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APPLYING LESSONS LEARNED ON MEGA PROJECTS Roger Mapp Bantrel Co. April 26, 2007. AGENDA. COST CONTROL IN VOLATILE TIMES MEETING PROJECT SCHEDULES. AGENDA. COST CONTROL IN VOLATILE TIMES MEETING PROJECT SCHEDULES. Controlling Costs – What’s New. Project size is up

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APPLYING LESSONS LEARNED

ON MEGA PROJECTS

Roger Mapp

Bantrel Co.

April 26, 2007


Agenda
AGENDA

  • COST CONTROL IN VOLATILE TIMES

  • MEETING PROJECT SCHEDULES


Agenda1
AGENDA

  • COST CONTROL IN VOLATILE TIMES

  • MEETING PROJECT SCHEDULES


Controlling costs what s new
Controlling Costs – What’s New

  • Project size is up

  • Project duration is longer

  • Prices are (very) volatile

  • All the usual uncertainties still exist

    Escalation is “Suddenly” a Big Issue

Result


Controlling costs the ideal world

Base

Cost

Estimate

App.

Estimate

FEL 2

FEL 3

Controlling Costs – The Ideal World

Year 2

Year 3

Year 4

Year 5

Year 1


Controlling costs the ideal world1

Base

Cost

Estimate

App.

Estimate

FEL 2

FEL 3

Controlling Costs – The Ideal World

Year 2

Year 3

Year 4

Year 5

Year 1

Escalation Plan

(No Escalation)


Controlling costs the ideal world2

Base

Cost

Estimate

App.

Estimate

FEL 2

FEL 3

Controlling Costs – The Ideal World

Year 2

Year 3

Year 4

Year 5

Year 1

Escalation Plan

(No Escalation)


Controlling costs the ideal world3

Base

Cost

Estimate

App.

Estimate

FEL 2

FEL 3

Controlling Costs – The Ideal World

Year 2

Year 3

Year 4

Year 5

Year 1

Escalation Plan

(No Escalation)


Controlling costs the ideal world4

Base

Cost

Estimate

App.

Estimate

FEL 2

FEL 3

Controlling Costs – The Ideal World

Year 2

Year 3

Year 4

Year 5

Year 1

Escalation Plan

(No Escalation)


Controlling costs the recent history

Base

Cost

Estimate

App.

Estimate

FEL 2

FEL 3

Controlling Costs – The Recent History

Year 1

Year 2

Year 3

Year 4

Year 5

Escalation Plan

4% P.A.

16

12

8

4


Controlling costs the recent history1

Base

Cost

Estimate

App.

Estimate

FEL 2

FEL 3

Controlling Costs – The Recent History

Year 2

Year 3

Year 4

Year 5

Year 1


Controlling costs the now

App.

Estimate

Base

Cost

Estimate

FEL 3

FEL 2

Controlling Costs – The Now

Year 2

Year 3

Year 4

Year 5

Year 1

32

28

24

Escalation Plan

Escalation Forecast

20

16

12

8

4


Controlling costs the now1

Base

Cost

Estimate

App.

Estimate

FEL 2

FEL 3

Controlling Costs – The Now

Year 2

Year 3

Year 4

Year 5

Year 1


Controlling costs the solution
CONTROLLING COSTS – THE SOLUTION

  • Track prices from one estimate to the next

  • Track “As Spent” prices by individual commodity

  • Present estimate pricing changes separately

  • Look for price-driven execution plan changes

  • Don’t cut scope to pay for unavoidable price increases

  • Let the market dictate


Agenda2
AGENDA

  • COST CONTROL IN VOLATILE MARKET

  • MEETING PROJECT SCHEDULES


The ideal capital project
THE IDEAL CAPITAL PROJECT

25 Years

6 Years

Project

Development

6 Years

FEL 1,2,3 Phase

Project

Approval

Detailed

Engineering

Phase

Procurement Phase

Construction Phase

Project Operations

25 Years

Operation Phase


Why is this ideal
WHY IS THIS IDEAL?

  • Each Phase completes before the next phase starts

  • Each phase fully planned before it starts.

  • Follows project execution “Best Practices”

    _____________________________

  • The duration for project development can be varied (elongated) to minimize capital cost

Minimum

Capital

Cost

(In Terms of Net

Present Value)

Result


Project economics 100 million project
PROJECT ECONOMICS ($100 Million Project)

25 Years

6 Years

Cost $100 Million

Project

Development

NPV (Cost - 0% ROI) = $100 Million

Project

Operations

Revenue =$70 Million Per Year x 25Years = $1,750 Million

NPV (Revenue – 0% ROI) = $1,750 Million

Total Project

NPV (Project) = $1,650 Million

Total Project


Project economics 100 million project1
PROJECT ECONOMICS ($100 Million Project)

25 Years

6 Years

Cost $100 Million

Project

Development

NPV (Cost - 0% ROI) = $100 Million

NPV (Cost – 25% ROI) = $55 Million

Project

Operations

Revenue =$70 Million Per Year x 25Years = $1,750 Million

NPV (Revenue – 0% ROI) = $1,750 Million

NPV (Revenue – 25% ROI = $56 Million

Total Project

NPV (Project) = $1,650 Million

NPV (Project) = $1 Million

Total Project


Project economics 100 million project2
PROJECT ECONOMICS ($100 Million Project)

25 Years

6 Years

Cost $100 Million

Project

Development

4 Years

NPV (Cost - 0% ROI) = $100 Million

NPV (Cost – 25% ROI) = $55 Million

NPV (Cost – 25% ROI) = $68 Million

Project

Operations

Revenue =$70 Million Per Year x 25Years = $1,750 Million

25 Years

NPV (Revenue – 0% ROI) = $1,750 Million

NPV (Revenue – 25% ROI = $56 Million

NPV (Revenue – 25% ROI) = $84 Million

Total Project

NPV (Project) = $1,650 Million

NPV (Project) = $1 Million

NPV (Project) = $114 Million

Total Project


The practical capital project
THE PRACTICAL CAPITAL PROJECT

25 Years

4 Years

Project

Development

6 Years

FEL 1,2,3 Phase

Project

Approval

Detailed

Engineering

Phase

Procurement Phase

Construction Phase

Project Operations

25 Years

Operation Phase


Example of the practicality
EXAMPLE OF THE “PRACTICALITY”

  • Compression of FEL activities

  • Applied to a $100 Million project

  • Applied to a $ Mega Project


Fel execution
FEL EXECUTION

“Best Practice”

Define Process Facility #1

Define Process Facility #2

Define Process Facility #3

Define Process Facility #4

Define Utility & Offplot (Support) Facilities

Prepare Project Execution Plan and Cost Estimate

Best

Practice

FEL 3

Completion


Fel execution1
FEL EXECUTION

“In Practice”

Define Process Facility #1

Start Execution

Define Process Facility #2

Define Process Facility #3

Define Process Facility #4

Define Utility & Offplots (Support) Facilities

Prepare Project Execution Plan and Cost Estimate

Best

Practice

Tempting

Alternative

FEL 3

Completion

FEL 3

Completion


Meeting schedules the solution
MEETING SCHEDULES – THE SOLUTION

  • Accept that Project phases will “Overlap”

  • Plan for Intermediate Cost Estimates (Quarterly?)

  • Expect large cash outlays ahead of Project “Sanction”

  • Expect “Unorthodox” Project Execution to meet schedule requirements.


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