Management of Mega Projects and Programs …HO20100329_101.PPT 2 Management of Mega Projects and...

© 2009 Fluor Corporation

Management of Mega Projects and ProgramsCreating Value Through Lessons Learned

Instituto Mexicano del PetróleoXVI Foro de Avances de la Industria de Refinación

1 de Julio, 2010 José Carlos Herrero

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Need to learn from the past

Reasons why owners invest

Adding value to owners investments

Root cause analysis on mega project failures

How to avoid mega project failures

Fluor University

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Creating Value Through Lessons Learned

“Building the Lessons of the Past into the Projects of Today”

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Recognize This Ship?

White Star’s The Olympic

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The Olympic: Commissioned14th June 1911

The Titanic: Commissioned11th April 1912

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Prelude to Disaster – The Olympic

21st Jun 1911– Upon commissioning crashed

into & almost sunk O.L. Halenbeck in Manhattan

20th Sep 1911– Crashed into the Naval Cruiser

the HMS Hawke in Southampton

24th Feb 1912 – Knocked-off one of its twenty-six

ton propellers on a well-known wreck in the Grand Banks

Captained by Edward J. Smith

Damage to the Olympic from the HMAS Hawkeimpact

Ref: ‘The Riddle of the Titanic’, Gardiner et. al. Orion, 1998

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Captain Edward J. Smith

27th Jan 1889– Ran The Republic aground in New

York

1st Dec 1890– Ran The Coptic aground in Rio de

Janerio

4th Nov 1909– Ran The Adriatic aground outside New

York

History of running ships too fast through narrow passages and of not adequately training his officers

Captain Smith was commissioned to command the TitanicRef: ‘The Riddle of the Titanic’, Gardiner et. al. Orion, 1998

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Tragic, Preventable Circumstances

Titanic - 14th April 1912– Sea dotted with hundreds of ice flows…no extra lookouts posted– Smith received up to 6 warnings of ice field from ships in area – No binoculars available in crow’s nest …early warning nearly impossible – Very hazy conditions…lookouts confused in what they saw ahead of them– Titanic sped toward ice field at 22.5 knots (10 knots recommended for conditions)


Applying Tenets of Operation:1. Operate within design and environmental limits.2. Operate in a safe and controlled condition.3. Ensure safety devices are in place and functioning.4. Follow safe work practices and procedures.8. Address abnormal conditions.9. Follow written procedures for high-risk or unusual

situations.10. Involve the right people in decisions that affect

procedures and equipment.

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Motivations for speed– Desire to break transatlantic speed record – Encouraged by J. Bruce Ismay (White Star project sponsor),

on board for maiden voyage


Applying Tenets of Operation:2. Operate in a safe and controlled condition.5. Meet or exceed customer’s expectations.

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Safety response capability– Lifeboat count reduced from 64 to 22 to enable more expansive promenades– Officers not trained in lifeboat use and were unsure of lifeboat capacity– No safety-response plan...‘Women and Children first’ was a reaction, not a

predetermined plan


Applying Tenets of Operation:2. Operate in a safe and controlled condition.3. Ensure safety devices are in place and functioning.4. Follow safe work practices and procedures.7. Comply with applicable rules and regulations.9. Follow written procedures for high-risk or unusual

situations.10. Involve the right people in decisions that affect

procedures and equipment.

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MIT Findings / Conclusions

0 5 10 15 20 25 30 35 40

Meet or exceed customer requirements

Comply with all rules and regulations

Maintain integrity of dedicated systems

Operate within design and environmental limits

Follow written procedures for high risk or unusual situations

Involve the right people in decisions

Ensure safety devices are in place and functioning

Address abnormal situations

Operate in a safe and controlled condition

Follow SWP and procedures

Number of Incidents

Tenets Not Followed

20% of the incidents involved “snap decisions” by individuals (i.e. a quick decision that violated tenets or was made without understanding or assessing the risk)

Tenets were not used as an active part of decision making by individuals or teams

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0

5

10

15

20

25

30

35

40

45

50

Low Sense ofVulnerability

Risk Review LessThan Adequate

Normalization of Deviation

Demonstrate VisibleLeadership &

Commitment LessThan Adequate

Insufficient Auditing

OpenCommunication

Less Than Adequate

IndependentValidation/Diversity

of Opinion LessThan Adequate

Nu

mb

er

of

Inci

de

nts

Organizational Culture

Low Sense of Vulnerability:

Underlies many of the identified RCs Deemphasizes risk assessments &

auditing Allows for “snap decisions” Can result from ineffective processes for

learning from past incidents Results in high normalization of deviation

(i.e. complacency)

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References

Sources:

• “Titanic Lessons for IT Projects”, MultiMedia Publications, Authored by Mark Kozak-Holland, HP Services, September 21, 2006, Presentation for PMI Mass Bay

• “Could disaster have been prevented?” Case study– Second set of lessons from Titanic, New publication authored by Mark Kozak-Holland, HP Services, May 31st, 2006, Presentation for PMI CTT

• Safety Presentation authored by J P Kenny

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Fluor University

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Reasons Why Owners Invest

Most of the time is to improve the Return on the Capital Employed (ROCE)

ROCE = Revenues - Opex / Capex

How a contractor can help an owner to add value to the equation

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Adding value to owner’s investments



Fluor University

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Project Management and Value Creation

Good Project, Good Definition

Poor Project Definition

Poor Project Execution

Good Project Execution

Phase 1Opportunity

Identified andAssessment

Phase 2Generate &

SelectAlternatives

(FEL 1)

Phase 3Develop

PreferredAlternative

(FEL 2 and 3)

Phase 4Execute

EPC

Phase 5Operate &Evaluate

Opportunity for value creation maximized in Phases 1, 2 and 3

AFE

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Random SuccessGood Projects

Average Execution

Consistent SuccessGood ProjectsGood Execution

Success UnlikelyPoor ProjectsPoor Execution

Dec

isio

n Q

ualit

y

Execution Quality

Low HighMedium

Hig

hM

ediu

m

Random SuccessPoor ProjectsGood Execution

Corporate Vision For Program Management

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Adding Value to Owners Investments

Optimal process plant configuration during the FEL 1

Excellence in Execution/ Baseline Centric (FEL 2,3 and EPC)

Applying Value Improving Practices (FEL1, 2, 3, EPC)– Standard 11 IPA VIP’s– Fluor 12 specific VIP’s

Reliable AFE (Cost and Schedule) (FEL 2, 3, EPC)

Applying Change Management (FEL 2 and 3 and EPC)

Right first time (Flawless) Start-up (planning from the beginning)

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Fluor University

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Root Cause Analysis on Mega Project Failures

Few Mega Projects meet Cost and Schedule Targets

3 independent sources of information– Megaprojects and Risk: An Anatomy of Ambition. Bent Flyberg, Nils Bruzelius

and Werner Rothengatter (2002). Cambridge University Press : “Cost over runs of 50% to 100% in real terms are common, and over runs above 100% are not uncommon”.

– Alborg University, Denmark study: “Cost underestimation and overruns have not decreased over the last 70 years. No learning seems to take place”.

– Two recent presentations by IPA:• 2006 38th ECC Conference: “56% of international mega projects experienced cost

and/or schedule overruns of more than 25%”.• 2009 Alberta experience: “Between 1998 and 2008 massive cost blowouts. The largest

projects took the biggest hits (48% of projects over $500 MM)

Cost underestimation and overruns can’t be explained only by estimating errors.

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10 Top Reasons of Mega Project Failures

Inefficient project organization/decisions structure * Inadequate risk management *Unrealistic cost estimates and schedules* Poor Scope Definition Inadequate Execution PlanShortage of ResourcesDelays in Engineering, Procurement and ConstructionAbsence of a “No Change” culturePoorly developed goals & expectationsMisalignment between stakeholders

What to do?

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Fluor University

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How To Avoid Mega Project FailuresWhat Owners Can Do?

Use a Toll Gate Process and for World-class Capital stewardship: – Value Improving Practices– Best Practices

Appropriate Contracting Strategies– Use of Program Management Contractor (PMC) – Effective interface management– Analysis of contracting alternatives– Early Contractor pre-qualification, evaluation, selection and

continuity Critical Issues / Risks Identification

– Implement and enforce a rigorous Risk Management system– Early identification & management– On going risk assessment and mitigation plans– Ownership of action plans

Personnel development and training– Processes and Procedures

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PMC Focus - Total Program View

EPC ContractorPMC/Owner

MaintenanceTraining

Contractors

Constructor

Engineer

Process/Planner

Phase 5Operate &Evaluate

Phase 4Execute

EPC

Phase 3Define Project(FEL 2 and 3)

Phase 2Generate and

Select Alternatives(FEL 1)

Phase 1Identify & Assess

Opportunity

Operational Support

Maintenance

Training

Start-Up

Construction

Procurement

Design / Engineering

Feasibility Studies

Concept Development

Basic Design

Business Planning

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Program Manager’s Focus

PMC/Owner

Project 1

Project 2

Project 3

Project 4

PMC ’s Focus Must Extend Across Dependent Projects within the

Program

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What is Program Management

The process of providing execution certainty to meet the strategic business objectives of an owner.

Requires a broader, more strategic focus than project management and a tighter integration across all elements of the execution process

It is not just the sum of all project management activities but also includes management of the risks, opportunities, and activities that occur “in the white space” between projects.

Opportunities of leverage across projects, benefits of standardization and management of systemic risks

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Management of the White Spaces

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Program Manager’s Focus

IntegratedRefinery

program Strategy

EconomicDevelopment

Strategy

SocialDevelopment

Strategy

EnvironmentalSustainability

Strategy

IntegratedRefinery Program

BusinessDevelopment

Program

Social Development

Program

EnvironmentalSustainability

Program

Crude/VacuumDistillates

CokerU&O

Cogeneration

Capacity buildingIndustry creation

Infrastructure development

Staff trainingKnowledge

capture Craft training

Energy optimization

Waste minimization

Water Minimization

Common temp. facilitiesSite prep. contract

Standardization agreements

Infrastructure contracts

Independent Revenue Analysis

Safety training Knowledge database

Craft training contract

Construction materials recycling

Program Management

Level 0Strategy

Level 1Program

Level 2Project

Level 3Work Package

/ContractProgram Phases

(time)

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How To Avoid Mega Project FailuresWhat Contractors Can Do?

Program Organization with clear Roles & Responsibilities focused on ROCE and meeting strategic objectives

Develop reliable Cost / Schedules– Work process and Systems– Historical data– Base Line Centric Execution

Professional Business Risk Management

Invest in Personal Development and Training

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Fluor University

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Fluor University

Permanent Project Execution Services organization serving Fluor’s 5 Business Groups:

– Energy & Chemicals– Power– Global Services (Operations & Maintenance)– Industrial & Infrastructure– Government

Global Excellence (Functional) Leaders are the Deans of the Virtual Fluor University:

– On line and Instructor based courses– Practices and Work Processes

Knowledge on Line – Knowledge communities, Forums and Knowledge objects

Training to owners

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Questions

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Lessons Learned

Focus on safety at all levels of the organization

Actively communicate safety expectations to employees

Strive for safe behavior, not catchy slogans– Act consistently with safety message– Do not sacrifice safety for other concerns

Train personnel in safe work practices and procedures for their specific positions

Learn from the past– Report incidents and near misses– Identify unsafe conditions and at-risk behaviors – Determine root causes and take corrective action

Coach employees displaying pattern of at-risk behavior

Management of Mega Projects and Programs …HO20100329_101.PPT 2 Management of Mega Projects and...

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