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
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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 Chairman’s 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 (PMI’s 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
Better Projects
More Projects
Improved
ROCE
Higher Earnings Growth
Higher Market Confidence
Higher P/E
Improved TSR
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Project Management’s Impact on the Bottom Line
Project Management Improves ROCE by
Increasing Revenues, Decreasing Expenses,
and Reducing Capital Employed
REVENUE MINUS EXPENSES
= ROCE
CAPITAL EMPLOYED
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Project Management Leads to Pacesetter Performance
(Cheaper, Faster, and More Predictable)
Industry Average
Facility Cost
1.25
Company X
30%
Improvement
Industry Average
1
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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PMI’s 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
Decision
Quality
Consistent Success
• Good Projects
• Good Execution
Random Success
• Good Projects
• Average Execution
Mid
Success Unlikely
• Poor Projects
• Poor Execution
Low
Random Success
• Poor Projects
• Good Execution
Mid
High
Execution Quality
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Project Development & Execution Process
AFE
PHASE 1
IDENTIFY & Assess
Opportunities
Determine
Project
Feasibility
and
Alignment
with
Business
Strategy
1
PHASE 2
2
PHASE 3
SELECT from
Alternatives
DEVELOP Preferred
Alternative
Select the
Preferred
Project
Development
Option
Finalize
Project
Scope, Cost
and Schedule
and Get the
Project
Funded
3
PHASE 4
EXECUTE
(Detail EPC)
Produce an
Operating
Asset
Consistent
with Scope,
Cost and
Schedule
4
PHASE 5
5
OPERATE &
Evaluate
Evaluate
Asset to
Ensure
Performance
to
Specifications
and Maximum
Return to the
Shareholders
AFE = Appropriation For Expenditure
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Project Management’s Impact on Creating Value
Value Identification
Value Realization
Good
Project
Execution
Good
Project
Definition
VALUE
A
B
Poor Project
Execution
C
Poor Project
Definition
Phase 1
Opportunity
Identified
Phase 2
Generate &
Select
Alternatives
Phase 3
Develop
Preferred
Alternative
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AF
E
D
Phase 4
Execute
Phase 5
Operate
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Project Development & Execution Process
AFE
PHASE 1
IDENTIFY & Assess
Opportunities
Clearly Frame
Goal
Test for
Strategic Fit
Preliminary
Overall Plan
Preliminary
Assessment
~1 % Engng.
Phase 1
Estimate
1
PHASE 2
SELECT from
Alternatives
2
PHASE 3
DEVELOP Preferred
Alternative
Generate
Alternatives
Fully Define
Scope
Preliminary
Development
of
Alternatives
Develop
Detailed
Execution
Plans
Develop
Expected
Value
Identify
Preferred
Alternative
Phase 2 Est.
3
PHASE 4
EXECUTE
(Detail EPC)
Implement
Execution
Plan
Min. Changes
Finalize
Refine Estimate Operating
Plan
Submit Funding
for Approval
~25 % Engng.
Phase 3 Est.
(+/- 10 %
Accuracy)
4
PHASE 5
5
OPERATE &
Evaluate
Operate Asset
Monitor &
Evaluate
Performance
Identify New
Opportunities
Business
Plan for
Phase 5
Project
Review
AFE = Appropriation For Expenditure
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Influence vs. Expenditures
Major Influence
Rapidly Decreasing Influence
Low Influence
Final Authorization
INFLUENCE
EXPENDITURES
Front End Loading
IDENTIFY
Gate
DSP
SELECT
Gate
Gate
DSP
DEVELOP
Gate
Gate
DSP
EXECUTE
Gate
Gate
DSP
OPERATE
Gate
DSP
DSP = Decision Support Package
Front End Loading
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Key Players
• Decision Makers
• Multifunctional Project Team
--Business, Technical, Operations and
Maintenance
• Stakeholders
• Contractors
• Vendors / Suppliers
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Management’s Role (1)
Accountability—Business evaluation should be
conducted 1 to 2 years after project
completion and Project Sponsor should be
held accountable for the financial outcome.
Accessibility—Management 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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Management’s Role (2)
Leadership—Management should establish
clear expectations and objectives for the
project team.
Resources—Provide resources of right people
and funding to support the project team.
Behaviors—Demonstrate 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
Phase 2
Phase 3
Phase 4
Phase 5
IDENTIFY & Assess
Opportunities
SELECT from
Alternatives
DEVELOP Preferred Alternative
EXECUTE
(Detail EPC)
OPERATE &
Evaluate
• Decision & Risk Analysis
• Project Execution Planning
• Lessons Learned
(Share)
(Seek)
• Value Improving
Practices by IPA
• Post Project
Assessment
• Peer Review
• Pre-Funding Assessment
$
EST
Legend:
D
PFD
$
EST
D
P&ID
AFE = Appropriation for Expenditure
D = Decision Point
IPA = Independent Project Analysis, Inc.
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D
AFE
• Business
Evaluation
D
D
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
Phase 2
SELECT from
Alternatives
Phase 3
DEVELOP Preferred Alternative
Phase 4
EXECUTE
(Detail EPC)
(Funding +/- 10% Accuracy)
(Definitive)
Phase 5
OPERATE &
Evaluate
• Economic Analysis
(NPV, ROR, Payout)
• Cost
Estimating
(Conceptual)
(Cost Collection / Analysis)
• Planning/Scheduling
(Milestone)
(CPM Bar Chart)
(CPM Resource Loaded)
(Monitor & Update)
• Benchmarking
(Pre-Funding Assessment)
(Set Pacesetter Target)
(Cost / Capacity)
(Post-Project Assessment)
•Contracting/Procurement
(Strategy)
(Pre-Qualification)
(Award / Monitor)
Performance Measurement
•Cost Control/Forecasting
(Earned Value)
(Establish Progress Payments)
(Establish Cost Accounts & Budgets)
(WBS)
(Closeout)
(Trend / Forecast)
•Progress reporting
•Finance/Audit
$
EST
D
PFD
$
EST
Legend: AFE = Appropriation for Expenditure
D = Decision Point
EPC = Engineer, Procure & Construct
(Capital versus Expense)
D
P&ID
NPV = Net Present Value
ROR = Rate of Return
CPM = Critical Path Method
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(Asset Accounting)
D
AFE
D
D
PFD = Process Flow Diagram
P&ID = Piping & Instrumentation Diagram
WBS = Work Breakdown Structure
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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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