCY DEVELOPMENT PROGRAM FOR THE COMING YEAR — HOW TO ACHIEVE THE DEVELOPMENT TARGETS ?—

IDENTIFY & SELECT (AND / OR): 1. APPROPRIATE TRAINING PROGRAM / MODULE 2. SPECIFIC HANDS-ON EXPERIENCE / EXPOSURE (OPPORTUNITIES) 3. COACHING PROGRAM 4. EXTERNAL TRAINING PROGRAMS

TRAINING PROGRAMS

• EMS / WPMP VIDEO TRAINING • PROJECT CONTROLS MODULAR TRAINING PROGRAM

• PROJECT MANAGEMENT MODULAR TRAINING PROGRAM

• ESTIMATING MODULAR TRAINING PROGRAM

• SELECTED EXTERNAL TRAINING PROGRAM EXPERIENCE / EXPOSURE

• STAFF ROTATION PROGRAM COACHING

• PCDP COACHING PROGRAM

ANNUAL APPRAISALS

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HIGH LEVEL INTRODUCTION TO WORLEYPARSONS METHODS, SYSTEMS & PROCEDURES MANDATED INDUCTION FOR ALL NEW AND CURRENT WP PROJECT CONTROLS STAFF.

MANDATED FOR ALL PROJECT CONTROLS STAFF

IEMBEDDED IN THE ANNUAL APPRAISALS PROCESS. MANDATED PROCESS FOR ALL PC STAFF AND THEIR LINE— SUPERVISORS

SELECTION OF APPROPRIATE PROGRAM IS A JOINT EFFORT BY THE PROJECT CONTROLLERS AND THEIR LINE SUPERVISOR

AVAILABLE PROGRAMS TO SUPPORT CAPABILITY DEVELOPMENT TARGETS


The first module is a general introduction to the WorleyParsons philosophies and methodologies.

These specialist modules are designed and structured following the same concept: 1) Each training module should provide the participant with hands-on skills and knowledge for that specialized topic.

Completion of this Module is compulsory for all Project Controls staff, regardless of their experience and skills & knowledge level. For new recruits, completing the Introduction Module is part of the Induction process, together with the Competency Assessment Survey. The Introduction Module is followed by 7 specialized modules.

2) All modules will have the same “project theme”, so at completion of the program, the participant has covered the full range of services that are expected from a WorleyParsons Project Controls professional on one complete project.

3) The output of one module, and the deliverables generated through the exercises, are to be used as input and/or reference data for the following module(s). 4) Every module consists of a manual (“back-of-fag-pack” principle) and a systems part, where the manual exercises will be repeated using the WorleyParsons preferred tool-kit. Below is an overview of the Project Controls Training Modules:

Module 1

Module 2

Module 3

Module 4

Introduction to Project Controls

EPC Schedule Development

Services Management

Commercial Performance

Module 5

Module 6

Module 7

Module 8

Introduction to TIC Cost Estimating

TIC Management

Schedule Risk Analysis

Cost Risk Analysis

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“Hard work never kills anybody who supervises it” ~/~ Harry Bauer


1.3 PCDP COMPETENCY ASSESSMENT SURVEY

PCDP participants are expected to continuously monitor and analyse their WorleyParsons work experience, in terms of competency elements. The basis for this will be the WorleyParsons Competency Assessment Survey, which every new recruit is required to complete as part of their induction. This Competency Survey (which is in essence a SWOT analysis) is the basis for monitoring the development and progress of all Project Controls Staff. The letters stand for Strengths; Weaknesses; Opportunities & Threats.

more than one quadrant, e g. a person can consider “inexperience in EPCM scheduling” as both a Weakness AND an Opportunity. Competency Assessment The participant’s competency score should be discussed with their supervisor to identify future experience and training needs. The initial competency score (the first one) will not be taken into account during the annual appraisals; whether someone performs to their capabilities/ competency level is a performance assessment and not part the annual competency assessment. However, achievement of future competency improvement targets will become a KPI (Key Performance Indicator) for the next year’s appraisal.

SWOT Analysis Annual Appraisal Interface The SWOT analysis template presents the 4 major categories of competencies:

“Rule number one is, don’t sweat the small stuff. Rule number two is, it’s all small stuff “ ~/~ Robert Eliot

Qualifications / Experience (self assessment)

The development targets are set during the Performance Appraisals and should be a joint agreement of both staff and their line manager.

Technical Skills (self assessment)

To ensure that the participants will be supported in achieving

their KPIs, they can be assigned a personal coach. Delivering on these KPIs will become a KPI for all parties involved in the Development Program. By making both staff and their line manager responsible for achieving the competency targets, WorleyParsons closes the loop and insists all stakeholders take their commitments seriously … and not just … “something to be attended to, once one has a spare moment”! The PCDP Competency Survey will be conducted for all Project Controls staff across WorleyParsons globally. The Competency Survey Questionnaires were reviewed and approved by all Regional Managers of Project Controls / Project Services and are, therefore an accurate reflection of what is expected from a WorleyParsons Project Controls professional in terms of skills and knowledge. The survey is conducted online around April, and can be accessed via a dedicated link in the new Global Project Controls & Estimating Website via Link https://www.tba.com

Systems & Software Skills (self assessment) Personal / Work scope Management & Organizational Capability/Teamwork (supervisor’s assessment) The theory of the SWOT is that Strengths & Weaknesses are internal and Opportunities & Threats are external, although the suggestion is not to be too restricted by this theory. Similarly, items could appear in

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1.4 COACHING PROGRAM Coaching is regarded as an essential feature of the WorleyParsons Project Controls Development Program. The skills, knowledge and experience that you have gained in your professional career are valuable not only to you but they are of great benefit to the growth of the department. Coaching is a vital process in transferring this experience and knowledge to younger and/or new members of the Project Controls Department, and achieving the vision for WorleyParsons in promoting Project Controls excellence for everyone's benefit.

Differences between Mentoring and Coaching Component

Mentor

PCDP Coach

Driver

Human Resource Group

Project Controls Group

Focus

Career Path

Performance / Competency development

Role

Facilitator with no agenda

Tutor with specific agenda / Capability Targets

Relationship

Self selecting

Assigned by Supervisor based on Competency Assessment

Personal returns

Career Opportunities & Development

Teamwork / Skills & Knowledge Development

Arena

Life / Career

Capability Improvement

Coaching versus Mentoring The PCDP coaching program is different from the WorleyParsons mentorship programs, and our employees may confuse the two programs. In the WorleyParsons Mentoring program, the mentor acts as your counsellor, providing advice on career paths, development opportunities, and an overview of what it takes to become a leader in the company. (in essence; a sounding board) Typically, the mentor is a senior manager, at least two levels above you in the organization. The mentor must have broader experience in the company and the ability to place you into assignments that will help with your development. The PCDP coach is more of a tutor, observing your work and actions, providing comments on execution, and teaching skills which may be lacking.

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Coaches can come from many sources. A coach can be a colleague, a manager, or an employee, and have to come from the same function or division in which you work. It is critical in the coaching relationship for the coach to have opportunities to observe your work and for you to respect the coach and be open to feedback. Mentoring must be viewed as long-term relationships -- a commitment of two years should be obtained before the relationship is established. Mentoring is biased in your favour. Coaching, on the other hand, is impartial, focused on improvement of professional skills. A coaching relationship usually lasts only for the duration of the “gap-closure” period (quick hits).

Once the competency gaps are closed, new competency development targets will be set for the following year, and achieving these new targets could require a completely different skill-set (and coach). In summary, the mentor provides guidance and opportunities for practice, while the coach observes and critiques the performance and provides you with an outside perspective on your skills. The PCDP Coaching Program hangs personal KPIs (Key Performance Indicators) of achievement of competency for both Coach and ‘student’. Assigning these KPIs is not only done to give the participants an incentive to deliver on their targets, it is also a commitment from their linemanager that they will support professional growth in their team.

“Inside every older person is a younger person -- wondering what the hell happened.” -/~ Cora Harvey Armstrong


1.5 STAFF ROTATION

"If you really want something in life you have to work for it. Now quiet, they're about to announce the lottery numbers." ~/~ Homer Simpson

PROGRAM

The staff rotation program is a program designed to encourage the temporary rotation / exchange of employees between two WorleyParsons offices with the minimum of bureaucracy and cost. It is a simple process which benefits the company and employees alike, and can be considered one of the tools for closing experience gaps for those employees who want an overseas assignment, but are not necessarily available to relocate on a long term basis. How does it work? Location Project Controls Manager identifies an experience / specific project exposure gap during the annual appraisals, and posts the candidate particulars on the Global Project Controls & Estimating website.

own employee. Each home office will pay either actual expenses or a per diem, of its own employee. Each home office is responsible for any income tax implications for its own employee both from an individual and corporate perspective. Each home office will pay the visa costs incurred at that location for outgoing and/or incoming employee as appropriate. Personal goals/Company objectives to be pre-agreed, clearly defined and monitored. Who is eligible?

meets one of the following criteria: 1. Specialists with different skills/experience – to close a skills/knowledge gap; 2. Specialists with equal experience - to obtain experience in other locations/ overseas. 3. Younger employees – to obtain experience in other locations/overseas How to participate? Anyone interested to participate in this program can apply via their line Managers during the annual appraisals

In essence all Project Controls staff as long as the exchange

There has to be a valid need for the exchange, such as closing a skill or knowledge gap or it may be an opportunity for both specialists, as well as younger employees to obtain experience in other locations or overseas. Each set of candidates will, ideally, be of a similar level in terms of experience and qualifications. It is envisaged that the Rotation/Exchange program will last a maximum of six months. Each home office will pay the salary of its own employee. Each home office will pay the round-trip airline ticket of its

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from one or more of these modules.

• Align newly recruited experi-

The Project Management training program is an in-house developed entry level project management training (using 10 training modules) for personnel starting work in project management at project engineer level.

These needs could be identified when determining the Competency development targets during performance appraisals.

• Train experienced construc-

The Program consists of 10 Modules:

The WorleyParsons Project Controls community developed a series of 9 Induction training videos to familiarize new employees with the Project Controls & Estimating specific content of EMS / WPMP.

1.6 PM MODULAR TRAINING PROGRAM

PM TRAINING MODULES 01. Project Initiation & Scope Management 02. Project Controls & Commercial Management 03. Risk Management 04. Business Management Systems

1.7 EMS/WPMP TRAINING VIDEOS

The following induction videos have been made available:

05. HSE Management 06. Proposals

02. Planning

07. Project Quality

03. Cost Management

08. General Management & Leadership

04. Management of Project Change

09. Procurement & Material Control

05. General Project Controls Guideline

10. Construction & Completions

06. CTR Preparation

The primary intent of this training is to deliver basic training in the principles of project management and explain the systems and processes that WorleyParsons use to meet these principles.

08. Contingency drawdown

It is possible that project controls personnel could benefit

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tion estimators in the field of EPCM estimating;

• Provide a structured EPCm estimating course for graduates or new recruits. The following 10 modules are currently developed by the Estimating community: ESTIMATORS TRAINING MODULES 01. Orientation 02. Introduction to Estimating 03. Estimating Components

EMS/WPMP VIDEOS 01. Project Controls Executive Directive

The intended recipients are personnel who have enrolled to join the project management discipline and experienced project managers/engineers wanting a ‘refresh’.

enced EPCm estimators;

07. Progress Measurement

09. Cost Estimation

The training videos can be accessed via the Project Controls & Estimating website: www.tba.com 1.8 ESTIMATING MODULAR TRAINING PROGRAM

The Estimating Training program will have an Entry Level focus and is developed to:

04. Initiating an Estimate 05. Direct Cost Estimating 06. Indirect Cost Estimating 07. Owners Cost Estimating 08. Design Allowances 09. Contingency Risk Analysis 10. Review & Prepare Estimate basis 1.9 EXTERNAL TRAINING PROGRAMS

There are several external training courses related to Project Management & Controls. Each region has a short-list of WorleyParsons recognized external training-programs which can be used to complement the existing in-house developed programs.


2.0 INTRODUCTION TO WPMP / EMS

2.1 WPMP

“43.7 per cent of all statistics are made up on the spot” ~/~ Steven Wright

The Project Delivery process model is a process that will ensure that the value and risk is always known throughout the project life-cycle. Most clients and contractors will have such a model and the principle, in most instances, will be identical. The project life-cycle is usually divided into five phases. Each phase is subdivided into detailed management processsteps/activities. By having decision gates at the

IDENTIFY

1

Determine project feasibility and alignment with business strategy.

end of each project phase, the project can be stopped, authorized to proceed or re-cycled. To ensure a consistent Project Delivery approach that is aligned with the various project life-cycle models utilized by our clients, WorleyParsons developed the WorleyParsons Project Management Process (WPMP) below.

WorleyParsons is primarily involved in the Evaluate (studies), Define (Feed), and Execute (EPC) phases. The Identify and Operate phases are typically managed by clients.

The node points between each of the phases (commonly referred to as gates), demarks the completion of a projectphase, and is aligned with the “Go / No-Go” decision-gates for progression into the next phase.

EVALUATE

2

DEFINE

3

As the project progresses through the “phase-gates”, the level of definition in the projectscope increases.

WPMP aligns and interfaces with the project delivery sections of WorleyParsons Enterprise Management System (EMS) where all procedures, guidelines and forms are contained.

EXECUTE

4

OPERATE

Select the Finalize scope, cost, Produce an operatStart Up, operate preferred Developschedule and get ing asset, consistent asset to ensure perment Option(s) & project funded with scope, cost and formance specificaExecution schedule tions & return to Strategy. shareholders Key Deliverables

• Valuation Report • Development • Class 1 – Order of Magnitude Estimate (+ / 50%)

Plan

• Class 2 – Screening Estimate (+ / 30%)

• Business Pro-

• Functional Asset posal / Front End Engineering De- • Class 4 – Definisign (FEED) tive Estimate (+ / Package - 10%)

• Performance Assessment

• Class 3 – Control Estimate (+ / 15%)

• Level 2-3 EPC Schedule Key Decision Approve Feasibility Review

Approve Development Plan

AFE approval (Approved For Expenditure)

Operations Acceptance

Value Enhance

Page 13


WPMP delivers useful guidance on project delivery best practise. Once the phase and risk category is defined using a simple flow process (below), WPMP provides a list of mandatory

tasks and recommended tasks (see next page).

plates associated with each Project Phase.

This helps the Project Team to quickly navigate though EMS using Task sheets and quickly identify and locate the specific Workflows, Procedures, Documents, Guidelines and Tem-

Once the task list has been selected, each task can be highlighted (see page 16) and hyperlinks take you to procedures, guidelines and forms in EMS.

“What you don't know hurts you…” ~/~ David Copperfield Page 14

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Page 16

“If you can keep your head while all about you are losing theirs, you haven't understood the plan.” ~/~ Isaac Heyes

2.2 EMS

option is retrieved.

• Develop

EMS stands for Enterprise Management System and holds all our Procedures, Forms, Guidelines, Templates and Go-Bys, categorized in the Business Process Steps for each function.

Both Planning and Cost are divided in 5 process-steps. For Planning these steps are:

• Cost Control

EMS can be accessed via the WorleyParsons NOW page. (see screenshot)

• Develop

By selecting the location and Project Controls in the functional group list on the left side of the page, the two options will appear; Planning and Cost.

• Planning Report

By selecting one of the options, the Project Controls EMS page for your chosen

• Policy • Planning • Schedule Control

For Cost the steps are almost identical:

• Policy • Planning

• Cost Report The EMS page will list down all the Process-steps, the intent of each step, as well as the activities and documents associated with these Process steps. The search can be narrowed down by selecting the Workflow, Document or Form tab on top of the page, and can be filtered by CSG (Hydrocarbons, Infrastructure & Environment, Power and Minerals & Metals) An EMS webpage screen-shot is shown on the next page.

Page 17

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3.0

P R E AM B L E : O B J E C T I V E S & AS S U M P T I O N S

The objectives of Project Controls is to provide accurate timely information to Project Management that will enable informed decisions and action to correct any possible adverse situations or trends, and to advise the Client of the true status of the project. 3.1 METHODS, PHILOSOPHIES & PROCEDURES

The methodologies & techniques described in this module facilitate a consistent and methodical information flow process across the project phases, and enables compilation of all project status reporting / recordings in an agreed

format for: • Development of CBS / WBS structure for the project • Establishment of a Cost Control budget from the estimate • Expenditure and performance in relation to approved control budgets; • EAC (Estimate At Completion) and ETC (Estimate To Complete) forecasting in relation to approved control budgets • Change Control • Development of the Baseline control schedule and progress control base

• Project Progress in relation to the agreed control schedule; • Cost and schedule fore-

casts • Cash flow/Cash call man-

agement in relation to forecasted project expenditure. All Schedule & Cost controls methods, philosophies and procedures described in this Introduction-module are currently employed by WorleyParsons and accepted as ’best practice’ methodologies for the Define and the Execute phases of the project and are fully supported by the suite of WorleyParsons preferred Project Management tools & systems.

“Good control reveals problems early - which only mean you'll have longer to worry about them.” ~/~ Author Unknown Page 19

3.1 PROJECT & CONTRACT FORMATS

A project can be defined as an item of work that requires planning, organizing, dedication of resources and expenditure of funds to produce a concept, a product or a facility. A contract is a mutual business agreement recognized by law under which one party undertakes to do work (or provide service) for another party for a consideration. A written contract is the document by which risk, obligations, and relationships of all parties are established. For the client, the contract is the means by which the contractor can be controlled, and ensures that the work and end product meets their requirements. For the contractor, the contract specifies risks, liabilities, and performance criteria, and outlines the terms and conditions of payment. Throughout the training program references will be made to the following two contract categories:

• Prime Contracts • Sub Contracts Although the Contract and Project Management practices offer various, but similar definitions to explain the difference between these two contract categories, it is still used in many different ways by different people. In relation to the PCDP training program WorleyParsons differ-

Page 20

“A verbal contract is not worth the paper it’s printed on.”

entiate Prime and Subcontracts as follows: Prime Contracts A contract agreement between WorleyParsons and the client to do work, or to provide services. WorleyParsons will invoice the client directly for provided services on its own ‘letterhead’ paper. For the project controls function this means that cost, revenue and profit margin is managed and monitored against an internal approved control budget and a client approved contract value. The value of the contract (commitment) is the client’s cost to the project and WorleyParsons revenue. Sub Contracts As the prime contract holder, WorleyParsons can commit part of the work scope to a specialized third party contractor. This contractor becomes then a sub contractor or sub consultant of WorleyParsons, and as such, will invoice the WorleyParsons directly for their services. Unless special approval is required, clients will usually not be party to this contract arrangement; as far as they are concerned the subcontracted scope of work is still WorleyParsons responsibility. For the Project Controls function this means that the value of the committed subcontract will be part of WorleyParsons’ cost to the project. Internal cost and profit margin for this commitment is managed by the subcontractor, and is of no concern to WorleyParsons.

EPCM / PMC Contracts Prime contract holders are awarded total responsibility for the execution of the workscope. This includes cost, schedule, quality, project delivery risks & liabilities, as well as the commercial outcome of the project. The project is fully executed by own resources and/or (partly) subcontracted under their responsibility. Therefore Prime contracts are often referred to as ‘self performing’ contracts. Engineering & construction contracts can be drawn up in any number of formats, depending on the project objectives and drivers, contract strategy and the skills and resources of the client and /or the contractors. The PCDP training modules have a strong focus on:

• Self performing Engineering and Procurement Services contracts

• PMC (Project Management Consultant) contracts

• EPCm (Engineering, Procurement, Construction & Completions management) contracts. and to a lesser extent on Turn Key EPC contracts.

~/~ Samual Goldwin


PMC PMC Projects are executed under a three-part contractual relationship among: 1. The Client - who establishes the form of contract and general terms & conditions. 2. The Project Management consultant - acting as the client’s representative in administering the contract (s) and managing cost, schedule, design, procurement and construction & completions of the overall development. 3. The respective contractors, who responds to the risk and liabilities of the general contract The usual contractual relationship amongst these 3 parties on a single project is for the client to have one contract with the Project Management Consultant (PMC), and separate contracts with the respective contractors. In short, the PMC is managing the commitments on behalf of the client. No contractual relationship exists between the PMC contractor and the other contractors.

“If everything seems under control, you’re just not going fast enough.” ~/~ Mario Andretti

ance is managed and monitored against a client owned TIC (Total Installed Cost) budget and a high level EPC schedule as opposed to the agreed Contract Value and detailed EPC execution schedule in self performing contract environments. The budget for the PMC contract usually sits outside the TIC budget so management of this contract does not fall under the remit of the PMC team. However, the contract arrangement between the client and the PMC contractor can contain risk and reward incentives for achieving the overall project goals, which means that all criteria for self performing contracts will be applicable to this contract. For that reason, the commercial health of this contract will only be managed, controlled and reported internally, separately from the PMC scope of works. Because the client has no direct benefit or interest in the commercial outcome of the PMC contract, the cost associated for controlling and managing the PMC contract itself is usually carried by WorleyParsons.

EPCM Identical to PMC projects, with two differences: 1. In addition to the tasks described for PMCs, the EPCM contractor has further responsibilities; carrying out detailed engineering work as well as purchasing equipment and material on client’s behalf. 2. The budget for EPCM services is part of the project TIC. This is a significant difference; it means that an EPCM services contract will be one of the commitments that needs to managed under the TIC budget on behalf of the client. To avoid area’s of conflict and confusion, EPCM projects are usually executed with two distinct ‘line-ups’; one team looking after the EPCM Services contract (the self performing bit), the other team with a focus on the responsibilities associated with managing the Overall EPC development and TIC budget on behalf of the client.

Unless agreed otherwise, the PMC contractor is not responsible or liable for the technical or commercial outcome of the project. The approach of the PMC project controls function is therefore different to that of a ‘self performing’ contract. Cost and schedule perform-

Page 21


4 . 0 B R E AK D O W N S T R U C T U R E S

4.1 MAJOR VALUES

Good project controls require the effective integration of cost, schedule and technical information and the management systems that generate that information. However, many management systems used on projects are not well integrated because they were developed independently of each other to satisfy specific needs.

and high level General Ledger accounts, the scheduling systems’ focus is to support work planning and control (detailed project tasks), while technical management is mainly oriented to specifications, performance characteristics and technical goals (project deliverables).

For example, the accounting system can be designed primarily to keep track of expenses and payments, to meet payrolls, calculate taxes, etc.

Pulling cost, schedule and technical information together in a meaningful, coherent fashion is considered essential for effective project management and failing to do so will eventually lead to fragmented project reporting and may mislead the manager by presenting a distorted view of the project status.

Cost information is still in many cases related to organizational

A combination of 6 major measures is needed for project

analysis and to determine how well the project is performing according to plan:

• Planned Values • Earned Values • Committed Values • Cost Incurred • Forecast Values • Invoice/Payment Values

4.2 ANALYSIS

The system set-up must be structured in such a way that it can generate the required data to analyse project-performance in terms of: Planned Achievement

-

What is planned?

Actual Achievement

-

What is done?

Expenditure

-

What is the cost incurred to achieve this?

Commitment

-

What’s the amount committed?

Budget Control

-

What are the forecasted under/overruns?

Cash flow / Call

-

What is the projects’ Cash flow position?

“Ability is what will get you to the top if the boss has no daughter “ ~/~ Author Unknown

Page 22


“It is not enough to do your best; you must know what to do, and then do your best”. ~/~ W. Edwards Deming

4.3 PROJECT LIFECYCLE

of WPMP.

The table below represents WorleyParsons’ Project Management Process (WPMP).

The Define phase is a very important phase, because this is the decision-gate for proceeding with the execution of the project.

Like most of our clients, WorleyParsons has an “Opportunity and Project realisation” process model in place that ensures that the value and risk is always known throughout the project life-cycle. Decision gates at the end of each phase allow us to proceed with, stop or recycle a project at each gate.

The key deliverables of the define phase are:

• The FEED package (technical definition of what needs to be done)

• The Class 3 Total Installed Cost (TIC) Estimate (cost of the execution stage)

• The level 2–3 EPC Schedule

This PSDP training module focuses on the Phase 3 "Define" and Phase 4 "Execute" portions

IDENTIFY Determine project feasibility and alignment with business strategy.

1

The class 3 estimate becomes the basis for the Control Budget.

(what the project duration will be)

EVALUATE

2

DEFINE

3

The level 2-3 EPC schedule becomes the basis for the Detail Execution Schedule. The project initiation process begins once the project passes this gate. At this point we want to break the project into manageable units. We do this with coding. The Project Controller must understand the use of each section of code structure, since this structure drives cost collection, performance measurement and data interchange among several company systems.

EXECUTE

4

OPERATE

Select the Finalize scope, cost, Produce an operatStart Up, operate preferred Developschedule and get ing asset, consistent asset to ensure perment Option(s) & project funded with scope, cost and formance specificaExecution schedule tions & return to Strategy. shareholders Key Deliverables

• Valuation Report • Development • Class 1 – Order of Magnitude Estimate (+ / 50%)

Plan

• Class 2 – Screening Estimate (+ / 30%)

• Business Pro-

• Functional Asset posal / Front End Engineering De- • Class 4 – Definisign (FEED) tive Estimate (+ / Package - 10%)

• Performance Assessment

• Class 3 – Control Estimate (+ / 15%)

• Level 2-3 EPC Schedule Key Decision Approve Feasibility Review

Approve Development Plan

AFE approval (Approved For Expenditure)

Operations Acceptance

Value Enhance

Page 23


4.4 CODING STRUCTURES

Coding structures, in their hierarchical and dynamic index forms, are the foundation of all management systems. Project delivery, financial and other corporate business systems & tools exchange relevant data based on defined coding structures at any required level: from detailed execution levels, all the way up to the summary dashboards and executive reporting. In order to meet ever changing and increasing demand of our business, the code values contained in the various coding structures should satisfy several criteria, like being robust, intelligent, intuitive, uniform or expandable. Coding structures and codes also have additional attributes. These attributes can be variable (i.e. code values that change from project to project), or can be fixed (i.e. pre-defined codes applicable to all projects, also referred to as ‘constants’). The degree of adoption, alignment and implementation of coding structures is a key factor in the organizations’ ability to successfully manage and deliver projects in a consistent, reliable and fast, yet flexible and easy way. The same applies for the organizations’ functional lines of managing and reporting on all aspect of its business. The most familiar coding structures are listed below: • EPS (Enterprise Project

Structure) In a broader sense, the EPS is viewed as a reflection of company’s diversification and

Page 24

its market presence. In essence, the EPS breaks an organization down into CSG’s (Customer Sector Groups. EPS facilitates projects portfolio management and prioritization, enterprise wide project and functional reporting, efficient management of resources’ requirements / assignments across projects and business units, etc. • WBS (Work Breakdown

Structure) The WBS is a deliverableoriented hierarchical breakdown of the project scope into smaller, easier managed components. With each descending level of the WBS, the definition of the project scope increases in detail. A WBS is project specific, therefore varies from project to project based on technical, schedule and costs risks and execution strategies. The WBS is typically accompanied by a WBSD (dictionary). • CBS (Cost Breakdown

Structure) A “flat”, pre-defined, enterprise wide dictionary of cost codes (also referred to as Codes of Account). The CBS is identical across all projects and business entities and in itself contains little valuable project performance information, but when tag linked to elements in the project WBS, it forms a structure that facilitates finding, sorting, compiling, summarizing, defining and management of the information the code is linked to. Chapter 5.0 will address the principles of the Codes of

Accounts in more detail. **Note: In project management practice the CBS is defined in two distinct ways: One, already described above, and second, being a project specific code structure that breaks down the Control Budget into small manageable components for cost management purposes. Although the latter is not the WorleyParsons preferred approach, this model can be encountered in some parts of the world. Section ‘4.6 - Segregated CBS/WBS’ concept will elaborate further on this CBS concept.

• OBS (Organizational Breakdown Structure) A hierarchical arrangement of the company’s organization, also depicting reporting relationships (in essence, the Company Org-chart). • RBS (Resources Break-

down Structure) Closely related to OBS, with one major difference that company’s personnel functionally assigned to OBS element, can and does perform different role(s) on projects (Project Org-chart). • Client Codes

List of pre-defined codes provided by the client to facilitate cost and progress reporting and analysis against Client specific breakdown structures. Defined as any of the following, but not limited to: AFE (Approved For Expenditure), OAG (Operational Asset Grouping), Owner’s Cost Centre, Asset Management WBS (closely related to fixed and assets under construction settlement rules), Work Order numbers, etc.

“If I wanted you to understand, I would have explained it better” ~/~ Johan Cruyff


4.5 PROJECT BREAKDOWN CONCEPTS

The previous four sections of this chapter defined the general framework related to the coding structures definitions, major values and required analyses considerations, as well as the gated approach to the project delivery through its lifecycle. As mentioned in section 4.4, WorleyParsons preferred approach for establishing breakdown structures is the integrated WBS-CBS concept. There are no straightforward “rights” or “wrongs” when it comes to breaking down projects into manageable units for cost and progress management purposes; it really comes down to the collective experiences of the various stakeholders to determine what would make the most sense for the project at hand. In general, Cost and Work breakdown structures can be developed following one of the two basic concepts:

• concept that returns separate Cost and Progress status info (Segregated CBS/WBS)

• Concept that returns integrated Cost & Progress status info (Integrated CBS/WBS)

The following sections will address some of the issues related to the degree of synchronization between WBS and CBS coding structures: 4.6 SEGREGATED WBS/ CBS CONCEPT

In this approach, the WBS and CBS are developed independent from each other. Both structures are project specific.

Subsequently, the Project ends up with two different breakdown structures, one for collecting cost and another for measuring progress. Both WBS and CBS are not aligned because they serve a different purpose to different stakeholders, and they don’t correlate with each other at the adequate level for management, control and reporting purposes. While this concept is not favoured by WorleyParsons, it still may take place due to a variety of reasons, such as:

• different project stakeholders having uncoordinated objectives;

• timing of both structures definition may be different;

• there could be a lack of understanding of differences between an asset driven WBS on one side (operating organizations) and execution strategy driven on the other side (project delivery oriented organizations). An example of a scenario that can easily lead to a segregated CBS/WBS set-up is described below: “ A Class 3 TIC estimate is generated in the Define phase and taken up by the cost control function in the Execute phase. The estimate components are rolled-up to a manageable level of detail and adopted as the Control Budget. Subsequently, cost will be collected and controlled against these CBS elements. Because the elements are rolled-up estimating line-items,

odds are that the cost baseline will be commodity-oriented. On the other hand, the project planning function is tasked with the development of the project execution strategy and division of the project scope into smaller, activity based components. They will use a WBS as the tool, and the result will be the work packages and underlying activities logically connected to reflect the way the project progress will be executed, monitored and reported. (activity based elements)”. In such an environment, the scheduler monitors and expedites progress and completion of the detail project activities, while the cost engineer manages the project cost. Interfaces between the two groups are usually minimal. Pro’s

+ Easier to develop a breakdown structure in isolation. Almost everyone is capable to develop a separate CBS and/ or WBS when you only have to consider your own requirements

Page 25


+ Seamless flow of cost data from Estimate Breakdown into the CBS, and from there into Benchmark Database Code Structure

return data across projects for benchmarking or business intelligence reporting purposes

The following graphical representations illustrates how a segregated WBS-CBS coding structures could look like on projects:

+ Relatively straight forward

to develop a WBS when scope and execution strategy are defined

Overall Project Ro ll u p

+ Clients are very familiar with Area / Facility

ld ril ow

Area / Facility

Con’s

/d

this concept

na bil

− No performance measure-

− Regular re-visit of the control

Cost Centre

Scheduling/Planning Function Overall Project

p /d ld ril ow bil

Area / Facility

na

Area / Facility

ity

− Complex environment for Activity Detail

Trade / Discipline

Activity Detail

Activity Detail

Activity Detail

ss re

Trade / Discipline

og pr

and planning to interact/ interface

Page 26

Project Stage

ll u

Project Stage

− No ‘natural’ incentive for cost

Since both WBS and CBS are project specific, it will be difficult to collect consistent

Cost Collection

Cost Management Function

knowledge development of project controls staff — you’re either a cost engineer or a planning engineer

−

Cost Centre

CBS - COST BREAKDOWN STRUCTURE

− One-dimensional skill &

implementing enterprise wide systems.

Cost Centre

Ro

budget by the estimator or quantity surveyor required to confirm the ETC (to-go) and EAC (at-completion) forecasts.

Cost Centre

st

formance-to-date results, and tend to be more of a guessing by involved project stakeholders

Project Stage

Co

− Forecasts not based on per-

Project Stage

ity

ment possible, unable to compare cost and progress against the same breakdown elements

Activity Detail

WBS - WORK BREAKDOWN STRUCTURE Progress Collection


4.7 INTEGRATED WBS/CBS CONCEPTS

The integrated WBS/CBS concept is gaining fast momentum in the Project Delivery community because of its ability to return credible cost and schedule forecasts based on performance-to-date indicators for both expenditure and progress in parallel. Integration of Cost and Work breakdown structures can be achieved via the following two methods: • By having the Cost Breakdown exist within the Work Breakdown Structure.

The lowest level where cost and progress coincide is called the Control Account level:

ning skills. This concept is also known as the “CTR” model is widely used for Asia, Middle East, Australia and some parts of Europe & Africa

The project performance baselines are established in a way that allows full implementation of EVM (Earned Value Methodology) according to the best and recommended practices in project management.

Pro’s

+ Ability to capture and compare cost & progress against the same breakdown elements (see page 28)

In essence, this means capturing, monitoring and control of cost & progress against the same elements at the lowest levels of breakdown structures, and the ability to roll-up and report on project cost and progress (schedule) at any level of detail.

+ Ability to perform Project Performance Analysis (and management).

+ Forecasts-to-go are based on Performance-to-date data & trends (defendable forecast as opposed to ‘best guess’)

From the project controls prospective the Integrated WBS/ CBS concept calls for involvement of personnel with a broader project management and integrated cost and plan-

• By tag-linking ‘projectspecific’ WBS elements to a ’fixed’ CBS (predefined, enterprise wide dictionary of Codes of Accounts).

+ Improved interface between Cost & Schedule groups. Concept requires Schedule and Cost engineers to work together to find a common structure that contains breakdown elements that suit both cost and progress requirements.

Integration via the WBS

ll u p/ dr d ill na

Project Stage

ow

Project Stage

bil i ty og pr

Area / Facility

& st co

Area / Facility

s re pe s( an rm

Trade / Discipline

rf o

Trade / Discipline

) ce

~/~ Author unknown.

Overall Project

Ro

“He who smiles in a crisis has found someone to blame”

To create an integrated WBS/ CBS, the various team functions will have to work together to find a common structure that contains breakdown elements that would satisfy both cost and schedule requirements, taken all execution strategies and client/contract requirements into consideration.

Control Account

Control Account

Control Account

Control Account

Control Account

Example integrated WBS - CBS Cost & Progress

Page 27

CODE

CONTROL ACCOUNT

CONTROL BUDGET

COST TO DATE

% COMPLETE

ESTIMATE TO COMPLETE

ESTIMATE AT COMPLETION

UNDER-/ OVERRUN

CONTRACT ‘A’ A-100

Site Survey

$4,000

$5,750

100%

$0

$5,750

$1,750

A-200

Prepare Site Design

$4,500

$5,600

100%

$0

$5,600

$1,100

A-300

Procurement Equipment/Materials

$1,000

$750

100%

$0

$750

-$250

A-400

Commissioning BTS

$750

$0

0%

$750

$750

$0

A-300

Transmission Connection

$750

$0

0%

$750

$750

$0

A-400

Integrate BTS

$500

$0

0%

$500

$500

$0

$11,500

$12,100

70.3%

$2,000

$14,100

$2,600

TOTAL CONTRACT "A" CONTRACT ‘B’ B-100

Procurement Equipment/Materials

$4,000

$5,250

100%

$0

$5,250

$1,250

B-200

Equipment Installation

$1,000

$1,250

80%

$200

$1,450

$450

B-300

Antennae Installation

$2,000

$1,800

80%

$400

$2,200

$200

B-400

Installation Feeder Lines

$4,000

$3,500

90%

$400

$3,900

-$100

B-500

Testing Antennae Line System

$1,500

$1,600

33%

$1,000

$2,600

$1,100

B-600

Installation BTS Cabinet

$1,000

$800

50%

$500

$1,300

$300

TOTAL CONTRACT "B"

$13,500

$14,200

81.5%

$2,500

$16,700

$3,200

$15,000

$13,500

100%

$0

$13,500

-$1,500

$1,000

$0

0%

$1,000

$1,000

$0

$500

$0

0%

$500

$500

$0

$16,500

$13,500

90.9%

$1,500

$15,000

-$1,500

$41,500

$39,800

85.5%

$6,000

$45,800

$4,300

$39,800

85.5%

$6,000

$45,800

-$1,925

EPC MANAGENT & SUPPORT O-100

Procurement Long Lead Items

O-200

Produce Site Folder

O-300

Site Assessment TOTAL MANAGEMENT & SUPPORT

TOTAL CONTINGENCY (15%) CONTROL BUDGET

$6,225 $47,725


Page 28

EXAMPLE PERFORMANCE REPORT INTEGRATED CBS/WBS

+ Seamless roll-over Control Budget elements - Control Schedule activities

+ Creates a multi-dimensional skill level in the Project Controls Group. (Very effective way to gain an understanding of the complexities of each other’s tasks is to let a Cost Engineer develop and monitor a schedule and a Schedule Engineer manage a Control Budget). Con’s

− Many Clients are not familiar with this concept (see Segregated Concept) and mostly do need some encouragement before they fully comprehend and accept this concept.

− The Contract Strategy needs to be firmed up before the CBS/WBS can be locked in.

− Developing an Integrated CBS/WBS breakdown structures requires all-round EPC Cost and Schedule capability.

− Two-dimensional; slicing & “Few things are harder to put up with than the annoyance of a good example” ~/~ Mark Twain.

dicing, sorting, filtering or summarizing of project data is restricted to the elements and levels of the WBS.

− Project specific, structure, therefore it will be difficult to collect consistent return data across projects for benchmarking or business intelligence reporting purposes Project specific WBS + Predefined Enterprise codes. This concept facilitates a tailormade work scope breakdown for each individual project (through the variable WBS components), but still enables com-

parison, data collection, crossWBS elements reporting as well as statistical & benchmarking analyses across multiple projects via a ‘common denominator’ (fixed CoAs).

As described in section 4.4, Project management practice defines Cost Breakdown Structures in two distinct ways: one, the project specific budget breakdown (CBS = Project Control Budget), and second, the enterprise-wide coding structure (CBS = pre-defined cost codes across the company ). The latter is the basis for the WBS+ enterprise codes model. With this approach, Control Account = WBS + CBS (+ Attributes, as and if required). The Project Management Institute (PMI) defines Control Accounts as follows: “a management control point where scope, budget (resource plans), actual cost and schedule are integrated and compared to earned value for performance measurement “ (PMI PMBoK 4th Edition). While not directly included in the control account, other cod-

ing structures can be used as attributes or mapping codes. When cross-referenced, all these matrices of EPS, WBS, OBS, CBS, RBS, etc., create a variety of control points enabling management and reporting by any selection criteria, level of detail, or angle, a project and/or business may require. (such as shown in the pyramid representation). The next page shows the principle of the Integrated WBS-CBS concept using the examples of page 25 and 27. The project specific WBS+CBS+ attributes method has all the benefits that comes with an integrated WBS/CBS model plus: • It allows for the transfer of data between enterprise-wide systems and tools within WorleyParsons. • it has the potential to collect consistent return data across projects for benchmarking or business intelligence reporting purposes Examples of both WBS/CBS integration models are shown on page 30 - 31.

Page 29

Page 30


Example: CBS exists in WBS

OVERAL PROJECT

1

EPCM

PROCUREMENT & LOGISTICS

FACILITY

FACILITY

2

AREA / SUB FACILITY

AREA / SUB FACILITY

AREA / SUB FACILITY

AREA / SUB FACILITY

3

DETAIL ENGINEERING

PROCUREMENT SERVICES

EPC MANAGEMENT & SUPPORT

PROCUREMENT

LOGISTICS

DETAIL ENGINEERING

4

DISCIPLINE

DISCIPLINE

DISCIPLINE

DISCIPLINE

DISCIPLINE

5

CTR / CONTROL ACCOUNT



PROCUREMENT PACKAGES

SERVICE CONTRACTS

6

CONTRACTORS’ DETAILED CBS/WBS LEVELS

EPCM CONTRACTOR

VENDORS‘ / SUPPLIERS’ DETAILED CBS/WBS LEVELS

PROCUREMENT & LOGISTICS CONTRACTS

PROCUREMENT

FABRICATION

INSTALLATION / ERECTION

DISCIPLINE

DISCIPLINE

DISCIPLINE

DISCIPLINE

CONTROL ACCOUNT


CONSTRUCTION WORKPACKS


CONTRACTORS‘ DETAILED CBS/WBS LEVELS

EPC CONTRACT A

DETAIL ENGINEERING

PROCUREMENT

FABRICATION

INSTALLATION / ERECTION

DISCIPLINE

DISCIPLINE

DISCIPLINE

DISCIPLINE

CONTROL ACCOUNT




CONTRACTORS‘ DETAILED CBS/WBS LEVELS

EPC CONTRACT B


Plant 3

Example Relational WBS+CBS WBS : a hierarchical structure

CBS : Pre-defined Enterprise-wide codes

WBS + CBS = Control Account

Civil

Unit 2.3

Structural

Area 2.1.3

Buildings

Unit 2.2 WP2.1.1.5.1 Plant 1

Unit 2.1

Area 2.1.2

Equipment Piping

WP2.1.1.4.1

Electrical Insulation

Area 2.1.1

WP2.1.1.3.1 EPCM Services WP2.1.1.2.1

Constr.Indirects Capital O/H

Level 4

Level 3

Level 2

Level 1

Page 31

Level 0

WP2.1.1.1.1

Contingency

Project

Plant 2

Project

Unit 2.4


4.8

MANAGING EPCM CONTRACTS

they see fit (don’t dictate how to execute their work), without handing them a ‘blank cheque’ as they still need to fit in the overall integrated WBS-CBS. Another benefit is that cost & progress will flow in ‘bottom-up’, allowing roll-up through the breakdowns of the respective contracts into the control accounts. This also provides more transparency and the ability to drill down to each individual contract and monitor performance for both the overall project as well as the individual contracts.

The role of the EPCm project controller is to manage cost and schedule for all commitments on behalf of the client. Since the EPCm contract is just one of the many contracts, the project controller responsible for the overall EPC needs to take an umbrella-view, and treat the EPCM contractor ( WorleyParsons ) in the same manner as the other contracts awarded under the TIC budget From an EPCM perspective, the level of control is usually the Control Account level.. Below Control Account level, each vendor / contractor is free to develop its own breakdown structure in as much detail as they desire, as long as it satisfies the criteria of data roll-up to the EPC Control Account level. The advantage of this approach is that the respective contractors will maintain the flexibility to breakdown their work scope as

Page 32

4.9 CONTROL ACCOUNTS AND COST CENTRES

Both Segregated and Integrated breakdown models are following the same hierarchical principles:

• project actuals are collected at the lower levels in the breakdown structure

• Ability to roll up/drill down along the breakdown levels to suit the required level of detail reporting. Cost Centre - Unit of activity or area of responsibility against which costs are accumulated; defined sections in the corporate system, representing units of responsibility as well as accounting units. (AACEI –RP 10S-90) Cost Centres are not be confused with Control Accounts. A Control Account is the breakdown element in the project breakdown structure where cost

and progress elements coincide. In the segregated WBS-CBS example on page 26, the lowest CBS elements can be considered cost centres, while the control account level is the ‘top of the pyramid’; the overall project level (WBS and CBS will not “meet” until rolled up to project level 1). The examples for the integrated WBS-CBS models on page 30 and 31 shows that the cost centres and control accounts are one and the same. In the Integrated WBS-CBS concept, the control account is the backbone of the cost control and progress reporting system. It is not uncommon, however, that cost and progress are captured at a different, more detailed level, against different WBS or CBS elements. In that event, the project data needs to be rolled up to control account level in order to feed into the integrated WBS-CBS. In other words, there is flexibility to expand the integrated WBSCBS structure below control account level to meet specific cost and planning requirements, as long as they can be summarized back at the control account levels. A good example of this can be found in engineering scopes, where progress is usually captured at the deliverable level, and cost is recorded at the higher level, i.e. by groups or types of deliverables.

“Success always occurs in private, and failure in full view” ~/~ Murphy's Law


4.10 CONTRACT ADMINISTRATION AND COST CONTROL

In a ‘self-performing’ EPC environment, the Project Controller manages the overall project cost and schedule. This includes both the ‘selfperforming’ portion as well as the sub-contracted work scope. Detail management of the subcontracts (variation control, progress verification, invoicing & payment authorization etc) is usually the responsibility of the Contract Administration group, who feeds the cost and sched-

ule updates back to Cost Control and Planning. As mentioned before, in an EPCm environment the coretask of Project Controls is to manage commitments & contracts on behalf of the client. This can cause some confusion between the Cost Control and Contract Administration groups; managing the Overall Project Cost & Schedule performance on an EPCm will be, in principle, the same as managing all the contracts and commitments! One common way to address

this, is to combine the Contract Administrators’ role and the Cost Controllers’ role, and include a Project Controls representative in the EPCm siteteam to verify the contractors cost-, schedule and progress claims as well as the validity of the Change Requests and site instructions. There are various alternative scenarios possible, but the aim should always be to have a single-point accountability for cost and schedule management, and that there is no overlap or ‘double-dip’ of tasks and responsibilities between the Contract Administration and Project Controls functions.

“ Project Management is far too important to leave to the Project Managers” ~/~ David Packard Page 33


5.0 ENTERPRISE CODING STRUCTURES

There are almost as many different Work Breakdown Structures as there are projects. This is not surprising, Work Breakdown Structures are tailored to the specific nature and reporting requirements of projects while, at the same time, trying to comply with financial codes to meet accounting requirements.

Fig. 5.1 Example CTR Concept WBS Code

WBS Level

1-0-00-0-0-00

Project

Project X

1-2-00-0-0-00

Project Stage

Engineering

1-2-44-0-0-00

Area / Facility

Central Processing Platform

1-2-44-1-0-00

Sub Area / Facility Cellar Deck

1-2.44-1-6-00

Discipline

Piping

1-2-44-1-6-08

CTR

Isometrics

Due to their unique characteristics, a project WBS can seldom be recycled in full for the next project. All projects are the product of team endeavors in which the flow of project cost, resource, progress, and other information is essential to project success or failure.

Project Performance management is facilitated by measuring expenditure and progress against the same project breakdown elements. As explained in the previous chapter, the Project Breakdown element where cost and progress coincide is called a Control Account. Within WorleyParsons there are currently two commonly used methods for creating Control Accounts: the CTR Method and the WBS+CBS+attributes method.

e.g

Deliverable Register (Progress) Time Cards - (Manhour Expenditure)

Using the CTR method A CTR (Cost, Time & Resources) is the lowest level in an integrated WBS/CBS where cost and progress coincide. Below CTR level, WBS and CBS can split into separate detailed levels e.g deliverables (WBS) or Expenditure categories (CBS). Because it is a level of the WBS, CTRs are always project specific. To drive some consistency across projects, some companies impose the use of standard CTRs where possible. In terms of return-data generation, the CTR model is considered “two-dimensional”; slicing & dicing, sorting, filtering or summarizing of project data is restricted to the elements and

levels of the WBS. The CTR model is widely used for Engineering scopes in Asia, Middle East, Australia and some parts of Europe & Africa. Fig 5.1 illustrates the principle of the CTR concept Using the WBS+CBS Method With this method, control accounts are a combination of a WBS code and a CBS code.

The WBS code is unique to the project but the CBS must be selected from a company standard list of Cost Codes. Additional code attributes will add more detail to the Control Account. An example is shown below in Fig 5.2

Fig. 5.2 Example WBS+CBS+Attributes Concept WBS

CBS

Attribute (e.g Activity Detail Code)

Code

WBS Level

e.g

Code

CBS Level

1-0-00-0

Project

Project X

W000000

EPCM Services

1-2-00-0

Phase

Execute

W030000

Engineering

07.000 Design Documents

1-2-44-0

Area / Facility

CP Platform

W030300

Piping

07.300 Drawings

1-2-44-1

Sub Area

Cellar Deck

W030302

Piping Design

+

Control Account

Page 34

Code

+

ADC Level

07-311 Isometrics


“The sooner you begin coding the later you finish.” ~/~ Author Unknown

The ‘relationship’ between the project specific WBS and predefined codes/attributes makes it possible to generate flexible, but consistent return-data for individual projects and across multiple projects. It is therefore also considered a multidimensional structure.

CBS+ Attributes).

The WBS+CBS+Attributes model is very common in Canada, the US, Latin America and some parts of Europe.

In addition, there is a growing business demand to collect consistent return data for the purpose of benchmarking and business intelligence reporting.

Global Project Execution Effective project cost and schedule performance reporting is heavily reliant on the coding structure that breaks down the project scope and budgets. As long as projects are executed in a single location/entity, this can be achieved via either a project (or location) specific coding structure (CTR model) or via a combination of a flexible and pre-defined codes (WBS +

However, for projects that are executed via work share across multiple entities, it is imperative to globally align methods, procedures, systems as well as the coding structures that support these methodologies.

The CTR model does not have the ability to accommodate all these enterprise-wide requirements, because CTRs are an integrated part (level) of the project WBS, and it is a keyrequirement for projects to keep the WBS project specific.

CTRs that would cater for every possible project environment. For a company that executes projects globally across all industries, these were not viable options. The WBS+CBS+Attributes model on the other hand, can potentially meet all the these requirements providing that the CBS and some of the key attributes are globally adopted and consistently applied across all projects. The enterprise-codes will then act as a ’constant’ across projects. (see Fig 5.3)

The combination of a WBS code and global enterprise codes has the following advantages:

• It provides the project with a

To achieve this by using the CTR method, it would either require the use of Standard Work Breakdown Structures, or introducing a list of standard

Fig. 5.3

Ability to Control...

Control Account

WBS

CBS

coding structure that meets the specific requirements of the project, i.e. size, complexity, execution strategy, control and reporting requirements, etc. Attributes

EPS

OBS

RBS

CCS

Single project, single entity Multiple projects, single entity Single project, multiple entities Multiple projects, Multiple entities Statistics, Business Intelligence Global Benchmarking Minimum Requirement Required Not Required Project specific Code Structure Location specific Code Structure

Legend (refer to Chapter 4.4) WBS CBS EPS OBS RBS CCS

Work Breakdown Structure Cost Breakdown Structure Enterprise Project Structure Organization Breakdown Structure Resource Breakdown Structure Client Coding Structure

Strategic Directive

Global Code Structure

Page 35


• It provides a common understanding and quick interpretation of historic project data and facilitates the collection of this data at a meaningful level of detail.

• It allows for the transfer of data between enterprise-wide systems and tools within WorleyParsons. For these reasons, WorleyParsons adopted the WBS+CBS+ Attributes model as the preferred project breakdown method going forward.

It is designed as a four tiered structure in a 1-2-2-2 coding format with the first character representing the major code (alpha).

porting by its components EPCM Services and TIC codes share the same format. Global Code of Accounts most recent revision is published on EMS (Project Controls - Document PCP-0008)

The second, third and fourth tiers are numeric, as shown below.

For project controls purposes, the Codes of Accounts is always used in combination with a WBS code and some additional project and/or enterprise attribute –codes.

The samples below were taken from the Global CoA dictionary. It shows that the code composition is uniform at any tier enabling sorting, grouping and re-

A Civil Works B --- Spare ---

N O

--- Spare ---

AND ATTRIBUTES

C --- Spare --D Structural Steel

P

Pipelines

Q

--- Spare ---

In order to support this method, a set of enterprise-wide coding structures were developed and rolled out to the Project Delivery group;

E

--- Spare ---

R

Other Direct Costs

F

Buildings & Architectural

S

Construction Indirect Costs

T

--- Spare ---

U

--- Spare ----- Spare ---

5.1 ENTERPRISE CODES

• An enterprise-wide CBS - the Global Code of Accounts (CoA)

• A set of Attribute Codes to provide more detail and reporting flexibility to Engineering and Management services scopes: the Activity Detail Codes (ADC)

• A set of Attribute Codes to provide more detail and reporting flexibility to TIC (Total Installed Cost) scopes: the Cost Type (CT)

• A set of standard Expenditure Categories to be able to specify and distinct project expenditure (EC) Global Codes of Accounts WorleyParsons Global Code of Accounts format is an alphanumeric, seven characters long code.

G Mechanical H Turnkey Packages I

Infrastructure

V

J

Marine & Offshore

W EPCM & Consulting Services X Taxes & Duties

K Piping L Electrical M Instrumentation

Alpha X Tier 1

Y Z

Numeric X

Numeric

X

X

Tier 2

X

Tier 3

Contingency & Escalation Owner's Costs

Numeric X

X

CoA Composition

Tier 4

W000000 EPCM & Consulting Services W 030000 Engineering (and Sciences) W030200 Mechanical W030201 Mechanical Engineering (Example Services CoA)

W030202 Mechanical Design

“Nothing is impossible for the person who doesn't have to do it.”

A000000 Civil Works A040000

Earthwork A040500

(Example Civil Works CoA)

Page 36

Protection & Coating

Excavation A040501

Excavation - Machine

A040502

Excavation - Hand

~/~ Ruud Lubbers


5.2 ATTRIBUTE CODES

The codes contained in the WBS and CoA coding structures are usually not sufficient to address the level of detail that is required to manage and monitor projects. For instance, example 5.2 on page 34 shows that the combination WBS Code 1-2-44-1 and CoA W030302 would only return cost and progress data for the Piping Design scope on the Cellar Deck.; it will not give us the ability to drill down deeper. In order to create that next level of detail, the WBS & CoA codes need to be “tag-linked” to additional attribute codes. These attributes can be projectspecific and/or pre-defined by the company. This section will address the 3 main attribute-codes that are enterprise pre-defined; the Activity Detail Code, the Cost Type Code and the Expenditure Category Code. Activity Detail Codes Activity Detail Codes (ADC) provide additional detail to the W-series of the CoAs (Engineering & Management services), allowing:

• A lower than a discipline level (CoA) of data capture by type of activity or type of deliverable/task performed on projects.

WBS Code (Project Specific)

1-2-44-1 Cellar Deck

• Analysis of project(s) by types of deliverables or tasks performed and their relative ratios, in addition to discipline based breakdown

support development and maintenance of the historical data, benchmarking and engineering norms by type of deliverable or task.

• Analysis of performance at the disciplines’ types of deliverable, i.e. studies, specifications, drawings, etc. by comparison of earned value and actual data capture

At the same time, flexibility is built into the ADCs design in a way that supports all project sizes. For instance, for very small project (<200 services hours) and secondments, ADC 00-000 General Activity can be used for all Control Accounts.

• An enterprise wide collection and maintenance of historical data for benchmarking purposes and establishment of standard norms per type of activity / deliverable / task

The guiding design principles of activity detail codes, both format and content, where optimization of number of codes, simplicity and intuitiveness on one side, and statistical/analytical value addition on the other side. The ADCs may be classified into two broad sets: NonEngineering and Engineering ADCs, mainly defined by their association with the services CoAs. The Engineering ADCs are developed as a matrix of common codes across the disciplines, as and where applicable. (see extract on the following page). This concept enables measurement of each discipline’s input when sharing the same deliverable(s). Maximizing the number of projects using ADCs is required to

CoA Code (EMS PCP-0008)

+

W030302 Piping Design

For small projects in the range of <201<999 services hours, using just the ADC summary codes could be a preferred option (XX-000 Project Initiation to Project Close Out). The XX-900 Other and Custom Line Items ADC codes are only used on projects (typically larger projects) where custom line items are added, which still require time capture but do not have statistical significance Only for projects that exceeds 1000 services hours, it will be required to use the Detail ADCs. The use of Non-Engineering ADCs is left to projects to choose between 00-000 General Activity or the detailed ADC, with the project size at about 3000 services hours as possible decision point. Activity Detail Codes can be accessed in EMS under label PCP-0035.

ADC Code (EMS PCP-0035)

+

07-311 Isometrics

Fig. 5.4 - Example Engineering Control Account

Page 37

Page 38


Extract Engineering ADC List (Ref. PCP-0035)

W030100 ADC Label

W030200

W030300 ADC Piping

W030400

ADC Process

ADC Mechanical

ADC

Electrical

07-100 PFDs / UFDs

07-100 PFDs/UFDs

07-100 PFDs / UFDs

07-200 Process P&IDs / Utility P&IDs

07-200 Process / Utility P&IDs

07-200 Process / Utility P&IDs 07-200 Process / Utility P&IDs 07-200 Process / Utility P&IDs

W030500 ADC

Instrumentation

07-000 Design Doc’s & Drawings

07-200 Process / Utility P&IDs

07-300 Dwgs, Diagrams & Schematics 07-301 Cause & Effect Diagrams

07-301 Cause & Effect Diagrams

07-303 Plot Plans

07-303 Plot Plans

07-305 Hazard. Area Class.


07-303 Plot Plans

07-303 Plot Plans

07-303 Plot Plans



07-307 GAs / Orthos / Details 07-307 GAs / Orthos / Details 07-307 GAs / Orthos / Details

07-307 GAs / Orthos / Details

07-308 Equipment Drawings 07-309 HVAC Drawings 07-311 ISOs (2D) 07-314 S/L - Single Line Drawings 07-315 Diagrams

07-315 Diagrams

07-315 Diagrams

07-316 Schem/Conn/Terminations 07-316 Schem/Conn/Terminations 07-318 Substations / Switchyards 07-320 T & D Lines 07-322 Location Instr. Drawings 07-324 Loop/Logic Controls Dwgs 07-326 Heat Tracing 07-328 U/G Drawings

07-326 Heat Tracing


Cost Type Codes The Cost Type Code provides additional information to the TIC Management codes (which means all codes except the W series). The following cost types are used within WorleyParsons: Cost Type

Code

E - Equipment

91-000

M - Material

92-000

L - Labour

93-000

S - Sub Contracts

94-000

F - Freight

95-000

R - Rental

96-000

- - - Spare - - -

97-000

The Cost Types are in the same format as the Activity Detail Codes (nn-nnn) and will always start with 9. (see example 5.5) WorleyParsons preferred Project Controls and estimating tools contain fields to capture Cost Type codes. In GBS, the only use of the Cost Type will be for direct hire labour (93-000).

Currently, WorleyParsons has around 750 employees that can be classified as direct hire Construction labour, and a significant rise is anticipated for 20122016 in the Oil Sands marketplace and the Improve sector. As required for benchmarking purposes, direct hire labour should be associated with the Construction service that was provided to the project or with the commodity/equipment item that was worked on. For that reason, it was kept separate from the Services labour (W-series), traditionally the code-section that captures timecost on “self-performing” work scopes. Instead, the combination of CoA + Cost Type is used to capture the labour associated with direct hire. This will link the direct hire with the corresponding CoA on which they have dedicated their labour. In order to achieve this, Cost Type 93-000 Labour needed to be broken down in more detailed Construction labour Cost types, e.g:

93-010

Boilermakers

93-020

Bricklayers

93-030

Carpenters...etc

A complete list of Construction Labour Cost Type Codes can be accessed in EMS under label PCP-0008. In example 5.6 below, the Code of Account for a Slurry Pump is G041102 and the cost type will correspond to the type of direct hire (93-070 Electrician). Consequently the installation costs associated with the Pump are captured with this piece of equipment which will is necessary for the benchmarking tool.

Cost Types - Labour Direct Hire

“There is no “I” in Team. But there is no “U” either.” ~/~ Jean Giraudoux

As per recent Corporate strategy announcements, WorleyParsons will be expanding its portfolio to include, among others, direct hire construction labour (“blue-collar” services) in selected markets. Although direct hire construction labour was historically limited to the WorleyParsons Cord Group in Canada, it is expected to see growth of Direct Hire in the developed world, namely USA, UK and Australia.




+

K020100 CS Pipe

Cost Type (EMS PCP-0035)

+

92-000 M - Material

Fig. 5.5 - Example Procurement Control Account WBS Code (Project Specific)



+

G041102 Slurry Pumps

Cost Type (EMS PCP-0008)

+

93-070 L - Electrician

Fig. 5.6 - Example Mechanical Installation Control Account

Page 39


Expenditure Categories and Expenditure Types Expenditure Categories and Expenditure Types are used by the Finance/Accounts function to store labor and non-labor transactions against a project in a consistent way, globally across the organization. GBS, or alternate Finance system, records transactions against a project. These transactions are posted against an Expenditure Type in the master list. The Expenditure Type reflects the type of transaction being incurred at detailed level, such as Travel – Taxis or Travel – Airfares.

As such, it groups Expenditure Types such as Travel -Taxis and Travel -Airfares into Expenditure Category Travel.

The global Master list of Expenditure Categories and Expenditure Types is owned by Corporate Finance, and any change to the list must first be approved by Corporate Finance.

There are about 70-80 Expenditure Categories. Relation with Codes of Accounts

The list contains between 750800 different Expenditure types.

All labor and non-labor transactions in Finance are linked to an Expenditure Type and grouped by Expenditure Categories.

The Expenditure Category acts as a parent to a group of Expenditure Types for mapping to their Charts of Accounts.

Usually, Projects only have between 5 to 10 Non Labour expense categories they require




+

W030302 Piping Design

to report on. These expense categories are contained in the Codes of Accounts (W-series) Project Controls rely on Finance to provide them with monthly expense ‘actuals’. In order to provide the summary detail levels required for Project reporting, the Finance Expense Categories are mapped against the CoA W-series categories. The complete list of the Finance Expense Types and Categories codes can be accessed for reference purposes in EMS under label FIP-0386.

Expense Category (FIP-0386)

ADC Code (EMS PCP-0035)

+

07-311 Isometrics

+

9000 Labour - regular

Finance Enterprise Code WBS Code (Project Specific)

1-3-03-2 Project Common

Page 40

Expense Category (FIP-0386)


+

W909200 Expenses

+

9200 Travel

“Nothing is fool-proof to a sufficiently talented fool .” ~/~ Bill Arnett


6 . 0 P R O J E C T I N I T I AT I O N

“Eighty percent of success is showing up”. ~/~ Woody Allen

6.1 BASELINES

• Cost Baseline (the original Control Budget)

The project baseline is defined as the agreed original cost budget and project schedule and is used to measure how performance deviates from the original plan. Performance management will only be meaningful if there is well defined and documented baseline prior to project execution commencement . Establishing the initial baseline for a large project is a difficult and time consuming effort, but it pays many dividends in terms of understanding the full scope of the project and being realistic about the job that lies ahead. Many cost overruns and schedule slippages are the result of not fully recognizing and consequently, underestimating the scope and complexity of the work to be done. There are two types of Baselines;

• Schedule Baseline (the agreed and approved Engineering Services or EPC schedule) The techniques and processes to develop project baselines will be addressed in more detail in the schedule Development and Cost Management chapters. 6.2 TOOL SELECTION

To measure project performance against approved baselines, WorleyParsons have selected tools which enables them to 1) manage the EPCM / PMC projects (TIC management) on behalf of a client 2) execute and manage Engineering & Procurement (EP) services projects (self performing contracts) WorleyParsons utilizes the

following tools:

Engineering / Project Management Services:

• InControl V8.0 / V10 - Integrated deliverable management/document control system that generates planned and actual progress status against Engineering & Project Management deliverables

• GBS (Oracle) OTL — Captures time-cost at Control Account level • Primavera P6 - Schedule performance (planned, actual and forecasts) as well as graphic reporting (BarCharts, S-Curves, Histograms etc.) based on progress actuals generated by InControl. TIC Management:

• Primavera 3.1, 5.0 or 6.0 (see Engineering / Procurement Services).

Page 41


• PrimaVera Risk - tool for conducting schedule risk assessments. The system uses Monte Carlo simulation to show the many possible outcomes (end dates) in the project – as well as the likelihood they are to occur

• InControl v10 / Prediction Plus - Applications designed to manage TIC performance on behalf of the client (from the detail engineering stage through to commissioning and close-out).

• CAMS (Contract Administration Management System) centralizes contract information (commitment value, variance management and contract correspondence and cash flowmanagement).

• Intergraph SmartPlant Materials – Software for Procurement and materials management. (Material Specifications, Requisitioning, Evaluation, PO generation, Expediting, Fabrication

Page 42

management, Store/ Warehouse management, Invoice reconciliation) • CMT - Completions Management Tool for planning and monitoring of commissioning activities, as well as logging of all evidences necessary to the process • @Risk - WorleyParsons uses @RISK as its preferred tool to conduct cost risk assessments. The system uses Monte Carlo simulation to show the many possible outcomes (Cost At Completion) in the project – as well as the likelihood they are to occur. • Quest - Estimating system designed as a tool to aid estimators in the preparation of major capital cost estimates. (bottom up) • Kbase Aspentech - Estimating tool that supports conceptual and detailed cost estimates over the project lifecycle. (top down)

• Accenta - tool to manage internal commercial project performance (PCS) used mainly in US/Europe

• ProComs - tool to manage internal commercial project performance (PCS) used in Asia/Middle East • Hyperion - Hyperion is financial performance management software; used for financial consolidation and accounting functions at WorleyParsons. Having a central (global) database, it makes for consistent financial reporting and ease of consolidation across the global business. In order to produce timely reports and results, the systems used by WorleyParsons allow for data transfer between each application, without the need for re-keying information. The flow of information on a EPCM/PMC is as follows: The flow of information is as shown in on page 42.

“They don’t make bugs like Bunny anymore” ~/~ Olav Mjelde

Enterprise Management System (EMS) Knowledge Management Systems and Project Websites

Hyperion

@Risk

Quest / Kbase Aspentech

CAMS

Management Reporting & Budget Tracking

Capital Cost Risk Analysis

Capital Cost Estimating

Contracts Administration System

Oracle / GBS

InControl V8.0 / V10 Prediction Plus

CMT

Timecards & Financial Management System

V8/10: Cost & Progress Management

Completions Management Tool

(Engineering & Project Management Services)

Prediction Plus: Cost & Progress Management (Total Installed Cost)

Primavera P6 Primavera Risk

Project Commercial Performance (Internal PCS)

Planning/Scheduling Schedule Risk Analysis

SmartPlant Materials - Procurement - Materials Mngm’t - Expediting - Logistics Control - Stores Mngm’t

Client Documentation

Document & Data Management

Document & Data Management

Engineering Applications

OmniSafe HSE Management System

Page 43

Finance &

SmartPlant Foundation

Various

EDS TOOLKIT

Procurement &

Engineering &

Document / Data

Administration

Project Controls Systems

Construction

Design Systems

Management

Systems

Systems

Systems

Client Systems


Accenta / ProComs


7.0 SCHEDULE DEVELOPMENT METHODOLOGY

There is a difference between managing schedules for projects in a Definition Phase and projects in an Execution Phase. This is because these project phases are driven by different project objectives and deliverables (defining the Scope of Works versus executing the SOW) Evaluate / Define Phase Schedules: The objective of the Definition Phase is to deliver a defined Scope of Works for the Execution Phase (what needs to be done?), a Class 3 Estimate

7.1 EVALUATE / DEFINE PHASE (FEED SCHEDULES) An Evaluate/Define phase schedule (FEED) has different drivers compared to an Execution Phase schedule and therefore they require a different management and performance measurement approach.

A typical 6-months FEED Schedule could look something like the simplified example on page 39: A FEED schedule is usually back-loaded in terms of progress achievement, while the expenditure will be either frontloaded or, at best, linear. For most of the duration of the project, the Performance curve (Expenditure versus Progress) of a Select/Define project will show a ‘distorted’ performance picture.

Especially in the first few months, the dotted red progress-curve will be lagging behind the solid blue expenditure curve; usually an indicator that the project spends more than it

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(how much is it going to cost?) and a Level 3 EPC Schedule (how long is it going to take?). In order to achieve this, the project team studies various Technical and Project Execution options. As the project progresses, the various technical options are reviewed, and subsequently selected for further definition or stopped all together. By continuously narrowing down the options, new workfronts will open up, and study efforts will concentrate on get-

accomplishes, and therefore suggesting that the project is under-performing and in trouble. This is not necessarily the case; in order to get the project in a position where it can make some key-decisions on the best way forward, a significant number of hours will have to be expended up front to study the various technical and project execution options & scenarios. Many deliverables that support these different technical options could be held up at the various “Issue for Review” or “for Comments” stages, waiting for a directive on how to proceed. Subsequently, the project has relatively low physical progress to show. The example shows that at the time of the HAZOP (4 months into the schedule) the project is still only 30% complete while already 70% of the budget has been expended. However, during the HAZOP, (Hazardous Operations workshop) some key decisions were made, and the progress curve changes behaviour rapidly:

ting more definition into the selected technical options. The focus of a Definition Phase Project Schedule is to ensure that the project is ’hitting’ the deliverable milestones that are driving these key decisions. Execute Phase Schedules: The objective of the Execution Phase is to issue AFC Documentation & Drawings, and expedite Equipment & Materials delivery to support the Procurement / Fabrication / Construction / Commissioning process.

work-fronts have opened up, deliverables are finalized with relatively little effort (or cancelled all together), and the red progress-curve has gone up steeply (from 30 to 90% in 6 weeks). The blue expenditure curve stays pretty much linear throughout the duration of the project.. Therefore, the common performance calculation methods (comparison Cost against Achievement) need to be applied with care to avoid unnecessary panic and recovery scheduling exercises. To present a more reliable schedule performance picture, the planner could consider one of the following measures: • the introduction of greater

level of detail (additional progress gates or schedule activities) • monitoring the milestone ’hit-

rate’ against Planned Milestone dates as opposed to just measuring physical progress of weighted activities against Planned Progress.

“If the minimum wasn't acceptable it wouldn't be called the minimum”. ~/~ George Muncaster


EXAMPLE MILESTONE SCHEDULE FORMAT (FEED)

1 JAN

2 FEB

3 MAR

DEFINE MOBILISATION DATA EQUIPMENT COMPLETED COLLECTION LAYOUT START FEED

2 wks

4 wks

8 wks

PFD’s

10 wks

4 APR IFC HAZOP

HAZID

12 wks

14 wks 16 wks

5 MAY CLIENT TECH REVIEW

6 JUN FINAL REPORTS / MTO IFDPACKAGE

KEY PROCESS DELIVERABLES FROZEN

20 wks

22 wks

7 JUL

24 wks

26 wks FEED CLOSE-OUT

IDC / BASIS OF DESIGN / EQUIP.LIST DESIGN.REVIEW

TIC COST ESTIMATE / EPC SCHEDULE

20 wks

START BUDGET ENQUIRIES

BUDGET QUOTATIONS 3D MODEL 30% COMPLETE

START 3D MODEL

3D MODEL 80% COMPLETE

PRELIM MTO

24 Wks IFD LAY-OUTS

INSTALLATION / REVIEW CONCEPT CONSTRUCTION STUDIES PHILOSOPHY

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PROGRESS 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

STRUCTURAL ANALYSIS / DESIGN 60% PRELIM MTO

24 Wks IFD DRAWINGS ANALYSIS / DESIGN 100%

START STRUCTURAL ANALYSIS / DESIGN

FEED – 90% COMPLETE

FEED – 30% COMPLETE

EXPENDITURE - 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%


7.2

EXECUTE PHASE

The most common method for developing EPC schedules is the “Single Stakeholder”- driven EPC schedule development. This principle usually works as follows (simplified): Construction-driven Schedule Determine what the end-date is, and then work back from that date to determine the Commissioning, Construction, Procurement and Engineering activities. or Engineering-driven Schedule Reverse of the Construction Schedule, start with the Engineering AFC deliverables and work forward. Although both techniques are commonly applied across the globe, they both represent a rather one-dimensional view of the project delivery process, and in a “Fast-Track” Project execution environment, these techniques can result in some ‘tensed’ interfaces between the various schedule stakeholders.

(note: Fast Track means overlapping project stages, in other words, engineering and procuring are still ongoing when the construction is already started) Examples of projects where schedules have been compressed towards the start-date or end date are plentiful, and has often resulted in:

• Unrealistic/Unachievable Milestone dates at either the front-end or the back-end of the project

• No commitment (“dream on”!), or at best, reluctant buy-in (“un-realistic, but we’ll do our best…”) from the other stake-holders.

• Almost from day one, a continuous cycle of Recovery Plans and revised Recovery Plans

• Inefficiencies in Engineering, Procurement, Construction and Commissioning work processes due to constant moving targets.

• An environment of missed deadlines, excuses, finger-

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pointing between client, contractors & Project Team members and, subsequently large Project staff turn-over (personal frustration or victim of a ‘blame’ culture). EPC-driven Schedule An alternative method is the “Multi-stakeholder”-driven scheduling technique, an interactive schedule development process that involves all schedule stakeholders (Engineering, Procurement, Construction & Commissioning), without handing any of them a “blank cheque” starting point. This is an important difference compared to the traditional “Single Stakeholder” schedule techniques, where the outcome usually favours one stakeholder only (e.g. Construction) and could result in inefficient workprocesses in other project stages. So how does this process work? The following pages will show a step-by-step outline of this schedule development method:


Development Step

1

Step : Workshop: ‘Execution Strategy-On-APage’

Description

By: Project Stakeholders Method: Workshop Inputs: Contractual project milestones, key dates and end-dates Major / Critical Equipment list; Permit requirements

“The sooner you get behind schedule, the more time you have to make it up.”

Contract Award Lead times Procurement PO award lead times; Benchmarks Equipment / Materials delivery lead-times; Benchmarks Engineering and Construction timing Key deliverables: Target EPC execution strategy Preliminary Authority Approval / Permitting strategy

~/~ Author Unknown

Preliminary Procurement strategy Preliminary Contract strategy Close Out: High level ‘One-page’ EPC execution strategy to kick off the Level 3 schedule development process (Steps 2-7).

Step

2:

Develop First Pass EPC Schedule and Preliminary Critical Path

By: Planner Method: Forward Pass Inputs: Execution Strategy-On-A-Page as developed in Step 1 Preliminary Equipment list; Procurement PO award lead times Benchmarks Equipment / Materials delivery lead-times; Key deliverables: Preliminary ETA dates (Estimate Time Arrival) Equipment & Materials Preliminary early start (ES) dates of the construction-activity ‘windows’ based on ETA dates equipment & materials Preliminary engineering schedule for AFC deliverables issue-dates to support achieving the ETA dates and Construction ES dates Close Out: Preliminary Level 3 EPC schedule, with pre-determined “constraints”, to be used as basis for schedule development by all individual stakeholders (as opposed to the ‘blank piece of paper’ approach.)

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EXAMPLE ‘EPC EXECUTION-STRATEGY-ON-A-PAGE’ 2009 A

KEY MILESTONES Contract Award Mechanical Completion Ready for Operation PRE-CONTRACT ACTIVITIES PDS Set Up Geotechnical & Topographical Survey Completed Permits & Work Authorization System Established Office / Warehouses / Laydown areas Control Valves Specifications available

M

J

J

A

2010 S

N

D

J

F

M

A

M

J

J

2011 A

S

O

N

D

J

F

M

A

M

J

J

A

S

O

N

Contract Award Mechanical Completion Ready For Operation

PDS Set Up Geotechnical & Topographical Survey Completed Permits & Work Authorization System Established Office / Warehouses / Laydown areas Control Valves Specifications available

PERMITS Environmantal Agreement Fire Authority Agreeement Public Health Authority Agreement Construction Permit DETAILED ENGINEERING

O

Environmantal Agreement Fire Authority Agreeement Public Health Authority Agreement Construction Permit 1st Rev P&ID

HAZOP HAZOP P&ID

P&ID AFC

Process Prelim Struct GA's

Prelim M TO Final GA's

Final M TO

Civil M echanical DS

30% M odel Review 60% M odel Review Final GA's

Final M TO

Piping Electrical DS

SLD's Prelim M TO

Final Lay-outs

Final M TO

Electrical Control Valve DS

Instrument PROCUREMENT Columns Reactors Waste Heat Boilers Exchangers Pumps Control Valves Switchgears DCS/ESD Systems Bulk Piping, valves & fittings Bulk Steel Bulk Electrical Cables Instrument Bulks CONTRACTS SOW / MTO available NOI / Bid list process for contractors Civil Contractor Structural Contractor Scaffolding contractor Mechanical/Piping Contractor E&I Contractor CONSTRUCTION Site excavation, Remedial and Preparation Site Ready for Construction Contractor mobilization Substation erection Substation Equipment installation Substation Commissioning Underground Services Structural Steel - off site fabrication Structural Steel - Erection Mechanical Equipment Installation Piping Prefabrication Piping Erection E& I works Systems Hand-over Commissioning

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Prelim M TO Final DCS/ESD I/O List Final M TO

Crtitical Vendor Data Ex Works Delivery On Site

1st Delivery 1st Delivery 1st Delivery 1st Delivery

SOW / MTO available

Site Ready for Construction

D


Development Step

Step

3:

Develop high level Construction Schedule

Description

By: Planner / Construction Manager / Procurement Manager Method: Forward Pass Inputs: Construction / Completions strategy based on ES and ETA date restrictions determined in Step 2 High level construction tasks and durations (at this stage, Activitywindows rather than detailed Tasks) High level constructability review (consideration of large equipment installation and access).

“How long is a minute depends on which side of the bathroom door you are on.”

Benchmarks Construction manhours to cross-check durations. The “Construction - Procurement” schedule ‘busts’ identified in Step 2 Key Deliverables: Level 3 construction schedule supported by achievable ETA dates Conversion ETA dates into ROS dates (Required on Site) Engineering AFC target dates Construction / Fabrication drawings & documents Close-out :

~/~ Albert Einstein

A “Construction/Procurement Agreed” Level 3 construction baseline schedule based on achievable ROS dates

Step

4:

Develop Procurement Schedule

By: Planner / Procurement Manager / Engineering Manager Method: Backward Pass Inputs: ROS dates as per construction schedule developed in Step 3 Firmed up procurement PO / delivery lead time cycle. The “Procurement - Engineering” schedule ‘busts’ identified in Step 3. Key Deliverables: Procurement schedule with achievable PO Award and ROS dates Expediting plan for Material & Equipment Delivery on Site Vendor data expediting plan to support AFC dates construction / fabrication drawings & docs Close-out: An “Engineering/Construction/Procurement” agreed procurement plan with realistic ROS dates and vendor data expediting targets

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Development Step

Step

5:

Develop Engineering Schedule

Description

By: Planner / Engineering Manager / Lead Engineers Method: Backward Pass Inputs: Target RFQ dates as per procurement schedule developed in Step 4 Target AFC dates for construction / fabrication drawings as construction schedule developed in Step 3 Benchmarks Engineering manhours to cross-check durations. The “Engineering - Construction ” schedule ‘busts’ identified in Step 2 Key Deliverables: Milestone dates and priorities for RFQ input-deliverables. Milestone dates and priorities for engineering AFC deliverables Close-out : Schedule Risk Range/Analysis workshop with all internal project stakeholders (ref Chapter 16 - Risk Analysis) Schedule Risk Analysis Report Level 3 EPC Baseline schedule with agreed engineering, procurement and construction targets and priorities

Step

6:

Contracting Plan

By: Planner / Project Manager / Contracts Manager Method: Backward Pass Inputs: EPC schedule as developed in Step 2 to 5 Final or Preliminary contract strategy Lead time contract award evaluation & approval Turn-around cycle Identified ITB Packages (and level of required definition of the packages) The “Contracts – Engineering” schedule busts as a result of the ITB package definition and Issue dates requirements. Key Deliverables: Identified engineering deliverables required for input in ITB Packages Milestones ITB packages issue / evaluation & contract award dates Mobilisation dates of the Contractors Close-out : Schedule Risk Range/Analysis Workshop with all internal project stakeholders WorleyParsons Level 3 EPCM Baseline schedule – Issued For Client Comments

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“If it wasn't for the 'last minute', nothing would get done”. ~/~ Graig Fitzpatrick

Development Step

Step

7:

Alignment Client Schedule targets

Description

By: Planner / EPCM team / Client Method: Reconciliation workshop “WorleyParsons EPCM schedule against contractual (Client) milestone dates”. Inputs: EPC schedule as developed in Step 2 to 6 Contractual milestones (Client Schedule) The identified “Client– WorleyParsons” schedule ‘busts’. Key Deliverables: Agreement between WorleyParsons and the Client regarding resolving the ‘busts’ and possible acceleration scenarios. Early agreement between WorleyParsons and the Client on procurement and contract strategies that are required to support the schedule Close-out : WorleyParsons and Client approved EPCM Baseline schedule

It is important that the Control Schedule be at a level of detail that can be intelligently reviewed by management; too much detail gets beyond human comprehension and can contain illogical and arbitrary constraints. The level of detail for the control schedule is the Control Account level. Scheduling below Control Account levels (Deliverables/Job Cards/ Procured items etc) is considered detail scheduling.

7.3 PROJECT BASELINE: CONTROL SCHEDULE

A major effort during the set-up process is developing the work breakdown structure, which is the basis for the schedule.

There are multiple levels of schedules and various forms of schedules. The Control Schedule is, as its name implies, the schedule that is used for master control of the project.

For Evaluate/Define (FEED) schedules this task falls on WorleyParsons (self-performing contract), while in an EPCM schedule environment, the Detail Schedule will be the responsibility of the various contractors.

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In this event, the Detail scheduling will be done separately from the project EPC schedule, and levels must summarize to control account level in the Master Schedule.

“If you're 6 months late on a milestone due next week but really believe you can make it, you're probably a project manager.”

The Detail Schedule will breakdown each Control Account in activities representing deliverables and/or detailed construction/procurement tasks. The Detail Schedule activities must follow the CPM method (Critical Path Method) and should be a closed network (dependencies and relationships). Detailed Resource-units, unitquantities and costs are managed by the respective Sub contractors nad reported up to EPCM management. However, it is still important that the control schedule carry sufficient resource information to allow meaningful analysis of manpower levels and the establishment of progress S-curves. 7.4 CONTROL SCHEDULE: ENGINEERING

~/~ Author Unknown

quantities and costs are assigned to each schedule-activity and their totals should match the approved budget quantity/ cost of that in the control budget. Control Account progress and Scheduled completion dates for engineering deliverables are derived from a weighted deliverable register. Milestones

Activities/Tasks The level of detail for engineering activities is the Control Account – level. Resource-units (manhours),

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As a minimum, all interfaces with procurement and construction should be represented in the schedule as driving milestones, and linked to the procurement and construction schedule. Select/Define-phase (FEED) schedules should represent all major internal / external review dates, the completion dates of the Critical Path deliverables (impact on project completion

date), and the key deliverables that will open up the various work-fronts (impact on progress). Sub-consultant Scope When the engineering scope is subcontracted, the subcontracted work scope will appear as a weighted ‘one-line’ – item on the control schedule. Resource units can either be manhours or manhour cost as a distributed portion of a unit of measurement (UoM) such as per drawing. Detailed schedule management of this work scope is the subcontractor’s responsibility. Engineering Supervision & Support Engineering management and support services should be reflected as line-items in the “General” section.


7.5 CONTROL SCHEDULE: PROCUREMENT

The procurement scope can be divided into 2 categories, namely Procurement services (all efforts leading up to Purchase Order award ) and the actual management of the Procurement commitments (technical & commercial management and expediting/close outs of the awarded POs). Procurement Services The principle workflow for Procurement Services is identical for all major equipment and material packages in both the Define (Long lead items only) and Execute phase:

• RFQ Preparation (Prepare specification package for Vendors to bid on)

• Issue for Enquiry (submit Specification package to the short listed Vendors for bid )

“ To know the road ahead, ask those coming back” ~/~ Chinese Proverb

• Technical/Commercial Bid Evaluation (evaluate the received bids on technical compliance and on best price)

• Award Recommendations (issue recommended Vendor to the client)

• Purchase Order Award (Prepare and issue the Purchase Order)

• Vendor Data Review (Expedite, receive, and coordinate distribution of Vendor Data to the Package Engineers for incorporation into the design drawings in order to issue them with AFC status)

• ETA (the Estimated Time of Arrival of the procured item) The Procurement schedule can represented in the following two formats: 1. Procurement package broken down into the 7 key Services activities. Enables the Planner to report the status of each individual commitment. 2. Procurement Packages categorized by each of the 7 Procurement Steps. In this option the commitments will be listed and scheduled under each of the Procurement Services Step headers. (see example on page 52 - 53) Both options are acceptable means of representing a Procurement Schedule. However, from an EPCM Control Schedule management perspective, this last representation has some distinct advantages. Categorizing the commitments by Procurement Steps enables the Planner to quickly review the status of all commitments and monitor their movements as they progress through the 7 Steps (and act accordingly). Also, during the schedule development period, where the Critical Path is constantly changing, the “Procurement Step” lay-out could be very helpful to the Planner. Rather than scroll down through pages of individual Purchase Orders & associated activities,

this lay-out format immediately identifies which commitment (s) and Procurement Steps are causing the schedule ’pain’. Schedule Weightings Resource-units and quantities and cost are assigned to each schedule activity and their totals should match the approved budget quantity/cost of that in the control budget. Procurement Supervision & Support All efforts associated with coordinating and managing the procurement Scope of Works will be assigned to a general “Procurement Supervision & Support” Control Account Manufacturing Schedule. Detail scheduling of the actual manufacturing process of each Purchase Order is the responsibility of the Vendor/Supplier The Procurement Package will appear as a weighted ‘one-line’ Control account item in the Control schedule. Detail scheduling will be done separately from the project EPC schedule, but will have to feed into in the Control Schedule.

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EXAMPLE PROCUREMENT PLAN CATEGORIZED BY PROCUREMENT PACKAGE 2010 4

5

6

501 - Suction Scrubber

RFQ - Request For Quotation BR - Bids Received TBE/CBE - Techn./Comm.Bid Evaluation AR - PO Award Recommendations PO - Purchase Order Award VDR - Vendor Data Review ETA - Estimate Time Arrival

7

8

9

2011

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29

9

10 11 12 13

RFQ - Suction Scrubber BR - Suction Scrubber TBE/CBE - Suction Scrubber AR - Suction Scrubber PO - Suction Scrubber VDR - Suction Scrubber ETA - Air Cooler (43 wks)

RFQ - Air Cooler

503 - Air Cooler


BR - Air Cooler

TBE/CBE - Air Cooler AR - Air Cooler PO - Air Cooler VDR - Air Cooler

801 - Control Valves


RFQ - Control Valves

ETA - Air Cooler (43 wks)

BR - Control Valves TBE/CBE - Control Valves AR - Control Valves PO - Control Valves VDR - Control Valves ETA - Control Valves (42 wks)

EXAMPLE PROCUREMENT PLAN CATEGORIZED BY PROCUREMENT STEPS 2010 4

RFQ - Request For Quotation

RFQ - Suction Scrubber RFQ - Air Cooler RFQ - Control Valves RFQ - Switchgears RFQ - DCS/ESD Systems BR - Bids Received

BR - Suction Scrubber BR - Air Cooler BR - Control Valves BR - Switchgears BR - DCS/ESD Systems TBE/CBE - Techn./Comm. Bid Evaluation

TBE/CBE - Suction Scrubber TBE/CBE - Air Cooler TBE/CBE - Control Valves TBE/CBE - Switchgears TBE/CBE - DCS/ESD Systems

AR - PO Award Recommendations

AR - Suction Scrubber AR - Air Cooler AR - Control Valves AR - Switchgears AR - DCS/ESD Systems

PO - Purchase Order Award

PO - Suction Scrubber PO - Air Cooler PO - Control Valves PO - Switchgears PO - DCS/ESD Systems

ETA - Estimate Time Arrival

ETA - Suction Scrubber (45 wks) ETA - Air Cooler (43 wks) ETA - Control Valves (42 wks) ETA - Switchgears (41 wks) ETA - DCS/ESD Systems (40 wks) VDR - Vendor Data Review

VDR - Suction Scrubber VDR - Air Cooler VDR - Control Valves VDR - Switchgears VDR - DCS/ESD Systems

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5

6

7

8

9

2011

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29

9

10 11 12 13

RFQ - Suction Scrubber RFQ - Air Cooler RFQ - Control Valves RFQ - Switchgears RFQ - DCS/ESD Systems BR - Suction Scrubber BR - Air Cooler BR - Control Valves BR - Switchgears BR - DCS/ESD Systems TBE/CBE - Suction Scrubber TBE/CBE - Air Cooler TBE/CBE - Control Valves TBE/CBE - Switchgears TBE/CBE - DCS/ESD Systems AR - Suction Scrubber AR - Air Cooler AR - Control Valves AR - Switchgears AR - DCS/ESD Systems PO - Suction Scrubber PO - Air Cooler PO - Control Valves PO - Switchgears PO - DCS/ESD Systems ETA - Suction Scrubber (45 wks) ETA - Air Cooler (43 wks) ETA - Control Valves (42 wks) ETA - Switchgears (41 wks) ETA - DCS/ESD Systems (40 wks) VDR - Suction Scrubber VDR - Air Cooler VDR - Control Valves VDR - Switchgears VDR - DCS/ESD Systems


7.6 CONTROL SCHEDULE: CONSTRUCTION

Work Packages / Job Cards The level of detail for Construction activities in the Control Schedule is usually the Construction work package level.

“Everyone can win, unless there is a second entry”. ~/~ Author Unknown

To facilitate this, the EPCM Construction team will develop a Construction Work Pack register together with the respective responsible contractors. Considering that they are executing the work, their buy-in to the schedule and WBS will be essential. The contractor will then break down the Work Packages into either Job Cards and Job Card Tasks (Brownfield works) or detailed Construction Tasks (Greenfield works). Each Construction task or Job Card is assigned an individual Control Budget in the agreed UoM, the sum of all Tasks / Job Cards budgets will add up to the Work Package budget. Progress & Schedule management of the Detailed Construction tasks will be the contractors’ responsibility. At this level, the contractor will report progress, summarized to Work Pack level, together with the updated schedule dates and forecasts. These updates are transferred to the respective Control Accounts in the Control Schedule.

Construction Supervision & Support All efforts associated with coordinating and managing the Construction Scope of Works will be assigned to a general “Construction Supervision & Support” Control Account. Detail Construction Look ahead Schedules. The construction detail schedule can be developed on a 3-month look-ahead basis, and will contain a greater level of detail. This will be the responsibility of the respective Contractors. Although this is done separately from the overall Control Schedule, the detail schedule must still summarize to Control Account levels in the Control Schedule. The activities are to be scheduled according the CPM method (Critical Path Method) and should therefore form a closed network (dependencies and relationships). EPCM Schedule : Integrate or Interface? Due to improved ICT platforms (connectivity) and web-based technology, most of the current scheduling tools and systems are quite capable of integrating the activities of the EPC Control Schedule and the various Construction Detail Schedules in one combined, integrated project schedule. Although this is definitely the preferred method for self per-

forming EPC contracts, it is not recommended to implement this concept on EPCM/PMC projects. There are 3 major reasons why WorleyParsons prefers to keep the Control Schedule and the Detailed Construction schedule separate in an EPCM/PMC environment: 1. Contractors Flexibility The levels below Control Account level are considered detail scheduling and this is normally the responsibility of the Contractors. Contractors, especially the ones who have been awarded Lump Sum contracts, will insist on having a high level of flexibility to breakdown and control their Construction Detail schedule as they see fit. The EPCM planner tends not to interfere too much in the Contractors’ Detail Schedule, simply because it can lead to potential ‘efficiency-loss’ claims from the contractors further down the track. (such as re-work and/or resource “stand-by time” Change Requests as a consequence of earlier ’scheduleinput’ from the EPCM planner.) Interfacing with the Control Schedule (rather than integrating) will provide the Contractors with that flexibility. The only requirement is that their level detailed schedule can be rolled-up to the Control Account levels in the Control Schedule.

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2. Schedule Administration By having one integrated schedule, all the schedule-settings, resource and activity coding dictionaries should be identical across all contracts to enable either ‘direct access’ inputs from the Contractors or seamless importing of their schedule updates into the overall Control Schedule. This could turn into an administrative nightmare for the responsible EPCM planner.

7.7 CONTROL SCHEDULE: COMMISSIONING

Commissioning Activities At some point the ‘geographic’ based construction schedule need to be replaced by a precommissioning / commissioning system driven schedule. Typically, this transition occurs when bulk construction is approx. 60—70% complete. Commissioning activities are represented on the project mas-

Especially when the project progresses, and scope changes, resource allocations, recoveryscenarios and re-schedule exercises will occur, the EPCM planner could spend more time reconciling all the schedule updates (closing network gaps, identifying danglers**, repairing activity relationships, reshuffling resources, resource-units & quantities), than analyzing the actual results.

or Electronic links for third party updates will compromise the “checks & balances” for the provided input.

3. Data Integrity - Direct access

** dangler - activity that has no successor or predecessor

ter plan on commissioning system level. (System Hand-over Packages).

It is important that the contractor’s schedule activities and logic include all necessary steps such as; MC dates, punch-outs, Client & Contractor’s walk-downs, acceptance certificates. If not coordinated, these activities can cause unnecessary delays

The commissioning systems and their budgets are determined by the Commissioning manager together with the Commissioning Contractor, and are based on the agreed Commissioning Execution plan. The Commissioning contractor will break down systems into activities with logic between each system activity.

The popular Software Development phrase “garbage in, garbage out” is definitely applicable to electronic links or direct third-party access: it is an environment where it is very easy for garbage to enter the system...

Commissioning Milestones All interfaces with the construction-schedule should be represented in the schedule as driving milestones.

“The nice thing about not planning is that failure comes as a complete surprise rather than being preceded by a period of worry and depression.” ~ /~ Author Unknown

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8.0 SCHEDULE CONTROL

Schedule Performance will be measured against the agreed Baseline Schedule. The Project-schedule is updated periodically using progress information gathered from the various ‘scope-owners’.

“ No task will be started until the last possible minute” ~/~ Student’s Law

After each update the schedule will be recalculated and the return results needs to be analyzed to determine how well the project performs against the Schedule baseline. 8.1 SCHEDULE ANALYSIS

WorleyParsons uses the Precedence Diagram method (PDM) to calculate networks with the Critical Path Method (CPM). It is important that the project controller is familiar with the base-principles of the various Schedule Analysis tools and techniques as well as the associated acronyms and abbreviations.

Network Logic Relationships A Schedule Network Diagram is built by organizing the activities in a logical sequence and assign dependencies (relationships) between the scheduled activities. (creating Successors and Predecessors). The 4 commonly used relationship types are: Finish-to-Start (FS) FS A

B

The activity B can only start once the activity A has been concluded. Finish-to-Finish (FF)

A FF B

Schedule Network Logic A Schedule network diagrams is an arrangement of activities involved in completing a project along with:

In this relationship, activity B cannot finish until the preceding activity A is completed.

A properly laid out project schedule network diagram always flows from left to right to reflect the chronology of all project works Start Dates A Start date is a date on which the particular schedule activity is anticipated to be started. Although this sounds obvious, a project schedule can contain up to 3 different ‘Start Dates’:

•

Early Start Date

•

Late Start Date

•

Actual Start Date

The Early Start (ES) date represents the earliest possible point of time at which the schedule activity can begin. The Late Start (LS) date represents the latest point at which the schedule activity may be kicked off without causing delays in the project completion date. The Actual Start (AS) date marks the beginning of work on a scheduled activity.

Start-to-Finish (SF) Finish Dates

• the sequence in which activi-

A

ties must be done

SF

• all logical relationships that may exist between the activities (successor/predecessor tasks), and

• an estimate of the time required to complete each of them. No matter how well the baseline schedule is developed, something will happen which may change it dramatically. A closed Schedule Network Logic (no open ends or danglers) will help to quickly assess the impact of such events or event chains on the overall Completion date.

B

The term Finish date refers to the date in which the particular schedule activity is anticipated to be completed.

Activity B cannot be completed before Activity A has started.

As with the Start dates, we can also differentiate three possible Finish dates:

Start-to-Start (SS)

•

Early Finish Date

•

Late Finish Date

•

Actual Finish Date

A SS B Activity B cannot begin before its successor task A has started.

The Early Finish (EF) date is the earliest possible point of time at which the schedule activity may potentially be completed .

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The Late Finish (LF) date is the latest date at which the schedule work activity may be completed without causing delays in the project completion date. The Actual Finish (AF) date marks the completion of work on a scheduled activity. While Actual Start and Finish dates are set in stone, the early and late Start & Finish dates will likely change multiple times throughout the life cycle of the project. For example, during the progression of the project, the project could fall behind or move ahead of schedule, which could ultimately lead to a modification of the project plan. This could result in new Early and Late Start and/or Finish dates. In this day and age, ‘state-ofthe-art’ scheduling tools are utilized to perform the schedule

Backward Pass Calculation

calculations after incorporating all updates. However, the calculation principles still remain the same as in the ‘manual’ days:

Late Finish dates LF Successor - duration Successor = LF Predecessor (s)

A Forward Pass is used to determine and calculate the early start and finish dates by starting at the project start and working forwards through the schedule network logic (see Fig 8.1)

Late Start dates LF - Activity duration +1 Critical Path

Forward Pass Calculation

A Critical Path is a string of activities in the Logical Network Path that has no flexibility in terms of schedule slippage.

Early Start dates: ES Predecessor + duration Predecessor = ES Successor

In other words, a delay in any of the activities in a critical path will result in a slippage of the Overall Project completion date.

Early Finish dates: ES + Activity duration –1 A Backward Pass is used to determine and calculate the late start and finish dates by starting at the project’s scheduled end date and working backwards through the schedule network logic (see Fig 8.1)

This amount of flexibility can also be referred to by the term ‘Float’. Critical Path activities are therefore referred to as ‘zero’-float activities. (see Fig 8.1)

Figure 8.1 - Example Network CRITICAL PATH ACTIVITIES A01 - A05 : ‘ZERO’ FLOAT ES EF ES EF ES 1

A01

5

6

5 DAYS

A02

10

11

5 DAYS

A03

EF

ES

14

15

4 DAYS

A04

EF

ES

15

16

1 DAY

EF A05

20

5 DAYS

1

5

6

10

11

14

15

15

16

20

LS

LF

LS

LF

LS

LF

LS

LF

LS

LF

ES

EF

ES

EF

6

A06

8

FF = 1 DAY

10

3 DAYS

11

13

14

15

LS

LF

LS

LF

ES

EF

ES

EF

ES

EF

7

8

9

10

A08

TF = 4 DAYS

2 DAYS

11

6

2 DAYS

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A07

A09 2 DAYS

A10

12

3 DAYS

9

10

11

12

13

15

LS

LF

LS

LF

LS

LF

TF = 3 DAYS


“All activities will fill their allotted time” ~/~ Parkinson Law

Total Float

Total float is the number of days an activity may be delayed without interfering with the projected completion date. During baseline plan development, whenever possible, the project should build float into the schedule to allow for unforeseen events such as adverse weather conditions, labour disputes or other issues that could affect the schedule. Project Controllers must be aware of the Total Float time they have available to them at the beginning of the project, and the numbers of days float should be monitored and reported by the project controller at all times.

By monitoring how many days float are available in the schedule, the project controller can advise project management on potential risk on critical activities. In order to determine the total float, Project Controls use the Critical Path method to calculate all ES, EF, LS and LF dates. The calculation-rule to determine the Total Float of each activity is :

delayed without delaying the early start of any immediately following schedule activities.

The calculation-rule to determine Free Float of each activity is: (Delta ES date initial Activity and ES date succeeding Activity) - duration initial Activity = FF (see Figure 8.1)

LF date - EF date = TF (see Figure 8.1) Free Float Free Float is the amount of time that a schedule activity can be

Page 59


Fig 8.3 S-Curve / Histogram (Combined)

Fig 8.2 Bar Chart

8.2 SCHEDULE REPORTS In terms of Schedule output, the Project Controller should be familiar with the 3 most common report types:

individual schedule activity descriptions, the Early and Late dates (optional), the activity duration and the % Complete.

projected S-Curve to determine whether or the project is being completed on time and on budget. In this context, resources can be the cumulative incurred cost of the project, the number of man hours earned at any given stage in the project, or the expenditure of raw materials for construction or assembly.

•

Bar Chart

•

S-Curve

On the right hand side, the activities are represented by dateplaced horizontal bars. (see Fig 8.2)

•

Histogram

Resource S-Curve

Bar chart A bar chart (also referred to as a bar graph or a Gantt chart) is a graphical representation of scheduled activities . A bar chart is easy to read, easy to understand, and provides the ability for easy comparison of all provided data. In a typical bar chart , the left side of the chart displays, as a minimum, the work breakdown structure components or the

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An S-Curve (also called a Sigmoid Curve) is a mathematical process that results in a S shaped curve . The S-Curve is used as a means of representing the planned expenditures of resources over project duration against the real-time resource expenditure (Actuals) and/or earned expenditure (Earned Value) This is important to project management in that it can be used to monitor the project as it progresses and compare it to the

Resource Histogram A resource histogram provides a quick and easy “stacked bar” view of exactly what resources are available, what resources are being utilized at the present time (or at whatever time the project management team is seeking information on) and how long those resources are expected to be tied up. Fig 8.3 shows an example of a combined S-Curve / Histogram.

“The person who says it will take the longest and cost the most is the only one with a clue how to do the job.” ~/~ Anonymous


9 . 0 P R O G R E S S M E AS U R E M E N T

The key to performance measurement is the objective assessment of work in progress in relation to the approved baseline All work is either completed, in progress or not yet started.

Therefore, the only work elements to be concerned about are those that are actually in progress.

Schedule and Cost analysis.

The method of measuring progress is the “Earned Value”method.

Completed work presents no performance measurement problem since these work packages have been closed, the budget has been earned and progress been reported.

The Earned Value method measures the value of accomplished work, and is calculated as follows:

Future work will not be measured until the work gets underway.

% Complete x Current Budget.

Earned Value =

Earned Value can be considered the “Missing Link” between

Figure 9-1 illustrates the difficulty in trying to understand performance without Earned Values, by using the familiar “Budget versus Actuals” presentation. At first glance, it would appear that the project is in good shape from a cost standpoint. The chart seems to indicate that cost performance (blue line) is better than planned (red line) and that it is likely that the project is going to under run its budget.

ACTUAL vs BUDGET

250

TIME NOW

PLANNED PROJECT COMPLETION

200

COST VARIANCE

$ OR MANHRS

150

100

PLANNED (BUDGET) 50

ACTUALS

0

TIME

Figure 9.1

Page 61


What is not clear is whether the variance between budget and actual costs is because of good cost performance or simply due to the fact that work is not getting done.

It compares actual cost of work done to the budgeted cost of work planned. What is missing is the budgeted cost for work done commonly referred to as “Earned Value”.

The problem with the chart is that it compares apples and oranges.

When earned value is taken into consideration, the cost picture clears up because the

cost and schedule components can be addressed separately. Figure 9-2 now shows that the project is behind schedule and under running cost and that the cost under run is only about half that depicted in figure 9-1.

COST/SCHEDULE PERFORMANCE FIGURE 1.2 250

TIME NOW

PLANNED PROJECT COMPLETION

200

EXPECTED PROJECT COMPLETION

SCHEDULE VARIANCE

150

COST VARIANCE

$ OR MANHRS

100

50

PLANNED (BUDGET) ACTUALS EARNED VALUE

0

TIME

Figure 9.2 Earned value is the key to understanding project status, because it represents the value of work done.

at Control Account level, it is likely that physical progress is collected at a lower level (e.g Deliverable /Job Card Level).

The main objective of the progress measurement system is to generate Earned Values for each Control Account.

The responsibility for progress collection and verification on each Control Account lays with the Control Account owners.

At Control Account level, performance data can be summarized to the higher levels in the WBS/CBS for reporting or analysis purposes.

Since the nature of each task varies, several methods of progress measurement can be applicable.

Although cost and schedule performance is always managed

Page 62

When contracts are managed on behalf of the client (EPCM environment), the Breakdown

Structures and method of progress measurement of the respective (sub) contractors will be subject to approval by WorleyParsons prior to contract commencement. The criterion should always be that their breakdown structures must be able to interface with the Control Account level in the Overall Project WBS. This chapter will address the different methods for calculating progress in each stage of the project.


9.1 ENGINEERING: INCREMENTAL MILESTONE METHOD

The Deliverables Register is the basic document for Engineering progress measurement. It contains all drawings and documents required to complete the project, arranged by discipline and Control Account. The scope of each Engineering discipline is broken down in Control Accounts. An engineering Control Account is usually a collection of similar type deliverables (e.g P&ID’s, Isometrics etc) and is also

known as a CTR (Cost, Time, Resources).

rent Control Account budget. 2) The sum of all Control Accounts within a Discipline must add up to the Discipline budget.

All Control Accounts are assigned with a budget (in $ and/ or manhours) and broken down in deliverables (drawings/ documents).

3) The sum of all Disciplinebudgets must add up to the Engineering Services control budget.

All deliverables are ‘weighted’ in the Control Account by distributing the Control Account budget over the deliverables.

Status ‘Control-gates’ are assigned to each deliverable in order to achieve the 100 % completion stage.

In summary, the weighting principle for Engineering Services scopes works as follows (bottom –up):

These ‘Control-gates’ are equal to the issue-stages of a drawing/document and could be allocated as follows:

1) The sum of all deliverables budgets within a Control Account must add up to the cur-

Table 9.1 - Example Definition Phase (FEED) – Incremental Milestone

Rules of Credit (Issue –Stages)

Incr.%

Cum. %

STA – Start

10%

10%

IDC – Issued for Inter Discipline Check

30%

40%

ICC – Issued For Client Comments

20%

60%

INC – Incorporate Client Comments

10%

70%

IFB – Issued For Bid

20%

90%

IFD – Issued For Design

10%

100%

Table 9.2 - Example Execution Phase – Incremental Milestone

Rules of Credit (Issue –Stages)

Incr.%

Cum. %

STA – Start

10%

10%

IDC – Issued for Inter Discipline Check

30%

40%

ICC – Issued For Client Comments

20%

60%

INC – Incorporate Client Comments

10%

70%

IFA – Issued For Approval

20%

90%

AFC – Approved For Construction

10%

Progress can be claimed up to the next control-gate, however to proceed through the gate, the deliverable must be physically issued (with a transmittal to show for it). The progress of each deliverable will be summarized at Control Account Level and trans-

ferred into the Control Schedule and the Control Budget to reflect the overall status of work. Progress Measurement is being prepared using the ‘In-house’ tool InControl which will have CTRs from all different disciplines detailed out at each deliverables level.

100%

There can be a direct link between InControl and external specialist Document Control software to allow exchange of information about deliverables status The cut-off time for weekly report information is usually Close of Business of the last day of the week.

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3D Model progressing

No.

3D modelling and the extracted deliverables represents a significant portion of the work of the engineering group on projects (could add up to 15 - 20% of the expended hours). As such, being able to effectively assess the progress on these activities is critical to the measurement of overall projects. The incremental ‘issue-gate’ method described on the previous page is designed for deliverable progressing, however, a significant amount of 3D modelling effort is carried out prior to deliverables being extracted. Software such as InControl does not provide the detailed progressing at 3D model level. 3D Model Progress measurement is based on the following principles: 1. 3D Model is divided into major disciplines. See example below. Major Disciplines

Weight %

A/G Piping

44

Equipment

15

Buildings

5

UG & Roads

10

Civil & Structural

16

Electrical

6

Instruments

4

Total

100

2. Each Discipline is broken down into different physical Areas & Workpacks. 3. The area workpacks are divided into 12 key activities (CTRs) which are given individual weightings. (see following A/G Piping example)

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CTR Description

Weight % 3%

1

Check discipline database set-up

2

% lines modelled in area (max)

65%

3

Model checked to issued P&IDs AFD

5%

4

30% model review

5%

5

Pipe supports added

1%

6

Stress checked

5%

7

60% model review

5%

8

Clash check complete

5%

9

Isos for are AFC - add

2%

10

Inst vendor drawings - Code 1 or 2 Checked

2%

11

90% model review

1%

12

No holds

1%

3D Model Progress shall be updated by Model Co-ordinator in Piping department and shall be communicated to the Planning team on the cut off date and updated in InControl where they are called up as weighted LOE (level of Effort) line-items. Pipe Stress Pipe Stress analysis progress shall be measured on key gates through which the stress analysis of a line will undergo. The lines are categorised as per their criticality and are called up as weighted LOE lineitems in InControl. The report containing all the lines and their status for each gate shall be generated by Piping from Stress Software and

submitted to Planning for update in InControl. Following are the key gates for Pipe stress progress: Key Gates

Weight %

Stress lines extracted from Model

10

Stress lines modelled into Caesar

10

Preliminary stress lines issued to Piping

20

Stress lines reissued with holds

40

Stress lines issued; all holds cleared

30

Stress lines issued & checked

5

relevant isometrics

25

Total

100

“ We don’t see things as they are; we see them as we are” ~/~ Anais Nin


9.2 PROCUREMENT: INCREMENTAL MILESTONE METHOD

Procurement progress can be divided in 4 categories :

• Progress of procurement services (procurement support provided to the client).

• Progress of materials / equipment purchased by WorleyParsons (managing the manufacturing & delivery process).

• Progress of materials / equipment purchased by WorleyParsons on behalf of the Client and free-issued to Contractor (managing the manufacturing & delivery process).

• Progress of procurement when it is part of a subcontracted scope of work (Procurement / Fabrication/ Installation sub contract). The measurement method for Procurement Progress is identical to the “Deliverable Register” gate principles. Based on the agreed Procurement Strategy, a Procurement Package register, grouped by Discipline, will be developed and issued for client approval.

“By the time you're eighty years old you've learned everything. You only have to remember it.”

A procurement package consist

of one or more equipment / material items that will be purchased from one single Vendor/ Supplier Procurement Services When providing Procurement services, WorleyParsons is responsible for the entire process that leads up to award of a Purchase Order. This is predominantly manhour effort. (with the exception of nonlabour expenses).

Each Control Account is allocated a budget ($ or manhours) and broken down into identified Procurement Packages (as per Procurement register). In the Procurement Services scope, the Procurement Packages are the ‘deliverables’ of the Control Account. The Control Account budget will be distributed across the Procurement Packages, creating weighted ‘deliverables’.

The Procurement Management & Support scope (discipline level) is broken down in Control Accounts.

‘Control gates’ are assigned to each deliverable in order to achieve the 100 % completion stage.

The Control Accounts for Procurement Services are usually activity based accounts such as Requisition preparation, Purchase Ordering, Expediting, Vendor Inspection etc.

These ‘control-gates’ are aligned with the workflow-steps required to complete a deliverable. A ‘Purchase Order’ Control Account could look something like this:

Table 9.3 - Rules of Credit (Procurement Services)

Incr.%

Cum. %

RFQ – Request For Quotation ** Note

10%

10%

IFQ – Issue for Enquiry

20%

30%

TBE / CBE – Technical / Commercial Bid Evaluations *** Note

40%

70%

AR – Issue Award Recommendation

15%

85%

PO – Purchase Order Award

15%

100%

Notes

~/~ George Burns

** or RFP - Request For Purchase ***or TBA/CBA - Technical / Commercial Bid Analysis

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Progress can be claimed up to the next control gate, however to proceed through the gate, the milestone must be achieved. In addition to this “Serial” gate method, there is also the option to claim progress using the “Parallel” gate method. This method allows the Controller to claim progress beyond the gate, without achieving the milestone. This “Parallel “ gate method is frequently used for progressing bulk material (multiple evaluations under one Procurement Packages). Physical evidence must be produced to demonstrate that this milestone is achieved. The progress of each deliverable will be summarized at Control Account Level and transferred into the Control Schedule and Control Budget to reflect the overall status of work. InControl Software is utilized to manage and maintain the Procurement Services progress. The Procurement team is responsible for updating the PO status of each Procurement Package on a regular basis. The cut-off time for weekly report information is Close of Business of the last timesheet day of the week.

Free-Issue Equipment / Materials “Free-issue”-items are the equipment & material items that are purchased by the client and free-issued to the Fabrication / Installation contractors. In other words, the contractor only provides labour services. This scenario is very common when in situations where bulk purchase discounts can be negotiated to ensure full control of material management or when managing scheduledriven EPCM projects in an overheated commodity market. Under such conditions, not only the exotic equipment / materials will be ’critical’ in terms of delivery lead-time, even ordinary equipment items and bulk materials could suddenly find themselves on the critical path and will need to be ordered early to ensure ‘on-time’ delivery. As the EPCM contractor, WorleyParsons will not only provide the services to purchase and expedite the delivery of ‘free-issue’ equipment and materials, it also has the responsibility to monitor progress and cost for these items. The Procurement scope (Project Stage level) is broken

Rules of Credit (Vendor)

down in Area/Facility and Disciplines, and from there into Control Accounts. The Control Accounts here are the Procurement Packages (unlike the Procurement Services scope, where the packages act as deliverables) Each Control Account is allocated a budget ($) and broken down in one or more Procured items. In this scenario, the Procured Items are the ‘deliverables’ of the Control Account. The Control Account budget will be distributed across the Procured items, creating weighted ‘deliverables’. ‘Control gates’ are assigned to each deliverable in order to achieve the 100 % completion stage. These ‘Control-gates’ are aligned with the Progress Payment Milestones as negotiated by the respective Vendors. Physical progress of the procured items is provided by the vendors / suppliers and verified by the Procurement/Contracts team. Progress Payment milestones will vary from Vendor to Vendor, but an example is outlined below: Incr.%

Cum. %

POA – Purchase Order Award

5%

5%

VDA – Vendor Drawings For Approval

5%

10%

VDF – Vendor Drawings Final

10%

20%

MAP – Material Purchased

30%

50%

FAM – Fabrication / Manufacturing

35%

85%

SHP – Shipping Documents Ready

5%

90%

INS – Equipment Received

5%

95%

FIN – Submission of Final Documentation

5%

100%

Page 66

“ No matter what happens, there’s always somebody who knew it would” ~/~ Lonny Starr


“I like work; it fascinates me. I can sit and look at it for hours. “ ~/~ Jerome Thiessen

Progress can be claimed up to the next control gate, however to proceed through the gate, the Payment Milestone must be achieved. Physical evidence must be produced to demonstrate that this milestone is achieved. This is usually the Payment-Certificate. The progress of each Procured Item will be summarized at Control Account -Level and submitted to the EPCM Project Controller for transfer into both Control Schedule and Control Budget to reflect the overall status of work. As described in the Procurement Services section, there is also the option to claim progress using the “Parallel” gate method.

This method allows the Controller to claim progress beyond the gate, without achieving the milestone. This “Parallel “ gate method is used for progressing bulk material (multiple deliveries under one Procurement Packages). WorleyParsons is using SmartPlant Materials (SPM) to manage and maintain the Procurement scope. This system allows the Procurement/Contracts manager to update the status of each Procurement Package at the regular interval. The cut-off time for weekly report information is Close of Business of the last day of the week.

Progress percentages for work performed in remote locations shall be forwarded to the Procurement/Contracts Manager by the above cut-off time for entry into SmartPlant Materials. Materials Purchased as Part of Subcontracted Scope When Procurement is included in a (sub) contracted scope of work scope, then management and expediting of the procured items falls under the responsibility of this (sub) contractor and must be included in their monthly status report. Again, report format and Breakdown levels should be approved by the EPCM contractor and fed into the overall project breakdown structure.

Page 67


9.3 CONSTRUCTION: VARIETY OF METHODS

The basis for progress measurement in the Constructionphase can differ, depending on trade and nature of work. The breakdown principle is similar to the methods described for Engineering Services and Procurement. The Construction scope (project phase level) is broken down in Trades/Disciplines, and from there into Construction Work Packs (Control Account level). Note: While Construction Work packs are usually single trade / discipline, there are also instances where Construction Work Packs could be multi trade / discipline. A modular constructed facility is a good example of this. Each Control Account is allocated a budget ($ or Unit of Measurement of choice) and broken down to the next level; measurable construction deliverables. Construction deliverables can be categorized according to the type of project:

• Greenfield Project Deliverables (building new facilities)

• Brownfield Project Deliverables (modifying/upgrading existing facilities)

The intent of both is the same (completion of Construction tasks), however they use different ‘vehicles’ to achieve this. Greenfield Projects In a Greenfield project environment, the Construction Work Packs are broken down into detailed construction tasks. This is usually done using Scheduling Software (Primavera, MS Project, Artemis, Open Plan etc..) Each construction task is loaded with key quantities (Unit of Measurement ) associated with the work package (such as (m3 concrete, m pipe etc), creating weighted ‘deliverables’. Physical progress will be collected against these detailed tasks and summarized to Work Package level (Control Account). The progress can be rolled up to the WBS levels of the Construction scope. Depending on the nature of the works, one of the following six methods of progress can be applied:

• Units Completed The basis for progress measurement is Quantities Installed against Estimated QuantitiesAt-Completion or against the

QAB. This method is applicable to tasks that involve a repeat of easily measured pieces of work, when each piece requires approximately the same level of effort. For example : Cable-pulling is a task where accomplishment is easily measured in terms of linear meters of wire pulled. Steel Erection can be measured by tonnes erected. Placing and finishing a concrete slab would normally be reported on the basis of m3 poured and finished

• Incremental Milestone A method that can be used for tasks which includes subtasks that must be handled in sequence. For example, installing a major vessel can be segmented into subtasks and can be assigned an increment of progress for the entire task. Completing any subtask is considered to be the achievement of a milestone and each incremental milestone completed represents a certain percentage of the total installation.

“ Even if you are on the right track, you'll get run over if you just sit there.” ~/~ Will Rodgers

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• Start/Finish Percentages Method is used for tasks that lack definable milestones or those for which the effort/time required is very difficult to estimate such as: aligning a fan and motor, flushing and cleaning, testing etc.

“ A problem shared is a buck passed “ ~/~ Author Unknown

In this method a % complete is assigned to the start of a task and 100% is recorded when the task is finished. This concept can be applied in many variations such as 50/50 - 30/70 etc.

• Performance Ratio This method is applicable to tasks that are continuous during the life of the project and which are estimated on bulk allocations of dollars rather than on the basis of production. Project Management and Support, for example, are area’s where this method can be applied. The % complete for Manage-

ment & Support Control Accounts will be aligned to the Overall Project % Complete. Discipline Supervision progress is following the % Complete of their respective disciplines etc.

• Supervisor Opinion In this method the supervisor makes a judgement call on the % Complete. This is a subjective approach and should only be used for minor tasks such as: dewatering, landscaping, etc.

• Weighted Equivalent Units This method is applied for tasks with a different unit of work measurement that requires detail monitoring. Structural Steel erection provides a good example. Steel Erection is normally estimated and controlled by using tonnes as the key quantity for

Unit of Measure. However, when it is required to monitor Steel Erection in greater detail (as some Construction Contractors tend to do), than this task need to be broken down in subtasks. Each of these subtasks could have a different unit of measure. It will be difficult to summarize the ’Earned Values’ of these subtasks to main-task level when they all have a different UoM-basis. To handle this, each subtask is weighted according to the estimated level of effort and converted into equivalent units. An example of this method is shown below.

• Job Cards This “Extended Version” of the Incremental Milestone principle will be described on the following pages

Example Weighted Equivalent Units methods Weight

Task

UoM

QTY

Actual

% Complete

Earned

25%

Set Columns

Each

87

74

85.1%

110

25%

Install Beams

Each

859

145

16.8%

22

35%

Install Girts & Sag Rods

Bay

38

12

31.5%

57

10%

Plumb & Align

%

100

5

5%

3

5%

Punchlist

%

100

0

0%

0

Tonnes

520

N/A

36.9%

192

100%

Erect Steel Totals

Calculation Method : 1. Line-item Set Columns: 74 installed out of 87 = 85.1% Complete 2. 85.1% x the weight of that line-item (25%) = 21.2 % 3. 21.2 % x Budget Quantity Steel 520 Tonnes = 110 Tonnes Earned in Equivalent Weight for that line-item 4. Sum of all the Earned Values (192), over the Budget Quantity (520) is the % Complete of the Steel Erection Scope.

Page


Brownfield Projects Cost and Schedule Performance management for Brownfield works comes with its own specific challenges. Brownfield work will be executed in an existing “live” facility environment, meaning that that there are many interfaces with the facility Operations group. In order to start work in an existing plant or facility, the area must be made available by the facility Operations group. In some instances, this could mean that the plant, or parts of it, will have to be shut-down for a period of time. Given that every “nonproduction” day of the facility will have a direct impact on the revenue stream, the Brown field contractor therefore must minimize the execution time. It is therefore important that the work-scope is packaged, planned and executed in great detail. In addition to this, the contractor has to comply with the various pre & post work requirements and ensure that all Safety and Quality clearances are in place in order to start and/or complete the works. Job Cards The preferred and, arguably, the most accurate method for planning, executing and monitoring Brownfield construction tasks will be the Job Card based progress measurement approach. This approach is basically an “Extended Version” of the In-

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cremental Milestone principle: the Brownfield scope is broken down in Trade/Discipline specific Construction Work Packs (Control Account level), and from there into the Brownfield deliverables; the Job Cards. Job Cards are assigned ‘achievement gates’ to measure progress, just like for instance an engineering deliverable (Issue Milestone Gates), only here they are represented by the detail tasks to complete a Job Card. These tasks are weighted, adding up to 100%. Progress is earned by completing each detail task. (the ‘Incremental Milestone’ principle) and rolled up to Job Card level. Completing all the Job Cards in a Work Pack completes the Construction Work Pack. In addition, the Job Card includes the relevant details for Inspection, Safety, Construction drawings, required materials etc. An example of this principle is shown on page 68-69.

The Top section captures the Job Card details such as the Project, the Work Pack, the responsible person, Job Card description etc. Section B is for specifying Special Requirements, if any. In this particular instance there is a requirement for a Hot Work Permit prior to work commencement. Section C lists down the weighted Job Card tasks that need to be executed in order to complete this Job Card. Sections D and E specify the materials and AFC drawings required to execute the tasks on this Job card. Section F lists down specific HSE requirements for this Job Card. Section H covers the required Inspection Test Reports (certificates / approvals). The labour resources, crewmixes and tools & equipments required to perform the work are listed in Sections H and J. The bottom section is reserved for formal sign-off to authorize commencement of the work and to confirm its completion.

“ Opportunity is missed by most people because it is dressed in overalls and looks like work” ~/~ Thomas Alva Edison


“If at first you don't succeed, remove all evidence you ever tried.” ~/~ David Brent

Job Card Development and Workflow Job Cards are developed by Workface Planners at the start of the Construction phase and will be expanded to a greater level of detail as the project progresses. Workface Planners are tasked with the breakdown of the Work Packs into Job Cards and detailed Job Card tasks. The Workface Planners are also responsible for identifying and obtaining all necessary pre & post work qualifications, authorizations and clearances, and ensuring availability of all required drawings, materials, resources and tools. Once the Job Card is approved and the site location cleared for commencement of works, the

Construction Foreman rounds up the crew, collects the materials from the warehouse, and executes the work according to the Job Card. If, for whatever reason, certain Job Card tasks cannot be completed, then the uncompleted tasks will be transferred to a Punch-list. A Punch-list is a list of outstanding tasks that will have to be completed prior to precommissioning, and is usually done by a dedicated “taskforce” at the tail end of the project. After completion of the Job Card, the Foreman returns the completed Job Card to the Workface planners, who will then arrange for the works to be inspected and approved by the

site inspectors. Job Cards are meant to be ‘quick hits’; the total duration of a Job Card should be one-two days to maximum a week. In terms of scheduling, Job Cards and Job Card tasks are considered detail schedule activities, and therefore the responsibility of the Brownfield Contractor. Considering their great level of detail, Job Card tasks are very suitable to be imported directly from the Job Card Management Software into the Schedule. The progress collected on Job Card tasks will be summarized up to Job Card level and from there to Construction Work Pack (Control Account Level), before it is transferred to the Overall EPCM Control Schedule.

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Page 1 of 2

Job Card No. 4-S-WPS-01 / 004 Project:

: Tatanka Gas Development

WorkPack ID

: 4-S-WPS-01

Client:

: CROC

Contract ID

: 9571

Work Package:

: 4-S-WPS-01 Structural Shutdown Works

Engineer

: S.T

Job Card Description

: Tie-in SD – Install Bearing Plates

Contracts

: 4 – Brownfield Works / Tie-in /HUC

Revision : A

B - Special Requirements JSA Hot work Permit; Hot work Control Procedure.

C - Job Card Tasks / Operation Details Item No

Job Card Entry

Hrs

Qty

Unit

Incr (%)

Cum (%)

1

Cut & Seal Weld Deck Plate location at A1

102

1.00

LT

18

18

2

Cut & Seal Weld Deck Plate location at B1

102

1.00

LT

18

36

3

Grinding Prepare for Installation at B1

61

1.00

LT

10

46

4

Install Bearing Plates 3 location at A1

105

1.00

LT

18

64

5

Install Bearing Plates 3 location at B

105

1.00

LT

18

83

6

Install Bearing Plates 3 location at B1

105

1.00

LT

18

100

100

36

Material

Qty

Unit

1

Bearing Plates 650x800x45

6.00

Pcs

2


1.00

Pcs

3


1.00

Pcs

580

TOTAL

Complete

D - Material Details Item

Material Code

E - Drawing Details Drawing No.

Drawing Type

Sheet Rev

Drawing Title

8381-2101-DS-007-01

Construction Drawings

1

A1

Topside Structural Elevation Truss Row ‘A’ / ‘B’

8381-2101-DS-009-01

Construction Drawings

1

A1

Topside Structural Elevation Truss Row ‘3’ / ‘S’

8381-2202-DY-015-R

Demolition Drawings

1

A1

Topside Structural Main Deck Flooring Layout

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Check


Page 2 of 2

F - Safety / Other Detail Item No.

Details

1

Containment Habitat for Hot Work

2

Portable Gas Detector

G - ITR Details Item No.

ITR Description

MS-1

Structural Completion Certificate

MW-1

Welding Completion Summary

H - Resource Details Code

Resource Description

FW

Fire Watcher

IN

NDE Technician

RG

Rigger

SF

Structural Fitter

SW

Structural Welder

SY

Surveyor

Budget Hours

TOTAL

Actual Hours

144.00

84.00

25.00

0.00

126.00

0.00

63.00

43.00

216.00

98.00

6.00

0.00

580.00

225.00

J - Equipment Details Code

Equipment Description

Units

Duration (days)

E18

Grinding machine

3.00

1.0

E21

Welding machine

2.00

1.0

E22

Gas Cutting Set

1.00

1.0

E25

Magnetic Testing Set

1.00

0.5

E33

Rigging Gears

1.00

0.5

STATUS

CONTRACTOR POSITION

STATUS SIGNATURE

INITIAL

DATE

PREPARED

W/PACK ENGINEER

S.T

28/04/09

REVIEWED

W/PACK TL

K.L

28/04/09

APPROVED

OPERATIONS TL

D.D

30/4/09

COMPLETED VERIFIED

CLIENT POSITION

APPROVED

ENGINEER IN CHARGE

SITE FOREMAN

COMPLETED

INSPECTOR

C.SUPT / ENGINEER

VERIFIED

S.R.E

SIGNATURE

INITIAL

DATE

Page 73


9.4 COMMISSIONING: INCREMENTAL MILESTONES METHOD

Commissioning is a systematic process by which an equipment, facility, or plant is tested to verify if it functions according to its designed intent. The Commissioning scope is usually subcontracted in full to a contractor that has the organization, knowledge, and technical ability to provide the total commissioning service. Generally, the Commissioning scope can be divided in 3 categories:

• Commissioning Plan Development The development of a commissioning plan that includes items such as the project schedule, construction contractor responsibilities, outstanding information requirements, equipment and system test procedures, system hand-over plan, monitoring plan (if any), and operator training. The Breakdown and Progress Measurement principles are similar to the Deliverable Register method described for Engineering Services in Chapter 9.1 (incremental milestone gates)

• Execute Commissioning Tests The testing activities typically begin with pre-commissioning or inspection tests to verify that equipment and controls are installed as specified.

the installed system is adequate, controls are properly calibrated, control sequences are correct, and proper responses occur to pre-defined stimuli. Commissioning tests are also referred to as Acceptance Tests.

or manpower requirements.

A System Handover Package is the Commissioning equivalent of the Construction Work Package.

• Operations & Maintenance

Significant difference with the construction Work Packs is that a System Handover work packages (Control Account level) is based on Commissioning (sub) systems rather than Trade/Discipline scopes.

A facility cannot be expected to operate optimally if the personnel in charge of operating and maintaining the systems are unfamiliar with how to service the equipment and do not fully understand how and why the systems operate the way they do.

A System Handover Package consists of marked up system boundaries, procedures and a list of inspection check-sheets & certificates.

These inspections are followed by more sophisticated functional performance tests.

Progressing of Commissioning activities is done using the Job Card approach, only here they are called the Inspection checksheets.

Functional tests, often seen as the heart of commissioning, are intended to determine whether

The only difference is that the Inspection check-sheet does not contain details on resource

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Progress of the Inspection check sheets will be rolled up to System Handover Package level. Prior to functional testing all system check sheets and certificates must be completed and signed off.

(O&M) Summary and Training.

Therefore specified system documentation (O&M Manuals) and training procedures have to be developed and provided to the facility staff. Like the Commissioning Plan Development scope, the Breakdown-and Progress Measurement principles are the same as the Deliverable Register method described for Engineering Services in Chapter 9.1

“Some projects finish on time in spite of project management best practices.” ~/~ Author Unknown


“The first 90% of a project takes 90% of the time, the last 10% takes the other 90%.” ~/~ Author Unknown

9.5 EARNED VALUE FOR VARIABLE BUDGETS

The accuracy of the progress measurement methods described in chapter 9.1—9.4 is largely dependant on the quality of the project baseline and the control budget. Cost ‘overruns’ and schedule slippages are not always due to underperformance of the project execution team; they can also occur when control budgets are under-estimated, when the initial project scope has not been adequately defined (scope growth) or when the project is subject to scope changes. In principle, Earned Value is measured against a rigid budget (current Control Budget) and adjustments to this budget can only be made through approved change orders. Most projects are subject to frequent scope changes and subsequent change requests. Working on scope that has not been approved (yet), will not contribute to the overall completion of the current work scope. When operating in the fast-track project execution arena, it will be more rule than exception that construction has already started

before the design phase is completed. While the engineering office is refining the design of the project, budget quantities and associated cost budgets can be subject to continuous adjustments. Meanwhile, the project controller has to track project performance against either an inaccurate baseline or a moving target. Picture the following project scenario: “A contractor has been awarded a lump sum contract for piling works. The TIC estimate, and therefore the Control Budget, allowed for 1000 piles for the entire area. During construction, it is discovered that 1000 piles are insufficient and that 1200 piles are required. The client maintains that they have agreed to one price as the cost of the piled area, and does not agree to pay any additional cost for two hundred additional piles. The contractor is faced with a quantity variance that includes the cost and manhours associated with the 200 additional piles, but they cannot adjust the current budget to reflect this,

because the client rejected the Change Order.” The question is now: “After driving 500 piles, what is the correct percentage completion?” Progress will be overstated if the 1000 piles in the current budget is used as the basis for progress measurement. (500/1000) x 1000 = 50% The amount of work (quantity of piles) has changed from 1000 to 1200; so by right, this should be the basis of progress regardless of who picks up the bill. What is required instead is a method to calculate progress and Earned Value for projects on which the budget quantity is base-lined with a high uncertainty or has a great probability to be re-adjusted through the project life-span. The two most commonly applied concepts to calculate progress for variable budgets are:

• the concept that uses the EAC (Estimate At Completion) value;

• the concept that uses the QAB (Quantity Adjusted Budget) value. The EAC and QAB concepts are based on the same principles and will return the same result in terms of % Complete, but they use a different basis from which Earned Value is generated. Both are established and industry-accepted methods, and selecting the appropriate method for the project usually comes down to project management and/or client preference and the way they want to be reported on project performance.

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The EAC based concept The traditional EAC-based method uses the Estimate At Completion value to calculate the % complete, and applies this progress to the current approved budget to generate the Earned Values for the overall project. Qty’s Installed Estimated Qty At Completion or, when applied to the example project: (500/1200) x 100 = 41.66 (42%) The EAC is here defined as Current Budget + Performance/ Price Trends (variance system). These trends are usually the result of pending change requests, but could also come from educated guesstimates from subject specialists or supervisors, current project performance data, historical performance data from contractors & vendors or previous experiences on similar projects.

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To maintain transparency and restrict arbitrary fluctuations in progress, it is important that these trends are documented in the Variance system before it is incorporated into the EAC forecast (See Flowchart on the next page). The benefit of the EAC approach is that it returns a % Completion based on the latest forecasted quantities, while still maintaining a performance picture against an approved scope. E.g. assuming a productivity of 1, the contractor would have spent 50% of the budget (which is the cost of driving 500 piles out of the initial 1000) to achieve only 42% Completion. The impact of the additional 200 piles on cost/schedule performance and subsequent overrun/schedule slippage will immediately trigger a Project Management investigation and becomes an incentive to raise a

variance notice, expedite approval or, if rejected, initiate a recovery strategy on cost and schedule going forward. On the down side, constant changes of quantities and scope can have a demoralizing effect on the project team. Working around the clock to get the work done, but achieving very little progress due to under estimated quantities or unapproved change orders is not exactly a ‘morale-booster’ for the project team. When using the EAC concept, ‘true’ productivity and efficiency is measured by tracking expenditure for ‘potential’ change work separately from the approved Control Budget, and deduct this number from the total expenditure to get expenditure on the approved scope. This way, expenditure and progress can be compared against the same authorized scope.

“A change freeze is like the abominable snowman: it is a myth and would melt anyway when heat is applied”. ~/~ Author Unknown

No

EMS/WPMP Internal Change Initiating Processes

Performance Over/Under runs

Resolve Issues & cancel

Do it ?

Yes

Yes

200

Reject

Pending

?

Project Change Request (PCR)

CLIENT

Accept

BASIS FOR PROGRESS MEASUREMENT & BUDGET VARIANCE CALCULATIONS

200

No

Potential Change Order

PROJECT MANAGEMENT

Project Variance Notice (PVN) 200

Approved Estimate 1,000

PROJECT TEAM

Flowchart EAC Concept

EAC = 1,200

Performance/ Trends 200

+

Ctrl Budget = 1,000

Approved Change Orders

+

Approved Control Budget 1,000

RESULT

BASIS FOR EARNED VALUE CALCULATIONS


Page 77


all under-performing WBS elements can therefore be directly attributed to inefficiency, low productivity or re-work and actioned accordingly. Although the QAB concept returns ’fairer’ productivity and efficiency information, the Project Controller should apply this approach with some caution.

The QAB based concept Initially, the notion of Quantity Adjusted Budget (QAB) has been developed for the construction industry. QAB is an additional ‘flexible’ budget based on adjusted quantities and is calculated by adding internally authorized changes to the approved Current budget. The QAB is the basis on which progress is measured. Qty’s Installed Quantity Adjusted Budget Applying the QAB principle to the example returns the same result: (500/1200) x 100 = 41.66 (42%) Where the QAB differs from the EAC concept is that the QAB is also used to generate Earned Values and to measure cost and schedule performance against. Because the QAB includes internally approved change work, the measured project performance can be considered ’true’ performance. To use the same example; the contractor would have spent 42% of their budget (QAB) to achieve 42% completion. Since the QAB baseline includes the internal approved changes (regardless whether they are approved by the client),

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Applying the QAB based performance measurement concept should not result in a more relaxed approach towards expediting change-request approvals from the client. Also, not all internally approved changes’ will end up a client approved changed order. Rejected change orders are therefore ’real’ underperforming work elements that will impact the project bottomline. This is even more so the case for Engineering services work scopes where progress is not generated by adjusted quantities (hrs or number of deliverables), but via weighted deliverables in the deliverable register. The previous example, but only now projected on an engineering scope (1200 hours) will demonstrate the potential risk of applying the QAB concept to engineering services work scopes; “The physical progress derived from the deliverable register is 45%, while the expenditure to date is 500. Because the physical progress is generated from the (quantity adjusted) deliverable register, the earned value will be 540 (45%x1200), implying that the project is ‘over-performing’.(540

earned by spending 500).” This will present a potential danger in the event the variance is rejected later on; a good CPI/SPI wouldn’t exactly trigger any alarm bells, so chances are that this will go unnoticed until the $ bottom-line flags up a overrun. This would be hard to explain to the stakeholders, considering the excellent performance to date; (“where were the early warning signs?”). Some clients do not allow QAB based reporting and insist reviewing the progress, cost performance and the quality of estimating against the authorized scope. When applying the QAB approach, It is therefore imperative to keep project management and client informed on the performance of the project against the approved budget as well. In summary, using the QAB concept to earn progress is a more fairer reflection of the project team effort. (“we are putting in a lot of effort and the project is progressing accordingly…”). Using the EAC concept is a more accurate reflection of the team’s achievement. (“we’re not progressing as planned, but that’s because we constantly have to work on underbudgeted work scope or unapproved changes ”). Regardless which approach is applied, the projects' stats for the forensic analysis and norms / benchmarking measures are the same: the actual quantities and the actual expenditures are counted.

“Not everything that can be counted counts, and not everything that counts can be counted.” ~/~ Albert Einstein

No

Internal Change Initiating Processes

Performance Under / Overruns


Do it ?

Yes

No


No

Scope Change?

PROJECT MANAGEMENT

Project Variance Notice (PVN) 200

Approved Estimate 1,000

PROJECT TEAM

Flowchart QAB Concept

200

Reject Pending

?


Accept

BASIS FOR BUDGET VARIANCE CALCULATIONS

BASIS FOR PROGRESS MEASUREMENT & EARNED VALUE CALCULATIONS

Yes

200

Yes

CLIENT

EAC = 1,200

Performance/ Price Trends

+

QAB = 1,200

Internal Authorized Changes 200

+

Ctrl Budget = 1,000

Approved Change Orders

+

Approved Control Budget 1,000

RESULT


Page 79


Execution Stage Engineering

Methodology

Example

Incremental Milestones

Deliverable Issue Gates (IFC, AFC etc)

Performance Ratio

Project Management & Support

Procurement


Progress Payment Milestones Purchase Orders (Manufacturing) ; PO Award Milestone Gates (Services)

Construction

Units Complete

MT Steel erected; LM cable pulled etc…


Equipment Installation steps; Job Cards

Start/Finish Percentages

Aligning Fan or Motor

Performance Ratio

Construction Management & Support

Supervisor Opinion

Dewatering; Landscaping etc…

Weighted or equivalent Units

Tasks with multiple Units of Measure (UM’s)


Inspection Check sheets; Deliverable Issue Gates (Documentation)

Commissioning & Completions

Table 9.4 - Progress Measurement Methodologies 9.6 EPCM: CONSOLIDATED PROGRESS

Table 9.4 gives an overview of the Progress Measurement methods discussed in Chapters 9.1—9.4. It is by no means a definitive and complete summary, but it is safe to say that these methodologies are commonly used by many contractors across the globe. The EPCM contractor is tasked with managing the Control Schedule and Control Budget for the entire EPC. As such, the EPCM Contractor

Page 80

needs to reconcile the progress inputs from the respective Contractors into an Overall EPC progress status. It is therefore essential that the Project Controller reviews, approves and documents the progress measurement methods proposed by the contractors prior to contract commencement (but preferably already as a pre-award requirement in the bid-phase), so there will be no misunderstanding on how these progress numbers are derived. Although progress can be captured at lower WBS levels, Progress Management for the Overall EPC starts at the Control Account level.

As explained in Chapter 4.5, the Control Account level is the lowest level in the Control Budget where cost and progress come together. The Control Budget is a result of a Total Installed Cost (TIC) estimate, generated in the FEED phase and approved by the client. In the process of weighting the EPC-elements, different units of measurements are being used (manhours, m3, tonnes etc.) and therefore different types of Earned Values are generated after progress update.


The deliverables under an Engineering Control Account will usually return an Earned Value in manhours, Procurement Packages most likely in dollars and the Earned Value of a Construction Work pack can be based on a variety of UoMs, depending on the nature of the work.

“ Most problems are caused by solutions” ~/~ Eric Sevareid

To calculate and analyse the overall project result, all these different Earned Values will, somehow, have to be converted into one common value. What all Control Accounts have in common is that they have a budget money value. It is therefore logical that the Project Controller uses the Project currency as the common denominator to ‘weight’ the value of each Control Account in the Overall EPC. The progress measurement methods described in the previous pages are the assessments of work in progress and are based on the Earned Value method. However, these Earned Values

are accrued against the budgets that are committed.

gress) along all levels of the WBS.

‘Commitments’ are the control budget amounts that are committed for expenditure (such as the awarded contract value for a Subcontract or a Purchase Order).

The main source of ‘actuals’ input will come from the Progress reports from the respective Contractors and Vendors (current commitments).

Commitments are made throughout the project, so the Control Budget will be monitored against a combination of Committed Values and NonCommitted Values. In addition, it is quite common that some commitments are done partly instead of in full (e.g. material bulks). Commitments are usually either lower or higher than their respective Control Budgets, but have seldom the same value. This is not surprising, after all, the Control budgets were based on an TIC estimate developed much earlier. The EPCM Project Controller is tasked to manage the Control Budgets for each Control Account and report project performance (cost against pro-

In addition, the Project Controller will have to forecast where each Control Account is heading in terms of ‘Cost-AtCompletion’ This is a bit harder when not all commitments are made. The difference between the Control Account budget and the ‘AtCompletion’ forecast of an associated Commitment is not necessarily an over or under run, nor is it automatically an outstanding, future Commitment. To ensure that all future commitments (future contracts & POs, variations orders on existing commitments, ‘top-ups’ for bulk material Purchase orders) are taken into account when calculating the % Complete for the overall EPC, the following principle will be applied:

Example of an EPCM project with a Total Installed Cost of 1,500,000. The project will have multiple WBS levels and Control Accounts, but for the purpose of illustrating the basic principle, only one commitment has been made (against the budget of a Control Account called #1—Civil Works): Total EPC budget

1,500,000

Progress Update from Civil Works Contractor: Value of the Commitment

80,000 (Civil Contactor’s current Contract Value)

% Complete Commitment

50%

Earned Value Commitment

40,000 (50% x 80,000)

Reconciliation EPCM Project Controller: Budget Control Account #1- Civil Works

100,000

Estimate At Completion Control Account #1

85,000 (forecast by the EPCM Project Controller)

% Complete Control Account #1

47% (40,000 / 85,000)

Earned Value Control Account #1

47,000 (47% x 100,000)

Progress Overall EPC

3.1% (47,000 / 1,500,000)

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9.7 “HOUSE WITH THE GOLDEN DOORS” SCENARIO

The EPC progress consolidation described in chapter 9.5 can be applied to most of the projects executed within WorleyParsons. However, there are always exceptions. See below a project scenario that is commonly known as the “House with the Golden Doors”; “Someone is building a holidayhome in Cambodia, using low cost materials and a local constructor. To keep the ‘bad spirits’ outside the house, the architect designed a house that has solid golden doors. These doors can be purchased of the shelf and can be installed within an hour. After the foundations are in place, the contractor immediately erects the door-posts and

installs all the golden doors, claiming 75% completion on the project. He justifies this progress claim by referring to the consolidated EPC progress method described in the previous chapter. ($ value as the common denominator across the EPC stages)” In this extreme project scenario, the claimed progress will not reflect the actual physical progress, and an alternative progress measurement method should be considered.

By imposing ‘caps’ to the project stages, the progress contribution of each stage to the overall project will be restricted to its cap-value. Equivalent Units Another approach to consolidate progress in a Golden Doors scenario is the Equivalent Unit method. This method requires the Project Controller to convert the keyquantity of each Control Account into equivalent units. (common denominator)

Capped by Project Stages One method of addressing this is to assign relative weights to the respective project stages, (see example below), and then weight the WBS elements within the project stage. Engineering

15%

Procurement

40%

Construction

35%

Completions & Handover 10%

Given that on major contracts progress is always a function of contractor’s manpower (via reimbursable or lump sum, unit rate or other), the most frequent used Equivalent Unit is manhours. Table 9.5 shows the principle of consolidating overall progress using manhours as the Equivalent Unit for a small, fictive EPC project Units.

“If you don't know how to do a task, start it, then ten people who know less than you will tell you how to do it.” ~/~ Anonymous

Page 82


Table 9.5 Equivalent Units - Manhours Task

UoM

Detail Engineering Dwgs

hrs

600

630

600

630

100

600

$

500,000

480,000

1600

480,000

100

1600

Set Columns

Each

87

87

450

74

85.1

383

Install Beams

Each

859

859

450

145

16.8

76


Bay

38

38

630

12

31.5

198

Plumb & Align

%

100

100

180

5

5

9

Punch list

%

100

100

180

0

Procure Bulk Materials

Budget Qty

EAC Qty

Actuals

4000

Overall Project With the exception of Detail Engineering (where progress is derived from the Deliverable Register), physical progress is calculated using the formula: actuals EAC and applied to the Equivalent Unit to calculate an Earned Value in manhours. For example; line-item Set Columns 74 columns 87 columns

Equivalent Units (hrs)

= 85.1%.

85.1% x Equivalent manhours (450) = 383 Equivalent hours earned Sum of all the Earned Values (2866) over the Equivalent Unit budget 2866 4000 is the % Complete of the project (71.6%) Task

UoM

Detail Engineering Dwgs

hrs $

Procure Bulk Materials

% Complete

Earned Value

0

0

71.6%

2866

However, the manhours weight distribution method could potentially return a distorted overall progress result when it is applied in a “mixed productivity” project execution environment.

Another potential obstacle for using manhours as the common denominator is that accurate manhour estimates are not always readily available (e.g. from Lump Sum contractors).

This can be illustrated by the following example:

In that event, the Weight % or even a Pre-determined scale (e.g 1:1000) could be considered as the equivalent unit.

An EPCM Project is executed by WorleyParsons Europe. 30% of the physical scope is subcontracted to a ‘low-cost/low productivity’ centre somewhere in Africa. Due to the difference in productivity the manhour budget for this subcontract adds up to 50% of the total manhours . When applying a straight manhour weight distribution for the EPC, the project would be 50% complete when this contractor completes his scope (as opposed to 30%).

An example of the Weight % for the same line-item, is shown below 74 columns 87 columns

= 85.1%.

85.1% x Equivalent weight % (11.5) = 9.6 Equivalent weight earned. Sum of all the Earned % Weight is the % Complete of the project (71.6%)

Table 9.6 Equivalent Units - Weight % Budget Qty

EAC Qty

Equivalent Units (weight %)

600

630

15

500,000

480,000

40

Actuals

% Complete

Earned Value

630

100

15

480,000

100

40

Set Columns

Each

87

87

11.5

74

85.1

9.6

Install Beams

Each

859

859

11.5

145

16.8

1.8


Bay

38

38

16

12

31.5

5.1

Plumb & Align

%

100

100

3

5

5

0.1

Punch list

%

100

100

3

0

0

0

71.6%

71.6

Overall Project

100

Page 83


10.0 COST CONTROL

Before establishing a cost control method on any project, it is important to differentiate between project cost- and financial control. Financial control is concerned with the reporting of actuals (receipts, expenditures, W.I.P, revenue to date, cost-to-date and profit to-date). The financial control structure must be in accordance with internationally accepted rules of accounting and provide the following information: year-todate and month-end P&L results, invoicing, collection, taxation, regulations, etc.

• Cost recognized through accruals (recognize cost as they occur, irrespective of receipt of the formal invoice) Because “cost-to-date” is an essential component in all project performance calculations, an ill defined cost recognition methodology will eventually lead to confusion and distorted project performance reporting.

Project cost control must serve the Projects Manager’ requirement to deal with the uncertainty and risks of project execution and help them make decisions based on the current status and forecasts, and is by no means a ‘bookkeepers’ function.

Project Cost Recognition Methods We can generally choose between two types of costrecognition methods to monitor and report the Expenditure to date on projects:

• Cost recognized through Receipts / Invoices (recognize cost as invoices/ expenditure claims receipts are received & approved)

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On the other hand, there should be no significant changes to the Accounts system when executing an EPCM contract. Considering that the Engineering Services will be the only ‘Self-performing’ part of an EPCM (which usually only represent 15—20 % of the total TIC), means that 80-85% of the cost will not go through the accounts of the EPCM contractor.

In essence, Financial Control is an Accounts Department’s responsibility. Project Cost Control, on the other hand, is concerned with what a specific project should cost and provides an accurate indication of where the project is heading (forecast at completion based on performance to date).

proach on Self-performing projects could have an impact on the Accounts systems, because the project WBS/CBS coding scheme must be adopted to facilitate collection and summarization of data.

In an EPCM environment, the cost breakdown structures of all Contractors must be aligned with the agreed Overall Project Breakdown Structure, and depending on the selected Breakdown Structure (refer Chapter 4.0 - Project Breakdown Structures), expenditure shall be captured against either Cost Centres (Segregated approach) or Control Account level (Integrated Approach). Integrated CBS/WBS: When applying the Integrated concept, the cost control system must be able to relate expenditure to work accomplished. Since a Control Account represents the work to be performed, its budgeted cost, and its integration with the OBS, it provides a logical place to collect costs. Applying the Integrated ap-

It is important that the respective contractors provide the cost data on the Overall Project Control Account level. Segregated CBS/WBS: Isolated Cost Breakdown Structures were not designed to capture Cost and Progress in one common structure. Without consideration of the WBS, the capability of Performance measurement on all breakdown levels would not exist. Instead, CBS based systems will only generate cost of labour, material and other direct and indirect costs incurred by organizational elements or against Commodity items. Project expenditure will be captured against Cost Centres. For the accounts department, no significant changes to the accounting system will be necessary since the Cost Centres are usually based on Accounting Ledger codes.


“ Information about money is as important as money itself” ~/~ Walter Wriston

10.1 ENGINEERING

Providing Engineering Services is considered the core business of WorleyParsons, and is therefore by default a ‘self performing’ scope of work. Looking from an EPCM perspective, Engineering Services is charged to the Overall TIC on either Lump Sum or reimbursable basis. Lump Sum Projects When Engineering Services are provided on a Lump Sum basis, cost is accrued by multiplying the verified progress (%) by the Committed Contract Value. Man hours and non-labour costs are recorded against Control Accounts for internal Performance Management only (are we making money on the project?) Reimbursable Projects A reimbursable contract can be executed using a Schedule of fixed Charge (sell) Rates per Resource Designation (Designer, Engineer etc) or through a salary-multiplier agreement.

tions on these two basic concepts being applied across the industry, all with the intent to ‘incentivise’ reimbursable contractors to be as efficient and cost-effective as possible, but in principle it all comes down to the same; the client reimburses the contractor for all time-efforts and non-labour expenses. The basis for cost recognition is simple; man hours x the charge-rate equals the labour cost to the project. Time is recorded on a weekly basis with hours booked to the appropriate Control Accounts. All expended hours should be traceable to the respective Engineering disciplines, Control Accounts and resources. PAAF Prior to any time-booking to the project, it may be a required to obtain client approval for all project staff (including designation and proposed rate). This is usually done by raising a Personnel Assignment & Authorization Form (PAAF).

Only PAAF approved personnel are allowed to charge time-cost to the project. Actual man-hours are uploaded to InControl Software. InControl holds the sell-rates of PAAF’ed personnel and has therefore the ability to generate accurate man-hour expenditure reports. The accuracy of time reports is a vital control tool and therefore the timely submission of timesheets is crucial to obtaining accurate information. In addition, there are the nonlabour costs. This is the cost of expenses required to perform a contract, such as travel, accommodation, printing & copying, but also the cost of bonds, permits, temporary or client facilities, and Lump Sum subcontracts (specialist services contracts). The non-labour cost will be charged to the appropriate Control Accounts as cost is incurred.

The salary multiplier principle is based on an hourly base-rate which is calculated using just the individual salary (gross) and salary-burden (Annual Leave, social benefits etc) and applying a contractual agreed “multiplier” to this rate to derive the sell-rate of each engineering resource. The “multiplier” should cover for the office overheads and profits. There are many different varia-

Page 85


EPCM / PMC For the EPCM Project Controller, there is no difference in treatment between the EPCM contractor and the other contracts he/she has to manage, even though this contract is executed by their own company and therefore ‘self-performing’.

and the work that has been done. This makes it very hard to measure Project Performance (no accurate comparison between work accomplished and expenditure) Accruals

This means that WorleyParsons will have to submit Progress and Cost Performance reports on Control Accounts level in the Overall Project breakdown Structure, just like all other contractors.

When a contract is executed on a Lump Sum basis , the accrual method recognizes cost based on work accomplished:

Invoices / Receipts

The progress should be verified and approved by the client representative (EPCM Engineering Manager or Contract Administrator).

Cost is recognized the moment the Invoice of the contractor is received, verified and logged into the Project Controls system. The main benefit of this method is that the project expenditure is always supported by solid evidence. The downside is the delay between receiving of the Invoices

10.2

PROCUREMENT

Period Progress x Contract Value (Commitment).

When the invoice is received and reconciled with the supporting back-ups, the Project Controller reverses out the Accrued amount for that period and replaces it with the value of the invoice. If the invoice value is less than

what was accrued for that month (over-accrual), than the Project Controller will top up the difference by adding an additional accrual to match the initial accrued amount. If the Invoice value is more than the monthly accrual, the Project Controller follows the Invoice Value. By always recognizing the most ’conservative’ actuals, the Project Controller avoids ‘oscillating’ (up & down) behaviour of Cost–to-date numbers, while limiting the possibility of unpleasant surprises throughout the project duration. When the contract is Reimbursable, the accrual will be based on the manhour charge reports from the Contractor. Cost is recognized as per the approved time-bookings and non-labour charges. The reconciliation process between the actual Invoiced Value and Accrued Value is identical to that of Lump Sum Contracts.

Procurement cost is the cost of everything that is essential to constructing or operating a facility.

The actual commitment (Purchase Order) is usually done by the Client. This means that the contract agreement will be between the Vendor and the Client.

40%), so controlling the Procurement cost is one of the key success factors when managing an EPC Control Budget.

In short, this means the cost of materials and equipment, as well as the efforts to support the Purchase Order award , the manufacturing and the expediting process. (Procurement & Logistics Services)

The EPCM contractor is authorized to act as the Client rep to ensure that the equipment & materials are manufactured/ delivered as per technical specifications and agreed timeline and budget.

The Procurement Services can be part of the EPCM Contract scope (free-issued equipment & materials) and/or included in one of the other contract scopes (EPC contracts).

WorleyParsons provide these Procurement Services as part of the EPCM contract scope.

Equipment & Materials generally comprise a large part of the TIC (rule of thumb: around

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Procurement Services

In both scenarios the cost recognition methods are identical to the methods described in Chapter 10.1 Engineering.


Bulk Materials and Manufactured Items Besides a few exceptions, Purchase Orders for Equipment & Materials are always on Lump Sum basis. Both the ‘Invoice Receipt‘ as well as the ‘Accrual’ method can be applied to recognize cost for Purchase Orders. The cost is directly related to the claimed and verified gated progress. The progress is aligned with the Payment Milestones schedule in the Purchase Order. No recording and monitoring is required for material purchased as part of a Lump Sum subcontracted work scope, since equipment & material procurement will be part of the subcontractors work scope and, as such, included in their progress weighting. 10.3 CONSTRUCTION & COMMISSIONING

Traditionally, WorleyParsons doesn’t have any ’direct-hire’ commitments during the Construction/Commissioning stage. Therefore the Construction & Commissioning scope of work has seldom been ‘self performing’. The PMC / EPCM contractor will have the responsibility to manage and supervise the contractors that are engaged to execute the Fabrication, Construction or Commissioning work scopes. These contracts could be awarded on Lump Sum or Reimbursable basis.

Lump Sum Contracts

on a Lump Sum basis, cost is accrued by multiplying the verified progress (%) by the Committed Contract Value. The various methods of Progress measurement are described in Chapter 9.0 Reimbursable Contracts There are many Reimbursable scenarios possible, but below is a description of the three most ‘popular’ methods:

• Labour Cost + Tools & Machinery Cost (material & Equipment free-issued by the client)

• Labour Cost + Tools & Machinery Cost + Cost of Material & Equipment

• Unit Rates In all scenarios the cost recognition methods are identical to those described for Engineering and Procurement for reimbursable contracts. Labour Cost Cost of direct-hire labour & supporting functions that is required to perform a contract.

Methods for the rate-build up are similar to the methods described in Chapter 10.1 Engineering, and will include Overhead recovery and a profit element. In general, the construction workforce don’t submit weekly timecards; time is usually recorded through clock-cards and manually allocated to the appropriate Cost-centres or Control Accounts by the Contractors’ field supervisors. Construction labour cost will need to go through some sort of ’checks & balances’ system before the verified cost can be approved and released. Depending on the maturity of the Construction contractor in terms of the tools, systems and established workflows, this could end up to be a very timeconsuming exercise for the EPCM site-representative. It is therefore very important that this aspect is already addressed during the Contract bid-evaluation period to ensure either adequate tools & systems availability or sufficient EPCM site representation for the duration of this contract.

When the contract is executed

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Tools & Machinery Cost Cost of the tools and machinery that are used to perform a contract (such as cranes, bulldozers, welding machines etc) Machinery costs may be calculated in various ways, depending on whether the machinery is leased, owned or included in an agreed schedule of (labour) rates. If the contractor owns the tools & machinery, the costs include ownership costs (investment, maintenance and depreciation) and operating cost (such as fuels and repairs). Cost is usually claimed and recognized using a fixed recovery-rate for each booked labour man-hour. If the tools & machinery are leased, the cost consist of the lease costs and/or the costs of

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fuel. The cost can be recognized either by ‘passthrough’ (with or without a ‘mark-up’) supported by the lease-invoice and purchase order, or through the fixed recovery-rate principle.

Material & Equipment Cost Cost of the materials and equipment that are installed permanently as part of a contract . In essence, the Procurement cost (for cost recognition methods, see 10.2 Procurement). Unit Rates.

Cost is recognized through an agreed Schedule of Rate per Installed key quantity. ($-rate per installed m3 concrete, tonne of installed steel, dia-inch piping pre-fabrication etc.). The rate includes all labour, non-labour, consumables, tools

& machinery, bulk materials cost, as well as the site and general overhead recovery and profit. The actual Installed quantities (and Forecasts-to-go for that matter) are checked and verified by Quantity Surveyors before being recognized as project cost. In addition to their role in establishing the “forecasts-to-go”, the Quantity Surveyors will also be instrumental in the Cost recognition process when applying the Unit-Rate concept. 10.4

SUMMARY

On the next page you will find a high level overview on how the Accrual and Receipt/Invoice Cost recognition methods can be applied for each Project Execution Stage in both Self performing and EPCM/PMC

“The best way to get on in the world is to make people believe it’s to their advantage to help you”. ~/~ Jen de La Bruyere

Execution Stage

Project Cost Recognition Methods Self Performing Contracts (Internal Cost)

EPCM / PMC Contracts (Commitment Cost management on behalf of the Client)

Reimbursable & Lump Sum Projects Engineering Services EPC Management & Support services

Labour: Accrual Method: PM Approved Time-bookings x Cost Rates Receipts / Invoices Method: N/A

Non Labour: Accrual Method: Subcontracts only: (reimbursable) Approved Timebookings x Sell Rates. (Lump Sum) Approved % Complete x Current Subcontract / Work Order value Reverse accrued cost after receipt invoice from Contractor, and “Top-Up” to make up the difference between initial accrued Value and actual invoiced value (if any).

Reimbursable Commitments Labour: Accrual Method: Authorized Time-bookings x Sell Rates. Reverse accrued cost after receipt invoice from Contractor, and “Top-Up” to make up the difference between initial accrued Value and actual invoiced value (if any). Receipt / Invoices Method: Verified and Client approved Receipts / Invoices

Non Labour: Accrual Method: N/A Receipt / Invoices Method: Verified and Client approved Receipts / Invoices

Lump Sum Commitments Labour and Non Labour: Accrual Method: Approved %Complete x Current Contract Value Reverse accrued cost after receipt invoice from Contractor, and “TopUp” to make up the difference between initial accrued Value and actual invoiced value (if any). Receipts / Invoices Mehod: Verified and approved Receipts / Invoices

Non Labour: Accrual Method: N/A, included in Contract Value Receipt / Invoices Method: N/A, include in Contract Value

Receipt / Invoices Method: Verified and PM approved expense claims / Invoices

Procurement

Accrual Method: Verified and approved Payment Milestone Value. Reverse accrued cost after receipt invoice from Vendor, and “Top-Up” to make up the difference between initial accrued value and actual invoiced value (if any).

N/A, Procurement commitments are very rarely on reimbursable basis

Receipts / Invoices Method: Verified and approved Invoices from Vendor

Receipts / Invoices Method: Verified and PM approved Invoices from Vendor

Construction Commissioning & Completions

Labour: Accrual Method: PM Approved Time-bookings x Cost Rates (Salary + Salary Burden + Overheads) Receipts / Invoices Method: N/A

Non Labour: Accrual Method: Subcontracts only: (reimbursable) Approved Timebookings x Sell Rates. (Lump Sum) Approved % Complete x Current Subcontract Value Reverse accrued cost after receipt invoice from Contractor, and “Top-Up” to make up the difference between initial accrued Value and actual invoiced value (if any). Receipt / Invoices Method: Verified and PM approved Receipts / Invoices

Accrual Method: Verified and approved Payment Milestone Value. Reverse accrued cost after receipt invoice from Vendor, and “TopUp” to make up the difference between initial accrued Value and actual invoiced value (if any)

Labour: Accrual Method: Authorized Time-bookings x Sell Rates or Verified Installed Units x Unit Rates Reverse accrued cost after receipt invoice from Vendor, and “Top-Up” to make up the difference between initial accrued Value and actual invoiced value (if any) Receipts / Invoices Method: Verified and Client approved Invoices from Contractor

Non Labour: Accrual Method: N/A

Labour and Non Labour: Accrual Method: Approved %Complete x Current Contract Value Reverse accrued cost after receipt invoice from Contractor, and “TopUp” to make up the difference between initial accrued Value and actual invoiced value (if any). Receipts / Invoices Method: Verified and approved Receipts / Invoices

Non Labour: Accrual Method: N/A, included in Contract Value Receipt / Invoices Method: N/A, include in Contract Value

Receipt / Invoices Method: Verified and Client approved Receipts / Invoices

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10.5 CONTINGENCIES & PROVISIONS

Provisions and contingencies are budget sums that are set aside in the Control Budget to cover the project for possible future events, which if they occur, could impact the cost performance of the project. Provisions /contingencies must be reviewed on a regular basis to ensure it reflects possible changes to the project operating environment. Provisions A provision is a sum identified to meet the cost of an event, which if it occurs, may take place after project completion but during the warranty period. “Provisions” have specific definitions in financial terms and there are specific requirements per the financial guidelines, and as such will be adhered to within the financial reporting. The amount provided should be the best estimate and based on past experience, contractual obligations and customer relations. In general, provisions are for meeting the contractual obligations during the warranty period and liquidated damages for any delays or non performance, for example, projects with specific clauses such as Defect Liability Period (DLP), Warranty Period (WP) or Risk & Reward schemes related to schedule delays and/or cost overruns. Provisions can allowed for if there is a likelihood that the project will be hit by such an event (and subsequent claim) .

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“The bitterness of poor quality lasts long after the sweetness of making a deadline is forgotten”

Both Finance and Project Controls will accrue cost against the agreed provision based on % Complete project x provisionamount. The provision amount will be determined by the Project Manager and Finance manager and will have to be supported by valid reasons/proper back-up. Provisions are established either at the bidding stage or during the project execution and approved by the GM and PM, depending on the size of the provision made at the time. Contingency drawdown They are usually only applicable for Self performing projects. Contingencies A contingency is an identified sum to meet the cost of a future unknown event which, if it occurs, will take place during the project execution stage. Contingency can be utilised to cover events such as cost over runs, procurement under pricing and sub-contractor delays. They are established either at the estimate stage (contingency) or during project execution (provision). The contingency budget is determined through a formal Cost / Schedule Risk Analysis workshop during the Estimating stage, and approved by the GM and PM (self performing contracts) or PM and Client (TIC management contract) Management of the contingency budgets can be a project management responsibility (self performing contracts) or/ and a client responsibility (TIC Management contracts).

On self performing LS contracts the contingency budget is owned by the Project Manager. It is relatively common for Project Managers to draw down on their contingency budget when there is a need to balance budget overruns that are caused by underestimation, under performance or pending change orders. In reverse, the Project Managers can also add budget under runs to the Contingency ‘pot’, creating a ‘rainy day’ buffer to manage corporate management expectations. (deliver target profit and avoid ‘overpromising’ until the project is out of murky waters) The up or down movements in the Contingency budget will be measure of how the project is performing on cost, and act as a trigger mechanism for corrective actions. Meanwhile, the project maintains a continuous stable and consistent project performance. (no monthly high / low swings). If managed properly, the ‘buffer’ method can be very effective way of ensuring that the project will be completed within budget.

~/~ Author Unknown


In an EPCM/PMC environment the Contingency budget is owned by the client and cannot be touched without their approval. The client will expect the EPCM contractor to propose a Contingency drawdown or Contingency management plan that follows a more ’scientific’ approach than the ‘buffer’ method. There a various methods of drawing down on Contingency; they can very simple, and they can be so complicated that it will be difficult for an ‘outsider’ to comprehend. However, the principle is more or less the same; The contingency budget is distributed via relative risk values (weights) assigned to project risk categories.

Weighted Risk is an assessment of risk, relative to the other categories.

draw down picture could be as shown in Fig 10.1 below. The main benefit of this method is that the project contingency will be managed per Risk Category, while at the same time, it prevents the project from ‘eating’ the contingency allocations of another Risk Categories.

As an example, the Risk Categories and associated weights could be established as follows: Engineering 5% Procurement 15% Construction 55% Close out/ Start-up 25%. The principle is that the maximum contingency that can be drawn down against a Risk Category is restricted by the weighted risk allocation. Exceeding the allocated contingency amount of the weighted Risk category, automatically means that an overrun will have to be reported. If the contingency budget is determined at $ 2,000,000 the allocation and contingency

Within this concept there are many ‘variations-on-the-sametheme’ possible; some of them introduce gated criteria for the contingency amounts that can be released at one time against an overrun, other differ by using a more extensive risk Category Risk list. However, the base principle comes down to the same. Irrespective of personal preferences, more important is that the client buys into the chosen contingency draw down approach. Figure 10.1

Risk Category

“First, get the facts, then distort them at your leisure.” ~/~ Mark Twain

Weighted Risk

Distributed Contingency

Forecast Budget Overruns

Contingency Remaining Drawdown Contingency

Reported Budget Overrun

Engineering

5%

100,000

150,000

100,000

0

50,000

Procurement

15%

300,000

50,000

50,000

250,000

0

Construction

55%

1,100,000

400,000

400,000

700,000

0

Close-out & Start Up

25%

500,000

0

0

500,000

0

Contingency Budget

100%

2,000,000

600,000

550,000

1,450,000

50,000

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1 1 . 0 M AN AG E M E N T O F P R O J E C T C H AN G E

not detail how the processes are related to MOPC, but it does describe how scope, cost, and schedule are controlled. At project level, there is more than one change initiation process that could lead to an actual project change. This chapter addresses how change is initiated and managed at project level for self performing contracts (Prime contracts) and in EPCM/PMC environments (managing Client commitments) .

“Management of Change” refers to the identification, approval and subsequent control processes of all changes that are going to take place to an existing organization, i.e procedures, systems, forms, guidelines or, in the case of an operating organization (client), the change that the project undertaken will bring to them. However, we refer to “Management of Project Change” as a typical term that addresses all kinds of deviations at the project level (Scope of Work and associated cost and/ or schedule impact). A well defined change control process serves multiple purposes within the project:

• It helps to assure that all changes that take place are not arbitrary and have been carefully considered by the project team and project team leader.

• It allows for all changes to be captured and monitored, preventing unpleasant surprises along the way plus more accountability should any aspect

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of the project be called into question. 11.1 LEVELS OF CHANGE

Management of Change can occur on various levels within the company; at global, at regional, at location or at project level. Changes on Global, regional and location level are usually changes to the company’s Management systems (EMS/ WPMP). Anyone within WorleyParsons can identify and raise a potential change; globally, through the Process Improvement (PI) system and/or regionally / locally through a Corrective Action notification. The process of initiating such a change is outlined in the procedures QMP-0008 (PI) and QMP-0027 (CA). Management of Project Change (MOPC) is covered under one procedure in EMS/ WPMP (PCP-0010). However, these procedures do

It is important for the Project Controller to understand which change initiation process is used under which circumstance, how the initiation/approval process works and how these changes are incorporated into the project baseline. 11.2 PRIME CONTRACTS

The WorleyParsons Management of Change process for self performing contracts is a simple process that allows anyone on a project to identify and notify a potential change. A project change is captured on a Project Variance Notification (PVN) form and logged in the Project Variance Register. Each PVN should be supported by HSE, technical, schedule and cost impact information. It is an internal document not intended to be reviewed by the Client. The PVN is the vehicle to internally accept or reject a variance request. The decision to accept or reject a PVN sits with the Project Manager. An approved PVN can result in a change to the Control Budget (cost) and may lead to raising a Project Change Request (PCR).

“There's never enough time to do it right first time, but there's always enough time to go back and do it again ” ~/~ Theodor Wilson


“Anything that can be changed will be changed until there is no time left to change anything.” ~/~ James Bartlett

The PCR is an external document intended to be submitted for Client approval.

SEAL

Customer Systems

An approved PCR can impact the Contract Value (revenue)

HSE MS

The processes that could lead to an initiation of a PVN can vary depending on project stage (engineering, procurement & construction) 11.3 PRIME CONTRACTS: E & EPCM SERVICES

Engineering is broken down in 3 distinct but interrelated variance initiation processes:

• TI -Technical Integrity, ensures the design conforms to Customer requirements and relevant internal and external design codes and requirements.

• SID – Safety in Design (related to One Way)

• SD – Sustainable Design (related to EcoNomics) The change process for Safety in Design (SID) and Sustainable Design (SD) is called a SEAL Decision. Safe and Sustainable Engineering for Asset Lifecycle or SEAL is WorleyParsons engineering delivery model, developed to improve delivery of safe and sustainable asset lifecycle design solutions. There is one register used to track all SEAL Decisions. The SEAL decision process is normally only used in the Identify & Evaluate phase and is optional in the Execute phase. Most of the projects requiring extensive Project Controls in-

O&M Reliability etc

Technical Integrity

+

Delivered through Stewardship, Definition, Planning, Interdiscipline/ Function Coordination Review, Change Management and Verification.

Safety in Design

+

Delivered through SID Alignment, Planning, Execution and Verification, with consideration for Health and Safety issues over the asset’s whole lifecycle.

Sustainable Design WorleyParsons

Delivered through EcoNomicsTM with consideration for Social, Environmental and Economic issues over the asset’s whole lifecycle.

Use of SID Discipline Manuals OHS & Environmental Obligations, Legislation & Regulatory Commitments, Codes and Standards Compliance, Certification, Design Basis Compliance

OneWay WPMP EMS etc

WorleyParsons and Customer Culture Safety & Environmental Leaders

volvement fall under the Technical Integrity (TI) category. Therefore this chapter will focus on the TI change processes. Technical Integrity (TI) has three change processes: Technical Deviation Proposal (TDP), Key Document Change Notice (KDCN) and Technical Query (TQ). Technical Deviation Proposal The Technical Deviation Proposal is the WorleyParsons process to notify the Client of a proposed deviation from their specifications. The Technical Deviation Proposal is only used on projects where the client does not have their own process for reviewing requests to deviate from their own, third party, or other technical standards. For clients that have a mandatory process, WorleyParsons uses the client process instead. Some examples of when to use a Technical Deviation Proposal are:

• Delivery of a valve would be too late, substitute with one that is available

Training and Awareness

• Not enough pipe on the order to have a mill run, substitute with something that is available There is a requirement for two customer signatures on this form. One is for the Client “technical authority,” and the other is for the Client “approving authority.” A Technical Deviation Proposal could lead to the initiation of a KDCN and/or TQ, depending on the situation. Technical Query The Technical Query (TQ) is used to clarify interpretation of, or to modify the design basis, or to resolve a technical matter with the Customer in a formal, documented manner. Some examples of when to use Technical Queries are:

• Customer changes the desired feed rate (125,000 bpd instead of 100,000 bpd)

• Control architecture decision (DCS vs. PLC, or a combination) If a TQ is expected to have an impact on the project cost and/ or schedule , the TQ initiator will raise a Project Variance notification (PVN).

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Prime Contracts - Change Initiation

Change Management

Process

Identify

Technical Integrity (TI)

Use the Technical Deviation, KDCN, TQ or AAN processes for Change Initiation

Safety in Design (SID)

SEAL Decision Recommended

SEAL Decision Optional

Sustainable Design (SD)

SEAL Decision Recommended

SEAL Decision Optional

Evaluate

Define

Execute

All Phases

Operate

PVN

PCR

SEAL Register

Flowchart 11.1 Change management Overview for Engineering over 5 project phases

Key Document Change Notice

Work Release Packages

Key Document Change Notices (KDCN) are used whenever a key document is changed after it is frozen. The KDCN is critical to inter-discipline communication.

Others (as per the PEP)

Key documents are defined as: PFDs P&IDs Plot Plans Equipment Lists Line Lists Single Line Diagrams Hazardous Area Classification Drawings Basis of Design

The definition of key documents may be altered in the PEP. It is therefore important to check the PEP for specific additions or deletions to this list.

• A line size change for various reasons (this happens all the time)

• A key document becomes too crowded, split the document into two

• Change control philosophy, use 4-20 mA instead of bus control, changes the P&ID

If a KDCN is expected to have an impact on the project cost and/or schedule, the KDCN initiator will raise a Project Variance notification (PVN). 11.4 PRIME CONTRACTS: MANAGEMENT & SUPPORT

The project Action/Advice Notice (AAN) is, in essence, a Technical Query (TQ) for nontechnical issues. Some examples of when you might use the AAN to initiate a change:

• The client would like to change the frequency or amount of detail of project status reporting

• The client wishes to adjust the method for receiving project deliverables

• We wish to confirm the requirements for project closeout The AAN initiator will raise a Project Variance notification (PVN) if the AAN will have an impact on the project cost or schedule (or both).

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“At the heart of every large project is a small project trying to get out.” ~/~ J. Robert Oppenheimer


“Whoever said money can't buy happiness clearly didn't know where to shop.” ~/~ Gertrude Stein


Change Management

Define / Execute Phases

Define / Execute Phases

Engineering, Procurement, Construction Change Initiating processes PVN

PCR

Vendor/Supplier Internal Change Request processes Flowchart 11.2 Change Management Overview for Procurement over 5 project phases 11.5 PRIME CONTRACTS: PROCUREMENT & SUB CONTRACTS

Most procurement executed by WorleyParsons is on behalf of and for the risk of the Client (Reimbursable procurement). The MOPC processes for client commitment management will be addressed separately in section 11.8. However, some procurement may be on WorleyParsons’ behalf, e.g. outsourcing of our scope under the prime contract or performance of a turnkey contract. (Turnkey procurement) Turnkey procurement directly impacts our Profit and Loss and is therefore treated slightly differently to Reimbursable Procurement in terms of Change Management. This section will address Management of Project Change MOPC for WorleyParsons commitments. Changes to a Purchase Order or subcontract commitment could be the result of: I.

a variance initiated by the Engineering group (TDP, TQ or KDCN)

II. a variance initiated by the Construction group (FECR or SQ — ref chapter 12.6) III. a variance initiated by the Procurement group

IV. or a variance initiated by the Vendor/ Supplier.

change to existing Purchase Order’s or subcontract.

Changes initiated by Engineering and Construction (I - II) can result in a revision of the Engineering Requisition.

The review & approval process is as described for Engineering & Construction initiated changes.

The revised requisition is submitted to procurement who will request the supplier to provide cost and schedule impact for the change.

A variance initiated by the Vendor / Supplier (IV) may be the result of a concession request or a claim.

This is reviewed and, if agreed and approved, confirmed to the supplier through a PO revision or a Contract amendment. A variance can also be initiated by the procurement group (III), e.g. where a change to commercial conditions is required such as change of delivery address, correction of mistakes etc. If the proposed change is expected to have an impact on the Technical Integrity, or/and the project cost & schedule, the Procurement/Contracts group will raise a Project Variance notification (PVN) to inform the project team of a potential

The request is reviewed by the relevant parties, including as applicable engineering, construction, quality, HSE and procurement. If accepted, such a request may lead to a change to the engineering requisition or the scope of work as well as to a revision of the PO or an amendment of the contract. 11.6 PRIME CONTRACTS: CONSTRUCTION

Site activities (Construction and Commissioning) only occur in the Execute phase. A change to a Construction Scope of Works could be the result of: I. a variance initiated by the Engineering group (ref 11.3 TDP, TQ or KDCN) II. a variance initiated by the Procurement group (ref 11.5 Variation/Amendment form) III.a variance initiated by Construction Management. IV.or a variance initiated by the Subcontractor

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Change Management

Execute Phase

Execute Phase

Engineering, Procurement, Construction Change Initiating processes Subcontractor Internal Change Proposal / Request processes

• Field Engineering Change Request (FECR)

PVN

PCR

• Site Query (SQ)

Flowchart 11.3 Change management Overview for Construction

Change Management for Site Activities is covered under one procedure (FCP-0016). A variance in the Construction scope (III - IV) can be initiated via a: 1. Field Engineering Change Request Form (FECR) 2. Site Query Form (SQ). A Field Engineering Change Request (FECR) can be created by the Construction team or sub contractor and submitted to the Construction Manager. FECRs are internal documents, not intended to be reviewed by the Client. A FECR may or may not result in a Site Query (SQ). SQs can be created by anyone at site, with or without an FECR. Just as a FECR, SQs are also internal documents, not intended to be reviewed by the Client. Site Queries may be submitted alone or along with a supporting KDCN. The FECR and Site Query Indexes are controlled at site by the Field Document Controller. If the proposed change is expected to have an impact on the Technical Integrity, or/and the project cost & schedule, the Construction group will raise a Project Variance notification (PVN).

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When a variance is initiated by the subcontractor, the Contract Administrator will request the subcontractor to confirm the cost and schedule impact or the subcontractor may be asked to submit a claim as a result of the Field Instruction. After review and approval by the relevant parties, the Contract Administrator will raise a PVN to inform the project team of the change to the existing contract and issues a contract amendment to confirm acceptance of the variance to the subcontractor. 11.7 PRIME CONTRACTS: SEEKING APPROVAL: PVNs / PCRs

In summary, all change initiation processes described in

11.1-11.6 could result in the creation of a Project Variance Notification (PVN). A PVN can be generated by any team member. It is an internal document not intended to be reviewed by the client (although it is not uncommon to issue PVNs “For Acknowledgment” to client on reimbursable projects). Project Control will enter the information into the variance control register with the correct coding and will coordinate the evaluation process and required internal approvals from the Project Manager. After analysis and recommendations of the PVN by the Project Change Review team, the Project Manager can decide to classify the PVN as:

“If project content is allowed to change freely, the rate of change will exceed the rate of progress”. ~/~ Graig Fitzpatrick


This Change Review Team includes as a minimum the Project Manager, Procurement/ Contracts manager and Project Controls Manager but may require the Construction Manager, Discipline Engineers and others to participate as needed. Changes outside the Scope of Work – where the scope of work is proposed to be modified, a Project Change Request (PCR) will be raised by Project Controls.

It is a mandatory requirement that approval for this change will be sought by the Project Manager from the client. Changes within the Scope of Work – if it can be demonstrated that changes will not materially alter the documented scope, it is generally classified as a change within the scope of work (eg. significant estimate errors, design development etc.).

aged under the authority of the project manager using a Project Variance Notice (PVN) and generally funded from contingency allowances. Rejection of the PVN - if the Change Review team cannot see any valid reason why the raised PVN should be considered a change to the Scope of Work (neither within nor outside). The PVN will remain on the Project Variance register receiving a “rejected” status.

Such changes should be man-

11.8 CLIENT COMMITMENTS

In an EPCM/PMC environment WorleyParsons is tasked to manage commitments on behalf and for the risk of the client/owner. This also includes the commitment between the client and WorleyParsons to manage the EPC/TIC (the EPCM contract). Therefore, it is important that the EPCM contractor takes an umbrella view and applies the Management of Change procedures and processes consistently across all contracts / commitments, including our own WorleyParsons EPCM contract. Changes to client commitments could potentially impact the TIC budget and Overall EPC schedule and the MPOC processes are subject to the Client’s applicable governance and delegation procedures.

The MOPC processes & procedures for EPCM/PMC’s are documented in the Project Execution Plan. These processes and procedures are project and Client specific and could therefore differ from the internal WorleyParsons MOPC processes described in section 11.1-11.7. A change to a client commitment (Purchase Order or Contract) can be initiated by I. the client / EPCM contractor (change in work scope or impact of changes initiated by other contractors) II. or could be the result of a Project Change request by the respective vendors/ contractors. The EPCM Procurement / Contract Manager enters the information into the variance control

register and will coordinate the evaluation process and required approvals as agreed with the Client. Once accepted, copies of all PO revisions and/or contract amendments are provided to Project Control for proper coding in line with the existing breakdown structures. More detailed information on the MOPC processes on Procurement / Contracts can be found on EMS/WPMP.

Client Commitments - Change Initiation Vendor/Supplier Internal MOPC processes

Contractor Internal MOPC processes

Change Request Purchase Order/Contract Change Order, Variation or Amendment Form (PPF-0004).

MOPC Purchase Order or Contract Amendment

Flowchart 11.4 Change management Overview for Client Commitments

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11.9 VARIANCES: BUDGET & FORECAST IMPACT

Project change processes can have a significant impact on the cost and schedule performance. Chapter 9.5 already touched briefly on the impact of approved, rejected and pending variances on progress and performance measurement. This focus of this chapter will be on the budget and cost forecast implications of project variances and trends. Base Documents Controlling any change requires a basis from which variance is measured. This basis is composed of the following three documents: Notice to Proceed Received Approved Project Execution Plan “As-Sold” Estimate In order to get paid for services provided, some sort of notice is required to proceed with the work from the client. The project team must have a clear understanding of both what’s in the project and how we plan to execute. This means that the project execution plan, which includes both scope of work (what we will do) and an execution strategy (how we will do it) must be approved, published and available to the project team. Finally, like any other contractor, WorleyParsons wants to spend their resources only on the contracted work, not more and not less; so there is a need for an “as sold” estimate that provides the cost basis.

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Any variance from the details contained in these three documents is considered a Variance from the “as sold” basis, and this event triggers our use of the management of project change process as described in the previous chapters. Impact on Cost To illustrate the impact on budget and forecast consider the following case-study: WorleyParsons have been awarded a Lump Sum engineering services contract valued at $ 1.3M. The cost to execute the project is estimated at $ 1.0M During execution, the project team have identified the following 4 variances to the work scope:

• Variance A Client requested an QRA workshop which was not included in the original scope. Cost $100K / Charge $110K

• Variance B Client wants all 4” piping and above to be shown in the 3D model, as opposed to the 6”and above as per the original scope. Cost $50K / Charge $55K

• Variance C WorleyParsons wants to use specialized software that was not budgeted for. Cost $175K / Charge $200K

• Variance D Client requested a change of date and venue for the HAZOP, resulting in the unavailability of the initial facilitator, additional cost to mobilize a more expensive, external consultant and extra travel & accommodation cost

for all the HAZOP workshop participants. Cost $200K / Charge $230K Project Variance Notices (PVN’s) were raised for all 4 variances and submitted to the Project Manager for approval. The Project Manager rejected Variance C and proposes to use alternative in-house software. Therefore, variance C will be cancelled and will have no cost impact on the Control Budget (project cost). Variances A, B and D obtained his approval to proceed. This means that the project will be hit by an additional cost of $350K ($100K + $50K + $200K). Due to start-up in-efficiencies, the project did not perform as well as planned, resulting in an estimated cost overrun on the current budget of $40K. In summary, the project is expected to cost $390K ($350K + $40K) more than the initial estimated $1.0M. This process is illustrated in Flowcharts 11.5 and 11.6. Although the flowcharts look slightly different, the processes they describe return the same result. Flowchart 11.6 QAB makes a distinction between types of internal approved variances; changes effecting the amount of work & associated cost (changed quantities) and those impacting cost only (quantities are the same, but the cost has changed). The EAC method in Flowchart 11.5 method does not differentiate between these two variance types.

$ 50,000

$ 175,000

$ 200,000 ________ $ 525,000

B

C

D

$ 230,000 ________ $ 595,000

$ 200,000

$ 55,000

$ 110,000

Revenue

Performance Over/Under runs (+ $ 40,000)

EMS/WPMP Internal Change Initiating Processes

$ 100,000

A

Total

Cost

Variance

Project Variance Notice (PVN)

($1,000,000)

Approved Estimate

PROJECT TEAM


Variance C = $ 0

No

Do it ?

Yes

No

Potential Change Order Yes

($1,300,000)

+

($1,000,000)

+

?

Variance B = $ 50,000

Pending

Accept

EAC = $ 1,390,000

Performance/ Price Trends ($290,000)

+

CB = $ 1,100,000

Approved Change Orders ($100,000)

CV = $ 1,410,000


Original Contract Value

RESULT Approved Control Budget

Variance A = $ 100,000 / $110,000

CLIENT

Project Change Request (PCR) Reject

Variance A Variance B Variance C

Variance D = $ 200,000

Variance A Variance B Variance D

PROJECT MANAGEMENT

Flowchart 11.5 Change management Overview EAC concept


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Page 100

$ 50,000

$ 175,000

$ 200,000 ________ $ 525,000

B

C

D

Revenue

$ 230,000 ________ $ 595,000

$ 200,000

$ 55,000

$ 110,000

Performance Under / Overruns ($ 40,000)

Internal Change Initiating Processes

$ 100,000

A

Total

Cost

Variance

Project Variance Notice (PVN)

($1,000,000)

Approved Estimate

PROJECT TEAM


Variance C = $ 0

No

Do it ?

Yes

No


Variance D - $ 200,000

No

Scope Change?

Yes

Yes ?

Pending

Accept

Variance B = $ 50,000

Reject

($1,300,000)

+

($1,000,000)

+

EAC = $ 1,390,000

Performance/ Price Trends ($240,000)

+

QAB = $ 1,150,000

Internal Authorized Changes ($50,000)

+

CB = $ 1,100,000


CV = $ 1,410,000


Original Contract Value

RESULT Approved Control Budget

Variance A = $ 100,000 / $ 110,000

CLIENT



Variance D = $ 200,000


PROJECT MANAGEMENT

Flowchart 11.6 Change management Overview QAB concept



“ It’s better to go down with your own vision than with someone else’s” ~/~ Johan Cruyff

Impact on Revenue The Project Manager is of the opinion that the approved PVN’s are not only a change to the budget, but also to the ’as-sold’ basis. (contract value) He therefore instructs the Project Controller to raise a Project Change Request (PCR) for PVN A, B and D and submit them to the client for approval. The variation register shows the following approval status:

• Variance A PCR approved. Approval impacts the Contract Value.

• Variance B PCR in principle approved, but client disputes the cost for the change. No impact on the Contract Value pending an agreement on cost.

• Variance C PCR rejected. Client’s view is that there is no change in budgeted man hours (just change in cost of the resource) and that there is sufficient budget in the non-labors to absorb the additional cost of the changed venue. No impact on the Contract Value. The impact to date of the 3 submitted PCRs is the Contract Value is increased by $110K, raising the Contract Value to $1,410,000 The result of this example Management of Change process is that the project is now forecasted to return $20K profit ($1,410,000 - $1,390,000), as opposed to the original target of $300K ($1.3M - $1.0M). EPCM perspective From a EPCM/PMC contractor

perspective, receipt of a formal change request from a vendor/ contractor triggers the Management of Project Change process for the TIC. The EPCM contractor does not differentiate between contractors. Flowchart 11.7 on the following page shows that WorleyParsons is the EPCM contractor looking after all client commitments, but is also one of the contractors executing part of the EPC (Engineering contract valued $1.3M). The TIC budget amount for the engineering scope of works was estimated at $2.0M, of which $1.3M was committed to WorleyParsons “the engineering contractor”. WorleyParsons “the engineering contractor” has submitted the 3 fore mentioned PCRs to WorleyParsons “the EPCM contractor”. Although this appears to be a potential conflict of interest, in practice these are two different teams with different roles and responsibilities; one team looking after the technical & commercial performance of just the Engineering contract (progress, cost & revenue), and one team is responsible for the performance of all commitments under the TIC. (commitment versus TIC budget).

tion Plan for the EPCM contract. Unlike WorleyParsons internal processes, these are not set in stone and can vary from project to project depending on who the client is. After review and approval by the client and other relevant parties, PCR A was accepted, PCR B was also accepted but still under price negotiation, while PCR C was rejected. An approved PCR is considered a Variance from the ‘committed’ basis, and as such the EPCM Contract Administrator will issue an amendment of the Engineering contract to confirm acceptance of the variance to WorleyParsons, raising the committed value to $1,410,00. After review of the performance trends to-date and pending variances, the EPCM project controller forecasts a cost growth of an additional $200K for the remainder of the Engineering Services contract. This takes the estimated CostAt-Completion for this commitment to $1,610,000, still $390K under the TIC budget. Chapter 12 will address the various forecasting and forecasting techniques in more detail.

Where WorleyParsons “the engineering contractor” uses the Management of Project Change processes and procedures in EMS/WPMP, Worley Parsons “the EPCM contractor” will have to comply and follow the client specific project change procedures as documented in the Project Execu-

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($2,000,000)

TIC Budget

CLIENT

$ 110,000

$ 55,000

$ 230,000 ________ $ 395,000

A

B

D

Contract Performance To-Date


Total Value

Amount

Variance

Change Request Contractor

CONTRACTOR

?

Accept

Variance A $ 110,000

** EPCM Project Controls Estimate based on current contract performance

EAC = $ 1,610,000

Performance/ Price Trends ($ 200,000)

+

CV = $ 1,410,000

Approved Change Orders Commitment ($110,000)

+

($1,300,000)

TIC Budget

+

($2,000,000)

TIC = $ 2,000,000

Approved Change Orders TIC Budget ($0)

RESULT Approved Committed Value

Variance B - $ 55,000

Pending

Performance / Cost Forecast ($ 145,000) **

Variance D - $ 0

Reject

Project Change Procedure

EPCM / PMC TEAM

Flowchart 11.7 Change management Overview TIC Budget Management



1 2 . 0 C O S T AN D S C H E D U L E P E R F O R M AN C E

“ A shortcut is the longest distance between two points” ~/~ Charles Issawi

An important part of the Project Controller’s roles is the routine generation & analysis of work performance information.

12.1 SELF-PERFORMING CONTRACTS Services Contract (our Prime Contract with the Client)

The information gathered is very useful as input data for cost and schedule forecasting. It can also be very helpful when audits, quality reviews, and process analyses are conducted. As mentioned in Chapter 4.1, a combination of values is needed for project analysis and to determine how well the project is performing according to the plan.

12.2 EPCM CONTRACTS TIC Management (managing commitments on behalf of the client):

Contract Value

Planned Values

Planned Values

Earned Values

Earned Values

Committed Values (awarded prime contracts)

Committed Values (awarded Sub Contractors) Cost Incurred

Cost Incurred Invoice /Payment Values

Invoice / Payment Values (our Invoice / Payment Status)

Project Measure

Project Analysis Self Performing Contracts (Internal Performance)

EPCM / PMC Contracts (TIC Performance)

Required Value

Planned Progress

What is planned?

What is planned?

Planned Earned Value (Planned % Complete x Current Budget)

Physical Progress

What is done?

What is done?

Earned Value ( % Complete x Current Budget)

Expenditure



Total Cost -To-Date Value

Commitments

How much of the Control Budget is subcontracted?

How much of the TIC budget is committed?

Total current Value of all awarded Purchase Orders and Contracts

Budget Performance



Forecasted Cost Value at Completion minus Current Control Budget Value

Cash Flow

Are we getting paid? When is the project ‘Cash-neutral’?

N/A due to absence of a Revenue value.

Actual Payments minus Expenditure-to-date

Cash Call

Are there enough funds to pay the creditors?

Are there enough funds to pay the creditors?

Monthly forecasted expenditure + ’Payment Due’ T & C’s.

Profitability

Are we making money?

N/A due to absence of a Revenue value.

Current Contract Value minus Forecasted Cost at Completion

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12.3 PERFORMANCE INDICATORS While it is important to know the exact status of a project at any point in time, it is equally important to analyze how well the project performs against the Schedule and Control Budget baseline. There are many Performance Indicators that provide the project team a quick ’heads-up’ on how the project is performing. In this chapter the 3 main Performance Indicators will be discussed; the indicators for Schedule and Cost Performance and the Composite Index (Productivity). Schedule Performance Index

The CPI compares earned units to actual spend units.

Calculation rule CI

If the cost incurred is greater than the value of the work that has been done, the project will most likely overrun the Control budget if it maintains its current cost performance.

Where,

The reverse means that the Cost Performance to date is better than expected and that the project is likely to under run its budget, providing the current good performance is maintained.

12.4 VARIANCE

Calculation rule CPI Earned Value Expenditure-To-Date Where,

CPI x SPI

CI >1 High Efficiency CI <1 Low Efficiency CI =1 Expected Efficient

ANALYSIS Variance analysis is the process of identifying the difference between an expected result and an actual result, figure out the causes of the variance and then determine a corrective action. This section will focus on the variables of cost, and schedule in its variance analysis.

CPI >1 Project will Under run

Schedule performance is a comparison of the work done to what was planned to be done.

CPI <1 Project will Over run

During project execution, units were budgeted and earned. If the earned units at cut-off date are more than the budgeted units, it means more was done than planned, and the project is ahead of schedule.

Composite Index

The reverse means that the project is behind schedule. Calculation rule SPI Earned Value Planned Value Where, SPI >1 Project ahead of schedule SPI <1 Project behind schedule

CPI =1 Project on Budget

The above approach is based on a linear extrapolation; the CPI does not take schedule projections into consideration. If a project is behind schedule, additional cost impact can be expected either due to a schedule slippage or from acceleration of the effort to finish on time. Multiplying the CPI by the SPI provides a Composite Index, and provides the average cost and schedule efficiency with which work has been performed.

SPI =1 Project on schedule

Cost Performance Index Cost performance is a comparison of what was achieved to the cost incurred to achieve this.

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Applying this efficiency indicator to the budget for the remaining work (Remaining Budget / CI) will return an Estimate To Complete forecast based on the current efficiency.

Schedule Variance Schedule Variance is calculated using the following simple equation: Schedule Variance (SV) Earned Value – Planned Value

where the Earned Value represents the actual amount of time taken to progress to the project’s current stage. The Planned Value represents the amount of time which reaching the project’s current progress should have taken to achieve according to the baseline schedule. Schedule variance and its exact number may indicate many possible things to project management. A number close to zero would indicate that the timeframes in the baseline schedule were accurate within a small margin of error.

“ Always look to the future, because that is where you'll spend the rest of your life.” ~/~ George Burns


A figure that is significantly less than zero (‘negative value’) would mean that either the project team over estimated the amount of time needed or they overestimated the budget and workforce measured in raw man hours that would be necessary to complete the project. This is not a good thing either as it represents an unnecessary expenditure of resources A schedule variance figure high in positive numbers could also represent many things.

It could indicate that project management underestimated the amount of time needed to complete the project, or it might indicate that the budget and workforce was insufficient. Another possibility is that project management or the workforce suffered setbacks which may not have been avoidable Cost Variance The cost variance represents the difference between the Earned Value of a project and the actual cost of the project

The equation to determine the cost variance is as follows: Cost Variance (CV) Earned Value – Cost to Date If the resulting value for the cost variance is a number greater than zero (or ‘positive value’), then it is a favorable cost variance condition. A value that is less than zero, or a resulting “negative” value, represents a cost variance that is considered less than favorable.

“I cannot afford to waste my time making money.” ~/~ Louis Agassiz

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11.5 FORECASTS Forecasts are estimations, guesses, or predictions that are made by the project team to get a big picture view of where the project is heading in future. These forecasts are derived through a careful evaluation of

all information and knowledge that is available at the time that the forecast is made.

Forecasts can be updated and reissued based on changes to that information.

The information that is made available is typically derived from the past performance of the project as well as any anticipated future performances.

Below you will find a guideline for calculating “To-Complete” and “At-Completion” forecasts for Engineering, Procurement and Construction & Completions work scopes:

FORECASTING - ENGINEERING

The following Forecasting calculation rules can be used as a guideline : ETC (Estimate-To-Complete)

- Control Budget - Earned Value *) Note 1

EAC (Estimate-At-Completion)

- Expenditure To Date + ETC

Budget Under/Over Run

- EAC – Control Budget (‘+’ = Over run, ‘-‘ = Under run)

*) Note 1 - rule applies when project status is between 15%- 80% complete. <15% - ETC = Budget - Expenditure >85% - ETC. will be a project managers assessment/opinion. FORECASTING - PROCUREMENT

ETC (Estimate-To-Complete)

- EAC – Expenditure-To-Date


- Current Forecast + Trends *) Note 2


- EAC – Control Budget

FORECASTING - CONSTRUCTION/COMMISSIONING

ETC (Estimate-To-Complete)

EAC – Expenditure To Date


Current Forecast + Trends *) Note 2


EAC – Control Budget

*) Note 2 - Trends may be the result of a forecast received from the Procurement or Construction Manager but it must be in the Trend system before it can be incorporated into the forecast

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13.0 PROJECT REPORTING

“ If you see someone sprinting, he probably left too late”

One of the most important elements of project controls is the communication of the project performance elements to all stakeholders.

self performing scope of works and TIC Management scope of works as per the WorleyParsons Standard Report Matrix on the next page.

This is accomplished via an established set of standard and customised performance reports.

In addition to the standard set of reports, the project may require customised reports.

The distributed information can include information such as cost status reports, measures of progress, as well as forecasting elements. WorleyParsons has categorized its Project Controls reports for

Both the standard and customized reports can be generated from the WorleyParsons suite of tools & systems and it is important that all Project Controllers become familiar with layouts, content and definitions.

The project reports should be identified and agreed as part of the Project Control Plan set up at the beginning of the project. Essentially they are the Project Control Deliverable list and are no different from the requirement we put on Engineering. It helps to go through these when discussing the Project Control support requirements on projects with the PM or the client.

~/~ Johan Cruyff Page 107


Project Measure

Project Analysis

Self Performing Services

TIC Management (EPCM/PMC)

Planning & Progress

• What is planned?

• Progress S-Curves

• What is done?

• Bar chart Schedules

(Reports Overall, by WBS and by Contract)

• What are the slippages?

(Level 1 to detail)

• Manpower Histograms • Barchart Schedules • Engineering Deliverables Status Report & Look-ahead schedules (High level status through to deliverable register)

Cost Control

• What is the budget?

• Manhour Reports

• What is committed?

(Level 1 to detail)

• What is incurred? • What is invoiced? • What is paid? • What is the cost-to-go?

• MPPR - Manhour, Progress & Productivity Report (Level 1 to detail)

• Manpower Histograms

• Progress summaries

(Reports Overall, by WBS and by Contract)

• Cost Report • Phased cost reports • Invoice Register

• Cost Report (Level 1 to detail)

• What is the cost-at-completion?

• Subcontract Register

• What are the cost current & fore-

• Phased cost reports

casted over/under runs?

• Progress S-Curves

• Cost Rate Analysis Reports

Change Management

• What are the approved Variances? • Client Change Regis• What are the pending Variances?

ter

• Internal Change Reg-

• Change Register (Overall, by WBS and by Contract)

ister Project Performance

• What is the Cost Performance? • What is the Schedule Performance?

• MPPR - Manhour cost, progress & productivity report (Level 1 to detail)

• TIC Performance reports (Overall, by WBS and by Contract)

• What is the productivity? Commercial Performance

• Are we making profit? • Are we invoicing? • Are we getting paid? • Are there enough funds to pay the creditors?

• When is the project Cash-neutral? Cash Call

• When does the project need funds to pay the creditors?

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• Internal Commercial

Not Applicable

Reports: - PCS - Cash Flow - Invoice Register

• ProComs Reports (AME) Not Applicable

Cash Call S-Curve

“Of several possible interpretations of a communication, the least convenient is the correct one.” ~/~ Henry Ford


1 4 . 0 D O C U M E N T M AN AG E M E N T & C O N T R O L

process includes quality verification of the transmittal to ensure the documentation is complete, correct and at the latest revision. A periodic QA audit of the process is conducted by QA as a further measure of ensuring compliance. 14.2 ELECTRONIC DOCUMENT/DATA MANAGEMENT

There is a difference in functionality between a Document Control system such as InControl and an EDMS system.

Document Control is management of documents to a very high degree of reliability for security, version, visibility, availability and, most importantly, with a controlled audit trail.

“When the weight of the project paperwork equals the weight of the project itself, the project can be considered complete.” ~/~ Walter Rutherford

The Document Controls group interfaces with all disciplines within the Project Team. WorleyParsons is using both Document Control as well as Electronic Document/Data systems applications for project deliverable and vendor data management. 14.1 DOCUMENT CONTROL

WorleyParsons uses InControl as its integrated Deliverable progress management / Document Control system. The Deliverable Register in InControl contains all (current and future) project deliverables and is not only used to monitor and track on their issuance, receipt and distribution, but also

their completion status.

Where a document control system lists down all current and future project deliverables in a deliverable register, an EDMS system physically holds the electronic version of the project documentation.

In essence, it is the project’s deliverable interface with the Project Controls group (deliverable progress) and with the client (in & outgoing deliverables).

This functionality allows project teams to access and share the latest revisions of project deliverables across multiple project locations, and opens up the possibility for electronic reviews (paperless office).

The Vendor/Subcontract Document Register is used to expedite and track the status of receipt & review of documentation for each purchase order or subcontract, based on the agreed VDRL (Vendor Document Requirements List).

The EDMS system is still used in combination with a Document Control system, since it can only hold physical documentation. (only empty placeholders for documents that have not been started)

The Vendor Document/ Subcontract Register is the project’s deliverable interface with the subcontractors and vendors.

In order to weighed each deliverable in the entire scope, a deliverable progress measurement system requires progressed and completed deliverables as well as the deliverables that are that are not yet started.

The Document Controller is responsible for keeping both Deliverable and Vendor/Sub Contract Document register up to date. Part of the document control

There is an electronic link between the two systems that facilitates automatic revision status updates. However, the progress claims in between gates is still a manual update.

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Intergraph’s SmartPlant Foundation (SPF) is the WorleyParsons preferred Electronic Document /Data Management System (EDMS). EDMS is part of an enterprisewide system that manages data from integrated Engineering Design systems (such as 3D modelling tools). Therefore, EDMS systems like SmartPlant Foundation are usually administered by Engineering System Engineers as opposed to Document Controllers.

This will include documentation relating to WorleyParsons and the vendor / subcontractor works. The Project specific Document Management Plan will address the following methods, procedures and workflows:

• Documents to be managed (Design, Vendor Data, Client Packages etc)

• Project Close-Out & Archiving

• Softcopy filing directives & procedures (Internal) 14.4 DISTRIBUTION MATRICES

Document distribution matrices will be set-up for each project prior to project commencement.

• Document Controls Team & Responsibilities

• Definition Deliverable status gates

• Copy/Distribution requirements (hard & soft copy)

• Distribution / Approval Matrix • Document Management Procedure (Revision control, Dwg Numbering etc)

• Deliverable Register format 14.3 DOCUMENT MANAGEMENT PLAN

A detailed Document Management Plan shall be developed for each project prior to project commencement. This document describes the methods, systems and strategies to be implemented for successful set-up and management of the document and data management functions. As part of the Document Management Plan, a detailed document and data handover plan will be developed covering the documentation, format and associated checklists to facilitate final documentation to be handed to the Client at project close-out.

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& InControl/SPF Set-Up

• Designated Filing Space Requirement & Lay-out

• Final Documentation Requirements

• Vendor Data Format Specification

• Format Softcopy Format (In coming & Out going)

This document details the document types, the list of recipients and review cycles required for each document revision. 14.5

QUALITY AUDITS

Part of the document control process includes quality verification of the transmittal to ensure the documentation is complete, correct and at the latest revision. This is the senior Document Controller’s responsibility. In addition, a monthly QA audit of the process will be conducted by QA as a further measure of ensuring compliance.

“ Anything you lose automatically doubles in value” ~/~ Mignon McLaughlin


1 5 . 0 C AP I T AL C O S T E S T I M AT I N G : B AS I C P R I N C I P L E S

Cost Estimating is a process through which the present and future cost consequences of project decisions are forecasted or predicted.

Estimates are used for:

• Project Funding (Go or NoGo decision to proceed with the next phase of the project)

• Developing prices for quotes, bidding or evaluation of tenders from Contractors

• Determining whether a proposed product can be manufactured and distributed prof-

15.1 METHODOLOGIES

Basically there are three types of estimates: 1. Ratio or Factored estimates (Top Down) 2. Quantity Based estimates (Bottom Up)

oped by breaking the project down into smaller components or commodity elements, then price these detail components to build up the overall project cost. This method is normally used when the design is well defined and substantially agreed to.

3. Combination of both Top Down Estimates A “Top Down” capital cost estimate is prepared when the level of engineering and design is not yet matured to a level from which detailed Quantities can be generated.

“ Budget: a mathematical confirmation of your suspicions” ~/~ A.A Latimer

Hybrid Top Down -Bottom Up Estimates generated in the Define phase will have to use

itably

• Evaluating how much capital can be justified for processchanges and/or improvements

• Establishing benchmarks for productivity improvement programs

• Establishing benchmarks for future estimates

data from a partly defined engineering design. Some parts of the design are well defined, and some parts are still very much in the conceptual stage. In this event, the estimator can opt to estimate the insufficient defined design components using the Ratio or Factored approach and apply the Quantity based principles to the parts that are well defined.

The quantities are derived via a ratio to basic Equipment data such as weight, size or kW, using historic benchmark datafrom similar projects, modified to reflect economic changes, size, location and other factors to predict future cost. This method is used in the early phases of a project, when the design is not or partly defined. Bottom Up Estimates - A more detailed approach devel-

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15.2 ESTIMATE BUILD UP

In preparing a capital cost estimate, it is a rare occasion when everything is known, specified and measurable. A capital cost estimate consists of three parts:

1. What is known? (in essence; the known quantities x rates )

3. What is uncertain? (Contingency, to cater for unknown events).

2. What our experience tells us is required? (applying design allowances and factors, depending on the level of project definition at the time of the estimate)

A simplified example to illustrate how an estimate is built-Up is shown on the screen.

82.0 M

WHAT IS KNOWN?

87.0 M

???

EXPERIENCE

WHAT IS UNCERTAIN?

Basic Estimate

Allowances

Contingency

Quantities x Rates

Quantity Allowance

Uncertainties

(incl. EPCM & Owners Cost)

Growth Allowance

???

$ 82,000,000

$ 5,000,000

BASE ESTIMATE TOTAL INSTALLED COST (TIC) ESTIMATE

15.3 WHAT IS KNOWN?

“What is known?” is what is defined and developed from the capital cost estimate design criteria:

• process description • process flow diagrams • P&IDs • plant equipment lists • site plans, general arrangements

• material take-offs (MTO) • labour rates • vendor quotations • Assumed dates of project execution To this a cost can be assigned with a degree of certainty 15.4 WHAT EXPERIENCE TELLS US?

“What our experience tells us is required?” represents the gap

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between what is known and our “experience” from previously completed work. In order to address the gap, we include allowances on quantities and growth allowances for quotes and expected contractual awards. Quantity allowance is subjective, based on the degree of engineering completed and a comparison of the material take off (MTO) quantities to historical experience of the expected quantity. There is never an exact match of plant type; however there is

an experience range whereby it is prudent to provide some measure to fill the gap between the current design quantities and expected quantities. With quotations and awards, experience shows that adjustments, within the defined scope, occur well after award which may increase the price. It is therefore necessary to provide a growth allowance on the budget quoted amount in order to arrive at the expected value at award. The design allowance should not include scope variations, as this will be accounted for in the contingency development, as part of the owner’s risk. For Lump Sum Turnkey packages, special attention is required to allocate adequate design allowances, to reduce potential negative exposure in the estimate.

“ Estimators are still willing to do an honest day's work. The trouble is they want a week's pay for it.” ~/~ Anonymous


“ There is as much sense in nonsense as there is nonsense in sense” ~/~ Anthony Burgess

15.5 WHAT IS UNCERTAIN?

uncertainty.

“What is uncertain?” is to cover unpredictable or unforeseen items of work within the defined Scope of Work of the estimate which cannot be determined because of lack of complete, accurate and detailed information at the time the estimate is being prepared.

The magnitude of the contingency is directly related to the probability of these uncertainties occurring. The contingency amount may or may not be spent during project execution.

Contingency is added to the estimate to cover unforeseen needs of a project that is beyond the control of the appointed EPCM contractor or Owner.

The Approved Control Budget is the sum of all costs required to construct and commission the proposed facilities as defined by the project scope, and may include Owners costs and escalation.

Contingency is necessary to compensate for these areas of

It also includes a risk amount to cover a selected portion of

15.6 ESTIMATING

with AACEI.

CLASSES

The Estimate Classifications within WorleyParsons are aligned with the Project Phases in the WPMP, and the Estimating Classes refer to the level of accuracy. It should be noted and understood that other classification systems are used in conjunction WPMP GATES

The principle of aligning the estimating classes with the WPMP project phases is as follows: As a project moves from one phase to the next, the level of project development and definition of the project scope of work increases.

risk exposure for the probability of cost overrun (of the estimated amount) and may include an amount for Owners scope change provisions. As the facility is expected to be built within the Approved Control Budget, it also becomes a measure by which the performance of the Project Leader will be judged

With the definition, the estimating accuracy increases ( estimate matures from a class 1 to a class 4 basis).

The following table identifies each of the phase estimates as an indicative percentage of the total engineering performed at each phase, the expected accuracy range of the estimate and the level of contingency required to be added to the estimate.

IDENTIFY

EVALUATE

DEFINE

EXECUTE

Estimate Class

1

2

3

4

Estimate Type

Factored or Parametric Models


Factored and/or Quantity Based

Quantity Based

Estimate Category

Order of Magnitude

Screening

Control

Definitive

Level of Engineering Complete

0% - 2%

2% - 15%

10% - 40%

30% - 70%

Estimate Accuracy

≤ ± 50%

≤ ± 30%

≤ ± 15%

≤ ± 10%

20% to 25%

15% to 20%

< 10%

< 5%

Contingency

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15.7 CLASS 1 ESTIMATES ORDER OF MAGNITUDE

The Class 1 estimate cost is based on design definition which is very limited and conceptual in nature. The general accuracy range for an order of magnitude estimate is +/-50%. This type of estimate is made without any detailed engineering data and is developed using a variety of Factored or Ratio estimating methods. The objective of such an estimate is usually to provide one or more of the following:

• Indication of whether there is a case for further study

• Early evaluation at minimum expense

15.8 CLASS 2 ESTIMATES SCREENING

The Class 2 estimate will deliver a pre-feasibility estimate during the Conceptual or Select stages Phase of Project Execution. The general accuracy range of a screening estimate +/-30% This type of estimate is typically prepared when engineering is approximately between 1% and

• Preliminary comparisons of alternatives

• A rough indication of the economic feasibility before proceeding with the next phase

• Assistance for business development in preparing proposals and evaluating EPCM service costs

• Initial project planning and control The emphasis is not on the detailed accuracy but rather a reasonable cost level or delta cost of sufficient accuracy to ensure that the results are meaningful and not misleading.

The skill sets required to achieve the desired estimate is a sound knowledge of the constituent parts of the plant or facility and the ability and knowledge of existing similar plants and facilities.

In these estimates the focus is to build a robust indication of what market prices would be to build a plant or facility based on through puts and to initially

Extreme caution and judgment must be exercised in developing these types of estimates particularly where the desired estimate is unique in its nature.

15% complete and is used to determine whether there is sufficient reason to pursue the project.

In addition, the estimate is used at the outset to establish management strategies, and for budgeting and planning purposes.

It permits the evaluation of alternative processes, technologies, or alternative scenarios. This estimate may also be used to justify the funding required to complete additional engineering and design for subsequent phases, especially the provision for proceeding to the Define Phase where a Class 3 Estimate may be undertaken. The Class 2 Estimate is generally used in detailed selection studies for the most economically viable process or development option.

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test the economic viability of investing in such a venture.

Generally a Class 2 estimate is developed by determining the equipment costs and/or weights and then applying factors or multipliers against these to determine bulk material and construction costs. Project Specific requirements will need to be taken into consideration when applying factors as labour rates, construction productivities and other influences such as market conditions, weather in the vicinity of the project location will influence the adequacy of the factors used to generate the cost estimate.

“ If two people agree all the time, one of them is unnecessary” ~/~ David Mahoney


“You can con someone into committing to an impossible budget, but you cannot con someone into meeting it”. ~/~ Jelle van Damme

15.9 CLASS 3 ESTIMATES -

ject sanctioning and AFE Approval

CONTROL

• Establish a project Budget

The Class 3 Estimate is the most important estimate, as it acts as the stepping stone to project approval and economic evaluation. The hours and time to prepare this type of estimate should by no means be underestimated. It is an integral effort, and incorporates engineering, procurement, construction and estimating as a team to deliver a good estimate. The Class 3 Estimate is based on a firm project scope where by 10 to 40% of the engineering has been completed. (the lower the % engineering, the higher the capability/experience required by the projects leads &

• A yardstick to monitor and control project costs during the execution phase

• Basis for evaluating future changes in scopes

• A basis for negotiating conestimators) The accuracy levels of these estimates are within a +/-15% Range. Class 3 Control Estimates normally provide one or more of the following:

• A mechanism for a Client to

tracts for the execution of the works

• For inclusion in a Bankable Document The Class 3 Control Estimate requires that scopes are clearly defined and quantified, pricing is obtained based budgetary quotations, site specific costs are

present to the board for pro-

15.10 CLASS 4 ESTIMATES DEFINITIVE

The Class 4 Definitive Estimate is prepared after the project has been sanctioned. The prime purpose of this estimate is to confirm the existing project cost forecasts and to provide a more accurate estimate of construction quantities and costs. This estimate is very similar in its preparation as the Class 3 Control Estimate. However higher accuracies levels are achievable due to advanced/progressed engineering & design definition and quantification of scope (material takeoffs) this also coupled with the fact that large portions of the work have been or are in a competitive tender process and awarded contract values forming committed costs for the Project

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The table below gives an indication of the level of project definition associated with each estimate class. Class 1 WPMP Identify Phase Order of Magnitude Estimate Accuracy ± 50%

Scenarios developed.

Class 2 WPMP Evaluate Phase Screening Estimate Accuracy ± 30%

Major equipment specifications, flow diagrams, plot plans, location plans available.

Locations of plant and main processes and facility types specified.

Outline Basis of Design, Project Technical Specification and Project Strategy available. Develop work breakdown structure.

Class 3 WPMP Define Phase Control Estimate Accuracy <± 15%

Choice of technology made. BOD produced and finalised Project locations and environmental conditions studied and surveyed All Equipment confirmed, capacity ratings finalised Flow and line diagrams finalised Quantified material take offs of bulk materials produced Project schedule prepared Value improvement practices carried out. Operations and maintenance needs defined. Safety reviews completed

Class 4 WPMP Execute Phase Definitive Estimate Accuracy <± 10%

Major equipment ordered. Design nearing completion. Final material take offs of bulk materials made. Major contracts let. Construction commences.

15.11 ACCURACY RANGES

The table above provides a guideline to the various Estimate-Classes and the Accuracy Ranges associated with these Classes. This is just a guideline; in practise there are many different accuracy-range combinations possible. (+10/-15, +40%/-10% etc). To translate the above in an example: a CAPEX estimate of 100M Total Installed Cost, with a

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+10/-15% Accuracy range means that the TIC at project completion is expected to be anything between 110M (+10%) and 85M (-15%), with a 50/50 chance that it will be 100M (the so called P50 value). Usually the client dictates the required accuracy of the estimate, but there have been many cases where this requirement was hard to meet due to unrealistic expectations from the client.

It’s not rare that a client requires a +/-15% estimate half way during the FEED, when Engineering is still studying the various options going forward, and Engineering definition at hand is not enough to deliver that accuracy. In such event, we need to manage client expectations and either confirm that we will deliver the required accuracy, or advise the client on a more realistic accuracy range. The Risk Analysis process is used to determine what these ranges should be.

“Everyone asks for a strong, experienced estimator when they get one, they don't want one. ” ~/~ Janus Lato


“A project is complete when it starts working for you, rather than you working for it”. ~/~ Scott Allen

15.12 AACEI ESTIMATING CLASSES

The Association for Advancement of Cost Engineering (AACE International) is the leading-edge professional society for cost estimators, cost engineers, schedulers project managers, and project control specialists. Its recommended best practice

WPMP GATES

with regards to Estimate classifications is the reverse of the preferred WorleyParsons WPMP approach.

cending class numbers (class 4 is the most accurate class). Considering that the AACEI guidelines are often referred to as the industry-norm and, as such, quite present in many of the WP regions and markets, a parallel map between the two approaches is provided below for future reference:

The AACEI estimating classes increase accuracy using descending class numbers (Classes 5 - 1 , where Class 1 is the most accurate class), while the WPMP approach increases accuracy with as-

IDENTIFY

EVALUATE

DEFINE

EXECUTE

Estimate Class

1

2

3

4

Estimate Type




Quantity Based

Estimate Category

Order of Magnitude

Screening

Control

Definitive

Level of Project Definition

0% - 2%

1% - 15%

10% - 40%

30% - 70%

Estimate Accuracy

≤ ± 50%

≤ ± 30%

≤ ± 15%

≤ ± 10%

20% to 25%

15% to 20%

< 10%

< 5%

AACEI GATES

IDENTIFY

EVALUATE

Estimate Class

5

4

3

2

1

Estimate Type




Quantity Based

Quantity Based

Concept Screening

Study / Feasibility

Budget Authorization

Control / Bid Tender

Check Estimate

0% - 2%

1% - 15%

10% - 40%

30% - 70%

50% - 100%

-5% / +20%

-3 / +15%

< 10%

< 5%

Contingency

Estimate Category Level of Project Definition

DEFINE

Estimate Accuracy

-50%/+100% -15% / +50% -10% / +30%

Contingency

30% to 50%

20% to 25%

10% to 15%

EXECUTE

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1 6 . 0 C O S T & S C H E D U L E R I S K AN AL Y S I S

16.1 INTRODUCTION

In the context of project management, a risk management includes the processes of conducting risk management planning, risk identification, analysis, response planning, and monitoring and control. A basic definition of risk is: an uncertain event or condition that, if it occurs, has a positive or negative effect on project’s objectives. Therefore, the objectives of project risk management are to increase the probability and impact of positive events and decrease the probability and impact of negative events in the project. Risk management qualifies and/ or quantifies the range of possible outcomes on projects. Qualitative risk analysis focuses on risks probability and impact assessment resulting in risk rating matrix for the project. The method involves identify-

ing various project risks (threats and opportunities), determining the projects’ sensitivities to those risks and devising the response actions in accordance with obtained results.

Quantitative risk analysis through its various statistical and probabilistic methods is an approach that translates the uncertainties into their potential impact on project objectives in quantifiable terms.

Relative measure of risks probability scale falls between: 0 - no probability and 1 - certainty.

The analysis results offer the project team ranges of possible outcomes (expected values) and associated likelihood of meeting the budget and/or schedule targets.

The risks impact scale can be either descriptive, such as low, medium, high; or not important, important, very important; or on numeric linear and nonlinear scales, etc. The qualitative risk analysis results are risks register and risks relative ranking, grouping into categories (RBS - Risk Breakdown Structure), risks prioritizing, etc. In accordance with WP EMS, the qualitative risk analysis, often referred to as QRA, is the responsibility of the Corporate Risk Management.

The quantitative project risk management preparation, facilitation, analysis/simulation and reporting is a responsibility of Project Controls function. However, the risks registers recorded and analyzed in QRA management software, are typically used as one of the inputs for quantitative risk analysis. While this chapter addresses the basic principles of Quantitative Risk Analysis, the specialized PCDP modules 7 & 8 will provide more detail on the analysis methodologies, definitions and terminology, and analysis outputs. 16.2 COST RISK ANALYSIS

For Class 1 and 2 estimates (Order of Magnitude and Screening), the contingency is added as a single, below-theline item to the base estimate, in most cases. For Class 3 and 4 estimates (Control and Definitive), the contingency is determined after performing a formal risk analysis. Project cost estimates are generated with the cost elements targeted to fall around likely values (mode) with a 50% probability (P50) that the project will not overrun.

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“ Risk simulation is exactly the same thing as going to a casino, only with no cocktail service” ~/~ Ted Allen


Together with this cost the accuracy of the estimate is stated and the range of costs are identified as the P10 and P90 values.

Maximum (Pessimistic) Value: most value of the Cost Element (often expressed as a positive percentage of the most likely value).

P-Values

Simulation

The P10 value is the budgetvalue that has a probability of 10% not to overrun. In other words the most optimistic (challenging) budget-scenario.

The MonteCarlo method (simulation by means of random numbers) is most commonly used simulation. The basic steps are:

The P50 TIC value is the budget value that has an equal chance of overrunning or underrunning the budget within its accuracy range(50/50).

• Define variables’ ranges and chose suited PDFs

The P90 value paints the most conservative picture, it’s the budget value that has a 90% probability that it will not overrun.

• Value sampling randomly chosen (MonteCarlo, Latin Hypercube)

• Run deterministic scenario for chosen values • Repeat previous two steps a number of times to obtain the probability distribution of the result (number of iterations can vary, typical 1000)

Once generated, the results can be represented graphically indicating the frequency and/or cumulative distributions of expected values, typically ranging from P5 to P95. A number of other reports are also generated, including the contingency profile, summary and detailed output statistics, etc.

Cost Risk Analysis Principles The main principle behind a quantitative cost risk analysis is a probabilistic approach where target (deterministic) values are no longer summarized but their PDFs (Probability Distribution Functions) being combined. Mostly used are 3-point estimate PDF types, like triangular, trigen, betaperth, etc. Other types of PDFs are defined by their means and standard deviations, like normal, lognormal, etc.). Minimum (Optimistic) Value: least value of the Cost Element (often expressed as a negative percentage of the most likely value) Most Likely Value: the value that occurs most frequently in an array or range of data (usually, but not always the estimated value).

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Cost Risk Analysis Process 1. Create Cost Risk Model 2. Risk Ranging (Trigen distribution) 3. Run Monte Carlo simulation (1,000 iterations) 4. Find P10 - P50 - P90 Values

100% 90%

P90

“A little risk management saves a lot of fan cleaning”

80% 70% 60% P50

50% 40%

~/~ Anonymous

30% 20% P10

10% 0% 60

70

80

90

100

110

120

130

140

150

$ 87M Base Estimate 5. Determine Contingency 82.0 M

P50 100 M

87.0 M

WHAT IS KNOWN ?

EXPERIENCE

WHAT IS UNCERTAIN ?

Basic Estimate

Allowances

Contingency

$ 82,000,000

$ 5,000,000

$ 13,000,000

Base Estimate ($ 87,000,000) Total Installed Cost Estimate ($ 100,000,000) 6. Determine Estimate accuracy range

TIC ESTIMATE $ 100,000,000 P10 $ 80,000,000

$ 20 M

$ 10 M

(- 20%)

(+ 10%)

P90 $ 110,000,000

7. Analysis Conclusion: Capital Cost Estimate with a TIC value of $100M, 13% Contingency, and a +10/-20 accuracy range. This means that the TIC is expected to be anything between 110M (+10%) and 80M (-20%), with a 50/50 chance that it will be 100M (P50 value)

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16.3 SCHEDULE RISK ANALYSIS

The determination of schedule float and the degree of confidence in achieving the scheduled completion date is made from a formal risk analysis of the overall EPC Schedule once it is prepared. The cost and schedule risk analysis processes are similar and closely related to each other; schedule accelerations or extensions will always have an impact on the project cost. On the other hand, the output of the cost risk analysis could influence the sequence or durations of the scheduled activities. While the cost risk management processes are based on the TIC Estimate or project CBS, the processes for schedule are applied to the schedule network. (elements that require money expenditure to complete a project versus elements that require time expenditure to complete a project) In an integrated WBS/CBS environment, where appropriate cost estimates are assigned to schedule activities, the analysis will be done against the same structure. The schedule risk analysis process starts with the review of the base case (deterministic) schedule to ensure that the schedule is an accurate representation of the scope of the project, level of resources assigned and project calendars. The quality of the schedule risk

analysis process is highly dependent on the quality of the Schedule Review Through discussions with knowledgeable project participants (Risk Workshop), risks are identified and the related consequences of these risks to project activities are assessed.

could be considered, i.e. filter near critical path activities, “risk banding” for large number of common activities, etc.).

• Concentrate on critical sequences. Risk Range

In the specialized modules on risk analysis (PCDP Module 7 and 8) some good practices for describing, qualifying, quantifying and prioritizing risks will be presented.

For each schedule activity in the model assign the duration ranges based on past experiences or by getting input from the project stakeholders during the facilitated schedule risk inputs session.

Identify Risks

• Optimistic duration Shortest (most challenging) activity duration

Any responses to these risks should be included in the schedule base case, work breakdown structure, cost estimate, etc. This is work that has to be done.

• Most likely duration

Develop Model

• Pessimistic duration

From the deterministic schedule a risk input model is developed to be used in a facilitation and simulation. Enclosed below are some guidelines to develop Schedule Risk computer model:

• Develop summary critical path method schedule that shows underlying project structure, i.e. parallel paths, their key merge points, etc.

• Optimize the use of finish-tostart {FS} relationships; avoid constraints.

Probable duration of the activity.

Longest (most comfortable) activity duration. Simulation Similar to the principles outlined for the cost risk analysis, the schedule risk analysis simulation is performed. An additional note applicable to both is that in order to get sensible and meaningful results, the values random sampling is also driven by additional criteria like variables or activities correlations, probabilistic branching, chances that activity exists, etc.

• The number of schedule activities should not be too high (various other options

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P-Values

The P50 value is the completion date that has an equal chance of being achieved (50/50).

probability of 10% of being achieved. In other words the most optimistic (challenging) schedule scenario. In other words the most optimistic schedule scenario.

In schedule risk analysis also called “risk windows” represent the time slots in which activities are likely to occur. These risk windows give a graphical indication in form of a (coloured) bar chart of when the activity is likely to start and finish based on the risk analysis.

(Projected to a single activity risk windows, P10 and P90 are calculated for both activity start and finish dates, but more on that in the detailed PCDP module).

The P10 value is the schedule completion date that has a

The P90 value is conservative , it’s the completion date that has a 90% probability that it will be achieved. In other words the most comfortable schedulescenario.

“Ever tried? Ever Failed? No matter. Try again. Fail again. Fail better”

Schedule Risk Analysis Process 1. Create Schedule Risk Model 2. Risk Ranging (Trigen distribution)

~/~ Samuel Beckett

3. Run Monte Carlo simulation (1,000 iterations) 4. Find P10 - P50 - P90 Values

100% 90%

P90

80% 70% 60% P50

50% 40% 30% 20% P10

10% 0% Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

23 Nov ’10 Completion Date Base Case Schedule 5. Analysis Conclusion: Base Case schedule with a completion date of 23 Nov 2010 that has a likelihood of around 20% that this date will be achieved. The schedule has a 10% probability that it will be completed in early November, a 50/50 change of being completed in early January and a 90% chance of being completed in early February.

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Worley Parsons PCDP - Module 01 - Introduction to Project Controls.pdf

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