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How to Create a World-Class Project Management Organization?

Dr. Nick J. Lavingia, P.E. Chevron Project Management Consultant


APEGGA Annual Conference, Calgary April 26-27, 2007

Nick Lavingia

Dr. Nick J. Lavingia, P.E. Project Management Consultant Chevron

Nick has over 30 years of Global Project Engineering, Management, Consulting and Training experience in the Energy industry. As a Project Management Consultant at Chevron, he provides Consultation and Training to Project Professionals worldwide.
Nick has a B.S. and M.S. in Chemical & Petroleum-Refining Engineering and a Ph.D. in Engineering Economics & Management from the Colorado School of Mines. He is a registered Professional Chemical Engineer in the State of California. Nick is a member of Project Management subcommittee for Athabasca Oil Sands expansion project. He has published and presented many papers at technical organizations and is a recipient of industry award from Pathfinder for outstanding Contribution to the advancement of Project Management Technology and Chevron Chairmans award for implementing Value Engineering throughout the corporation.
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Agenda
Business Case for Improvement Five Steps to Success: Step 1: Common Language (PMIs PMBOK) Step 2: Common Project Development & Execution Process Step 3: Application of Value Improving / Best Practices Step 4: Total Cost Management Step 5: Training & Certification Summary Q&A
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Business Case for Improvement


Improved Capital Stewardship
Lower Costs More Projects Better Projects

Improved ROCE
Higher Earnings Growth Higher Market Confidence Higher P/E Improved TSR
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Project Managements Impact on the Bottom Line

Project Management Improves ROCE by Increasing Revenues, Decreasing Expenses, and Reducing Capital Employed
REVENUE MINUS EXPENSES CAPITAL EMPLOYED

= ROCE

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Project Management Leads to Pacesetter Performance (Cheaper, Faster, and More Predictable)

Industry Average

1.25

Company X
30% Improvement
Industry Average

Facility Cost

Pacesetter Company

0.75 0.75 1 30% Improvement 1.25

Execution Schedule
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Step 1. Common Language

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PMIs PMBOK
Project Management Skills from PMBOK:
--Project Integration Management --Project Scope Management --Project Time Management --Project Cost Management --Project Quality Management --Project Human Resource Management --Project Communications Management --Project Risk Management --Project Procurement Management

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Step 2. Common Project Development & Execution Process

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Project Development & Execution Process


A Process that Facilitates the Optimal Use of Resources (Dollars, People and Technology) Over the Life of an Asset / Project to Maximize Value.
Desired Outcome Select the Right Projects by Improving Decision Making Improve Project Outcomes through Excellence in Execution of Decisions
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Project Management Vision


High Random Success Good Projects Average Execution Mid Success Unlikely Poor Projects Poor Execution Low Mid Random Success Poor Projects Good Execution High Consistent Success Good Projects Good Execution

Decision

Quality

Execution Quality

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Project Development & Execution Process


AFE

PHASE 1
IDENTIFY & Assess Opportunities

PHASE 2
SELECT from Alternatives

PHASE 3
DEVELOP Preferred Alternative

PHASE 4
EXECUTE (Detail EPC)

PHASE 5
OPERATE & Evaluate

Determine Project Feasibility and Alignment with Business Strategy

Select the Preferred Project Development Option

Finalize Project Scope, Cost and Schedule and Get the Project Funded

Produce an Operating Asset Consistent with Scope, Cost and Schedule

Evaluate Asset to Ensure Performance to Specifications and Maximum Return to the Shareholders

AFE = Appropriation For Expenditure Nick Lavingia


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Project Managements Impact on Creating Value

Value Identification
Good Project Definition VALUE

Value Realization
Good Project Execution

A B
Poor Project Execution

C
Poor Project Definition
Phase 1 Opportunity Identified Phase 2 Generate & Select Alternatives Phase 3 Develop Preferred Alternative Nick Lavingia

AF E

D
Phase 4 Execute Phase 5 Operate

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Project Development & Execution Process


AFE

PHASE 1
IDENTIFY & Assess Opportunities

PHASE 2
SELECT from Alternatives

PHASE 3
DEVELOP Preferred Alternative

PHASE 4
EXECUTE (Detail EPC)

PHASE 5
OPERATE & Evaluate

Clearly Frame Goal

Generate Alternatives Preliminary Development of Alternatives Develop Expected Value Identify Preferred Alternative Phase 2 Est.

Fully Define Scope Develop Detailed Execution Plans

Implement Execution Plan Min. Changes

Operate Asset Monitor & Evaluate Performance Identify New Opportunities

Test for Strategic Fit


Preliminary Overall Plan

Finalize Refine Estimate Operating Plan


Submit Funding for Approval ~25 % Engng. Phase 3 Est. (+/- 10 % Accuracy)

Preliminary Assessment
~1 % Engng. Phase 1 Estimate

Business Plan for Phase 5

Project Review
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AFE = Appropriation For Expenditure Nick Lavingia

Influence vs. Expenditures


Major Influence Rapidly Decreasing Influence Low Influence

Final Authorization EXPENDITURES INFLUENCE

Front End Loading

IDENTIFY
DSP

Gate

Gate

SELECT
DSP

Gate

Gate

DEVELOP
DSP

Gate

Gate

EXECUTE
DSP

Gate

OPERATE
DSP

Gate

Front End Loading


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DSP = Decision Support Package


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Key Players Decision Makers Multifunctional Project Team --Business, Technical, Operations and Maintenance Stakeholders Contractors Vendors / Suppliers
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Managements Role (1)


AccountabilityBusiness evaluation should be conducted 1 to 2 years after project completion and Project Sponsor should be held accountable for the financial outcome. AccessibilityManagement should actively participate in gate keeping meetings at the end of each phase of the Project Management Process and communicate frequently with the project team.
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Managements Role (2)


LeadershipManagement should establish clear expectations and objectives for the project team.

ResourcesProvide resources of right people and funding to support the project team. BehaviorsDemonstrate visible support and provide positive consequences for following Project Management Process, Best Practices and sharing Lessons Learned.
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Step 3. Application of Value Improving / Best Practices

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Value Improving / Best Practices


Value Improving / Best Practices are tools to improve project planning and execution. In conjunction with a structured Project Management Process they can optimize: Cost Schedule Performance Safety
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Value Improving / Best Practices


Phase 1
IDENTIFY & Assess Opportunities

Phase 2
SELECT from Alternatives

Phase 3
DEVELOP Preferred Alternative

Phase 4
EXECUTE (Detail EPC)

Phase 5
OPERATE & Evaluate

Decision & Risk Analysis Project Execution Planning Lessons Learned (Seek) Value Improving Practices by IPA Peer Review Pre-Funding Assessment
$ EST D PFD $ EST D P&ID D AFE D

(Share)

Post Project Assessment Business Evaluation


D

Legend:

AFE = Appropriation for Expenditure D = Decision Point IPA = Independent Project Analysis, Inc.

PFD = Process Flow Diagram P&ID = Piping & Instrumentation Diagram


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Step 4. Total Cost Management

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Total Cost Management


Phase 1 IDENTIFY & Assess Opportunities
Economic Analysis (NPV, ROR, Payout) Cost

Phase 2 SELECT from Alternatives

Phase 3 DEVELOP Preferred Alternative

Phase 4 EXECUTE (Detail EPC)

Phase 5 OPERATE & Evaluate

Estimating
(Funding +/- 10% Accuracy) (Definitive) (Cost Collection / Analysis)

(Conceptual) Planning/Scheduling (Milestone) Benchmarking (Cost / Capacity) (Set Pacesetter Target) (CPM Bar Chart)

(CPM Resource Loaded) (Pre-Funding Assessment)

(Monitor & Update) (Post-Project Assessment)

Contracting/Procurement
(Strategy) (Pre-Qualification) (Award / Monitor) (Closeout)

Performance Measurement Cost Control/Forecasting


(WBS) (Establish Progress Payments) (Establish Cost Accounts & Budgets)

(Earned Value) (Trend / Forecast)

Progress reporting Finance/Audit


$ EST (Capital versus Expense) D P&ID NPV = Net Present Value ROR = Rate of Return CPM = Critical Path Method D (Asset Accounting)

PFD

$ EST

AFE

Legend: AFE = Appropriation for Expenditure D = Decision Point EPC = Engineer, Procure & Construct

WBS = Work Breakdown Structure 23

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Step 5. Training and Certification

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Training
Project Management Skills from PMBOK --Project Integration Management --Project Scope Management --Project Time Management --Project Cost Management --Project Quality Management --Project Human Resource Management --Project Communications Management --Project Risk Management --Project Procurement Management Business Decision & Risk Analysis Leadership Roles & Behaviors

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Certification
All Decision Makers should be certified in: -- Overview of PMBOK Areas -- Business Decision & Risk Analysis -- Leadership Roles & Behaviors All Project Professionals should be certified in: -- PMBOK Areas -- Business Decision & Risk Analysis -- Leadership Roles & Behaviors

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Summary
Common Language, Common Project Development & Execution Process, Application of Value Improving / Best Practices, Total Cost Management and Training / Certification can help create a World-Class Project Management Organization that Delivers: Better Cheaper Faster Safer

PROJECTS
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