MANAGINGSMALLANDMEDIUMSIZED

CAPITALPROJECTS
ByPeterHessler,ConstructionBusinessAssociates|February1,2016

Areallifeexampleisprovidedtoshowhowtostayonprogramandwithinbudget

Overthepastfewyears,muchhasbeenwritteninthetradepressabouthowtomanagelarge,$1billionplusplant
constructionandexpansionprojectsinthechemicalprocessindustries(CPI).However,whenitcomestomanagingprojects
withasmallerscopesay,projectsinthe$25250millionrangeavarietyofnuancedmanagementissuesarise.Such
projectsincludesmallnewplants,additionstoexistingplants,andexpansionsofcurrentlyoperatingfacilities.Thisarticle
suggestspracticalandimmediatewaystodealwithsomeoftheuniquemanagementchallengesthatoftenarise.

Largemegaprojectsareusuallymanagedbyoneofthelarger,worldrenownedcontractorfirms,whichhaveafullsuiteof
projectmanagementtools,capabilitiesandexpertiseattheirdisposal.Suchcontractorshavebuiltlargerthanlifeprojects,
usingtriedandtrueprojectmanagementprotocolsthathavebeensuccessfullyusedonhundredsofprojectsovermany
decadesaroundtheworld.Althoughproblemsdooccur,theyaremoreoftenrelatedtomisunderstandingsthansurprises,and
thecontractorusuallyhasthedeepexpertiseneededtoaddressanyoftheseproblemsastheyarise.

However,smaller,morefrequentlyincurredprojects,suchasplantexpansionsorconversions,areoftenmanagedbysmaller,
lessexperiencedcontractors,whodonotalwayshaveexpertiseorexperiencewiththesophisticatedprojectmanagement
processesthatareusedbythemegacontractors.Asaresult,suchprojectsoftenrunwayoverbudget,defytimelineconstraints,
presentnumeroussurprises,andevenleadtolawsuits.

OnereasonisthattheCPIplantpersonnelwhoarefrequentlytaskedwiththeresponsibilityofoverseeingsuchprojectsare
not,bytraining,projectmanagers.Rather,theirexpertiseliesinrunningtheplantonadaytodaybasisensuringthatraw
materialsareavailable,thatexistingequipmentisreadyforproduction,andthattrainedpersonnelareavailabletomakethe
product.Theirexpertisedoesnotlieintherealmofmanagingengineeringmanhoursforplantdesign,orinprocuringand
expeditingthedeliveryanddeploymentoflargetanks,reactorvessels,pumps,motorsandmore.Andtheexperienceand
expertiserequiredtodetermineiftheconstructionportionoftheprojectisprogressingaspromisedandasneededtomeet
budget,schedule,qualityandsafetynormsistypicallybeyondtheskillsetofmostplantpersonneltheyaresimplynot
expertsatmanagingateamofcontractors.

Nonetheless,manyCPIorganizationsstilltrytomanagethecontractorswhoarebuildingtheirsmallormediumsizednew
plantorexpansionprojectsbyusingonlytheirexistingplantpersonnel.Sometimestheyderivecomfortfromassurancesfrom
theircontractors,whosaynothingwillgowrong.

Oftenthisisduetoareluctancetospendextramoneyonthirdpartyoverseers.Sometimesitisduetoaperceptionthatsince
projectbuildingandconstructionmanagementarenotbasedonfinelytunedformulasandrecipes,theseactivitiescansimply
beoverseenbyexistingplantpersonnel,addingjustafewhoursperweekofextradutiestoanalreadyfulltimeschedule.
Unfortunately,asisoftenthecase,theresultofsuchanapproachisascenariocharacterizedbybudgetoverruns,schedule
delays,andattimes,lawsuits.

AREALLIFEEXAMPLE

Discussedbelowisareallifeexampleofwhat
canhappenwhenthemeagerarechallenged
bytheeager.AtoneCPIfacility(Figure1),a
plantexpansionwasundertaken,involvingthe
constructionofanewfacilitytoreplacean
existingone,withthegoalofmorethan
doublingthenumberofproductsfrom80to
170.Theprojectwasplannedtobeperformed
withnodowntimesotheexistingfacility
continuedtoproducetheinitial80products
throughoutthisinitiative.

Nowenvisionthisnewfacilitydesignedfor14
newlyaddedproductionvesselsandreactors,
eachrequiringitsownpumps,motorsand
valves,andtappingintosharedservice
Figure1.Cantheownerofthischemicalplantexpansionbeassuredthatthisrelativelysmall systems.Imaginemorethantwodozenextra
projectwillbecompletedontimeandwithinbudget?Yes,andwithrelativeease,iftheteam
followstherecommendationsproposedhere largeholdingtanks,indoorsandoutdoors,
eachwithitsownsetofpipes,pumps,motors
andvalves,allfeedingintothe14production
vesselsandreactors.

Addtothistheneedtobuildastructuretohouseallofthisjustoneaspectoftheprojectthatrequiredmorethan2,500
cubicyardsofconcrete(enoughtobuildatenmilelongsidewalk),andmorethan600tonsofstructuralbuildingandsupport
steel.Thefivemilesofstainlesssteelpipingconnectingallofthesetanks,vessels,andreactorsrequired15,000individualbutt
welds.Alsorequiredwerepowercablesmorethan13milesofthemandnearly30milesofinstrumentationcablesto
connectmorethan1,500instruments.Althoughthisprojectinvolvedonlyonemaincontractor,therewere50subcontractors
involved,andeachrequiredcoordinationandsupport,inaplannedperiodof14months.

Howdoestheplantmanager,orhisorherdesignee,knowwhentroublemightbejustaroundthecorner?Usually,themain
contractorpromisesthatnothingmajorwillgowrong,butintheeventthattherearesignsofimpendingproblems,the
contractorpromisesthatthemanagementtoolsandprotocolsbeingusedwillhighlighttheminplentyoftimetoallow
correctiveactiontobetaken.Thiswasthecaseintheabovedescribedproject.

WHENREALITYSETSIN
Atsomepoint,realitydoessetin,asitdidinthecasediscussedhere.Onedaytheplantmanagerdecidedhisstaffwastoo
shorthandedtoreallyknowwheretheprojectstood.Thereweremorethan100craftsmenonthejob,largevessels,tanksand
reactorswerearrivingonaregularbasis,pipeprefabricationhadbegunatanoffsitefacility,andsafetyissueswerecropping
up.Theplantstaffjustcouldnotstayontopofitall.Soathirdpartyoverseerwasengaged.

Thatengagementresultedinaseriesofprojectreviewsandsubsequentdiscussions.Thefirstitemthatwasdiscussedwasthe
currentprojectstatusthatis,whatwasthecontractorsperceptionintermsofthepercentoftheworkcompleteatthattime?
Atthatpoint,thecontractorwasreportingthattheprojectwas46%complete.

Thefirstquestionfromthethirdpartyconsultantwas:Sothatmeanstheresonly54%moretogo,andthenyouredone?
Theanswerwasnotaresoundingyes.Thenextquestionsoughttolearnhowthe46%assessmentwasderived.Asitturnedout,
thatestimatehadnothingtodowiththeworkeffortactuallybeingexpendedtheprimarymeasurementneededtopredict
whenacapitalprojectwillbedone,andatwhatcost.

Thereforethediscussionsturnedtohowtobetterrecalibrateprogressmeasurement.Thecontractorwasencouragedtolookat
theremainingworkanddecidehowitshouldbescheduledgoingforwardbyindividualdisciplines(suchascivilworks,
steelerectionandpiping),orbyentiresystems(suchasreactorvesselsystems1,2,3andsoon)?Becauseiftheprojectreally
was46%complete,theworkmeasurementandfocusshouldhavebeenonreactorvesselsystemsinsteadofdisciplinesfor
quitesometime.Everyoneagreedonthis.

Toimprovetheprogressmeasurementprocess,thecontractorrestructuredthescheduletoreflecttheworkthatremainedin
ordertocompletetheoriginal14productionvesselsandreactorsandtheirsupportequipment.Thisnowallowedtheplant
managerandstafftovisualizewhereprogresswasactuallyoccurring,andwhereitwasnot.

Atthetimethecontractorprofessed46%progress,almostnoneofthe14vesselsorreactorshadyetbeenplacedinthe
building.Almostnoconnectingpipinghadbeenreceivedonsite.Andacheckofthewarehousereceivingareashowedalmost
novalves,instrumentsandothersundryitemsonhandandreadyforinstallation.Itwasclearthatthe46%completenumber
wasnotarealisticreflectionofthesituationatthattime.Sothentheopenquestionwas,whatshouldithavebeen?

MEASURINGPROGRESS
Sincetheprojectwouldultimatelyhavemorethan5milesofpiping,thecontractorsuggestedtheprojectsprogresscouldbe
measuredintermsoffeetofpipinginstalled.Thislogicwasagreedupon,becauseeverythingintheplant(outsideofelectrical
work)wasultimatelydependentonthepipinginonewayoranother.Forexample,thesteelwasneedednotonlytoframethe
buildinginwhichthepipingwouldreside,butalsotosupportthepipingasitwasbeinghung.Thepipingthenwouldconnect
allofthe14productionsystems,theirvessels,tanks,reactors,pumpsandmotors.Eveninstallationofmostofthevalvesand
instruments(notyetonsite)wouldultimatelybedependentuponthepiping.Dittofortheinsulation.Thereforetyingthe
projectprogresstotheamountofpipinginstallationcompletedmadesense.

However,thatwasnottheendofthestory.Thecontractorssuggestionthatusingthenumberoffeetofpipinginstalledasa
proxyfortheprojectsprogresshadanobviousflaw.Sinceprogressmeasurement,whichistiedtoscheduleandcost,isreally
aboutworkeffort,themanhoursrequiredtoputpipinginplacehadtobeconsidered.Forexample,howmucheffortdoesit
taketoraiseintoplaceatwofootsectionofpipeversusafourfootsection?Essentiallythesame,exceptthatthefourfoot
piececouldclaimtwicetheprogressofthetwofootpiece.

Soaslightlydifferentmeasurementwasrequired,andthatmeasurementwasthenumberofpipeconnections,inthiscase
welds.Regardlessofthelengthofthepipe,onlythenumberofcompletedweldstrulyreflectstherealprogressofthepiping
workhencethismeasureservesasanevenbetterproxyfortheprogressoftheoverallcapitalproject.

Therefore,asystemofweldcountswasdeveloped.Thisapproach,universallyusedintheconstructionoflargepowerplants,
waseasilyappliedtothisproject.Sincealmostalloftheweldswereofthesamesizeandwallthickness,astraightforward
countofweldssufficed,asopposedtotheconceptofdeterminingequivalentwelds.

Thesystemwassimple.Usingthedesigndocuments,mostofthe15,000weldswereassignedtoeachofthe14systemsandthe
remainderwereattributedtoacategorycalledcommon.Inthismanner,asweldswerecompleted,onecouldnownotonly
determinetheprojectsoverallpercentcomplete,butalsodeterminetheapproximatestateofreadinessofeachofthe14
systems.

Forexample,letssaythateachsystemhadapproximately1,000weldsassociatedwithit.Thatthenleft1,000weldstobe
assignedtothecommoncategory.Sotheagreementwasthatonlyonce7,500weldswerecompletecouldtheprojectworkbe
called50%complete,andthiswasnotyetthecase.

Whentheconsultantwasengaged,adetailedweldcountrevealedthatonly3,000ofthe15,000weldshadbeencompleted
leaving12,000weldsstilltobecompleted.Figure2showstheplanforthoseremaining12,000weldsoverthenextnine
months,andtheactualprogresstothemidpointofthejob.

Figure2.Shownhereisasnapshotoftheremaining12,000weldsrequiredtocompletetheproject,andtheactualpaceofcompletion

AsshowninFigure2,50%ofthetotal15,000weldswerecompletedinthefifthmonthofwelding.Pertheearlieragreement,
thatthenequatedtoaprojectcompletionof50%.

However,onceaconstructionproject,suchasthischemicalplantexpansion,reachesthat50%completionstage,thefocus
needstoshifttoincludecommissioningandstartup.Inthiscase,itwascomfortingtofinallyknowthatafter5monthsof
welding,approximatelyhalfoftheworkeffortwascompletebutthisdidnotassurethatall14systemswouldbereadyfor
commissioningandstartup,asneeded,fortheupcomingproductioncycle.So,attentionwasshiftedtodeterminewhichofthe
14systemsneededtobereadywhen.Thesystemswereprioritized,andthisefforthelpedtodetermineexactlywhichweldshad
tobemadenext.
Onecouldnowtakethepositionthat,havingestablishedarationalapproachformeasuringprogressandestablishing
priorities,theworkwaswellinhandandminimalattentionneededtobepaidtotheremainingeffortsofthecontractor.
Unfortunately,suchapositionisneverprudent,andlettinggoofthemanagementdetailscouldstillendupwiththeprojectin
astateofdisaster.Forthisreallifeproject,thiswasfortunatelyrecognizedbyallparties.

BUILDTRANSPARENCY
Thekeytobuildingtransparencyinacomplexexpansionorrevampprojectistoknow:

Whentoswitchfrommeasuringbydisciplinetomeasuringbysystem

Howtodetermineprogressasitrelatestoworkeffort

Howtomeasureprogressasitrelatestoproductivity

Howtomeasureprogressasitrelatestobudget

Howtodetermineoverallprojectcompletion

COSTS
Thequestiontobeaskedatthisstageoftheprojectwaswhetherornotthecontractorcouldmeettheresourcerequirementsto
getfromthecurrent50%to100%withintheallottedbudget,inaccordancewiththerestructuredschedule.Toanswerthis
question,anadditionalviewoftheprojectwasrequiredbeyondjustmeasuringthepercentcompleted.Theaddedinsight
requiredthatthepercentcompleteneededtobemeasuredandplottedagainsttime,sothattheprojectcouldprogressgoing
forward.Figure3providesanexampleofthis.
 Figure3.Thisprogressgraphprojectsthatifnochangesaremade,theprojectwillstillbecompletedontime,butalmost20%overbudget

AsshowninFigure3,plottingmanhours(ontheleftverticalaxis),andpercentcomplete(ontherightverticalaxis)against
timeonthehorizontalaxis,bothagainstaplannedpercentcompletecurve(shownwithablackdashedline),tellsan
interestingstory.Itshowsthatafter7months,the14monthprojectisessentiallyatthe50%point,justaswasplanned.
However,italsoshowsthatthecostsareexceedingthebudget,andactuallyhavebeensincetheworkwasinitiated.Ifthiswere
allowedtocontinuewithoutachangeincourse,itwouldhaveresultedina20%overrun(orgreater)ofthebudget.

Inmostscenarios,thisisnotacceptable.Sotheprojectteamneededtoreviewtheplansthatwereinplaceforcompletingthe
secondhalfofthisproject.Thegoalwastoseeiftheremightbealternateapproachesthatwouldstillmaintaintheschedule
whilealsomaintainingorreducingthecostsandresourcesrequired.Usually,atthisstageoftheproject,therearestillsome
opportunitiestochangethetrajectoryofthebudgetprojectionsandtimelines.Inthisparticularproject,withhalfofthe
weldingstilltobecompleted,changingfrommanualtoorbitalweldingprovidedanidealopportunitytoreducefuturecosts
(byreducingthenumberofhoursrequiredtocompletethiswork).

THEOUTCOME
Ultimately,thisprojectwascompletedontimeandwithinbudget.However,itisdoubtfulthatoutcomewouldhavebeenthe
resultwithouttheinterventionofsomeoneattunedtotheintricaciesofprojectmanagement,someonewhounderstoodthe
complexitiesoflinkingtheworldsofengineeringandequipmentprocurementwiththeworldofconstruction(classically
calledEPCmanagement).Theinterventionstartedwithashifttomanagetheprojectnotbyphysicaldisciplines,suchascivil,
steelandmechanicalerection(thetraditionalapproach),butbyproductionsystems(discussedearlier).Thisallowed
everyonesfocustoberealignedtoconcentrateon,andpreparefor,thesystemsreadiness.
Thenextstepwastodevelopasystemofprogressmeasurementthatreflectedactualworkeffortexpendedversustheeffortthat
wasstillrequired.Inotherwords,ifaprojectis46%complete,doesthattrulytranslateintoonly54%moreworkeffort
manhoursrequiredtocompletetheproject?Thechallengehereistopickameasurementthatisreadilyunderstood,yet
representativeofboththeactualworkperformedandtheremainingworkstilltobeperformed.Inthiscase,settlingonthe
measurementofthenumberofpipingweldscompletedwaskey.

Thethirdstepwastomarrytheprogressmeasurementandpercentcompletewiththeworkeffortexpended.Inreality,thegoal
wastodeterminetheworkeffortstillrequiredtogettocompletion(thatis,howmanymanhourshavebeenusedversushow
manymorearerequiredtocompletethework).Comparingthesetwometrics(percentcompleteandmanhoursstilltobe
expended)againstatimelineprovidesinsightintowhethertheprojectwillbecompletedontimeandwithinbudget.Inthis
case,theanswerwasno,unlessother,lesscostlyormoreefficientwayswerefoundtocompletetheremainderofthework.This
challengewasaddressedbyswitchingtoorbitalwelding.

THERESTOFTHESTORY
Thepriordiscussionconcentratedonthemechanicalworkrequiredtocompletethisproject.Similarapproachesweretaken
withtheelectricalworkandtheinstrumentationwiring.Thesedisciplines,withineachofthe14systems,werealsomeasured
andcomparedtopercentcompleteagainsttime.

Fortheelectricalwork,wiringterminationswereusedinasimilarmannerasweldcounts(asareasonableproxyforwork
completed).Themechanicalworkthenwasproratedwiththeelectricalandinstrumentation(E&I)worktoderiveatotal
percentoftheprojectcompleted.Forthisproject,themechanicalworkwasassignedavalueof65%(basedontotalmanhour
requirements).TheE&Iworkwascollectivelyassigneda35%value.Sowhenhalfofthemechanicalworkwascomplete
(50%),andthe20%oftheE&Iworkwascomplete,theoverallprojectwas40%complete,calculatedasfollows:

Addingthesetwonumbers(33%plus7%)demonstratesthat40%ofthetotalworkhadbeencompleted.Thismeasurement
processcontinueduntiltheprojectreachedcompletion(100%).

THETAKEAWAY
THETAKEAWAY
Insummary,whenfacedwithanEPCplantbuildoutorexpansionprojectthatdoesnotinvolvealarge,dedicatedindustrial
plantconstructioncontractor,thoughtshouldbegiventowhatcouldgowrong.Doestheplantstaffhavetheproject
managementexperiencetoensuretotaltransparencybetweenthecontractorandtheplant?Evenifitdoes,willtheplant
managementstaffhavethetimerequiredtoensurethis?Istheresomeoneavailablewhocanprovidetheproverbialsnifftest
thatallaspectsareontrack?Inotherwords,issomeoneavailableonstafftodrilldownintothedetailsoftheprojecttoensure
thistransparency?

Iftheanswertoallofthesequestionsisadefiniteyes,thennomoreisrequired.However,ifitisnotanunqualifiedyes,then
theprojectwouldbenefitfromathirdpartypartnertoprovidesupportandoversight.

EditedbySuzanneShelley

AUTHOR
PeterHessleristhepresidentofConstructionBusinessAssociates,LLC(2310SevenLakesSouth,WestEnd,
NC273769104003113Email:pghessler@constrbiz.com),aproviderofbusinessmanagementservicesto
thepowerandprocessconstructionindustries.Hehasalmost40yearsofexperienceinthepowerand
industrialplantconstructionandmaintenanceindustry,worldwide,havingworkedasanowner,contractor,
andnowasaconsultant.HehasaB.S.inMechanicalEngineeringfromVirginiaPolytechnicInstitute,andis
theauthoroftwobooksonthesubjectofpowerplantconstructionmanagement.Healsohaspublished
numerousarticlesonvariousaspectsofmanaginglargeindustrialprojects.