Achieving Excellence in Capital Projects Delivery Focusing on Four Pillars. Introdution

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1 Page1 Achieving Excellence in Capital Projects Delivery Focusing on Four Pillars Introdution October 1, 2015 Prepared by: George E. Baram P.Eng., M.Sc., PMP, CCE, Fellow AACE International Baram and Associates Inc. Baram-Associates.com

2 Page2 Achieving Excellence in Capital Projects Delivery Focusing on Four Pillars Introdution With the size and complexity of medium to large capital projects along with internal and external constraints in terms of compliance and regulations, achieving project goals with certainty of outcome is becoming a major challenge to project and executive management teams. Such challenges are equally applied to both Contractors and Owners alike, including stakeholders as each should have its own Rights and Obligations toward reaching their own project objectives. A good starting point for this discussion is to understand the typical Capital Project structure and the stakeholder involved along with their contractual relationships and influence on the outcome. Such structure in general, stays in place throughout the full life cycle with variable degree of influences affecting the execution of the project. The figure below is an example. The top part of the above figure is all about major stakeholders with their contractual relationships (Solid red lines) connected into a Project Company which is responsible for the Capital Project. While the bottom part illustrates the structure under the Project or Project Company where the other kind of

3 Page3 stakeholders (designers, suppliers, consultants and builders) connected together under different contractual arrangements to execute the capital project. On average, considering the bottom part of the above figure, a mid-size capital project may comprise of several prime/consulting contracts (EPCM, EPC, etc.), several LSTK (Lump Sum Turn Key) contracts, hundreds of supply or supply/install contracts (or Purchase Orders) and hundreds of construction or trade contracts in addition to many logistical, safety, security and other considerations. A repeated trends on four functional practices under capital projects execution, are time and time again, proven to be the key driving factors to either succeeding or failing in reaching project goals With such, even for the most experienced and well reputed Owners and Contractors, with excellent functional management team, successful execution of capital projects is ever changing challenges and can vary, in general under two major lifecycle stages: a) Pre-NTP (Notice To Proceed) - i.e. development phase up to Full Feasibility Study b) Post NTP covering project execution up to final commissioning and close-out. During the Pre-NTP phases the focus among both Owners and Contractors teams is to ensure the viability of the Business Case and the Feasibility of the Project, Including: - Owner s Corporate and Business Strategy considerations - Financing and Financial market considerations - Compliance to regulations, permits, environment and other constaints - Long term relationship and contractual arrangements supply, sales, products - Project definitions evolvement and Risk considerations - Alignment with contractors/consultants on future project execution strategy While the Post NTP phase focus is on issues related to the project execution process and achieving the Business Case objectives, set in the previous phases in terms of cost, time and quality (production or efficiency). Among the early challenges, typically encountered which are collected from several projects are the following: - Poor or Incomplete Project Definition and Scope of Work - Ambitious or Unrealistic Targets - Poorly Written Contracts - Client s Interferences, or sometimes Inexperience - Missing or Weak Sponsorship - Weak Leadership from Both Sides - Lack of Trust, Lack of Transparency

4 Page4 - Political pressure and stakeholders interference - Mismanagement of Stakeholders - Weak or No Risk Management - Weak Communication - Unclear Roles and Responsibilities within parties and among them - Lack of organizational clarity - Establishing and Agreeing on Clear Priorities - Clarify Critical Success Factors - Well Communicated and Complete Project Execution Plan: - Reflecting the intention - Reflecting the commitment and resources in achieving Having worked with world class EPCM/EPC Contractors and Owners, with number of leadership roles, on mega, large and medium size capital projects in different industries and under different contractual arrangements, I have noticed repeated trends, that are time and time again, proven to be the key driving factors to either succeeding or failing in reaching project goals. The findings can be summarized into four subjects (Pillars): 1- Executive Management Oversight - Transparent, Neutral and continuous 2- The selection of the right project delivery approach and strategy, specific for the project 3- The implementation of proper Pro-Active Risk Management 4- The early set-up and implementation of proper Contracts and Claims Management Needless to say, none of the above can be successfully implemented without strong and active LEADERSHIP from both sides at all levels.

5 Page5 It is known that the quality and the training along with established and enforced processes and systems under the key projects department/functions (e.g. Engineering, Procurement, Construction Management and PM/Project Controls) are among the ultimate drivers for capital projects. Such functions, under normal circumstances, are assumed to be well established and implemented on the project. However; discussing best practices in terms of processes, teams, skills and leadership on capital project is not part of this paper and assumed to be "implied" indirectly, within the four pillars addressed in this brief. It is difficult to either allocate priority nor level of importance to any of the above since they all are critical and driving factors within the project management operation. The above four foundations are addressed under four different follow-up papers.