Procurement s contribution to major project delivery Robert Pease, The Faculty. CIPSA Major Projects Forum, 1 June 2011

Transcription

1 Procurement s contribution to major project delivery Robert Pease, The Faculty CIPSA Major Projects Forum, 1 June 2011

2 Agenda The business case for Procurement s involvement The challenge of managing major projects? Contrasting the Operational and Project Procurement environments Value defined The Project lifecycle- definition and value drivers over the project lifecycle Opportunities for applying a category management approach in a project environment Case study 2

3 The business case for procurement s involvement As 50% to 70% of a typical projects budget is externally spent, Project success is critically dependent upon external supply 3

4 The chequered history of major projects

5 The chequered history of major projects Federation Square Myki Pluto LNG Project NSW Waratah Class Trains

6 Why do major projects blow out? Specifications and scope of work not adequately detailed Thin business cases pass with too little scrutiny and fails to adequately consider contracting and sourcing strategy and life cycle operational costs Timeframes are unrealistic and poorly understood Up front cost benefit analysis work doesn t take into account the realities of the supply market Management of resources is uncoordinated Assumptions are made and treated as fact Murphy s Law The unexpected always turns up

7 Why do major projects blow out? Specifications and scope of work not adequately detailed Thin business cases pass with too little scrutiny and fails to adequately consider contracting and sourcing strategy and life cycle operational costs Timeframes are unrealistic and poorly understood Up front cost benefit analysis work doesn t take into account the realities of the supply market Management of resources is uncoordinated Assumptions are made and treated as fact Murphy s Law The unexpected always turns up

8 Why do major projects blow out? Specifications and scope of work not adequately detailed Thin business cases pass with too little scrutiny and fails to adequately consider contracting and sourcing strategy and life cycle operational costs Timeframes are unrealistic and poorly understood Up front cost benefit analysis work doesn t take into account the realities of the supply market Management of resources is uncoordinated Assumptions are made and treated as fact Murphy s Law The unexpected always turns up

9 Why do major projects blow out? Specifications and scope of work not adequately detailed Thin business cases pass with too little scrutiny and fails to adequately consider contracting and sourcing strategy and life cycle operational costs Timeframes are unrealistic and poorly understood Up front cost benefit analysis work doesn t take into account the realities of the supply market Management of resources is uncoordinated Assumptions are made and treated as fact Murphy s Law The unexpected always turns up

10 Why do major projects blow out? Specifications and scope of work not adequately detailed Thin business cases pass with too little scrutiny and fails to adequately consider contracting and sourcing strategy and life cycle operational costs Timeframes are unrealistic and poorly understood Up front cost benefit analysis work doesn t take into account the realities of the supply market Management of resources is uncoordinated Assumptions are made and treated as fact Murphy s Law The unexpected always turns up

11 Why do major projects blow out? Specifications and scope of work not adequately detailed Thin business cases pass with too little scrutiny and fails to adequately consider contracting and sourcing strategy and life cycle operational costs Timeframes are unrealistic and poorly understood Up front cost benefit analysis work doesn t take into account the realities of the supply market Management of resources is uncoordinated Assumptions are made and treated as fact Murphy s Law The unexpected always turns up

12 Why do major projects blow out? Specifications and scope of work not adequately detailed Thin business cases pass with too little scrutiny and fails to adequately consider contracting and sourcing strategy and life cycle operational costs Timeframes are unrealistic and poorly understood Up front cost benefit analysis work doesn t take into account the realities of the supply market Management of resources is uncoordinated Assumptions are made and treated as fact Murphy s Law The unexpected always turns up

13 Why do major projects blow out? Specifications and scope of work not adequately detailed Thin business cases pass with too little scrutiny and fails to adequately consider contracting and sourcing strategy and life cycle operational costs Timeframes are unrealistic and poorly understood Up front cost benefit analysis work doesn t take into account the realities of the supply market Management of resources is uncoordinated Assumptions are made and treated as fact Murphy s Law The unexpected always turns up

14 Contrasting Operational versus Project Procurement Repeatable Operational Procurement Procurement is a key stakeholder Cost reduction Focus is continuous improvement and Supplier Relationship Management One- off Project Procurement Project Manager is the key stakeholder Delivery in- full, on- time and on- budget Focus is transactional sourcing and Supplier Risk Management

15 The operational procurement process Also known as Category Management

16 The operational procurement process Also known as Category Management Category Management Develop category spend profile Identify stakeholders & business drivers Analyse supply markets Develop category strategy Implement Strategy Continuous Improvement

17 The operational procurement process Also known as Category Management Category Management Develop category spend profile Identify stakeholders & business drivers Analyse supply markets Develop category strategy Implement Strategy Continuous Improvement Focus is on: Stakeholder engagement Supply market analysis Continuous Improvement Value drivers: Cost reduction Supply Continuity Innovation

18 The typical project procurement process Project Procurement Identify project work packages Identify stakeholders & business drivers Analyse supply Develop markets contracting strategy Implement Strategy Continuous Improvement

19 The typical project procurement process Project Procurement Identify project work packages Identify stakeholders & business drivers Analyse supply Develop markets contracting strategy Implement Strategy Continuous Improvement Focus is on: Sourcing Scope of work Scheduling & expediting Value Drivers: On Time On Budget On Specification

20 Value defined Service Innovation Cost Risk

21 Value defined Service Innovation Cost Improvement: Cost reduction Savings delivery Total cost of ownership Cost Risk

22 Value defined Service Innovation Cost Improvement: Risk Improvement: Cost reduction Savings delivery Cost Risk Safety Reputation Total cost of ownership Financial Business Continuity

23 Value defined Service Improvement: Customer service Delivery Service Innovation Information sharing Cost Improvement: Risk Improvement: Cost reduction Savings delivery Cost Risk Safety Reputation Total cost of ownership Financial Business Continuity

24 Value defined Service Improvement: Innovation Improvement: Customer service New products Delivery Information sharing Service Innovation Systems and technology improvements New approaches to the category Cost Improvement: Risk Improvement: Cost reduction Savings delivery Cost Risk Safety Reputation Total cost of ownership Financial Business Continuity

25 Taking a lifecycle approach to project and asset management Planning Delivery Operation

26 Taking a lifecycle approach to project and asset management Planning Delivery Operation On Time On Budget On Specification

27 Taking a lifecycle approach to project and asset management Planning Delivery Operation On Time On Budget On Specification Key Value Driver Sourcing of Work Packages Scheduling and expediting Management of delivery risk

28 Taking a lifecycle approach to project and asset management Planning Delivery Operation Strategic goal alignment ROI On Time On Budget On Specification Key Value Driver Sourcing of Work Packages Scheduling and expediting Management of delivery risk

29 Taking a lifecycle approach to project and asset management Planning Delivery Operation Strategic goal alignment ROI Key Value Driver On Time On Budget On Specification Key Value Driver Up front planning Scope of Work definition Contracting strategy Sourcing of Work Packages Scheduling and expediting Management of delivery risk

30 Taking a lifecycle approach to project and asset management Planning Delivery Operation Strategic goal alignment ROI Key Value Driver On Time On Budget On Specification Key Value Driver Utility Operating service level Operating cost Up front planning Scope of Work definition Contracting strategy Sourcing of Work Packages Scheduling and expediting Management of delivery risk

31 Taking a lifecycle approach to project and asset management Planning Delivery Operation Strategic goal alignment ROI Key Value Driver On Time On Budget On Specification Key Value Driver Utility Operating service level Operating cost Key Value Driver Up front planning Scope of Work definition Contracting strategy Sourcing of Work Packages Scheduling and expediting Management of delivery risk Lifecycle or total cost analysis Involvement in SOW development Handover from Project to Operations

32 Applying a Category Management approach Four ways to apply a Category Management approach:

33 Applying a Category Management approach Four ways to apply a Category Management approach: 1. Get upstream to anticipate problems and increase procurement input into the specification and the scope of work.

34 Applying a Category Management approach Four ways to apply a Category Management approach: 1. Get upstream to anticipate problems and increase procurement input into the specification and the scope of work. 2. Develop innovative sourcing strategies that are aligned with supply market trends and serve to minimise risk and drive operational outcomes.

35 Applying a Category Management approach Four ways to apply a Category Management approach: 1. Get upstream to anticipate problems and increase procurement input into the specification and the scope of work. 2. Develop innovative sourcing strategies that are aligned with supply market trends and serve to minimise risk and drive operational outcomes. 3. Package up common spend items into pre- negotiated supply arrangements to deliver cost and administrative efficiencies, facilitate speed of purchasing and minimise risk.

36 Applying a Category Management approach Four ways to apply a Category Management approach: 1. Get upstream to anticipate problems and increase procurement input into the specification and the scope of work. 2. Develop innovative sourcing strategies that are aligned with supply market trends and serve to minimise risk and drive operational outcomes. 3. Package up common spend items into pre- negotiated supply arrangements to deliver cost and administrative efficiencies, facilitate speed of purchasing and minimise risk. 4. Improve quality of relationships with suppliers to be more resilient and responsive to unexpected events

37 1. Getting Upstream - Impact of Change: The Buyer Supplier Power Balance High Low Planning Contract Signed Delivery Final Acceptance Payment Operation End of Contract Term

38 1. Getting Upstream - Impact of Change: The Buyer Supplier Power Balance High Buyer Power Low Planning Contract Signed Delivery Final Acceptance Payment Operation End of Contract Term

39 1. Getting Upstream - Impact of Change: The Buyer Supplier Power Balance High Buyer Power Cost of Change Low Planning Contract Signed Delivery Final Acceptance Payment Operation End of Contract Term

40 1. Getting Upstream - Impact of Change: The Buyer Supplier Power Balance High Buyer Power Cost of Change Low Planning Contract Signed Delivery Final Acceptance Payment Operation End of Contract Term Get upstream to influence the specification and ensure alignment with current procurement processes and operational requirements

41 2. Developing innovative sourcing and contracting strategies - Improve speed to market, minimise risk, retain knowledge. Look beyond a default tender strategy for all work packages Align contracting strategies with supply market trends and opportunities: Project $ Volume Transactional Strategic Critical Risk

42 2. Developing innovative sourcing and contracting strategies - Improve speed to market, minimise risk, retain knowledge. Look beyond a default tender strategy for all work packages Align contracting strategies with supply market trends and opportunities: Buy off the shelf Use pre- negotiated deals Project $ Volume Strategic Aggregate volume Transactional Critical Risk

43 2. Developing innovative sourcing and contracting strategies - Improve speed to market, minimise risk, retain knowledge. Look beyond a default tender strategy for all work packages Align contracting strategies with supply market trends and opportunities: Buy off the shelf Use pre- negotiated deals Aggregate volume Project $ Volume Transactional Strategic Critical Leverage supplier capability Define and share risks with suppliers Total or lifecycle cost analysis Incorporate Operational Requirements Risk

44 2. Developing innovative sourcing and contracting strategies - Improve speed to market, minimise risk, retain knowledge. Look beyond a default tender strategy for all work packages Align contracting strategies with supply market trends and opportunities: Buy off the shelf Use pre- negotiated deals Aggregate volume Project $ Volume Transactional Strategic Critical Leverage supplier capability Define and share risks with suppliers Total or lifecycle cost analysis Incorporate Operational Requirements Risk Document Category Strategies for sourcing projects to retain knowledge and support continuous improvement

45 3. Packaging common spend items - Improve efficiencies, drive speed and minimise risk Projects are often unique but is all of the spend unique? Look across your organisations portfolio of projects to identify common areas of spend and implement pre- negotiated contracts For example: Mechanical / Electrical / Civil Services and Consumables Environmental / Safety Services Design Services

46 3. Packaging common spend items - Improve efficiencies, drive speed and minimise risk Projects are often unique but is all of the spend unique? Look across your organisations portfolio of projects to identify common areas of spend and implement pre- negotiated contracts For example: Mechanical / Electrical / Civil Services and Consumables Environmental / Safety Services Design Services

47 4. Apply an SRM approach to the most strategic suppliers - Robust relationships will help to mitigate risk and manage surprise events Work to build trust and transparency in strategic supply relationships Improve the suppliers understanding of your sourcing process and critical supply requirements Eg; acceptance testing and documentation requirements Gain supplier input at the scope stage to validate assumptions and cost estimates Leverage the procurement capability of your suppliers particularly in design and construct environments Bring key suppliers onto your project team 15

48 Procurement Delivery Framework Case study: Airservices Australia Governing Objective Providing Proactive and Efficient Procurement Capability Business Objectives Plan Deliver Manage Procurement Operating Model Operating Processes Category Management Strategy Development Strategic Supplier Management Procure- to- Pay Systems Contract Management Enablers People Capability and Organisational Design Senior Management Commitment Governance and Process Ownership Business Alignment, Integration and Process Metrics and KPIs

49 Procurement Delivery Framework Case study: Airservices Australia Governing Objective Providing Proactive and Efficient Procurement Capability Business Objectives Plan Deliver Manage Procurement Operating Model Operating Processes Category Management Strategy Development Strategic Supplier Management Procure- to- Pay Systems Contract Management Enablers People Capability and Organisational Design Senior Management Commitment Governance and Process Ownership Business Alignment, Integration and Process Metrics and KPIs

50 Procurement Delivery Framework Case study: Airservices Australia Governing Objective Providing Proactive and Efficient Procurement Capability Business Objectives Plan Deliver Manage Procurement Operating Model Operating Processes Category Management Strategy Development Strategic Supplier Management Procure- to- Pay Systems Contract Management Enablers People Capability and Organisational Design Senior Management Commitment Governance and Process Ownership Business Alignment, Integration and Process Metrics and KPIs

51 Procurement Delivery Framework Case study: Airservices Australia Governing Objective Providing Proactive and Efficient Procurement Capability Business Objectives Plan Deliver Manage Procurement Operating Model Operating Processes Category Management Strategy Development Strategic Supplier Management Procure- to- Pay Systems Contract Management Enablers People Capability and Organisational Design Senior Management Commitment Governance and Process Ownership Business Alignment, Integration and Process Metrics and KPIs

52 Thank you