Risk in Mega Projects Seminar and Workshop Mega Projects Life Cycle: Project Execution and Delivery Process 5 - 7, 2007 Trondheim, Norway Dr. George Jergeas PEng. Professor of Project Management University of Calgary, Alberta

References This section is based on presentations by: Dr. Nick Lavingia, PE, Chevron Bill Watson, VP Engineering and Project Management, Husky Energy Public Works and Services Canada PDS

Agenda This presentation is in two parts Oil and gas industry experience Infrastructure projects best practice

Project Development & Execution Process (PDEP) in the Oil and Gas

Structured and Gated Process Effective Communication Between Decision Makers, Multifunctional Project Team and Stakeholders

Objectives To Gain: Understanding of the PDE Process and framework for more effective delivery of projects and programs, based on shared experience & lessons learned Structured and Gated Process to ensure Effective Communication Between Decision Makers, Multifunctional Project Team and Stakeholders Understanding of processes and sub-processes associated with the PDE Process Understanding of the opportunities for improving PM practices & the barriers to be overcome

Project Development & Execution Process (PDEP) 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

Project Phases PHASE 1 PHASE 2 PHASE 3 PHASE 4 PHASE 5 Determine AFE 1 2 3 4 5 PHASE 1 IDENTIFY & Assess Opportunities PHASE 2 SELECT from Alternatives PHASE 3 DEVELOP Preferred Alternative PHASE 4 EXECUTE (Detail EPC) PHASE 5 OPERATE & Evaluate Determine Project Feasibility and Alignment with Business Strategy Select the Preferred Project Development Option Finalize Project Scope, Cost and Schedule and Get the Project Funded Produce an Operating Asset Consistent with Scope, Cost and Schedule Evaluate Asset to Ensure Performance to Specifications and Maximum Return to the Shareholders REFER TO VIEWGRAPH Key Points: Key objectives of the five phases Phase 1 - Clearly frame goal Phase 2 - Generate several alternatives & then select the best alternative(s) to move forward Phase 3 - Fully define scope of selected alternative(s); select one alternative to move forward Phase 4 - Implement execution plan Phase 5 - Monitor performance Feasibility DBM Application FEED Long-Leads - Reg. Approval - AFE - Detailed Design - Procurement - Fabrication Construction Commissioning -Start-Up - Perf’m Testing - De-bottleneck

Project Phases Screening Feasibility DBM FEED Regulatory Approval AFE Pre-AFE

Project Development & Execution Process (PDEP) AFE 1 2 3 4 5 PHASE 1 IDENTIFY & Assess Opportunities PHASE 2 SELECT from Alternatives PHASE 3 DEVELOP Preferred Alternative PHASE 4 EXECUTE (Detail EPC) PHASE 5 OPERATE & Evaluate Clearly Frame Goal Test for Strategic Fit Preliminary Overall Plan Preliminary Assessment ~1 % Engng. Phase 1 Estimate Generate Alternatives Preliminary Development of Alternatives Develop Expected Value Identify Preferred Alternative Phase 2 Est. Fully Define Scope Develop Detailed Execution Plans Refine Estimate Submit Funding for Approval ~25 % Engng. Phase 3 Est. (+/- 10 % Accuracy) Implement Execution Plan Min. Changes Finalize Operating Plan Business Plan for Phase 5 Project Review Operate Asset Monitor & Evaluate Performance Identify New Opportunities REFER TO VIEWGRAPH Key Points: Key objectives of the five phases Phase 1 - Clearly frame goal Phase 2 - Generate several alternatives & then select the best alternative(s) to move forward Phase 3 - Fully define scope of selected alternative(s); select one alternative to move forward Phase 4 - Implement execution plan Phase 5 - Monitor performance AFE = Appropriation For Expenditure

Phase 1 Flow Chart: Identify Recycle Strategic Business Assessment Quality Review To Phase 2 Define Opportunity Plan for Phase 2 Yes OK? Identify Stakeholders Concept Evaluation No Identify Expectations Phase 1 Estimate IDEA Develop Project Specific Business Objectives Develop Conceptual Scope Frame Project Assess Current Situation

Phase 1 Deliverables Business Objectives & Priorities Business Objectives & Project Framework Process Preliminary Block Flow Diagram, Preliminary Capacity Site / Infrastructure Preliminary Site Selection, Integration, Development Plan Execution Defining Vision of Success Risk Analysis Strategic Risk Assessment Permit / Regulatory requirements Preliminary Permitting Plan Contracting Estimate Phase 1 Estimate (High Contingency & Wide Accuracy) Schedule Preliminary Milestone Schedule Resource Plan Plan for Phase 2 Resources Economics Preliminary NPV, ROR, DPI, Payout

Typical Assess Phase Events Determine project feasibility and alignment with business strategy Define business objectives Identify technology options Determine market feasibility Preliminary risk identification and mitigation planning Establish preliminary HS&E issues Develop project execution plan for next phase Develop a work plan for the Select phase Identify joint ventures/partner issues & opportunities Develop a +/- 40% cost estimate ( ~/= 5% of total Engineering) Incorporate shared learnings from After Action Reviews on similar projects executed by Husky & Competitors

Phase 2 Flow Chart: Select Recycle Pre AFE Approval From Phase 1 Appoint Project Sponsor, GPM, PM and Op. Rep. To Phase 3 Prepare Pre AFE Review Phase 1 Package Plan for Phase 3 Yes OK? Establish Objectives and Priorities No Project Self-Evaluation Begin Execution Planning Phase 2 Estimate Generate and Evaluate Alternatives Select and Refine Alternative

Phase 2 Deliverables Business Objectives & Priorities Preliminary Facility & Project Objectives Process PFDs, Equipment List, Technology Selected Site / Infrastructure Site Selected, Utility Balances Execution Defining Strategy for Success Risk Analysis Project Risk Assessment Permit / Regulatory requirements Detailed Permitting Plan Contracting Preliminary Contracting Plan Estimate Phase 2 Estimate (Moderate Contingency & Moderate Accuracy) Schedule CPM Schedule Resource Plan Plan for Phase 3 Resources Economics Updated NPV, ROR, DPI, Payout

Typical Select Phase Events Select the preferred development option(s) Identify critical and major equipment needs Refine HS&E assessment Submit permit application(s) Update Market feasibility and partnering plan Develop Exit strategy Update Cost Estimates to +/- 25% (5-10% of Engineering) Update Risk identification and Mitigation plan Conduct a Peer Review - as appropriate Adjust core/extended project team membership Update project execution plan for next phase Develop a work plan for the next Phase (definition)

Phase 3 Flow Chart: Develop Recycle AFE Approval From Phase 2 Build Project Team Finalize Execution Plan To Phase 4 Continue Execution Planning Yes OK? No Update Permitting for Selected Alternative IPA and Self-Evaluation Define Project Phase 3 Estimate

Phase 3 Deliverables Business Objectives & Priorities Final Facility & Project Objectives Process P&IDs Site / Infrastructure Final Plot Plan, One Lines Execution Defining Tools for Success Risk Analysis Finalize Project Risk Assessment Permit / Regulatory Requirements Update Detailed Permitting Plan Contracting Detailed Contracting Plan Estimate Phase 3 Estimate (+/- 10% Accuracy) Schedule Resource Loaded CPM Schedule Resource Plan Plan for Phase 4 Resources Economics Final NPV, ROR, DPI, Payout

Typical Define Phase Events Finalize Project Scope, Cost and Schedule Prepare project AFE approval Prepare Decision Support Package (DSP) for project sanction Secure partner approvals if appropriate Finalize the Project Execution Plan (PEP) Update project team membership Conduct independent peer review Finalize cost estimates to +/- 10% (up to 20% of total Engineering) Conduct value engineering - as appropriate Finalize risk identification and mitigation plan Finalize the Design Basis Memorandum (DBM) Conduct After Action Review - as appropriate

Phase 4 Flow Chart: Execute Recycle Turnover From Phase 3 Implement Execution Plan To Phase 5 Detailed Design Operations Planning Procurement Training Construction Commissioning

Phase 4 Deliverables Business Objectives & Priorities Deliver Operating Asset Process Trained Personnel Site / Infrastructure Manage Progress Execution Implement Plan with Minimal Changes Risk Analysis Manage Project Risk Register Permit / Regulatory Requirements Manage Project Permit Schedule Contracting Execute Contracting Plan Estimate Monitor & Control Estimate Schedule Monitor & Control CPM Schedule Resource Plan Plan for Phase 5 Resources Economics Monitor NPV, ROR, DPI, Payout

Organization for PDEP Phase 4 -- Execution SBU Strategy Corp. Strategy Project Goals Marketing Project Sponsor Planning Public Relations Business General Project Manager Operations Human Resources Manufacturing Technical Maintenance Finance Project Manager Safety Execution Team Consultants Safety Specialists Purchasing Environmental Constructability/Construction Design Process Engineering Metrics Regulation IPA Project Finance Materials Management

Typical Execute Phase Events Execute project execution plan Deliver operating asset consistent with scope, cost & schedule Implement project controls and reports on project metrics and status Implement HS&E plan Implement contracting strategy Implement value practices Commission and startup Conduct After Action Review

Phase 5 Flow Chart: Operate From Phase 4 Start-Up Full Operation Post Project Assessment Business Evaluation

Phase 5 Deliverables Business Objectives & Priorities Business Evaluation & Benchmark Performance Process Look for Debottlenecking Opportunities Site / Infrastructure Execution Share Lessons Learned Risk Analysis Update Risk database Permit / Regulatory Requirements Update Permitting Database Contracting Update Contractor Database Estimate Update Cost Database Schedule Update Schedule Database Resource Plan Update Resource Database Economics Validate NPV, ROR, DPI, Payout

Typical Operate Phase Events Operate and Evaluate the asset to ensure performance to specifications and maximum return to shareholders Conduct a final After Action Review and capture shared learnings Post appraise / evaluate the actual asset operation and business results versus the performance targets. The evaluation will be conducted under the approval market environment (pricing etc) and under the current market conditions. Identify potential improvement opportunities for future projects Develop a reservoir depletion plan - as appropriate Identify new opportunities Turn over operating documentation

Achieving World-Class Performance EXECUTION Diligently implement PDEP, Key Project Management Principles, and Project Management Best Practices. Strive for zero incidents. COST Final capital cost at least 10 percent below industry norm. SCHEDULE Final engineering/construction schedule amongst the best achieved by a similar project in the database. ATTAINMENT Attainment achieved at 100% design capacity per project objectives.

Project Delivery System for Infrastructure Projects

Project Delivery System A framework within which projects are developed, acquired or implemented, and put into service A series of project phases from inception to completion

Project Delivery System (PDS) The six phases are: Planning Definition Implementation Commissioning Operation Evaluation

PROJECT DELIVERY SYSTEM Investment Analysis Report Planning phase Definition Phase Built works Project Brief Implementation Comm. Report Commissioning Operation Evaluation Report Facility in use Evaluation

Phase 1 Planning

Objectives Identify and define in detail the client investment opportunity, need or problem Assess all feasible alternatives Define organization and any required controls Establish the project budget and completion date Specify criteria for evaluating the project

2 . Client Opportunity/Need Identification Five Steps 1. Project Initiation 2 . Client Opportunity/Need Identification 3. Regulatory Considerations 4. Options Analysis 5. Owner/Investor Approval

Identify the optimum solution Main Out Put: IAR Investment Analysis Report (feasibility) To ascertain whether the concept for a project is technically and/or economically feasible for further study Identify the optimum solution

Phase 2 Definition

PROJECT DELIVERY SYSTEM Investment Analysis Report Planning Definition Built works Project Brief Implementation Comm. Report Commissioning Operation Evaluation Report Facility in use Evaluation

2. Objectives Translate the IAR into verifiable technical criteria Prepare Project Brief or Scope definition Define implementation strategies, including project management controls Transfer responsibility to the PM Select best alternative, technology, capacities and site location Choose consultant

Production of the Project Brief/Scope Definition Two Major Steps Production of the Project Brief/Scope Definition Option Refinement Resource Strategy Project Team/WBS Project Funding Agreement Regulatory Concerns User Requirement Definition/Project Brief

2- Consultant Selection Two Major Steps 2- Consultant Selection Project Terms of Reference Consultant Service Agreement preparation Consultant Selection Consultant Contract Proponent Debrief

Phase 3 Implementation

PROJECT DELIVERY SYSTEM Investment Analysis Report Planning Definition Built works Project Brief Implementation Comm. Report Commissioning Operation Evaluation Report Facility in use Evaluation

1. Design 2. Tendering and award 3. Construction Implementation 1. Design 2. Tendering and award 3. Construction

Design Objective The objective is to design the project in detail, obtain necessary approvals, estimate costs and prepare drawings and specification.

Prepare: a concept design a detailed design drawings, specifications and schedules bills of quantities (if needed) final cost estimates time schedule

Design: 7 Steps Set up design team Define project control criteria Pre-design report Concept design Design development Project Approval Construction documents

Tendering Purpose To select a contractor, or a number of contractors who will unconditionally meet all of the terms and conditions set out in the tender documents at a competitive market price. Implementation

Contracting shall be conducted to: Contracting Policy Contracting shall be conducted to: Stand the test of public scrutiny in matters of prudence and probity, facilitate access, encourage competition, and reflect fairness in the spending of public funds. Ensure the pre-eminence of operational requirements.

Contracting Policy Honesty Fairness Best Value Three ingredients Public sector and private sector contract are fundamentally administered in the same way More later about bidding. Implementation - Design

Construction Purpose: To physically construct the project within the agreed limits of cost and time, and to specified quality within safe and healthy environment. Construction is the most expensive, intensive and difficult phase

Construction Time schedules Site organization Labour resources plan Activities To plan, coordinate and control site operations Planning includes the formulation of: Time schedules Site organization Labour resources plan Equipment plan Material delivery plan

Construction Activities Site operations include All temporary and permanent construction works, and supply of all built-in furniture and equipment The coordination of subcontractors General supervision/inspection

Main Activities During Construction 1. Start-up meeting 2. Management 3. Construction process 4. Post construction 5. Contract closure

Phase 4 Commissioning

PROJECT DELIVERY SYSTEM Investment Analysis Report Planning Definition Built works Project Brief Implementation Comm. Report Commissioning Operation Evaluation Report Facility in use Evaluation

Commissioning The process of advancing an installation from the state of static completion to full working order in accordance with the design intent.

Commission From two Perspectives Why Do You Commission? Commission From two Perspectives The Engineering Perspective The Contractual Perspective

Engineering Perspective Ensure the design intent has been met relative to the design specifications. Ensure the design intent will meet the operational requirements relative to: Program O&M Cost Safety

Contractual Perspective Ensure contractual responsibilities in terms of supply and installation versus design are not compromised or negated.

Phase 5 Operation

PROJECT DELIVERY SYSTEM Investment Analysis Report Planning Definition Built works Project Brief Implementation Comm. Report Commissioning Operation Evaluation Report Facility in use Evaluation

Objectives Establish and ensure reliable (operating systems) in the facility Establish, test and record the operating performance of the systems Maintain adequate operation and maintenance records Establish a preventative maintenance program Identify an operating and maintenance budget Respond to specific requests for services from the Client

Phase 6 Evaluation

PROJECT DELIVERY SYSTEM Investment Analysis Report Planning Definition Built works Project Brief Implementation Comm. Report Commissioning Operation Evaluation Report Facility in use Evaluation

Objectives Four main objectives: 1. To assess the project in specific terms, comparing planned and actual; 2. To compare the actual performance with the plans and the appropriate norms considered, in order to determine any variances;

Objectives 3. To clearly identify variances outside acceptable limits, so they can be reviewed for further action; and 4. To record the project performance for: Management review Sharing with other regions, and Contributing to PWGSC’s lessons learned database

3. Types of Evaluation 1. Project evaluation 2. Contractor evaluation 3. Consultant evaluation

What We Learned A good framework to deliver a Quality end product, on time and within budget to client satisfaction Procedural guide and reference for project team members and managers Basis for training Best practices are implemented Achieves good working environment Due diligence is exercised