McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: Successful Project Procurement Practices Stephen Weatherley Partner, McCourts Project Seminar, London 14th July 2004

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: Stephen Weatherley Consultant, McCourts Background: 32 Years with ICI 25 years project management and procurement management experience Project director of ACTIVE initiative for 3 yr ECI director of UK operations from 2001 Partner, McCourts Project from 2002 Introducing myself……..

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: Is Project Management an Art or a Science? Project Improving Practices

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: Project Management is both! Science Cost Time Design Engineering Statistics Technology etc Art Uncertainty Relationships People Perceptions Expectations Behaviours etc Project Improving Practices

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: PROJECT COST REDUCTION 2% 12% 44% 40% 2% Total Project Cost Concept Design ProcureConstructCommission Cost Reduction Opportunity Project Improving Practices

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: GENERIC PROJECT PROCESS ProjectConceptProjectDefinitionProjectExecutionProjectHandover Project Review MEASUREMENT AND ASSESSESSMENT D E L I V E R A B L E S S T A G E G A T E S OWNERSHIP AND MANAGEMENT

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: HOW THEY ADD VALUE Definition Execution Stakeholder Buy-in Project Objectives Project Definition Value Analysis Risk Assessment Project Control Contract Strategy Constuctability Project Review Design Effectiveness Team Building Procurement Management Team Integration SH&E Policy Project Improving Practices

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: Improving Project Purchasing Why is project purchasing performance more important now than ever before? History - 20 years ago: è Operating companies had in-house project resources s projects managed and controlled internally s management of staff was the issue s the focus was on internal communications s contractors employed for specific tasks s supply chain relationships generally adversarial s purchasing relationships more arms length

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: Improving Project Purchasing … then in the 1980’s and 1990’s: è Operating companies began to restructure: s shareholder value becomes the driver s the focus shifts to core activities only s outsourcing of non-core activities s lean management organisations s migration of project staff to contractors s greater dependence on supply relationships

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: The need for Change!

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: Criticality matrix Tactical Acquisition Tactical Cost Strategic Security CRITICALITY High Low High COST Relationship Purchasing Catalogue Purchasing Strategic Critical

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: Characteristics of Tactical Acquisition Low cost products or services Easily defined High degree of standardisation Many suppliers Quality easily measured Failure not critical Purchasing Strategy: Minimise cost of acquisition

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: Characteristics of Tactical Cost High cost products or services Relatively easily defined High degree of standardisation Several potential suppliers Quality easily measured Failure not critical except in cost terms Purchasing Strategy: Minimise number of suppliers to maximise volume discounts

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: Characteristics of Strategic Security Low cost products or services Quality of product or service is critical Good customer service is essential Usually only one or two suppliers Failure will damage your business Purchasing Strategy: Close working relationship with supplier

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: Characteristics of Strategic Critical High cost products or services Highly customised or bespoke Usually difficult to define requirements Few suppliers Failure will be expensive and damage your business Purchasing Strategy: Develop a partnering type relationship

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: Relationship Purchasing ‘Arms Length’ Relationship Catalogue Purchasing Tactical Acquisition Tactical Cost Discount Relationship Catalogue Purchasing Strategic Security Quality Relationship Relationship Purchasing Strategic Critical Partnering Relationship Relationship Purchasing

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: Characteristics of good relationship purchasing Price is not necessarily the only measure of value Best results are achieved when both parties win The objectives of both parties are largely aligned against agreed measures Communications are good Behaviours on both sides are cooperative and supportive

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: PRICE AND VALUE It is unwise to pay too much but it’s worse to pay too little. When you pay too much, all you lose is a little money. When you pay too little, you risk losing everything because what you bought is incapable of doing the thing it was bought to do. The common law of business balance prohibits paying a little and getting a lot: it cannot be done. John Ruskin ( )

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: PRICE AND VALUE A man who knows the price of everything and the value of nothing. Oscar Wilde ( ) So what is Value?

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: Utilities Manufacture Oil & Gas Etc. Food & Drink Power Chemicals Products Raw Materials INDUSTRY SECTOR SUPPLY CHAIN ASSET MANAGEMENT SUPPLY CHAIN CLIENTS CONTRACTORS SUPPLIERS Manufacturing Supply Chains

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: INVESTMENT NPV CURVES £ Time Construct OperateDecommission Project Improving Practices

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: Client Shareholders PROJECT PROJECT STAKEHOLDERS Client Business Contractors Project Team Regulatory Authorities Competitors Employees Suppliers Local Community Works Management Client Customers

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: VALUE CATEGORIES ECONOMIC COST Whole life costs, NPV, IRR etc DURABILITY Life required, reliability etc TIMING Delivery, Programme End Date etc FUNCTIONALITY Operating Requirements etc QUALITY Standards, image etc COMPLIANCE Regulatory requirements etc

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: Whole Life Value Model Value Compliance Economic Cost Durability Timing Functionality Quality

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: VALUE STAKEHOLDER Economic Cost DurabilityTimingFunctionalityComplianceQuality OPTION EVALUATION MATRIX

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: VALUE PROFILE Economic Cost Durability Timing Functionality Quality Compliance

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: Changing the Culture: Key Customers Preferred Suppliers Framework Agreements Partnerships Alliances Joint Ventures/Consortia Mergers Corporate behaviour

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: Changing the Culture: Trust Fairness Transparency Attitude Communications Rewards Personal behaviour

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: Partnering Relationships Secure Long Term Relationship Staff continuity Repeatable design approach Captured learning Benchmarked performance Delivery track record Aligned business objectives

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: Partner Selection Is this a buying or selling process? In a true partnership it will be both

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: SUPPLY CHAIN RELATIONSHIPS Master and Slave In the past…..

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: SUPPLY CHAIN RELATIONSHIPS Parent and Child In the present…..

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: SUPPLY CHAIN RELATIONSHIPS Consenting Adults In the future?

McCourts McCourts, Holme Lodge, Holme on Swale, Thirsk YO7 4JE Tel: QUESTIONS? McCourts Project