1. CAPITAL PROJECTS IN THE ERA OF $50 oil
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2. ” The future belongs to the fast”. Meg Whitman, CEO – HPE (2016)
“Forget the future; it’s the present that needs to be fast”.
Steven Keays (2017)
1. The Point
2. Brave new world
Methods of delivery
Methods of project management

3. justified but rarely justifiable
THE POINT
The status quo is often
justified but rarely justifiable
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4. ”
In an age of depressed commodity prices, who can afford the odds of failure that plague industrial projects, small and large, far and wide?
Projects are risky. Their execution, riskier. Their success? Unlikely, if the status quo is allowed to prevail.
Steven Keays (2015)

5. The status quo, pre-2014
Projects could not succeed at $100 oil. What hope do they have at $50?
Beyond $1B, the failure rate is a staggering 70%
50% of $100M projects will suffer the same fate
$20M TIC projects fail 30% of the time
Source: Industrial Megaprojects, By Edward Merrow
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6. The status quo today THE PROJECT LANDSCAPE SUPPLY CHAINS
Consequences of the Great Dislocation ( )
THE PROJECT LANDSCAPE
Permanently altered. The Great Dislocation that has taken place since late 2014 has permanently altered the execution landscape of capital projects. Across the world and industries alike, these projects have faced fantastic budgetary pressures, especially in the O&G, Mining and Infrastructure sectors.
SUPPLY CHAINS
Labour pools and suppliers have been decimated. The widespread job cuts caused by collapse in oil prices has permanently damaged labour pools. Supply chain vendors who managed to survive the onslaught cannot survive the current cost structure.
DEMAND-SIDE ECONOMICS
E&P companies became a monopsony. Owners, producers and operators have been able to dictate pricing in their respective sectors. Draconian cost savings achieved since 2014 cannot persist in 2017.
2017 marks the end of the beginning of the recovery. Capital projects are making the news. Investor and owner confidence is returning. Significantly, this confidence assumes that demand-side economics will continue to prevail. Signs are already wrecking this assumption.
RESURRECTION
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7. THE STATE OF THE STATUS QUO
The world as it was until 2014.
Common project execution framework
Traditional project management (TPM) concepts ruled. Planning, sequencing and tracking of both capex and opex projects abided by ubiquitous practices promoted by standard-bearing organizations such as PMI.
Uniform progression
The decision-gate framework became the norm across industries, in the form of the sequence DBM > FEED > DESIGN > CONSTRUCTION >COMMISSIONING.
Price inflation
In the Canadian O&G sector, labour costs followed a relentless upward trajectory across the entire supply chain. Workshare, offshoring, outsourcing and offshore-built modularization strategies were pursued in an attempt to corral that cost inflation. To little or no avail, ultimately.
Common outcomes
In spite of these efforts, and contrary to the expectations conveyed by the application of TPM techniques and methods, projects continued to blow their budgets and bust their schedules. Failure rates of %50 or more are the norm, not the exception.

8. The status quo Why it must be challenged
If projects that were struggling when oil was at $100 oil, what chance do they have at $50?
The cost structure inherited from the Great Dislocation is unsustainable going forward.
Labour has become purely transactional. Loyalty & tolerance have vanished
Project experience walked out the door two years running. It’s not coming back soon
The industry’s long-term employment challenges have been walloped into a crisis
The TPM methodology for project delivery failed before and will fail again
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9. Brave new world
The project as investment vehicle

10. A NEW PARADIGM Investment-centric project management (ICPM)
OUT WITH THE OLD
IN WITH THE NEW
Project defined as a temporary endeavor, undertaken to create a unique product, service or result, and in satisfaction of all stakeholders.
Is managed in accordance with the constraint trifecta.
All expense decisions are motivated to reduce costs now.
The project ends with the end of commissioning & start-up.
Project defined as the realization of a profitably performing asset.
The asset exists to maximize ROI to shareholders over its life.
The project is managed in accordance with the constraint diamond.
All expense decisions are made to maximize the asset’s long term ROI performance.
The project ends when the asset’s performance is verified.
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11. MANAGING MINDSETS Costs now vs Profits later 2-legged stool
“Doing right by the project” is incompatible with the constraint trifecta (cost, quality, time).
Focus must instead be on the end game and governed by the constraint diamond (cost ,time, revenues, performance, expenses, profits)
Make decisions on the basis of future ROI performance.
TPM = traditional project management
PPA = profitably performing asset
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12. WORK SEQUENCE
Incrementalism governs (bottom up approach) 1 2 3 4 5 6 7 8
Installation integration
Plant design and nucleation
Granular requirements
Construction
Physical configuration of asset
Construction basis
Realization planning
Asset validation
System definition
Plant integration
Conceptualization stage
Realization stage
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13. INCREMENTALISM AT WORK
ICPM Lifecycle phases
Granular requirements (1)
Define the overall asset requirements . High-level targets are assigned. Identify the PECO objectives, investment message. Distill plant into primary installations. Define their functional requirements (FR).
System definition (2)
Define the functional specifications (FS) for the primary systems . Define the IBL requirements of the secondary systems. Identify OBL commands. Preliminary
Installation integration (3)
Integrate the primary and secondary systems of each installation into functional networks. Derive the design specifications (DS) of systems, FS of installations and FR of the plant.
Plant integration (4)
Integrate the primary and secondary installations into the pant’s functional network. Develop the construction requirements.
Plant design (5)
Complete the design of the entire plant. Derive the construction specifications. Develop all Phase 4 FS into DS. Finalize all command and control details of the plant. Commence the nucleation work. The Conceptualization stage is completed.
Realization planning (6)
Assemble the construction basis. Develop the plans to construct the asset. Execute the permit plan. Award all required contracts.
Construction (7)
Initiate the site preparation works. Begin construction. Continue until the plant is ready for commissioning.
Asset validation (8)
Enter operational readiness. Execute start-up and commissioning. Complete personnel training. Operations take-over. Verify plant’s performance. Modify as required. Warranty claims and hold-backs are resolved. Complete close-out.

14. METHODS of DELIVERY
Going beyond plans and procedures

15. Methods of delivery
Changing the focus of a project’s overall management
The success or failure of a project rests with the Owner. It is not enough to mobilize the “A” team on a project. What is needed is the “A” organization, which requires a functional division of the resources. Do away with the idea that the project team is the lynchpin of the entire project, and replace it with a genuine framework structure.
PECO : Project Management Office
PECO : Project Ecosystem
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16. Methods of delivery The Framework organization
The Framework manages the risks and constraints external to the project.
The PMO managers the risks and constraints internal to the project.
Mission
Protect the owner
Checks the PMO against monopsony
Enable the PMO to realize the PPA
Project development strategies and metrics
Areas of influence
Project ecosystem (PECO)
Management oversight
Execution dominion
Standardization
Accountability
Strategic (as agent of the owner)
Core functions
PECO management
Aggregating functions
Global component strategies
Partnerships
Venture oversight management
SOE / SOL enforcement
Partner alignment
Resources
Corporate allocations
Project staff training and development
Outsourcing and offshoring
SOE: Standard Operating Environment
SOL: Standard Operating Landscape (partnerships and JV)
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17. Methods of delivery The Project Ecosystem
Projects do not happen in a vacuum. Big or small, near or far, each one’s reality is shaped by the ecosystem in which it unfolds. The project ecosystem (PECO) is the arena where the action occurs, one that includes all of the variables that are external to the owner’s organization.
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18. Methods of delivery Acceptance Maturity Model
Work verification based on trust but verify rather than review and approve
What is implies
Acceptance levels
Vendor maturity levels
Faith in the
work of others.
Hire competent parties to do the work.
Execute checks as a function of acceptance basis.
1 Execute and
accept.
2 Execute, approve & accept.
3 Execute, verify
approve & accept.
4 Execute, validate, verify, approve & accept.
Based on expertise and history:
Expertise: SME & Domain
History: Owner & track record
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19. Methods of delivery Incremental bid mechanics
The selection of a winning bid goes through four stages, in sequence. It is the sole means of genuinely equalizing competing bids.
Identify which organization (internal or external) are qualified to execute the anticipated work in full compliance with the owner’s SOE.
Occurs before any contract work is considered.
Pre-qualifications
Define the conceptual baseline (bounds of the work to be quoted).
Include schematics, equipment outlines, restrictions and pertinent codes & standards.
Specifications
Solicit bids from pre-qualified vendors.
Equalization of bids.
Valunomy assessment.
T&C negotiations with prospective winner.
Award recommendation
Selection
Contract award
Schedule acceptance
Acceptance criteria
Work
Award
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20. Methods of development
Recruitment and training
The complexity of people management increases exponentially with degrees of physical separation.
Go Domestic
Default position.
Typically with higher valunomy.
Least complex management
Valunomy
Outsourcing costs > unit rates.
Domestic labor costs inflate when recruitment is endogenous.
Expertise costs are more valunomic than cheap offshore rates
Embrace miscegenation as a recruitment strategy
Staffing tactics
Span of control: direct reports should target 7
Stratification: expertise should propagate horizontally within org chart.
Radial: Communication degrades with each distance delay
Development
Projects present opportunities for on-going development.
Implement AAR training on every project.
Personnel should be cross-trained in other disciplines.
Choose expertise over experience