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How to Create a World-Class Project Management Organization?

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. Dr. Nick J. Lavingia, P.E. Project Management Consultant Chevron.

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How to Create a World-Class Project Management Organization?

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  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 ConsultantChevron 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 Higher Market Confidence Higher P/E Improved TSR Nick Lavingia

  5. REVENUE MINUS EXPENSES CAPITAL EMPLOYED Project Management’s Impact on the Bottom Line Project Management Improves ROCE by Increasing Revenues, Decreasing Expenses, and Reducing 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 1 0.75 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 • Consistent Success • Good Projects • Good Execution • Random Success • Good Projects • Average Execution Decision Quality Mid • Success Unlikely • Poor Projects • Poor Execution • Random Success • Poor Projects • Good Execution Low Mid High Execution Quality Nick Lavingia

  12. Project Development & Execution Process AFE 1 2 3 4 5 PHASE 2 SELECT from Alternatives PHASE 3 DEVELOP Preferred Alternative PHASE 4 EXECUTE (Detail EPC) PHASE 5 OPERATE & Evaluate PHASE 1 IDENTIFY & Assess Opportunities Produce an Operating Asset Consistent with Scope, Cost and Schedule Evaluate Asset to Ensure Performance to Specifications and Maximum Return to the Shareholders Determine Project Feasibility and Alignment with Business Strategy Finalize Project Scope, Cost and Schedule and Get the Project Funded Select the Preferred Project Development Option 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 B VALUE Poor Project Execution C Poor Project Definition D AFE Phase 3 Develop Preferred Alternative Phase 4 Execute Phase 5 Operate Phase 1 Opportunity Identified Phase 2 Generate & Select Alternatives Nick Lavingia

  14. Project Development & Execution Process AFE 1 2 3 4 5 PHASE 2 SELECT from Alternatives PHASE 3 DEVELOP Preferred Alternative PHASE 4 EXECUTE (Detail EPC) PHASE 5 OPERATE & Evaluate PHASE 1 IDENTIFY & Assess Opportunities Operate Asset Monitor & Evaluate Performance Identify New Opportunities 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 AFE = Appropriation For Expenditure Nick Lavingia

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

  16. 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. $ $ D AFE D D PFD D P&ID D EST EST 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 (Share) • Pre-Funding Assessment • Decision & Risk Analysis • Project Execution Planning • Lessons Learned • (Seek) • Value Improving Practices by IPA • Peer Review • Post Project • Assessment • Business Evaluation 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. $ $ D AFE D D PFD D P&ID D EST EST 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) (Definitive) (Cost Collection / Analysis) (Funding +/- 10% Accuracy) (CPM Bar Chart) (CPM Resource Loaded) (Monitor & Update) (Pre-Funding Assessment) (Post-Project Assessment) (Set Pacesetter Target) • 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) 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 -- Business Decision & Risk Analysis -- Leadership Roles & Behaviors 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

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