project controls an owner’s perspective - aacei montreal 2010 aace rta mps controls... · project...

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Project ControlsAn Owner’s Perspective

Thierry Martel, ing., PMPDirector, Controls - Major Projects, SupportBusiness Development & Growth

Rio Tinto Alcan1188 Sherbrooke Street West, Montreal, Quebec, H3A 3G2, Canada

T: +1 (514) 848 8256 M: +1 (514) 518 3287 F: +1 (514) 848 [email protected] http://www.riotinto.com/riotintoalcan

6 December 2010

Safety Moment

The Good Old Days

December 13, 2010 Rio Tinto Alcan major project development documentation 3

Rio Tinto Alcan – Project Development Framework


Major projects approval workflow


Project phases and responsibilities


How MPS supports major projects

• Ensure Compliance to all RT / Rio Tinto Alcan requirements and Provide Support to Rio Tinto Alcan major project activities (through monitoring of audits, participation in gate reviews and expert advice)

• Promote Uniformity (best practice) and Maximize Sta ndardization in the development and implementation of major projects. All projects should be developed according to common methodology, and in accordance to the gated process.

• Allocation & Deployment of Resources to various projects. Functional link to owner’s team personnel assigned on projects. Functions as “Home Base” for project personnel when not assigned to specific projects.

• Implementation of Major Project HSE Systems, Standa rds and Procedures to take HSE performance to World Class Levels

7

Alignment is crucial

Capital Projects DocumentationMajor Projects, Support

Project Controls


Rio Tinto Alcan has adopted the Rio Tinto naming convention


The way we buy

Communities policy

Antitrust policy and guidance

Major project development

guidance note

Capital cost estimation working practice

Operating cost estimation working practice

Estimating capital cost escalation

Guideline for preparation of PEP

Risk electronic guidance information system

(REGIS)

STANDARDS / PROCEDURES GUIDANCE NOTES CHECKLISTS TEMPLATES

The way we work

Risk policy and standard

Investment committee (IC)

guidance note

Project evaluation guidance

note (PEG)

Technical evaluation guidance

note (TEG)

Rio Tinto approach to risk analysis &

management

Business modelling guidance

note (BMG)

Study definition guidance note

(SDG)

Corporate governance standards

Communities standard

Closure standard guidance

Corporate health standards

Corporate safety standards

Corporate environmental standards

Resource and reserve standards

Construction contracting plan

Commissioning & ramp-up guide

Guideline for preparation of projects

Management control during implementation

Cost control during implementation guide

Cost controlling the scope of work

Rio Tinto closure standard guidance note

Closure costs estimating guideline

Framework for closure development plan

Post project review guide

Investment proposal guideline

Feasibility study checklist

Hazard management gudielines

Project management guideline

Project implementation best practice guide

Owners team tasks and the role of PDE

Appointing / managing an EPCM contractor

preparation of project procedures

Studies and implementation

manual

Standard / Procedure

(mandatory)

Guidance notes / checklists / templates

(recommended)

Policy

(mandatory)

Rio Tinto Alcan Document Map


Project Controls documentation

STANDARD

GUIDANCE NOTE

PROCEDURE

GUIDANCE NOTE

TEMPLATE

BD&G Studies and

Project Implementation

Manual

MPE-PCS-01

Project Controls

Management

MPE-PCS-02

Work Breakdown

Structure Development

MPE-PCS-05

Planning and

Scheduling

MPE-PCS-04

Estimating

MPE-PCS-03

Scope Management

MPE-PCS-07

Cost Control

MPE-PCS-08

Progress Measurement

MPE-PCS-06

Change Management

MPE-PCS-09

Project Reporting

MPE-PCS-04-02

Contingency

MPE-PCS-04-01

Escalation

MPE-PCS-02-02

Work Breakdown

Structure Dictionary

MPE-PCS-02-01

Capital Projects Work

Breakdown Structure

MPE-PCS-09-01

Monthly Flash

Report

MPE-PCS-09-02

Monthly Progress

Report

MPE-PCS-09-03

Cashflow Curve

Report

MPE-PCS-05-01

Smelter Template

Schedule

MPE-PCS-05-02

Refinery Template

Schedule


Project Controls document structure


Guiding principles

• Scope

– Clear definitions between Project Scope (Product) and Scope of

Work (Activities)

– Comprehensive Change Management process for project scope and

scope of work (trends, variations, etc)

– Template documents for WBS development and scope definition

(Facility Dictionary).

– STD WBS for integration of scope, cost and schedule but also

documents, equipment nos, ORP, commissioning, etc for smelter, mine and refinery.


Work Breakdown Structure

5 1 3 0

Are

a

Sub

-Are

a

Sys

tem

Bui

ldin

g

0 1 2 3 4 5 6 7 8 9

Direct Indirect

Describes an Operational Function

Describes a Plant Localization

Facility Breakdown

= Paste Area Equip

All

+ G B P

Commodities

Cat

egor

y

Typ

e 1

Typ

e 2

Work Breakdown Structure

= Areas


General Philosophy:

0 0 0 0 OFF-SITE WORKS1 0 0 0 SITE AND CIVIL2 0 0 0 UTILITIES3 0 0 0 RAW MATERIAL AND FINISHED PRODUCTS4 0 0 05 0 0 06 0 0 07 0 0 0 GENERAL SERVICES8 0 0 0 INDIRECT COSTS - PROF. SERVICES & CONTINGENCIES9 0 0 0 INDIRECT COSTS - OWNER'S COSTS

PLANT SPECIFIC

WBS - AREAS

Facility Breakdown - Areas

Primary Metal:

0 0 0 0 OFF-SITE WORKS1 0 0 0 SITE AND CIVIL2 0 0 0 UTILITIES3 0 0 0 RAW MATERIAL AND FINISHED PRODUCTS4 0 0 0 REDUCTION5 0 0 0 CARBON6 0 0 0 CASTING7 0 0 0 GENERAL SERVICES8 0 0 0 INDIRECT COSTS - PROF. SERVICES & CONTINGENCIES9 0 0 0 INDIRECT COSTS - OWNER'S COSTS

WBS - AREAS PRIMARY METAL

Refinery:

0 0 0 0 OFF-SITE WORKS1 0 0 0 SITE AND CIVIL2 0 0 0 UTILITIES3 0 0 0 RAW MATERIAL AND FINISHED PRODUCTS4 0 0 05 0 0 0 REFINERY - REDSIDE6 0 0 0 REFINERY - WHITESIDE7 0 0 0 GENERAL SERVICES8 0 0 0 INDIRECT COSTS - PROF. SERVICES & CONTINGENCIES9 0 0 0 INDIRECT COSTS - OWNER'S COSTS

WBS - AREAS ALUMINA REFINERY

Mine:

0 0 0 0 OFF-SITE WORKS1 0 0 0 SITE AND CIVIL2 0 0 0 UTILITIES3 0 0 0 RAW MATERIAL AND FINISHED PRODUCTS4 0 0 0 MINE5 0 0 06 0 0 07 0 0 0 GENERAL SERVICES8 0 0 0 INDIRECT COSTS - PROF. SERVICES & CONTINGENCIES9 0 0 0 INDIRECT COSTS - OWNER'S COSTS

WBS - AREAS MINE


Guiding Principles

• Planning and Estimating

– STD WBS for integration of scope, cost and schedule

– Templates for Primavera project schedules (level 3)

– Definitions for important Rio Tinto Alcan project milestones (FHM,

FGA, etc)

– Standard estimating practices aligned to RT

– Alignment with ORP, POV, and commissioning


Capital ProjectsCost Estimating/Accounting Structures

RFA

Project Costs Operation Cost

Post-NTP Costs Owner's costs Start-up Costs

Direct costs

Indirect costs

Project Team

Operation team

Commis-sioning

Start-up activities

Efficiency losses

Nominal Cost

Concept (Fel 0)G0: OoM Approval

Order of Magnitude (Fel1)G1: PFS Approval

Pre-Feasibility (Fel 2)G2: FS Approval

Feasibility (Fel 3)G3: Notice to Proceed

CapitalisedCapitalised

(1)Capitalised

Execution, constructionG4: Hand Over


(1)Capitalised Expensed Capitalised

Working Capital

Expensed (2)

Expensed

Commissioning and start-upG5: Production


(1)Capitalised Expensed Capitalised

Working Capital

Expensed (2)

Expensed Expensed Expensed

Ramp-UpG6: Financial Completion

Capitalised ExpensedWorking Capital

Expensed (2)

Expensed Expensed

(1) All indirect costs are capitalised except the costs for demolition, soil remediation, clean-up are Expensed(2) All financial costs are Expensed except Capitalized interests are capitalised

Phases GatesOPEX

Stock & WIP

Financial costs

Project < 100 M$ Project Finance (JV)


Estimating and benchmarkingBake furnace refractory

22,4

18,8

0,0

5,0

10,0

15,0

20,0

25,0

30,0

TOMAGO 1&2

ABI 1&2

ABI 3TOMAGO 3

DUNKERQUELAURALCO

ALMA

ALOUETTE 2

Sites

h/t

moyenne


Bake furnace refractory

0

5

10

15

20

25

30

35

ABI 1ABI 2

Alouett

e 1Alou

ette 2

Laur

alco

Alma

Arvida

St Jea

nDun

kerq

uePNL F

AC CPNL F

AC DAluc

hemie

7Aluc

hemie

4Tom

ago 1

Tomag

o 2Hills

ide 1&

2Moz

al 1

Sohar

Sites

h/t

MoyenneProductivité main d'oeuvre

CANADA

EUROPE AUSTRALIE

AFRIQUE DU SUD

MOYEN ORIENT


Substation total historical cost in MUSD (for 1 substation)

0

25

50

75

100

125

150

Dunke

rque

Laur

alco

Alou

ette

1

Alba

4Hills

ide1&

2

Alm

a 1

Moz

al1M

ozal2

Alou

ette

2

Alba

5

Soha

rCoe

gaKi

timat

Substation cost benchmark

MU

SD


GTC Cost benchmark

Cost assessment

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Civil work

Structural steelDucting

EquipmentsElectrical

AutomationErection


GTC cost in kUSD per pot GTC cost in USD per metric ton of capacité

050

100150200250300350400450500550600650

Dunke

rque

Laur

alco

Alouet

te1

Alba4

Hillside

1&2

Alma

1

Moz

al1

Moz

al2

Hillside

3Alou

ette

2

Alba5

Sohar

Coega

ALMA 2

Kitimat

GTC Cost benchmark

kUSD/pot

USD/t of capacity

kUS

D

US

D


Major Project, SupportEscalation update


US Steel prices

2009 and 2010 appear to be the right time to lock steel prices (fix & firm

or through hedges)

Cement on the other hand do not seem much affected by the crisis

0

2 00

4 00

6 00

8 00

1 0 00

1 2 00

1 4 00

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

0

5 0

1 00

1 50

2 00

2 50

3 00

S tru c tu ra l S te e l S te e l P la te R e b a r H o t-R o lle d S h e e t C e m e n t

Steel in $/t Cement PPI index*

*PPI: Producer Price Index – not a price in $/t like steel but an index from the Bureau of Labor Statistics


- 3 %

0 %

3 %

6 %

9 %

1 2 %20

06

2007

2008

2009

2010

2011

2012

2013

2014

Matching project spend to FX & escalation

8 4 %

8 8 %

9 2 %

9 6 %

1 0 0 %

1 0 4 %

2006

2007

2008

2009

2010

2011

2012

2013

2014

Esc

alat

ion

per

year

FX

exp

osur

e

by w

eigh

t

Escalation and FX exposures are at their lowest levels for the years 2009 and 2010. Best window to lock prices.


END

Contingency

December 13, 2010 Rio Tinto Alcan 28

Contingency

Risks that Drive Accuracy:

• Systemic Risks : Risk drivers– Level of Scope Definition (most dominant at FEL1 and FEL2)– Level of technology in the process – Complexity of the project – Estimating database quality– Inclusiveness in the estimate– Experience and skill level of the estimator– Project Management & Control Effectiveness

• Project Specific Risks– Weather– Site conditions– Delivery issues– etc., etc.

Modeling contingency: best practice• Systemic risk : Parametric models appears to be more powerful than Monte

Carlo simulations since it addresses the problems that MC suffer:– Emotion– Extrema estimates of the triangular distributions (is it really the min or

the max?)• Project specific risks remain specific to each project therefore cannot be

assessed other than with Monte Carlo distributions. Do not forget to account for correlation.


Estimate accuracyBest practice

Estimate accuracy (width) improves as the level of project scope definition improves

This shows good contingency estimating, and good project control and change management practices

Goal: Cost at 50% Confidence Level Stays the Same

P50

FEL1

FEL2

FEL3


Estimate accuracyPoor performance

P50 Poor project control and change management practices, andinappropriate contingency allowance lead to huge cost growth

These are the +100% cost disasters that you read about in the press!

p?


Estimate accuracyImpact on project approval

True cost

OoM PFS FS

Systemic Risk = risk drivers = contingency

overestimation of the risk : Project may be killed with too much contingency

underestimation of the risk : Project value is at risk with too little contingency


Contingency modelComponents of system risk 1/4

Questions on Contingency?

Project Control & Risk Management


Rio Tinto Alcan Major ProjectsTool set

Rio Tinto Alcan portfolio in Primavera P6, all projects

• Planning of projects through all stages, use of templates

• Rio Tinto Alcan resource planning and future needs

• Project master schedule linked to ORP and commissioning

Cost control, change management in PRISM

• Sustaining capital and major projects (selected)

• Interfacing with SAP

Risk management in Rio Risk

• Database of risk registers

Document control

• Documentum & Sharepoint


Future enhancements

• Increasing investments in petrochemical and natural resources to sustain growth in India/China

• Reduction in available resources

• Innovation needed to Increase capital effectiveness

• Implementation of value improvement practices

– From business case to scope and execution (Why, What and How)

• Rio Tinto Alcan has begun testing with Lean Construction

• Improve planning to increase efficiency and decrease risk (Execution and safety)

Major Projects, SupportMajor Projects, SupportProject ControlsProject Controls

Questions?Questions?

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