KPMG Major Projects Advisory Leadership Series: Project Organization & Establishing a Program Management Office

Transcription

1 KPMG Global Energy Institute KPMG International KPMG Major Projects Advisory Leadership Series: Project Organization & Establishing a Program Office Series Introduction For the past decade, owners, contractors, designers, and other stakeholders responsible for planning and delivering capital projects have been focused on improving their processes and controls. While many of these efforts, such as formalizing and streamlining project controls, implementing project management information systems (PMIS), and improving professional development and training opportunities have yielded positive benefits, there are still many areas needing continued improvement. KPMG s Major Projects Advisory (MPA) Project Leadership Series is targeted toward owners with major construction programs, but its content is applicable to all entities or stakeholders involved with construction projects (e.g., contractors, subcontractors, designers, facility managers, plant operators). The intent of the Project Leadership Series is to describe a framework for managing and controlling large capital projects based on the experience of our MPA professionals, who provide services to hundreds of leading construction owners, EPC contractors, and others. Together with our simplified framework, we offer a sound approach to answer the complex questions most frequently asked by construction owners. The topics that will be covered in this series include: Project Organization and Establishing a Program Office (PMO) Project Development and Delivery Strategy 1 KPMG Major Projects Advisory Leadership Series Budgeting, Estimating and Contingency Project Controls and Governance Stakeholder and Communication Project Risk Monitoring Capital Projects and What to do if one is in Trouble Investing in Tools and Infrastructure Key benefits of the MPA Project Leadership Series Provides examples of the pitfalls of inadequate project controls, project management practices, and project delivery processes Outlines leading industry practices for project controls, project management practices, and project delivery processes Provides an approach for how entities can perform assessments of their current project control framework, project management practices/procedures, and project delivery processes Identifies how addressing project control gaps, remediating areas of weakness for project management practices, and implementing leading practices for project delivery can strengthen an entity s reputation, avoid mishaps, and deliver successful projects 2012 KPMG International Cooperative ( KPMG International ), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS

2 Project Organization & Establishing a PMO The first topic of the MPA Project Leadership Series, Project Organization and Establishing a PMO, is one of the most critical components of managing programs and projects. It is one of the first activities to occur during a program/project and significantly impacts the likelihood of success. There is also no clear one-size-fits-all leading practice, and because actual practice varies greatly, the manner of how to organize the PMO is one of the more challenging decisions construction owners make. In this paper we explore key concepts to consider when organizing and staffing a program or major project, as well as key considerations for establishing a program or project PMO. At the end of this paper we hope you will have a better understanding of how to address the following challenges: Do we have the right number and type of resources for the project? How do we effectively structure our organization to manage large projects? Do we have the required internal capabilities and capacity to develop the project? How will we manage/leverage resources from various sources? Are all the key roles and responsibilities known and documented? Should we establish a PMO? If so, what skills do we need? How should we organize our PMO? Should our PMO be responsible solely for managing the project control infrastructure or should it actively manage all of our major projects? Key Items to Consider when Organizing and Staffing a Program or Major Project A construction owner has many things to consider when evaluating the organization and staffing of a program or major project. Oftentimes, construction owners follow the practices of their industry peers or make slight improvements to a previous organizational structure without considering alternative approaches. In the following section, we will discuss some key items for construction owners to consider when organizing and staffing a program or major project including: Centralized PMO vs. Organizational Unit Project Teams PMO Involvement Standardization of the Project Framework Delineation of Small vs. Large and Emergency Projects Internal vs. Outsourced Resources Centralized PMO vs. Organizational Unit Project Teams Even within a single owner entity, different organizational units frequently utilize their own project management departments for planning, delivering, tracking and reporting their capital projects. This often leads to project management time and resource inefficiencies. Developing and maintaining independent project management departments can also result in confusion for administrative support personnel, vendors, and other stakeholders that work with multiple organizational units of the 2 KPMG Major Projects Advisory Leadership Series entity. While entity-wide PMOs may not be the right project delivery structure for all organizations, here are a few leading practices to consider when determining if a PMO will increase project performance: PMOs can facilitate sharing and leveraging of leading practices among project team members via project manager share forums and through other PMO driven activities Prior to implementing a PMO, it is important to assess the strengths and weaknesses of the various project teams in different organizational units and compare their project delivery performance for baselining purposes Conducting a survey of project management teams in each organizational unit can identify areas for improvement, develop ideas for knowledge sharing, and create potential teaming opportunities If an entity has a small capital program with a large or unique project or if multiple stakeholders are involved a dedicated project-specific PMO should be considered. For example, in joint ventures with multiple parties, a robust project-specific PMO is often used to address the following questions: How will the different organizations project management policies and procedures be integrated? How will those involved work together and provide input in a coordinated and integrate manner? How will disputes between options be resolved in a timely manner to avoid significant cost growth and project delays? PMO Involvement If an entity has a small capital program and a desire to maintain project management expertise within its particular business unit, the entity may choose to implement a non executing PMO. Compared to an executing PMO, the non executing PMO exists Until recently, energy companies have been reluctant to utilize PMO s on a consistent basis. Most PMOs had been established to help comply with regulatory requirements or to help manage and mitigate risk on major energy projects. While PMOs can be very effective in improving project performance on major construction projects they can also be effective in helping energy companies manage and mitigate risk through improving consistency, accuracy and competency across business units in areas such as: Records risk management Pipeline safety and integrity Project cost reporting and tracking Procurement

3 primarily to develop, maintain, support, and monitor compliance with capital strategies, policies, procedures, and tools. In a non-executing PMO, project team members receive training and support from the PMO, but the individual project teams remain fully responsible for the results of their projects. The goal of a non-executing PMO is to increase the overall success of a construction program by enabling non-project managers with support, increasing process consistency, monitoring/tracking compliance, and capturing and sharing lessons learned. Entities with larger capital programs may choose an executing PMO. In the executing PMO model, the PMO has a staff of project managers who are engaged by the organizational units of the entity when there is a project need. In addition to the development of consistent policies and procedures and the training benefits of a non-executing PMO, the executing PMO has the primary responsibility to develop the skills of in-house project managers, who are utilized by the entity s organizational units on all large projects. Such expertise within a dedicated group of project managers is likely to increase program success. Also, as the formality of an executing PMO increases, so do the expectations of its customers, the organizational units. The executing PMO must consistently strive to add value and take on a customer service mentality. Standardization of the Project Framework Implementing a standard project management framework can simplify the standards for planning, delivering, tracking and reporting capital projects. In addition to reducing the time and resources required to develop and maintain separate project management frameworks, standardization of the project management framework clarifies administrative supporting roles and simplifies vendor and other stakeholder relationships. However, if a construction owner must maintain multiple project management frameworks, we recommend the following steps: Form a joint project management standards committee with members from each of the organizational units Leverage common guidelines and standards as much as possible Centrally develop and maintain common policies and procedures Agree to a standard project cost tracking and financial reporting process Delineation of Small vs. Large and Emergency Projects Many organizations have different procedures for managing small versus large capital projects to align the level of control and accountability with the associated project risks. Requiring small projects or emergency projects to adhere to multiple layers of project management and controls can lead to unnecessary paperwork and increased overhead cost. When deciding on how to address the delineation of projects and their associated project controls, we recommend that entities consider the following points: Is there a natural delineation of small and large projects based on current requirements such as Board of Director approval thresholds, signature authority, regulatory requirements or breakdown of project portfolio (e.g., 80/20 rule)? If there is no natural delineation, we recommend that the entity develop project management processes and controls targeted for large projects first, then identify areas to reduce the requirements for smaller projects or emergency projects Outsourcing Program/Project Organizations with large and steady capital programs often benefit from the use of internal project management resources. Using internal project management resources leads to increased capabilities, improved knowledge sharing among projects, and a greater likelihood of continuous improvement of project controls and project delivery processes. During a capital program ramp-up period, entities should carefully plan their project management organizational strategy to take advantage of various options such as utilizing temporary resources to rapidly develop internal PMOs. Leveraging outsourced resources can increase an organization s capacity to rapidly increase or decrease project management resources. Organizations with smaller or significantly variable capital programs, may be better off relying on outsourcing as a better practice. Even so, certain key functions cannot be outsourced without significantly jeopardizing program success. In one case study, an owner-investor outsourced its entire program management function. The outsourcing was ineffective, and the owner failed to administer the contract with the program manager. The program fell significantly behind schedule and the costs increased due to a lack of effective controls. The owner ultimately removed the program manager and created an internal program management function, which took over the completion of the program. Many energy companies, especially power & utility companies, have separate and unique project management standards for capital projects in each of their business units or subsidiaries. This is primarily driven by the project characteristics for these business units as well as the general perception that having common project management standards for all capital projects will reduce project performance in some areas by adding unnecessary controls or procedures that are not well suited for all projects. However, it is possible to have a common project management framework with project controls and processes customized for specific business units. 3 KPMG Major Projects Advisory Leadership Series

4 Functions that an owner cannot entirely outsource are the following: Project authorization Development and delivery integration Budgeting Procurement Contract administration Change management Risk management Functions that an owner may be able to partially or fully outsource are the following: Scheduling Quality management Payment processing and administration Design standards and specifications Value engineering Forecasting Materials management Environmental, Health and Safety (EHS) Document management Regulatory compliance Communications Reporting Regardless of which functions are outsourced, the owner s internal resources should stay involved in key program management functions. A basic level of knowledge of common project management processes is critical to ensure that controls are intelligently outsourced, there is proper administration of contracts, and controls are effectively monitored. Considerations for Establishing a PMO There are several steps that construction owners should consider when implementing a PMO, including the following: Assess the overall capital program and set goals Plan for resources Assess and establishing controls Assess the Overall Capital Program and Set Goals The first step in establishing a PMO, to assess the entity s capital program overall and set performance goals for future projects. The past performance and future plans of a capital program significantly affect the approach taken and how that approach is implemented. Some key questions in this area include: Is our spend on capital programs and projects steady, or does it fluctuate significantly (e.g., due to business conditions or emergency projects)? Is our capital program changing (e.g., ramping up or down)? Is our capital program comprised of many small projects, a few large projects, or a mixture of the two? What is the maturity of our project management processes? What resources do we have available internally? Have our projects been successful? Have certain project types been more successful than others? Do certain organizational units execute projects more successfully than others? Once the construction owner has a good understanding of its capital program, those in charge of setting up the PMO should identify the goals of their capital program, including: Do we want to deliver projects using internal resources primarily, or do we want to outsource as much as possible? Do we want our project management processes and controls to meet bare minimum requirements, or do we want to invest in our program to make it industry leading and a potential competitive advantage? What level of project performance do we want and believe is reasonable? What level of risk are we willing to accept? Planning for Resources A responsibility matrix is the ideal tool for identifying PMO roles and responsibilities and describing the interfaces among departments involved in planning, design, procurement, construction, and operational handover. The responsibility matrix facilitates effective communication among project stakeholders, avoid gaps and duplication of project efforts, and align goals and objectives of the various parties involved with a given project or the overall program. The responsibility matrix should include all of the various tasks to be performed and indicate each person s roles and responsibilities pertaining to each task. Project teams are frequently comprised of individuals from across an organization. In planning for PMO resources, the owner can rely on either a top-down estimate, based on available industry information (e.g., surveys and general guidelines), or a bottoms-up estimate of resources based on the specific internal project management activities it intends to perform. For best results, resources should be formally assigned to the PMO and to specific projects to eliminate competing responsibilities from jeopardizing program and project success. Outsourcing program and project management is common practice for energy companies whether developing a wind farm, building a cogeneration plant, or constructing a gas pipeline. In many cases this outsourcing has been very successful. However, many energy companies have encountered major challenges when outsourcing procurement and change management functions. Most often these challenges have led to claims and disputes as well as litigation. In spite of resource constraints, we strongly encourage energy companies to avoid outsourcing critical procurement and change functions for their most critical projects. 4 KPMG Major Projects Advisory Leadership Series

5 Assessing and Establishing Controls One of the most common reasons for construction program and project failure is the lack of objective control standards. Conversely, successful entities frequently evaluate risks and the internal control environment designed to mitigate those risks. Leading entities use a comprehensive set of objective criteria that serves as a consistent baseline for controls evaluation and measurement. Such standards can also provide needed assessment criteria for internal audit departments. Consider the following broad guidelines when assessing, developing and implementing project or program controls: Prioritizing Objectives Before assessing programs controls, understand and prioritize the objectives of the program, with validation from management and key stakeholders. Developing a Framework Develop and adapt a controls framework that meets the needs of the program. Current Policy and Procedure Analysis Perform a gap analysis of existing core policies, procedures, and processes in order to identify gaps, overlaps, and areas of strength and weakness. Evaluate Analysis with Sponsor Prior to implementing new policies and procedures, evaluate existing and planned controls with the PMO sponsor to ensure the right balance of controls is in place. Phased Control Implementation Modify controls, implement new controls, and provide training to PMO team members in phases to minimize implementation issues. Continuous Improvement Reassess controls on a continuous basis to keep up with organizational and regulatory changes. Recognizing that the effectiveness of project management processes and controls is never black and white, the PMO sponsor should challenge PMO members to achieve a desired state of PMO performance. The state of PMO performance can be described as a range of process maturities such as the following: Tier IV Tier III Tier II Tier I Optimized Monitored Standardized Unreliable/Informal An approach to evaluate and measure process maturity might also include a checklist of criteria for managing risk, which can help identify control gaps and encourage project management process improvement. KPMG s Construction Controls Framework, for example, uses five major process control categories and approximately forty subcategories, to describe leading practices for managing large capital projects and programs. A graphical representation of our Construction Controls Framework appears below. Regulated power & utility companies are often concerned about the perception and potential repercussions of assessments in lieu of pending rate case submissions. While assessments can pose a potential risk if not properly managed and communicated, the risk of not proactively assessing controls and improving project delivery is most often much greater. 5 KPMG Major Projects Advisory Leadership Series

6 Construction Controls Framework Program Strategy, Organization and Administration Cost and Financial Procurement Project Controls and Risk Schedule Core Process Project Strategy and Authorization Policies and Procedures Project Reporting Budgeting Payment Processing and Administration Project Cost Reporting Solicitation Source Selection Contracting and Contracting Standards Change Risk Design Standards and Specifications Schedule Development Standards and Processes Schedule Change Estimating and Contingency Contract Administration Communication Plan Forecasting Procurement Planning Regulatory Compliance Schedule Process Rules & Responsibilities Variance Analysis Solicitation Planning Project Self- Assessments and Lessons Learned Project Planning and Integration Project Cost Coding Contract Negotiation Compliance Auditing Project Infrastructure Cash Flow Reporting Contract Closeout Project Site Security Schedule Integration Support Process Document Value Engineering Materials Quality Control and Inspection Historical Trend Analysis Environmental, Health and Safety Conclusion Determining the most effective project management and controls framework for your organization and understanding how to implement your PMO presents significant challenges. Despite these challenges, there is always room to improve project management practices to match precisely the needs of the organization. If you are considering implementing a PMO, then the advice and tips described above will help guide you through the decision-making process. Please look for important topics covered by our MPA Project Leadership Series in the coming months. Contact us Geno Armstrong KPMG LLP (U.S.) Principal, Advisory T: E: garmstrong@kpmg.com Clay L. Gilge KPMG LLP (U.S.) Advisory Managing Director T: E: cgilge@kpmg.com Colin Cagney KPMG LLP (U.S.) Advisory Manager T: E: jcagney@kpmg.com kpmg.com KPMG LLP, the audit, tax and advisory firm ( is the U.S. member firm of KPMG International Cooperative ( KPMG International ). KPMG International s member firms have 145,000 professionals, including more than 8,000 partners, in 152 countries KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. NDPPS The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.

7 Where can you find the latest industry insights? Here. When you need to learn the latest about energy issues and emerging trends that may affect you, visit the KPMG Global Energy Institute (GEI). Since 2007, GEI has been providing energy financial professionals with a forum where industry executives can share knowledge, gain insights, and access thought leadership across the globe. Our 23,000 GEI members get updates on key industry issues, trends, and opportunities in many formats, including: KPMG s Annual Global Energy Conference Webcasts Share forums Thought leadership publications itunes Podcasts Executive education program Quarterly newsletters Start taking advantage of all GEI has to offer by becoming a member today. Visit Contact us Follow us on: Name Surname Sector Job Title hashtag #KPMG_Energy T: + 44 (0) E: n.surname@kpmg.com Name Surname Sector name Job Title T: + 44 (0) E: n.surname@kpmg.com 2012 KPMG International Cooperative ( KPMG International ), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such Lorem ipsum et authority to obligate or bind any member firm. All rights reserved. NDPPS Ting essequat. Volent er ad modions equatum doluptatio dit augrtion sequamet ullan ullamco nsequam, velit, vercil et iusto dolore velduipsuscing eriure tat nummodiam quat dolim in hendio et wis nim alis nulput volor aliquat ullaorting euipsumsan vercidui blaorting eugiamet lor accum iliquisi. Ting essequat. Volent er ad modions equatum doluptatio dit augrtion sequamet ullan ullamco nsequam, velit, vercil et iusto dolore velduipsuscing eriure tat nummodiam quat dolim in hendio et wis nim alis nulput volor aliquat ullaorting euipsumsan vercidui blaorting eugiamet lor accum iliquisi. Ting essequat. Volent er ad modions equatum doluptatio dit augrtion sequamet ullan ullamco nsequam, velit, vercil et iusto dolore velduipsuscing eriure tat nummodiam quat dolim in hendio et wis nim alis nulput volor aliquat ullaorting euipsumsan vercidui blaorting eugiamet lor accum iliquisi. Ting essequat. Volent er ad modions equatum doluptatio dit augrtion sequamet ullan ullamco nsequam, velit, vercil