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March 1999

Contents
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Introduction i
Chapter 1 The Nature of Projects 1-1
Chapter 2 The Lifecycle of a Project 2-1
Chapter 3 Multiple Small Projects 3-1
Chapter 4 Value Improvement Processes 4-1
Chapter 5 Project Relationships 5-1
Chapter 6 People Skills and Competencies 6-1
Chapter 7 Scheme Development, Selection and Sanction 7-1
Chapter 8 Estimating the Project Cost 8-1
Chapter 9 Project Strategy 9-1
Chapter 10 Project Risks 10-1
Chapter 11 Contract Strategy 11-1
Chapter 12 Project Infrastructure 12-1
Chapter 13 Engineering Activities
Chapter 14 Technical Integrity
Chapter 15 Planning and Progress
Chapter 16 Cost Management and Performance Trending
Chapter 17 Reporting, Accounting and Administration
Chapter 18 Procurement Management and Control
Chapter 19 Safety and Environment
Chapter 20 Security, Insurance
Chapter 21 Quality Assurance
Chapter 22 Management of Construction
Chapter 23 Commissioning and Operations
Chapter 24 Project Information Management
Chapter 25 Learning Transfer and Close Out
Chapter 26 Bibliography
~c kn~wl e d~e me nt s
March 1999
Introduction
Thej rst editions of this book were cornpiledfiorn papers preseizted
at the BP Engineering Project Management Courses. Dais edition hns
been updated to reflect current practices. Individuals throughout BP
Amoco continue to need an awareness of the Project process whether
they are directly or indirectly involved themselves.
This book aims to provide readers with an awareness of the
complete Project process and the disciplines involved. it endeavours to
capture the new relationships and methods of working that have
. developed, and gives references to other sources of information where
possible. Our objective is for readers to be better positioned to
understand the inter-relatin$ issues involved and where their own
contributionsfit into the project process.
Project Services
BP Amoco
Chaeter 1 October 1998
The Nature of Projects
This handbook is all about managing projects in BP Amoco. Although
the word project is commonly used, we need to be sure we have a
common understanding of what a project is and what makes it special.
Once we know what makes a project different from other activities, we
can start to understand and manage the typical problems and risks
associated with projects.
What is a project ?
A project is a set of activities that:
@ Lead towards a specified objective
8 Have a definite start and finish
g Consume resources (people, equipment, money)
A project is a one-off, non-routine, non-repetitive undertaking.
Thus, constructing a new process unit is a project, because only one unit
is being constructed, it is not a regular activity and it will not be built a
second time. Even when we duplicate a design in different locations,
there will always be some factors (e.g. local infrastructure, partners, etc.)
that make the new project just that little bit different. On the other
hand, the production of a product using the process unit is not a project
(because it is not one of?, it is routine and it is done every day for.
many years).
Projects cover a wide range of activities. At one end of the scale, a
project could be to construct an offshore production facility to develop a
new oil or gas fi eld, costing hundreds of millions of dollars. At the other
end of the scale, it could be redecorating your office.
Obviously, the size and complexity of a project is one of the main
things that affect how easy it is to manage. At the bottom end of the scale,
we do not even bother to think of some activities as being a project.
Therefore, when we think of project management, we are really
concentrating on those projects that require the efforts of more than one
person, working over at least a number of months.
All projects have exactly the same aims; to achieve the specified
objectives within the agreed cost and within the agreed time. The
specified objectives will include various performance and capacity
requirements. There will also be an agreed budget and schedule which the
project must work within.
Chapter 1 - of Projects
What 'is special about a project ?
The nature of a project gives it special characteristics which are
different to other, routine activities.
e Specified Objective: Each project requires a clear objective.
However, because of the one-off nature of projects, it may not be easy
to define what is required at the outset. It will certainly not be
possible to define a precise and accurate path to get to the objective.
In joint venture projects, the objectives of each of the partners may
not always be the same!
e Definite Start and Finish: By nature, a project is a temporary
arrangement It comes into being to meet the specified objective and
then ends. Its life can be a few months or many years. This means that
people have to be brought together to rapidly form effective teams
which are disbanded when the project is complete. The need to
complete the project in the shortest time possible also impacts on
many of the project activities. Few projects have the luxury of taking
time over decisions or waiting for more detailed studies before
taking action.
@ One-off, non-routine: Generally, projects are essentially one-off
enterprises. Although we may build a number of offshore production
platforms, each one is different, with different field characteristics
and uses different technologies, contractors and project teams.
Experience is difiicult to carry forward from project to project. For
lage projects with a long lifetime, the project personnel will only
have experience of a few large projects in their entire working lives.
This means that each project has a considerable learning curve. As the
project progresses through its lifecycle, its nature will change and
consequently the organisation and style of the project team have to
change to be appropriate to the demands of the current project phase.
O Non-repetitive: In a reuetitive production vrocess, errors can be
correctid by tweaking thk process and getting improved widgets off
the assembly line tomorrow. However. errors made at any stage of a
project may not become apparent until later. By then, rectification
may be expensive or even impossible.
@ Multi-disciplinary: Even the smallest projects will require different
skills. For example, a small revamp in a refinery will involve process
engineers, mechanical engineers, instrument engineers and electrical
engineers. Not only do we need to have effective communications and
co-ordination across the different disciplines, but we need to bring
together people from many different backgrounds into a single,
cohesive and effective team. Very quickly.
' Chapter 1 - he Nature of Projects
What can we learn ?
First of all, we must recognise that we cannot give a simple set of
guidelines that will inevitably lead to project success. Projeds are too
diverse and too complex to do that. We can g.ive some general principles
that we know work well, based on our collecnve experience. We can also
give guidance on the sort of issues that will arise so that you can be
prepared for them. Finally, and perhaps most importantly, we can give
you the means to access networks within BP Amoco to get hold of the
best experience and support.
How Projects in BP Have Changed
Over the past few years, the way in which Projects within BP have
been managed have changed significantly. In the pasf major projects
would have a large BP team matched with an even larger contractor team.
The general approach was to have strong technical direction from BP,
using BP standards and a combative contract strategy where everything
the contractors did was subject to detailed scrutiny.
Today, prompted by business needs in the 1990s and supported by
cross-industry initiatives (such as the UK government's CRINEt
initiative), the management of many projects is significantly different.
Projects are based on the following principles:
B All parties in a project have something to gain from its success and
should share the rewards of project success.
e There arc many sources of expertise available which can be
exploited, in design contractors, consultants, equipment vendors and
of course within the BP Group.
8 Much equipment can be purchased according to industry, national and
international standards more competitively. Similarly, vendor
standard products can often meet the technical requirements in the
most cost effective manner.
These principles lead on to very different project shuctures, such as
~l l i ances ~ and a very different role for BP. We no longer 'shadow'
specialist discipline engineers in the contractors' offices. We no longer
impose design solutions. Most important of all, we share the
responsibilities, the risks and the rewards of the project.
1 More information on CRlNE is available on the internet at
han. l l wwr. na mmlnoc. . - ! , L. . - t ~~- ~t 8- - - . - k+
Chapter 1 - The Nat ).projects
The first version of this handbook was written at a time when projects
were directly managed by BP. In some cases, typically for some
works-based projects, this approach is still relevant. Therefore, this
re-write has tried to bring in new information and guidance based on
current approaches. Very often, the guidelines and information are still
relevant to the new approach because the tasks described still have to be
done. The key point is that the responsibility for the tasks is no longerjust
the BP Project Team's.
Therefore, when you read this handbook, do not assume that the
guidance, information and tasks refer only to BP personnel. Very often,
the responsibility will be someone's who is not employed directly by BP,
but who still has responsibility to the project and can expect rewards from
the project
Finally, projects are generally the responsibility of the Asset for which
the work is being done. Therefore, in the handbook, we talk about the
Asset instead of the Client. When we talk about the ~kj ect , we mean the
whole project organisation including the Asset's Operations
management, BP project personnel and supporting discipline specialists,
design contractors, construction contractors and key equipment vendors.
I
Chapter 2 March 1999
The Lifecycle of a Project
Introduction
Most projects follow a similar lifecycle, comprising a fairly well
established sequence. Although the details will be different from project
to pmject and the terminology may differ, the general principles are the
same.
A Typical Project Lifecycle
To study the lifecycle of a project, it is worth putting it in the context
of the whole lifecycle of the asset.
The following dia-.ram shows a typical asset lifecycle from initiation
through to final dec&missioning anddemolition. ~ a i ~ of the sta, oes are
explicitly linked with the project phase, however we must not forget that
the project phase does not exist in isolation.
The following sections describe each of the stages of ihz asset
lifecycle, highlighting those that are part of the project phase.
Each stage has an identifiable output or 'deliverable'. Decisions are
also associated with each stage, for example, after the proposal and
initial estimate, there will be a decision as to whether it is worth
committing fiuther resources to the next stage.
The first stages of the project and the production of estimates and an
economic analysis to achieve financial sanction are described more fi~lly
later on3.
Project Proposal
Somewhere, somehow, someone is going to have a spark of invention,
the first idea that some investment can contribute to BP Amoco's success.
1
How this first comes up is not really the subject of this book, for now we
will just take it as read that such an event occurs.
I
In this very first stage, an idea of the project economics has to be
!
analysed to decide whether it is worth proceeding. An order of
magnitude estimate will be prepared as the basis for this decision. In
parallel a commercial analysis will be made of the likely value of the
investment, by looking at the business need or markets for the products,
the costs of feedstoclq costs of capital etc.
I
!
3 See Chapter 7 . .
Chapter 2 - Lifecycle L . Jroject
. . : ' ' . . . . ,
. . > . . .. . :,. ..:
. ; . . .
. . ..
.::, .: ..*:..;
: .- .- ::..
orderof ,Uafldude htilllate;~ -,:.::;'::... .:::I -.. .. . .. --
An estimate)bhred on historical datafrom ~im'ilar~rojects. . '
Typiwl accuracy, no better than+ or - 50%. . . . . . . . . . . .
.. ,. .
.., - <. . :::
Preliminary
Statement of @
Requirements
Estimate .:
O '" t
Final
Class II
s - of @ E
ktimate &
Requirements
Dm~ngs. 8 ,&
Equipment Lists.
Specifications I
Eslimate :'
Purchase Orders @
.II-+
Procurement
Fabrication
a 4
Figure 2.1 Overall Assel Lifecycle
Chapler 2 - Lifecycle of a Project
Typically only a small percentage of projects that go through the
Proposal stage ever get to completion. Many fall by the wayside as they
prove not to be viable.
Concept Development
The idea needs further thought and refinement to become a specified
objective. This process may be long and require considerable analysis,
particularly busincss analysis that considcrs such things as tlic supply of
fcedstoek and the market for products. The end product of this pl~ase is
known within BPAmoco as The Statement of Requirements.
. . . . .
., * > ; ?..& ........................ c.-. :'.<-:$:;.:~,.b*y:<.:< ..,:v:~. : ..
. . . . . . . . . . . . . . . . . . . . . . ...... ...... . . .
.......
. . ..,>:-..
. a : , : . *+ :*+ ..., >,9.: *,.--,
,,Ll.,jc,
- .-~.:~.fStatement.of,Requirements'~~:~.i:.~~;~
. . . . - x. . . . . . . . . . A. . %. a :*. :...;<d:; . v . , b * . ye'.... . .... %.* .... ;>-::.
The statemen( of; ; . . ~ e ~ u i ~ e n i ~ n f s ~ ( ~ 0 ~ ~ ~ ~ i s ~ ~ a ~ ~ c o n c ~ ~ ~ t s e t ~ ~ o f -i ...... ..<..> cLM.i. .-. ........ :.; .... ~: . . . . :.. qbjectives .
.I ,. .'.
which ?.. ...
~~~clea~~~and~unambigu~iisIj,id~~eddd~e~ejo~e~five~ .C.:. c .... r- .... :j3:,, .. :...,, >cz;:i.zz...jw,:q.: . : . <: . . . should
include ov&dl ;capaciiy:and~e~ormance;.requiremen,..mch . . . . . . . . . . . . _. - : . . >- : . > . . ? . . . . . ~ . . ~ ~ . ~ ~ ~ . ~ . . ~ ~ . ~ ; ~ . ~ . ~ ~ : . . as the
target throughput andproductpurity.;.;: . . . . . . . . . . . .;r::;;i..-~-i:~~~+;$.: ;: ;
.... . . . . . . . . . . . . . . . . . . - ;.. ;.: '.+:y.:i
. .
The principle of establishing a SOR for a proposed project applies
irrespective of the size of project. No matter whether BP Amoco decides
to develop a major oil field or you personally decide to move home, the
concept must be developed to a stage where the objectives are known,
understood by all parties and clearly enshrined in print - the SOR.
At this stage a challengdvalue improvement process is used to review
the primary objectives, scope, degrees of freedom and alternative
approaches for developing the feed study. This process is typically
referred to as 'Value Engineering'.
From this point, the concept is developed into more detail in the
FEED Stage.
In addition to the SOR, this stage of the project will provide a Class
111 estimate along with further commercial analysis. By this stage, the
SOR should have identified the key processes, established key design
parameters and considered constructability and operability.
. .
. . . . . .
. . . . . . . .-;.:.; ' . . . . . .
.................. : . . . . . . . . . . , . . . . . . . . . . . . . 2: .:.: .< :
.....
. , : . C I ~ ~ ~ IIIE~~~~&,: i;.:.::i<:.i::: . i
.............. ,~,.>::::. . . :..: :..A .*.> R*.., ... ;.<.
k n : estiiitii.bi?ed;yon . ". prickh ... . .reqg$ment.. .............. lists: f~y:'rnajor . . . items,
suitably~faitdiedj~fr~km previous.'proje~t. . . . ddta>:3)jical. . . accuracy
................... . . . . . . . . . .
......
between +: 25% &d +30/ .,;; .. ;:: -. .. .: . . . . . . L ;. ; ; : =; ; : . . .
. . . .
. . a-... . .
. ' . . . . . . .
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Chapter 2 - Life '1 of a Project
At the end of the stage, the SOR, the Class I11 estimate and the
commercial analysis will be used for the decision on whether to commit
resources to the next stage, the FEED. This phase of concept
development may also be termed 'feasibility study' - although in some
ehvironments the term 'feasibility studies' covers all work prior to
sanction.
Front End Engineering Design (FEED)
During the FEED (sometimes termed the 'Project Definition' phase) the
requirements in the SOR may be revised and will be worked up into a
preliminary technical and selection of processes. The contents of the
FEED are discussed more fully in Chapter 14, 'Engineering Activities'.
As well as the FEED documents, this stage of the project will produce the
Class 11estimate and a fully detailed commercial analysis. The SOR
should also be revised if necessary to take into account results from
the FEED.
F
. . . . flass'flEstimate :<..:.-:.: ,:.::<
An estirnii based on definitive informatioh $ohmaterial take-off
Lts, quotations; et'c. Typical accuracy+. 10% to+ 20%:: ' ::
. . . . ..
.. .
. . . . . . . .
, .
. . . . . . . . . . .
At some point towards the end of the FEED development a further Value
Engineering study is canied out to allow a review of the decisions and
technical solutions which are being proposed and by cross checking them
against the original requirements ascertain whether there are any better
value alternatives which could be used.
Both the Class I1 estimate and the detailed commercial analysis will be
presented in a Finance Memorandum which will be the basis on which
project sanction will be given. The details of the commercial analysis
and project sanction are covered in Chapter 7, 'Scheme Development
and Sanction'.
~i nance Memorandum . .
A document that piovides'the necessary level, o f BP Amco
Managemenf~authority such. that the pniject will bi finded and can
p%ceed Once project' sandon i ~' ~ant e&work . ... . . . can . . . begin on the
~ . ~ . *:; 1.
nexi stage.
. . .
Chapter 2 - Lifecycle of a Project
Detailed Design
In detailed design, the conceptual design established in the FEED will be
expanded into enough detail to allow equipment and materials to be
purchased and construction and fabrication to begin. These activities are
described in Chapter 14, 'Engineering Activities'.
At the end of detailed design, it should be possible to produce a
Class 1 estimate.
-
. .
Class IEdmat e . , -
An estimate based on.firm prices f i m purchase orders and
contracts. Typical accuracy better than + 10%
Although project sanction will have been granted before the start of
Detailed Design, the progress of the project estimate must be tracked in
case the detailed design or-changing project external influences
undermine any assumptions made in early stages. It is still possible for
the project economics to indicate that the project should be halted at any
time, and especially before the major commitment of expenditure that
will come from procuring equipment, fabrication and construction.
Procurement
Procurement is the process of purchasing equipment (such as pumps
and vessels), materials (such as pipework and cables) and services (such
as construction).
In many cases procurement will follow on from Detailed Design,
however where possible the principle of concurrent activities should be
adopted. For example some major capital items with long delivery
times, such as reactor vessels, will need early ordering to ensure that the
project timescale is not affected. Also, the design may be phased so that
early works (such as civils) can commence before the final design details
(e.g. instrumentation and small pipework) are complete.
I
This means that some procurement decisions may need to be taken before
full project sanction. In the event of the project not going ahead,
cancellation charges may belincked.
Fabrication
Fabrication coven the building of major items of plant which are then
moved to the site, for example the jacket and topsides for an offshore
oil production facility. The activities are similar to those in the
n ..- ....-.: ... .A"--
l .
Chapler 2 J ~ l e of a Project
Construction
This is the construction of the plant at its site location. After the I
foundations are built, major items of equipment will be delivered to the '
site where they will be erected along with civil shchues. Pipework and
services such as electrical and instrumentation will be installed to
complete the plant. By this stage of the project, major capital expenditure
will have been incurred and delays can be very expensive. There are
special considerations during construction with regard to safety,
particularly where the construction site is part of an existing operating I
site (known as a 'Brownfield' development). However, completely new
sites ('Greenfield') also have many safeiy issues.
I
Once the construction is complete, a period of testing and
commissioning will begin. Pre-commissioning tests will be .canid out to I
check for (mechanical) system integrity and that equipment such as
pumps and valves operate coirectly. Checks will also be made of the
electrical and instrumentation installations. Other activities during
pre-commissioning will be canied out to prepare for operation and
include performance checks (such as setting of surge control systems),
- - . ~
drying refractories and loading of catalyst.
I
Once these pre-commissioning tests are complete, commissioning 1
can start This will normally be canied out by a special team who have
been preparing for this for some time. Because of the hazards associaied
with starting up a plant, thit work will have been carefully specified and I
carried out to a commissioning plan. This is covered in Chapter 21.
Handover
I
Once the plant has been commissioned, there will normally be a
formal handover to the operator. Although the planf should.be complete,
in practice there may be some outstanding work that the project and
Operations agree will not halt normal operation of the plant, but should
be completed within an agreed timescale. The list of such items is
I
referred to as a Snagging List or Punch List.
I
It is important that all parties (project team, sponsor, operator and
I
contractors) recognise the very important fact that a project has a finite
life and must have a clear end point. It should not be allowed to drag on.
The operator must take responsibility for the facility at some point.
I
Chapter 2 - Lifec)cle of a Project
One of the key points to handover is to ensure that the operator has all
the information relating the design, construction and operation of the
plant. If not handled correctly, this can be a valid reason for the operator
refusing to take full responsibility and can also lead to operational
problems if the information is not available or of poor quality. This is
described in chapter 24.
Operations
Although Operations' staff should have been involved throughout the
project, the Operations phase is not actually part of the project. However,
it is the phase where the success or otherwise of the project becomes
obvious. Once the facility is handed over to the Operator, the project will
be completed, apart from any outstanding snagging list items. For oil and
gas field developments, development drilling may well continue after the
end of the project, but this work will be managed by Operations.
Project Close-Down
Once the facility has been handed over, the project can be closed
down. This involves disbanding the project team, disposing of
equipment (e.g. office furniture and computers) and the demolition of
project offices.
Decommissioning and Demolition
At the end of its operational life, the facility will be decommissioned
and demolished and the site reinstated or reused. This also will probably
require the setting up of a new project.
Revamps and Expansions
If changes to the facility are made at some time in the future, then a
new project will be needed. This new project will itself go through the
typical lifecycle described here.
It should be noted that any revamp work is not part of the Operations
phase of the lifecycle, but instead spawns a new project lifecycle and that
the work is handled as a project with its own specific risks, such as the
need to interface to an operating facility and fit in with a plant shutdown.
Chapter 2 - Lifecyc
Project Cask Flow
Understanding the basic cash flow
The cash flow associated with the asset is inextricably linked with the
asset lifecycle and is worth looking at since it explains the main
constraints on a project; schedule, cost and performance.
Figure 2.2 shows a typical project cumulative cash flow. Note, for the
purposes of this discussion, we have assumed that there is no phased
handwer to deliver early benefits. Nevertheless, the principles outlined
below will show how important early benefits are.
During the pre-project stages (proposal, initial'scoping and FEED)
there will be some expenditure on teams to do this work (either BP
Amoco, contractor or mixed teams). This is shown as a negative cash
flow in Figure 2.2.
Figwe 2.2 Typical Asset Cash'Flow
If the project moves into detailed design, then the design team will
iilcrease in number and the rate of expenditure will increase.
Once the project reaches procurement and construction stages, the
rate of expenditure will increase to a maximum due to the large expendi-
ture on equipment, materials and site fabrication and construction works.
Towards thz end of this stage the rzte of expenditure will tail off and as
the asset is commissioned and started up, the cash flow will start to rise
as the product from the asset starts to be sold. The minimum point on the
curve represents the total project expznditure.
- -
Chept6r 2 - Lifecycle of a Project
As the asset moves into the operational phase, the cash flow
should increase and should pass through the zero line to start generating
a profit.
Eventually, the asset will come to the end of its usefil life and will be
decommissioned and demolished. At this stage, there will be some costs
in doing thiswhich will be shown as a negative cash flow.
The overall profitability of the asset is shown by how positive the
cash flow becomes dwhg its operational life. However, there are four
main factors which will affect this; Project cost, project schedule, asset
performance and external factors.
The Effect of Project Cost
At the outset, a project estimate is drawn up which is compared to the
projected economics of the asset. This is discussed more filly in Chapter 7.
- - r Project Overspend
Figure 2.3 The Effect of Project Overspend
If the actual costs of the project exceed the estimate, then the effect
on the cash flow is shown in Figure 2.3.
Chapter 2 - Lifeq I fa Project
The cash flow during the project goes more negative that expected.
Not only does this give the operational phase a lower starting point to
recover from, but it also will affect the rate at which the asset delivers a
profit during the operational phase. This is because the company will
have borrowed finance (or at least prevented finance being used
profitably elsewhere), Since the time-cost area under the graph is larger,
the interest payments during the operational phase (which need to come
from operational profit) are large, hence depressing the overall
profitability of the asset by more than just the overspend on the project
Conversely, the effect of a project underspend will be to enhance the
overall asset cash flow. However, always be on the guard against 'false
economies' that will reduce the asset performance and hence reduce the
asset's ability to earn money.
'Fhe Effect of Project Schedule
Figure 2.4 The Effect ofproject Delay
If the project is late in delivering a working asset, then the time before
the asset can start to deliver positive cash flow and start repaying debt
will increase. Therefore, even though there may not have been a project
overspend, there will be larger interest payments which will affect the
operational profit This is shown in Figure 2.4.
Chapter 2 - Lifecycle of a Project
Furthermore, if the asset is late starting up, it may have a shortened
operational life because the point at which the asset is decommissioned
may depend more on external factors than internal ones.
Finally, although Figure 2.4 does not show any over-expenditure, in
practice having a project team together for longer than necessary will
incur additional costs, even if there is no overspend in the basic
procurement and construction activities.
Conversely, as with going under budget, early completion will
enhance the asset's cash flow.
Asset Performance
A third key constraint on any project is that it must deliver an asset
capable of the performance originally specified. Figure 2.5 shows the
affect on the cash flow when the performance of the asset fails to deliver
the expected cash flow.
Figure 2.5 Effect on Under Pedonnance
Chapter 2 - Lifecycl .) Project
The Effect ~i External Factors
Not every factor that affects the overall profitability of an asset is
down b the project itself. Besides intrinsic factors such as poor
commercial cases or incorrect assessment of a field's geology, there are a
number of external factors such as the general state of the economy,
cost of feedstock, market conditions, interest rates, competition,
environmental pressures, etc. Although a project can do little to change
these factors, they must always be kept in view and at times the decision
to continue or abandon a project has to take into account these
external factors.
The Influences on e Project
As a project proceeds through its lifecycle, the ability to influence the
outcome diminishes. This is shown by Figure 2.6.
Idea Operation
Investment Timescale I Schedule
Figure 2.6 Ability to Injuence Pmject
At the outset, before firm schemes have been adopted, there is
maximum flexibility to choose technical solutions and project strategies.
By the time that the SOR is agreed, many of the options will have been
eliminated and the choices reduced to a few preferred ones.
By the end of the FEED, the choices will have been narrowed further,
probably dovm to one technical solution, a preferred contract strategy
(which may already be in place) and a limited set of alternatives to
execute the project.
'
Chapter 2 - Lifecycle of a Project
Obviously, such a reduction in choices is the main function of the
early stages of the project Different technical options cannot be canied
through to construction! Nevertheless, it is a critical point, because the
ability to affect the cost, schedule and performance of the project are
constrained by the decisions made in the early stages.
Although choices can be made during detailed engineering design,
these will be of limited scope, e.g. choosing one vendor of equipment
rather than another. Important technical details such as process design
and sparing philosophy will dictate design decisions.
By the time we reach construction, the opportunities to reduce cost,
schedule and increase performance are more difiiculi to find and may in
some cases be limited to modest improvements in the productivity of the
labour force. However, the sum effect of savings at this late stage can be
found to be significant, particularly when searched for by all parties
under Alliancing techniques4. Changes introduced at this stage for other
reasons will be costly, the resources needed to carry them out will be very
high and the delays could be considerable. Furthermore, the knock-on
effects of changes on other parts of the project could be very serious
indeed. Therefore changes should be very carefully analysed since the
costs of implementing the change may never be recovered, even with the
improved performance.
It is imperative that all those that can contribute to the decision
making process are brought in to the project early. This is especially true
of the project team and the operations representatives. It also applies to
design contractors, process licensers, consultants and vendors of major
process equipment Many of these groups of people have experience and
valuable contributions to make, which cannot be made if too much of the
design and strategy is already fixed by earlier decisions.
Chapter 2 - Lifecycle of a Project
Chapter 3
Multiple Small Projects
Introduction
The thought required in handling a project is the same no matter how
large it is in terns of scope, finance and duration. All of the principles of
managing a large project must be applied to a smaller project.
The main difference between handling a single large project and
multiple small projects' is the availability and distribution of resources.
A very large project is often not seemingly restricted by resource
availability. Such projects however are generally an amalgamation of
smaller projects themselves.
As an example a large offshore development is really an
amalgamation of projects for:
Scheme development
Process design
Marine facilities -
Drilling
Subsea systems
B Jacket design and construction
8 Topsides design
Prefabrication
Installation
Commissioning
In this environment the resource is assembled as a large task force and
an appropriate and visible budget exists.
On refineries (for example) a project manager may have to handle
fifty to a hundred small jobs, each with its own unique life cycle. It looks
as though all the responsibilities fall on his shoulders for each of the jobs
and he may not be able to cope. This is not really the case. The resources
are not absent; it is that they are more disparate than within a large task
force. Success comes from organising the resources that are available.
Chapter 3 - C1-1' le Small Projects
The Requirement
In handling multiple small projects, you need:
THOUGHT, CARE, SYSTEMS and RESOURCES
Sometimes it may appear that the availability of the above items is in
the inverse order to how they have been presented above. What is
required at all times is a recognition of QUALITY and of SAFETY. At
the same time a realisation of fitness for purpose must be maintained.
There is, however, no excuse for lack of personal attention to the projects
when workload, distractions, etc. are high. It is to be remembered that
the majority of incidents in our industry have occurred with small
modifications, last minute fixes, work overloads, production pressures,
etc. Perhaps the greatest management ability is the ability to say 'NO'.
Methodology
When handling multiple small projects it is important to remember
that your personal integrity has been relied upon for the correct
execution of these works. Given below are some pointers on how to
work this project management activity.
tB Use existing systems and infrastmcture. You may not be able to set
up a task force. Know how your site works set up good personal
relationships with the departments involved; this runs from storemen
and clerks through to the area manager
Think all of the philosophies of project management at all times.
'Get it right at the outset' is the best maxim; then build that and only
that to budget and time. It may not always be possible to go through
all the paperwork stages of an ideal project, but it is your
responsibility to have all angles covered
8 Use state of the art project control systems. Computer systeins or their
manual predecessors must be used to separately account
budget, commitments, materials, man-hours and progress for each
of the small projects you are managing
g Inform management and peers of what is happening in your area
of responsibility. The value of information exchange cannot be
over emphasised
O Alert any shortcomings. Do not hide from the truth. If things are not
going well this is not necessarily the burden of theproject manager
@ Do not become overburdened by time pressure. Comers are often cut
by the drive for programme expediency
Chapter 3 -Multiple Smp.. krofeckt
0 It is important as a project manager to detach from detail and to
manage rather than do. The ability to stand back and overview is the
real role of project management
O Attention must be ranked. All project managers have potentially an
infinite range of things to be dealt with. The major skill is in
deciding what items are really important to the objectives of the
project(s). It is all too easy to call into the trap of dealing with which
you are familiar. A project manager with an instrument background
may regard the commissioning of the computer control system as the
key to project success; that mechanical prefabrication is way behind
pro-mme may not wony him.
Alongside the distribution of attention is the rationing of trust. You
may have a number of contractors working in areas outside of your own
source discipline. Your job is to decide whether you can stand off areas
of work and bust that the outcome will be satisfacto~y.
Resoil rces
Getting access to resources (particularly Human Resources) is one of
the major areas where large and small projects differ. On a large project,
the majority of resources are under the control of the project manager and
are dedicated to the project. However, on a small project, resources will
probably not be dedicated and will be shared. You may have to rely on
part time support from all manner of sources, including other projects as
well as Operations.
Commitment to your project may not be the mzjor priority of
staff allocated to it and therefore you will have to spend a lot of effort to
generate and maintain a team environment committed to the project pals.
It is essential that all part time staff fully understand their
responsibilities to the project. You should write job descriptions
(including their responsibilities) for all of them as well as full time team
members. You mav also need formal agreements with the part time staff
-
and their management for the time that they will allocate to the project,
in particular noting periods when they will be committed to other projects
or work.
You should keep track of the commitment to the project by part time
staff and that they are meeting their responsibilities and committing the
agreed time. If not, you may have to re-negotiate effort and even re-plan
the project to take account of their availability.
Do not forget to include the part-time staff in team building and social
activities. They are at least as important as the rest of the project team.
Chapter 3 - hnllltjple Small Projects
I
Wetationships
One other important difference between large and small projects on
an operatino facility is that project members may well spend many years
on site mo& from one project to the next. They will therefore have
established long t m relationships with operations' personnel.
These relationships can be of great benefit to the project, particularly
during critical phases of completioil, commissioning and handover. They
can also be a hindrance if the project is trying to break the mould of
established practices on site.
The main point is that relationships like this need to be recognised,
understood and developed for the benefit of the project.
Concluding Remarks
The project management of many small projects is not in essence any
different to that for a large one. There is a greater requirement for
separate reporting and accounting of the activities involved.
The availability, distribution and management of resources can be
potentially a major problem with multiple projects. W~t h vision and
understanding, however, such problems can be overcome. This is the
role of a project manager.
apter 4 MC ,lg9
-
iapital Value Process
troduction
Other chapters in this book concern themselves with identifying a
range'of methods used to monitor, control and provide assurance of the
delivej of economically and technically sound projects. Good project
management requires diligent application of such tools and techniques.
However, questions such as:
"How can we be confdent that we have set up the most capital
efjicient investment project?"
"How do we e mr e that the project will be best in class - j-om
financial, operational and technical integrity perspectives? "
Call for a process for delivering class A project performance and to
provide assurance for the delivery of the process.
This chapter introduces the process which has been adopted by
BP Amoco to provide a structured and integrated approach to project
selection and capital efficiency in the development and execution of
projects with the aim of achieving distinctive investment performance.
The Capital Value Process is built around a framework consisting of
5 stages. Between each stage is a Gate which gives a point of control as
the project moves into the next stage.
At each gate a Gatekeeper a gatekeeper is allocated who decides, in
consultation with a tagged Technology VP to
0 Proceed to the next stage, or
e Place the project on hold, or
e Kill the pioject, or
0 Recycle through the current stage
I
I he Framework
Front End badng
Sanction
Work Your Plan
- <
5
_
Deliver the Project ~ i g ~
Plan Your Work
4
.
Develop the
The stages shown in the framework can be loosely identified against
the Asset Lifecycle dia,mm in Chapter 2.
-
T
?
Uloose the RighlProject
Key Features
Proiecl Righl .
The Gatekeeper is the individual responsible and accountable for
the decision made at the end of each stage, and for securing resources and
hnds for the next stage of the project
Single Point Accountability (SPA) is the individual with
accountability who leads the project team in its goal to maximize project
business objectives by optimizing the mix of project drivers affecting
economics and risk in a changing environment
Peer Reviews form an essential part of the process. Aminimum of 2
Peer reviews would be anticipated for a major project. Additional reviews
may be called for, depending on specific project needs
Front End Loading PEL) covers the first three stages. The
primary objective is to provide a scope definition sufficiently detailed to
minimise changes after project sanction I approval.
Decision Support Package (DSP) for each stage. This is a
compilation of key project information and is used to plan project
activities as well as document project recommendations and supporting
rationale.
High Level Plan is a full project life cycle schedule. The plan is
developed beginning in the Appraise s t a g and is based on agreements
between the project team, Gatekeeper and the tagged Technology VP.
It identifies key internal processes such as Peer Reviews and external
challenges such as benchmarking.
I
Chapter 4 - Capital Value I .Less
External Benchmarking will be used to provide a set of six Group
metrics to help ensure that only the best projects are selected for sanction.
These comprise three input driver mehics and three top quartile output
metrics with target values for each. On individual projects will monitor
the progress towards the goal or"Class A.
Risk and Uncertainty assessment and management is an integral part
of assuring that the project maximizes capital investment These risks
and uncertainties fall into three categories:
Holistic uncertainty assessment
8 Quantitative cost/schedule risk analysis
Value Improving Practices are practices that when applied,
demonstrate a return of more value (e.g., cost, operability, reliability,
safety, schedule, etc.) than it costs or takes time to perform. A more
detailed description of VIP's follows in the next section.
Where relevant - recent examples of the above features and how they
have been applied on current and recent projects can be accessed as
examples to this section ( see below - electronic version only).
Value Improving Practices
Through benchmarking studies, the consultants, Independent
Project Analysis ([PA), have demonstrated that consistent, structured use
of VIPs has a positive impact on project performance. IPA have
identified twelve VIPs which can strongly influence project outcomes
when exercised early in project life and additionally, in some cases,
during later stages of a project. The objective of each VIP, as defined by
IPA, has been customised to meet the requirements of the cross business
nature of projects within BP Amoco.
To facilitate the application of VIPs across the group, guidance papers
have been introduced "Reference Papers"; are either, documents already
in existence or, ones that have been prepared by in-house specialists.
The fundamental premise of the use of VIPs is, "there is a better way
to do it". Therefore, the application of VIPs must be a process of
challenge, aimed at extracting the maximumvalue from the Asset. Some
VIPs, such as Pr ocm Simplification and Ynlue Engineering can be
completed in single session workshops, whereas others, such as
Consti-uctabilify are processes which will extend over more than one
phase of the project. For most VIPs the use of an external facilitator will
help to ensure the stmctured approach is maintained. For the majority of
VIPs maximum value is obtained throughinitial implementation prior to
detailed engineering. The use of VIPs at subsequent stages of the project
can also provide benefit and can be employed as part of a process to
manage change.
4-3
)
~ o t an VIPs are applicable to all projects. It is strongly
-
recommended that the Business Unit Leader and the Project Manager
agee, at the outset of a project, which are to be implemented and
then incorporate implementation targets in a performance contract. Amp
Strategy should be developed by the businesslproject the Appraise stage
of the investment programme.
The following listing of VIP's have been identified. Further detailed
description can be found in the document 'Implementing Value
Improving Practices' (http:llaabweb l .amoco.com~cvphome.hhn).
1.0 Technology Selection
2.0 Waste Minimisation
3.0 Process Simplification
4.0 Energy Optimistation
5.0 Classes of Facility quality
6.0
Value Analysis I Value Engineering
7.0 Optimisation of Standards and Specifications
8.0 Design to Capacity
9.0 Predictive MaintenancdOperations Maintenance Approach
10.0 Facilities System Performance and Evaluation
11.0 Constructablity Revfews
12.0 Lifecycle Engineering Information Management
Chapter 5 it^ 1999
Project Relationships
Introduction
Any project, no matter how large or how small, depends on the
people that make up the project team for success, or failure. Good project
management must recognise the importance of the relationships between
the parties involved in the project, particularly when many different
organisations are involved.
A typical view of the Project Environment is shown in Figure 5.1.
What the feed said What the design What the fabrication
conWactor designed contractor built
What the conshuction What the commissioning What the operator
conhactor installed team commissioned wanted
Figure 5.1 Business As Usual
Ho Ho, very funny. Well that's OK for agarden swing but it is not OK
for an engineering project costing hundreds of million of dollars.
The main point about this cartoon is that the project has been passed
from department to department, each one existing in splendid isolation.
Each department interprets the results of the previous one without ever
checking back with them. It is also clear that no-one has ever properly
consulted or involved the Operator!
This 'compartmentalisation' comes from each part of the project
looking at their own area and not seeing the bigger picture, not
co-ordinating, not involving the operator and above all, not even
talking to each other!
5-1
'Figure 5.2shows how it should be.
What the feed said What the design What the fabrication
contractor designed conhactor built
What the construction What the commissioning What the operator
contractor i n d e d team commissioned wanted -
Figure 5.2 How It Skouid Be
OK, so granted this does not have the same humour content, but it
does mean better business !
This chapter is all about relationships, and how the nature of
BP Amoco's projects has changed over recent years to exploit better
working relationships and how we have established new structures such
as Alliances to efficiently complete projects.
The Integrated Project Team
One of the most powerful ways to ensure project success is to work
towards a single, integrated project team that draws resources from all of
the companies involved. Often, this is formalised in a new contractual
relationship between the parties, termed an Alliance.
Alliances are covered in more detail in Chapter 12 along with other
contract strategies.
However, an Alliance is more than just a form of contract between the
parties involved, it is a commitment by those parties to actively seek to
do the project better, to achieve th: best value and to share the rewards.
Key to the success of an Alliance project is the relationships that are
built up between the participants. In his description of the BP Andrew
Project, the author Terry Knott" describes many of the novel approaches
adopted to complete the project Many of the new approaches were
organisational but even the improved technical sdutions were enabled by
the open and collaborative atmosphere of the whole project which
actively encouraged discussion and contributions from all those involved.
The Compartmentalised Approach
In the compa~tmentalised approach typified by Fi,gre 5.1. each
organisation in the project does their own bit, as defined by the contract
and much of their effort is directed to ensuring that they cannot be
faulted against the strict terms of the contract. This means that much
effort is expended on protecting their own interests rather than achieving
the best results for the overall project.
This approach creates the following drawbacks:
Inventiveness is stifled. ~ v e r ~ o n e plays safe because the contract
. conditions do not encourage anything new
Work is done by the party who is contracted to do it, rather than the
party best able to do it
@ Work is passed from one stage of a project to the next without
necessarily being suitable, the work is done just to satisfy contractual
conditions and no more
8 The assumption is made that contractors and sub-contractors need to
be actively supervised to ensure they deliver. This leads to man-for-
man marking, over-supervision and suppression of any innovation or
use of expertise by the supplier
Problems bv anv one ~a r t v are hidden until thev become critical.
. - . * .
Project management then has to try and resolve not only that problem,
but reschedule other work that is affected
Deliverable items such as design documents and equipment are
shipped by the contract date even if they are not complete or correct,
leading to remedial work and extra cost and delays
The net result is that the overall project performance is sub-optimal.
Improved project value cannot be realised because it requires one
party to go outside of the boundaries dictated by their contract.
11 No business as usual, an extrmrdinary NorM Sea result. Terry bol t , 1996,
published by Ths Brilish Pelroleum Company p.1.c.. ISBN 0 86165 292 9
5-3
Chapter 5 - Projer'
Each party seeks to blame others for lateness, under-performance and
over-cost in ~r de r to avoid having the same charges made against them.
Project managemeni effort is almost entirely directed at cajoling
performance out of contractors, resolving disputes, finding gaps
between suppliers and sorting out the huge number of claims that the
process generates.
The Collaborative Approach
In the collaborative approach enabled by Alliance working, the efforts
of all project participants are directed towards the best project result
achievable. Opznness, trust and an environment where convention can be
challenged are key factors to success.
In this environment, problems can be brought into the open and
solutions can be proposed by all. Novel technological approaches can be
su~gest ed and openly discussed. Parties can work together to align their
objectives, e.g. the design and fabrication contractors can agree on the
best format for design information (in the past, the fabrication
contractor often redraws all of the piping isometrics to suit his own way
of working!).
Involving more parties in the conceptual and design stages
(especially the Operator and the fabrication and construction contractors)
will probably involve more work at those stages. However, this will be
iepaid many times over later. on in the project In a conventional
approach, the design contractor would not allow this because his
responsibility ends when the desi g is handed over.
In the purchasing of equipment, the collaborative approach allows for
a greater input of expertise by the equipment supplier. They almost
invariably know more about their product that do either the design
contractor or BP Amoco. This enables large cost savings by using
'off-the-shelf products rather than custom building to prescriptive
specifications.
Above all, the collaborative approach avoids 'finger pointing' and the
associated effort involved in'defending positions. Instead, effort can be
directed at solving problems, achieving high performance and delivering
the best project value to the Asset.
Where alliances have been used successfully, new workiilg
relationships have been forged which have avoided many of the problems
of the past. Obviously, to be successful, strategies such as alliances need
the correct mix of risk and reward. But more than this, they need to be
supported by the people involved.
Chzpter 5- Project Rel bhips
-
The choice of alliance partners not only depends on technical ability,
but also on their openness, their philosophy and the ability of their
people to work as part of an integrated team. Often, people who cannot
adapt to the new approaches have to be either retrained or, if that fails,
removed. People cannot be expected to change over night and so team
building exercises employing trained facilitators and mining sessions
will be needed to get the process moving.
Once trust is established, most people will adapt and operate in an
open manner. In fact, teams will develop strongly in the new environment
and reach new, higher levels of performance.
loes it Work ?
Letting go of direct control is always a big st&.But it is clear that it
has paid off.
2
A good example is the Andrew project. For years this North Sea field
was deemed uneconomic to develop at an estimated 450 million. By
forming an Alliance at an early stage, BP and it partners pushed this
down to a 7 3 million enabling the project to be sanctioned. Instead of BP
assuming it had all of the answers, use of the knowledge and
experience of the Alliance members allowed new approaches to be
considered to achieve this reduction.
However, it did not stop there. Despite sanction at f373 million, the
Alliance gradually pushed the cost down to under 290 million. This
result was achieved by open behaviour enabling improved performance
across the Alliance partners.
I
hapter 6 March 1999
'eople Skills and
Y
troduction
Any major project is going to involve a wide range of people. Some
of these will be in the project team while others are external but still
heavily involved. Others seemingly remote from the project execution
may have their lives affected in a variety of ways.
This chapter identifies the key roles and respo~,sibilities associated
with a project as well as the skills and competenci&equired
We also discuss some of the key personnel issues that can impact the
running and ultimate success of the project
The organisational and personnel issues will vary widely from project
to project. Factors that influence this include:
0 Type of project
Location of project
Contract strategy
Business Unit policy
Therefore, we CaMOt give any hard rules to follow, but we can
highlight the key issues that need to be addressed.
here Projects fit into the Business
"We need to make sure rewardr balance with risks, we mustfocus on
doing things simply and concentmte on all the dimensions that pmduce
a better product. We must get all our behaviours right and continue to
strive to be a learning orgonisation "
Sir John Browne 1998
Chapter 6 - , je Skills and Competencies
Business Unit Positions
I
Project Sponsor
The Project Sponsor is a key individual in the Asset organisation who
takes overall ownership and responsibility for the project's success. The
Project Manager and the Project Team report to the Project Sponsor.
Essentially, the Project Sponsor is responsible for the commercial
viability of the project. The responsibility for the execution of the
project should be delegated to the Project Manager and the Project Team
since the Project Sponsor may not have either the time or the project
experience to be involved in the detail.
The Project Sponsor will be responsible for endorsing the project
objectives, strategy, budget and schedule and recommending the project
for sanction.
The Project Sponsor must have authority to control the release of
resources to the project.
Operator's Representative
The Operator's Representative is a key role within the Project.
In recent years, this role has being introduced earlier and earlier into the
project Now, this role is often appointed right at the outset of the project
The Operator's Representative may be allocated to the project full
time or part time, depending on the size and importance of the project and
the impact on Operations whenit is completed. For example, a major new
facility will require a scnior figure, perhaps the Operations Manager, and
a sigilificant Operations team to be seconded to the project Alternatively,
a minor debottlenecking project with no major changes to the plant's
operation may require a smaller team.
The Operatoi's Representative h a a dual role. He has to represent the
interests of ihe Operator in all aspects of the project, particularly those
relating to operations and maintenance. However, he also has a role in
meeting the project's cost aad schedule constraints. He cannot allow the
project to deliva a facility which cannot be satisfactorily operated but on
ihe other hend he cannot insist on 'gold-plating' at the expense of the
project budget He must at all times carefully balance the three project
constraints of cost, schedule and performance to achieve the optimum
result foi BP Amoco.
Chapter 6 - People Skills and Cornpelencies
The difficulties which the Operator's Representative has in his dual
responsibility role need to be recognised by everyone on the project.
He may be the only member of the project management team who will
continue to live with the facility after it has been taken over by his
colleagues in Operations. He may be called to account years later!
In this position lie is expected to take decisions on behalf of all
~~eration' sdisci~lines, many of whom may be too busy to give him their
advice. He must therefore be empowered by both Proiect and Ooerations
management to take the necessary decisions and he i u s t be abie to rely
on their support for the decisions made.
Having an input to design and later consiqction as part of the Project,
ensures that the Operator 'owns' the plan&hom the point of view of
operability and maintainability. This involvement is essential in the
pre-commissioning and commissioning phases and as the plant is
gradually handed over to the Operator. By this means the earliest plant
operational date may be achieved; in essence the Operator starts moving
up the learning curve at an early stage in taking over the new equipment
and enables him to become fully aufait as soon as possible.
A key problem that the Operator's Representative has to overcome is
the potential for existing Operations Staff not to see future problems in
a new plant until it is too Me. Extensive briefings and discussion
sessions, internal publicity and off-line training can help this along. To
prevent the danger of day-to-day activities preventing commitment to the
project work ensure that Operations' appointments to the project are full
time with no distractions.
Commissioning Manager
Another key appointment to be made at an early stage is the
Commissioning Manager, who may well come from the Operation's
department. Early input from the commissicning team into the design
may well produce great savings if the design can accommodate easy and
rapid start-up. There may be advanb!es in the Commissioning. Manager
and the Operator's Representative being the same person as thls reduces
the number of key interfaces on the project.
The most important task for the Commissioniilg Manager as far as the
project is concerned, is to produce the commissioning procedures. His
team not only produce them but must take ownership of them and fully
understand them so that they can be used to effect a rapid, safe and
successful commissioning.
The . Aject Team
- Organisations will vary from project to project depending upon the
scope, contractual responsibilities and Business Unit requirements.
Furthermore, because projects progress though different stages, the
project organisation must develop and change to suit. Thus, the project
team for the construction phase will be very different from that required
during design.
Current project practices that have developed over recent yeao have
lead to much smaller BP Amoco Project teams which have to work in a
variety of relationships with contractors, consultants and suppliers. Key
project management positions, including the project manager, may not
necessarily be filled by BP Amoco staff, they may be filled by
contractors or agency personnel.
In a small project the project team may be 111 or part time and they
typically manage the task directly. However, on large projects it is
normal to employ conhactors who are contractually responsible for
carrying out some or all of the work scope under the control of the Asset
Project Team.
The contracting strategies employed are therefore crucial to the
success of the control and implementation of the Project. The
responsibilities of and interfaces between the various contractors must be
effectively defined at the outset: inadequate definition and subsequent
rectification can be very expensive of both time and money.
Whatever form of organisation is adopted it must be supported by a
set of Project Co-ordination Procedures which clearly set out duties,
responsibilities, authority and reporting relationships within the group. It
is essential to promote gfod team relationships with clear delegation of
authority and accountab~l~ty. There should be minimal possibility for
conflict to arise between Project groups.
The essential requirement is to achieve a strong cohesive task force,
with common goals and minimal conflict either internally or with related
organisations. Clear reporting routes and appropriate delegated
authorities are also necessary pre-requisites.
The Project team will g o w in size and skills during.its life and care
must be taken in selecting members who fit into the larger team as well
as the smaller. People with an ability to with a job are essential on
a Project.
Chapter 6 - People Skills and Competencies
The Project Manager should always be prepared to adjust his team to
ensure the best matching of skills and experience with particular roles.
However, he should always balance the need to change with the resultant
disruption and loss of continuity.
It is important to remember that however large or small theBPAmoco
team is, the managerial roles are needed somewhere in the total BP
Amoco and Contractor organisation.
The Project Manager
The key appointment within the project is the Project Manager.
The Project Manager reports directly to the Project Sponsor within
the Asset organisation, or within the Partner's organisation in the case of
JVs. Together, they act as the ambassadors for the Project Team with the
world outside.
The primary role for the Project Manager is to manage internal and
external relationships and he must avoid any temptation to become
involved in the technical detail (no matter how interesting it might be!) at
the exoense of these relationshios. There are many ~arties involved in a
projeci and the Project ~ a n a ~ e r k u s t ensure that &&one can contribute
to the project's success.
In the past, it has been common to appoint a Project Directorto whom
the Project Manager reports. However, this role has tended to be merged
into the roles of the Project Sponsor and the Project Manager,
particularly as we move away from large BP Amoco Project teams
towards forming alliances with contradors who may well have their own
Project Manager. Thus, the BP Amoco Project Manager's role now tends
towards what the Project Director's role used to be.
The ~rbject Manager must be able to communicate clearly and
effectively in leading the team. He must maintain an objective overview
of the Project, be able to delegate and be free of excessive detail.
The Project Manager's influence within the Project is one of
leadership and decisive action in resolving problems without delay. The
team must support the Project Manager by keeping him fully briefed
throughout the project. The Project Manager must develop a rappen and
trust between himself and the project team to ensure that he receives bad
news as well as good in a timely manner so that he is never taken by
surprise by events.
Chapter 6 - P
) Skills and Competencies
. .
The Project Manager will have a direct relationship with the
Management of the Business Unit whose requirement is after all to make
a profit om the plant being handled by the Project The Project
Manager will advise progress, estimates of expenditure and complefion
dates such that the business management is entirely aware of the state of
the Project. This task can become particularly significant where the asset
is owned by a group of partners each with a financial stake but possibly
differing views as to how the Project should report. The Project
Manager's influence must be strongly effective and must engender
confidence with the Business Unit and partners. Support from the team
is crucial to this confidence.
A separate relationship will exist with the function management of
engineers and specialists seconded into the team; the Project Manager
will need to agree their position with this management to ensure the best,
most suitable people are made available in line with the Project schedule.
The basic welfare of the staff must be ensured and the Project Manager
must take account of such matters as career development in discussion
with the function managers. The Project Manager must ensure that
project staff do not feel at risk or out of the mainstream career
progression by joining a project team.
!Ii 3
Reporting of the Project progress is essential. The monthly report
should be prompt, clear and concise. It is after all the major contact point
with outside bodies and should truly reflect the Project status. All
management threads within the Project team will have an input and it is
by the strength of the Report that they will be judged. Never spring major
, surprises, particularly about serious problems via the monthly report.
Warn the Business Unit management about these in advance to give them
time to consider their response. In a similar manner ensure that your
relationship with the Contractor is such that his report is an agreed
factual record and not a surprise to you.
The final key role of the Project Manager is to ensure effective
briefing and consultation with external bodies and authorities which can
influence the technical definition and timely completion of the project.
This is of major importance in our environmentally aware world.
i !
l k
The Engineering Manager
The Engineering Manager has prime responsibility for the
engineering activities on the project, in particular the engineering design.
The Engineeriilg Manager will be employed on the basic engineering
of the project with his or her team and then move on through the
i '
Chapter 6 -People Skills and Competencies
detailed engineering phase to the completion of the project
The
appointment of this manager should take account of the progressive role,
the need is of someone who can adapt in a dynamic situation. To a
lesser extent the same applies to the team, although it is also probable that
specialists will be appointed into and out of this team as required by any
specific phase. A key post of lead or senior process engineer should
remain unchanged, if possible, from concept to commissioning.
The Construction Manager
The Construction Manager is responsible for the construction
activities either on site (for onshore projects) or within fabrication yards
and offshore for offshore projects.
The Construction Manager's team will comprise a number of
Resident Engineers assigned to different work sites each with their site
teams. The engineering function would also be broken down into, say for
an off-shore platform, Topsides management, Jacket management and
Pipeline management. As appropriate, strong links should be formed
between area engineering functions and the corresponding area
construction functions.
The Services Manager
The Services Manager is responsible for all matters relating to
project accounting, planning and scheduling, reporting and
project administration.
The Planning Engineer and the Cost Engineer have key roles to play
under the Services Manager to identify any deviation from the intended
objectives. Inevitably, even in the best run projects, some requirements
for change occur. The Services group will be the Project Manager's
guidance in minimising the disruptive effects of such a change on the
Project completion.
The Services Manager's group is also responsible for the Project Cost
Estimates and for keeping them under review so that an Estimated Final
Cost can be readily calculated. The Project Manager will need such
information to keep the Asset management fully updated, particularly if
it seems that Project funds may be inadequate.
Remember, bad news that is reported is still bad news, but at least
steps can be planned to counteract the worst effect. However, bad news
that is not reported is a disaster waiting to happen!
Chapter 6 - P ~ n ~ l e Skills and Competencies
1
The implementation of the agreed engineering scope must be
controlled carefully. It is all too easy to include engineering
'improvements' without due regard for cost and time implications. This
may well be the case as the Operations staff attached to the Project
become more familiar with the plant and can see enhancements which
will make their future work easier. Handling this situation takes a clear
understanding by the Project Team of the overall effect on the Project of
any change. This is not to say that change is totally banned, but it must
be carefully challenged and then controlled.
I Resourcing the skills
Long term quality of project management staff is maintained through
development assignments, and a structured training framework around
the key characteristics, identified as follows
I
Leadership Skills
Commercial Astuteness
Political Awareness
Relationship DevelopmentlInterpersonal Skills
Ability to PladManage Risk
Perception by Peersnndustry; Track Record
Technical CapabilitylBreadth of Experiencennnovation
International Mobility
Character, Personality, Maturity and Durability
increasingly the Group expectations of Project Management
professionals are widening the role to embrace handling external
relationships (partners, government, communities), environmental
concerns and an awareness of businesss operations mirroring the
attributes of a business manager. At the highest level a project mates a
billion dollar business in 3 or 4 years, involving the mobilisation,
motivation, leadership and demobilisation of thousands when our
contractors are included. Projects may provide an excellent career
path for Business Unit managers, too few of whom, currently have
this background.
I
Chapter 6 - People Skills and Competencies
BP Amoco Competency Framew~rk
Technical & Professional Competencies
These are the competencies which are specific to the Discipline.
They are not common across the rest of the company as a whole.
Business Skills & Behaviours
The competencies contained in the Business Skills and Behaviours
sections provide a common skills base for most jobs across BP Arnoco.
Together they are known as the Core Competency Framework.
Leadership Competencies
The leadership competencies consists of nine competencies required
for senior management roles across the BP Amoco as a whole. This
framework will be used selectively to identify development potential or
where a detailed leadership skills profile is required.
Projee Management Competency Framework
The technical and professional competencies relating to project
management are shown below:
A guide to defining and developing these competencies is available
through the Project Management homepage.
Opportunities for Learning
Within BP Amoco there are numerous and growng opportunities for
learning the Project Management skills required for the for the Project
positions described in this chapter.
The following References are suggested :
The Project Management Awareness Course which gives an overview
of latest developments in Project Management in BP Amoco is hosted
twice per year by Group Project Support. This is the flagship Project
Management course within BP Amoco. It features presentations
and workshop sessions by BP Amoco Project Professionals.
Details can be found via the Project Management website
(http:Ninfo.bpweb.bp.com/ProjectMgtl).
chapter 6 -People Skills and Con :encies
There are a variety of detailed purpose designed Project Management
Courses run at local venues by external agencies worldwide some of
which may have been reviewed by members of the BP Amoco
community of project professionals. References to these courses will be
updated through the links on the Project Management website (link )
Project Management and associated courses can also be located via
Einstein (http:/einstein.bpweb.bp.com/HOME.HTM)
Distance Learning opportunities also exist and are becoming more
and more important. A CD ROM version of these guidelines adapted for
distance learning is available from GPS.
A CD learning tool, covering Allaincing is also available from GPS.
Regeneration and Development Process
A meeting of the Senior Project Management Network takes place
twice each year where replenishment of the Project Management
resource and future requirements are considered. It is recognised that a
more effective process of engagement with existing B P A ~ ~ C O Staff and
incoming graduates is needed. Continuity needs to be demonstrated and
business support is essential to create a pull from within the organisation
Contractors and Agencies
Any contract or order placed for services on a project is likely to
include the requirement for the supplier of those services to provide
personnel to work either in remote project ofices or at the project
construction site. Those personnel may be directly employed
professional engineering staff, agency staff or they may be craft workers
such as; pipe fitters, welders, crane drivers etc. employed by construction
contractors. It is necessary to give some thought to the t e n s and
conditions under which such personnel are engaged. Ideally a framework
should be put in place which will ensure that harmonious relationships
are fostered and maintained between the various interactive work ,goups
employed throughout the various stages of the project. Locally existing
policies may often be used as the framework for the Project policy.
Chapter 6 - F 4f Skills and Competencies
Personnel Policy
In the case of BP Amoco's own professional engineering staff, [he
personnel policy for the project must be agreed. Where integrated and
mixed teams are to be used it will be particularly important to recopise
within the project personnel policy, the need for general harmonisation
(not necessarily uniformity) of t e n s and condit~ons within the team.
Personnel within the team whether employed directly by BP Amoco,
contractors or from agencies, should all be treated in a fair and equitable
manner. Failure to do this will create an atmosphere of staff feeling dis-
advantaged and unfairly treated, and will undoubtedly de-motivate those
affected.
Labour Environment
In setting out the ProjectlConstruction strategy, thought will need to
be given to the environment within which the construction activity is to
be carried out. The project manager will need to develop a sense of
awareness of those issues which may affect the employment of labour at
the construction site. In Industrial Relations terms the main issue which
will have an influence on the development of.Project/Construction
strategy, will be whether or not the construction work is to be carried out
,within a unionised environment. In such circumstances, the project
manager should ensure that an IR st rat e3 is in place, which takes into
account any existing labourlunion agreements which may have to be
used, or where none exist, to consider the possible need for development
of local agreements to cover the project work. The local business unit and
contractors will be able to provide background information on these
issues, however ensuring the development of a cohesive IR framework
across all project and projectlexisting works interfaces, will be the
responsibility of the project manager.
In addition to the obvious effect of an established unionised work
environment, it will also be necessary to take into account any issues
affecting the employment of labour which emanate from the local
political, economic, social and religious environment. It may also be
necessary to consider how construction labour is to be resourced,
particularly in relatively remote locations of the world. W~l1 there be
sufficient indigenous skilled labour?, or will it be necessary to make
provision for either importing the construction labour required, or
perhaps establishing facilities for training the available local labour?
The logistics of transporting construction labour to and fiom the site and
the potential need for construction camps and support facilities are all
issues which impinge on lndushial Relations and need to be considered
in the development of the Project/Construction strategy.
I
Chapter 6 - People Skills ana uornpetencies
The construction phase of a project brings together all of the efforts
and outputs of those who have been involved in earlier stages, and is the
focus, sometimes of a huge effort in construction manpower terms. It is
also the phase when BP Amoco becomes particularly visible within the
local community. It is important therefore to ensure that a stable and
productive work environment is in place at the Construction site. All of
the project's best efforts at 'getting it right first time' in other areas, can
go sadly wrong, during the construction phase and can damage BP
Amoco's local image, if insufticient attention has been given to Industrial
Relations at the outset.
Chapter 6 - Peoplc
) and Competencies
Chapter 7 , i h 1999
Scheme Development,
Selection and Sanction
Introduction
In Chapter 2, 'The lifecycle of a Project' we saw that in the pre-
project stages, an initial proposal was worked up into a detailed scope
through iterative refinements to the Statements of Requirements. These
pre-project stages are shown in Figure 7.1.
Order of
Magnitude
Estimate
Requirements
Estimate
I FEED 1
Class 11
Requirements
Estimate
Figure 7.1 Pre-project Stages (From the overall asset lifecycle)
In this chapter we will look at the methods which are used in
assessing potential projects prior to committing the business to a full
inveshdnt.
Clearly, it is not possible to have perfect knowledge at the
outset when a development scheme is first put forward. Therefore, the
process of developing and selecting a particular scheme is an iterative
process. Many alternatives may be considered and these will gradually
be eliminated untif a single scheme is left which will be put
forwardfor endorsement by the relevant business management This
process is 'Scheme Development and Selection'. Normally, it will be
the responsibility of the Asset Management to put forward
investment opportunities.
1
Chapter 7 - r we Development, Selection and Sanction
!
The main purpose of the selection process is to ensure that potential
projects are identified which meet the financial expectations and strategic
requirements of the businesses. In particular, we must ensure that the
projects that go forward have the right risk profile.
Variety of Project Types
I
Much of Project Management is concerned with the management of
uncertainty (or risks). The level of uncertainty is highest in these early
phases of work because the scope will be ill-defined and few technical
. !
choices will have been made. As the project progresses and more
technical definition is made, the level of uncertainty reduces. It is
important that the level of uncertainty is reduced to a suitable level when
key project decisions are made, (e.g. financial sanction or the
authorisation for expenditure for major capital items). Elsewhere within
this handbook, there are details on typical project risksI2 and cost and
schedule risk as~essment ~~.
I
I After the scheme development and selection comes detailed design
Regardless of origin or type, all potential projects are analysed in a
similar way to maintain an objective assessment of what is best for
the business. '
I
Project Origins
and procurement (especially long lead-time equipment). This is when
larger quantities of money start to be committed and spent. If the
Statement of Requirements (SOR) is not adequate, money can easily
be wasted.
The sourck of the spark of inspiration for a project proposal may be:
63 Le@slative/HSE: e.g. the need to meet new legislation such as
env~mnmental restrictions on products or processes
-
8 Commercial: the identification of a market opportunity such as the
availability of hydrocarbons from a new field or the market demand
for new or additional products
Political: such as the need to foster relationships with other parties
!
8 Technological: such as the exploitation of new technology to
!
improve the efficiency of existing processes and products
@ Strategic: such as theidentification of a whole new market sector that
meets BP Amoco's overall strategic objectives
I I
1 :
1
12 See Chap:er 10
13 SOB Chapler 8 and 16
7-2
Chapter 7 - Scheme Development. Selection and Sanction
It is important to identify the source of the proposal because the
evaluation of the project economics and risks will be determined against
the legislative, commercial, political and technological climate.
Project Types
The techniques described in this chapter are applicable to a wide
range of different projects which include:
@ Offshore oil and gas production
o Onshore oil and gas production
@ Refineries
0 Terminals (oil and gas)
0 Pipelines (oil and gas)
@ Chemical plants
0 Buildings and offices
The activities associated with these facilities include:
g Licensing rounds
0 Acquisitions and divestments
@ Information technology projects
0 New facilities (in brownfield or. greenfield sites)
8 Plant modifications, such as debottlenecking
@ Plant closures, demolition and abandonment
The Scheme Development Cycle
Taking the section of the Lifecycle in Figure 7.1, we can expand this
into the activities which make up these pre-project stages. This expansion
is shown in Figure 7.2.
The pre-project studies look at a number of aspects, the proposed
project scope and feasibility together with the economics of the project
(or the commercial analysis). The analysis of the project will look at the
proposed technical solutions, costs and schedule estimate and include an
assessment of project risks. The commercial analysis will look at the
economics of the project with respect to market conditions and should
assess market, or external, risks.
w w p ~ a I - a~. i ,c!tls uevenopmenr, aeiecnon ano sanction
i
Fi gr e 7.2 shows the three main stages of project assessment.
They are as follows:
g Screening: In this stage, options are screened with order of magnitude
cost estimates and a commercial analysis prior to deciding whether it
is ~ 0 1 t h proceeding to the next stage.
9 Definition: After initial screening, the potential project is further
defined to produce an initial Statement of Requirements (SOR) and a
Class 111estimate. In parallel with this, further commercial analysis
will take place. The results of this stage will be a preliminary Finance
Memorandum 0. On the basis of this, the decision will be made to
commit firther resources (but not full project sanction) to carry out
fie FEED study in the next stage.
g Initiation: At this stage, front end engineering studies are undertaken
to provide enough detail for a Class I1 estimate of costs. This coupled
with a full commercial analysis will provide the basis for an
application to fully sanction the project by means of a formal FM
together with a final SOR (which may have been amended
sipificantly over the FEED) and a project strategy14.
\ I 74
14 Sea Chapter 9
Chapter T - Scheme Development. Sdection and Sanction
Proposal Options
Screening and
Ccnceptualisatlon
Tentative
Magnltude
Estimates
Preliminarv T YES
Statement df I
Requirements 62 3 I Futlher
Commercial
Class Ill Analysis
estimate
Prelim FM
Is it worth
Detail&
Commercial
I Analysis
estimate
- Final - ,
of Requirements Memorandum
Should
investment
NO
go ahead
I Project Sanction I
+
Figure 7.2
In Figure 7.2, the project evaluation activities are shown down the left
hand side and the commercial analysis is shown down the right.
7-5
Chapter 7 - Scheme DL jpment, Selection and Sanction
Project Evaluation
Technical Definition
The project estimates can only be as accurate as the definition of the
scope of work and the availability of suitable historical cost data. At each
stage of the evaluation, the technical definition increases leading to an
increase in the accuracy of the estimate. By providing the definition in
reasonable detail, it is possible to reveal the areas of uncertainty and risk
and to make allowance for them.
Estimates
Apart from being dependent on the level of technical definition,
estimates of the costs of the scheme depend on the strategy that is
proposed. Therefore, it is never to early to start defining the strategy.
Both the direct and indirect costs of the project will be estimated.
They will include all capital equipment, bulk materials and the costs of
construction, engineering, insurance and commissioning. Estimates and
estimating techniques are dealt with more fully in Chapter 8.
The level of contingency added will be appropriate to the definition
of the scope and the confidence of estimated figures. Using current
estimates gives a cost in 'money of today'.
The costs should be compared to the outline project schedule to
determine the phasing of expenditure.
By applying forecast' inflation figures, the expenditure can be
estimated in 'money of the day', i.e. the final forecast costs.
Project Definition
In the project definition stage, the initial scheme proposed in the
Screening phase is developed further. The end result is the Project
Statement of Requirements.
This should cover the following main subjects:
@ Technicaliwmmercial requirements, e.g. production rates, products,
input and output specification
8 Recommended Solution, to include definition of processing scheme
and associated facilities
Outline design parameters, e.g. utility requirements, equipment
standards, plant availabili'ty, regulations and codes
@ Outline approvals, e.g. environmental, planning
Chapter 7 - Scheme Development, Selection and Sanction
O HSE requirements (particularly environmental where the proposed
project is a new site)
O Operating and maintenance philosophy
!
e Control and instrumentation philosophy
8 Any other aspects that are appropriate for the given project
r
(e.g. abandonment, sub-surface, interface to existing facilities)
'
Technical decisions made at this stage have a major impact on the rest
of the project. There is a real opportunity at this stage to 'make or break'
the whole investment. It is also the point where novel approaches can be
considered and their viability assessed in terms of cost, schedule,
performance and risk
roject Commercial Analysis:
he Process of Investing and Growing
There is a framework for appraising and sanctioning investments
- known as the Group Investment Appraisal and Approval Processes
(GIAPPs13. GIAPPs provides a formal description of a living process.
It sets out BPAmoco's framework for appraising and sanctioning invest-
ments. Together with strategic plans, it builds the mould into which
tomorrow's company is poured. Each investment decision is guided by
three considerations: alignment, knowledge and assurance. These ensure
that the company's growth is aligned to its intent, that it uses the best
knowledge within the Group and that the Line Executive is assured that
due process has been properly conducted. +
O Alignment: All changes to the Group asset or risk portfolio must be
k t
aligned with the Group's strategies, goals and policies. Such
alignment should lead to the optimum allocation of capital and the
i
effective management of business risks - and thus ultimately
maximise shareholder return. t i
8 Knowledge: Early involvement of experts and peers from across the
I
Group will ensure that Group knowledge and experience are fully
1
harnessed in optimising the business case. This will optimise the
value of the business proposition and ensure sound risk management.
i
O Alignment: Assurance is an intepl palt of each stage of the
GlAAPs process, not a final quality control. The intrinsic
expectations and rules mean that at time of sanction, the Line
Executive may assume due process has been observed.
/
15 There are a number of mandatory and remmended processes; lhis section simply
nravides an abbreviated auide to the orocesses behind scheme sanction.
. .
m e lull version ol GIAPPS, which is cwrenl, must be consulled.
... . .
See inlranel site: h~l/gbc.bpwebbp.co~giaaps/ruleslinLrolwe~~iew.hIm
7.7
. . , -..115a115 ucve,uprrlenc, aelecnon and Sanction
',
1 GlAAPs RULES
i
It
.: Line Delegations and Processes
:,
..
. )
Certain transactions must comply with GIAAPS
Transactions, negotiations and reputational commitments involving
changes in the Group's asset portfolio and risk structure are not covered
by normal expenditure authorities and must comply with GIAAPs
processes. Furthermore, all sizes of transaction must comply with the
principles of GIAAPs, although the detailed control rules will depend on
the agreed delegated authorities.
Group commitments must be managed
When approaching early financial or reputational commitments
which might constrain the Group's future freedom of action, business
processes must be shaped to actively engage the Line Executive to obtain
explicit authority to proceed to each stage of commitment. This
management of creeping commitment may be achieved using normal FM
and ATN processes or through formally recorded GCE, QPR, CAC or
other face-to-face events.
i
The performance promise must be delivered
The sanctioned Finance Memorandum is the formal performance
delivety promise which the business Unit must deliver and for which the
Business Unit is held accountable. The Finance Memorandum is a
snapshot of an ongoing business development process and provides a
I
level risk playing field for decision making. It is the instrument for
presenting the business case in a common framework.
I
Mandatory Consultations
ConsultaPions must be early
The mandatory consultationv set out in GIAAPs must be undertaken
early and must continue during the pre-sanction period to maximise
the business outcome. This will alsoprovide assurance from a range of
perspectives (technical, commercial, regional and policy) and
I
demonstrate through the line that at sanction, due process has
been observed, risks identified and managed, and lessons from the
past heeded.
16 NB As at November 1997. See Intmnet site fw Current Version.
7-8
I
Chapter 7 - Scheme Development, Selectiota -lid Sanction
Demonstrating the Creation of Value
Standard economic approaches must be used
Cases must be appraised using standard Group methods which allow fair
comparison between competina investments. What makes BP Amoco
processes distinctive is ihe mandatory requirement that cases are
rigorously tested and reality-checked using track record and capital
benchmarking data; and tools for exploring full-cycle economics and
sources of value.
Capital efficiency must be optimised
A process of exploring, unbundling and benchmarking project
alternatives and the defining the 'next best alternative' must be
undertaken throughout the iterative project process. Project should be
worked at events such as QPRs, performanzfests, peer group reviews,
face to face ExCo meetings, etc. This provides the Line Executive with
the opportunity to shape capital efficiency and steer the evolution of the
Group asset and risk portfolio throughout the process, not only at point
of sanction.
Risks must be identified and managed
Uncertainties, the risks to delivery and related issues must be clearly
articulated and plans must be set out for managing risks in a
Group context.
Knowledge Management
Group knowledge must be applied
From concept to execution, Business Units must apply Group knowledge,
heed past lessons learned and contribute new knowledge to the
- BP Amoco Team world-wide.
Consultations in Support of the Executive Line
Consultations - Business Unit Expectations
Business Units will seek active consultations with Group Functional
Teams, Specialists and Peers as early as practicable during concept
development and throughout the project in order to apply Group
knowledge and help to optimise the value of the business case. The
specific consultation and peer processes and events will be tailored by the
Business Unit to the actual opportunity with the support of Process
Champions. By the time an investment opportunity is presented for
sanction by means of a Finance Memorandum, the consultations
undertaken must at least have included those minimum mandatory
consultation specified in GlAAPs. 7-9
Chapier 7 - Scheme Dnvelopmenl. Selection and Sanction
\
1
Cdmpliance with GIAAPs expectations and mles provides routine
assurance to the BU Leader and to the Executive Line at the point of
sanction that the due process has been observed and that the case:
o 1s fair in presenting the sanction decision from a Group perspective,
adequately addresses risks and rewards, and fits with the appropriate
strategic contexc
g Has involved the right people at the right time and benefits fully from
the application of Group Knowledge;
@ Addresses difficult policy issues appropriately.
Cohsultations - Consllltee and
Process Champion Expectations
Consultees and Process Champions have the dual responsibilities of
supporting the Business Unit in optimising the value of the business case
and providing independent asurance on request to the Executive Line that
consultations have taken place, and the recommendations have been
reasonably taken account of in their areas of responsibility. Consultees
and Process Champions should intervene and act as a Corporate safety
value by notifying the Executive Line if they judge there to be a risk that
processes are falling below minimum acceptable standards.
Assurance is executed by exception. ExCo and CAC members only
receive direct statements of assurance from Consultees and Process
Champions when they choose to secure direct personal assurance.
Peer Reviews
BU Leaders from within the appropriate Peer Groups or Clusters,
together with other individuals invited by BUS or ExCos, are required to
review capital efficiency and resource allocation with a view to
optimising the Group outcome within the prevailing Group context This
context may include Group strategic steers or the allocation of
constrained financial and human resources.
Internal Audit
At a minimum there will be specific reviews with Internal Audit who
bring lessons from past projects, expertise in the identification of risks
and assurance due process is being performed.
1
Chapter 7 -Scheme Development, Selection and ,lion
Assistance and Support
Pre-sanction peer assits are a distinctive feature of BP Amoco and are
commonly organised by BUS or Audit Teams. Invites are chosen for their
ability to contribute and are independent of the BU. Peer Assists help to
bring the best expertise to bear on optimising the business case and also
provide assurance through the line. Group teams and functions will also
be engaged in these activities; either linked with the mandatory
consultations set out below or in the case of Group Legal and Internal
Audit, by providing direct support as required.
BP Amoco Finance
BP Amoco Finance is London based and also includes finance heads
in the regions. It provides transactional and commercial support in
finance optimisation and for banking relationships. Project financing is
supported by the Specialised Finance Team. BP Amoco Finance also
provides assurance that projects conform with the Group policy
framework.
Group Tax Head of Group Tax
Group Tax is .organised globally and includes tax professionals
within BUS and in tax jurisdictions worldwide. There is a core team based
in London. Group Tax provides advice on the corporate, financial and
contractual structuring of projects, taking account of BP Amoco's local
and Group tax circumstances. Tax also provides assurance that tax
treatment conforms with the Group policy framework.
Corporate and Project Structure Nominated
Process Champion
For reasons of simplification and tax optimisation, involvement and
explicit endorsement from Tax, Finance and the appropriate Regional
Team is required before creating or changing BP Amoco legal entity
shuctures. Group Tax and BP Amoco Finance also work together in
optimising and endorsing individual project structures.
Functional Team Assurances GBC Team Leaders
Functional teams in areas of HSE, Security, HR, Ethics and
Reputation will become involved in the project process as early as
possible in order to add value to the business case and provide
appropriate assurances that the case conforms with Group
Policy Frameworks.
Lnapter 7 -Scheme Development. Selection and Sanction
\
-Policy Assurance.Regiona1 Directors
Regional Directors draw on information from the BUS, Functional
Teams and Process Champions. They provide overarching assurance
through the BU line and to their contact MD that cases conform with
policies on HSE. Security, Ethics, Relationships and HR.
Technical Performance Review* Director Technology
This has two purposes. Firstly to help maximise the value of the
business case. Secondly, to provide performance, reputational and HSE
assurance to BU Leaders, ExCo and the CAC that appropriate technical
solutions have been applied (incl. compliance with Policies) and that
knowledge has been transferred.
Cost and Schedule Risk Chief Engineer
Technical Director - Facilities Engineering and Projects
The Technical Directorate is supported by specialists in the Costs,
Performance and Risk Management Network which is Sunbury-led but
also includes BU and regionally-based consultants. An aim is early
- benchmarking and risk assessment to support optimisation of capital
efficiency during concept development.
Assessment of capex and schedule risk wil be independent of the
project team and is aimed at providing performance and reputational
assurance to BU leaders, ExCos and the CAC.
Maln Contract Committee - Implementation Strategy Chair o f W
Chaired by Director of Technology, the Main Contracts Committee
(MCC) comprises the senior technology managers from each Business
and the Head of Group Internal Audit Its roles are twofold: To review
contract /implementation strategy to optimise the outcome; and to
provide assurance to BU Leaders, ExCo and the CAC on the integrity and
ethics of the contracting process.
CST Pre-anction Process Assists Director Planning
CST are available help BUS conform their processes with both
GZAAPs and the context of the day as required by the Group Executive.
The nominated CST Process Champion should be involved at the earliest
possible stage to ensure that current learning points and group context is
built into the business development process in the normal course of
business. Leading up to sanction, CST provides support in managing the
CAC agenda and also helps BUS achieve integration between investment
decisions and Group Strategic Shapes and Planning Processes.
6 Plans are in hand to integrate the 3 separate technical support and
assurance processes.
i
Chapter 7 - Scheme Development, Selection A Sanction
Line Delegations and Processes
Clear and simple rules of delegation.
Definitions of Transactions Requiring Sanction
eventual FM needed
Exchange and mergers Outside agreed plans
Donation of assets
Investments etc.
Additions to fixed
assets
Finance lease
commitments
Providing loans
JV and RelCo investments
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Chapter 7 - Scheme Oer Tent. Selection and Sanction
Exceptions to Normal Delegations
The financial delegations from the Group Chief Executive to, the
Line Executive (both Business ExCos and BU Leaders) are subject to
certain limitations.
8 Where eventual Main Board support will, for whatever reason,
be sought
8 Greater than $25m which have cross-Business Stream implications
o Where management conflicts of interest may arise (e.g. MBOs); and
t3 Where there is a risk of breaching Group Policy
Some examples of where there are risks of breaching Group Policy
Frameworks are set out below:
$ Finance and Control: Sub-optimal project-specific or off-balance
sheet finance.
e HSE: Expected emissions which may breach Group goals and targets.
@ Security: Where security of employees or the community may be
at risk.
tB Ethics: Situations where local practices may fall below BP Amoco
standards.
$ Relationships: Risks of.critical media attention and other risks to
the Brand.
Q HR: Cases having a major personal impact on large' numbeis
of employees.
Managing Abnormal and Creeping Commitment
At the point where material external contacts are established to
explore possible business propositions which may eventually required
support at a higher level, it is necessary to establish clearly that the BU
has the authority to engage in the conversations. This would normally be
achieved through active engagement of the Executive Line management
using QPRs, Information Notes or ExCoIGCE face-to-face
conversations. In some cases formal ATNs or Finance Memoranda will
clearly be required even at quite an early stage. The underlying principle
is to match the deem of Line Executive engagement with the level of
Group commitment (financial and reputational). In addition to the
Finance Memorandum and Disposal Memorandum there are various
specific process set out which aie aimed at managing abnormal and
creeping commitments: Authority to Negotiate
Chapter 7 - Scheme Development, Selection and Sh..ition
Authority to Proceed
Q Phased Developments
Q Fast-Track Developments
8 Urgent~Emergency Cases
$ Overspend Treatment
Q Finance Memorandum
e Disposal Memorandum
Basic BP Amoco Economic Method
The Standard Approach Options And
Alternatives Defined and Unbundled
A clear definition of the business proposition and the material options
-embedded in, or excluded from, the case is vital. This allows the
involvement of decision-makers and peers in early innovation 2nd
concept development decisions. There is always a strong link between the
definition of the base case and the ultimate capital efficiency (see below).
The case must also make clear the alternative against which the
economics have been measwed. This may be divestment, harvest or
something completely different, but is rarely 'business as usual' or a row
of zeros.
The Basic Quantitative Tools
Standard methods must be applied to both measwe cases against
Group goals and facilitate comparison of investment options. In line with
long t e n planning processes, the economic assumptions behind the case
will reflect a long term view - generally through-the-cycle trading
assumptions modified by any special knowledge we have of the
near-term. The principal economic tool is Discounted Cash Flow @CF)
where forward-looking risk weighted post-tax real cash flows are
discounted over the economic life of the project. The discount rate or real
cost of capital reflects a long term view of the cost of BP Amoco's mix of
debt, equity and tax shielding. The standards which must be applied
across the Group are:
0 Net Present Value @ Cost of Capital - theoretically unbiased view of
shareholder value which ignores the constrained nature of Group
resources.
Chapter 7 - Scheme Dw went, Selection and Sanction
g Internal Rate of Retum (real discount rate. at which NPV is zero)
- a raw measure of capital efficiency which biases decisions very
strongly to the short-term (also termed RROR).
e Protitability Index (Net Present Value over Present Net Cost)
- an NPV-based measure of capital efficiency which looks at unit
value per unit financial resource
3 Discounted Payback (Period before NPV reaches zero) - a measure of
capital eficiency particularly helpful in understanding and managing
risks and project phasing.
'1 I , Assuring The Economics
Where a clear case can be made from a shareholder-value perspective
and with the support of BP Amoco Finance & CST, activity-specific
discount rates may be considered. Political risks, special financing, a
I
typical debt shielding, dificult-to-quantify option creation etc. are to be
i
highlighted below the line. Sensitivities must be shown to key variables
and risk factors. In addition, Business ExCos may requires other specific
I] Economic Fundamentals and Distinctiveness
' 1,
The basic economic appraisal must be set in the context of
competitive and strategic fundamentals to provide assurance that the case
is soundly based and is not simply the outcome of optimistic forecasting.
There are distinctive BP Amoco tools available to do this. These tools
include COST BENCHMARKING and SOURCES OF VALUE which
both provide insight into where the project value originates - and
provides evidence of enduring competitive advantage. For 'stay in
business' investments a view of the COMPETITIVE LANDSCAPE
(typically profitability quartile) for the asset is particularly important.
Such context can help reveal cases where work may be required to
demonstrate that good money is not being thrown after bad. In addition,
the trading margin assumptions should be tested to ensure that they
conforms accord with our model of competitive fundamentals (e.g.
assumptions of stable margin and increasing market share must be
specifically explained and justified).
metrics on a case by case basis (e.g. 7-pillars). In upstream cases where
reserves uncertainties are very great, it may be important to articulate the
uncertainties alongside the base case. For sustaining capex (e.g. HSE
compliance) which has no cash flow benefits beyond staying in business,
the case must include a view of the attractiveness of the operation as
I\
a whole.
Chapter 7 - Scheme Development, Selection and Sr
P
Optimising Capital Efficiency
To provide assurance that money is not being left on the table or that
an outstanding project is not being hidden by a good but sub-optimal one,
Business Units must apply a range of approaches to optimising capital
efficiency. The tools set out above can help support these capital
efficiency challenges. Tools which look at LIFECYCLE ECONOMICS
provide a correction to biases which may arise through too sharp a focus
on maximising capital efficiency. DEFERRAL and ACCELERATION
also offer opportunities for steering capital efficiency.
Risks and Their Management
Business Units must identify and quantify the major project or
environmental risks and uncertainties faced by a project - and put in place
plans for managing them. This is particularly important for HSE and
political risks which are typically 'worked' in risk assessment workshops.
The reverse engineering of the combination of circumstances which
might lead to a zero NPV is a standard mandatory requirement. The focus
here is on finding better ways to manage risks not better ways to
measure them.
Chapter 7 - Scheme Develn~rnent, Selection and Sanclion
1
Marth 1
r
-
Estimating the Project Cost
Introduction
BP Amoco produces cost estimates for a multitude of reasons e.g.
assessment of commercial opportunities, concept evaluation,
negotiations with governments or third parties etc., but for our pwposes
we will only consider Project Cost Estimates.
Estimates are predictions of the final costs of projects using the best
information available at the time and they are produced in one form or
another at every stage of most projects. To produce them requires a blend
of experience, historical data and commercial knowledge applied to an
understanding of the technical aspects of the project and an
understanding of the uncertainties associated with each. Like all
judgements they are only as good as the data upon which they are based
and the old adage is very true: 'garbage in = garbage out'. It is important
that the assumptions are clearly defined so that the business management
may review the estimate in the full knowledge of these constraints
on accuracy.
In the chapters on Project Lifecycle (Chapter 2) and Scheme
development and selection (Chapter 7), we saw how a series of estimates
are built up with increasing accuracy as we move through the proposal,
scoping and FEED stages through to project sanction, and how we
classity these estimates as 'Order of Magnitude', Class HI, Class II
and Class I.
Estimates are not just needed to obtain sanction for a project.
Estimates are required throughout the project to enable the costs to be
monitored and accounted for against a control total.
Estimate Structure
For any size of project, the estimate must have some structure. Merely
listing all costs in any order will not be very useful. Therefore, we should
start with a Cost Breakdown Structure (CBS).
.. ,:. .". -,.>,;..;": :._."
, Cost Bre/lkdown StruCturi (CBS)\ ", ,"
The CBS is a Jonnal structure to break the "
and consistently into its comjwnent cost elements. " '
The CBS should parallel the Work Breakdown Structure used in
planning the project (see chapter 13). However, it is unlikely to have so
many levels or to go down into such detail as individual activities.
8-1
N theless, at the higher levels, there should be a one-one
correspondence between the two.
Generally projects can either be broken down by trains, process units,
geographical locations or consl~ction phases. They should also reflect
the contract strategy, the control of construclion man-hours and the way
that the money is expkted to be spent.
The basic framework of the estimate should contain the following
general headings.
8 Direct costs: These relate to the cost of physically installing the
hardware on the site and include:
- Materials
- Contracts
- Labour
e Indirect costs: These cover all the back-up services and supervision
necessary to complete the project and include:
- Site supervision
- BP Amoco management
- Commissioning
- Other costs
- Allowances
Estimate Details
Let us now look at the coststructure in more detail.
Materials
'Materials' covers Major Equipment and Bulk items broken down
generally into the categories listed below. Package Systems are usually
included under Major Equipment even though they may cover
Chapter 8 - Estirnah'ng the ,ect Cost
Major equipment:
Vessels (e.g. towers, reactors, drums, tanks, etc.)
Heat Transfer, (e.g. Fired Heaters, Boilers, Heat Exchangers,
Flares, etc.)
0 Rotating Machinery. (e.g. Pumps, Compressors, Fans, etc.)
0 Mechanical Handling Equipment
0 Package Systems
0 Drilling Equipment .
Bulk materials:
8 Site Preparation (e.g. Piling, Land reclamation, etc.)
Civils (e.g. Foundations, Paving, Drainage, etc.)
Architectural
Structural Steel
Piping
0 Electrical
0 Instruments
0 Communications
0 Protective Cover (e.g. Painting, Insulation, Fireproofing, etc.)
Contracts
This section covers contracts for fabrication and installation work.
plus any other contracts let by the project. Offsite fabrication contracts
play an important role these days with the introduction of Pre-Assembled
Units and modules for off-shore work. Installation Contracts cover all
aspects of site construction including the many support contacts required
on site. Most contracts are let by competitive tender.
Labour
There is often an overlap in construction site labour costs and the
types of contract mentioned above. Labour man-hours must be
estimated in close liaison with the planning engineer before applying an
average man-hour rate for the project.
. Estimating Me Project Cost
g Norms: To estimate labour costs in detail it is necessary to assip
man-hours to each task and then price the man-hours. The man-hours
per task are usually obtained from standard tables known as 'norms'.
(e.g. x man-hours to butt weld a 6" pipe and y man-hourslmetre to
paint 12" pipe). The man-hours are then priced according to the rates
expected for the project with uplifts to cover 'extras' such as sick pay,
insurance, office overheads etc., as appropriate to each location
e Productivity: Norms give the standard hours to perform a task at an
ideal location. The hours are usually adjusted according to the
productivity expected from the work force in the project location.
(e.g. productivity in the USA may be higher than that in the
Middle East)
8 Construction Camps: In remote locations, you need to consider the
development of accommodation of the labour force. The size and type
will be developed from the manpower estimate and the source of
the labour.
Design
The estimate for design costs is usually based on the forecast of
man-hours to complete the work, to include contractor management as
well as discipline design engineering hours. It is necessary for the
planners and estimators to work in close liaison at this stage to
produce the man-hour estimate. The rates per man-hour can either be
'all-inclusive' covering all the design contractors costs or 'basic' in which
case the estimator must add for all the contractors additional costs such
as pay-roll burdens, accommodation, travel, expenses, etc.
Site Supervision
In many cases this is a continuation of the design contract using the
same contractor. The same principles but different rates and burdens will
apply. This may contain man-hours formally included in 'Management'
where direct site management is involved.
Management
All levels of Management must be considered both for BPAmoco and
for contractors and consultants. Standard 'all-inclusive' rates apply for
most disciplines but allowances must also be made for 'extras' such as
expenses, public relations etc. All pre-project costs also need to be
clearly identified.
Chapter 8 - Estimating he Proi-t Cost
-
I
Commissioning
These costs are sometimes included in the Direct Costs section. They
cover commissioning manpower, vendor representatives, Operator's
assistance, operating and commissioning spares, manuals, consumables,
etc. In many cases these costs are estimated as a percentage of the
material costs.
Other Costs
This section is a reminder that other costs also have to be considered
such as insurance, royalties, licensing fees, induction courses, training
camps, security and even contributions to the local community in
some instances.
Allowances
The Estimator also has to allow for costs that are outside direct
project control but he knows are very likely to be incurred. These
allowances are usually applied as a percentage uplift, either on the
section of the estimate to which they apply or globally across the
complete estimate.
0 Development Allowance: This is an allowqnce for 'Design Growth'
because as the project evolves it may become apparent that a slightly
larger or more sophisticated system is required than was
originally envisaged
Market Factors: This allowance is to cover cost increases caused by
local market conditions. For examvie a labour shortane caused by the
simultaneou development of a nei'ghbouring site cancause man-hour
rates to increase considerably, or the area may have poor industrial
relations and be subject to frequent-strikes
0 Location FactorlWeather Downtime Allowance: Location Factors
are closely linked with the Productivity Factors mentioned under
'Labour' above, when they are used to reflect local labour efficiency.
However, they can be used to cover other items related to the location
of the project however. For example the site may be in a remote
location with difficult access and poor transport services for the
workforce despite high productivity. On an off-shore project this
allowance may be used to cover downtime caused by severe weather
conditions. This also applies to some on-shore projects with extreme
climatic conditions
V,,Vy.'. " -" ..... .'.... J ... I. .-,--. ---.
'l
g Currency Fluctuation Allowance: This factor is only applicable to
multi-currency projects where severe losses (or gains) can be incurred
purely due to changes in currency exchange rates. For example the
cost of a pump purchased from abroad in a foreign currency may
increase considerably between placing the order and making payment
purely due to exchange rate fluctuations
8 Scope Change Allowance: Ideally the scope of the project should be
fixed at the time of sanction and not change. In practice this rarely
happens however, and this allowance is to cover minor changes in
scope. Any major changes would require a revised estimate and a
request for additional sanction
o Unallocated Provision: Before the introduction of probabilistic
techniques it was normal to add a 'Contingency' to the estimate to
cover unforeseen items. Nowadays this is covered by an 'Unallocated
Provision' which is linked to the level of confidence in the estimate as
outlined under 'Risk Analysis' below. The Unallocated Provision is
generally held by the Project Sponsor and is released through a
contingency AFE"
e Escalation: Estimates are prepared in current money whereas funds
release is sought in Money-of-the-Day (MOD). Base estimates need
to be escalated into MOD. BPAmoco produces forecasts of escalation
for ali the major currencies of the world. Before escalation factors
can be applied however, the estimate must be phased into forecasts of
annual (or quarterly) expenditure. This again has to be done in close
liaison with planning and in accordance with the project programme.
!t is worth noting that the usage of allowances and provisions can
provide a useful indication as to whether the project is starting to run
into difficulties.
Producing the Estimate
To produce an estimate the Estimator has to use the best information
available to him at the time.
In the early stages, estimates are typically based on similar projects.
Project Management Team of ESS maintain detailed databases of
project costs which can provide some initial estimate data for projects.
These databases are also used to help Project Teams benchmark their
design and estimate data against similar projects and to identify top
quartile performance.
17 Aulhoriation for Expenditure (see Chapler 18)
8-6
Chapter 8 - Estimating the F
'fl Cost
-
Later, as plot layouts and equipment lists become available the
mechanical equipment items can be priced. The Project Management
Team data base holds information on capital cost equipment and can
generate various performance indicators, e.g. throughput for pumps.
Factors can then be applied cover the other items that are not yet
ready to be priced (e.g. civils, piping, construction, design etc.) to
produce a 'Factored Estimate'.
Eventually as more information becomes available, for example,
quotations from suppliers for specific equipment, services or bulk
material take-offs, all aspects of the project should be priced in detail.
One of the key sources of estimating data will be contractors and
alliance partners who will have the skills, knowledge and background to
develop detailed estimates of the parts of the project within their supply.
Risk Analysis . .
What is it ?
Any estimate produced will have a degree of uncertainty, none of us
can have perfect 20-20 foresight! We need to understand this uncertainty
and be able to quantify it in some way so that judgements can be made
on the overall validity of the estimate and the most likely outcome.
Risk analysis is a systematic way of analysing the variabilities and
uncertainties present in any estimate.
The results of risk analysis will enable us to:
g Estimate the most likely outcome of a project cost
@ Identify those elements of uncertainty that have the greatest eEect on
the overall project cost
8 Estimate the unallocated provision that should be allowed for
Quantify the chance of achieving stretched performance targets
The outcome of risk analysis may have a major impact on the
viability of a project. The initial estimate may be commercially
acceptable, but analysis of the risks and likely outcomes may show that
there is an unacceptably high probability of serious overspend. There are
two actions that can be taken. One option is not to sanction the project. ,
An alternative may be to pay special attention to those elements that have
the greatest uncertainty and find alternatives that reduce the risk to
acceptable levels. This may involve finding zltemative technical
solutions or merely improving on the knowledge that we based the
original estimate on.
What khe output of risk analysis?
The aim of risk analysis is to produce a probability distribution of the
likely final project cost. Figure 8.1 shows a typical cumulative
probability distribution.
Brisk Results
I
I c
I 3
a
c
:
.-
1 Expected Mst (871.9)
Unadjusted Cost (800.0)
2.
.-
- --
I 0 500 1000 1500 2000
Cost Units
Figure 8.1 Typical Project Cumulative Probability Curve
I
!,
The typical curve of Figure 8.1 tells us some important infonation:
Unadjusted cost: This is the raw, unmodified project estimate
originally produced by the estimator, inclusive of the allowances
previously described
g Expected cost: This is the most likely project cost as a result ofihe
risk analysis
(P Lower limit: This is the project estimate for which there is 15%
probability of the tinal cost being less than this value
1 g Upper limit: This is the project estimate for which there is a 15%
probability of the final cost being greater than this value.
Overall the curve tells us that there is a 70% probability of the final
cost being between the 15% lower and 85% upper limits. These 15% and
85% points are used to quantify the estimate accuracy.
Chapter 8 - Estimating the Projer' -42
From this analysis, we can identify that the unallocated provision is the
difference between the unadjusted cost and the expected cost.
The unallocated ~rovision is an im~ortant consideration when a ~roi ect is
appraised for saiction. Obviously,~ large unallocated provision'in&cates
greater uncertainty and risk and is an important consideration when
comparing different schemes or investmen; opportunities. However, a
high unallocated provision may not necessarily imply a poor investment
since even when it is taken into account the project economics may still
be impressive. The estimated cost put forward for sanction is normally
that corresponding to the 50% probability of completion within that cost.
What are the elements of risk analysis?
We have seen what we want to get out of risk analysis. So how do
we do it?
We have to take the estimate and break it down into the main types:
O Direct materials - Mechanical equipment
- Bulk items
Costs related to direct labour - Fabrication
- Installation/erection
Indirects and adminishtion costs that depend on the progress of
direct works - Construction indirects
- Design and management
For small projects, the whole project could be broken down into these
main categories. For larger projects, it may be necessary to break down
the estimate further into key modules. For example, for an offshore
project we might have the above breakdown for:
O Jacket
Topsides
@ Subsea
8 Pipelines
Chapter 8 - Estimatin- .e Project Cost
Fi r each of the cost items, there are some uncertainties which we
categorise as follows:
@ Scope: This represents uncertainty of 'how much' of something,
e.g. how many man-hours will be required to construct the topsides?
How much steel will be required for the jacket?
(b Price: This represents uncertainty of 'how much it will cost',
e.g. what is the labour rate for construction? How much will 10 inch
gate valves cost?
g Productivity/duration: This represents uncertainty of how
productive labour is, or how long duration-dependent activities such
as project management are.
Table 8.1 shows how each of the cost elements can be affected by the
uncertainties.
COST ELEMENT UNCERTAINTY FACTORS
Direct Materials Scope
Price
Direct Labour Scope
Price
Productivity
Scope
Price
Duration
Table 8.1 Egect of Uncertainty Factors on Cost Elements
It is necessary to define a probability distribution for each uncertainty
factor, for each cost element, for each major module that the estimate is
broken down into. These probability distributions should be based on
experience of previous projects and a realistic assessment of the
particular issues facing the project.
Once the uncertainty probability distributions have been assigned, a
technique such as Monte Carlo simulation can be used to generate the
overall probability curve for the project (as shown in Figure 8.1). The
analysis should also be able to rank the cost elements and uncertainty
factors in order of their effect on the overall project cost uncertainty.
Chapter 8 -Estimating the Prcje
)sl
Risk analysis in BP Amoco
Within BP Amoco, the Project Management Team of Engineering
Shared Service havi a software package to carry out estimate risk
analysis called 'BRISK'. This is described in more detail in the user
guide''.
BRISK provides a systematic approach to establishing the
uncertainty factors and for running a Monte Carlo simulation. It has
graphical outputs of the probability curve and ranks the factors and costs
elements in order of their effect.
Risk financing for construction works
Within The BP Amoco strategy for financing its own losses is
different from that normally adopted by both the Oil Industry and the
Construction Industry. The traditional method of financing risk adopted
by these Industries is to place heavy reliance on insurance as a matter of
course, and this approach is embedded in most standard forms of contract
for construction work.
Since, for good reasons BP Amoco has set itself apart, it is important
that the implications of BP Amoco's approach is clearly understood at all
levels.
The main impact of BP Amoco's approach o i ~ construction works is
on contract strategy, whether on major Capex projects or on maintenance
shutdowns and influences:
I. Allocation of risk
2. Financing of risk
BP Amoco has imposed 'Getting HSE Right' to minimise likelihood
of an incident and assessment of competency is key to allocation of risk.
A simple rule of thumb is that responsibility for arisk should rest with
he who is best able to manage the risk.
BP Amoco Policy is to finance its own risk from its own resources.
Insurance provides an alternative way of mitigating the financial impact
of an incident.
All contractors insure. Risks allocated to the contractor are financed
by insurance.
-
18 BRISK 7. Cost Risk Analys~s. Excel 7.0 version. Engineering Shafsd Service,
Project ManagementTeam, August 1996.
8-1 1
Chapter 8 - Estimating rhsPmject Cost
BPAmoco Policy on Insurance does not apply to non-BPAmoco risk
and Asset Managers need to be clear on the distinction between BP
Amoco and non-BP Amoco risk.
A good example of this differentiation is the procurement of
specialist zrvices versus outsourcing. BP Amoco for example will
engage a conhactor to construct a facility. It may also subsequently
employ a contractor to operate the facility. The former is a non BP
Amoco risk and the latter, which remains managed by BP Amoco, is BP
Amoco risk
Where BP Amoco enters a Production Sharing Agreements it will
generally be able to recover from production the cost of insurance. In the
absence of insurance it is doubtful the State Oil Company would
contribute to any uninsured losses.
The BP Amoco Policy on lnsurance has'not always been properly
understood in the past Insurance should always be considered as a way
of financing non-BP Amoco risk Furthermore the Policy must not be
misconstrued in such a way as to increase the envelope of risk assumed
by the Company.
Chapter 9 ,
a,.-&h I 1999
Project Strategy
Introduction
Project Strategy is not about what we build, but how we build it.
Before we release money for a project, we have to have thought about
some of the key issues of design, procurement, construction and
commissioning.
There are many factors which will affect the project strategy, for
example a crude distillation unit built in Europe will need a different
project strategy to the same unit being constructed in a remote third world
country.
Even the smallest project benefits from consideration of the strategy
before proceeding. The less we have to use on-the-spot improvisation the
better controlled our projects will be.
This chapter is written around the contents of a typical project
strategy document We cannot give you a strategy thsit will suit each and
every project. Instead, treat this section as a kind of checklist so that you
can see what factors and issues must be considered and addressed right
up front.
Typically, the project strategy will be prepared before full sanction is
given. Ideally, a preliminary strategy will be prepared right at the outset
and the details will be finned up as the project moves through the FEED
stage.
The Contents of a Typical Project Strategy
The following sections are those found in a typical project strategy.
.
For each section, we give some key issues that need to be addressed. Not
every project will have the same issues or the same strategy for dealing
with them. Therefore, treat this section as an aide memoire in creating
your own project strategy.
Description of Project
The first thing in the project strategy should be a clear, unambiguous
description of the project and the business objective. This should only be
a summary, not a full specification, but nevertheless it should enable all
of those who are associated with the project to clearly see the main
project objective. The project objective should be related to the business.
Thus for an offshore development, the objective is to produce oil and gas,
not to install a production facility.
9-1
We also need to define the key performance criteria of the asset to be
cdnstructed. These criteria may include throughput, product purity
or plant reliability and must be a key input into the engineering of
the project
Project subdivision and phasing
Large works may not be executed in a single phase. This section
should describe how the overall works are to be divided into separate
projects and how these projects may be spread over a number of phases.
Contract Strategy
There are numerous project strategies which will depend on many
factors such as the location, nature of the technology, availability of
expertise etc. These are covered more fully in Chapter 12.
The key contract strategies should be outlined in the project strategy.
This does not mean that we need to state who contractors are, but we do
need to state the type of contracts that we are seeking. The risks
associated with the preierred strategies should also be evaluated.
Project Resources
The first set of human resources we have available are our in-house
personnel. Do they have the right experience and background for projects
and can they be released for project work? or do they want to be released
for such work?
If we do not have enough resources or expertise, we may use
consultants to help us define particular areas.
For basic design and construction, we use contractors because that is
the service they provide most eficiently and uses a resource that BP
Amoco does not have. But before you proceed with your project, you
must determine the capability of the available design and construction
contractors. Your strategy must utilise their strengths and compensate for
their weaknesses.
If your own team needs supplementing, then you can use temporary
staff. Again, consider whether'they are mailable, their calibre, and
whether they have the experience you require.
Chpter 9 - Pmjec 'iegy
-
Other Resources
A resource may be a piece of equipment. For example, the
availability of superior heavy lift equipment has not only radically
changed our project strategies for offshore projects, but has also
significantly altered the techniques for FCCU revamps. Do you have to
plan your project around the availability of a special piece of equipment?
What are you going to do if the supplier realises your dependency and
quotes uneconomic rates?
Another resource may be existing infrastructure in the form of, say,
laydown areas, ofices and workshops.
The final form of resource to be discussed is the availability of
existing contracts and procedures, especially where we can take
advantage of existing experience and not have to go through a painful
learning curve.
You can probably think of other resources that may govern the way
you tackle a project. Whatever the resources, you must consider them up
front in order to be sure that you are tackling the project in the
optimum manner.
Outline Programme
This section should include an outline programme for the works
(probably developed from the FEED study). In particular, you should try
to answer questions such as:
@ Is there a date when it must be complete? For example:
- Do we have to match shutdowns of existing plants and when
are they?
- Do we have to meet any particular weather windows?
@ When can the project be complete?
Financial
Perhaps the most obvious of the project considerations is the finance
available, especially if you are hying to balance programme against
costs. You must also remember cash flow, as the money may be
sanctioned but not available to spend. You also may have to complete
one part of a project to generate the cash flow for the rest of the project.
In some countries you may have to consider currency restrictions
which can limit where you can procure equipment or services.
Sim..arly, the tax regime may result in phasing the project to suit the
timing of tax returns rather than the efficient execution of the work
in hand.
Infrastructure
You need to consider how the general political and cultural
infrastructure effects the project execution. You not only have to
consider local legislation as it affects the design and construction process,
you also have to consider attitudes to the environment and to safety. In
some cases the local standards may not be to a standard we would accept
and we need to be aware that a tremendous amount of re-education may
be necessary.
Finally we must consider language. The use of English may not be
quite as universal as some of us might wish to think.
Interfaces
Within the project
There will be many interfaces within a project for example between
contractors and between different sites (e.g. design offices, fabrication
yards and construction sites). The project strategy should identify how
these different groups should be managed and how communications
between them should be handled.
With other groups
The project will need to interface with many other groups, for
exaniple the Operations group and other projects that are in progress on
the same site.
In addition to these internal interfaces, there may be external
interfaces that need to be managed, e.g. partners, local communities,
governments and regulatory bodies.
The project strategy should identify these groups and propose how the
interfaces should be managed. These interfaces should be the subject of
the project co-ordination procedures.
With other plants and facilities
Even when the project is for the construction of a new asset, it is
likely that it will have to interface in some way to another facility, for
example onshore it could be on an existing site, requiring tie-ins to the
tank fann and utilities. Offshore, there may be tie-ins to existing
undersea pipelines.
Chapter 9 - PI
1 Srategy
The strategy should identify the key physical interfaces so that the
project engineering can incorporate them and the project management
team can put the appropriate co-ordination procedures in place.
Financial Authority Limits
The question of financial authority is very important.
The levels of financial authority of key personnel such as the Project
Manager must be agreed and defined.
If you have to 50 through a lengthy procedure to get even the
smallest sum authonsed, then adopt a contract strategy where the
contractor does all the procurement and you only need to seek approval
once! Project strategies designed to bypass internal bureaucracy are not
as uncommon as you might think.
Review of Project Risks
Chapter 10 looks at some of the risks and risk areas that may affect
your project Each project will have its own set of risks which will all
have differing importance and relevance.
For each risk, the strategy should:
8 Identify the nature and source of the risk
g Give some indication of the probability of the risk occurring
f3 Estimate the effects of the risk occurring (e.g. on safety, costs,
schedule or asset performance)
0 Lay out the key strategies for managing each risk and identifying
contingency planning if appropriate
0 State how risk management will be approached throughout the project
to handle new risks
Licensers and Consultants
If the process plant requires input from licensers and consultants, then
their roles and res~onsibilities should be defined since this may affect any
detailed project piam that are drawn up.
- -
If the plant involves licensed technology, the terms ofour licence may
direct us to use the licenser (who may be a design contractor) to
undertake design work for re-vamps. In that situation a performance
guarantee would be an automatic consequence and beneficial to us.
Chapter 9 - Projed Srategy
If our project is a stand alone new process plant requiring specialised
p;ocess technology from a licenser, we have to decide how far we wish
to or can allow him to undertake the design of the complete plant. Much
depends upon the overall design capability of his organisation. We may
feel that we would get better value and feel more comfortable by limiting
his design work to purely that associated with his own process
technology. By following that route it should be possible to obtain a
lump sum proposal from him. He will include a performance guarantee
but if other design contractors are involved in say further downstream
areas (e.g. detailed piping design and control systems) he will make his
guarantee conditional on his approving designs for those areas of the
plant that he considers relevant to successful performance.
Exactly the same principles apply to equipment items within a
process plant where the technology is specialised and you are seeking a
guarantee that the equipment will give the performance you require and
which the supplier claims it will.
Licensers often dictate special project conditions including the use of
specific equipment. Such special conditions should be carefully
evaluated to ensure that only those that are strictly necessary to
guarantee performance are included. The effect of any special conditions
on other parties (e.g. design and construction contractors or operations)
must be clearly brought out in the project strategy.
Construction Strategy
Often, not enough thought is given to construction strategy in the
development of the project strategy.
The key underlying question is: 'where will the completed project be
located?' Once this question is answered, you can further define
the strategy.
Some construction issues will depend on the general environment,
such as climate, access and available skills and infrastructure.
The construction strategy should consider the use of modularisation.
There are three basic types of location:
g Existing operating areas such as a refinery; normally referred to as
'Brownfield' sites
Totally new locations, including cross-country pipelines; normally
referred to as 'Greenfield' sites
Offshore
Each has a unique set of characteristics that the construction strategy
has to recognise and accommodate.
9-6
Chapter 9 - Prk Srategy
Existing operating area
Projects on an existing site may be:
8 Modifications/extensions/re-vamps to an existing process unit
8 A new unit built within an existing refinery or chemicals site
For works within an existing process unit, there will be severe
limitations as to what construction will be allowed whilst the process
plant is operating. Your site work will be controlled by a permit to work
system and your contractor must plan his work meticulously and submit
method statements in advance for consideration by the operator. As a
consequence productivity may be lower than for other projects.
In the case of a new unit being built within an operating site, permit
conditions will still apply but only possibly in an overall sense, as a
clearly defined physical barrier will have been established to delineate
the boundary between operating area and the area of new construction
In both these cases the temporary facilities, locations, servicing and
access requirements need to be agreed with the operator and any
development controls -and conditions for the site and process
unit observed.
Much depends upon the particular circumstances as to what is
possible in these situations. Involve the operator in the design by
creating a construction strategy with him rather than by trying to force
one on him. Success depends on attention to detail up-front.
Above all ensure that your designs can be built within the confines of
the restrictions that are imposed by virtue of the site being live.
One option for restrictive site conditions is to design new facilities
using pre-assembled units. Sometimes itmay be possible to install these
whilst an existing plant is operational. Benefits will come from lower
construction costs. These may be offset by m6re complex logistics in
getting the completed modules to site.
Chapter 9 - Pmject E--+egy
Greenfield Sites
It is essential that the short term construction issues are taken into the
equation when the site location is being formulated to avoid difticulties
arising later. To be suddenly faced with restrictions during construction
because consultation either failed to take place or was incomplete can
seriously impede construction and rapidly cause costs to escalate.
Greenfield sites can pose significant logistic problems during
construction. Transport and accommodation of the construction work
force has to be ananged in addition to the storage and handling of
equipment and materials.
Are the necessary manpower resources available within easy
travelling distance? Irrespective oithat, what other demands are there on
the potential reservoir of skilled labour?
It may well be that these transient construction activities are so
expensive in terms of cost, time and management, that the alternative
of modularisation is employed. A decision of this nature must be
addressed early in the life of the project and the cost implications
carefully evaluated.
Offshore
Offshore projects impose particular problems on the contract strategy.
The key point is to minimise offshore working. Therefore the strategy
should address issues such as:
@ There is little or no storage for materials offshore
o Hot work offshore may be difficult
8 Aim to minimise the number of men on the platform at a given time
o Cany out as much pre-fabrication, hook up, testing and
commissioning as possible on shore
~b Weather windows will have a major impact on construction
Project Commissioning
Finally, the method by which the plant is commissioned and handed
over must be decided. This is a key project interface which demands
special attention. Key issues include who is responsible for the asset
while it is being commissioned and how the operations team are brought
into the project.
Chapter 10 March 1999
Project Risks
Introduction
During the early stages of project development, it is important to
recognise the risks involved and subsequently to quantify them by time
and cost contingencies. We now take a closer look at these problem areas
- the risks - and put forward a positive methodology to identify, isolate
and hopefully minimise their influence on a project
We shall look at sources of risk present both in scope of work and in
project execution, and discuss ways of minimising risk. By being
rigorous in our review in the early stages of a project we can demonstrate
the existence of these risk areas to the Asset management and develop
appropriate contingency allowances to the estimate and programme.
It is never too early to start addressing risk management and there are
a number of tools that are available through the Cost, Planning and Risk
Network which can help the process.
Intentionally working in a risk area can breed a cautionary style and
we offer no apologies for some of the 'advice for the wary' that has found
its way into this chapter!
The Risks
Scope of Work-Risks
The first and most frequent problem is lack of definition of the scope
of the project. We would all love a completely clear and fixed definition,
but this is not always possible. We must make an assessment of the
possibility of change before determining our project strategy. If we have
a flexible scope, we need a flexible strategy and the extra funds and
project management resources that this sort of strategy usually needs.
Very often, the actual work of compiling the proposed Scope of Work
for a project will be camed out by a team familiar with the particular
technology. As in many situations a close involvement sometimes blinds
one to the obvious and can result in key assumptions being accepted
without question. We stated in the chapter on the lifecycle of projects the
value of a periodic check of project scope against the Statement of
Requirements. It is very easy for the scope to gather momentum and the
project to diverge away from the original objectives as set out in the SOR.
The discipline of asking ourselves if our Scope of Work is still
addressing the SOR is a good test to undertake.
Chapter 10 - Project Risks
within the project scope there are several specific instances
i her e risk can impact on eventual cost and programme. We list them
as follows:
Ill-defined Scope
This risk usually occurs as a result of the familiarity syndrome
explained above. The instigators have made assumptions that their scope
is feasible, capable of correct interpretation etc. The test is, 'will it stand
up to peer review?'
Unclear or Mixed Specificafions
It is vital to have a clear picture when generating project scope of
work of the specification(s) that will govern the execution. This sounds
obvious, but the correct selection and understanding of specifications and
standards cannot be over emphasisd. The danger areas are:
Upgrading process units using newer specifications and standards
O Using UK, European or US derived specifications and standards in
other locations.
NewNnproven Technology
Often this can be unintentionally disguised within a Scope of Work
document. You should always question the instigators so that new and
unproven technology becomes apparent This enables you to give it the
attention it requires and to determine what contingency allowances will
be required. If it has not been done before, (except on a pilot plant),
expect problems. Ensure that the proper checks are in place to ensure that
the technology can be validated during the life of the project in order to
minimise late changes.
Impact on Existing UnifsAJfiIifies
Agein the pitfall is that of assuming that the existing infrastructure
will not be affected. For example, failing to take account of increased
cooling water demands or efluent discharges without upgrading the
existing facilities.
A wrong assumption at this time can have severe effects upon project
execution when design is in full swing and it suddenly becomes obvious
that the utility infrastructure needs to be strengthened.
Chapter 10 Aject Risks
Impact on Environment and Environmental Consents
It is difficult to imagine a new or modification to an existing process
facility where these particular issues would not be taken into account at
an early stage. However, it is not so much the need to address the issue
as to clearly understand what the consent level, conditions and
regulations that will govern when the project is complete. These will
impact the design and operating strategies and must be taken into account
during the pre-project stage. It is important to remember that existing
consents rarely apply to new plant. Authorities will often take advantage
of the need to approve new installations to tighten up requirements for the
existing facilities.
Authority Approvals
A similar situation to the previous risk area. The precise legal
framework must be explored during the pre-project stage and the
downstream impact during project execution assessed.
Project Execution - Risks
Many of the following are associated with risk to some extent. We do
not always set aside sufficient time at the pre-project stage to give them
due consideration. Underestimating the risks associated can have serious
effects on programme and costs.
Political Risks
Political Risk is a little more tenuous to deal with. You may not want
to get involved in a civil war but if you are, how are you going to deal
with it? What happens if the immigration laws change halfivay through
your project and your workforce becomes illegal aliens? No solutions are
offered but the risks should be considered.
Interaction with existing Operations including Tie-ins,
Mefhods/Tie-in ProgrammedPermit to Work Restrictions
A long title but fully self explanatory. The scale of the interface with
the existing operations will depend very much on the nature of the
project being undertaken. The interface will affect construction
programme and costs. It is vital to get a good feel for the impact of this
work at pre-project stage particularly where process works are being
upgraded and the operating company input will be significant.
Operations costs and practices should already be established and
relatively easy to incorporate into project estimates.
Chapter 10 - Pmje&
iaydown Areas and Access Requirements
Again it is important to get this understood and agreed with all parties
(such as the operator and the local authorities) right at the start as part
of the execution strategy. Subsequent changes can impact on cost
and programme.
Contractor Availability and lndustrial Relations
These issues are a key area in the execution strategy and must be first
addressed at the pre-project stage. Will the project be constructed on a
greenfield site or will it be within or in close proximity to existing
process units? It is vital to understand the extent to which contractors
will be employed, what portion of the risk they will taket9, the form of
contract to be used and any precedents that the Asset has established in
the context of industrial relations. All of this information will affect
programme and costs and any subsequent significant changes during the
lifetime of the project will have a serious impact on the project.
The risk imposed by Industrial Relatior~s can be minimised by good
preparation up front and by having the right resources on the project
team20. The risk may help determine which contractors you use and how
you split up the job.
Status of Existing PlantlAs-builts
If the project is one that utilises the design of an existing plant or uses
information about that plant's in-service operating or maintenance
performance then how that information is used requires considerable
care. How good is the information, how up to date, what are the
differences in specification? These are the main points to consider, all of
which can have considerable influence on cost and programme if changes
have to be made during the course of project execution. It is very
necessary, therefore to address these risk areas at the pre-project stage.
19 See Chapter 8. Risk Rnancing far Construction Works
I
20 See Chapter 11
10-4
I
Chapter 10 lroject Risks
MateriaUEquipment Availability
. Assumptions made at the pre-project stage about procurement in
relation to equipment and materials costs and deliveries are only valid for
the market conditions at that time. By the time the project has been
sanctioned market forces may have influenced procurement and that risk
has to be identified and accounted for earlier. Ifthe situation is one where
the supply is restricted then this can be overcome to some extent by
adopting a procurement strategy that enables selective ordering with
appropriate provisions of key long lead items ahead of the main sanction.
Availability of Personnel for Project Team
Identifying the key members of the project team during the
pre-project stage and maintaining continuity throughout project
execution has self evident advantages. However, insofar as project
execution is concerned it is important to have a comprehensive personnel
implementation plan accepted as part of the execution strategy. The
purpose of this plan is to define the organisation, formulate job
descriptions and agree sourcing, costs and mobilisation. If for some
reason the necessary personnel are not available then it may be necessary
to source them elsewhere with consequent increases in manning costs.
More often than not it is assumed that people will be available or that a
particular post can be filled on a part time basis from the Asset or from
another project. These situations rarely work out in practice and the
project suffers accordingly. Hence the risk to the project.
You may decide to use contractors because you have more say over
the choice of personnel and their deployment than you have in your own
company. However, you may have difficulty keeping them if the
contractor's long-term employment package is not competitive. If you
use temporary personnel in a 'tight' market, you may find them going to
the highesi bidder or deserting you for a lucrative three-year contract
elsewhere just as you are going into the last critical three months of the
project. The problems can be overcome but they need to be thought out
up front and reflected in the project strategy.
Minimising Risk - Some Guidelines
The risks in project scope and execution that we have identified are
not new, have been with us for some time and will never totally
disappear. BP Amoco and other large institutions have evolved similar
disciplined systems of management for projects from the initial concept
through to completion so that risk can be isolated, quantified and made
more manageable and preferably eliminated. We shall now look more
-
closely at these management approaches, some of which we have already
made passing references to.
10-5
Chapter 10 - ProjmqRisks
)
' Phased Approval
As a rule, by far the largest proportion of a project's capital sanction
is expended during procurement and construction. As the technical
definition of the project increases the risks in scope and to some extent in
execution become more quantifiable. In turn therefore the estimate and
programme basis for the greatest area of expenditure becomes firmer. put
very simply a rationale can be made for the project to be progressively
funded as its definition increases. Additional funding can be given for
each discrete stage of definition against an estimate of total capital
required. This estimate can be reviewed and further refined until such
time as the project is at a stage ready for sanction to be given. This is the
concept behind phased approval. The application of phased approval
within the BP Amoco is generally conducted along the following times:
@ Statement of Requirements (SOR): As part of the work to define
the SOR, there will have been a preliminary Class III Estimate of
costs. This should be the basis for the sanction of expenditure for the
next stage of definition, the FEED.
@ FEED: The FEED study should improve the estimate of costs to a
Class IT level. At this stage, sanction can be given for the main
project expenditure.
Relationships
The need at the pre-project stage to involve all parties who will
eventually be involved when the project is sanctioned is self-evident.
Much of the project execution strategy will be influenced by the
participation of affected parties and drawing on their experience.
As the project progresses beyond sanction, consultation should
hardly need to be specifically singled out for special attention. It should
be an endemic feature of project execution.
These concepts are entirely laudable in theory but in practice are
difficult to successhlly realise. There can be a tendency for the project
team throughout all the stages of a project to go beyond what must
inevitably be an individual. cultural style into a more autocratic mode
simply because they are fixated on goals of budget and programme.
Consultation can suffer and the benefit of shared experience diminished.
We are striving to minimise risk. By consulting we can only gain in
our knowledge of risk and therefore it behoves us to ensure that we have
effective consultation operating at all levels of projects.
chapter l r ?ro!ect Risks
What should our culture be in formalising the consultation process?
Certainly in evolving the scope there will be strategic issueslmatters of
policy discussed and out of these will come principles which will
significantly influence project scope and strategy. These should be
formally recorded as agreements. In a similar way there will be
occasions during project implementation when changes in scopdstrategy
may be necessary. In view of the implications on budget and programme,
changes must be formally tracked and ultimately agreed with the Asset
management using a pre-determined procedure.
Particular attention is needed to the commissioning/operating
interface in respect of roles and responsibilities. Matters of principle here
are important in view of operational safety requirements and consultation
in these areas must be formal. The financial implications in
commissioning need to be addressed.
Often, assumptions covering commissioning are made early in the
project which are not adequately tested and when commissioning is
imminent a grey area looms. To avoid this commissioning roles and
responsibilities need establishing clearly and unambiguously at the
pre-project stage as part of the project execution strategy.
Systematic Project Execution
Since no two projects are ever the same, we cannot use a standardised
approach to managing them. Nevertheless, we can be systematic in our
approach, using established guidelines and procedures and taking
advantage of lessons learnt in previous projects.
By being systematic and using previous experience, it should be
easier to identify and manage all of the risks and avoiding unpleasant surprises.
Early Appointment of Project ManagerJLeader
By designating the eventual project manager or leader and involving
him in the pre-project team his experience and disciplined approach will
engender a pro-active style of management which supports the Asset.
In this way the Asset will be helped to ensure that the risk areas in the
scope are addressed and receive appropriate attention as the
pre-project stage of the project progresses into the FEED study and
sanction estimate.
An early appointed Project Managerkeader is ideally placed to
ensure that risk areas are properly addressed and receive due r eco~i t i on
by way of contingency in the sanction estimate. This will be a d~fficult
aspect of his role as there is inevitably pressure from the Asset to push
down estimates and compress programmes. He must be prepared to
stand his ground by reasoned argument, drawing upon example
wherever possible.
10-7
cnapter 10 - Project Risks
!
A Project Manager appointed post sanction will be under considerable
disadvantage, having to accept project execution strategy, scope of
as presently developed and allocated budget at face value.
His
subsequent identification of risks in scope and execution that had not
been identified earlier and allowed for at sanction will increase his
burden. These have to be brought to Asset management's attention and a
solution for resolving them agreed. This can involve changes to budget
and programme. It is an area which can pose considerable
difficulties to the Asset management both in accepting that there is a need
for additional funding and subsequently obtaining the extra funds to
obviate the risks.
Early involvement by and continuity of Project Mana~erkeader is
therefore a key measure to be adopted in managing and rn~nimising the
effects of risk.
Peer Assist
An increasingly valuable technique in identifying and mitigating risks
is 'Peer Assist' whereby project staff seek assistance and insight from
people outside the team to identify possible approaches and share lessons
learnt from other projects. Successful ways of approaching this process
are documented on the lntranet 2'. it is important that the assistance is not
seen as 'just another review' - but a chance to have the project exposed
to a genuine breath of fresh air, in an environment that is conducive to
free exchange rather than criticism and posturing! We should not also
forget the two-way value of the process; those volunteering to attend your
Peer Assist are likely to go a w g with useful ideas for their current or
future activities.
Quantitative Risk Assessment
In addition to the ongoing qualitative identification, management and
mitigation of risk, projects should use qual&tive cost and schedule risk
analyses prior to sanction, using staff from the Costs, Planning and Risk
Network. A technique which formalises the review of risk, and thus helps
prevent us forgetting areas of uncertainty is through use of the Futura
s o b a r e tool whereby a facilitator assists project staff to identify the
categories of risk and which then provides the data for the quantitative
analysis. Quantitative risk assessment should identify key cost and
schedule drivers and quantify the probability of meeting stretched
performance targets. Analysis of cost risk is covered in Chapter 8 and
schedule risk analysis is covered in Chapter 16.
21 See hnpJlgbcbpweb.bp.co~rdkmt/wifl~erAssistPage~P~rAssist.h~
10-8
Chapter 11. March 1999
4 1
Contract Strategy
Introduction
S
When questioned what it Jelt like to be sitting in the space shuttle
cockpit seconds bejore liji 08 a USastronaul replied "I can 'I help think-
ing that I am sitting on top oJthe sum to tal of all of the cheapest quotes".
2
1
Most projects within BPAmoco will involve the use of contractors for
design, fabrication and construction and will involve the procurement of
f
equipment (such as pumps and vessels), bulk materials (such as steel pipe .
and cables) and other services.
I
The extent to which we use contractors as opposed to using BP
Amoco's own resources will depend on a number of factors such as:
e Cost effectiveness of using contractors
(D Availability of BP Amoco resources
e Particular specialisms and expertise required
O Size of the project and the number of staff required
8 Location of the project
The type of contracts that can be put in place are varied and each has
associated pros and cons along with varying degrees of risk for BP
Amoco and the contractor. New methods ofworking with contractors and
partners such as alliancing have been developed in the past few years and
now represent a major group of contractual arrangements which
can deliver solid benefits to all parties involved. The effective
implementation of the most appropriate type of contract for the
particular situation is critical to the success of a project.
The means by which we define the relationship with contractors is the
contract. This has been described as a practicable blend of technical,
commercial and legal ingredients that constitute an agreement between
contractor and client.
Why Employ Contractors?
The extent to which we use contractors is governed primarily by a
question of resources and by available expertise. BP Amoco canno?
afford the luxury of maintaining large in-house organisations handling
engineering and construction works directly. The prime reason for this is
that workloads fluctuate but there are other important factors to take
into consideration.
Chapter 11 - Contrsct "trategy
I
These include:
@ BP Amoco staff have particular skills and experience across the
spectrum of oil/petrochemical industry projects and operations, and
include a business knowledge of our industry. Using contractors
enables BP Amoco resources to concentrate on high added valoe
issues and to continually refresh and share best practice by working
across the business units
8 The cost of using contractors often works out lower than if BP Amoco
resources had been used for work that is within the contractor's
normal capability
B Contractors have particular specialised expertise that they have
gained from experience. The expertise can be one of technology,
systems or manpower or combination of all three. This experience
comes from working with many different clients, not just from a
single company. Therefore, BP Amoco can access this wider
experience via the contractor
8 Using contnctors is a means of spreading risk in a project. The extent
to which this can be employed will depend on the nature of risk and
the contractor's ability and willingness to take the risk
Often, the relationship between BP Amoco and contractors has
become confrontational rather than collaborative. This is often because of
the win-lose situation produced by the 'first past the post' bidding system.
Contractors who pare down their bids to win the contract then have to
seek any opportunity to recover costs through contract variations.
This inevitably results in arguments about scope and variations.
In this traditional client-contractor relationship, we can immediately
see conflicts in objectives and to ensure that each party's objectives are
realised, the relationship between the contractor and ourselves needs to
be carefully defined within the contract. Roles, responsibilities, rights
and risks have to be accommodated. Defining and interpreting roles and
responsibilities is comparatively straightforward; the respective rights of
each party are established on a basis of fairness in relation to the
responsibility taken. Dealing with risk is more difficult. It is important to
allocate risk to the party best able to manage it. A prudent contractor will
apply this 'premium' to buying insurance protection against problems
exceeding the level of risk he can bear without facing bankruptcy
(see Risk Financing for Construction Works, Chapter 5).
Chapter 11 - Cont-- Strategy
The greater the risk that the contractor is called upon to cany the
greater the premium he will place on the price of his services.
If problems occur beyond the level of risk that the contractor has
anticipated or if his risk premium is inadequate he will not have the
financial resources to complete his work and will face bankruptcy. It is
therefore important to allocate risk to the party best able to manage it.
In recent years, the emphasis has been on a greater alignment of the
contractors objectives with BP Amoco's. In other words, to look for a
win-win situation. This has resulted in new contractual arrangements
between BP Amoco and its contractors based around the principle of
alliancing. In alliancing, BP Amoco forms an alliance with one or more
contractors for a specific project. The alliance agreement defines how
risk and reward are to be shared between all parties.
Before we look at elliances, it is necessary to appreciate the
traditional forms of contract.
Do not think that all contracts can follow the alliance model. This is
not the case and for many situations, the conventional contractual forms
are still relevant and the best choice.
Types of Contract
What we are striving for in our contractual arrangement for any given
situation is the optimum allocation of resources and responsibilities
between BP Amoco and contractors so as to achieve project completion
on time and within budget.
We need to consider a number of factors:
8 Structure: The nature of the project will influence how we divide up
the execution of the project into a number of work areas or packages
which themselves identify with discrete cqntracts
O Management: Do we have the capability and capacity ourselves to
directly manage one or more main contractors or do we delegate this
to a managing contractor as our agent?
0 Control: To what extent do we wish to exercise control over
contractors' work? Two examples where frequent client intervention
is likely would be developmental design work ai~d construction
within an operational refinery area
e Defr. .ion: How well defined is the Scope of Work? Total definition
. at the outset of a contract is rare
g Risk: The contract should define where risk and responsibility for the
risk lie. Sharing risk between all parties in accordance with Alliance
principles needs to be given careful consideration
@ Motivation: How do we successfully motivate all parties to work for
the benefit of the project? The conflict of objectives we identified
earlier has to be overcome; we want our investment completed as
quickly as possible so that we may add value
The degrees of control, definition, risk and motivation that are present in
the project situation will influence the type of contractual arrangement
that we enter into. Consider two extremes:
Fully detailed scope of work, remote greenfield site, all necessary
consents and licences in place. This is an example where contractor can
be given total responsibility to complete within the agreed programme
and budget. Any overrun risks payment being withheld by the client.
The clients role is limited to ensuring necessary QC and progress
monitoring (maybe on a spot check basis).
Scope of work not defined, development required, no clear programme or
budget target at outset. No contractor would take work of this type,
except where he was sure that his costs and ongoing profit would be
fully reimbursed.
These two examples represent the extreme ends of our risk scale; the first
is high contractor risk, low client risk fixed price contmct type and
the second is the exact opposite - low contractor risk, reimbursable
cost contract
In between these extremes there exist a number of variations that
combine certain features of each with varying degrees of control,
definition, risk and motivation. The main contract types are as follows:
@ 'hrnkey: In a turnkey project, the contractor is given complete
authority over the works based on specific performance criteria
stated by the client in return for an agreed overall fee. The contractor
will have complete freedom to select processes and technolog. This
means that the client has very little influence in the design choices.
The contractor carries virtually all of the project risk and has the
highest motivation to deliver within budget and schedule. However,
the contractor also has the motivation to skimp on the design to just
meet the performance requirements. It is therefore important that the
performance criteria are carefully specified.
Chapter 11 - Contra-
0 Lump Sum: In this contractual arrangement, the contractor will give
a fixed price to perform work against a defined specification. The
level of definition in the specification may vary from that of a turnkey
project (i.e. very little) to a very detailed level. Once the contract is
let, if the client wants to change the specification, then the contractor
will be justified for claiming extra cost to cover the new scope and to
pay for work which has to be redone. As with a turnkey contract,
the contractor has high motivation to deliver within time and
budget and has the freedom to choose his preferred design to meet
the specification.
Q) Bill of Quantities and Schedule of Rates: In this form of contract,
the contractor gives a fixed price for materials and activities against
specified quantities.
g Reimbursable Contracts: In this form of contxact, the client agrees
to pay the costs incurred by the contractor directly (to include a mark-
up for profit). The contractor will probably quote daywork rates for
his staff and the supply of materials will be on a 'cost-plus' basis (i.e.
the cost of the materials plus a percentage for profit). This allows
complete flexibility, but means that the contractor carries virtually no
risk and has little incentive to meet cost or schedule targets. It is most
suitable when there is no clear project definition but the total cost will
not be known until the end of the project.
8 Reimbursable Contract with Incentives: This is a variation on the
normal reimbursable contract by providing some additional bonuses
against meeting certain milestones or man-hourlcost targets. Although
this permits work to continue without full definition, major changes
to scope will need a change to the bonus structure. Once the bonus
targets are missed, the iilcentives have no effect.
O Fixed Fee and Reimbursable: Another variation on the reimbursable
contract In this case, the supply of man-hours and materials is
reimbursable at cost and there is a fixed profit andlor management
fee. This preserves the incentive because the percentage profit will
decrease with increasing man-hours and costs. However, major
changes to scope will require a change to the fixed fee.
Each contract type can be adapted to suit the particular circumstances
prevailing. They are usually referred to as forms of contract A wide
variety of standardised 'model' forms of contract have been developed
within the engineering and construction industries. BP Amoco has gen-
erally adopted and modified these 'model' forms for its own use.
Chapter 11 - Contact Strategy
,
I
- Our approach in deciding what form of contract to use will always be
influenced by the state of the project definition. The form must be
decided early in the project in conjunction with the engineer responsible
for writing the specification.
These different forms of cont~act are summarised in the following tables:
t
Reward
Penally
MM
--
Underrun
\ Contractors
Table 11.1
Chapter 11 - 0 pt Strategy
Contract Style Advantages
Tvmkcy M i n i m r u p r r h i i
Maximum wnudclor
in-tivc
c w u Lmm
Ri sb bone by
COn~IOr.
t ol oi a conmdor's
Lump Sum
Bill of Qunt i t i d
Cisadvantages Requirerneqts Applications
L m g bid prid Clear definition 81 lhe Complclr prccus
Bidding Caclly wUeL planu where
Full definition mui r cb Comcdition ktwetn lschnolow k held - -
".
LjIlle oppamni ~f or c o n k r a by mnmaon
nrialionr Com~ment wnuact oa Where cl i ml dam not
Choice ofwnuaaol
ICSUicled.
have pmjcct
magemen1 MR
.
apnir and market Spedficalim and QA
codi l i nu. may bc t k budga
Con u knaw at ouua
lnccn1ivc for carly
mmpltion.
Li mi u changes by client
Low kvcl o f m i s i m .
Precise definition not
-ntial.
Oppmmicia for
-1% mmpuabk
ampl i l i w d i n g
T d i g rru~nabl y
, khan
F h i b i l i i and qualiry
of mr k M be rllCld.
Conmaor h v incentive
l o Emil tidmu
Con c~ccti vc i f d y
cornpiclion nquired.
Shon bid pi ed,
Shon lmdm period
Scope definition need lo
l o complcle.
CDnhacmr h a incentive
lo mmpl ac
Changu easy lo m4 c
Law dcfinilion ~quired.
Shon lcndering pcriod
Fl rri bk conbol
( h g u ) .
Cmbemdi n
YnceNin
cimumrrulsu (cg.
T~hnology. funding).
Long period for Fulldefinition urenlial.
tendering F.Rcctive wmpcliCim is
Limitad choice of enl lid.
SOII~CtOR
vmllionr uc diffuult
d cmlly.
Final cml ir know a1 Accurale drswingl Lo be
ward. available (albeit
Additional M R progminly).
(qml i ry m y o m ) Quantiry suneying
personnel
Di eul r y i n selling Competent and
inecnliver. mstwmhy coneaclor.
A d d i l i ~ ~ I m d u i o n S m c climl
-
ChangudiEcult to supcnision
m 4 ~ alLough mnma
may allov for periodic
msl abl i hmmt of
'work pmsus' lar8HgeU
(1ermAward Fee m n W)
Anenmcnt of Comatea and
ruialionr mnlmtiour. mrrwonhy canbrclar.
Huvy supvision Stmng client
rcquimd EonmcLor may mpcnirioh
only ue his 'B ma.
Final con m k m Compclmt vl d
Linle incntive lo rmmwonhy conml or
mmpiele. Smng climl
Heavy supmision supnuion.
required
Li de discipline to limit
client changer
CMaaaDr may only urr
his 'B I-'.
Limited mpc for
wmpcritire tendering.
Where developmml
p m m e allowl
full scope 10k
developed kf om
tendering.
Whmclient d m
not have supervioar)r
P~ R.
Conrrmction of dl
types u variolu
r t a p ofdefinition.
Whmcnrly
mmplclion ir
bcnefisid lo clien;
Usually design.
engineering or
procurement.
Where ml y award
is desired.
Work package?
panly defined
Whcrc early or ill
defined pmpe i.
required.
Emrrgmcy situations.
Lack of full snction
limiu full
commimenl. . ..
Chapter 11 - Contract Stmtegy
I
I
Alliancjng
What is an Alliance?
As can be seen from above, the traditional forms of contract balance
the risk and motivation of the contractor with the client control and the
need to define the works beforehand. In practice this is a difficult balance
to make.
For example, to get contractors to take the most risk and to get their
motivation to control cost and schedule, the preferred contract would be
turnkey or lump sum. However, these forms ofcontract demand that there
is a very high detinition of the project up front, there will need to be very
5
clear requirements and specifications drawn up. Very often this is not
I
possible,,since at the outset of a project, the technical details are not
known.Bome work has to be done to define the technical requirements.
One solution is to use a form of contract such as Daywork Rates for
the design activities and then once the design is confirmed, move on to
lump sum contracts for procurement, fabrication and construction. The
big draw back to this approach is that the design stage has the greatest
i m p ~ t on the overall cost, schedule and performance of the project.
Decisions taken at the design stage cannot easily be undone later on.
However, with a Daywork Rate or Cost Plus form of contract, there is no
incentive from the contractor to produce efficient designs.
Furthermore, in the traditional approach to contracting,
the contractors' responsibility has only gone as far as the delivery of the
completed process plant. As long as the plant meets the minimum require-
ments, they have satisfied the contract
4
i
The real challenge is to come up with a form of contract that:
8 Allows an appropriate sharing of risk between BP Amoco and its
contractors
8 Takes into account the uncertainty at the outset of the project and
the need to do considerable design work before the project can be
fully specified
g Provides incentive to all parties to dcliver the project at the best value
and in the shortest time
8 Provides incentive to deliver the best possible whole life cost and
performance for the asset
The key point about these aims is not to meet the minimum
requirements specified (for cost, schedule and performance) but to
deliver the best value. This is a major departure from the traditional.
somewhat confrontational, approach of contracting. -
Chapter H - pytract Strategy
I
The aim therefore is to have i n aagrement that offers incentives based
on the sharing of risk and exceedine targets. This risk-incentive
- -
arrangement l i es at the heart of the Alliancing approach.
. . - , . ,.. ' . . : , :..-.:..; ,-<?...L.L <-'.......y:.-.-.' 2.':.
.. . .
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. .. .....,:,l,. :;,. ;-. : -.! -: :.;-:' :&' - , i.;
-. . ; , .., .<; z: 7- * . ... . .,-. ., . . . . ..: . .
. . ?; ,!%?> ?; : ; : ?; ; g 32.: $$>5@gz..s5{>5;~~~@$2e.x~*~&%~;;;::: --&-x%.tr: u., er2.-,.+,..,,.. :: ,;;,~< . . ::. . .
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A ~ b ~ ~ ~ e r a t i v e : r e l a t i d ~ I ; i p ~ o ~ ~ d ~ ~ ~ ~ ~ l i ~ n e d -. . s,.i-.-K objEctivesesbetiveen ,... ~ -... : . . >: : .:,-... .. two '
or. morepnrii&whi~~tizay~ , includi . , . ~____ an:operator~6:iieliver~enhanced ..?::rib.. &.. .. --.
.: , .
business- ... resuli- . f o < a ~ f ~ ~ a - t i ~ jond:&mih_adi2tb&rk~ng- risk.
and reWIIrd. .. . . .j ; . : 5: : , { ! .::..;-.,;;-:::;y<z <; : . z$.?>*Tc*y2.-- %G:<s.~.-:. -.
:'
, > , ;_:: x .,.?*-".:.;E::.::~~$,;<.:-.~, ; ~ -.;. ., .
. . . - .:. , . .*, . . .!.j . . . >- . . : . : ; ~: . . . . . . ~ . : ; ::' < .:~.<~.~-3T.-?~<::~<.'..~. .
. . . >
~ . . . .. .
.
BP Amoco will form ail Alliance with one or more conkactors.
Typically the contractors will cover all of the key skills required. For
example, an offshore alliance might include design contractors,
fabrication contractors, drilling contractors, etc.
Forming an Alliance
It is never too early to consider the formation of an alliance. It is
necessary to identify the critical success factors of any relationship from
all parties' viewpoint and to identify likely alliance partners that have the
necessary skills and resources.
Prospective alliance partners must agree their responsibilities for the
alliance objectives and how they intend working together.
Alliances are often established using an alliance agreement which
defines the risklreward mechanism and commits the alliance partncrs to
mutual co-operation in pursuit of a successful outcome to the project.
Critical Success Factors
These factors are published by CRINEU;
@ Openness and non-adversarial attitudes based on mutual trust
8 A step change in culture for all concerned
e Commitment from all levels within the alliance patties
9 All parties clearly understanding their responsibilities
@ Alignment of business/project/operational goals
Joint agreement of realistic/stretched performance targets
0 Maintenance of competitiveness
I
22 'Guidelines for Alliancinge, issue 2. aalea August 1996. published by the
CRlNE Secretariat
11-9
.
)llowing the relationship to develop through the inherent
. learning process
d A commitment to minimise duplication, eliminate waste or
* unnecessary work
Creation and maintenance of a single team responsible for the new
relationship with the necessary authority
Potential Pitfalls
These are also taken from the CRINE booklet:
@ A failure to realise the degree of effort or commitment required
@ Unrealistic expectations of continuing gains over the term of the
alliance relationship
e Intentions and objectives neither visible nor achieved
8 Parties do not appreciate the effect of their own organisational inertia
8 Complacent and comfortable relationships removing the need to be
competitive and innovative
e Alliance parties becoming too interdependent
A belief that alliancing is just a marketing tool or, worse, that it is a
vehicle to unload risk and overheads which can undermine any long
term benefits.
o Failure to understand the full implications and importance of risk and
reward in the alliance relationship.
An additional point concerns smaller enterprises who are involved in
the project. Often alliances involve the larger organisations but do not
cascade down to the subcontractors and other small suppliers. The need
for this has to be evaluated, but it is clear that benefits may be available
from bringing key suppliers and subcontractors where they can have a
significant impact on the overall project success.
Chapter 11 - P-?trad Strategy
Risk and Rewards .
The CRME booklet lists these key factors:
g Reward should be focused on meeting or improving on business
1
objectives, functional specifications or project criteria
1
e Rewards should be based on the collective performance and
each~party's share should be linked to its ability to influence
that performance
I
8 Calculation of the share of gain or loss must be clear
8 Share of any loss or reward may be capped
@ In operational contracts, risk and rewards are likely to change over
time, requiring development of new performance criteria
g Risk and reward may include a Life Cycle Cost (LCC) component
@ Mechanism may be included to review risk and reward if workscope
changes beyond pre-defi ned limits
Risk and Reward formulae
There are a range of riskheward formulae that can be used within an
alliance. The CRINE guidelines give five different variants based on
parameters such as:
t3 Target Capex
e Target Capex based on contingency sharing
@ Target completion date
e Operability
@ Capex1Opr;x optirnisation
The following example is the first of these and is probably the most
straightforward.
The target Capex should be part of the alliance agreement. This
should be based on some commonly agreed method such as an 'open
book' estimate of all contractors' work.
Chapter 11 -Contract Strategy
.
Then, a graph is constructed to show how the reward and penalty i s
related to the overall Capex and how thi9 is split between the operator and
the contractors, such as shown in Figure 12.1.
I
Reward
EMM
Penalty
CMM
Undenun Capex Overrun
Figure 11.1 RisWReward Arrangement Based on Capex
I
I
I
In this riswreward arrangement, under runs in the Capex give both the
operator and the contractors a reward, split between the alliance parties
in accordance with agreed percentages. In the event of an overrun, the
costs are also apportioned between the parties (i.e. the conhactors will be
I
paid less). However, it is usual to limit the overall exposure of the
contractors otherwise if an overrun does occur, this could act as a major
I
disincentive or even force contractors out of business which would cause
major problems to the completion of the project
I
I
Many of the other riswreward arrangements are similar, the variations
1
being on the basis for the agreement (e.g. Capex, first oil date, plant
i
availability) and the shape of the curve (i.e. straight line, variable, etc.).
i
Chapter .I1 - r~ntract Strategy
Contractor Selection
Having decided to use the services of a contractor rather than our o m
resources there are four options open to us:
Competitive Tendering
Extension of an existing contract (where feasible)
@ Negotiate with one contractor
e Fonn an alliance (which may comprise some of the other options)
Within BP Amoco many conhacts are placed following competitive
tendering but there are circumstances where other options are used.
Examples of these are:
@ Extend existing contracts
e Operational, maintenance, where continuity of services and personnel
may be important.
e Performance of the cunent contract is good.
@ Where an Alliance is judged to be the most suitable approach
We may negotiate with a single contractor when:
@ There is an emergency and immediate mobilisation is needed.
When the contractor is the sole source of technology or expertise
0 Where secrecy is necessary.
e Where early involvement in the project is required with a view to
alliancing
We have a long term relationship with a supplier of goods or services
I
.,,G advantages, disadvantages and appropriateness of the four
options are illustrated in the following table.
- ----
Contract Seleclian Advantages Disadvantages Requirements
Competitive tendering Cmpcticion nay give the Extensive ycpmtory work
h t s t price. Link initiative hom mnlnda
Gmpni t bn tnintrinr LDngsr a mbi l i re contractor
inl-4 ku oppmmity for
"dpmi ce.
Fa&. quick" uecuti m of
cmuact
Clirnl gcrr what he ~ i f i
Audilablc.
Baa cl i t nt Jco~LoI liaison. Ci i m my k i n3 w+dr
Owmn i t y lo continuo a barmining parition.
existing nt ul pker . Pwi bl c higher m r ~
Real mmmimmt by all Rwk a prplanning to
inmlved to rchi nc %CIS. idrmiry.
. Allainchg punter'
Taker limclo mswr A l l i i n g
culrurr is *led
May mi w k - md will mi
wok ifwt u m:cuablirhed
Al l ri rusl i nu acrpt who
om canpy, rmilablc or i n
emugewy wk n immediate
mo b i l i wi ~ rquircd.
Fmngmek when npid
mb i l d mn t qui t cd
Lut ofnrivbk lcadmcn.
Conrnclm is rolesoume
ofl echnol w or upcnirc.
Whrrr -y t &si;d.
Where rnnC?&r i s already
mDbiliad m rile fa ofher work.
On all pmjjoar whn.alignmmt
if iruacru cia be Ynt i f i d md
rirLlhmrdr quvlnficd within
Table 11.3
Remember whichever route is chosen an,'agrekment to agree' is not a
contract. Patience for a few days to enable a good document to change
hands will pay dividends later. Letters of Intent must be used with care!
The main disadvantage.of the competitive tendering route is the
extensive preparatory work needed to prepare the enquiry, allow the
~rosoective contractors time to submit their tenders and then take time to
. .
evaluate, clarifying if necessary, before awarding the contract. For the
unsuccessful tenderers, they have to do a large amount of work to submit
a tender which is effectively wasted.
Chapter 11 ytract Strategy
Some of the evaluation work can be removed and effort saved by
reshicting the issue of tenders to contractors whom we have already
assessed as having the resources, technical ability and financial standing
to undertake the contract if awarded. This technique is known as
Selective Tendering following Prequalijication.
Following on from this approach, after any clarification of the
resulting tenders, we may have a situation where any of the contractors
tendering is competent to execute the work and therefore the contractor
submitting the lowest price should be awarded the contract.
It is not always as clear cut as this. Where the award scope will
differ from that of the tender and may change during the contract
programme the sensitivity of the tenders to changes in scope has to be
tested before a final recommendation can be made. Under certain
circumstances it may be appropriate to reconfirm certain details of the
proposed contract scope with the short listed contractors. Care is needed
to ensure this does not give the contractors the option to re-bid the tender.
Design Contractors
The use of design contractors is widespread within BP Amoco.
The range of work undertaken varies from simple modifications to
existing facilities using local engineering contractors to Multi-million
dollar design and procure conhacts for off-shore oil and gas fields.
It is usual for feasibility studies, FEED studies and estimates to be
handled by design contractors on reimbursable contracts. Even licensing
packages where BP Amoco technology is involved are now prepared by
contractors for BP Amoco to issue to third parties.
Design contractor selection is influenced by the following factors:
@ Technology Expertise: Often a contractor has an associated
specialist process technology which he has developed and is the sole
exponent of
63 Previous experience: This can be generalised experience gained by
working for major oil/chemical company clients or specific
experience i n a particular SP Amoco site or business stream.
8 Organisation: Capable of adapting and identifying with the
particular projects needs; capable of accommodating and working
alongside a BP Amoco team and possessing the necessary
administration systems to satisfy BP Amoco business and corporate
audit requirements.
O Stability of key personnel: Particularly important where specialised
process design, k e y technologies and CAD are concerned.
Restrictions on re-assignment of key personnel by contractor need to
be addressed as does BP Amoco's ability to have personnel removed.
@ Cob.,: Important particularly in reimbursable design to establish the
.cost differential between, profit fee, overheads and man-hour costs.
It is important to ensure that all costs are covered and that no "extras"
appear out of the woodwork. Ground rules for re-work and contract
variations need to be addressed.
It is usual for the design contractor to take responsibility for
procurement of the necessary equipment and materials he has designed
and specified with BP Amoco reimbursing the actual order costs. The
extent of BP Amoco involvement in procurement is usually limited to
approval of general vendor lists, tender lists for specific enquiries, bid
approvals and any subsequent amendments to purchase orders. Clear
auditable procedures delineating procurement, administration
commercial strategies and decisions and commitments made on behalf of
BPAmoco are necessary.
An important aspect of procurement is the timely provision of vendor
documentation for input into the design and to ensure technical and
commercial compliance. Deficiencies can cause problems during
co;nstruction and the design contractor should have tried and tested
systems in place as part of his overall project management information
and control area.
Construction Philosophies
These depend upon size and complexity of project, design definition
and programme.
The first decision we have to make here is whether, given a specific
project size, we have the necessary resources in-house to manage the
construction works carried out by main contractors e.g. pilingicivil,
mechanical, eiectrical/instrumentation, or, if not, whether our interests
are better served by appointing a contractor to manage these contracts
and provide other services on our behalf.
Management of construction requires the following issues to be addressed:
O Contract administration and services
@ Management of sub-contractor interfaces
Overall planning and material control
g, Overall quality management
8 Safety
e Industrial relations
e Liaison with operations
c r 'fact Strategy
It may be that construction is handled by a different contractor from
design. This leaves a discontinuity between design and construction in
an area where proactive design can save time and money during
construction. We overcome this by aiming to feedback construction
lessons from previous projects into the design contract(s) and by using
the services of the design contractor at site to provide technical support
during construction. This is further addressed by the use of an alliance
where the design and construction contractors work together from the
outset of the alliance project.
Construction Contractors
The attributes we are looking for in contractor selection are:
8 Relevant experience
8 Financial stability
g Ability to provide experienced management, first-line supervision,
site personnel and construction equipment and consumables
Construction planning capability
O Quality control and documentation system capability
The contract for construction will depend on the.overall contract
strategy for the project (e.g. alliancing, turnkey, reimbursable, etc.). We
have to tailor the types and numbers of contracts to suit the circumstances
e.g. let separate pre-fabrication contracts for pipework, divide the
workload between contractors ifnecessary to spread the risk; let daywork
contracts if work has to be carried out within a live process unit under
permit to work conditions.
There will be circumstances where construction contractors will wish
to sub-contract works. We should recognise and allow for this in advance
by at least stipulating at the tender stage that sub-contractors are to be
restricted to a pre-approved list or failing that to be BP Amoco approved
prior to selection by the coiltractor. This reduces the risk of an unsuitable
sub-contractor being employed.
A final point to make is to remember that we are employing
contractors because they are generally more cost effective. Within limiis
of safety and quality management we should aim to leave him some
motivation for his own success.
t
Chapter 11 - Contract StfZitegY
I
\
Typical Construction Contract Contents
Table 11.4 below , lists the topics which are typically covered in a
fabrication of construction contract.
It cannot be exhaustive, but serves as an aid to checking that nothing
significant is omitted from the type of model contract you may be
intending to use.
TYPICAL FABRICATION CONTRACT CONTENTS
Clause No Description Notesfidiots Guide
Preamble
1. Definitions
2. Interpretation
3. Capacity
Independent
Contractor
Contract
Documents
Tern Of
The Contract
Suspension
Of The Work
Termination Of
The Contract
All material terms used in the Conditions
Singular =Plural Masculine =feminine
The capacity in which each party to the
contract acts, e.g. BP Amoco acts for
itself and the Co-Venturers or Joint
Venture Partners as appropriate
Contractor is acting for himself and not
as zn agent for some third party
What documents are intended to form
p~ of the Contract:
Terms and conditions, Scope of work,
Rates and Prices etc., also to state the
order of precedence of these documents.
Date contract comes into force and how
long it is going to last. Together with any
options for renewal.
Sets out BP Amoco's right to suspend the
woik and the contractors entitlement to
payment during periods of suspension
Sets out BP Amoco's rights to terminate
the contract with and without cause also
Contractors obligations in the event of
termination as well as the payment
Contractor is entitled to; these could be
different with cause Contractor gets
less money
Chapter 11 - Contract Strategy
9. . The BP Amoco
Representative
10. The Contractor's
Representative
11. The Work
Procurement
Services
Health, Safety
& Environmental
Provisions
BP Amoco
Provided Items
Contractor To
Inform Itself
Workmanship
And Inspection
Remedy Of
Defects
Contractor's
Default
Sets out the powers of the individual
acting for BP Amoco
Sets out the powers of the individual
acting for company
High level definition of the Work:
i.e. detailed design, fabrication, erection
and loadout of specific jackets all as
more fully described in the Scope
of Work
Responsibilities of Contractor in the
event that it is required to procure
materials and equipment for and on
behalf of BP Amoco.
States BP Amoco's position and
obligations of Contractor with regard to
compliance with BP Amoco and
Internationally recognised standards
States the respective responsibilities of
BP Amoco and Contractor to 'Free Issue'
materials and equipment by BP Amoco
Obligation on Contractor to satisfy
himself as to the conditions under
which the work is to be performed
(all Site conditions, laws, HSE risks,
any other restrictions etc.) and to ensure
that his rates and prices are sufficient to
cover the workscope
Quality of work and inspection
Sets out BP Amoco's position if defects
appear in the work. and Contractors
obligation to correct or to provide
money for correction by others. In the
case of jacket fabrication this is usually
split into two categories:- BEFORE
SAIL AWAY and AFI'ER SAILAWAY
Sets out what is Contractors Default and
what redress BP Amoco might have in
such circumstances
i Chapter I I - Contract Strategy
!
Completion
Certificate
Liquidated
Damages
Liability And
Indemnity
Insurance
Care Of The Work
Personnel
Employee
Relations
Access And
Co-operation
Obligation on Contractor to work to
program, what he should do if he is
falling behind. Also sets out position' if
BP Amoco thinks Contractor is falling
behind
How the contractor obtains a formal
notice that the Works are complete
from BP Amoco
BP Amoco's redress against the contractor
for late deliverj of completed works:
normally a fixed sum or % per week
late up to a stated maximum % of
Contract price
Sets out the relative obligations of BP
Amoco and Contractor with respect to
death illness or injury to each parties
employees and loss or damage to each
parties property, as well as third party
losses both personal and property, the
position consequential losses, and pollution.
Sets out what insurances, and the
appropriate levels the contractor must
carry. In iddition sets out what insurances
are carried by BP Amoco (if any) that are
available to Contractor e.g. Project CAR
policy
Establishes that Contractor has a duty of
care over the works under construction
and any materials for incorporation
therein and states contractors liability i f
he fails in such a duty
Suitability of contractors personnel,
abiliiy of contractor to remove Key
(named personnel from the job, BP
Amoco representatives ability to instruct
Contractor to remove unsuitable
personnel from the job.
Contractors responsibilities for his work
force and his obligations to BP Amoco
in the event of an industrial dispute
BP Amoco's right of access to
Contractor's fabrication site
Chapter 11 - P.mtract Strategy
T
28. Compliance
With Laws
And Regulations
29. Permits And
Licences
30. Pollution
31. Drawings And
Specifications
Records And
Reports
Confidential
Information
Tax Information
And Indemnity
Audit Rights
Liquidation
Force Majeure
Remuneration
Invoicing
And Payment
Assignment
Obligation on Contractor to comply
with all applicable laws and regulations
Obligation on Contractor to obtain all
necessary Permits and licenses for his
fabrication site.
Obligation on Contractor not to pollute
the environment
BP Amoco to provide Contractor with
drawings at no cost. Contractor to
submit working drawings to BP Amoco
for review, validity of stated dimensions
on drawings, precedence of detailed
drawings over general arrangement
drawings. Contractor responsible for
discrepancy in drawings he supplies
Obligation on Cont~actor to maintain true
records, keep BPAmoco informed as to
progress, obligation to provide monthly report
Contractor to keep everything confidential
Contractor is responsible for all of his
taxes. Contractor indemnities BP
Amoco against any taxes, levies or
penalties incurred by him
BP Amoco's rights to audit contractors
books: normally limited to 2 years after
final payment.
What happens if Contractor goes bust
What happens when for reasons outside
the control of either party that party cannot
fulfil its obligations under the contract.
What BP Amoco has to pay
Frequency of invoices from Contractor,
and payment interval by BPAmoco;
normally within 30 days of invoice receipt
Usually (but not necessarily) a right
conferred on BP Amoco alone to change
the BP Amoco Contracting party. eg.
from BPAmoco Exploration Operating
Company Limited to Britoil plc
I
Chapter 11 - Contract Strategy
I
41. Sub-contracting Contracton obligations re Subcontractors
Title Who owns what in terms of the
Fabricated works, materials for
incorporation therein and any
intellectual property rights.
43. Infringement Contractors indemnifies BP Amoco
Of Patents against claims for patent infringements
by Contractor during fabrication.
Variations BP Amoco's right to vary the work,
Contractors right to propose a variation, variations
in writing, payment to Contractor in
respect of variations, what is not
considered to be a variation
Intimation Procedure in the event that Contractor
Of Claims considers he has a claim against BP
Amoco
Notices Where to send official communications
to either contracting party
11 47. Applicable Law Usually English, although not necessarily
Continuing Those obligations that survive the
Obligations completion or termination of the
contract e.g. audit rights
Agreement Both parties sign up to the Contract
And Acceptance
Attachment A Notes on
Details of the level of cover provide by
Insurance the BPAmoco provided insurances
together with the level of excess -
Attachment B Parent Company Deed from the Ultimate Parent of
Guarantee Contractor guaranteeing that its
Subsidiary (Contractor) will perform its
obligations to BP Amoco under the
Coiltract. In reality Guarantee from
Ultimate Parent unlikely, need to make
surc that the Guarantor has sufficient
assets to meet its obligations. If a
Parent Company Guarantee is
considered in appropriate then as an
alternative Performance Bond may be
required
Attachment C Information Business Ethics
Brokering
I Chapter 12 March 1949
Project Infrastructure
Introduction
This chapter looks at some of the facilities and equipment that a
project needs in order to operate. When the emphasis is on the
engineering and the performance of the completed plant, it is very easy
to overlook some of the essential requirements for allowing the project
team to function.
This project infrastructure costs money and takes time to set up. If the
facilities are not budgeted and planned. then it will be difficult to get the
project up to speed. Furthermore, skimping on accommodation, personal
computers and even the availability of tea and coffee will have an adverse
effect on the morale and productivity of the team.
Remember, a project needs to form a team and get it functioning
effectively in. a very short time. The infrastructure must be in place to
allow this to happen.
The following sections cover the main issues that need to be
addressed. The best solutions and approaches will depend on many
issues, such as location and the availability of an existing BP Amoco site
infrastructure. Therefore, although we cannot give a definitive set of
guidelines, we can give a check list of all of those things that need to be
in place.
Many of the infrastructure issues need to be thought about before the
project The costs are not insignificant and need to be included in the
project budget. The approach to the infrastructure issues should be
covered in the project strategy.
Project Accommodation
The project team need somewhere to work and so office
accommodation is the first priority.
The project team may spread around a number of places which will
vary as the project progresses. In the early days, most of the project team
may be located at the oftices of the design contractor with only a small
team on site. As the project progresses, some staff will move to
construction locations, such as fabrication yards. As construction gets
under way more staff will leave the design oftice and move to the site.
Agreements must be in place with the main contractors for office
space, do not just assume that extra bodies will be welcome!
Chapter 12 - Projei, ~nfrastructure
At the site itself, the additional project team, comprising BP Amoco
and contractor staff, is likely to be too large to be accommodated in the
i
existing site offices and new; temporary building will be required. 'This all
I
I
takes time and money. Tn particular, you have to agree a location with the
site, perhaps obtain planning permission and then get the building
erected and fitted out.
Even if project accommodation is already available on site (e.g. left
over from a previous project), then ensure that it is suitable for your
project and allow for any rehrbishment since 'temporary' project
buildings often outlive their design lives!
A '
j : The project team will grow to include members of the Operations
!I.
, :
team. Initially this will be small, but will build up in numbers as
commissioning nears. They will require accommodation separate from
li
the rest of Operations. This is to ensure that they are not distracted or
I . . .
pulled back to routine operations work; they need to be dedicated to the
1 project tasks.
Tn some remote locations, the project team accommodation goes
beyond just providing an office and living accommodation is also
I
required. In these locations, the costs and time to prepare the basic
infrastructure to support the project team can be high and must be
explicitly planned into the overall project.
Communications
Effective communications are essential for project success. This is
pzrticularly the case where there are a number of locations, organisations,
suppliers, etc. involved.
Communications include paper mail, electronic mail, telephones and
fax. As a bare minimum, at the outset the project team will require
telephone and fax communications
At an existing site or office, it is preferable to use the existing
infrastructure for telephones, fax and e-mail, but check that it has the
capacity to handle the extra lines and throughput Also, the site may
charge the project for the use of the facilities, in which case these charges
should be agreed and entered into the project budget as a specific entry.
In remote locations, the communications infrastructure may not be in
place and alternative approaches will need to be developed (e.g. satellite
communications). Again, remember the time and money!
The services of specialised courier companies should be investigated.
These companies operate internationally and are invaluable when
customs clearance delays are encountered. Again, at an established site,
the existin: courier arrangements may be sufficient.
\
1
Chapter 12 - Project Infrastructure
Office Facilities
Once you have an office building, you need to equip it with furniture
and other equipment such as photocopy machines, computers, etc.
The costs again can be significant and this is not an area to 'make-do'.
For example, all engineers (and engineering jobs) now demand
significant access to desktop computers, linked to e-mail and internet
facilities. If these are not available, many of the information-centred
methods of working cannot take place. To avoid a large outlay,
computers can be leased for the duration of the project.
Do not forgeithe cost of a photocopier. Again, these can be leased, but
the monthly charges need to be accounted for.
In addition to the hardware, do not forget the costs of computer
software. Make sure that all software in use is properly licensed to the
project or, if it is borrowed from the host location, ensure that the licence
terms are not breached. If you infringe the terms of the software licence,
you may become personally liable for damages payable to the producer
of the software!
Ensure that you include for all of the software required, especially
software required for project accounting, planning, document control and
engineering calculations.
Document and records control and storage
It is important to maintain accurate records and conduct
correspondence with each party in an orderly manner.
The ~roi ect co-ordination orocedures should define details such as
. <
how documents are to be circulated, approved, issued and stored and who
has the responsibility for them at each stage of approval and issue.
Clerical Support
Clerical support is essential to the successof any project and therefore
needs to be addressed as thoroughly as one would if recruiting technical
staff. Clerical support is invariably recruited locally through an agency
and the burden will be eased if business can be restricted to three or four
known and trustworthy organisations. It is important that support staff
are clear about their role, responsibilities and hours of work etc. if they
are to become real contributors.
\
Finance
A level of financial authority commensurate with the size of the
project will be agreed between the Project Manager and the Asset. The
Project Manager's authority will be a balance between the project's need
to act unhindered and the Asset's need to ensure that proper control is
exercised over commitments. In the first instance, a summary of numbers
and a size of contracts and materials and equipment orders can be used to
indicate a suitable level of authority. This should normally be set out in
the Project Strategy (see Chapter 9).
The list of financial authorities for the project needs to be kept up to
date. Care should be taken that commitment and payment authorities
are separated.
Cash Settlements
The settlements issue is related to the above question of authorities in
as much as the financial authorities listing will cover authority to indent
for contracts, materials and equipment, it will cover payment approval for
invoices received, it will cover authority to sign travel requisitions and
expenses etc. The need for the project to run its own cash facility will be
a function of location and the proximity of any other BP Amoco
establishment. For projects that are-located iemotelyior when parts of the
project are located at remote fabrication sites) facilities such as local bank
accounts will need to be set up, with appropriate authorities.
I Chapter 13
March 1999
I
I
~ngineering Activities
I .
Introduction
I
In this chapter we will concentrate on the engineering of a typical
project We will look at FEED and detailed engineering work scopes and
how to control and manage engineering work on a project.
The pre-requisites for a FEED study are essentially the output from
the concept selection phase, being the SoR, the technical definition and
supporting engineering information, the preliminary cost estimates (as
there may be some selected options yet to resolve,) outline project
strategy and funding approval.
The FEED phase builds on the concept phase and establishes the
bases for detailed design and procurement of the project proper that will
be used once sanction is given. The FEED has an important role in
minimising cost and risk in remainder of the project FEED studies are
therefore critical to successful project execution and we must ensure that
we obtain maximum benefit from them. Because of this each, each
project should carry out a value engineering study to challenge and test
the series of technical decisions made in developing the requirements.
This study should take place towards the end of FEED and should ensure
that there are no alternative approaches which could improve the
overall value.
Once the project is sanctioned the various sections of the FEED sp~dy
become the starting point for detailed engineering and procurement. The
transition from FEED is more easily managed if there is continuity of the
engineering team - both within BP Amoco and the design contractor.
Continuity is not essential however and on occasion some time may
elapse before the project is sanctioned. All the more reason, therefore,
that the results of the FEED study, i.e. the deliverables, are formally
recorded, collated and indexed ready to be developed by the detailed
engineering team.
In the following sections we shall follow the development of the
engineering through the FEED study and into detailed design.
Engineering Expertise
All projects require engineering expertise in order for them to be
successfully completed. A key success factor is the ability of the Project
Manager to draw on ali sources of engineering expertise that is available
to him. Furthermore, it must be recognised that all parties to the project
have valuable knowledge, expertise and experience which can be used to
meet the project objectives.
13-1
Chapter 13 - Engineeling Activities
In the past, many projects relied upon internal BP Amoco expertise
and BP Amoco codes and standards. Where contractors were used for
design, all their work was often reviewed in detail by a team of BP
Amoco discipline engineers.
Now we avoid such duplication of effort. More reliance is placed on
the expertise of the design contractor and this principle is extended down
the supply chain to bring in the expertise of equipment vendors, material
suppliers and service providers. Increasing reliance is placed on industry,
national and international standards.
Equipment also tends to be purchased more on the basis of a
functional specification (i.e. a specification of how the equipment should
perform) rather than a prescribed design (i.e. a specification of how the
equipment should be made). Again, this is in line with the principle of
exploiting the expertise of the equipment vendor in matching his products
to BP Amoco's requirements.
International and industry standards are inevitably somewhat generic,
and many contain options that must be selected. Vendor's so-called '
standard' products undergo a surprising degree of 'improvement' from
one application to another. The individual project requirements may not
be entirely within the envelope of previous experience of the standard or
the standard product. These three considerations mean that BP Amoco
should ensure that appropriate processes are applied in order to assure
fitness for purpose for the individual project application.
BP Amoco retains discipline engineers who are individual
contributors of world class calibre and who furthermore contribute to
Business Units across all three Businesses and across the entire life
cycles of Operations. These individuals can add significant value and
Project personnel should be aware of when to seek their input. In many
disciplines there are strong cross-Business networks whose collective
knowledge can be focused on a particular problem. Tested and enduring
solutions are captured in the BP Amoco Recommended Practices and
Specifications for Engineering (RPSEs), that is a Knowledge base
available on CD, on paper, and via lntmnetU The RPSEs provide
recommendations and guidance on international and industry standards,
in particular in selecting options and in recommending amibutes of
standard products for individual applications.
It is a continual challenge to ensure that products, processes or
services delivered conform to project requirements.
Conformity
Assurance is an essential complement to specifying functionally. BP
Amoco should assess the associated risk and criticality of each contract
or order, and then put in place the appropriate assurance process.
!
Chapter 13 - E~,,~neering Activities
FEED Studies
'The Impact of the FEED Study
The FEED is the stage at which the fundamental cost and timescale of
the project is most easily influenced for better or worse. All those
involved from contractors and BP Amoco must be aware of the impact of
their decisions. The opportunity exists for costs to be most easily
removed at this stage. However, there is also the danger of "designing in"
high costs which cannot be removed later. This is where issue of a fully
completed SoR with Operating and Maintenance and control
philosophies will ensure the detailed designers know what they are
supposed to design.
Techniques such as Value Engineering Studies can be used to
critically assess the technical proposals with a view to eliminating
unnecessary or non-cost effective elements whilst providing a quick
overview and challenge for alternative approaches.
It may be helpful to have the SoR as a control document.
The Scope of the FEED Study
The level of detail provided at the FEED study will vary from project
to project and will depend on the preferred contract strategy". For
example, the FEED may only determine some broad technical issues
leaving the technical solution to be proposed by competing design
contractors who are able to offer a turnkey contract. However the FEED
should determine the key technical issues so that it may be ensured that
individual solutions are delivered in later design stages for these
key issues.
Typically, the FEED study produces Process Flow Diagrams of the
principle process and utility systems and carries out studies to optimise
the plant piece count, cost and configuration. This FEED plant
specification would then form the basis for a competitive bidding or for
negotiating an Alliance target cost.
However, it is important to note that even in these cases where the
FEED is not very detailed, the topics described below that are normally
considered must still be addressed, probably by the chosen
design contractor.
24 See Chapler 12
I
Chapter 13 - ,/neering Activities
I
Basis for Design
Before we can start engineering there are a number of hndamental
decisions to be made. Often these have already been addressed earlier in
connection with the SOR but nevertheless they must be formally ratified
and recorded within the FEED study deliverables. The following list will
be largely self explanatory:
@ Site data: Meteorological, Topographical
8 Regulatory Requirements: Local, national and regional legislation
must be investigated, understood and followed. It may always to
possible to seek clarification in application of such regulations.
Projects should not accept the inappropriate application of regulations
but should determine the scope for dialogue with regulatory
authorities.
Q Design Standards: International, regional, national, industry or other
standards and codes of practice. State order of precedence. The BP
Amoco RPSEs may provide guidance.
@ Units: List the units of measure to be recorded within computer
simulations, data sheets, drawings and deliverables generally.
@ Deliverables: Clearly define the requirements for documents to be
translated into the English language or other language as
appropriate, and to be delivered in electronic form (preferably
STEP-c~mpatible)~~
$ Third-party Compliance: Define any requirements for third-party
approvals such as locallnational plannindenvironmental bodies.
This list does not pretend to be complete. You will be able to
identify other items that fall into this category. The important point to
note is that they alKcontain pitfalls for the unwary!
Watch out for such things as:
@ Out of date meteorological data
@ New regulations
8 Design standardslcodes of practice being revised during lifetime
of project.
Chapter 13 - to ,gineering Activities
Availability and Reliance on Existing Designs etc.
Apart from greenfield sites, any new project is likely to require
information about existing infrastructure or process units. To ensure that
the FEED study interprets and indeed uses this information correctly the
proper standing of the plant records, as-built records or whatever must be
established. Again this is a potential minefield!
Greenfield sites require that information about sul'rounding plant,
infrastructure and communities be available,
Bitter experience dictates that comprehensive site surveys both above
and below ground are necessary. There is also the need to identify
intermittent events such as earthquakes and monsoon rainfall. In
addition, depending upon the degree of re-vamping envisaged, access
will be required to information contained within operating and plant
inspection records.
One important point in connection with re-vamps is the question of
retrospective upgrading of existing designs. The policy to be adopted
needs to be decided either at the SOR stage or during FEED so that
due allowance can be made in the sanction estimate for the
downstream impacts.
Process and Downstream Design
Understandably much of the FEED work revolves around the
development of the process design and this must receive first priority.
The FEED design contractor selected must be able to demonshate recent
experience and ability in this area. The extent to which BP Amoco will
provide its own input into the FEED team will depend on the nature of
the technology, the level of BP Amoco's internal expertise and the
contractual relationship with the FEED conhactor.
Re-vamps will pose a greater burden as the effects of modification or
new process facilities on the existing unit have to be constantly kept
under review. This extends to safety reviews and HAZOPS which must
include the existing process plant and control systems to test whether or
not the unaltered plant and systems can cope with new operating
conditions. These particular exercises can result in decisions to retrofit
and upgrade existing operational safety features.
The objective of the FEED study is to arrive at a scope of work
technical definition where the process, utilities, and piping and
inshument diagrams are 'approved for design' commensurate with plot
layout, hazardous area, electrical single line, civil and structural designs
and associated approximate material requirements at a similar status.
Chapter 13 - El., .eering Activities
This will require equipment data sheets and engineering
specitications to be produced. In addition, based upon this information,
philosophy documents to enshrine the approach taken in the FEED and
determine its extension during detailed engineering will be needed
as deliverables.
The FEED study is the appropriate time to address the issues of how
easy or otherwise the plant or re-vamp will be to construct and how the
design can be adapted to improve matters.
On existing sites where space and access is limited, the aim will
always be to minimise site work. When working adjacent to operating
plants, special safe working practices have to be followed. The net effect
is to greatly extend site man-hours and therefore serious consideration
should be given to employing pre-assembled units (PAU's) in addition to
maximising off-site fabrication and using skid mounted modules.
Invariably PAU's result in totally installed costs that are higher than
conventional construction but the overall timescale can be shortened and
hence beneficial operation arrived at sooner.
On greenfield sites, particularly in low labour cost areas, the balance
between onsite and offsite work requires careful evaluation with the
construction contractor.
The extent and implementation strategy for tie-ins and phased
completions should also be addressed during the FEED study. Early
identification of the work involved will help the operator in his own
planning. Any special logistical requirements arising from the study can
then be fed in during detailed design.
Presentation of the FEED Study
A completed FEED package would typically include the following
documents:
e Process design basis detailing feedstock, product yields, product
specifications.
@ Process design and operating philosophy.
$ Detailed process description.
@ 'Approved for Design' issue process flow diagrams (PFD's) one per
process system, showing all items of process equipment and all major
control loops plus heat and material balance data.
@ utility design basis including preliminary utility load tabulations,
.,t;l;iv r r r n~l v ronA;tinnr
I
Chapter 13 - E~g~neering Activilies
@ Utility design philosophy.
8 Detailed utility description.
O 'Approved for Design' issue utility flow diagrams (UFD's) -one per
utility system, showipg all items of equipment including packaged
items, all major control loops plus process conditions and flows.
8 Equipment list detailing tag number, number off, service, size,
operating and design conditions.
0 Piping and inshument diagrams (P&ID's) - one per unit operation
showing:
- all items of equipment
- equipment data summary label with equipment number and title
- aIl interconnecting pipework
- instrumentation including control loops, mps, alarms, shut-down
valves, reliefvalves, blowdown valves and pressure, temperature,
level and flow measurement.
- all process ~i pi ng sizsd
- all equipment and coiltrol loop isolation valves
- all piping spec. breaks
- package limits
- connections to other systems
e Data sheets for each item of equipment
'
9 Specification for all major items of equipmentlpackages.
@ Piping specification
8 Philosophy documents including:
- project strategy
- quality levels
- key technical issues
- risk assessments
- equipment design conditions
- control systems
- emergency shut-down
- isolation equipment and zonal relief
- relief
- communications
- plant layout
Chapter 13 - t ,bering Activities
- fire and gas detectionlprotection
- sparing
- maintenance
- loss control
- manning
- power supply
- effluent disposal - flaringlventingldraining
- environmental impact
- materials selection
- major cable routing
@ Layoutslplot plans
g Hazardous area drawings - plot and sectional
@ Electrical single line diagrams - minimum of one per MCC
8 Cable and pipe routing drawings
8 Foundation and building detail drawings
8 Preliminary bill of quantities for civil and structural works
0 List of long lead items and construction services
eP Delivery period for all major items of equipment
e Project schedule
Detailed Engineering
Initial Principles
A pre-requisite to the commencement of detailed engineering is the
implementation of a quality assurance plan for detailed design and
procurement. As part of the overall co-ordination of detailed design and
procurement, procedures will be drawn up by the Project. Principles will
be established governing what drawings and documents are to be
approved, and by whom (e.g. Operator, other contractors, process
licenser, etc.), or else submitted for comment or for information only.
This should include technical deliverables to address the key technical
issues previously identified in order to ensure that the cost and risk
implications are fully addressed. A system of document control should
be set up to issue documents and to monitor response to ensure that
delays are highlighted.
1
Chapter 13 - Engineering Activities
In addition to the early identification of design procedures and
approval systems, a method for establishing the quality level of each
individual equipment item in relation to its role in the project has to be in
place before detailed design goes very far. The method usually adopted
is to assign each item a criticality rating. The rating is built up by
addressing the effect on plant operation if the item were to fail in service.
Early identification of ratings enables the appropriate quality
requirements to be in place during design, procurement and manufacture.
Development of FEED Information
The degree of completeness or otherwise of the FEED will affect the
ease in which the detailed design can be implemented.
Lack of preciseness in the FEED study can be a breeding ground for
creeping development which the contractor will classify as scope
increases and claim extra remuneration for. These will be difficult to
completely refute and could have been lessened had the FEED been
more specific.
As the detail in each design discipline progresses it is important to
check that the engineering is not departing from the philosophies
established during the FEED. Important as it is to have the operator of
the unit contribute to the project team one should also be aware that the
representative at the detail level may not fully appreciate the sentiments
of the operating and maintenance philosophies that originated in the
SOR and were reflected in the FEED. Make sure that the message
behind these philosophies gets passed on to the front line
operations representatives.
Within each individual design discipline there will be a contribution
from equipment vendors needed and this will be a two way dialogue. It
is important to ensure that these interfaces are monitored as vendor
information is needed to complete the contractor's designs.
Maximum Equipment Utilisation (MEU)
This is a new concept in specifying and designing process plants and
associated off-site and utilities. It stems from the observation that most
new facilities can achieve some 25% more capacity than nameplate and
sometimes much more than that after a modest revamp. This additional
capacity does not come free and has to be paid for. In the current
competitive state of the oil industry and especially when growth in
demand in many parts of the world is at a negligibly slow pace and
considering the requirement that capital is used in the most efficient
manner, such additional capacity can be ill afforded.
Chapter 13 - En(, ;/ing Activities
Where does this additional capacity come from? Traditionally it has
always been blamed on design margin and conservative designs. This is
only partially true. A much more important factor is the way facilities
have been traditionally specified which might typically cater for many of
the following conditions:
8 A variety of worst possible feedstocks, i.e. heaviest, lightest, etc.
g End of run conditions
8 Worst possible make-up hydrogen purity
@ Fouled equipment
@ Least favourable utility conditions
O The severest summer and winter conditions
0 Maximum pressure-drop conditions
Authors and reviewers of SOR's often vie with one-another to dream
up more demanding requirements. What is often forgotten is that the
facility operates most of the time under 'most common operating case'.
This case is often ignored or not even seriously identified yet
alone specified. r
Under the c q 9 t pf MEU, the most common operating case must
bepainstakingly"ldenhfied during the SOR phase and the facilities should
be primarily dgitned and optimisej for it Other extreme cases need not
be ignored. These can be i dent i e4 their frequency assessed and their
impact on a plant operations determined, possibly as rating cases. It may
be discovered that some o &&e extreme cases would impact operation
in a small way or for few hours a year,
--
*
Desiging optimising the facilities for the most frequent operating
conditions, w~l l result .in facilities that are optimum on day one of
operations and will eliminate the need for future revamps to obtain the
most out of the unit both in terms of processing capabilities and
operational efficiency.
Another aspect of MEU applies to the conventional design margins.
Certain items often seem to constitute a bottleneck even after repeated
revamps. This suggests that margins are not being logically applied
across all aspects of the design. For example, reflux drums have rarely
constituted a bottleneck on a plant but such items as the wet gas
compressor in an FCC or the second inter-heater on a Cat Reformer often
do. Yet, we apply the same margin across the board. Under the concept of
MEU, operationally critical equipment is identified and margins are
selectively applied.
Other aspects of MEU:
@ Design for a single case only.
O Take calculatedrisks in the specification and design of facilities.
0 Identify and remove the 'real' bottlenecks at the design stage.
0 Don't ask for guarantees when not needed.
0 Ask for separate guarantees and target duties.
0 Consider incentives against throughput achieved.
8 Design for limited, but well considered, sparing philosophy.
-
0 Make use of spare equipment when necessary.
@ Fully utilise compressor and pump frame sizes.
8 Ask vendors what 'extra' capacity can be provided for free.
8 Change the design to match equipment capability.
Design for less and debottleneck later.
This concept has recently been suecesshlly applied on Grangemouth
FCC Revamp and Nerefco's new Hydrofiner with substantial
cost savings.
Potential Problem Areas
Three areas that we know from experience need special attention are:
O Effects of Scope Changes
9 Handling of Tie-ins
0 CAD
Effects oi Scope Changes
Any changes in scope once detailed design has started have to be
resisted and challenged. In essence only those capable of adding value
and supported by the Assei and approved by all parties to the sanction
should be countenanced. Tine total installed cost impact of each proposed
scope change has to be researched and a mechanism for doing this has to
be in place at the outset Sometimes it is difticult in the early stages of
detailed design to estimate the full downstream impact but nevertheless it
must be done, albeit less perfectly than one would wish. Even minor
changes can have disproportionate cost impact the later they are
executed during design and procurement. Vendors understandably
impose cost premiums for disruption to their own design and
manufacturing programme and cannot always be expected to maintain
the original contract delivery date.
The effect of proposed scope changes on technical safety has also to
be addressed. The project's formal safety review (PHSER) which
commenced in the pre-project stage will be canied through into detailed
design, with a specific review taking place when the key design
documents such as P&l diagrams, layout, hazardous area drawings and
HAZOP study are ready for issue at the approved for consbuction stage.
Any proposed scope changes arising between the formal safety review
stages have therefore to be referred back to the project safety/HSE review
team for endorsement before they can be accepted.
The impact of scope changes during construction becomes more
extreme due to the disruption as new drawings and instructions have
to be given to contractors, contract variations agreed and the
modification effected.
Handling Tie-Ins
Apart from the actual commissioning activities, the first
operations/construction interface is the tie-in work. In-depth planning
and site preparation is needed. Any specialised items such as hot taps
which can have significant engineering and cost implications should be
identified during the FEED. Tie-ins should be managed, designed and
materials procured aside from the main thrust of the project.
Identify a separate project team for this work early on and ensure that
as part of the operations input you involve the supervisors who are at the
workface. They, and probably only they, will be aware of problems
that could never be deduced from studying as built drawings!
Operations are always in overall control of tie-ins and require full support
from the project team especially where they need to supply information
and equipment.
Computer-Aided Design - (CAD)
An important operational and maintenance involvement occurs in the
development of the piping and equipment layout. Scale plastic models of
varying degrees of sophistication have been used to facilitate this in the
past Certain design contractors used these in place of general
arrangement drawings and in effect designed isometrics straight from the
physical model. With the recent advances in three dimensional
computer aided drafting it is now possible to visualise a 3D model on a
computer screen and models are therefore no longer necessary as design
tools. Models are still useful for operational and maintenance purposes
particularly where the equipment is sealed up after completion and not
normally accessible e.g. cryogenic separation plants.
I
Chapter 13 - cngineering Activities
The whole area of computer graphics is a fast moving technology and
it is important to ensure that the contractor's CAD systems are proven
and established. The objective should be to limit the production of hard
copy drawings to the midimum required for design review,
procuremenUinspection and fabrication. All other traditional uses for
drawings can now be catered for electronically and this is the direction
we should be moving in.
The subject of electronic management and handover of engineering
information, including the use of CAD, is covered in Chapter 25.
Chapter 14
)
March 1995
Technical Integrity
Introduction
The subject ofTechnical Integrity lies at the very heart of BPArnoco's
business activities. The definition of the subject and its interaction with
other parts of the project process have been subject to much review since
the last edition of this book Indeed, the processes needed to achieve
Technical Integrity are currently subject to extensive scrutiny; this
chapter should therefore be considered as an introduction to the subject,
to promote awareness in the reader and to lead him to seek advice on the
latest best practices that have been adopted.
Technical integrity is concerned with those processes that provide
soundness in the design, quality in the manufacture, clarity in the
operating procedures, and effective communication of the requirements
to all participants and suppliers in the project. The aim , t o put it bluntly,
is to make sure that our facilities do not fail.
In this chapter, we will look at how other countries and industries
approach the subject of technical integrity before looking at the oil
industry in general and BP Amoco in particular.
Engineering Standards have a central role in delivering technical
integrity by providing a recognised and competent foundation of
engineering experience and a vehicle for consistent communication.
Examples of Loss of Technical Integrity
UnfoAnately, examples of catastrophic failures in process plants are
not hard to find. While many are due to failures in maintenance and
operating procedures, some are due to basic faults in the design. For
example:
tB Grangemouth Hydrocracker: The explosion was a dramatic
example of failure of integrity of the system.
8) Sleipner platform: Loss of integrity of a concrete reinforcing detail
caused the sinking of this partially built platform when under flotation
trials. It was a costly example, particularly because the 30%
government share was self-insured.
tB Fulmar platform: This platform had a straight through sea water
cooling system, so if an export gas cooler tube failed, high pressure
gas could enter the cooling water system. Moreover, the foul water
supply for the accommodation block came from the sea water cooling
circuit downstream of the gas coolers. This was a recipe for
potential disaster. 14-1
Chapter 14. 2hnical Integrity
The above examples resulted in one death at Grangemouth and two
injuries on Fulmar. They also czme uncomfortably close to a major
disaster such as Piper Alpha.
Since humans are always prone to make errors, how can we prevent
basic design and operating faults from undermining the integrity of
our operations?
The level of risk that can be tolerated depends on a number of factors,
such as the consequences of a failure. These risk levels have to be
assessed during the design process and must be reduced as far as
possible wherever there is a risk to life, health, the environment and
the investment
Technical Integrity - a definition
Technical Integrity can be seen as the assurance that what is being
designed is fit and does not have within it the seeds of a future
catastrophe and that the processes and competencies are in place to
ensure that the specification, procurement, construction, testing and
subsequent modification match the intendd use. It is an aspect of
assurance of quality in the broadest sense. Technical integrity relates not
only to design and construction but very much also to operations and
maintenance a: the areas where human factors predominate.
. .
Technical Znteg@ . '
Technical Integriw is concerned with the development of the design
intent for plant. and equipment .to pmvidqsafe operation.:It includes
the proce&es,and competencies required to ensure that the
communications and development ofthat intent through specifcation,
pmairement; detail design, fabrication, erection and testing match the
. .
. ..
original intent and intended use. . .. .
.
. .
.-.
. . ., ...
Technical integriw will ody be maintained by the competent
,operation o f the completed facilities, within. the design envelope and
design intent, and. with the application of Operational Integrity
assurance systems.
How Other industries manage Technical Integrity
In some industries in some countries the provision of technical
integrity is more straightforward in that engineers have to do 'what they
are told', i.e. there are laws and regulations that are very prescriptive.
Chapler 14 -Technical lnlegrity
Here are some examples:
0 In the US, all Professional Engineers must be state registered to practice
8 In the UK, engineers who design, operate or maintain dams must be
licensed before they are allowed to practice
0 In the aircraft industry, there is strong regulation. Once a design has
gone beyond a prototype, every step is certified and documented in a
very laborious manner. There are moves to reduce the amount of
paperwork, particularly with the use of computer-based systems.
Operationally, the air transport industry is strictly regulated with
periodic requalification of staff, fitness tests and strict prohibition of
alcohol on duty (or within a specified time of duty)
Technical Integrity in the Oil Industry
The oil industry has been effective to a large extent in having self
regulation and has a well-developed set of equipment standards and
codes of practice for many of its activities.
We do have high quality, well maintained standards and codes such as:
+ API (American Petroleum Institute)
8 ASME (American Society of Mechanical Engineers)
8 ANSI (American National Standards Institute)
g EEMUA (Engineering Equipment and Materials Users Association)
as well as standards developed by the Institute of Chemical Engineers
In addition to standards created specifically for the oil industry, we
also use many other national and international standards such as:
8 BS (British Standards)
8 CEN (European Standards)
IEC (International Electro-Technical Commission standards)
8 IS0 (International Standards Organisation)
Chapter 14 - 0
BP Amoco and the Management of Technical
integrity
'i
I \
The achievement of Technical integrity within BP Amoco is governed
I by the 'Operational Integrity Assurance System' or OIASZ6. OIAS
I
I contains a number of core elements which are mandatory within each
' 1 businesses' world-wide operations. The elements in OIAS cover:
' !
I:
e Management leadership, commitment and accountability
Risk assessment and management
8 Facilities design and construction
I 8 Operations and maintenance
8 Management of change
I '
I
!
I
d Information and documentation
l i
1 1 @ Personnel and training
( 1
8 Working with contractors and third parties
I /
1 j
63 Incident investigation and analysis
I
1
@ Community awareness and emergency preparedness
1
@ Operations integrity assessment and improvement
I
I 8 Customers and Products
I
It should be clear that most, if not all, of these elements are directly
applicable to project work. The OIAS guidelines contain a number of
expectations which must be achieved, however the specific processes
required to achieve these expectations must be borrowed/ devilopedl
utilised by each project in the light of their particular circumstances.
A number of review processes are also employed by businesses and
projects to provide assurance that each of the expectations are being
properly managed.
The Project Health Safety and Environmental Review process (or
PHSER as it is known) is the mgst wide ranging review which involves
5 stages of review process through the life of the project upto
commissioning . This review process is currently being updated in the
light of recent experiences and with the aim of producing a common
approach across all BP Amoco businesses.
4 " "
26 See 21so Chapter 20
i
Chapter 1 4 -Technical Integrity
The OIAS guidelines and means of their application are being
developed, in the light of recent experiences within BP Amoco, with the
particular aim of clarifying the overlap between different standard
requirements - particularly the PHSER process, the BPC HSE 8 document
and the existing requirements for operations and modification of process plant
Although BPAmoco strives to be amongst the leaders in maintaining
technical integrity and generally succeeds in so doing there are a number
of fresh challenges being presented particularly from o& operations in
the emerging asset areas and from the pressures to reduce costs in our
Alliancing contracts which mean we inust seek new and improved
processes for ensuring we achieve our expectations. Maintenance of
Technical Integrity is achieved through a variety of processes including
the use of approved standards and rigorous project health, safety and
environment reviews (PHSERs).
The choice is always between the use of tried and tested solutions (i.e.
conservatism) and the need for technical innovation to create and exploit
new business opportunities.
The use of vendor, industry, national and international standards
enable the technical integrity of familiar technology to be easily
managed. Technical Innovation is not always necessary to gain
competitive advantage, but where it is, it can be better managed if as
much of the design as possible can be built in accordance with standards
and practices familiar to the industry, leaving a smaller 'core' of
technical innovation to be more rigorously analysed and assured.
However, the Project Manager must apply the fundamental test of
ensuring that vendors truly understand our requirements and are indeed
competent and willing to supply services and goods which fulfil those
requircments. This has been found to be one of the major challenges
confronting our goal of using the creativity of our vendors as partners in
finding ways to reduce overall costs. In considering how to establish
their approach to technical integn'ty it is expected that project teams
would consider the application of the following systematic approaches:
Vendorlcontractor appraisal
8 Development/approval ofjoint QAIQC plan for all stages
e Spot audits
8 Site inspections
8 Witnessed factory acceptance tests
e Rcview of site experience
g Documentation audits
8) Management of Change systems
Chapter 14 -T pl lntegnfy
Standards
It is said that the best thing about standards is that there are so many
to choose from!
While this may be a cynical view, there are many standards that
overlap and duplicate each other. A clear view on the standards to be
adopted by the Project must be set out at the outset of the project in the
project strategy. This should not be done in isolation, but must take
into account:
63 National requirements (e.g. local legislation)
Q Client site preferences
I ' I
@ Appropriateness to the technology
I
g, Recommendation fiom the design and fabrication contractor
I
8 Preferences from any Joint Venture partners
I
Capabilities of the local industry
Standards define criteria for materials, products, processes and
services in precise authoritative and publicly available documents. They
embrace product and performance specifications, codes of practice,
management systems, methods of testing, measurement, analysis and
sampling, guides and glossaries. They:
63 Facilitate design and manufacture
O Establish safety criteria
8 Promote quality with economy
0 Assist communication and trade
8 Inspire confidence in manufacturer and user
I
International industry standards permit free trade without national
'I
bias. They are a means of promoting or ensuring adherence to a common
I
level of good practice. In addition, standards enable the transfer of
technology and safe working practices.
Within BP Amoco we require standards that reflect our specific
industry requirements and which reflect our own experience and
knowledge. However, this has to be balanced against the tendency to b e
too prescriptive. Being too prescriptive in our engineering design forces
us to purchase special one-off pieces of equipment instead of the nearest
equivalent manufacturer's standard product. This not only costs a lot
more, it also causes problems in the long term support and maintenance
of the equipment if it is a 'special'.
Chapter 14 -Technical Integrity
Similarly, a prescriptive approach to our design contractors forces
them into working methods with which they are not familiar, causing
extra cost and probably lower technical integrity because they will be
more prone to make mistakes. Furthermore, by being too prescriptive,
based on past experience, we lose out on the opportunity to take
advantage of the latest designs and techniques which could improve
integrity, reliability and performance, at a lower cost
To maintain the balance between getting our requirements satisfied
and avoiding an excessively prescriptive approach, we should aim to use
standards which are widely used in industry in general and the oil
indushy in particular. All parties in the project, such as design and
construction contractors, equipment and material vendors, partners and
governments) are thus likely to be familiar with them.
BP Amoco still needs to maintain its experience for future use. This is
done using the BP Amoco Recommended Practices and Specifications
for Engineering (RPSE). This set of documents is a knowledgebase that
contains guidelines and recommendations based on the .accumulated
experience and lessons learned within BP Amoco. The RPSEs are not
compulsory and it is the responsibility of each asset within BP Amoco to
maintain its own technical integrity. However, we hope that the RPSEs
represent a quick start to get asset's own standards and practices up to
speed.
Despite these RPSEs being BP Amoco-specific, they do refer heavily
to industry, national and international standards.
, The Application of Standards
Standards are not the total answer to the engineering design or
technical integrity because they cannot apply to every engineering
situation. For example, new and innovative technology cannot be covered
by standards fully. Furthermore, standards may apply to the individual
pieces of equipment but are harder to apply to complete systems made up
of individual items of equipment, even if the parts all meet their own
standards.
The correct interpretation of a standard such that progress in the
development of a design can be maintained with technical integrity is
where the professionalism, the challenge and fun of engineering begins.
The BP Amoco RPSEs provide both recommendations for complete
systems and provide guidance for correct interpretation of standards and
selection of options. Picking out pertinent advice from the RPSEs or
seeking advice from the specialist engineer who is the 'Custodian' (on
behalf of a Group-wide network) of each document and is at the
fore-front of ncw technology can materially assist in engineering that is
fit for purpose. m q - 7
Chapter 14 - ~~chnical Integrity
i
The project manager and his engineering manager, in conjunction
with the client and design and construction contractors must decide:
g Where standards apply
8 What standards apply
d Where standards do not apply and what to do about it
g Where there is significant innovation and arrange for special advice
and confirmation of feasibility
g Where there is unusual risk which merits special attention e.g. high to
low pressure let-downs, massive stored inventories (e.g. dams), LPG
tanks, long gas pipelines, ultra-toxic matdals.
Such decisions on the application of standards must be recorded so
,that they can be audited during appropriate formal assurance processes
(e.g. the PHSER procedure).
Preparation of Engineering Standards
National and international standards are not created by governments.
They are created by the users of the standards, normally thecompanies in
the relevant industries but also professional and academic institutions.
By participating in the creation of standards, companies like BP
Amoco can influence their contents. By having wide participation, the
standards will fulfil the widest needs of true users in the most efficient
way. BP Amoco is in the forefront of companies that are working in the
I S0 (International Organisation for Standardisation), Technical
Committee 67 to realise the vision of 'Global Standards Used Locally
Worldwide'. The mission of ISOflC67 is to create added-value
standards for the oil and natural gas industry. API, CEN and national
bodies have already committed to adopt the resulting IS0 Standards, to
avoid duplication and provide a single set of words that the industry will
use anywhere in the world.
Sometimes, the lack of suitable standards forces us to draft our own
standards. However, it is in BP Amoco's interest to share these with the
wider indusky so that the standard can be widely accepted and used. This
in turn makes it easier to buy 'off-the-shelf products and services rather
than having to use 'specials'.
For example, standards existed for refrigerated LPG and LNG tanks
but not for whole systems incorporating double containment. A particular
tank failure in the Middle East resulted in a BP Amoco safety guide
which was then developed with Shell and tank manufacturers into an
industry standard prior to be adopted by the British Standards Institute
and offered to CEN the European Standards body. Increasingly, BP
Amoco will be using the I S0 when there is an indusky consensus that an
.. . , . 1 . . .
I
1
Chapter 14 -Technical Integrity
I
Engineering Standards in BP
In 1990 BP adopted a new way forward for engineering standards.
Firstly, 'BP Standards' were dropped, and the documents were given a
new name, format and purpose to become 'RPSEs'. Secondly, the
emphasis is on using industry standards and standard products. Thirdly,
BP and other companies are working through industry organisations
including the API to mainkin a core set of international I S0 industry
standards that are fit for purpose.
I
The RPSEs are supported voluntarily by the BP businesses not
corporate centre. They are available in electronic format including on
I
Compad Disk, via Lotus Notes and on the BP Intrane2'.
The RPSE's are designed to be more readable than the previous
BP Standards. They list concise essential requirements with options and
background commentary. The requirements should be the minimum
necessary to supplement an accepted external document for
application world-wide.
I The BP Businesses have develo~ed over a number of vears an
engineering knowledge base that incluhes Recommended practices (RPs)
and Guidance for Specification (GSs). These are indicative of a neneral
standard of engineering that has cokbut ed to the safe and successful
operation of a wide range of petroleum and petrochemical plant over a
number of years.
The RPs may cover engineering design, construction, insiallation,
operation and maintenance, sharing experience and advising on
alternatives for consideration by technical professional staff. The GSs
are guidance for developing technical specifications for application and
procurement of methods, equipment and materials.
In furtherance of the perceived benefit of sharing Business best
practice in engineering for continuously improving business
performance, the RPSEs are maintained under the overall direction of
Business Management through the BP Group Engineering Standards
Forum. Co-ordination and publication is provided from BP Group
Research and Engineering, Sunbury.
27 The intranet address for RPSEs is:
h~pJllechnet.bpweb.bp.com/~~5/STAN/rpseldelaull.hlm
Chapter 14 -Technical Integrily
I
Objectives
The objective of the BP Amoco RPSEs is to provide general techni-
cal guidance for design and procurement, to assist engineers in achieving
fitness of purpose and optimum whole life cost
The user of an RPSE document is responsible for determining what is
I
appropriate to suit particular circumstances. Local conditions including
1 1
organisational, customary practice and regulatory, may dictate that other
I I
approaches are more appropriate.
I
1 I
In addition, industry standards (whether local, regional or
I :
international) may contribute to the solution. For engineering standards,
1
the approach increasingly is to rely as far as possible on industry
standards and practices. Oil industry engineers actively participate in
developing these common standards with particular focus on ISOITC67,
the International Standards Committee for 'Materials, Equipment and
Offshore Structures for Petroleum and Natural Gas Industries'.
The RPSE knowledge base enables BP Amoco engineers to contribute
more effectively within the groups charged with developing common
industry standards.
i
Consistent with the responsibility and freedom given to BP engineers
1
to establish appropriate engineering standards, it follows that the RPSEs
are not mandatory nor is there any BP Group endorsement of them
or requirement that they should be referred to or used in any
particular circumstances.
Introductory Volume
The Introductory Volume to the BP Amoco RPSEs contains hrther
information on a philosophy for engineering standards that has been
developed by the BP Amoco Businesses as represented in the BP Amoco
Engineering Standards Fotum. There is also guidance to assist users of
BP Amoco RPSEs, and sections for filing the Quarterly Status List and
occasional Newsletters.
/ i
/ Quarterly Status List
1 I
The status of each RP and GS is set out in the Quarterly Status List
An update is issued quarterly to all registered recipients and is otherwise
freely available on request to Standardsline, Sunbury. The Quarterly
Status List also identifies the key specialist who is responsible for the
I
technical content, and who may be contacted for hrther advice.
Chapter 14 -Technical Integrity
Feedback
Users of the RPSEs are encouraged to participate in the network
conferences and conversations to share the most up-to-date information.
And they may contact Standardsline, Sunbury with any comments or
suggestions which could lead to improvement and updating. Such
feedback will assist materially in maintaining and enhancing the value of
the documents to users.
Thus, the use of specialists within the project teams is not removed
totally by the use of standards; their interpretation and appropriate
application is still an important function. When this function is provided
by the Contractor, the Project and Engineering Managers need to ensure
that the people used have the appropriate skills, qualifications, experience
and knowledge to make the right decisions.
Conclusions
Technical Integrity is seen to be the common sense application of
engineering to ensure that functions are properly fulfilled. Technical
Integrity is audited in assurance processes such as the Project Health,
Safety and Environment Review procedure and extends to design,
procurement, construction and continues through to operations.
Standards, specifications, practices and policies form an increasingly
important part of the maintenance of such integrity. This chapter has
explained the role of such standards and how they have developed. Above
all, you should be aware of the preference for industry or national and
international standards over internal project-generated standards and the
overriding need to ensure that the standards and correctly interpreted
and applied.
Standards exist to be used and to be critically examined and modified
if they are not suitable.
Finally, remember that technical integrity is at risk throughout the
entire lifecycle of an asset and that modifications can undermine the
original design intent to such a degree that the technical integrity
is compromised.
Chapter 14 -.,. .,;ica~ Integrity
Chapter 15
J
March 1999
Planning and progress
Introduction
Question: How does a pmject get to be 2 years la&?
Answer: One day at a time!
Any one who has worked on a project can relate to the above. When
you are in the middle of a project with lots of things happening, it is very
easy to loose track of the simple, but all-important question:
'Where are we?'
The aims of the project are to achieve the specified objectives within
the budget and within the schedule. Project planning and progress
monitoring comprise the tools that help us to monitor the performance of
the project against the schedule. The techniques can be extended to assist
our control of the project against cost by measuring the efficiency that we
are using our resources.
Thus, project planning and progress monitoring is the key tool for the
management of projects.
t
Project Planning
The Planning Function
Project planning is used to:
$ Plan the efficient, timely execution of works and the use of resources
,
8 Identify activities, workscope and resource requirements
8 ~ro;ide target dates for key activities, such as start of construction,
shut-downs, plant start-up, delivery of major items, etc.
O Provide a benchmark against which to analyse options and changes,
particularly in their effect on the schedule and cost
e Provide the framework for monitoring progress and the use of
resources and to extrapolate trends to provide forecasts
O Enable the planning and initiation of corrective action for deviations
from the plan
8 Provide data and information on the current state of the project into
the reporting process
Chapter 15 - .ning and Progress
Work Breakdown Structure
The key to planning is to break the project down into a number of
smaller, manageable chunks. This is done progressively to create the
Work Breakdown Structure or WBS.
Work Breakdown Structure
The B! BS is afonnal structure to break the project down IogicaNy
and systema;icalty into its component activities.
Figure 15.1 shows how a project may be broken down into
successively smaller parts, down to individual tasks. This creates a
hierarchy of lev'els.
Figure 15.1 A Typical WBS
The actual way in which the project is broken down in the WBS is
very much an issue for each project, there is no 'correct' way.
Planning Techniques
There are a whole range of techniques available for planning projects.
While this chapter is not intended to be a tutorial for these techniques,
some of the key ones are highlighted. Suggestions for further reading are
given in the bibliography (Chapter 26).
Many of the techniques are supported by computer-based project
planning software, such as Microsoft Project, Pnmavera, Artemis,
Hoskyn's PMW, etc. The advantage of these computer programs is that
they integrate the different techniques, allowing you to look at the project
activities in multiple ways. They also allow easy tracking of actual work,
noting the effect on the overall schedule and for producing high quality reports.
\
Chapler 15 - Planning and Progress
Whatever techniques, or combinations of techniques are used, they all
depend on a good Work Breakdown Structure. Typically, activities
will be entered at the lowest level in the WBS and 'rolled up' into
higher levels.
The following sections list some of the key techniques in use.
The Bar chart (or Gan8 Chart)
Thc Bar chart (or Gantt chafl, named aftcr Henry L. Gantt) is one of
the most common and familiar tools for showing the projcct plan. Figure
15.2 shows a typical bar chart for some high level activities on the
construction phase of a project.
Figure 15.2 Sample Bar Chart (From Microsofi Prvjecg
The bar chart is a simple pictorial representation of the activities of
the project. The length and position of each bar represents the duration
and start and end points on the horizontal time scale.
I
The activities can be shown at any level in the WBS, either at the
lowest level, or 'rolled-up' into higher levels. Most project planning
software docs this roll-up automatically, allowing you to quickly create
overview and summary reports from the detailed information.
The bar chart can be enhanced to show additional information such as
the status of completion of each activity (shown as a dark bar within each
activity bar in Figure 15.2). The chart can also shown the activity
dependence (shown as arrows behveen the activity bars in Figure 15.2).
Chapter 15 -Planning and Progress
Critical Path Network
The Critical Path Network (CPN) is a powerful tool for establishing
the overall duration of a project. The CPN is a network of all of the
project activities showing their dependencies (e.g. I have to put a sock on
before I put a shoe on the same foot). Figure 15.3 shows a very simple
example.
Figure 15.3 A Simple CPN Nehvork
This example shows two key points:
$ Sequential activities: I have to do one task before I can do another
(e.g. I have to put my left sock on before my left shoe)
8 Parallel activities: there is no dependency between putting on my lefi
sock and my right shoe. However, I need to have done both tasks
before I can go for a walk.
This simple example has two problems:
@ It assumes that I have already put on all of my other clothes,
otherwise the task 'go for a walk' will be swiftly followed by the task
'Get arrested'.
g Can I be putting my left sock and shoe on at the same time that I am
putting my right sock and shoe on?
The answer to the second point brings us to the consideration of
resources. Basically resources include people as well as equipment, and
they are required to cany out the tasks.
In the above trivial example, the resource is likely to be just myself
and I am not able to perform both parallel activities at the same time.
However, that does not mean that :he CPN is wrong!
Chapter 15 - 8 ,*!king and Progress
The CPN merely states what is possible from the dependencies of the
tasks. Once a CPN has been produced to show the overall dependencies
of tasks, a resource analysis will be required to show what the actual
duration.of the project will be, based on the resources that are actually
available. This resource analysis will determine where there is a clash of
resources and either demand more resources, or, if more resources cannot
be made available, phase the activities so that the limited resources can
do the tasks.
The dependencies between tasks can be one of a number of types:
O Finish-Start: The second activity can only start when the first
activity is complete. This is the most common dependency
Start-Start: The second activity can only start when the first
activity starts
Finish-Finish: The second activity can only end when the first ends
Once the dependencies have been shown on the CPN, it is necessary
to add in the durations and the resource requirements. From this, it is
possible to calculate various key values. These include:
Critical Path: This is the path through the network that takes the
longest time and therefore defines the overall project duration
Overall project duration: This is the duration of the critical path in
the CPN
e Earliest Start Date: The earliest date that an activity may start
Earliest Finish Date: The earliest date that an activity can end
Latest Start Date: The latest start date for an activity without
affecting the overall project duration
8 Latest Finish Date: The latest data an activity may end without
affecting the overall project duration
O Float: The free time at the end of an activity that is unused before
another activity must start
The calculation of these dates and times are very laborious to do
manually but if you.are interested, see the reading list in Chapter 26.
Fortunately, most project planning software does the calculations for
you. As long as you can enter the resource requirements, activity
I
durations and the dependencies, the software will calculate the
1
above Gures. 1
Chapter 15 - .~ning and Progress
Knowledge of which tasks make up the critical path is very important
because if they slip, so does the overall project duration. But beware! The
.critical path can change. If non critical path activities are delayed, they
may become part of a new critical path. If you concentrate on the first
critical path, the project may go late without you noticing it! Therefore.
any plan should be regularly updated with actual progress so that the
software can recalculate the project critical path and duration. Doing this
regularly will avoid nasty surprises!
Resource Planning
Resource planning is very much integrated with the planning of the
activities in the CPN. However, there are a fewadditional points.
Resources are often the limiting factor in many projects, if you do not
take a realistic view of their availability when planning, then your plan
will be worthless. This is particularly true of specialist skills but must
also be considered when considering how many people can actually work
on a given task, particularly in a confined space. We have all heard the
problem:
Ifit takes one man 3 hours to dig a hole 1 metre by 1 metre by I metre,
how long will it take three men?
The answer to the above question is certainly not less than three hours
because if three men try to dig the same hole, one or more will end up in
hospital with a spade-shaped dent somewhere in their anatomy.
The result of the resource analysis can be shown as a histogram for
each resource required (e.g. electricians, pipe fitters, cranes). These
histograms show the numbers of each resource required against time.
Figure 15.4 shows an example.
Eleciricians
16 7
1 2 3 4 5 6 7 8 9 10
Week
Figure 15.4 Sample Resource Histogram
Chapter 15 - Planning and Progress
Here the number of electricians over a 10 week programme are
shown. The resource histogram gives an opportunity for the project
management to ensure that the resources are made available
when required
However, in Figure 15.4, there is a peak of 15 elechicians in week 6.
This will be very dimcult to resource and therefore the project planners
should seek to reschedule work to avoid this peak. If the work cannot be
rescheduled, then some activities will have to be delayed and the overall
project duration increased.
If there is a definite limii on the number of resources available, then
this must be included in the programme. Planning software will take note
of any resource limitations in the scheduling of the activities and will
delay activities until resources are available.
When considering the resources required to complete a task versus
task duration, the number of hours to be worked per week is an important
consideration. Even if 7 day 24 hour shift working is possible, are the
resources available?
One function of planning in a project is to identify external resources,
i.e. those that the project manager has no control over. Examples include
input to review designs by the Asset management or to provide Asset
manpower for the commissioning activities. In these cases, the project
plan should clearly show these external resources and Asset management
must agree to the plan and to commit the necessary resources. It should
be clear from the plan what the impact on the overall project schedule
will be if the Asset management does not make the necessary
resources available.
Schedule Risk Analysis
As a parallel to cost risk analysis28, the project plan should also be
analysed in terms of the risks on the project. The aim of Schedule Risk
Analysis is to get a feel for the likely variation in project duration and the
impact of the risks that are considered important to the overall project.
In a similar way to cost risk analysis, schedule risk analysis is a
systematic approach to analysing the activities in the project and the risks
that are perceived for them. Then using a statistical approach, an overall
risk profile for the project is produced. Such a risk profile is shown in
Figure 15.5.
28 See Chapter 8
I ',
Chapter 15 - plan8rii;lg and progress
100% -
Mean 2309/1998
90% - Minimum 06/07/1998
5% Confidence 02/08/1998
80% - 100h confidence 13/08/1998
60% - 95% confidence 19/11/1998
50% -
40% -
30% -
w/. -
10% -
0%
Figure 15.5 Tyicai Project Risk Projiie
This project curve shows the cumulative probability of achieving a
given completion date for the project.
Again, to parallel cost risk analysis, as well as producing an overall
profile and a probability of achieving a certain target date, the other key
output of the schedule risk analysis is to identify the impact of each
element of the analysis on the overall result. This enables project
management to be directed at the most influential aspects of the project.
Each activity in the plan is ranked according to its criticalify index.
When a plan is constructed for a project, there will be a number of
paths through the plan, one of which will be the critical path as defined
I
above. This is shown for a very simple network in Figure 15.6.
I
FINISH
Figure 15.6 Parallel Paths and Their Criticality
Chapter 15 - Planning and Progress
However, the durations of the activities can only be estimated and if
there is any variation, another path could become the critical one.
The process of the schedule risk analysis involves developing a high
level plan for the project, typically comprising no more than 30 activities.
For each activity, an estimate is made of;
e The most likely duration
@ The duration to be met with 90% confidence
0 The duration to be met with 10% confidence
When this is applied to the network in Figure 15.6 we can then run a
Monte Carlo type simulation to produce the overall probability curve for
the project (as shown in Figure 15.5). Each activity will be given a
criticality index which tells us the percentage of simulation runs where
the activity ended up on the critical path. The result of the simple network
in Figure 15.6 is shown in Figure 15.7.
As can be seen in Figure 15.7, task 2 is the critical path in 12.6% of
the simulation runs whereas task 1 is the critical path in 87.4% of
the runs.
Note: Duration shown are; 90% confidence
Criticality = 12.6%
most likely 10% confidence
Figure 15.7 Criticality It~dicesjrom a Schedule Rkk Analysis
For the project, it is possible to rank all of the activities in terms of
their criticality index. The high index values will represent those
activities judged to be the most likely to influence the overall project
duration and which either need to have a more accurate estimate made or
must be carefully managed by the project
Progress Analysis and Reporting
One of the key uses of the project plan is to use it as the benchmark
against which progress is reported.
Throughout the project, actual progress must be measured and
compared to the plan. Regular updates of the plan with zctual progress
will show if the project is on target.
15-9
Chapter 15 - r ~anni ng and Progress
One of the keys to useful p r o s e s reporting is the separation of plan,
actual and earned value.
Earned Value
For a given activity, we have a plan of the activities that we are going
to perfon. Each one has an estimate of the resources required,
e.g. man-hours.
When an activity is actually carried out, there will be an expenditure
of man-hours on the activity. Very often, these actual man-hours will be
different from the planned man-hours. The difference between the two
represents the efficiency with which the task is being carried out
However, how do we report progress?
If we were to use the actual figures to report progress, then we would
not be reflecting what we have achieved.
For example, suppose we have an activity that is planned to take 40
man-hours. If it actually takes 50 man-hours, we have only achieved 40
hours' of planned work with our 50 man-hours of actual effort.
Therefore, we have only earned 40 hours' of achievement. Thus the
earned value of the work is 40 hours, the same as the planned.
Therefore, to accurately report progress, we need to compare
three figures:
@ The planned work (known as the budgeted cost of work scheduled
or BCWS)
& The actual resources expended (known as the actual cost of work
perfoned or ACWP)
8 The earned value of the work (known as the budgeted cost of work
perfoned or BCWP)
From these three values, we can calculate some key mettics:
Q, The cost variance, .which represents the difference in resource
expenditure between what we have spent and what we have earned or
achieved for it (a positive value implies under expenditure of
resources while a negative figure implies over expenditure).
Cost Variance = BCWP - ACWP
4) The schedule variance in cost terms, which represents the difference
in resource expenditure planned and the actual achievement in earned
value terms (a positive value implies ahead of schedule while a
negative figure implies behind schedule).
Chapter 15 - C ling and Progress
Schedule Variance = BCWP - BCWS
The Productivity Index (PI), which represents the efficiency at
which resources are consumed to achieve progress (a figure greater
than one implies better than expected performance, a figure less than
one implies worse than expected performance).
PI= BCWP
ACWP
8 The Schedule Performance Index (SPI), which represents the
performance against the schedule (a figure greater than one implies
better than expected performance, a figure less than one implies
worse than expected performance).
SPI= BCWP
BCWS
8 The Estimate to Complete (ETC) the project, where BAC is the
budget at completion
ETC = (BAC - BCWP)
t3 The final forecast cost, or Estimate at Completion (EAC)
EAC = ACWP + ETC
When comparing actual and earned values, special care needs to be
taken of those resources which are indirect costs such as project
managemenf supervision, office costs, etc. Normally these indirect costs
should be differentiated from the rest of the work because they are depen-
dent mainly on the project duration rather than the completion of certain
works. Thus to get a sensible measure of indirect costs, it is
necessary to take into account the estimated remaining time (and hence
remaining indirect costs) that the resources will be needed on the project.
The 'S' curve
The performance measures described above can be displayed
graphically using the 'S' curve, so called because in most projects it
resembles the letter 'S'.
An 'S' curve is drawn for BCWP, ACWP and BCWS. Each curve is
the curnulalive planned or actual expenditure of resources, such as money
or man-hours. Figure 15.8 shows a typical set of 'S' curves.
Chapter 15 - . .. lning and Progress
100 -
90 - - BCWS
80 - - ACWP
70 - ....... BCWP
- 60-
ae
-
a 50 -
UI
c n : L a . c = m n - > 0
7
Month
Figure 15.8 Typical Project 'S ' Curves
In Figure 15.8, we can see the plan line (BCWS) for the whole
project, and the actual (ACWP) and earned value (BCWP) lines up to
June. We can also see that the ACWP and the BCWP are falling behind
the plan.
The Cost Variance is simply the vertical distance between the ACWP
and BCWP lines and in this example is about 6%. This tells us that so far,
we have spent 6% more on achieving the work than we planned for.
The Schedule Variance is simply the horizontal distance between the
BCWP and BCWS lines. In this example, we have only achieved what we
planned to achieve one month ago. Therefore, we are one month late.
From the curves we can see that there are two reasons why we are
late. The first is that we are not working as eficiently as we had planned,
hence the 6% cost variance. However, we can also see that we are not
expending resources at the rate planned, perhaps because we failed to
build up out project team as quickly as we anticipated.
'S' curves gives a ready summary of the state of the project. They can
be used at any level in the WBS to pinpoint where there are problems.
While they can quickly show where progress is falling behind, or where
expenditure of resources is higher than planned, the planner will need to
1001: into more detail to find out what activities are causing the problem
and how they can be remedied.
'S' curves show the cumulative progress and the slope of the curve
indicates the rate of progress. This makes it a very sensitive instrument
for detecting trends at a very early stage. Looking at Figure 16.8, it would
be apparent in February that the rate of progress was not building up as
fast as the plan.
Chapter 15 - Planning and Progress
Measuring Achievement
As we have seen above, we need to measure actual achievement to
monitor and report progress, but that just recording the expenditure of
resources is not sufficient, we need to measure the earned value of the
work. .
To measure the eamed value of work, we need to be able to identify
measurements from the planned activities.
We can measure our work by concentrating on planned tasks that are
completed. The earned value for such a completed task is simply the
planned effort for that task However, to do this, the activity must have
some tangible deliverable item, such as a drawing or a certain part of the
steelwork erected.
For activities in progress, it is more difficult to identify the earned
value. When people report their progress they can often be optimistic and
base it on the actual expenditure. here fore, it is better to take a
pessimistic view and take no credit for any activity unless it is complete,
or can easily be measured (e.g. a percentage of foundations constructed).
This approach may give a worse than actual view on progress but is less
likely to give nasty surprises. If the activities are sufiiciently shott, then
the error will be small.
One way to handle activities in progress is to insist that the job leader
submits weekly reports or timesheets that give not only the expenditure
on the tasks, but the latest estimate to complete (ETC). From this, the
BCWP can be calculated as:
BCWP = ACWP + BCWS
ACWP + ETC
What do I measure?
The analysis of planned, actual and eamed value can be made on
various measurements. Typically they can be on cost (i.e. money) or
man-hours.
Cost does not always accurately measure progress because there may
be a wide disparity between the rates for different staff. For example an
experienced process engineer's rate will be several times that of a
labourer. This can lead to distortions if you are trying to measure
progress.
Chapter 15 - t .-.ring and Progress
In measuring the performance of on-site construction activities, it is
recommended that this is done by comparing actual on-site man-hours
expended with man-hours based on productivity norms for the tasks (e.g.
installation of pipe, welding, etc.). The alternative of using some other
unit such as length of piping installed, length of welding, weight erected.
value of plant erected, etc. does not permit comparison across trades.
Furthermore, the contractor will often try to use units that maximise and
front end load his cash flow, often distorting the true effort still required
to complete a job. It has often been said that the last 10% of a job
requires 25% of the man hours, this having been brought about by not
using site man hours as the comparison measurement.
Key things to look for
When compiling the project plan:
@ Is the plan supported by the Project Team and does the organisation
reflect the plan? The whole team must have confidence in the plan.
g Is there commitment to 'plan the work and work the plan'? Planning
is more than just a conhctual obligation. For a project to be
successful, every one must be involved in contributing to the plan of
their work. This ensures commitment, rather than resentment at
having a plan imposed from above.
@ Has management been sufficiently involved in developing and
amgeeing the plan at the outset? The ability to influence the plan is
greetest at this point. Asset management must be aware of the
limitations on the project (e.g. finite resources) and must not 'bounce'
the project team into promising deliveries that are clearly infeasible.
@ Is the level of detail fit for purpose? Planning in ever greater detail
does not necessarily improve chances of success.
@ Does the network logic adequately model the nature of the work?
Activities may not need to be carried out in a particular sequence, and
networks cannot always show this.
@ is the critical path sensible and are durations realistic compared to
previous achievements?
@ Is the workscope clearly defined and fixed? avoid planning against an
'unclear and moving target' i.e. a changing workscope.
@ Is the plan balanced across all disciplines and not biased towards a
specialist area?
8 Are progress weightings front-end loaded, giving too much progress
to early activities?
Chapter 15 - planning and Progress
When monitoring progress
:
@ Is progress measured in tangible units to reflect physical achievement?
8 Do activities clearly lead to a deliverable which can be identified
and measured?
8 Watch out for 'creeping end dates'. For examplc, an activity starts
with an estimate of 80 hours. After 20 hours, the estimate to complete
is still 80 hours. After another 20 hours the estimate to complete is
still 80 hours, and so on.
9 Regularly updatc the project plan with actuals. This is straightforward
in most project planning software, allowing new end dates, critical
paths and 'S' curves to be easily generated. Make sure that the whole
project team sees the results of their efforts reflected in the plan so
that they understand their role in delivering the project on time. The
frequency of progress updating will be dcpendent upon the timescale
of the project, but for construction work it is recommended to be not
less than weekly.
O Effectiveness of the progress monitoring can be reduced if progress
measurement and updating is not totally objective and accurate. In
assessing progress, be cautious, and beware of over-estimating the
work achieved, it often leads to very high labour demands at the end
of a job to catch up with progress already claimed as achieved.
Beware the completion of 'non-critical' work to gain progress.
You could still be behind schedule.
Chapler 15 - t ,anfling and Progress
Chapter 16 M ~ ~ C ~ 1999
Cost Management and
Performance Trending
Introduction
Cost management comprises a set of processes and practices which
help enable the Project Manager to optimise cost performance relative to
the approved budget.
A principal aim of cost management is to provide the Project Manager
with early forecasts of any potential cost overruns (or undermns) to allow
appropriate time for him to consider corrective action to mitigate the cost
impact. Cost control is effected by the Project Manager. Information
provided by cost engineering based on effective performance
trackingkending provides the basis for management decision making.
Cost management is also a kev element in a Total Cost Management
process cycle involving feeding actual performance to the ~r ou~Pr oj ect
Performance Database, co-ordinated by Group Project Support (GPS) at
Sunbury to facilitate knowledge transfer, enilanck ~roup-learning and
help us all continue to improve performance on future developments.
CoSt management begins during the concept development phase -the
time at which we have maximum opportunity to leverage cost
performance for the project execution phase. To help optimise capital
efticiencv all new developments now need to be externally benchmarked
against industry performance (i) during concept development, (ii)ahead
of sanction and (iii) at project completion to help ensure we optimise the
quality of front-end proc&ses by use of recognised best practices, we
measure against industry-wide performance mehics, and hence only
invest in Top Quartile performance pr0jects.A~ a key part of this process,
key cost/schedule performance metrics should regularly be tracked
during project execution to trend performance relative to benchmarks
agreed at sanction.
A key aspect of successful cost management is an effective Cost
Breakdown Structure (CBS) comprising a series of Budget Items (each
comprising a set of secondary level Workpacks) which reflects the
ProjectIContract strategies: Costs are controlled against an approved
Control Estimate built up in accordance with the agreed CBS.
Chapter 16 - st Management and Performance Trending
The costs incurred on the project should be tracked/trended/reported
against the budget that has been sanctioned by Budget ItemlWorkpack
and controlled against the value of all AFEs approved to date. It is likely
that as the project progresses, it is possible to amve at a better estimate
because more quotations will be received and orddcontracts placed.
This will not alter the sanctioned budget but should be reflected in the
'Estimated Final Cost'. (EFC). Cost reports which should be updated and
issued at regular intervals.
i
I
Cost Breakdown Structure
This is the agreed breakdown of project cost elements by Budget Item
and Workpack Senior members of the Project Team will normally be
delegated as Accountable Managers for individual Budget Items.
A welldefined CBS, agreed with ProjectPartner Managements,
against which AFEs are raised, and commibnentdexpenditures coded is
aire-requisite of good cost management.
Whilst the format of the CBS will depend on the ProjectlContracting
strategy adopted there will generally be specific Budget Items in respect
of Owners Management. Pre-Production Capitalised Opex, Unallocated
Provision (UAP), and Pre-Project Costs. For a re-imbursible type
Offshore development Topsides Engineering, Materials, and Fabrication
would typically be three separate Budget ltems with individual Topsides
Fabrication contracts comprising separate Workpacks within theTopsides
Fabrication Budget Item.
/ / Performance Benchmarking
Effective performance management begins during the concept
development phase- the time at wh~ch we have maximum opportunity to
leverage cost and schedule performance for the project execution phase.
At that time we need to ensure that we are "Doing the right project" and
well as planning for "Doing the project right".
To help optimise capital efficiency all new developments now need to
be subject to a three stage external benchmarking process against
industry performance:
1
8 Early during concept development
I , @ Pre-sanction update
I O At close-out to assess actual performance
I
i
Chapter 16 -Cost Management and Performance Trending
To help ensure we optimise the quality of front-end processes (Front
End Loading) , fully utilise recognised Value Improving Practices (VIPs),
and we understand the current Industry Average~Top Quartile'
performance levels achieved on similar types of project both for the
region and globally, such that we only invest in Top Quartile
perfonnance projects.
An independent Benchmarking specialist-Independent Project
Analysis ([PA) working interactively with the AsseUProject Team is used
by all three Businesses for this work.
IPA also facilitate annual Industry Benchmarking Conferences
(IBCs) for both the Upstream and Downstream businesses which
compare overall Project System performances for individual participants
and hence a valuable forum for identifying individual Best Performers for
a variety of key rnehics and a vehicle for continuous learning through eg
process benchmarking with rccogniscd established top pcrfonners.
The BP Amoco Project Performance database is also actively used to
"Drill-down" beneath high level external melrics to provide key
performance dataimetrics on eg design eficiencies, Topsides costs/tonne,
manhours/costs by discipline for individual types of contract and
equipment cost correlations.
Key performance factors are agreed as part of the sanction case
relative to IPA Industry AvemgelTQ measures for similar projects.Where
stretched targets are involved these can also be clearly understood
relative to IPA performance measures as well as the formal
sanction values.
As a key uart of the benchmarking Drocess kev cost/schedule
. . " . -
performance metrics should be regularly tracked during project execution
to trend performance relative to benchmarks agreed at sanction.
Approved Budget
This is the value of the project estimate approved by Partner
managements when funds for the project were sanctioned. It is broken
down into Budget Items against which AFE's can be raised. Budget
sanction does not provide Project Management with approval to spend
funds-Approved AFEs are required to enable commitments to be made.
In some cases, Partners will require budgets to be updated and
reviewed periodically (eg annually). In such cases both the original
sanction budget and the current revision of the budget will normally be
shown in monthly cost reports.
16-3
Chapter 16 - Cost Management and Performance Trending
With the sanctioning of funds the Project Team now have permission
to go ahead with the main project Up to this point any commitments
entered into will have been made with cancellation provisions.
Man-hours and costs will have been incurred in order to obtain sanction
of course, but these will have all been recorded against the pre-project
budget. The pre-project budget will now be phased out as budgets are
opened for the main project with the approval of the Authorisations for
Expenditure (AFE's). Eventually the pre-project budget will be closed
and the costs will be absorbed as a separate Budget Item within the
overall project budget.
Control Estimate
The Control Estimate for the Project reflects the correct position in
respect of budgetary funding, including the impact of approved changes
(both in terms of agreed scope changes and approved transfers from the
Unallocated Provision Budget Item). It is against the Control Estimate
that AFE's will be raised.
This estimate will include normal estimating development
allowances, such as weather downtime. It is expressed in escalated
Money-of-the-day (MOD) , at agreed Project exchange rates.
For facilitating effective control Unallocated Provision PAP) will be
a separate Budget Item.
Authorisation for Expenditure (AFE)
This represents the value of approved funds released by Partner
managements to the Project Manager for each Budget Item, against
which commitments can be made for materials and con~ractslservices.
AFEs will show a detailed breakdown of the estimate comprising the
funding request split by Workpack. They may be for the full Budget Item
value, or for partial funding. The AFE will highlight the Control Estimate
for the Budget Item, planned commitment and expenditure phasing for
the funding request and in the case of JVs, will show a split of funding
requested from each Participant in line with their equity ownership. AFEs
can be revised from time to time and revisions will show both the total
value requested, the AFE funding released to date for that Budget Item,
any transfers from the Unallocated Provision AFE, and the net
additional funding requested.
Chapler 16 -Cost Management anu PerformanceTrending
AFEs will be prepared by the Cost Engineering Team, signed by the
relevant Accountable Manager and Project Accountant, and then issued
to Partners under the signature of the Project Manager.
To optimise conhol of Unallocated Provision AFEs for this Budget
Item will normally only request expected monies for the next 12 months.
Commitment
There are normally formal procedures for the purchase of materials or
the award of contracts which comprises the following two stages:
Indents: An indent is an internal document within BP Amoco that
gives approval to allocate funding against an approved AFE to cover
the purchase of materials or award of a contract. It contains an
estimate of the cost of the materials or contract and signatures of the
members of the project team responsible for technical and financial
approval. When authorised it is used as an instruction to the
procurement team to place an order or award a contract. For JVs
Partner approval may be required prior to making major
commitments (Any such requirements should be clearly stated in Unit
Operating Agreements)
8 Purchase orders and contracts: These are external documents
between BP Amoco and a third party to supply either materials or
services for the project. They cannot be issued unless the item is filly
covered by an approved lndent and the value of the Order or Contract
cannot exceed that stated on the Indent One Indent can cover
several Orders or Contracts e.g. an indent may be issued for a range
of control valves but the purchaser may find it more economic to
purchase these from several suppliers.
From a Cost Management standpoint a commitment is made when
an Indent has been approved i.e. money has been allocated against an
AFE to cover this item. Commitment tracking status reports should be
maintained showing Indent value, initial PO value, current PO value
and forecast cost of the commitment.
Some commitments will not be made on the basis of specific indents
or purchase orders. These include:
8 BP.Amoco personnel costs (both project staff and Operations' staff
seconded to the project).
- Infrastructure support services, e.g. telephone, courier services, .
accommodation, etc. These costs will normally be passed on
from the host location (e.g. operating site or contractor offices).
Chapter 16 -Cost Management and Performance Trending
It is not sufficient to raise a commitment when the invoice comes in.
Therefore, management control needs to be made to approve the likely
level of such costs, e.g. on a quarterly basis, and then adjust them when
'the actual costs are known. The Personnel Approval Form(PAF) is an
appropriate tool for "commiting" BP AmocoIAgency staff onto the
Project Team.
Expenditure
Expenditure is defined as the value of work done, goods received and
services rendered whether paid for or not. It is the sum of invoices paid,
invoices received but not yet paid ('accruals') and an estimate of the
value of work done but not yet invoiced ('provisions'). From this it can
be seen that the value of expenditure is an estimate and it is definitely not
the value of cheques that have been paid!
Cost Coding
To facilitate effective cost h-acking it is necessary to have a system of
monitoring all commitments and expenditure within each approved AFE.
The Cost Engineer has to work in close liaison with the Project
Accountant and the Procurement team. Every indent, purchase order,
contract and invoice should contain the appropriate Budget
ItemIWorkpack cost code prior to being registered into the
commitmentlexpenditure tracking system.
The Control Estimate and AFE's are also coded using the same
Budget ItedWorkpack cost code in order that every commitment can be
checked against the approved funding to monitor any overmns and
under runs.
Computer systems are used to list and monitor this data and
summarise all the information in the format of a cost report
Invoices -
The Cost Engineer will ensure that all invoices are comectly coded
and that invoiced costs are legitimate and within the limiting values on
the purchase order or contract On certain types of "measured" contract
BP Amoco employs quantity surveyors to monitor man-hours and quan-
tities against progress and to check the monthly invoices.
After coding and subsequent approval by the Accountable Manager
the invoices are passed to the Project Accountant for payment. The
Project Accountant maintains copies of all invoices and any associated
paperwork. Thus an audit trail is established by the Project Team for all
commitments giving readily accessible details of every transaction from
. - . . .
Chapter 16 -Cost Management and Performance Trending
Estimated Final Cost (EFC)
This is the best estima;e of the final cost of the project at the time of
producing the cost report. This will incorporate the latest data
regarding commitments, expenditure, progress trends, plus any
information on scope changes(known and expected) and results of
discussions with budgetary Accountable Managers . Cost Engineering
should also liaise with Planning and other members of the project team
for progress information and to learn of any adverse trends. For example
there is probably something wrong if 80% of the budget has been
expended but only 10% progress has been achieved!
As well as changes in overall EFC for each Buget ltem it is also very
important to accurately forecast expenditure phasing for the current and
future'
Forecast overruns in individual Budget Items will normally be ,
accompanied by a reduction in the Unallocated Provision EFC.
The EFC is used to inform the Project Manager of any likely
overmns (or under runs) in his budget as early as possible and to enable
him and the relevant Accountable Manager to consider early action to
mitigate the risk of overmn.
Fully supported changes in EFC , taking account of mitigatory
actions, become the basis for considering approved transfers from the
Unallocated Provision BudgetIAFE which generate changes to the
Control Estimate.
Scope Changes
Up to now we have assumed we are in an ideal situation where the
scope of the work and the programme do not change between
commencement and completion of the project. This is not often true of
course We also have to contend with changes caused by external factors
beyond our control such as large fluctuations in escalation due to eg
market trends, currency exchange rates and changes in tax or import
duties sometimes imposed on us by governments.
The Control Estimate will contain Unallocated Provision but all
changes outwith the agreed base definition for each Budget
ItemiWorkpack will require an approved transfer from the Unallocated
Provision Budget ltem AFE, approved by the Project Manager. Joint
venture projects will frequently require listings of UAP transfers to be
maintained and will frequently only approve sufficient AFE funding for
the current year to help exercise tight control of release of UAP.
Chapter 16 - C
Aanagement and Performance Trending
Where a major change occurs outside the agreed Project Scope-as
defined in the Statement of Requirements-approved SOR changes will
need to be agreed by Partners as a basis for seeking budgetary funding.
UAP Transfer or SOR Change Request forms are used to identify the
change and give an estimate of the man-hours and costs involved and to
obtain appropriate approval to the change.
Cost Reports
Cost Reports are usually produced on a monthly basis, to cover all
elements of the project both by individual Budget ItemIWorkpack and to
show the overall picture in summary.
Cost Reports give the original budget value for each CBS Budget
ItedWorkpack, the approved AFE funding, the commitments made
against each CBS element and the expenditure incurred against the
commitments. They also show any revisions to the original budget
and control estimate, and highlight variances between EFC and
approved budget.
Expenditure will be split between prior year($, current year to date,
current year t o go , and future year(s)
Trend Curves
Trend curves are produced to accompany the monthly Cost Reports.
These generally indicate the planned and actuallforecast situation for
commitment, expenditure for each Budget ItedWorkpack and for the
total project in summary.
A key trend curve will be the prediction of expenditure for the current
year (year to date plus year to go) and that for future years as input into
overall Business expenditure reports.
Cost curves have been much improved with the inboduction of
computer graphics as part of the overall cost control package. They also
produce pie charts and histograms to give graphical illustrations of
budget breakdowns, etc.
Data Feedback to Group Project Performance
Database
As the project progresses a large quantity of real data is accumulated
that is essential for estimating the cost of future projects and populating
predictive cost models.
Cost engineering plays a central role in co-ordinating the interactive
collationlinput/feedback of data (including relevant general, technical
scope, quantities and planning data as well as costs) to the Group Project
Performance Database administered by the Group Project Support Team
at Sunbury.
This essential feedback loop facilitates knowledge transfer, enhances
Group learning, helps underpin effective benchmarking of new
developments and hence helps us all optimise capital efficiency on
new developments.
In this respect the Project Cost Engineering Team plays an essential
part in helping enhance Total Cost Management across the BP Amoco.
Such feedback should be done in real time as the project progresses,
rather than wait until close-out. However it is also essential that the final
close-out data is fed-back at completion.
Project Close-out
i On completion of the project a Close Out Cost Report will be
,
produced. This should include a finaneial history and highlights section
plus a breakdown of the final costs of the project split by Budget
ItemIWorkpack together with associated scopes/quantities. The
accumulation of data mentioned in the previous paragraph is most useful
in the preparation of the Close Out Report.
The Cost Engineer and Project Accountant also have to financially
close all AFE's and commitments on completion, once final costs are
known.They will also liaise on finalisation of a comprehensive Asset
Register of installed facilities.
Chapter 16. ~t Management and Performance Trending
Chapter 17 March 1999
Reporting, Accounting
and Administration
Introduction
When you do not know whaf you are doing, do i f neatly!
Effective reporting, accounting and administration are vital to the
well-being and visibility of any project.
We can take nothing for granted in this world; projects are no
exception. When things look like going wrong for reasons that you
cannot do too much about, having the right reporting mechanisms in
place is absolutely essential.
As project managers, or managers or engineers within a project you
will be given certain responsibilities that involve exercising your
judgement and giving direction to others. All of your actions have
financial implications and directly or indirectly you will be responsible
for commitments being made for and on behalf of your project. Those
commitments involve the spending of either BP Amoco's or partners'
cash in return for the supply of goods or services. At all times your inten-
tions, actions and ensuing events such as the performance of services,
raising approval of invoices and subsequent payments will be governed
by the procedures approved for the conduct of your project.
We discussed project procedures earlier in the chapter on Contracts
and Procurement It hardly needs saying that proper control and
accounting are essential in any business. In BP Amoco, as you no doubt
how, these are best exemplified by the Policy on Business Conduct and
Code of Business Ethics otherwise known as the Chairman's letter.
Finally, without people your project teams would simply be unable to
function. However small vour team vou will still need to communicate
d
clearly, motivate, listen and counsel. Effective management of people is
therefore another hndamental project need. You will need to address this
and, if the project size requires it, ensure that your project procedures
cover those personnel management matters that your team needs.
What is there to reporting, accounting and administration in projects?
We will look further and start with a definition.
Chapter 17 - $orling. Accounting and Administration
Accountability
We use and think of this word frequently in our work. What does it
mean, what does it expect of us? Collins Concise English Dictionary
gives the following definition:
'Responsible to someone or for some action '
The project owes its existence to the Asset The project manager's
prime responsibility so far as his project is concerned is to the Asset He
can be said to have total accountability to the Asset for all aspects of
the project.
All the more reason why it is so important to start from an SOR
agreed with the Asset and to continue this agreement as a series of formal
endorsements by the Asset of strategy, project definition and commitment
put forward by the project.
Implementing the project strategy involves no less than making a
series of technical, contractual and ultimately financial commitments on
behalf of the Asset For that to happen in an efficient way the Asset
delegates authority in a controlled manner to the project manager.
In return the project manager is accountable to the Asset for the
delegated decisions that he had made on behalf of the Asset. Overall
accountability for the actions of the project remain with the Asset.
In a similar manner authority within the project can be delegated by
the project manager but accountability within the project to the Asset'
remains with the project manager.
Project procedures provide the appropriate mechanisms for
addressing responsibility and accountability. Parties, responsibilities,
authorities and actions can be defined and ambiguities eradicated.
The level of delegation by the Asset in respect of contractual and
financial commitments will depend upon the scale of the project,
experience and standing of the project manager, the degree of authority
delegated to the Asset from the corporate centre and, in the case of Joint
Ventures, the agreement of Partners. This has to be obtained by
Authorisation for Expenditure (AFE) or capital release, following
budgetary sanctions.
The level of authority for commitment for a project manager will be
set by the Business Unit Manager and may vary significantly from
Business to Business.
Authority levels for commitments, invoices and expenses for
individual project staff will be given in a financial authorities list for
the project
Chapter 17 - Reporting, Accounting and Administration
Reporting
The most important reporting tool during the project's lifetime is the
monthly report Reports can be sought on a more frequent basis than this
but there rapidly comes a point when everyone is seemingly doing
nothing but writing reports.
The report is written to the Asset management for the express purpose
of informing them as the progress of the project and recording events and
key statistics on a regular basis. However, the report, by its formal
nature, can be used, in a careful way, as a platform to lobby
the management or other prime recipients on a particular issue.
Typical examples would be:
9 To apply pressure within BP Amoco or externally.
e To solicit criticism if a forthcoming controversial strategy or
decision was being mooted.
8 To motivate events outside of the project's direct influence (e.g. to
highlight the impact of the Asset not delivering promised resources to
the project).
The content and 'message' of the report needs careful handling; too
little information generates mistrust and suspicion. On the other hand, too
much does not get read. It is not easy to get this right It is worth
discussing this with the Asset management to find out what they really
want to see in print!
The format and writing of monthly report should be used to reflect on
the past month's performance and the overall performance and to set the
targets for the subsequent month.
Make sure report styles are simple and concise. Keep detailed
repetitive information to the appendices.
Define the project calendar at the outset spelling out the reporting
cut-off dates and report issue dates. Include in every report just to remind .
all recipients.
The monthly project report will not be the only report issued within
the project. The various design andor construction contractors or even
major suppliers will also produce reports. These latter reports will not be
distributed to the Asset but the information they contain will be
summarised upwards into the text of the project's monthly report.
For projects involving Paitners, there will also be a monthly briefing
by the Project Manager to Paitners' Technical Representatives.
Chapter 17 - , .eporting. Accounting and Administration
The reports to be issued will depend on the project and the parties
involved in the project. The reports may include any of the following:
e Monthly report, typical contents include:
- Summary
- Safety
- Engineerinflechnical
- Quality Assurance
- Procurement
- Construction
- Planning
- Costs
- Administration
- Key events listing
- Organogram
8 Alliance Managers report; giving mostly financial information.
Asset Management report covering financial information.
$ Input to 'investor's report' produced by the asset for the partners.
Having everyone working on the project record their performance and
achievements each month is a good self-motivating, if unpopular, chore
and assists in the preparation of the main report.
In reporting, avoid over classifying the security of documents. Seek
guidance first from your Asset management if you are not sure. There is
nothing worse than over classifying. It encourages leak. and can be
counterproductive. A problem area is always judging what, if anything,
should be disclosed to third parties. The best solution to this is to issue
the project team with or make them aware of all the press releases that
have been given regarding your project. In that way they will know
exactly what should be in the public domain and no more. Ultimately the
best partnerlmanagement relations are maintained by honesty.
Avoid surprises!
Chapisr 17 - Reporting, Accounting and Administration
Accounting
By the very nature of things a project is a business of its own. It
receives income by way of capital sanctions and sometimes other sources
such as government grants or transfers from other internal funds. Its out
goings include payments for goods and services which can be external
e.g. contracts or internal such as charges made for manpower and ofice
space and services. In essence these activities form the core of the
accounting function. To take charge of this the Asset appoints a Project
Accountant. Heishe will be responsible for administering the
accountancy systems devised for the project.
In small projects this role is carried out usually by the Asset as a
service for the project. The accountant will need to work closely with the
project cost engineer.
The functions that have to be provided include:
@ Getting AFE's to the partners and approved
@ Monitoring financial position with regard to monies spent against
sanctioned releases
g Arranging payments against certified invoices
(b Taxation returns and recoveries
0 Setting up and administering bank accounts
8 Foreign currency dealing
Organising cash calls from Partners
e Capital allowances and grants
8 Maintaining an asset register
8 Providing information for Business Performance Reviews
The accountancy systems for controlling these essentially financial
activities should be covered by the project procedures. They should
identify authorised signatories for documents that control:
9 Payments made by the project against commitments
The disposal, sale or release of assets, services and cash that the
project either owns or is the custodian of for the company
The project will generally not have to prepare such procedures from
scratch; the Asset will already have these in place and it is only a matter
of making them project specific.
Chapter 17 - I . , h i n g e Accounting and Administration
The key point to watch is to ensure that a clear audit trail exists i.e.
each action is documented so that at any subsequent time the precise
nature of the action, authority for it and sequence of events can be
established without doubt. In this area, they start from the rationale
behind bid lists, pre-qualification, bid response, bid recommendation,
contract committee or equivalent approval, orders and amendments
through to invoice and certification.
The usual imprest rules will apply on contracts, invoice clearing and
drawing cheques against project bank accounts. For the record the
essentials of the system are as follows:
e Contracts/Orders: Two signatories required. One to authorise and
the other to check validity of contract content (i.e. one financial
authority holder and one contract execution oficer).
63 Invoice Approval: Certification by the project that work has been
done and that payment requested is in accord with the contract
conditions. Individuals must be identified with this responsibility.
Always ensure that cross-checking takes place first and is certified
as such. No payments to be solely authorised by the signatory of the
original commitment
Administration
Procedures
We continually stress the importance of procedures. For these to
work effectively their message has to be communicated to the project
team who in turn have to be motivated.
You can go a long way toward this by doing the following:
0 Make sure that every member of the team knows what is expected of
himher and other team members. You do this by having job
responsibilities and publishing these as part of the projject procedures.
Include the SOR and a brief history of the pre-project, so that
everyone is in no doubt as to the project's objectives.
0 Make the project procedures fit for purpose, concise and
user-friendly (otherwise they will not get read!). Publish them as a
book in an easily referenced and easily updated format. Include the
correct communications information e.g. addresses, phone and fax
numbers and location plans.
Chaptor 17 -Reporting. Accounting and Administration
Manpower Planning
The question of where manpower resources will be drawn from and
at what cost for project execution will have been addressed as part of the
sanction estimate. It is important that the project has a tight visible
control system in place to track man-hour usage and costing against
budget provision. Watch for the 'hidden' costs associated with project
manning, e.g. temporary duty allowances, local taxes and other charges
that may bc difficult to idcntiry.
Audits
Asset management and Partners can and will from time to time
undertake audits on your project. The object will be to ensure that
corporate business procedures are being adhered to. You will have the
opportunity to comment upon the auditors' findings and your responses
will be recorded in the final report. You do not necessarily have to accept
an audit recommendation if you do not agree with it. In those
I
circumstances you put your argument on record and leave it to your
i
sponsor to decide whether or not he feels inclined to ovemde your
judgement of the situation!
!
Chapter 17 - Reporting, Accounting and Administration
Chapter 18 ' March 1999
Procurement Management
and Control
Introduction
In large projects, procurement is normally handled by the main
contractor (often referred to as the Engineering, Procurement and
Construction (EPC) Contractor). However, in smaller projects,
particularly those that are site managed, procurement may be the
responsibility of the BP Amoco project team.
In procurement, a supplier supplies something (e.g. equipment,
materials, goods or services) to the project according to a contract
Contrary to popular opinion, a contract does not have to be in writing,
except for a very few cases such as the purchase of property. Therefore,
a spoken agreement to purchase something can be a contract
Since spoken agreements are not easy to either police or remember,
we always use written evidence to support our contracts. Typically, this
is the purchase order.
The purchase order is an instruction to a vendor to provide equipment,
materials, goods or services. This instruction is conveyed to a vendor by
means of a formal purchase order with attachments-covering material
andlor equipment specifications, inspection and documentation
requirements. The order is a stand alone document which when
accepted by the vendor constitutes a legally binding contract
Although the purchase order has been issued, procurement
involvement is still considerable and the principle actions through to
delivery and close-out of the purchase order are described in the
following sections.
Within BP Amoco, procurement principles are defined in a group
handbook29 which covers:
0 Accountabilities and responsibilities
Policy, procedures and expectation
8 Business ethics and code of business conduct
Procurement processes !
Commercial issues
29 BP Group Procurement Handbook.
'A Practical Guide to Professional Procurement Principles"
Chapter 18 - Procurement Management and Control
This chapter is not intended to replace the handbook, but instead
include issues which are specific to procurement in a project context
1 Post Order Variations
Purchase order amendments (also known as change orders) are issued
to record agreed contractual variations both technical and commercial. It
is essential that such changes are kept up to date to facilitate control and
accounting activities.
A request from a vendor for a relaxation or minor change to a
specification and which does not have contractual implications would
normally be dealt with by a concession request procedure. In these cases,
although no formal amendment is issued, it is essential that a record is
kept to such concession requests. In the event that the concession request
is acceptable by all parties concerned (i.e. Project, technical, commercial
etc.), a signed approval should be issued to the vendor, who is to ensure
that the original copy is included in the final data dossier. Ifa concession
request is unacceptable to any party, then the vendor must be instructed
to comply with the issued purchase order and its attachments.
The buyer is responsible for the co-ordination of any technical or
commercial queries which may arise after the order is issued.
Expediting
Although a vendor who has accepted an order is contractually bound
to meet material and documentation delivery requirements, experience
has shown that without monitoring and vigorous expediting, slippage is
likely to occur. To minimise this and to ensure timely completion by the
vendor of the order requirements, it is essential for office and field
expediters, in conjunction with the buyer to monitor and expedite the
vendor throughout the life of the order.
Their role is to obtain informztion from the vendor, covering for
example, raw material availability, sub-order issue, production schedules
and documentation issue in conjunction with documentation control.
Receipt of such information will enable the identification of possible
problems and enable appropriate action to be implemented to rectify the
situation and recover the position. Equally important is the need to keep
relevant parties advised of progress so that, for example, rescheduling of
fabrication work can be arranged if necessary.
Chapler 1.8 - Procurement Management and Control
Quality Services
Professional services covering all aspects of Quality Assurance (QA)
and Quality Control (QC) are required to support and complement the
total procurement activity.
The post order quality assurance function is to ensure that all
necessary vendor procedures are in place and are implemented
effectively such that the required plant and materials are fully defined.
Audits may be carried out on the vendor during the life of an order, to
check compliance with the relevant codes and standards.
The Project quality function ensures that the equipment ordered is
supplied in accordance with the purchase order specification, that it
meets all the quality requirements and is only released after a
satisfactory final inspection. They ensure that all quality plan stages are
witnessed or verified to be 'as specified' and that all such stages are
1
signed off. Documentation and certification are reviewed and accepted
at the manufacturers works.
Documentarv evidence of the achievement of Oualitv Services
. . .
objectives is provided by means of completed quality plans, audit reports,
inspection reports, release notes and manufacturer's certification.
Document Control
The importance of documentation and hence its control has grown as
both company and statutory requirements have been developed and
adopted. Document Control groups have been established to ensure
conformity with requirements.
The responsibility of Document Controllers is to ensure that all
drawings, data and test certificates are supplied by the vendor on the due
dates as specified within the order and agreed at the pre-production
meeting, to this end they work closely with expediters. The Document
Controller also monitors and co-ordinates the flow of documents for
approval and comment within the Project to ensure speedy responses are
sent to,the vendor so that no delays are incurred, thus maintaining
delivery requirements.
Lastly this function has the responsibility of ensuring that all retained
documentation and certification have been checked. validated against
r
orders and specification requirements, so that full traceability of material
to valid documentation is maintained.
Progress payments can be considered on certain orders as an incentive
for early submission of required documentation.
Chapter 18 - Procurement Management and Control
To ensure f i l l final submission of required documentation is issued
by the vendor in a timely manner, ii is prudent to have a 10% retention of
the total invoice value held against receipt and approval of all
final documentation.
Transportation
The responsibility for delivering materials and equipment to the
respective construction sites may either be taken by the project, or
arranged by the respective suppliers. It is usual for deliveries within the
country of origin to be left in the hands of the supplier since it is then their
responsibility to make all the camage arrangements and take all the risks
until the goods arrive at site.
However, if delivery is of paramount impdrtance or special handling
is considered necessary, the project may well decide to take over the risk
and responsibility of making all delivery arrangements from the
suppliers works to site.
Whoever is finally responsible for delivering materials to site must
comply with all relevant customs formalities, taxation laws and national
and international regulation governing the movement of goods. Delivery
of materials or equipment to site following inspection must be
accompanied by a copy of the relevant Inspection Release Note.
Material Control
The material control function commences at the pre-order stage when
consideration is given to the allocation of materials, this particularly
important where bulk materials are required for multiple sites, storage
policy and disposal of any surplus and scrap material.
Material contTol at site ensures that:
@ Materials are thoroughly checked on receipt, segregated and stored
securely under optimum conditions
@ Materials are only accepted into the store when they have passed
through 'Receiving Inspection'. Anything failing this inspection is
held in a special 'quarantine' arza until the reason for rejection has
been resolved.
8 Documentation and certification supplied with materials and
equipment is recorded and filed in such a way that traceability can
always be verified
e Special arrangements are made for the reception, handling and
storage of hazardous materials
I
Chapter 18 - Procurement Management and Control
8 The integrity of delicate equipment (e.g. instrumentation) is
maintained by providing heated storage or similar care
@ Manufacturers storage instructions for such items as rotating
machinery and electric motors are followed at the
specified frequencies
0 Materials are only issued for construction against any authorised
Materials Requisition
O Detailed records are maintained at all timcs
o Surplus materials are minimised at the end of the project whilst
meeting the requirements of the fabrication programme
Matecials control provides a systematic and orderly approach to the
acquisition and assembly of thousands of different components needed to
build a project to specification, on time and within budget.
The continual reconciliation of all materials against original material
requisitions, purchase orders, specifications etc. will assist in the
identification of any material shortages or surpluses which may be
availabie for disposal.
. . .
In order to provide a complete management tool for the proper
execution of a project it is essential that a computerised material control
system (MCS) is employed from the outset
The MCS will enable the position of materials to be tracked at any
time and the availability of materials for issue to be determined.
For example it is possiblefor the MCS to determine how many spools
could be fabricated from the bulk materials which have been delivered
into the warehouse. If required, reservations could be placed against the
various components in a strict priority sequence. Should the priorities
change at a later date, the MCS can re'-calculate availability in any
desired order.
MCS will enable construction to identify availability of materials by
construction area, or drawing thus enabling options for work execution to
be examined and optimised.
Detailed reports of the total materials scene should be produced for
project management on a regular basis.
Ch~pter 18 dcurement Management and Control
Settlement of Claims
In most cases the purchase order is issued, materials received as
required, invoices rendered and settled without difficulty. However, there
are on occasions the need for resolution of claims which can take up
considerable time. Establishing relevant facts at such a late stage in the
life of a purchase order is sometimes difficult, but this action is assisted
when good comprehensive records are maintained.
Close-out Stage
On completion of delivery of equipment, receipt of all documentation
and settlement of claims, an order close-out report should be compiled
finalising cost reconciliation and commenting on vendor performance. It
is recommended that purchase orders ate closed out in a timely manner
throughout the project period, to obviate purchase orders remaining
semi-active for long periods after goods, documents and payments have
been finalised This can be controlled by the issue of purchase order
close-out certificates signed off by all parties concerned.
Disposals
Disposal must be arranged for material identified at the reconciliation
stage as being surplus to the project requirements or unsuitable to be
handed over to the operator as sparss. The disposal should preferably be
by sealed bid tenders for larger or expensive items, but poor quality or
very low cost items can be scrapped.
It may also be possible to transfer some material to other projects or
even return to the original supplier at the original or reduced cost.
It is essential that all aspects of quality assurance continue to be
implemented with particular reference to the maintenance of
identification marks, heat numbers on materials, certification documents
traceable to the material etc., as without these the materials becomes
virtually worthless.
Any income From the disposals of surplus items should be kept in a
separate account for easy control, but then offset against the original
project budget before the whole project is closed-out.
Chapter 18 - Procurement Management and Control
Operations and Commissioning Spares
Therlevel of spares provision to be provided by the project for
Operations and ~ommi ssi bni n~ should be detailed in the &ateg.
The responsibility will lie either with the Project or with the Asset If the
projectis to pro;ide such spares, then the skategy should also identify
key items such as the sparing philosophy.
Even where the Asset is responsible for spares provision, it is useful
that their procurement is considered when the main equipment is
procured as this ensures that the spares will be available at start-up.
There may also be financial benefits from ordering equipment and
spares together.
/ j Chapter 18 - I lrernent Management and Control
I
March 1999
Safety and Environment
Introduction
Society's perception of the oil and chemical industries commitment to
health, safety and the environment has been sharply influenced by the
series of catastrophes that have occurred in recent times. Flixborough,
Seveso, Bhopal, Mexico City, Piper Alpha, and Exxon Valdez are now a
too familiar litany of events and public concern.
BP Amoco's commitment to Health, Safety and Environmental
Performance, as stated by the Chief Executive, is:
"Everybody who works for BP Amoco, anywhere, is responsible for
getting HSE right. Good HSE performance is critical to the success of
our business. Our goals are simply stated - no accidents, no harm to
people, and no damage to the environment.
We will continue to drive down the environmental and health impact
of our operations by reducing waste, emissions and dischatges, and using
energy ejjiciently. We produce quality products that can be used safely by
our customers.
Wherever we have control or influence we will:
8 Consult, listen and respond openly to our customers, neighbours, and
public interest groups
8 Work with others - our partners, suppliers, competitors and
regulators - to raise the standards of our industry
8 Openly report our performance, good and bad
0 Recognise those who contribute to improved HSE performance
Our business plans include mewrubl e HSE targets. We are all
committed to meeting them.
,.
'Getting HSE right. . . A guide for BP Amoco Managers"O outlines
the approach which Business Unit and other Senior Managers (including
project managers) are expected to follow in order to meet the intent of BP
Amoco's commitment to HSE.
30 Gelling HSE Right ... A guide for BP Amoco Managers
(hnpJhpamoco1 .home.bp.wmhselpol;cyhseri~Mndex.hlm
19-1
Chapter 19 - Safely and Environment
BB Amoco HSE Assurance Framework
and its application to projects
The BP Amoco HSE Assurance Framework is presented in
Figure 19.1.
BP Group HSE Assurance Framework
HSE Performance
1 [ ] Expectations ___c [ F h j
Risk Risk
management - management
programmes reviews
HI
Processes,
procedures,
behaviours
[TI
assessments
Performance
performance
J -
( Local HSE Mansgement Systems
Figure 19.1 BP Amoco Assurance Framework
It is a continuous process whereby assessment of HSE risks,
implementation of HSE management processes and progress against HSE
targets feature in regular performance reviews between Managers and
their Business CEO or Exco member.
,
Chapter 19 - Safety and Environment
OIAS Expectations
Operations Integrity Assurance System (OtAS) Expectations outline
those management systems and processes which all business and support
units within BP Amoco are expected to implement It sets out in more
detail what is implicit in the HSE Commitment and reflects good
practice in the management of HSE risks. The extent and degree of
implementation within a particular business, or support unit will be
relevant to the risk profile of its operational activities, and local
regulatory requirements. Business units are required to demonstrate they
are meeting the expectations of OIAS.
It is the responsibility of each business and support unit to ensure that
projects meet the expectations of OIAS.
Risk Management Programmes
In order to comply with OtAS expectations each project must be
camed out within the business or support unit Risk Management
Programme. The major objective for projects are;
To ensure the project is managed with systems and processes in place
which meet the BP Amoco Commitment to HSE Performance. Projects
must therefore consider all elements of OIAS at every project stage.
Businesses within BP Amoco have developed Project HSE Review
procedures, which address the appropriate OtAS elements at the various
project stages (described in the section "HSE Risk Management
Reviews" below).
To deliver a finished article which enables the operator in !xrn to meet
the BP Amoco Commitment to HSE Performance.
HSE Risk Management Reviews
Normal operations are usually 'steady state' and, therefore, the timing
of reviewslaudits is not particularly sensitive. Projects, however, have
distinctive stages and it is the responsibility of the project manager to
ensure reviews are incorporated as appropriate in the project programme.
The following are the most critical items which must be considered:
(1 The number and timing of the reviews
BP The scope of each review
8 The composition of the review team
Chapter 19 blyand Environment
BP Amoco business Project HSE Review procedures, which address
risk management issues, include RP 48-1 PHSER procedures, and BP
Chemicals HSE 8. Further Details are provided in the HSE Management
System Toolbox Section of 'Getting HSE right a guide for BP Arnoco
Managers'.
Chapter 20 March 1999
Security, Insurance
Introduction
The protection of project assets and personnel from loss, damage or
injury is fundamental to the proper and successful management of
any project.
Consideration should be given to both pre-planned malice and
unexpected accidents or environmental hazards.
Care in this respect ensures that all equipment is available when
required and personnel are fit and safe; this not only ensures that project
costs are minimised but engenders a secure and comfortable
working atmosphere.
It is vital, however that security should not be a burden hampering
freedom of action or dampening innovative spirit. All business involves
the management of risk for commercial advantage; in this respect,
projects are no different. Risks do exist and have to be managed. The aim
is to understand them, appreciate their relative significance and reduce
their effect.
Responsibilities
The welfare of staff and the safeguard of company assets is entrusted
by the company to the Project Manager.
I
All those involved on the project staff should be aware of their role in
providing security, open communication is vital to ensure potential risks
are identified by one another for the benefit of the team. A formal system
of logging such identified risks must exist to complement the open
'networked' information. This ensures that security risks can be
methodically analysed and precautions systematically assessed.
There should not be any dilemma in allocation of responsibilities; the
task of taking precautions is delegated to those directly confronting the
risks; the task of assessing risks and monitoring efeciveness of
precautions remains with the project management.
Security problems do not arise every day and tend not to be at the fore
'
of people's thoughts - hence the particular need to work together as a ,
team on security
!
Chapter 20 - Security. Insurance
This chapter summarises the processes and directs the reader to
information on their implementation. In particular, specific guidance is
provided as to which of these processes are now deemed mandatory for
projects within BP Amoco, so as to enable effective review of the pro-
ject by Business Units in line with their responsibilities for delivering
exceptional performance.
f he Principles
The key to capital efficiency in projects lies in creating a 'challenge
environment'. The emphasis is to ensure that that the Business Unit
selects the correct commercial and technical option in order to build
'the right project' at the minimum cost. The 'challenge environment'
should be continuous, but the greatest value undoubtedly accrues at the
front end.
In summary the available processes are:
(b Make best use of front-end definition phase prior to sanction
8 Reviewscope critically with respect to options and business needs
g Ensure alignment of business objectives across different business units
8 Fully understand safety and business objectives, to mitigate
escalation of scope
$ Build relationships internally and externally to deliver effective execution
@ Access and capture best BPAmoco experience through the peer assist
processes
69 Use formal value engineering processes to challenge scope
e Use external benchmarking to challenge the cost and schedule targets
ab Set stretch targets, utilising riskheward principles of Alliancing
@ Use external facilitators to develop teamworking
Finally, ensure that both Business Unit managers and project staff are
aligned to these processes and provide resource sufficient to meet the
magnitude of the tasks.
Principles of Security
A systematic approach is used; identify the assets, assess the risks,
take protective measures and finally make contingency plans for when
the protection has failed.
Identification of assets
In a well managed project this task will be straightfonvard; for
instance there should be a register of all project equipment, together with
its value. Moreover, the sites, personnel, data and areas of responsibility
should be delineated. If these are not defined then the project will have
problems other than solely with security.
Personnel
The boundary between interference in, and care for, the activities of
project personnel has a hazy border. However, the responsibility is
obvious on projects at remote sites where the company clearly h a
responsibility for the presence of project staff in the area
It is the responsibility of the project manager to be confident that any
staff are unlikely to suffer loss or injury as a result of their being assigned
to the project
If staff are well briefed and operating within their capabilities then
there should not be any problems. However on overseas assignments it is
common for staff to be unaware of the dangers. It is very hard to
generalise; these examples can illustrate the variety of potential
security difficulties:
@ Know the location of project staff and ensure they know the risks of
their environment
For example if the project is in a desert location and your staff like to
go off camping at week-ends, then ensure they leave a record of their
planned itinerary. You do then at least know where to start the search.
This example can be taken further, although the people are obviously
the company's responsibility what about the car they were in? Was it fit
for the journey? If not, was its state of roadworthiness clearly
understood? This example shows clearly how good communication is
vital, and how security difficulties can arise from simple matters like a
week-end drive.
Chapter 20 - Security, Insurance
8 Keep accurate staff records
During the construction of a new silicon production facility in the
USA, the British Manager unfortunately found himself locked inside his
office at 6.00 pm one July 3rd. His security problem was the inverse of
what you might imagine we normally have! However, he fortunately had
records of the home telephone number of his Project Engineer and so
saved himself the ignominy of the Independence Day holiday in his
office with no food.
9 Medical facilities
Ensure that a proper assessment has been made of the health risks
and medical facilities. Does the medical insurance scheme provide suffi-
cient cover? Can the Medevac aircraft land near your project site?
And at night?
The real test of the leadership of a project manager is to ensure that
necessary information is provide willingly, without being seen as an
intrusion on personal life. The first step is good communication which
may be encouraged by having staff at all levels participate in the review
of risks and contingency plans.
@ Equipment
Every piece of equipment should have a 'home' and a 'keeper'.
The keeper can adjust his release 2nd loan procedures to suit. As long as
such procedures, however simple, exist and their efficacy can be checked,
then security will be achieved.
Assessment of risks
This general subject of RiskManagement was covered in Chapter 10.
Particular threats to the security and financial integrity of the project are
best gauged by reference to other similar businesses in the locality -
whether it be threat of fire, war or walk-in theft There is no substitute for
local knowledge and experience from similar projects through the Peer
Assist process. Local police and embassy staff can all help in this respect
The level of risk varies tremendously - from the susceptibility of
computers being stolen to the likelihood of staff being mugged when off
duty or catastrophic failure induced by construction activities.
Chapter 20 - Security, hsurance
uniqueness
Each site has its own security problems; there is no substitute for
personal investigation of the project climate by the Project Manager, in
order to throw up the issues relevant to his Project. Some examples
illustrate the range of categories:
0 Theft: One can obviously categorise items into high value, desirable
,and easily removable items (e.g. portable computers, mobile
telephones) and the less attractive fixtures.
Demonstrations: Consider the social impact of a project site: have
local views been fully considered for construction of a new
pipeline? Is a decommissioning project being managed to suit
international viewpoint?
Protective measures
Select the appropriate protection according to the nature of the asset,
the type of threat and the degree of risk.
Protection of a project site falls into two categories: control of access
(to protect the asset from external influences) and working procedures (to
ensure that activities within the project are under control). It is almost
impossible to generalise on the form of these measures save that it is
vital to recognise that some degree of trust has to be incorporated into
any procedures.
Site offices are often vzry vulnerable to break-in and theft b, -cause
they are temporary buildings, often located in remote parts of the site.
Ensure that it has an intruder alarm system and that you ensure site
security pays special attention to the building.
Hint if you construct a site ofice, when you move in have the locks
changed by an independent locksmith immediately. It is not unknown for
construction workers to keep a copy of the door keys so that they,
or their accomplices can walk straight in and out again with the
project computers!
Contingency Plans
In the event that the defensive security procedures are breached, it is
then that the contingency plans come into use.
It is necessary for making plans for only the higher risk scenarios.
For instance i t is essential that provision is made to up-date the main
computer records from back-up copies, should the working files
be destroyed.
Chapter 20 - Secun,. ..lsumnce
Another example that is relevant in the politically volatile countries in
which we now work is to ensure that staff can be quickly evacuated from
a country if necessary. This can often take the very simple form of
ensuring that at all times staff have zn enby visa for neighbouring states.
Security through lnsurance
The Value of lnsurance
Insurance has been useful in protecting the financial integrity of
individual projects and remains necessary in complying with legislation
for certain risks in many areas. However, it is uneconomic in the context
of the BP Amoco as a whole, which follows a Policy of not insuring its
risks wherever possible. There are exceptions and some arise in the area
of Construction (see Risk Financing for Construction Works, Chapter?)
and BP Amoco joint ventures. Information on the Group policy, and the
names of contacts for local advice are available from BP Amoco
I n~ur ance~~.
However, the fundamental tenet remains: insurance should never be
regarded as a substitute for the proper care and protection of items at risk.
Types of lnsurance
The project manager has to ensure that not only BP Amoco, but also
that the contractor and client carry adequate insurance. Scrutiny of poli-
cies laid down in contracts should be carried out as early as possible.
1
I
Moreover, the act of checking that the insurance documents reflect the
contractual requirements sets a good example of the standards which are
to be expected throughout the project.
I
I
The following main types of insurance are typically required:
$ Employer's Liability I Workmen's Compensation: Which protects
the liability of the employer towards his own employees in respect of
accident, injury, death or illness
I
8 Construction All Risks: Which covers the project in respect of loss
of or damage to the construction works during construction,
commissioning and maintenance
1
Chapter 20 - Security, Insurance
8 Third Party Liability: To protect the legal liability for loss of or
damage to third party property and personnel. The precise scope of
this can vary widely especially in respect of the cover for consequential
loss. For example, in a European Community sponsored project in
Africa, BP was expected to bear liability for loss of revenue to the
national telephone company, if the construction work of BP Amoco
damaged the national telecommunications links! It is
essential that expert advice is taken so that the potential liabilities to
which BP Amoco is exposed are quantified3'. The Project manager is
expected to manage risk but should not shoulder it all.
e Contractor's Plant, Equipment and Tools: It is normal practice
for BP Amoco to ensure the contractor has insurance cover for his
own equipment.
8 Goods in transit: It is worthwhile checking that any material
procured for the contract is insured all the way through from the
supplier to being delivered on-site. Be careful to ensure that there are
no 'grey' areas in transit - particularly with respeet to cover between
sea shipment and before land transit i.e. at the docks.
e SeepagelPollutionlWell Control: These are areas requiring
specialist insurance advice for offshore projects.
Points to note
Particular areas to consider are the detailed scope of insurance, time
period (supposing the project overruns) and reputation of the insurance
company in paying out - in hard currency!
Involvement by the Project management in negotiation of insurance
can result in savings on the premiums payable, by giving confidence to
the insurance company that BP Amoco procedures reduce the risks to
which they will be exposed. BP Amoco insurance and its Ioeal network,
being expert buyers, are also often able to achieve considerable
economies.
Advice should be sought from not only BPArnoco Insurance but also
those currently doing similar business and who have had to claim on
policies in the project location.
Particular thought should be given to the apportionment of liabilities
under Alliancing agreements3', so that there is a clear legal posiiion in the
eventuality of a claim.
32 The Risk Management Group at Sunbury are a useful source of advice on
Quanlilied Risk AssessmenL
33 See Chapter 12 A - -
Chapter 20 - Se~~r i t y, Insurance
Summary
Securitv involves researching and understanding the risks to
everything'owned' by the project. hos t effort and congl obviously has
to be put into caring for those elements that are essential to the proiect or
pose h e highest risk, and to those valuable items that are at highest risk.
Insurance provides an essential aid in reimbursing financial loss -
particularly for the lower risk improbabilities. The Asset or Business Unit
must be made aware of the risks to which they expose themselves and
the Group through not insuring. Insurance is no substitute for managing
the risks themselves by encouraging personal responsibility and care of
all project assets.
Finally, input into the Project Best Practices database35 will be very
helpful to those next involved on a similar project
Quality Assurance
Our primary aim is to get things right first time. This saves time,
money and frustration. Furthermore, it directly affects the quality of the
overall delivered facility. This principle must be extended right down the
supply chain to include contractors and vendors. Ultimately, their savings
become BP Amoco's.
The facility, which it is the project's task to create, must be fit for its
intended purpose. This means that the materials and equipment
comprising the facility as well as the activities that contribute to its
creation, design, construction, etc. must all be of a predetermined
quality. The term Quality Assurance or QA embraces both the assurance
that the specified quality has been attained and the demonstration of this
attainment. QA is neither a separate discipline nor an add-on feature, but
a pre-established, methodical, procedural approach to work.
In the petroleum and allied industries, the consequences of failures in
service can be serious. It is therefore unacceptable to permit a situation
in which sub-standard quality becomes apparent only th;ough subsequent
in-service failure. Consequently, all activities that directly affect fitness
for purpose of the faciiity'mustbe subject to procedures and controls to
ensure their own fitness for purpose.
Responsibilities
All people - Project, contractors, suppliers - involved with design,
procurement, manufacture, construction and inspection are inherently
involved in QA.
The project manager and his team must ensure that his systems of
project control are designed, implemented, monitored and periodically
adjusted to ensure project objectivcs are met.
Designs and specifications must clearly indicate what materials are
required, what special manufacturing or construction techniques are
necessary, the nature of the inspection and tests to be camed out, the
stages at which these should be performed and the certification required.
Procurement personnel must ensure that all necessary requirements
are clearly passed on to the supplier.
The manufacturer has the responsibility for ensuring that the
equipment is built exactly as specified and the inspector for witnessing
tests and checking that the manufacturer has fulfilled his obligations.
21-1
The construction contractor and site inspectors have responsibilities
on construction sites corresponding to the above.
Quality System
The project management processes are made up of a number of key
systems one ofwhich is the quality management system. A structured and
formal documented quality management system is a valuable
management tool in the control of quality in relation to risk, cost and
benefit considerations. The quality system focuses on the control of work
processes. The plans and procedures which form a part of the system
provide an orderly basis for planning the work in a manner that avoids
potential problems. The monitoring functions which are part of the
quality system assure that work processes are conducted in accordance
with the procedures. During the development and documenting of the
quality system the definition of technical interfaces are of paramount
importance. Although producing quality work is the responsibility of
each person assigned to a project team, the organisation has to be in place
to support that work. This rcquires the definition of all roles,
responsibilities and communication paths.
Yn the planning and development phase of the project quality system,
due consideration should be given to the adoption of, and structuring of
the system in accordance with one of the internationally recognised
quality standards, such as IS0 9000 in order to provide a framework upon
which to build or define the system elements.
Quality Plans, whether required from a designer, construction
contractor, vendor or self produced by the project to define project
control parameters, f o m an integral part of the overall project plan and
are an inherent feature of the quality system. These plans provide a
quantified means of demonstrating that specified requirements are being
addressed. The quality plan should, for example, detail the steps needed
to ~r oduce the project deliverablcs, with the appropriate quantitative
acceptance criteria, how interfaces between individuals and
~r~ani sat i onal units will be controlled such that leadership teamwork and
communications can thrive within an oganised framework.
Chapter 21 -Quality Assurance
Assurance of Conformity and Certification
If we wish to demonstrate that each item used in construction is what
it should be and has been properly inspected, then certifying
documentation is required. The large number of items making up even a
simple project means that such confirmatory documentation will be
extensive. It is important from the outset of a project to establish along
with the operator of the facility his exact requirements for documentation
and ~ertification'~. He may for example require documentation and
certification to be handed over in an electronic format. Understanding his
requirements at the onsct can lead to a significant reduction in
unnecessary paper generation.
Capability of the Quality Management System
The performance of the system must be monitored; periodic review of
actual working procedures should verify compliance with and
performance of the system.
The aim is not to criticise the inevitable problems that arise but to
look at how they have arisen and to cure the cause. Key areas to address
include methods of planning and estimating, the selection and control
of contractors/suppliers and personnel and the oveniding factor - ill
defined requirements.
The audit process is used to assess the performance of the quality
management system. The aim is to investigate the actual method of work
in comparison with the intended or documented method. The benefits
from the audit will arise in two ways: either through increased confidence
in the system, having proven that the system is working, or through
having identified opportunities to correct weaknesses in the system.
Summary
Quality should be considered a primary objective for all project
managers and team members. To meet this objective projects must be
organised such that factors, affecting the quality of the service provided,
re oriented towards the reduction, elimination and prevention
of deficiencies.
36 N.B. There can be confusion in use of lha lerm 'csrtificalion' which strictly, under IS0
delinitions, refers lo written assurance by a lhird party Lhat the specified producl, process
or service conlomls to specified requirements.
7 3 -2
Chapter 21 - L,,rfty Assurance
Management of Construction
Introduction ,
This chapter is intended to assist site construction management in the
setting up and administration of site activities in order to meet
effectively and safely the requirements of the project
Whilst it is not feasible to cover all requirements, the use where
possible of standard procedures and documentation will facilitate the set-
ting up of site controls on a uniform basis.
It is recognised that each project will be different, depending upon a
number of circumstances such as location, contract strategy, method of
site supervision and applicable construction agreements. Whatever the
circumstances, the responsibilities for overall site supervision and control
remain with the construction manager (who may be appointed from the
Asset or from one of the contractors) and he must satisfy himself that the
site is set up and administered to project requirements.
The major areas requiring control are covered in the following sections.
Site Organisation and General Administration
Dependent upon size, type and location of project some or all of the
following areas may require consideration and will require agreement
between all parties involved with the project, particularly the Asset
8 Site construction officcs of appropriate size
0 Telecommunication (telephones, telex, f ~ , computer links)
@ Power, light, heating/cooling
O Furniture, office equipment and consumables.
d Water (hot and cold) and drainage
8 Toilets (male and female) and sewage disposal
f3 Waste and rubbish disposal
d Insurance of personnel, offices, equipment, materials
8 Cleaning services
Coffeeltea and meals
O Security services and procedures
O First aid facilities and accident procedures.
Chapter 22 - a.aflagernent of Construction
8 Site access (roads, car parks, lighting, drainage; road signs).
0 Transport (cars, buses, etc.) with associated services
(fuel, maintenance, insurance, garaging).
Fire fighting (alarms, extinguishers, procedures).
g Materials and equipment storage and handling
(buildings, yards, fork list trucks, cranes etc.).
Design and Specification Information, Receipt,
Storage, Retrieval and Updating.
Construction receives its instructions on what to build in the form of
drawings and specifications. It is vital that the on-site system for the
receipt, storage, retrieval and' updating of this information is
efficient and very thorough. The system should include:
O Logging and recording of receipts.
O Index of latest issues of data.
8 Log of data issued for construction.
8 Log of outdated issues retrieved from field and cancelled or destroyed.
$ System of uniquely numbering, recording and progressing engineering
queries, and of logging and checking implementation of
approved answers.
@ System of recording and checking 'Design Change Notices' and
their implementation.
8 On major, multi-location projects, electronic imaging of data can be
used to advantage.
Chapter 24 explains the subject of project documentation in more detail.
Materials and Equipment, Receipt, Storage and
Issue ancluoling Certificaiion
For some locations and projects the existing procurement and
stores facilities may be used. If this is the case, the issue of segregation
and identification of project materials must be agreed with the
Asset management.
I
, Chapter 22 - Management of Construction
Where a full on-site materials set-up is to be provided the following
points should be considered:
(B Storage: Covered or open?
8 Storage for instruments and electrical equipment; does it need to be
temperature and humidity controlled?
@ How will off loading be handled? e.g. manual, fork lift or crane?
8 Who will be responsible for it, the Project, the Asset or the supplier?
O How will materials be trailsported around site?
8 Set up goods inward inspection and quarantine area for checking
compliance with order and correct certification
O Set up bonded store of materials approved for incorporation into
permanent works, with record system covering receipts, issues and
remaining stock with integrated correlation against project total
requirement to signal shortfalls
8 System for expediting material deliveries and issuing status reports
63 Set up procurement system for MTO shortfalls and omissions
@ Set up scrap and surplus material identification and disposal system
e Ensure equipment in store receives required maintenance and
preservation attention.
Administration and Control of Contracts
and Contractors
As discussed in chapter 11, split of responsibility and sharing of risk
between BP Amoco and its contractors depends on the contract strategy.
The risks and controls will have been assessed during the formulation of
the project strategy.
The primary tool for contract administration is an extremely thorough
and detailed knowledge of the rights and obligations of all parties to the
contract and a determination that these rights and obligations will be
adhered to. All parties' obligations, especially the Asset's, must be
strictly complied with, otherwise other parties may make additional
claims or fall down on their obligations.
In circumstances where the contract strategy is based on fixed price
contracts, accurate, detailed, uncontested information assists grcatly in
the final settlement of contract costs, and it is therefore important that the
data base starts immediately afier contract award.
Chapter 22 - Mana,_.,lent of Construction
For construction activities, the information to be collected required
should include the following:
@ Weather on a daily basis
8 Number and type of personnel on site
@ Plant and equipment on site
@ Drawing and specification issue dates
6 Issue dates of revised drawings
8 Equipment on-site dates
e Material on-site dates
$ Details and duration of interference to site access or occupation due
to operational necessity
8 Duration and cause of labour disputes
@ Progress achieved, with dates of specific milestones.
In addition to the routine collection and filing of the above data, a
daily site construction diary by all site personnel. detailing significant
points and areas of activity, has frequently proved invaluable.
Regular (e.g. weekly) meetings should be held on site between the
key parties involved with consiruction. This should include the Operator
as well as the key construction contractors and sub-contractors. This
should be a forum for raising problems and allocating actions to people
to resolve the problems and report back. The use of regular meetings
should not preclude discussions of problems at any time, which can then
be recorded and actinide at the next meeting.
Above all. generate good relationships behveen parties based on
trust, confidence and openness.
Planning with Progress Measurement
and Updating
Chapter IS dealt with the planning and monitoring of the project and
the construction phase is when planning is very important. Many
activities are happening in parallel in a restricted area which means that
correct sequencing and timing of the work is essential. Delays can
rapidly escalate because there are so many dependencies.
Good planning and accurate progress measurement are an essential
pre-requisite of an efficient construction site.
I
Chapter 22 - Management of Construction
Therefore, the Project should ensure that all parties are co-ordinating
their planning activities, with an overall master plan. Do not forget to
include Operations in the planning activities because there may be
occasions when they are the limiting resource.
Again, planning should be seen by everyone as a support to help them
achieve the project objectives, not as a club to hit them when things
go wrong.
Construction Site Inspection and
Generation of Handover Documentation
A wide range of inspection activities will be required on site,
from the inspection of building work to the commissioning of
process instrumentation.
The most critical of all elements of the project should be assessed as
early as possible, and the inspection and verification standards
determined. These inspection requirements can vary from the minute
examination and testing of every component of a system, to the spot
checking of the inspectors to ensure they are complying with the
project requirements.
In most cases some form of paperwork will be required, this to be
signed by Project and Asset to certify that the work has been canied out
in conformance with project requirements.
These site generated certificates will form an essential element of the
documentation required at handover.
It is recommended that a lot of effort is expended in the early phases
of construction to set the standards required from the Project, and thus
reduce or eliminate re-work towards the later stages.
Be warned - inadequate or missed site inspection can prove very
expensive to the overall project. Faults revealed after introduction of
hydrocarbons are very time consuming and costly to rectify.
Chapter 23 deals with the requirements of testing and commissioning
in more detail.
Chapter 22 - Ma, ,ernent of Construction
i
1
I
Liaison Wiih, and Handover To, Operator
Close co-operation between construction and the
commissioning/operating team particularly during the later stages of
construction, can significantly reduce the overall project time scale to
beneficial operation.
1 :
There are three main areas where co-operation is important:
8 When construction changes from 'area' to.'system' completion,
it is vital that the commissioning team have fully defined the total
content of an operable system and that the precise order of system
commissioning is known. It is then possible to plan completions in
the correct order. This planning must take into account the impact
on outstanding construction work from the phased commissioning.
@ The Construction team must determine the testing and documentation
expectations of commissioning and operations and co-operate by
involving their personnel in witnessing tests where this can save
later duplication. Particular items often involved are:
I
- Flushing of piping systems
I
- Inspection for completeness and cleanliness of vessel intemals
- Function of vital instrumentziion and control systems, particularly
emergency shutdowns
- Preparation of database for corrosion monitoring
Q Preparation and implementation of the optimum strategy for
I
commencing a 'Permit to Work' system.
I
The handover to the operator is covered in more detail in Chapter 23.
Chapter 23 March 1999
Commissioning and
Operat ions
Introduction
In the present rapidly changing environment it is difficult to write
specifically on a subject such as 'Commissioning and Operations' as
there are a myriad of approaches adopted across the Company and even
within individual Businesses. Recent developments in Alliancing and
Partnering have resulted in a major sea-change in approach and the
range of contractual options has led to a bluning of traditional roles and
activities.
This chapter aims to address essential fundamental requirements,
regardless of which strategy is being followed by the individual project.
It also aims to be equally applicable to onshore as well as offshore
operations.
Commissioning
What is 'Commissioning'? Well, the traditional definition may be
Our current view is significantly wider and may be expressed as ...
. . , , : . . . . . . . . . . . . . . . . . . . ' . . i . . . . :r- ..... . .
...
_ . ;:.* . . . . . . . . . .
.-..
. -..*.. , . ;
.... ......
. .
:
-:-. . . . ;:;': -.~$:. ..:: :'; :~.. ~;-~.~ommissio&~-:~he,~urrent,~ew~~~~~~; : ., . '
Re &f. and timely pioc&s of bringi&a f=<ilityfiO&: incepti?~ . . . to
efjicient and continuous operationas economically. &possible.:<-. ;-: ..
.:: z .?,> :p.&..+.-4:..y.&.. *. ~. ~~<:, !*;*~~. ~7:~. :~~. ' :. ~+~' ~~
The obvious difference between these two perceptions is the latter
clearly identifies activities which take place throughout the project and
not just considered towards the end of construction. If we have learned
anything from the many hundreds of projects completed within the
Company, it is that early .Operations/ Commissioning involvement
is essential, for both effective project execution and eff~cient
ongoing operation.
-- 4
Chapter 23 - Commissioning and Operations
There is also a significant benefit to be gained in linking
commissioning experience into the future Operations (including
Maintenance) team in order to capture the depth of knowledge gained
through the project development as well as the actual commissioning
activity. This may be accomplished in a number of ways and is
dependent on project contract strategy (traditional design and construct,
turnkey - design, construct and commission, or even build and operate).
As has been discussed in earlier chapters, the early involvement of
Operations personnel into the project as part of the Commissioning team
is very important and they will be able to address the range of issues
around testing, pre-commissioning, commissioning and bringing the
facility into operation. The introduction of commissioning requirements
into the early phases of the project will help to ensure that the plant is
designed to assist this start up phase.
There is a clear impact on the issues of operability and
maintainability on layout and plays an important part in early design. Not
so apparent however is the need to have someone develop the operating
proceduresat this early stage. It is necessary for someone to have a clear
vision of how the plant is going to be operated and maintained in order to
respond effectively to the multitude of queries arising from the designers.
The spares parts identification is a logical spin-off from this as is also the
future manpower requirements and the training programme.
Life cycle costing is a phrase which has crept into our vocabulary
over recent years. It identifies the requirement to ensure that an effective
balance is maintained between CAPEX and future OPEX expenditure.
The reality of life is that projects are frequently capital constrained. There
is a need however, to carefully examine project expenditure to aim for the
optimum utilisation of available funds gnd ensure that excessive OPEX
burdens are not been built-in. The Operations specialist1 Commissioning
Manager will play an important role in the forecasting of future OPEX
spending as a consequence of project development decisions.
Let us now consider .in more detail the progression through
pre-commissioning to commissioning and full operation.
The Completions Approach
Traditionally, plants have been constructed in sections designated by
geographic area for efficient use of construction labour. This creates
problems for the commissioning team as they require items to be handed
over by system. It has been said that the constructor will aim at some
stage to have 100% of the systems 95% complete, whereas the
commissioner wants 95% of the systems 100% complete - that's
the difference.
Chapter 23 - Commissioning and Operations
It took some time for this difference to be recognised but the
completiom approach now addresses this issue.
At an early stage in the project development the commissioning team
needs to subdivide the process into discrete commissionable systems.
This in itself requires early system definition to allow the inspection and
testing documentation to be broken out into appropriate sub-groups for
the completions phase. In order to facilitate full understanding of system
boundaries these systems are identified on P&ID's. Modem comvder
technology geatl; improves this capability and the use of drafting
packages allows downloadinn of line numbers, instruments, etc. to allow
full system definition. cross referencing to cable data bases enables
identification of all related cables, junction boxes, etc. Particular
attention has to be given to related safety systems which are required to
be in commission e.g. fire and gas, firewater, emergency showers, etc.
A system commissioning sequence and timescale then needs to
be identified followed by detailed commissioning and function
test procedures.
There is no point in puiiing all this work in up front if construction do
not hand systems over as requested in the correct sequence. It is therefore
key that system designers and construction management take full account
of the commissioning plan
For the purposes of this chapter 'Precommissioning' is taken as those
activities which follow mechanical completion and precede handover for
final commissioning. Typically this will include instrument loop
checking, line flushing and blowing, charging of chemicals and catalysts,
etc.
Prior to the mechanical completion of any system there will be a
combined inspection activity incorporating construction and
commissioning personnel to identify any system deficiencies. This is
termed punch listing and involves physical inspection to ensure
completeness. It is important that punchlisting is not seen just as a check
for mechanical completion against P&ID's, it should also address
operability and safety issues, such as accessibility and the identification
of latent hazard. Punch list items will typically be classified according to
criticality. Priority defects have to be corrected prior to issue of the
mechanical completion certificate and include those items necessary to
ensure system integrity and safety. Most punch list items are completed
prior to commissioning although minor defects, such as painting
touch-up may be completed later.
i
Chapter 23 - Comrwjsioning and Operations
Operation
Given the successful completion of the processes described above, the
Operations and Maintenance team should be in a good position to
progress the ongoing safe and eficient process operation as a smooth
progression of the plant or facility start-up. Satisfactory completion of the
structured braining programme which should include Vendors' courses as
well as process and plant familiarisation, classroom sessions and related
safety courses, together with practical involvement through the
pre-commissioning and start-up phase would be an ideal progression
from an operational viewpoint. Assisted by the provision of well-written
operating and maintenance instructions, the organisation would be well
placed to take 1 1 1 and effective ownership of the asset.
As mentioned earlier, the contract strategy may not easily enable this
process, for example in the case or" an EPIC (Engineer, Procure, Install
and Commission), or Turnkey contract, the Contractor has the
responsibility to hand over the plant as an operating unit. Whilst this to a
certain extent simplifies the process for the Asset, there is a downside in
terms of potential loss of the learning process for the receiving operations
and maintenance team.
Such contracts have to be carefully managed to ensure suficient
Operations involvement and contribution through the project
development is not compromised, with particular emphasis on training
and exposure to the plant of the Operations and Maintenance team
throughout the pre-commissioning and start-up phases.
There is normally a contractual requirement to prove the performance
of the facility through the completion of proving runs and performance
tests, which is frequently formalised by the issue of a Performance
Certificate on completion. At this stage there is also a small team
working on the completion of all minor punch list items and
site clean-up.
The issue of a final Certificate of Completion is normally 1 year after
the designated completion of a~ outstanding corrective work.
Chapter 24 March 1999
Project lnformation
Management
Introduction
lnformation is an expensive commodity to produce and maintain, just
like structures and facilities, only it is less visible until the costs are
exposed. Project information is generated from the first moment
someone's good idea writien down and the quantity of the information
rapidly increases as the project progresses.
There must be an appropriate strategy for managing the information
and it must be in place in time. It is very difficult to introduce a strategy
or to change it once large quantities of information have already been
produced. This is particularly true of decisions such as numbering and
identification systems and information formats.
This section looks at the scope of the information, the elements of the
strategy and some of the new approaches to managing the information
such as Product Data Management (PDM) and emerging information
standards such as STEP.
The Scope of Engineering lnformation
Engineering projects are large generators of information.
Typical examples are:
O Engineering information. such as schematic diamams (process flow
- - - -
sheets, P&ID's, loop diagrams, etc.), engineering drawings,
3D models, equipment data sheets and databases, equipment
- . -
specifications, vendor data, standards used and construction'de$ils
O Commercial Information, such as contracts, purchase orders,
invoices and time sheets
@ Administrative information, such as memos and faxes
@ Operations and maintenance information such as operating instructions,
maintenance manuals and spares lists
The storage and control of project correspondence is dealt with in
Chapter 8. The rest of this chapter deals with the engineering, operations
and maintenance information.
Chapter 24 - Projt;,. ~nforrnation Management
Effective information management is essential for the successful
completion of a project and to an efficient ongoing operation.
There are numerous legal, statutory, commercial and operational
-
requirements for the provision of accurate and readily Hccessib~e
documents that identify:
@ What the facility was required to do (The SoR)
How it was designed
@J How it was built.
I
g Where materials were sourced and associated quality records.
8 Standards of construction.
8 Design details.
I
t3 Health Safety and Environmental protection
I
% Operational procedures and instructions
I Q Changes
In the past, this information was delivered in paper form, in several
truck-loads! Now, we generally get information delivered in an
electronic form. However, this still requires careful management. Despite
the increasing use of electronic storage and transmittal of information,
old habits die hard and there is still a tendency, particularly within small
suppliers, to deliver information in paper form.
The Lifecycle Use of Data
Certain information generated during the project, particularly
engineering information, is of value throughout the entire lifecycle of the
asset Although information such as the piping fabrication isometrics and
2D and 3D representations may not be used during the operation of the
asset, any modification work in the future will benefit from this original
engineering information. If this information is not available, then any
future modification project will require a comprehensive and expensive
on-site survey before any new design work can commence.
Therefore, any handover of information from a project to the
Operator must allow for its reuse in the future, taking into account issues
such as the complexity of the plant, its likely life and the possibility of
future expansion and revamp.
Chapter 24 - Project Info~~nalion Management
Developing an Information Strategy
Each project should have an information skategy right at the outset,
along with the other strategies and procedures that are required. There are
three main areas that the strategy should cover:
8 Strategy for managing information during the project
8 Strategy for handover of information to the Operator
Strategy for information management by the asset
When we take account of the lifecycle use of information, it is clear
that all three aspects of the overall information strategy should be
developed together. It is no good developing a skategy for the project that
is totally incompatible with that of the asset, because this will involve
much more work at handover.
If the asset is an existing one, the strategy for the information
management may already be fixed and constrained by the existing
systems. However, if the asset is new, there will be more flexibility in
setting the strategy.
The timing of the strategy is crucial. Decisions about the structure and
'
format of the information must be made before that information is
created, otherwise there will be a lot of rework to restructure and
reproduce the information. This has cost BP Amoco enormous sums of
money in the past, for example the whole of the Forties system P&ID's
needed to'be re-drawn because they could not be used in operation. This
means that parts of the strategy will need to be in place before
conceptual design starts.
The hvo most critical areas are the numbering and identification
system and the format of the information.
The following sections look at each of the above aspects. We start
with the requirements of the operating asset since this will influence the
other parts of the strategy.
1
Chapter 24 - Pn Inlormation Management
Asset Information Requirements
The following table identifies some of the typical business finctions
that need to be supported.
Access to design information
Access to schematic drawings
Access to engineering drawings
Access to operational manuals
Access to maintenance information
Access to spares information
Managing maintenance workflow
Managing hazardous substances
(including access to material safety data)
Managing spares and purchasing
Advanced control development and tuning
(including on-line simulation)
Managing work permits and access
Managing process changes
New engineering developments and modifications
Product accounting and apportionment
Managing safety records
Managing equipment history -and inspection records and reports
Production planning and scheduling
Operational monitoring and review
Table 25. I Typical Business Fuilctions to be Supported by
Information Management
Chapter 24 - Project Infomanation Management
For each of the functions identified, we then need to identify the
following:
Who
@ Who will be carrying out the function?
o Where are they typically located (office, control room, mobile)?
What
What information do they need?
What information will they update?
What are the quality and security requirements of the information?
@ What is the importance of the information?
What software systems will be used and how do they require their
information?
0 What information is common to different business functions and to
different software applications (this may identify the need for
common or integrated information).
How
8 How is the information used to support the business function
Where
a Where will the information come from? 1.e. what is the source of the
original information and what is the source of any changes or
updates?
Where will information be stored, locally, remotely?
Once the above areas have been considered, an outline architecture
for the information managcmcnt should bc drawn up. This should
. identify where information should be located and the preferred strategy
for managing the information and assigning responsibility. Options
include:
@ Off site storage, being the responsibility of the vendor or contractor
with links into the Business Unit
9 Localised, distributed storage on site
0 Ccntraliscd storage, using an intcgratcd data warchousc approach.
Chapter 24 - Proj~.,. information Management
In practice, a business unit may employ a combination of these
smtegies. Nevertheless, it is necessary to identify how each type of
information is to be managed.
There are security aspects to consider from the risk of losing
information through accident such as by fire or flood, by inadequate
capacity of the information systems or by poor change control. There is
a need to identify what information is needed for reference as part ofthe
ongoing operation and what is to be archived for infrequent access only
(e.g. for auditing,, statutory and legal requirements, or for use in future
plant revamp projects). Although some information will be superfluous
on completion of the project with the increasing use of electronic
storage, the costs of sorting through it and deciding whether to keep or
discard could be much higher than buying an extra disk drive! If the data
is held in an 'intelligent' database, then it should not impose a burden in
searching through it to find other information.
Obviously, any existing information infrastructure will determine
much of the strategy. However, this should not necessarily constrain
thinking. Ifexisting systems and information management do not provide
the facilities required, then the strategy must address changing or
developing systems to meet the new requirements.
Operating and Maintenance Manuals
Operating and Maintenance manuals are key documents for the
Operator and there is a need for very early identification of what the
client requires in respect to format and content. Where the project is
within the scope of an existing operation there is a need for
compatibility with existing procedures. This is an area which is
frequently neglected until too late in the process, resulting in conflict
between project and asset, considerable expense and demand on
resources for a client re-write (if considered necessary) and
dissatisfaction with the quality of information available during
commissioning and early operation. Early and accurate input to the
project can prevent this unnecessary complication.
A key input to the O&M manuals is the O&M philosophy which is
an inherent part of the SoR which should beavailable in conjunction with
design information to facilitate this important area.
Chapter 24 - Project Inforn. ~n Management
The design Contractor will prepare a document, using Vendor data
which is essentially process specific with general operating instructions.
It frequently falls on the Commissioning Team to supplement these
procedures with more detailed instructions for start-up and initial
operation. The structure of these manuals should therefore recognise this
and facilitate inclusion of the detailed procedures as and when they
become available.
Authorisation and control of the various revisions needs to be
carefully managed through the appropriate change mechanism. The need
to have commissioning procedures available sufficiently early to enable
timely completion of training prior to commissioning cannot be
over-emphasised. There is an added complication of ensuring the timely
availability of procedures in the local language in countries where
English is not the native tongue of the commissioning and
operations team.
Maintenance procedures should not be just a collection of Vendors'
manuals. It is something of an anomaly that a great deal of effort and
expense goes into the preparation of operating manuals but little is done
to supplement Vendor maintenance manuals. A maintenance schedule for
all equipment is a minimum requirement. There have been a numbcr of
instances of major shutdown due to the inability to follow the Vendors'
advice on such items as frequency of filter cleaning, etc. The generation
of spare parts lists, both commissioning and ongoing operational spares
is another early requirement.
Handover of Information to the Operator
Once the strategy has identified what information the Operator
requires, the handover strategy needs to identify:
8 How the information will be transferred from the project to the
operating asset? This includes agreeing formats andlor standards for
the information along with means to load information into the chosen
application software.
e When it will be transferred, e.g. will it be a 'big bang' at the end of
the project, or will the information be built up throughout the project
lifecycle?
8 Who will transfer the information, e.g. will it be the main contractor's
responsibility or the operator's? Will each vendor be expected to
conform to a standard?
8 Where it'will be transferred, i.e. will the contractor deliver a tape or a
fully populated system to site?
?
Chapter 24 - P, . Information Management
The final result of preparing the information and handover strategy
will be to show how each type of information, for each part of the asset,
migrates from the source to the destination and how it will be used
during the operational phase of the lifecycle. The requirements placed on
the design contractors and equipment vendors should be identified in the
contracts.
In the past, requirements would have included the number of paper
copies to be supplied, but with the increasing use of electronic
information, such requirements are redundant and should not be
included.
There must be a formal process for the hand over and receipt of
information from the project. This is necessary not only to record what
has been handed over but also to clearly identify the change of ownership
of the information so that responsibility for recording changes is known.
At this point the client's change procedure applies to all information
handed over.
Information Strategy for the Project
The information strategy for the project phase of the Asset's
lifecycle must take into account the handover of information to the Asset
at the end of the project. It must also take into account the requirements
of the parties in the project.
The systems to be used for the engineering design are critical to the
success of the project. Normally, the design contractor will want to use
his preferred systems to avoid going up the learning curve on a new
system. The use of Computer Aided Design (CAD) systems, especially
intelligent 2D and 3D CAD is now widespread and a major factor in
producing a high quality, low error design in the minimum time.
However, if the decision to use such CAD systems is not taken early
enough, it becomes very difficult and expensive to adopt them later on.
"Intelligent" CAD systems create more than just graphical
representations of schematics and engineering drawing. They store
information about the components (pumps, valves, pipework,
instruments, etc.) that go to make up the facility. By storing information
about the components and their connectivity, many project functions can
be automated such as;
Chapter 24 - Project Informalion Management
O Checking the consistency of scl~ematic diagrams (e.g. arc all direction
mows in the right direction? Are all vessel nozzles connected to
pipes? Are there any loops in the pipework?)
8 Specification checking (e.g. checking that the pressure and
temperature ratings of pipcwork and valves are consistent)
8 Automated material take-offs
Automated production of piping isometrics (fiom 3D model)
e Automated clash detection
Reproducing similar plant systems (e.g. duplicating proccss trains)
One of the main areas where problems can arise is the interface between
the different parties in the project, particularly between design and
fabrication contractors. Large benefits have been realised in projects
where the design and fabrication contractors use a common engineering
design system, with terminals located at the fabrication sites. The
benefits to this are:
(D Questions raised by the fabricator can usually be answered by
looking at the overall design in the system
f3 Changes to the design can be rapidly disseminated, thus avoiding
delays and re-work
8 The fabricator can extract information in the way he wants to
fabricate, this avoids the design contractor passing over piles of
documents that the fabricator has to sort through, often re-draw, to
tind the information required to fabricate
t3 Details determined at fabrication stage can be input into the system in
'As Fitted' status for handover to the Asset
Similarly, the information strategy must define how information is to be
made available at construction sites and how changes are to be captured
and reflected back in the design information.
Another interface that requires careful management is between the
project and equipment vendors. The strategy must show how information
travels up and down the supply chain. This not only affects the execution
of the project, but impacts the handover of information to the Asset
and ongoing support of the Asset by the equipment vendors.
The format of information must be agreed along with any means for
electronic transmission.
Where equipment vendors or subcontractors are responsible for the
design of packages, the way in which their information is integrated into
the overall project's must be identified.
Chapter 24 - Project Information Management
Overall, the strategy should address how the information is to be kept up
to date throughout the project, especially capturing changes. This will
avoid a lengthy task to update all of the information at the end of
the project.
Numbering and Identification System
The information must be structured in a coherent and agreed way so that
systems, items of equipment, documents, process units, etc. can be
unambiguously identified. The numbering and identification system
adopted by the project is the means to achieve this.
This system must be in place before information is generated If not, it
may become necessary to renumber and re-identify everything, costing
time and money.
Remember that it is the Operator that requires items to be identified
unambiguously and that the system adopted must be based on
their requirements
A system may already exist for an existing asset and the project will need
to adopt it. For new assets, the project will have to develop the
numbering and identification system. However, this does not need to be
done in isolation. There are other assets in BPAmoco that can be used as
the basis. The message is: do not invent a new coding system.
There is a temptation to embed too much information into things like tag
numbers. This should be avoided because it can make the numbering
system too complex and unusable.
lnformation Formats
The format of the information required by the Operator and other
parties in the project is an important element of the strategy. As with the
numbering and identification system, the formats have to be defined early
to avoid expensive re-work:
Some reformatting of information is possible, however some can
only be reformatted by completely re-creating the information from
scratch. For example, if the project wants to gain the efficiency and
quality advantages of using intelligent 2D CAD for schematics, then
initial P&ID1s must be done in this form, they cannot be drawn in
conventional CAD and converted later.
Chapter 24 - Project lnformation Management
lnformation Control
There must be procedures in place for the control and dissemination
of the project information. Controls are required whenever the status of
information changes, for example:
0 From 'preliminary' to 'issued for construction'
@ From 'issued for construction' to 'as fitted'
0 Final handover of 'as fitted' information to the Operator
I
Remember that within the project, authority to make changes to
P&ID1s is rigorously controlled and subject to HAZOP and audit through i
the PSR system.
i
I
I
Product Data Management I
In the past when we relied on paper documents, the difference
,
between 'information' and 'documents' was blurred, or even non-existent.
The first generation of computer systems for managing and storing
engineering information essentially duplicated the paper world and
created 'electronic documents' or 'electronic paper'. However, now we
are much more interested in the information that the documents hold and
the management of the information, rather than the documents.
I
In the document view of the world, there are many documents, each
of which may refer to the same item. In Figure 25.1, we see a number of
documents and drawings that refer to a pump.
Figure 24.1 The Docwnenf Trail
I
1
Chapter 24 - Project Information Management
However, to be useful, we need to link these documents so that there
is a 'chain' from one to another. In a document management system, these
links provide a way in which the user can navigate from one document to
another.
Although these document management systems are very useful, they
have the disadvantage that they require a great deal of effort to set up and
to maintain throughout the life of the asset All of the links have to be
created, and re-created every time there is a change.
Furthermore, the 'document-centred' approach does not cater for
information that is stored in databases, for example, equipment data. The
document management system will typically only handle the printed
equipment data sheets. This loses much of the functionality of the
database.
The approach therefore is changing to manage the information, not
the documents. Such an approach is referred to as "Product Data
Management" (PDM). PDM has been used in many industries (such as
aircraft, automobiles, etc.) and is now starting to emerge in the process
industry. PDM integrates all of the information about a process plant,
including;
O Information about the plant and the equipment
~3 Drawings and documents related to the plant and equipment
g Configuration (how the plant and equipment are assembled)
@ Change management
@ Version control
8 Workflow management
Figure 25.2 shows how the information is stored in a PDM database
and how we can view it in different ways.
Generally, we refer to a central data store of the information as a Data
Warehouse.
Chapter 24 - Project Information Management
The advantage of the PDM approach is:
The information is held in one place, once only. It i s therefore easier
to find, use and update
O The data is stored 'intelligently' and it is easier to do useful things
with it, such as formulating queries to extract the precise information
required or to carry out automatic consistency checking
It allows users to access the information from a common user
interface.
@ The Contractor can populate a data warehouse throughout the project
and hand it over to the Operator at commissioning time.
f =-7 Equipment Data Sheet View
30 CAD View
Figure 24.2 - Managing Information, Not Documents
Data warehouses are particnlarly appropriate for storing information
that needs to be accessed by many different users, each who may use the
information in a different way using different software.
Chapter 24 - Project Information Management
Standards in information Management
In conjunction with the PDM approach outlined above, new
international standards are emerging for engineering information.
The international standard, IS0 10303 (known as the Standard for the
Exchange of Product data or STET) defines a common format of the
engineering information so that it can be easily transferred from one
system to another. Software vendors are taking up this standard and
increasing numbers of projects are demanding the delivery of information
in a STEP-compliant format.
A similar standard. I S0 15926, is being developed by the
POSUCaesar organisation in Norway. This standard is concerned with
the storage of information in data warehouses.
Use of these standards will allow information to be more freely
exchanged and shared during the lifecycle of the asset It will enable
easier handover from Contractor to Operator and the information will be
in a neutral format independent of the software systems in use. This
means that the information can outlive individual systems and can last for
the whole life of the asset.
For the process industry, both I S0 10303 and I S0 15926 are
developing a comprehensive reference data library (RDL). This RDL is
effectively a standard dictionary and classitication of key engineering
terms (such as "centrifugal pump" and "maximum discharge pressure").
Even if the full standards are not used, the RDL can be used to agree the
naming convention of equipment and characteristics.
Chapter 25
I
March 1999
Learning I ranster
and Close Out
Introduction
Each Project is a mine of valuable knowledge and experience. The
Project Manager has a responsibility to ensure that learning opportunities
are recognised and lessons are transferred throughout the Group. The
project must also be handed over to the Asset, complete with all of the
knowledge required for efficient operation
In order to maximise leaming opportunities, learning and preparation
for close out, should ideally take place throughout the full project cycle.
During the intense activity of project execution, it can be difficult make
the time available to address issues which are not.immediately relevant.
Some discipline is required.
Although learning during the project is important, it is not until the
project has been completed and the facility has been operating for a
period of time, that activities can be reviewed with the benefit
of hindsight.
In addition to learning transfer, Project .close-out also involves,
preparation and hand over of operational information to the operator,
writing a close-out report, if required and feedback of critical project
benchmarking data into the, BP Amoco 'PROJECTS' database
administered by Group Project Support
earning Transfer
Transfer of learning and experience is one area where ~ ~ m o c o have
traditionally been poor. Capture of learning is not so difficult, transfer of
learning is. There are a variety of reasons for this. Whilst Internal Audit,
Knowledge Managers and others can facilitate transfer, the onus lies
with the individuals who have gone through the learning experience to
ensure that experience is available to others who might gain from it. It is
also the responsibility of those embarking on a new venture to ensure past
lessons are sought out and considered for relevance.
A range of methodologies are available. They apply at different
stages of the project.
Chapter 25 - Le, .Ag Trznsfer snd Close Out
Through the Project Cycle
Iil chapter I0 we looked at Risk Analysis and discussed the use of
tools such as 'ALERT' to identify and manage project uncertainties.
These uncertainties also represent powerful learning opportunities and
learning takes place as these risks are managed.
Linking learning capture with risk management offers a clear target
of learning opportunities identified at the start of the project . It also
gives some discipline to the learning capture process.
One simple way to achieve this and to make the leaning instantly
available to the rest of the Group is to use the Project Knowledge System
, in parallel with management of risks, this is accessible via Project
Management Homepage
The Project Knowledge system is readily searchable by pop up
keyword andlor string searches. 700 plus lessons have been created
during its evolution, since it was first constructed in 1991. These are
now archived but are readily searchable from the site.
Once a document has been created it is live on the system, but it can
still be edited or deleted by the author. Each entry hs an owner
identified. A facility is provided to question to the author,-the conhibutor,
contractors involved and individuals within the contractors oreanisation
for more detail or advice. Contact can be by E- mail or teleph&e.
Attachments in the form of text sound or video can also be made.
.Lessons of particular interest / urgency are published as 'learning
flashes' ( hard copy in Projects Newsletter every quarter. )
One powerful feature of the Project Knowledge system is that it feeds
back live as examples in each chapter of this book. If you click on
examples at the bottom of this page you will find the latest entries which
apply to the chapter which you are reading
The Document Store is another system similar to Project Knowledge
which should be used throught the project cycle. This system enables
you to store and find hoj ect Control documents, reports, procedures,
agreements etc. which can be modified and used again on the next
project. These are documents which have value for future projects but
will not be part of a hand over package. Each document has an owner
who can be contacted to provide the all important opportunity to share
context and discuss which aspects would be of most value to you. The
document store is accessible via the Project Management Homepage.
Chapter 25 - Learning 7. .kr and Close Out
At Project Completion
Although no longer a strict BP Amoco requirement to produce a
close out report, it is sometimes necessary to produce one for the sake of
Joint Venture Partners. Nevertheless the emphasis should still be on
transfer of learning rather than simply capture.
If the Project Knowledge system has been used throughout t i e
project all that may be necessary at this stage is to take an overview,
idcntify or producc what are scen as thc kcy lcssons and usc thc dctailcd
lcssons creatcd throughout the projcct as cxamplcs of the kcy lcssons.
A facilitated Lessons Learnt workshop can be of value at this
stage in the project. It will bring the views of all participants together and
puts lessons learnt into the overall project context. This is a valuable tool
for all of those attending the session but it is difficult to achieve learning
transfer outside the group attending. Bullet point reports are often
produced but these tend to lack context and are only of value to those who
attended the session
Many of BP Amoco's projects are Joint Ventures. When we are
reviewing our partners' proposals or presenting our own proposals, a
comprehensive database in support of technical, implementation,
estimating and planning assumptions is an invaluable tool. This
information is now centrally compiled in a BP Amoco Projects database
administered by GPS at Sunbury
This database is used as the basis for benchmarking and pricing future
projects. It is vital that it is fed with the most up to date informat~on.
Post Project Appraissl
PPA is a discretionary activity and is one of the knowledge
management tools to capture learning after the event and is a resource for
future projects. It is an independent review whose purpose is to
identify lessons arising from both good and bad practice and to
encourage Future projects to consider past experience for investment
decision-making processes, planning and implementation.
A Centre of Expertise is located within Group Internal Audit which
can provide guidance and input for all aspects of PPA activity. Lessons
from centrally led PPA's are communicated between the Businesses and
the Main Board and Business Audit Committees are advised of
significant issues arising.
I
Chapter 25 - La 1 g Transfer and Close Out
One great strength of the Post Project Appraisal is that it takes
advantage of hindsight The Post Project Appraisal is normally lead by
Internal Audit, ideally. in conjunction with the Business. The PPA will
cover the whole life of the project from strategic thinking and decision
making, though project execution and the delivery of benefits.
PPA's have been carried out on most types of project, including
construction projects, JV's, acquisitions and divestments, global
projects, organisational change and information systems.
The ideal timing for a PPA is between one and two years from
completion of the project to ensure that the outcome is clear. Terms of
Reference are drawn up which should be flexible enough to allow the
appraisal team to focus upon the key issues that arise.
The critical factors within a PPA include:
8 Objectivity and Independence
8 Identification of the Facts
The ability to focus upon key issues
Re-creation of the environment within which critical decisions
were made.
The appraisal begins with a review of relevant records (investment
case papers, reports, etc.) to identify issues and people involved.
Thereafter, emphasis is on discussion of the issues with involved staff.
All points of view are sought including outside parties (partners,
contractors, etc.). Important facts are confirmed from more than one
source to ensure probity.
A visit to site is important to understand the environment within
which the investment was made and to obtain the views of operational
management.
A review of project economics is undertaken for comparison with the
case presented at the time of sanction.
Endorsement for the lessons learned is generally sought from the
relevant Business EXCO or its Audit Committee.
Chapter 25 - Learning Tra
)and Close Out
Further advice on how learning can be transferred can be obtained
from the following : -
@ Lessons booklets from the Centre of Expertise covering:
- Project Development and Control,
- Joint Ventures,
- Acquisitions and Divestments
Learn from Other's Successes - and Mistakes
Discussions with Business and Project Management at the planning
stage of new investments.
Pea Reviews, Time Outs, Risk Awareness workshops,
Project Initiation workshops, etc.
@ Business Networks
PPA Web Site (http.Jlgbc.bpweb.bp.comippa/ppa.htm) .
@ Project Management Homepage
http://info.bpweb.bp.com/Project~gt~
Hand-over
Asset Register
At the end of a project, the Business Unit will need to update (or
create) its Asset Register. This is particularly important for Joint Ventures
where the ownership is split The project will be responsible for handing
over the necessary information to enable the Asset to update the register.
Certificates
The importance of formal acceptancGof the project by the Asset
cannot be understated Frequently, in fairly complex projects the
acceptance by the Business Unit may be on a progressive basis as certain
parts of the project are completed. Getting this documentation in place as
part of project close-out is a key objective and a logical approach has to
be agreed with the Asset management.
Chapter 2! arning Transfer and Close Oul
Responsibility
At the point of project hand-over the Business Unit assumes financial
responsibility and ownership of the plant, but ongoing technical
responsibility can continue with the project for a period. This can lead to
problems if Business Unit resources are not available to take over
technical responsibility for the project and the Business Unit
management puts pressure on the project to continue to hold this
responsibility for longer than necessary. It is important on such occasions
for the project manager to make the Business Unit management fully
aware that costs incurred by the project during this extended hand-over
period are extra to the project funds.
Liabilities
When the Business Unit has formally accepted the plant and
completed hand-over certificates are in place, they have accepted
ongoing liability for the plant and responsibility for plant insurance
transfers from the project to the Business Unit. Data relating to specific
items of equipment which have a warranty agreement are carefully
lodged with the Business Unit. Engineering concept failure is a very
untidy area in terms of liabilities and if a design contractor has been used
then some indemnity may have been negotiated which then becomes the
property of the Business Unit.
Commissioning Report
With an increasing tendency for contractors to take responsibility for
commissioning plant or else a commissioning group established within
the project to complete this task, there is a clear need for a
commissioning report to be handed over to the Business Unit. This report
is of importance, not only as a record of events but also as a guide to the
Business in planning turnaround schedules, capturing problems and their
resolution and as input to the revision of operating procedures.
Comprehensive and accurate reporting of the invaluable knowledge
gained during commissioning is an important asset to the Business,
particularly if there has been only limited involvement of key operations
and maintenance staff during the commissioning activity.
I
Chapter 25 - Learning h e r and Close Out
Staff Issues
For larger projects, dedicated staff are often seconded from Business
Unit or Contracting organisations. During the life of the project the
momentum of the activity generates a great deal of energy and good
feeling withm the Project Team. As project close-out approaches, feelings
of uncertainty regarding future employment can impact on the behaviour
of some individuals. It is incumbent on the Project Manager to address
these issues sufficiently early to mitigate unfortunate repercussions at
project close-out time.
The Project Manager can help to maintain motivation up to the end of
the project, only if people are aware that management are concerned
about such issues. In this regard, support from Business Unit
management is essential to support the Project Manager in managing the
redeployment of staK
The Project Manager also needs to identify key people who either
have efficient access or actually hold information which will become
important at the time of project close-out. De-briefing such staff before
they leave the project is a priority activity which needs to be planned.
The prospect of re-assignment to a new situation can be a good
catalyst for high productivity at the end of the project. The converse is
usually true where an individual sees no further alternative at the close of
the current project and may string the work out unnecessarily.
Bonus payments to staff must not be overlooked as a realistic
tangible benefit for performance and loyalty to work effectively to the
end of the project.
The special skills required for competent project close-out and
analysis are different from those needed at project start 2nd during
project implementation. However, the same people are often used with
success. This should not prevent the possibility of different staff being
employed at the end of the project, specifically for this purpose. If a
change-out of staff is considered necessary then full consideration needs
to be taken of the need to retain key information, as mentioned earlier.
Some of the issues which may feature in a decision to change out the
staff are:
Commissioning expertise
g Ongoing Operational requirements
O Personnel demobilisation issues
Resource needs for other projects
O Career Progression.
Chapter 25 - L .. 1. lng Transfer and Close Out
Close-out Report
With the emphasis now shifting to Learning transfer and collection
of data for the BP Amoco Projects database, there may not be an
obligation on the Project Manager to complete a traditional Close out
Report, however Asset or JV partners wishes may still make it a
requirement. Typical information to be included, can fall into four main
categories.
Materials
Major equipment data includes key technical specification, cost, and
delivery duration. These cover materials, performance, size and weight,
package or basic ex-works delivered, spares etc. Bulk materials data
includes quantities, materials spec., sizes,weights etc. The costs, weights,
volumes are summarised by discipline and system to give costs per tonne,
per metre etc.
Labour
Labour is listed as manpower histograms by trade and by area,
man-hours by trade and area, contractor supervision. Costs are analysed
into different categories to give costs per man-how, per tonne, per metre,
etc. The original budget is set egainst the actual to find over-runs and
under-runs.
e Owners Information
There are functions which are purely design and functions which are
purely management, but much of the work is not clearly segregated. For
example, a design contractor will often support the construction effort.
BP Amoco may have a high engineering input as well as overall
management. These functions are listed as manpower histograms,
man-hours by system1 discipline, costs by system/ discipline. As well as
man-hours there are also expenses such as transport, accommodation,
computers, documentation; etc.
8 Lessons Learned
These can be taken directly from the Project Knowledge system.
However at the end of the project it will be prudent to review detailed
lessons and consider which should in fact be key for the project. Detailed
lessons categorised under a key lesson can be recorded as examples of
that key lesson
J
March 1999
Bibliography
This chapter contains a list of books on project management that are usehl for
further reading.
' Many of the subjects in this handbook have only been covered at a high level.
Project management techniques and tools do require a deeper level of
understanding and the books in this list help to provide this.
This list is not exhaustive, but does contain books that have been helphl to
others in the past.
TITLE AUTHOR PUBLISHER ISBN NO.
Project Management
(4th edition)
Basic Project Management
The Human Side of
Project Management
Project Management
a Managerial Approach
Project Management-
A Systems Approach to
Planning, Scheduling
and Control
Project Management
Handbook
0-566-02724-0 Dennis Lock Gower
Michael & Burton Heinemann Asia 9971-64-268-9
House Addison-Wesley 0-201-12355-X
Meredith & Mantel Wiley 0-471-50534-X
Van Nostrand 0-442-2075 1-4 Kerzner
Reinhold .
Cleland & King Van Nostrand 0-442-221 14-2
Reinhold
Project Management Rosenau Van Noshand 0-534-03383-0
for Engineers Reinhold
Successful Rosenau Van Nostrand 0-534-97977-7
Project Management Reinhold
Handbook of Lock Gower 0-566-0739 1-9
Project Management
Project Management Kerzner Van Nostrand 0-422-26091-1
for Bankers Reinhold
1
Chapter 26 -Bibliography ,
TITLE AUTHOR PUBLISHER ISBN NO.
Winning at Gilbreath Wile y 0-471-83910-8
Project Management
Advanced Harrison Gower 0-566-02475-6
Project Management
Management Moms Thomas Telford 0-7277-2593-9
of Projects
How to Learn from Kharbanda & Gower 0-566-02340-7
Project Disasters Stallworthy
No Business as Usual Knon BP 0-86165-202-9
Critical Path Analysis Lockyer Pitman 0-273-01951-1
and other project
nehvork techniques
March 1999
Acknowledgements
This book has been based on various presentations and papers and
then developed through review and criticism from many people both
within BP Amoco and outside the company. Because of the historical
development of this book, it is impossible to identify and list all
the contributors but Group Project Support is aware of the
encouragement and contibutions made by the following:
Arden Ahnell, Rob Anderson, Sas Aslan, Robin Bird, Jack Bradie,
Noel Burton, Jim Chipchase, Peter Flones, Richard Halligey, Terty Hill,
Malcom Hulatt, Hedley Jenkins, Terry Lazenby, Pat McHugh,
John Mitchell, Bob Morgan, Peter Morris, John Morton,
Kevin Muller. Bill Murdoch, Barry Northmore, Eddie Piekut.
Tony Probert, Bob Scott, John Spence, Peter Stephenson, Steve Rees,
Garth Rothwell, Allen Salter. David Schojield, Steve Spurgeon,
Chris Swain, Graham Thomas, Ed Tncett, Frank Venn, Peter Wentworth
and David Knter
Some of the contributors were only involved in the development of
the papers for the first two editions of the book. Given the changing face
of project strategies and varying interpretations of the optimum way
to handle project activities, responsibility for errors or omissions
clearly rests with the cument compilers of this book. Comments and
corrections are welcome and should be directed to Bill Murdoch, Alan
Thomson or Cameron Rennie by e-mail or by fax to + 44 1932 764086.