10th pwc and minex moscow mining club meeting mining...

Mega-projects - how to increase confidence in delivery and success MOSCOW MINING CLUB

10th PwC and Minex Moscow Mining Club meeting

Mining investment process and project management

PwC

What we’ll discuss today

• Why do projects fail?

• Enterprise/Group Capital Strategy

• Project Level Controls

• Case Studies

• Risk modeling – Quantitative Risk Assessment

• Schedule Analytics

• Package Level Risk Profiling

Slide 2

•Why do projects fail?

PwC

The vast majority of failures are due to managerial aspects

Only 2.5% of companies

deliver their projects within the deadline, costs, scope and with the benefits expected for the business.

Technical problems

Suppliers’ failures 8 %

92%

Inappropriate/inadequate

resources

Inadequate

Project Environment

Inadequate Planning/

Monitoring

Lack of clear

objectivesDirectly related to managerial aspects

Directly related

to technical aspects

Lack of management

(organizational)

4%

4%

10%

11%

15%

20%

36% Technical and managerial aspects

Slide 4

Enterprise Level Strategy

PwC

How do Companies React?

Establishment of Capital Project ‘Center of Excellence’ / Centralized PMO

• Central planning and execution across regions with resource optimisation

• Establish interdependencies and central coordination between functions

• Clearly defined criteria for group level control and strengthened functions for Group support including:

• Project portfolio prioritisation and optimisation within set criteria to inform future investments and risk profile of major capital projects;

• Enhanced maturity of business cases, via cross-functional teams;

• Increased transparency on project and portfolio performance;

• Standardized project development /execution (consistency and quality);

• Improved support in contract formation and enforcement

• Enhanced use of project steering committee’s, and group level investment and procurement committees

Slide 6

PwC

Mining Industry Best Practice Front end loading – phased project planning

Pre-concept Concept Pre-feasibility Feasibility Implementation

• Plan for

resources

• Define roles

• Define success

criteria

• Define models

and scope

• Identify

opportunities

and scenarios

• Classify risks

• Align objectives

• Identify quick

wins

• Quantify

economics

• Define options

and portfolio

• Rank by value,

risk and effort

required

• Basic

engineering

• Operations plan

• Risk plan

• Contracting

• Sanctioning

• Detailed design

• Plan and

logistics

• Risk

management

• Execution

• Supervision

• Measurement

Post Imp. Review

• Track plan vs.

real

• Measurement

• KPI monitoring

• Plan correction

Concept Feasibility Pre-feasibility

Front End Loading

Influence

Approval

Expenditures

Mechanical

Completion

Implementation

Detailed Design Construction

Start Up

Slide 7

PwC

Constantly Refine Cost and Contingency Estimating

Confidential - For the sole use and benefit of Minex

Class 5 0%-2%

Class 4 1%-15%

Estimate Amount

Project Definition

3%-5%

Schematic Design

15%-20%

Design Development

35%-45%

Construction Documents 90%-100%

Construction Cost Estimate Accuracy Ranges

Class 3

10%-40%

Class 2

40%-70%

Class 1

70%-100%

Estimate Amount

Adapted from the AACE

Cost Estimate Classification System

+15%

-10%

+20%

-15%

+30%

-20%

-30%

+50%

<+100%

-50% Nominal Level of Design Detail

0%

100%

PwC

Scalable Governance / Delivery Models Avoid a ‘One Size fits all’ approach

Capital investment risk scenarios

Mega Project

The mega project is an order of magnitude (or

more) larger than the typical project for the

organization.

One-Time Large or Very Large Project

Capital projects are not executed as a normal

course of business and this is a single capital

investment.

Program of Small and Medium Projects

The program involves a collection of projects for

meeting a specific objective (e.g. growth or

regulatory)

Capital Intensive Routine Projects

The asset base for the company requires steady

capital investment to maintain production.

Margin

OH/Risk

Capex

Feed/Opex

$

Time

Margin

OH/Risk

Capex

Feed/Opex

$

Time

$

Time

Margin

OH/Risk

Capex

Feed/Opex

$

Time

Margin

OH/Risk

Capex

Feed/Opex

Slide 9

PwC

Scalable project governance and delivery model

Routine Projects

Small Projects

Medium Projects

Large Projects

Very Large Projects

Megaprojects

Business Case

Approval Authority

Execution

Tools, Systems, and Processes

Oversight and Assurance

Basic to simple support

Business unit

Comprehensive and detailed analysis

Divisional and executive Board

Division or department Capital project cross-functional group

Basic office Standard project and ERP systems Custom

Dept. reports

‘Flash’ reports

PMO, Steering Committee Board

Independent Audits

($ vary) (< $10m) ($10m-$100m) ($10om-$250m) ($250m-$1b) (> $1b)

Slide 10

Project Level Controls

PwC

Effective Project Governance Structures

Execution

Oversight Assurance Project Sponsor

Project Director

Project Controls

Engineering Procurement

Owner’s Engineer

Consultants

EPC Vendor

Subcontractors

Fabricators Material Suppliers

Quality Management

Commissioning EHS

Executive Steering

Committee

External Program

Advisory Board

Construction

Slide 12

PwC

Procedural framework Project life-cycle

Pr

oje

ct

Ele

me

nts

Evaluation Design Development Production Turn-over M & O

Organization design and HR management

Project resource plan, organization, roles and

responsibilities

Mobilize and manage project

labor Demobilization

Operations staff planning

Ongoing requirements /

skill review

Procurement and contract

management

Contract strategy

Contractor qualification and

evaluation

Contractor selection and negotiation

Contract compliance

review

Trouble-shoot and punch-list

Vendor qualification and

selection

Scope and change management

Project and scope definition

Detailed design and scope freeze

Change control Owner

acceptance Asset change management

Cost management Project estimate Project cost

baseline Cost control and Cost to Complete

Modeling Final payment / retention release

M & O budgeting

Schedule management

Project schedule requirements

Project schedule baseline

Schedule management and data analytics

Completion checklist

Ongoing maintenance

Business systems and technology

Project systems strategy

Implement project systems

System support and maintenance Transition to enterprise asset

management

Risk and issue management

Risk and issue management

plan Risk and issue tracking and resolution

Confirm issue resolution

Ongoing issue management

QA / QC, Safety Management

Health and Safety plan

Design review, method

statements

Training, Safety Assessments, Independent testing and inspection

Safety file handover

O&M Manuals

Communication, reporting and

regulatory

Stakeholder assessment and

reporting requirements

Project status and regulatory

filings

Permits, Licensing Project performance

Asset performance

Project close-out Operations and

financial reporting

Slide 13

PwC

Establish contracting strategy selection criteria

Define objectives and establish parameters

(scope, cost, schedule, etc.)

Segregate scope

(self performed, alliance vs. contractor)

Evaluate delivery options

(EPC, EPCM, Multi-prime, etc.)

Evaluate pricing options (lump sum, cost +,

incentives, etc.)

Evaluate award options (bid, ,

negotiated, Etc.)

Contract strategy

•Typically output of Front End Loading (FEL)

•Typically bulk of services associated with direct project costs

•Project: Schedule, scope, definition, funding

•Owner: Internal capabilities, risk aversion, contract restrictions, strategic, regulatory/political factors

•Market: Resource s, competitiveness, commodities

•Qualitative Risk Assessment

•Desired allocation of risk

•Ability to manage risk

•Relationship considerations

•Commodity vs. Service

•Regulatory requirements

Slide 14

PwC

Standard Project ‘tool box’ to Accelerate Project

Types of training Media Northern Trust benefits

Tier 1—Learn from co-location (face-to-face)

• Traditional classroom, instructor-led

training (ILT)

• Train the trainer (TTT)

• Cascaded learning small group activity

(CSGA)

• On-the-job training (OJT)

• Classroom training materials (CLASS)

• Electronic performance support system (EPSS)

• Quick reference (QRs) and Frequently Asked

Questions (FAQs)

• Interactive simulations and games (SIM)

• ERP sandbox training environment (TRN ENV)

• Local coach/mentor support (COACH)

• Frontline leadership

• Mentoring (experienced with novice)

• Organizational knowledge retention

• Quicker evaluation

• Quicker remediation

Tier 2— Learn from collaboration (group collaboration)


training (ILT)

• Virtual classroom, instructor-led (VCT)

• Video teleconferencing/satellite

distance learning (DL)

• Train the trainer (TTT)


(CSGA)

• Classroom training materials (CLASS)


• Quick reference (QRs) and Frequently Asked

Questions (FAQs)



• Collaboration (instant messaging) or (IM)

• Collaborative teamwork

• Cross-organizational cooperation

• Quicker communication of solutions

• Broader, effective reach

• Increased communication frequency

Tier 3—Learn from interaction (multimedia and simulations)


training (ILT)

• Virtual classroom, instructor-led (VCT)

• Video teleconferencing/satellite

distance learning (DL)


(CSGA)

• Online self study web-based training

(OSS)

• Computer/web-based training (WBT)


• Quick Reference (QRs) and Frequently Asked

Questions (FAQs)




• Self-directed learners

• Problem solving

• 24x7 continuous education

• Higher retention

• Self-evaluation

• Self-remediation

Tier 4—Learn from information (performance support and reference)

• On-the-job training (OJT)

• Online self study web-based training

(OSS)

• Reference only (REF)

• Computer/web-based training (WBT)


• Quick Reference (QRs) and Frequently Asked

Questions (FAQs)



• System understanding

• Basic skill proficiency/performance

• Basic navigation

• Business process context for transaction

Enabling Systems, and

Tools (Reporting)

Integrated Performance

Analytics

Governance and Risk

Frameworks

Cost to Complete

Models

Process and Procedures

High Performing Teams:

Leverages multiple accelerators, frameworks, tools and proprietary methods.

Process and procedures based on best practice, experience and lessons learned.

Reporting tools that help the team accelerate analytics and early warnings

As a Result:

Timelines are shortened

Increased efficiencies at all stages

Reduced disruption to mobilization and start-up

Effort required is more predictable,

Project Development has higher level of confidence

Slide 15

PwC

Real-Time Integrated Scheduling

Group - high level schedule overview

Division - Level 1/2 schedules with some level of integration between projects

Program/Region – Level 2 integrated schedules

Project – Detailed level 3-4 schedules (standard WBS coding)

Project 1

Project 2

Project 3

Project 4

Slide 16

PwC

Programme Value Chain

Invoice Management Module, Depiction of a Potential Invoice Dispute Process+

Invo

ice

Man

agem

ent

Mod

ule

Lega

l Tea

mCo

nsor

tium

Proj

ect

Man

agem

ent

Team Dispute Invoice /

Portion of Invoice

Submit Notification

of Disputed

Invoice and

Amounts

Receive

Notification of

Disputed Invoice

and Amounts

Receive

Notification of

Disputed Invoice

and Amounts

Meet to Resolve

Disputed Invoice

No

Resolution

Invoice

Resolved

Notify Legal Team

Invoice Dispute

Resolved

Clarify Issues

Related to Interest

on Disputed

Invoice

Receive

Notification Invoice

is Resolved and

Approved

Amounts

Calculate Interest

Due on Approved

Amounts

Identify Disputed

Invoice and

Amounts

Follow Add’l

Dispute Resolution

Procedures

Process Resolved

Portion of Invoice

Variance / Dash-boards Three Week Look-aheads Analytics

Contractor Programmes CM Mini-Programmes Start-up & Commissioning PMP, Level 3/4 programmes Design Programs

Inputs (raw data)

Site Outputs

Level 1 programme Oversight Authorities - Public Audits Client Executive Leadership / Dashboards Strategy (what-if’s) Contracts / Commercial Quantitative Risk Assessment

Client Level 2 Programmes

Management Outputs

Working Tool (‘shadow program’)

Slide 17

PwC

Cost to Complete

Description FormulaeP02 - Boiler

Total Approved Budget (B)+(C) 21,307,113,033R

Proposed Budget (A)=(B)+(C)+(D) 21,260,530,901R

Original Contract Value (B) 19,913,189,751R

Contingency (C) 1,393,923,282R

Strategical Spares (D) 176,276,269R

Approved CSI Cost Savings (E) -46,582,132R

Approved Variations (F ) 320,762,271R

Approved Instructions 558,953R

Approved Proposals 296,301,470R

Approved Deviations 23,412,055R

Approved Claims 489,793R

Total Approved Value to Date (G)=(B)+(E)+(F) 20,187,369,890R

Pending Variations (H) 575,820,559R

Pending Instructions 2,118,000R

Pending Proposals 577,747,222R

Pending Deviations -4,044,663R

Pending Claims

Pending CSI Cost Savings (I) -R

Forecast Cost at Completion (Approved & Pending Variations Only) (J)=(G)+(H) 20,763,190,449R

Potential Variations (K) 244,330,381R

Risks within the Contract Execution -R

Trends -R

Disputed Claim Values -R

Potential Claims 244,330,381R

Forecast Cost at Completion (Approved, Pending & Potential Variations Only) (L)=(J)+(K) 21,007,520,830R

Contingency & Additional Approved Commitment (M)='(C) 1,393,923,282R

less Total Growth (N)=(E)+(H)+(K) 1,140,913,211R

Balance of Contingency Allowance (O)=(M)-(N) 253,010,071R

Forecast Cost at Completion (incl. Balance of Contingency Allowance) (P)=(L)+(O) 21,260,530,901R

Contract Price Adjustment (CPA) (Q) 5,044,663,375R

Forecast Cost at Completion (incl. CPA) (R)=(P)+(Q) 26,305,194,276R

Financial Costs (S) 4,774,946,335R

Foreign Exchange Cover (FEC) 695,729,527R

Interest During Construction (IDC) 4,079,216,808R

Forecast Cost at Completion (incl. Fin. Costs) (T)=(R)+(S) 31,080,140,611R

CONTRACT COST INFORMATION

Contract Control Sheet

CO

NT

RA

CT

CO

ST

FO

RE

CA

ST P

B P

ow

er C

ost

Item

sE

sko

m C

ost

Item

s

Time

Cu

mu

lati

ve

Resource Flow for Cost

Contracted work & variable price elements

Earned value

trends

Changes pending and agreed

Risk Weighted CPM and scenario analysis

Quantified risks & mitigation costs

Forex

Inflation

Interest during construction

Risk weighted cost estimate

Slide 18

PwC

Modeling Risks Using Monte Carlo

• Based on the risk probabilities and ranges, thousands of unique possibilities are simulated.

• Probabilities trigger risks & impact are randomly selected from distribution range

• Workshops help identify risks, likelihoods, and potential impact

• Typically a three-point estimate, as follows:

Optimistic – The best possible outcome if the risk occurs

Most Likely – The most likely outcome if the risk occurs

Pessimistic – The worst possible outcome if the risk occurs

• A three-point estimates is typically modeled by a triangular distribution

Pessimistic Most Likely Optimistic

Triangular Distribution : When each risk occurs, its impact will be along the defined distribution (three point estimate), randomly Each risk has a unique distribution

Slide 19

PwC

Notes: Change Order 105 Chronology : Base on the document and records management system log

dated August, 2011

Description Observations Actions

This chart illustrates the documents, e-mails,

testing, meetings and events that are relevant

to the negotiations of root-cause analysis

Based on the assessed risks, there were

large periods of time when SEC did not

respond to specific requests, causing delays.

Issue notice of delay, notify insurers, and

underwriters of SEC failure, and quantify

damages resulting from delay.

Risk and Issue Management

Slide 20

Project Execution

Executive Project Management

Contract and

Change Mgt Project

Controls

Executive PM

Medupi Organisation Assessment and Re-Alignment

Project Execution Director

Site CM

Sit

e S

erv

Mg

r

Co

mm

issio

nin

g &

Inte

gra

tio

n

En

g &

Co

nfi

g M

gr

Qu

al

Co

ntr

ols

Mg

r

FID

IC E

ng

ineer

Pro

j C

on

tro

ls M

gr

Co

mm

erc

ial

Mg

t

Mg

r

Pro

ject

Su

pp

ort

Mg

r

Scheduling

Cost

Assurance

Deputiy Project Dir.

External S/H Mgt & Reporting

Boile

r &

Mechanic

al

Turb

ines

Ele

ctr

ical

Contr

ols

&

Instr

um

enta

tion

Civ

il &

Build

ings

Coal &

Ash

Bala

nce o

f P

lant

Coal, W

ate

r, T

x, G

x

LDM QS

LDM DM

LDM MG

LDM

PS LDM

TC

LDM RG

LDM NP

LDM BS

SH

E &

Q M

gr

Site Director

Gap

Att

ack L

ead

Project

Support

Estimating

TBD

Risk

Claims

Variations

Contract

Admin

HR

C Fourie / V

Admin

Doc Mgt

Procurement

Document/

Issue Mgt

TBD

IM Finance

Case Studies Mining & Energy

PwC

Case Study Mining

Slide 23

PwC

Capital Project Review for an $1Bn Mine development

Funding / Partners

Plant and equipment ownership

Water & Power

Rail, Port and pipeline

Permitting

Environmental and Closure Costs

Community relations

Man-Camps / force optimization

Safety

Owner vs Contractor operated

Depreciation

Taxation

Foreign exchange rates

Royalties and levies

Emissions monitoring

Consumer price indices

Product split/price relativity

Commodity proce

Closure costs

Development Factors Operational Factors

Case Study 1

Slide 24

PwC

Procurement and contracting strategy Misalignment of contracting strategy and risk appetite

Case Study 1

60%

0%

1%

39%

Contracts based on fixed price

1 - Contracts based on time and materials

2 - Contracts based on unit price

Combination of 1 and 2

Actual split among different types of client’s contracts

In this case client believed that all his contracts were with fixed price, however analysis revealed another

situation

Slide 25

PwC

• Reducing owner/employer design/drawing review time;

• Unrealistic early completion schedules;

• Artificial activity durations to hide float;

• Artificial logic to hide float (sequestering);

• Artificial logic to exaggerate known delays;

• Selective issue of progress information;

• Progress updates with no historic as-built data;

• Incorrect actual dates in progress updates;

• Changing historical data in final as-built;

• Unidentified logic/duration changes in updates.

Schedule Analytics Common ‘Tricks’, Tactics or Strategies

Case Study 1

Slide 26

Schedule Analytics – Float Deterioration

Notes:


This chart illustrates the trending of the total float

for the various key components of the project.

The platform rehabilitation work continues to lose

float due to low contractor productivity.

Engage with contractor to remedy the lackluster

productivity. Ensure that sufficient manpower is

being provided.

-80

-60

-40

-20

0

20

40

60

To

tal

Flo

at

(Days)

Track Extension As-Planned Platform Rehabilitation Systems Upgrades

Most Critical

Sub-Critical

Case Study 1

Port Rehabilitation Site Development

PwC

Equipment and consumable lead times Consumables are in short supply and lead times are rapidly returning to 2007 boom levels

2011 lead time outlook (years)

Gas generators

Wagons

Reclaimers

Tyres

Large Haul trucks

Crushers

Barges

Locomotives

Grinding mills

Draglines

Ship Loaders

Rope Shovels

0 5 1 2 3 4

2007 delivery time

Current delivery time

Normal delivery time

Heavy equipment lead time Consumables demand / supply

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

98 105

117 120

127

135 143

155 165

175 185

Demand Supply

Global Tyre Sypply/Demand (Thousands of 40’’ to 63’’ Units)

Case Study 1

Slide 28


This graphic shows the percentage of open ends

(i.e. activities without predecessors or

successors) in the updates analyzed in this

report.

Then number of open ends has been

substantially reduced in the last two updates.

This is a good trend and indicates that the team

is taking steps forward to enhance the quality of

the schedule.duration overruns .

Ensure that open ends in the schedule are kept

to a minimum.

Schedule Analytics – Logic Check

Notes:

8%7%

4% 5%

2%3% 3%

10%

5%

1%0%

2%

4%

6%

8%

10%

12%

31-Jan-12 29-Feb-12 31-Mar-12 30-Apr-12 31-May-12

Data Date

No Predecessors No Successors

Case Study 1


This graphic shows the number of each

relationship type in the schedule updates

analyzed. In order for a logic tie to be valid, it has

to be linked to an incomplete task (e.g. not a

completed task, LOE, etc.)

There are a number of start to finish task in the

schedule the usage of which is highly

discouraged due to the ambiguous nature of the

tie.

Eliminate SF relationships where possible and

replace these with more suitable schedule ties

(e.g. FS, SS).path.

Schedule Analytics - Relationship Tie Check

Notes:

Case Study 1


This graphic summarizes the various constraint

types in the schedule. Hard constraints which

override the logic may dampen the ability to

accurately report the project's critical path.

As of the May 2012 update, all hard constraints

have been eliminated with the overall number of

constraints dropping as well. This is a positive

trend in the quality of the schedule.

Excessive use of constraints impedes ability to

determine the project’s critical path Increasing

constraints could indicate ‘lazy’/ bad scheduling

practices. Confirm need for hard constraints

Schedule Analytics - Hard Constraint Check

Notes:

Case Study 1


This chart shows the distribution of the float

values reported in the schedule for all of the

remaining tasks.

Over 50% of tasks have over 70 days of float.

For a project with only 13 months of remaining

duration, this percentage is excessive and may

be an indication of missing logic ties.

Ensure that all tasks are properly linked to the

project's completion milestone and that the float

is accurately reported

Schedule Analytics - High Float Check

Notes:

Case Study 1


This chart shows the distribution of the durations

reported in the schedule for all of the remaining

tasks.

Since the schedule is updated on a monthly

basis, the target should be to have as many

activities as possible with a duration of one

month or less. In the latest update, about 60% of

tasks fall into that category.

Where possible, tasks should be broken down

into a higher level of detail to improve the ability

to track progress on a monthly basis.

Schedule Analytics - High Duration check

Notes:

Case Study 1

Schedule Analytics - Early Finish count

Notes: Analysis is based on contractor submissions from 5700 to 5702


This chart illustrates the planned early

completion date of all activities , window by

window.

The wave of activities appears to shift indicating

that slow progression and failure to meet

planned progress

Identify root cause of progress slippage, issue

warnings for non-performance, or revised

projections to reflect realistic progress

0

500

1000

1500

2000

Ac

tivit

y C

ou

nt

Case Study 1

0

500

1000

1500

2000

M-1

0

J-1

0

J-1

0

A-1

0

S-1

0

O-1

0

N-1

0

D-1

0

J-1

1

F-1

1

M-1

1

A-1

1

M-1

1

J-1

1

J-1

1

A-1

1

S-1

1

O-1

1

N-1

1

D-1

1

J-1

2

F-1

2

M-1

2

A-1

2

M-1

2

J-1

2

J-1

2

A-1

2

S-1

2

O-1

2

N-1

2

D-1

2

J-1

3

F-1

3

M-1

3

A-1

3

M-1

3

J-1

3

J-1

3

A-1

3

S-1

3

O-1

3

N-1

3

D-1

3

J-1

4

Ac

tivit

y C

ou

nt

M-10

J-10

J-10

A-10

S-10

O-10

N-10

D-10

J-11

F-11

M-11

A-11

M-11

J-11

J-11

A-11

S-11

O-11

N-11

D-11

J-12

F-12

M-12

A-12

M-12

J-12

J-12

A-12

S-12

O-12

N-12

D-12

J-13

F-13

M-13

A-13

M-13

J-13

J-13

A-13

S-13

O-13

N-13

D-13

J-14

7/23/2010 0 0 597 208 141 102 849 569 467 456 476 337 340 183 139 94 102 97 119 44 5 33 6 7 37 8 4 2 2 12 12 0 1 4 1 0 1 0 0 0 4 0 0 0 3

8/27/2010 0 0 0 390 198 153 974 722 474 476 544 359 377 216 213 105 105 123 125 40 15 35 6 13 33 8 4 2 2 12 12 0 1 4 1 0 1 0 0 0 4 0 0 0 3

9/24/2010 0 0 0 0 470 186 122 681 640 556 711 559 241 248 159 67 128 74 96 44 13 39 20 9 29 8 4 2 7 8 10 0 1 5 3 0 0 0 1 0 6 0 0 0 0

10/22/2010 0 0 0 0 0 413 157 110 802 641 772 468 226 276 323 91 135 48 91 56 15 20 24 14 1 6 4 2 6 8 7 0 4 5 3 0 0 0 0 0 6 0 0 0 0

11/26/2010 0 0 0 0 0 0 658 150 914 761 849 513 324 268 265 132 87 107 106 62 14 16 25 18 10 13 4 1 7 12 9 2 2 9 3 0 0 0 0 0 6 0 0 0 0

12/17/2010 0 0 0 0 0 0 0 794 139 967 871 615 379 296 269 142 92 111 57 112 27 14 25 18 9 13 4 3 5 12 10 2 3 9 3 1 0 0 0 0 6 0 0 0 0

Early finish activity count - sample schedule slippage


This chart illustrates the planned early

completion date of all activities , window by

window.

The wave of activities appears to shift indicating

that slow progression and failure to meet

planned progress

Identify root cause of progress slippage, issue

warnings for non-performance, or revised

projections to reflect realistic progress

July 2010 update forecasted 467

activity completions for January 2011

December 2010 update forecasted 1395

activity completions for January 2011

Variance = 928

Case Study 1


This chart illustrates the distribution of activities

performed within their as-planned duration by

Wick’s law contractor

H & P were relatively accurate in predicting the

majority of their task durations. G & E activities

however , show significant duration overruns .

Schedule Analytics - Task Duration Variance

Notes: Analysis is based on contractor submissions to update 5751

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

-50 -40 -30 -20 -10 0 10 20 30 40 50

Pe

rce

nta

ge

of

Ac

tiv

itie

s

Days Between Original Duration and Actual Duration

ENER

VOSE

DOMD

TOSH

30% - Less than or Equal

to Original Duration

70% - Greater than

Original Duration in

Port tasks

Mechanical

Civil/Structure

Railway

Port

Case Study 1

PwC

Schedule Analytics – Integrity checks

Assessment Area Criteria Schedule Update

Jan-12 Feb-12 Mar-12 Apr-12 May-12

1. Logic Check <5% missing ties 2. Leads Check (Negative Lag) 0%

3. Lags Check <5%

4. Relationship Types Check No SF relationships

5. Hard Constraints Check <5% 6. High Float Check <5% Acts with excessive float

7. Negative Float Check No negative float 8. High Duration Check <5% with excessive duration 9. Invalid Dates Check planned dates < DD or actual > 10. Missed Tasks Check 95% of monthly targets achieved 11. Critical Path Test Check Delays in CP accurately reflected

• 14 Point Assessment gauges the quality of the contractor’s schedule

Case Study 1

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PwC

Case Studies Energy

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PwC

Refinery Modernization / Expansion Modernization/ expansion to diversify products and improve product yields. Due to repeated funding requests client

required validation of cost and schedule

Forecasts

• Review growth of the cost and schedule projections

• Establish accurate design status and undefined scope

• Challenge assumptions and reasonableness of estimates

• Challenge manpower productivity drivers to completion

• Prepare independent cost-to-complete/quantitative risk assessment (QRA)

to establish required contingency to ensure P80 confidence level

Case Study 2

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PwC

Cost and schedule validation

Design Completion

Quantity Estimation

Performance Factor / Output

Assumptions

Contingency Management

Establish Completion

Level

• Design hours

• Design drawings

• Provisional Sums

• % Complete

Establish Confidence

Level

• Bulk Material

• Parametric Estimates

• Allowances

• Quantity Take-Offs

Verify P/F Assumptions

• Allowances

• Unit Rates

• Historic Outputs

• Performance Degradation

• Anticipated disruption and Inefficiency

Identify ‘soft spots’

• Cost at Completion

• Remaining Durations

• Allowances

• Assumptions

• Potential over-runs and undefined scope

Remaining Contingency

• Test confidence in remaining UAP

• Review content of worst-case scenario assumptions

Schedule Durations/

Logic

Cost to Completion

Case Study 2

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PwC

Cost validation (qualitative)

Project Design

Estimate Schedule Risk

Quantity Perf.

Factor Indirects CPM PRA Cost Schedule

12PS l l l l l l l l

GOHT l l l l l l l l

OSBL l l l l l l l l

Coker l l l l l l l l

SRC l l l l l l l l

PMT l l l l l l l l

Case Study 2

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PwC

Quantitative Risk Analysis

Stakeholder Input

Develop Risk Model

Run Simulation

Vet Data

Generate Reports

Risk Response

Gather data:

• Risk & Issues (Workshops/ Risk Registers)

• Review status reports (minutes, monthly reports)

• Cost Estimates / Estimate to Complete models

• Contract / Design Documents

Quantitative Model

•Create model based on

• budget

•ETC/EAC

• level 2 schedule)

• estimating confidence range

(Class 1, 2, 3, 4, or 5)

•Quantify risk likelihood

•Quantify risk impacts

•Create risk register

Monte-Carlo (@Risk)

•Run simulation and gather output

•Test results and model integrity

•Adjust model if appropriate

Review Results

•Validate the data

•Test results against estimtate

•Test results to industry standards

(AACEi, DOE, ANSI, ASPE)

•Compare outliers to assumptions

Summarize Output

•Create functional reports to

present to steering groups

• Update Risk Dashboards

• Identify Exposure (P80/P90)

• Update Sensitivity Analysis

• Prepare Mitigation Road-map

Risk Mitigation

•Mitigate/Manage Risk

•Accept /Share Risk

•Transfer Risk

•Revise Scope/Budget/Schedule

•Update Estimate to Complete

Case Study 2

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PwC

Monte-Carlo Simulation (Results Distribution)

Distribution of rolling a pair of dice a 1000 times

Case Study 2

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PwC

Quantitative Risk Assessment

Distribution of building a project 1000 times.

P90 = $1.57Bn

P50 = $1.55Bn

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PwC

Risk Weighted Contingency Confidence model

Confidence Forecast + UAP ($M)

Forecast + UAP +Discrete Risks ($M)

0% $ 8,692.31 $ 8,818.85

5% $ 8,880.34 $ 8,961.37

10% $ 8,934.22 $ 9,004.27

15% $ 8,961.11 $ 9,038.06

20% $ 8,986.39 $ 9,067.49

25% $ 9,007.90 $ 9,090.49

30% $ 9,028.86 $ 9,111.90

35% $ 9,045.76 $ 9,127.08

40% $ 9,063.55 $ 9,142.84

45% $ 9,075.98 $ 9,159.37

50% $ 9,094.21 $ 9,173.02

55% $ 9,109.87 $ 9,195.27

60% $ 9,126.12 $ 9,214.58

65% $ 9,148.78 $ 9,233.08

70% $ 9,167.78 $ 9,254.97

75% $ 9,193.81 $ 9,280.19

80% $ 9,219.84 $ 9,310.05

85% $ 9,249.40 $ 9,342.35

90% $ 9,293.65 $ 9,387.51

95% $ 9,349.05 $ 9,440.45

100% $ 9,609.42 $ 9,725.96

What we did • Challenged proposed project

funding cap of $9bn

• Developed risk model incorporating

• Estimated to complete

• Risks (monetized)

• Performance trends

• Schedule trends

• Quantity increases

• Established quantitative confidence level with, and without discretely monetized risks

Benefit to Client • Request adequate project funding

based decision support.

• Establish realistic project targets

• Enable more effective project controls and realistic baseline.

Case Study 2

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PwC

CP&I – Selected thought leadership

Risk management and schedule management on mega-projects. Since your day-to-day

business is construction, you know construction projects are inherently risky. Managing this risk is

essential and, like any other important management or oversight function, is either done well or it is a

wasted effort that can risk everything. Capital project owners have focused on improving governance

structures; yet too many projects still fail to deliver on cost, schedule or quality commitments. The

consequence of failure can be public embarrassment and disappointed stakeholders

Quantitative risk analysis. As major capital projects are subjected to greater regulatory and

political scrutiny, the pressure on contractors to meet tight schedule and budgetary constraints

increases. Often cost and schedule targets are reported without accounting for potential risks and

impacts, which leads to an erosion of confidence in reaching those targets. Having a systematic

quantitative risk analysis process in place to gauge the confidence level of the project’s cost and

schedule is important for establishing realistic expectations.

Schedule analytics tools As capital project spend increases and aggressive deadlines are built into

project schedules, the reliance on accurate, transparent and meaningful schedule practices is growing.

Too often, major projects suffer from missed milestones, schedule slippage and delays with no way of

determining recovery plans or realistic forecast completion dates.

Optimizing capital project delivery. A major US utility was finalizing its plans to construct new

plants costing several billion dollars. Working in a highly regulated environment, the client recognized

the importance of a strong control environment to manage the project. The client requested a

governance readiness review to determine whether its systems and controls could support a project of

this magnitude and complexity.

Slide 46

PwC

Thank you

Slide 47