Infrastructure Projects in Russia Vladimir Liberzon, PMP Spider Project Team

Introduction In this presentation we will discuss proven tools and techniques that are applied to management of large-scale infrastructure projects and programs in Russia The questions during the presentation are welcomed!

Large-scale Infrastructure Programs in Russia Overview Part 1 Large-scale Infrastructure Programs in Russia Overview

Infrastructure Programs in Russia Russia launched many large-scale state infrastructure projects last years. They include Development of Sochi region as Recreation Area and preparation of Winter Olympic Games 2014, Construction of trans-Syberian highways, Construction of Dams and Power Plants around Russia, Development of Russian Pacific Area and preparation of Asia-Pacific Summit in 2012, Nuclear Power Plants Construction Program, etc.

Infrastructure Programs in Russia These programs have multi-billion budgets, involve many organizations and include many inter-related projects. Our company is involved in management of almost all of them. We participate as consultants, coaches and members of program management teams. Management of such programs is very complex and we will discuss its organization and management approaches that proved their efficiency.

Sochi 2014

Winter Olympic Games 2014 Preparation of Winter Olympic Games 2014 Program includes 213 construction projects. They include Construction of Olympic objects like stadiums, arenas, tramplines, ski areas, etc. Transportation infrastructure including roads, rail roads, airport Utility infrastructure, Energy infrastructure including Power Plants, electric lines, gas pipelines Hospitality infrastructure including Olympic villages, hotels, parks and recreation areas,

Winter Olympic Games 2014 Sochi Olympic Games will be held at two major areas: one of them is on-shore cluster with Stadiums for ice hockey, figure skating, curling, and similar sports, Mountain cluster will be host for slalom, downhill, biathlon These clusters will be connected by auto and rail roads through mountains. Construction of this roads includes six tunnels and eight bridges

Winter Olympic Games 2014 Development of Sochi area will also include gas pipeline construction, creating of area transport infrastructure (widening of existing rail road, construction of roads on the shore and in the mountains)

Trans-Syberian Highways

Trans-Syberian Highways Only the railway connects Russian Pacific Area with the rest of Russia. The program launched now will connect all parts of Russia by modern highways. Road construction projects are simultaneously launched in Russian Pacific Area and in Siberia.

Trans-Syberian Highways In the Pacific Area the program includes following highway construction projects: «Amur» Chita - Khabarovsk 2097 km «Kolyma» Yakutsk - Magadan 2021 km M-56 «Lena» Never - Yakutsk 1157 km M-60 «Ussuri» Khabarovsk - Vladivostok 756 km «Vostok» Khabarovsk - Nakhodka 824 km

Trans-Syberian Highways There are several dozens construction companies that build these roads. The program is managed by specially created state owned management company.

Boguchansk Dam

Boguchansk Dam Boguchansk Dam in the middle of Siberia on Angara river is one of the largest. Planned capacity is 3000 Mv Length exceeds 2.5 km, Artificial lake will cover 2,326 km2

Development of Russian Pacific Area Russian Pacific Area Development Program has top priority. Russian Government invests huge money to develop this area that was always remote and unpopulated. This program will create a new face for Vladivostok, Russian Pacific Capital. Two huge bridges over the ocean will be built.

Development of Russian Pacific Area Bridge to Russkiy Island: Total Length - 3100 m Central Part - 1104 m Width of the road - 23,8 m Pylon Height - 320 m Height over sea - 70 m

Other Programs Russia plans to invest more $60bln in the construction of new Nuclear Power Plants Russia plans to construct high speed railway between Moscow and St. Peterbourg Russia invests in the development of modern technologies (Nano technologies in particular) Economic crisis somewhat slowed the development but major programs did not stopped.

Program Management All large-scale programs are managed by specially created management companies: Olimpstroy for Sochi 2014 Far East Directorate for Pacific Development Program, Far East Road Construction Directorate, Atomenergoprom for Nuclear Power Plants Program, Etc. Management of Russian large-scale programs is based on similar approaches that we will discuss in this presentation.

Program, Portfolio Management System Organization Part 2 Program, Portfolio Management System Organization

Program and Portfolio Management Requirements To make Programs and Portfolios manageable there are certain requirements to all Program/Portfolio participants and projects that include: Common methodology shall be used for scheduling, budgeting, reporting and analyzing project data, The same or compatible PM software shall be used, The same WBS templates shall be applied to all projects in the program/portfolio, The same resource, cost, material dictionaries shall be used in all schedule models and reports, The same production norms and unit costs shall be used for contracting and estimating project performance

Program Management Office PMO is an organizational unit to centralize and coordinate the management of projects under its domain. This unit was created in every Program management organization. Main departments of PMO (by functions): Methodology Analysis Correspondence and Archives Program/Portfolio Management

PMO – Methodology Department Main functions of Methodology department: Development and actualization of the Project Management Guidelines and other Program management standards and requirements, Organization of Project staff training, Consulting, coaching, auditing Program participants Development and actualization of the organization knowledge base.

PMO – Analysis Department Develops and implements Program dictionaries and reference-books for costs, resources, materials Develops project WBS and other templates Helps project planners with creating project computer model, project scheduling and budgeting, performance monitoring and reporting organization, Develops and applies standards for group work with the Program files and data.

PMO – Analysis Department Develops and works with the Program computer model, Regularly collects and analyzes actual data, Manages Program computer models archives, Supplies project stakeholders with the performance reports and other necessary information, Maintains PMIS and data safety.

PMO – Archive Department PMO Communication and Archive department: Manages communications with program stakeholders, Manages program archives, Creates and maintains the library of past projects archives.

PMO – Program Management Department PMO Program Management department functions: Program Scheduling and Management, Management of project priorities, Management of Program Risks, Dealing with conflicting and competing project requirements, Analysis of change requests and Integrated Change Control

PM Information System Most large-scale programs in Russia are managed using Spider Project software that is considered as most functional, powerful and flexible system. Spider Project usage is required from all programs participants. It makes data consolidation and management easier and more reliable.

PM Information System One of the reasons for selecting Spider Project as the program management tool is based on its ability to work with physical quantities (volumes) of work to be done on project activities. It helps to implement corporate norms like unit (physical) costs, unit material requirements, resource productivities (units per hour), etc. Spider Project permits to create program (corporate) templates, dictionaries, and databases (reference-books) that are necessary for proper program management.

Part 3 Program/Project Data

Data requirements The requirements to the data that are used for program planning and control may be divided into two main groups: High level requirements based on program/portfolio management needs, Low level requirements that shall be applied to creating project computer models. High level requirements consider data organization, Low level requirements cover details and instructions on creating project computer models.

Organizing data The same Project, Phase, Activity, Resource, Material, and Department coding structures are used in all projects, Resources that are used in all projects belong to the program (corporate) resource pool, Resources of the same type share the same characteristics (like cost, production rates, material consumption per work hour),

Organizing data Program management systems have specific requirements that are vital for successful implementation. It is necessary to be sure that: WBS structures that are used in different projects of the program are compatible, Project costs have the same structure in all projects (same cost components are used), Cost accounts are the same in all projects,

Organizing data Activities of the same type have the same characteristics in all projects (like unit cost, material requirements per work volume unit, etc.), Typical resource assignments have the same characteristics in all projects (like productivity, cost and material requirements), Typical (repeating) processes are modeled in the same way in all projects, Project archives are kept and stored as required.

Organizing data These requirements are set on the Program level and are mandatory for all program participants. Templates, reference-books, coding systems etc. are developed in the Program Management Office.

Program Databases (Reference-Books) Activities, resources and resource assignments belong to the same type if they share the same characteristics like unit costs, material consumptions per work volume unit, productivity, etc. Program Management office creates Databases or Reference-books that contain those parameters that shall be used for planning of all projects of the Program.

Program Databases (Reference-Books) Program Reference-books include at least: Activity cost and material requirements per volume unit for all activity types, Resource assignment cost and material requirements per volume unit for all assignment types, Resource assignment productivities for all assignment types, Resource assignment work loads for all assignment types.

Typical Fragment Library Project fragments usually describe typical processes and technologies that are used more than once as small projects. Creating project computer models using the library of typical fragments helps to avoid inconsistencies and assures that the project model follows Program standards. A library of typical fragments is very important tool for the development of common culture and management standards.

Program Templates Program management has to be based on the program standards. These standards include not only estimates of the typical activity and assignment parameters process and but also project templates. Besides Program Management Guideline developed in the Program Management Office describes Program management routine (when and what reports shall be presented, performance review meetings schedule, etc.) and change management processes.

Organizing data This slide shows WBS template for construction projects required by Program Management Office of Olimpstroy.

Project Data Structure The main elements of any project computer model include: project activities, activity dependencies, resources and their assignments, calendars, Costs, Project, Work, Resource and Cost Breakdown Structures.

Project Data Structure Now we will discuss special requirements to project data that are necessary for most infrastructure projects. Some of these requirements are used in the process of project schedules assessment.

Activity Data Usually project activities are characterized by their duration or effort. But in most cases and especially in construction projects it is necessary to set activity’s physical volume (or quantity) of work. Activity volume can be measured in meters, tons, etc., planned work hours, percents or any other units. Unlike activity duration, activity volume does not depend on assigned resources. Project performance reports always include actual volumes that were done on project activities.

Activity Data By introducing activity volumes, we will be able to use Program/corporate databases that define: cost and material requirements per activity volume unit for different activity types. Resource assignment productivity or production rate for different assignment types. Activity duration is calculated basing on activity volume and assigned resource productivities. PMBOK Guide call this method as Parametric Estimating of Activity Duration.

Dependency Data Many infrastructure projects include linear construction (roads, railroads, pipelines, etc.). In such projects many types of work can be done in parallel but on some distance between them. Such logical dependency may be described as Start to Start link with Volume Lag. But Start to Start link shall be supported by Finish to Finish link to prevent preceding activity “catching” succeeding activity. So it is necessary to set more than one link between activities and to check if Start to Start links are supported by Finish to Finish links.

Resource Data Resources are divided into two classes: renewable (human resources and mechanisms) and consumable (materials). It makes possible to assign materials to resources defining their consumption per resource work hour or work volume unit. Example: a car consumes gas.

Resource Data Besides the individual resources there is a need to set resource crews (we call them multi-resources) and resource skills (roles). Multi-resources are the settled groups of resources working together. Multi-resources can be assigned on activity execution. Assigning multi-resource project planner assigns all resources that belong to this multi-resource.

Resource Data If resources can do the same work then they belong to the same Skill set or Resource Assignment Pools. Resources with the same skills are interchangeable though they may have different productivities performing the same activities. One resource can belong to many Skill sets. Example: excavators of different types that may be used on earth moving works.

Assignment Data Resource Assignments have their own characteristics including: Resource productivity on assignment, Assignment cost (may be fixed, per unit of work volume, or per hour), Assignment material consumption (fixed, per unit of volume, or per hour), Resource workload (% or resource work time that is required on concrete assignment)

Assignment Data Assigning resources to activities implies the notion of a team - a group of resources working on an activity together. The team can include individual resources, multi-resources and skills. If resources belong to different teams then they can work independently of each other at different time. This is the way to simulate working in different shifts on the same activities.

Assignment Data Resources can consume materials in the process of their work. Besides, materials can be assigned to activities or resource assignments directly. In some projects it is necessary to simulate not only material consumption but also production or supply of resources and materials on activities and assignments.

Calendars Separate calendars can be set for all activities, resources and time lags. Availability of all these calendars is important for the proper project performance simulation.

Cost Data Usually it is not enough just to define activity and resource costs. It is necessary to know project expenses and revenues, what will be spent on wages, on machinery and equipment, on taxes, etc. Sometimes it is necessary to allow for multiple currencies. So there is a need to define and assign cost components. Cost Structure shall be the same in all projects belonging to the Program and is defined on the Program level.

Material, Resource and Cost Centers There is a need to get different reports on the groups of cost components, materials and resources. That is why it is necessary to define Cost, Material and Resource Centers: Material center can include any group of materials. Resource center can include any group of resources. Cost center includes selected cost components. Using material, resource, cost centers permits to get group reports (all pipes, all workforce) and to manage parallel budgets (actual expenses, contract costs, etc.).

Multiple WBS It is also very useful to have an opportunity to get project reports that aggregate project data different ways. Usually we use at least three Work Breakdown Structures in our projects: based on project deliverables, project processes and responsibilities. At least one WBS is mandatory and required by Program Management Office. Others may be selected by project management teams.

Contract Breakdown Structure Contract Breakdown Structure is the powerful tool for management of contract relationships. The same organizations are involved in multiple projects and in different programs. Contract Breakdown Structures are used to get reports on the contract performance and contract cash flows.

Cost Breakdown Structure Cost Breakdown Structure for contract costs is defined by Program Management Office. Contractors can add cost components and create Cost centers for planning and tracking real expenses. We manage not only expenses but also financing. Program managers control program, project and contract cash flows.

Project Archives The planners should be able to store project versions and to analyze the progress in project execution, comparing current project and portfolio schedules not only with the baseline but also with any previous version. It enables to assess the progress in project execution for the last week, last month, last year, compared to the baseline, etc.

Typical Fragment Library Project fragments usually describe typical processes and technologies that are used more than once as small projects. Creating project computer models using the library of typical fragments helps to avoid inconsistencies and assures that the project model follows corporate standards. A library of typical fragments is very important tool for the development of common culture and management standards.

Program/Project Scheduling Part 4 Program/Project Scheduling

Scheduling Tasks Program/Project scheduling without the resource limitations taken into the consideration, Program/Project resource constrained scheduling (resource leveling), Determination of feasible time floats for Program/Project activities and those activities that are critical, Determination of the Program/Project cost, material and resource requirements for any time period,

Scheduling Tasks Determination of renewable resources utilization in time, Risk analysis and development of the Program/Project schedule and other parameters allowing for the risks, Program/Project performance measuring, Program/Project performance analysis and forecasting main project parameters.

Tasks to solve The problem of project schedule development without allowing for resource constraints has a correct mathematical solution (Critical Path Method), which would be the same for all PM packages, provided that initial data are identical. All other problems are solved using different approaches and yielding different results.

Resource constrained scheduling Resource constrained schedules produced by different PM software are different. The software that calculates shorter resource constrained schedules may save a fortune to its users. That is why we pay most attention to resource-constrained schedule optimization.

Resource constrained scheduling The schedule stability is no less important, especially at the project execution phase. That is why our project management software Spider Project features an additional option - the support of the earlier project version schedule (keeping the order of activity execution the same as in selected earlier project schedule).

Sample Project before leveling Traditional notion of Critical Path works only in case of unlimited resources availability. Let us consider a simple project consisting of five activities, presented at the next slide. Activities 2 and 5 are performed by the same resource.

Sample Project after leveling Please pay attention to activities that became critical. Now delaying each of the activities 1, 2 and 5 will delay the project finish date. We call these activities Resource Critical and their sequence comprises Resource Critical Path.

Resource Critical Path In many projects it is necessary to simulate financing and production, and calculate project schedules taking into account all limitations (including availability of renewable resources, material supply and financing schedules). True critical path should account for all schedule constraints including resource and financial limitations.

Resource Critical Path We call it Resource Critical Path (RCP) to distinguish it from the traditional interpretation of the critical path definition. The calculation of RCP is similar to the calculation of the traditional critical path with the exception that both early and late dates (and corresponding activity floats) are calculated during forward and backward resource (and material, and cost) leveling.

Resource Constrained Floats This technique permits to obtain resource constrained floats. Activity resource constrained float shows the period for which activity execution may be postponed within the current schedule with the set of resources available in this project.

RCP and Critical Chain It appears that by adding financial and supply constraints to the Critical Chain definition as well as the way of the Critical Chain calculation, we will obtain something very similar to RCP.

Part 4 Success Criteria

Project Success Criteria If project success criteria are set as finishing project in time and under budget then proper decision making will be complicated. Project managers will not be able to estimate the effect of their decisions to spend more money but to finish the project earlier. If some project is business oriented then this project has to have business criteria of its success or failure.

Project Success Criteria One of potential options – to set the profit that should be achieved at some point in time basing on the forecast of the revenues that will be obtained after the project will deliver its results. Such success criterion will permit to weight time and money making managerial decisions.

Project Success Criteria At the next slide you may see the project schedule that is calculated without allowing for project financing and supply restrictions. There are periods when project has no money to proceed and necessary materials (wall frames) are absent.

Project Success Criteria But if project manager will find enough money and materials then project total profit to some imposed date will be close to $219,000.

Project Success Criteria If to calculate project resource, financing and supply constrained schedule than total profit will become more than $25,000 less.

Project Success Criteria Maybe it is reasonable to borrow money or to find some other solution? To be able to weight options and to choose the best it is necessary to simulate not only expenses. This approach is especially important for portfolio management.

Risk Analysis & Success Driven Project Management Part 5 Risk Analysis & Success Driven Project Management

Why risk analysis Our experience of project planning shows that the probability of successful implementation of deterministic project schedules and budgets is very low. Therefore project and portfolio planning technology should always include risk simulation to produce reliable results.

Risk Simulation Risk simulation may be based on Monte Carlo simulation or use three scenarios approach that will be described further.

Risk Simulation – three scenarios approach A project planner obtains three estimates (optimistic, most probable and pessimistic) for all initial project data (duration, volumes, productivity, calendars, costs, etc.). Risk events are selected and ranked using the usual approach to risk qualitative analysis. Usually we recommend to include risk events with the probability exceeding 90% in the optimistic scenario, exceeding 50% in the most probable scenario, and all selected risks in the pessimistic scenario.

Risk Simulation – three scenarios approach The most probable and pessimistic project scenarios may contain additional activities and costs due to corresponding risk events and may employ additional resources and different calendars than the optimistic project scenario. As the result project planner obtains three expected finish dates, costs and material consumptions for all major milestones.

Desired Parameters They are used to rebuild probability curves for the dates, costs and material requirements. Defining desired probabilities of meeting project targets a project planner obtains desired finish dates, costs and material requirements for any project deliverable.

Success Probabilities If the targets were approved then it is necessary to calculate the probabilities of meeting required project targets. If they are reasonable then they may be accepted. Probabilities to meet approved project targets we call Success Probabilities. These targets may include all project parameters that will be controlled (profit, expenses, duration, material consumption).

Baseline Target dates do not belong to any schedule. Usually they are between most probable and pessimistic dates. A set of target dates and costs (analogue of milestone schedule) is the real project baseline. But baseline schedule does not exist!

Buffers We recommend to use optimistic schedule for setting tasks for project implementers and manage project reserves. Project planner obtains not only the set of target dates but also a critical schedule – a project schedule calculated backward from target dates. The difference between current and critical dates shows current schedule contingency reserves (buffers).

Sample Critical Schedule There are time, cost and material buffers that show contingency reserves not only for a project as a whole (analogue of Critical Chain project buffer) but also for any activity in the optimistic project schedule.

Success Probability Trends The best way to measure project performance is to estimate what is going on with the project success probabilities. If they raise it means that contingency reserves are spent slower than expected, if they drop it means that project performance is not as good as it was planned and corrective actions are needed.

Success Probability Trends Success probabilities may change due to: Performance results Scope changes Cost changes Risk changes Resource changes

Success Probability Trends Thus success probability trends reflect not only project performance results but also what is going on around the project. We consider success probability trends as the really integrated project performance measurement tool.

Success Probability Trends Success probability trends may be used as the only information about project performance at the top management level because this information is sufficient for performance estimation and decision making.

Success Driven Project Management We call the described methodology Success Driven Project Management.

Success Driven Project Management If project performance is estimated by success probability trends then project managers are encouraged to resolve uncertainties ASAP. This can increase success probabilities even with activity finish delays & cost overruns. Postponing problem activities leads to negative trends in success probabilities.

Success Driven Project Management This attribute of success probability trends is especially useful in new product development project management. On the corporate level it is very useful to know trends and current probabilities of meeting targets for all portfolio projects.

Part 6 Conclusions

Corporate PM Tools and Techniques Organizing data in a way that supports proper resource work simulation and application of corporate norms and standards. Creating a set of reference-books and the fragnet libraries that are obligatory for creating project computer models.

Corporate PM Tools and Techniques Calculating Resource Critical Path and resource constrained floats for every project and project portfolio. Risk assessment and simulation. Defining project success and failure criteria that reflect achieving project business goals.

Corporate PM Tools and Techniques Defining project targets (and corresponding contingency reserves) that may be achieved with reasonable probabilities. Regularly recalculating the current probabilities of meeting project targets during execution and analyzing success probability trends. Negative success probability trends require corrective actions.

Success Driven Project Management Flowchart REFERENCE-BOOKS: Resources Materials Cost Components Cost Breakdown Structure Resource Breakdown Structure Calendars Resource Productivities Unit Costs Material Requirements per Volume Unit Skills Multi-Resources Code Structures Typical Fragnet Library Project Schedule WBS Templates Project Budget Project Portfolio Risk Analysis Risk Register Success and Failure Criteria Issue Register Performance Reports Success and Failure Probabilities Corrective Actions - Success Probability Trends + Work Authorization