1. 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

2. 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.
Nick Lavingia

3. 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
Nick Lavingia

4. Business Case for Improvement
Improved Capital Stewardship
Lower Costs
Better Projects
More Projects
Improved
ROCE
Higher Earnings Growth
100
Higher Market Confidence
Higher P/E
Improved TSR
Nick Lavingia

5. Project Management’s Impact on the Bottom Line
Project Management Improves ROCE by
Increasing Revenues, Decreasing Expenses,
and Reducing Capital Employed
REVENUE MINUS EXPENSES
CAPITAL EMPLOYED
= ROCE
Nick Lavingia

6. Project Management Leads to Pacesetter Performance (Cheaper, Faster, and More Predictable)
1.25
Company X
Industry Average
30%
Improvement
Industry Average 1
Facility Cost
Pacesetter
Company
0.75
0.75 1
1.25
30% Improvement
Execution Schedule
Nick Lavingia

7. Step 1. Common Language
Nick Lavingia

8. 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
Nick Lavingia

9. Step 2. Common Project Development & Execution Process
Nick Lavingia

10. 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
Nick Lavingia

11. Project Management Vision
High
Random Success
Good Projects
Average Execution
Consistent Success
Good Projects
Good Execution
Decision
Quality
Mid
Success Unlikely
Poor Projects
Poor Execution
Random Success
Poor Projects
Good Execution
REFER TO VIEWGRAPH
Key Points:
Goal of the process is to have all of our projects fall into the top right quadrant.
Doing the right project poorly or doing the wrong project well, leaves money on the table Chevron could use elsewhere.
Without consistent process, projects fall all over the grid.
Low
Mid
High
Execution Quality
Nick Lavingia 17

12. Project Development & Execution Process
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
Produce an Operating Asset Consistent with Scope, Cost and Schedule
Select the
Preferred Project Development Option
Finalize
Project Scope, Cost
and Schedule
and Get the
Project Funded
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
AFE = Appropriation For Expenditure
Nick Lavingia

13. Project Management’s Impact on Creating Value
Value Identification
Value Realization
Good Project Execution
Good Project Definition A
VALUE B
Poor Project Execution
In the early phase the value of an opportunity is identified, but not realized until the later phases. Both are important.
Curves represent:
A - Selecting the right project and doing it well
B - Selecting the right project and executing poorly and eroding value.
C - Doing the wrong project well
D - Doing the wrong project poorly.
Critical to the success of the SBU to generate the highest earnings and NPV is the ability to manage the portfolio of excellent opportunities. Project Planning is a critical phase in managing the portfolio because this is where value is identified and created. CPDEP provides the core work process that allows multi-functional teams to collaborate in the generation of well thought out development plans.
Each asset in the portfolio has a CPDEP Roadmap which identifies the critical decisions required to advance the asset, the information needed to make the decisions, and the resources required to generate the information.
Innovation and creativity are essential to driving the value of our assets even higher. Generating creative business and technical alternatives, and the use of innovative technology are examples of value-added activities in the early phases.
Review / reinforce the 1:10:100 rule. C
Poor Project Definition D
AFE
Phase 1
Opportunity Identified
Phase 2
Generate & Select Alternatives
Phase 3
Develop Preferred Alternative
Phase 4
Execute
Phase 5
Operate
Nick Lavingia

14. Project Development & Execution Process
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
Nick Lavingia

15. Influence vs. Expenditures
Major Influence
Rapidly Decreasing Influence
Low Influence
Final Authorization
INFLUENCE
EXPENDITURES
Front End Loading
IDENTIFY
Gate
Gate
SELECT
Gate
DEVELOP
EXECUTE
OPERATE
Gate
Gate
Gate
Gate
Gate
DSP
DSP
DSP
DSP
DSP
Front End Loading
DSP = Decision Support Package
Nick Lavingia

16. Multifunctional Project Team
Key Players
Decision Makers
Multifunctional Project Team
--Business, Technical, Operations and Maintenance
Stakeholders
Contractors
Vendors / Suppliers
Nick Lavingia

17. 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.
Nick Lavingia

18. 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.
Nick Lavingia

19. Step 3. Application of Value Improving / Best Practices
Nick Lavingia

20. 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
Nick Lavingia

21. Value Improving / Best Practices
Phase 1
IDENTIFY & Assess
Opportunities
Phase 2
SELECT from
Alternatives
Phase 3
DEVELOP Preferred Alternative
Phase 4
EXECUTE
(Detail EPC)
Phase 5
OPERATE &
Evaluate
Decision & Risk Analysis
Project Execution Planning
Lessons Learned
(Seek)
Pre-Funding Assessment
(Share)
Value Improving Practices by IPA
Peer Review
Post Project
Assessment
Business Evaluation
P&ID $
EST
AFE
PFD D
Legend: AFE = Appropriation for Expenditure
D = Decision Point PFD = Process Flow Diagram
IPA = Independent Project Analysis, Inc P&ID = Piping & Instrumentation Diagram
Nick Lavingia

22. Step 4. Total Cost Management
Nick Lavingia

23. DEVELOP Preferred Alternative
Total Cost Management
Phase 1
IDENTIFY & Assess
Opportunities
Phase 2
SELECT from
Alternatives
Phase 3
DEVELOP Preferred Alternative
Phase 4
EXECUTE
(Detail EPC)
Phase 5
OPERATE & Evaluate
Economic Analysis
(NPV, ROR, Payout)
Cost Estimating
(Conceptual)
Planning/Scheduling
(Milestone)
Benchmarking
(Cost / Capacity)
(Funding +/- 10% Accuracy)
(Definitive)
(Cost Collection / Analysis)
(CPM Bar Chart)
(CPM Resource Loaded)
(Monitor & Update)
(Set Pacesetter Target)
(Pre-Funding Assessment)
(Post-Project Assessment)
Contracting/Procurement
(Strategy)
Cost Control/Forecasting
(WBS)
Progress reporting
Finance/Audit
(Pre-Qualification)
(Award / Monitor)
(Closeout)
Performance Measurement
(Establish Progress Payments)
(Earned Value)
(Establish Cost Accounts & Budgets)
(Trend / Forecast)
(Capital versus Expense)
(Asset Accounting)
P&ID $
EST
AFE
PFD D
Legend: AFE = Appropriation for Expenditure NPV = Net Present Value PFD = Process Flow Diagram
D = Decision Point ROR = Rate of Return P&ID = Piping & Instrumentation Diagram
EPC = Engineer, Procure & Construct CPM = Critical Path Method WBS = Work Breakdown Structure
Nick Lavingia

24. Step 5. Training and Certification
Nick Lavingia

25. 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
Nick Lavingia

26. 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
Nick Lavingia

27. 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
Nick Lavingia