THEME LECTURE PETROFED SEPT 11,2009 ( M. Rohatgi, CMD EIL)

1. CHALLENGES IN PROJECT MANAGEMENT THEME LECTUREPETROFEDSEPT 11,2009( M. Rohatgi, CMD EIL)

2. Presentation Outline • Introduction • Major areas of Concern • Stages of a Project • Key Challenges • Conclusion

3. Introduction • Projects are growing in size and complexity-today it is common to think in terms of projects involving investments of Rs. 20000 Cr and more. • Integration for value addition characterizes most projects e.g. Refinery-Petrochemicals. The future could see refining and gas processing or refining and coal processing integrations. • Increasing complexity and size accompanied by a need to cut implementation time and cost • The net result is a set of major challenges that the Project Owners, Consultants, Contractors and Suppliers have to face jointly and overcome at each stage of a project

4. Concerns • Delays • Cost over runs • Management of risk • Resource Constraints • Sustainability The right approach at each stage helps to address these issues

5. Concerns-Delays • Lack of approvals • Supply lead chain times • Poor scope definition • Changes in design and scope • Poor Planning / unrealistic schedules

6. Concerns-Cost Over runs • Materials price escalation • Inadequate scope definition • Time delay • Inadequate estimating/forecasting • Regulatory approvals • Inadequate resources/ Inexperienced team • Poor risk Management • Labour costs • Design Changes A good Project Management approach would attempt to address these issues at each stage of a project

7. Stages of a Project - Formulation Objective- • Define the project boundaries with limited information available. Issues to be addressed • Industrial outlook, Competitive trends • Project for domestic demand/export or both • Location, size and scale • Access to raw materials and markets for products • Technology options • Environmental stipulations • Investment and financing outlook Desirable to have a PMC in place at this juncture

8. Formulation-where does it all begin? Idea Generation Brain Storming Options Alternatives SWOT Initial Vision Plan

9. Visualizing the Project Development of Vision – Influencing Factors Business Applications External Factors Cash Flow Market Demands & Prices Return on Investment Growth Available Crudes & Prices Strategic Considerations Emissions & Product Quality Legislation Available Options Conversion Options Supply Options

10. Road Map to the Future Long Term Vision Factors Where TO? Develop Options How TO? Evaluate WHAT are the costs benefits, risks and financial sensitivities? Future Configuration

11. Stages of a Project-Development Objective: • Facilitate an investment decision Issues to be addressed • Infrastructure-raw material receipt and product evacuation, location and site development requirements, water intake and treatment, enabling facilities for construction. • Technology selection and integration of various processes into one composite scheme to meet the project objectives • Investment and economic analysis • Project financing • Output-Project Feasibility Report and recommendation of project implementation approach

12. Stages of a Project-Definition • Crucial Stage for the project as it is the final gate for approval or otherwise. • Project owner should have the approval for expenditure towards Basic design and engineering, followed by FEED preparation for ISBL facilities, utility and offsite facilities. • Detailed cost estimates and project schedules to be prepared, with appropriate value engineering carried out for cost rationalization, overall process integration, optimization of utility and offsite systems design and project implementation approach • Output- Front end loading report with detailed cost estimates and packages that are good for inviting bids from EPC/EPCM contractors

13. FEED ImplementationSequenceEncapsulated PROCESS DESIGN DESIGN BASIS CONCEPTUAL PROCESS DESIGN DETAIL PROCESS DESIGN BASIC FRONT – END DESIGN BID PACKAGE FOR EPC/LSTK BIDDING COMMERCIAL TERMS & CONDITIONS ENGINEERING CONSTRUCTION CONTRACTS All this on electronic media

14. Project Management – Managing all players EXTERNAL LINKAGES INCLUDING STATUORY OWNER MANAGEMENT COMMISSIONING & HANDING OVER CONFIGURATION & DESIGN BASIS PROJECT MANAGEMENT CONSTRUCTION PROCESS DESIGN EQUIPMENT DELIVERIES DETAIL ENGG. FRONT END ENGG BID PACKAGE & CONTRACTOR SELECTION VENDORS CONTRACTORS EPC CONTRACTORS

15. OWNER engages a CONTRACTOR to implement the job on EPCM basis with fixed commitment on Project Schedule at an agreed fee The Contractual arrangement provides for the commitments to be made by contractor & shared with the owner transparently till an agreed commitment level of 65-70% of the target cost is achieved Single Point responsibility of contractor to deliver the project as per the agreed schedule Option of conversion of the contract to LSTK mode after typically 65-70% of the commitment of the Target cost has been achieved Is the emerging favoured mode of Project Implementation in India as It reduces contractor/client risks and hence optimises the Project Investment Enables early start for Schedule gains Provides for LSTK benefits with reduced overall risks Win Win both for Owner – Contractor Project Implementation-OBE/LSTK EIL 15

16. Alternative Modes of Implementation EIL 16

17. Finalisation of Overall schedule Finalization of procurementprocedures Type of bidding Open or limited Imported/Indigenous Items Taxes/duties/structure Shipping, marine transport, Custom clearance, Insurance and inland transportation philosophy Finalisation of Master Vendor list Finalization of detailed project schedules for Engineering , Hardware procurement and Construction Development of Quality Assurance plans System finalisation for real time monitoring of activities Kicking off the Implementation Process EIL 17

18. Project control-a sustained exercise Low cost Front end Loading Timely involvement of contractors Discipline & continuity Empowered Team Competitive Cycle Time Focussed Project Management Process ExcellentOperability Technology Selection Value Improving Process Best Practices

19. Schedule Sets the parameters of measurement Essential prerequisite and analytical tool for Project Health Monitoring Torch bearer for Mid Course Corrective action Time saved is Money realised Cost The Key is to build in less than Estimated cost Crucial for Process Viability & hence warrants close control Facilitates the basis of Comparative Evaluation Needs in-depth Knowledge of Variables ,Market, Taxation, Competition , Schedule for Exercising vigil & control over costs Time and Cost Control-the key drivers EIL 19

20. Project scheduling and control Work Break down Structure Project quantum Project Details Schedule Requirements Conceptual plan/Overall schedule Project procedures Functional schedules Process Engineering Project control & Turnaround Ordering Progress Reports Manufacturing Construction EIL 20

21. Project Control System CORPORATE REVIEW CRITICAL LIST ACTION MONTHLY ACTIVITY LIST HOLDUP & SLIPPAGE REPORT DIVISION REVIEW ACTION MONTHLY ACTIVITY LIST HOLDUP & SLIPPAGE REPORT OPERATING LEVEL REVIEW CONSOLIDATED PROGRESS REPORT ACTION

22. Project Cost Control Technology/Licensor/details Project specific Criticalities Work Break down Structure Project quantum Project Details/Data PFR +/- 30% Increasing accuracy of Estimates Estimate Update DFR +/- 10% Investment approval +/- 10 % Owners Committments Cost Status Reports Project Cost Control and monitoring Purchase Orders Contract Award EIL 22

23. Value Engineering Chain COST CONTROL SCHEDULE CONTROL LEVEL OF OPPURTUNITY DURING SITE INFORMATION IMPLEMENTION SCOPE DEFINITION PROCESS DESIGN BASIC / FRONT END ENGG.. * * * * * * * * * BID EVALUATION & VENDOR / CONTRACTOR SELECTION DETAIL ENGINEERING CHANGE MANAGEMENT EQUIPMENT SELECTION EQUIPMENT DELIVERIES CONSTRUCTION COMMISSIONING

24. Most Critical Step Conduct Brainstorming Peer Reviews Project risk review meetings Assign Risk to Team Identify Risk Manger Project Risk Identification EIL 24

25. Managing Risk Standardization/ Formalization of Processes Reviews/ Oversight Dedicated/ Experienced resources Improve Risk Mgmt Independent assurance processes to support Key Project decisions Internal peer reviewInternal audit Independent Project assurance value assurance reviews External reviews/feedbacks/Audits

26. Identify Risk response Plan Reduction Transfer Share ( Not Preferable) Retain Avoidance Respond Accordingly Avoidance – Develop mitigation plan Reduction – Develop mitigation Plan Transfer – Close Risk and Transfer Share – Develop mitigation Plan Retain - Develop Contingency Plan Project Risk Response Plan EIL 26

27. 11 ingredients for a Successful Recipe Develop and finalize design basis, overall, unit by unit and discipline by discipline Develop and finalize Scope Weighing of options vis-avis Value Engineering Finalization of Implementation Philosophy Ensuring Quality, Safety and Technical excellence Protecting Overall Time and Cost Vendors/Contractors/EPC/LSTD selection Monitoring Performance of Vendors/Contractors/EPC/LSTDselection Change Management , Pre emptive mid course corrective actions Integrated Complex into a techno commercial viable entity Ensure Owner’s Satisfaction

28. Key Contributors to Success Unambiguous scope definition Clear design basis Sound execution strategy Management of pre project activities Emphasis on construction driven Engineering Consistent and extended front end engineering Staying with performers-vendors/contractors Monitor, control and pre-empt actions Manage changes Manage resources particularly human resources

29. Eye to the Future-modes to adopt Need of the Hour To Marry the advantages of LSTK & EPCM for optimal CAPEX and Security of Schedule Recommendations Mid size units standard alone type 400-600 Cr LARGE UNITS 700-1500 Cr • Revamp • Energy Conservation • Utilities & offsite LSTK Mode (Example) • Hydrogen Plant • Sulfur Block • Treating Units • Selective Polymer units EPCM Mode Maturing to OBE • To avail cost benefits along with secured schedule • To initiate early start of the Project (savings in schedule to line up LSTK EPCM Mode • To facilitate better & smoother Project Interfaces • Difficult to define scope for LSTK 29

30. Conclusion • Large projects increasing in Complexity and Project owners as well as Service Providers have to grapple with the issue of resources. • Increased standardization /formulation of processes, coupled with a system of reviews and oversight can help to mitigate the problem • Good Project definition is the key to avoiding time and cost over runs. • Proper planning and appropriate Project controls will contribute significantly towards success • Recognize the change of the times-collaborative approach will work well-has been amply demonstrated. A supportive Owner will motivate the consultant/contractor • Essential to have PMC participation at all stages of project development and execution.

31. Thank You