gbhe proj mgmt handbook small proj

7/26/2019 Gbhe Proj Mgmt Handbook Small Proj

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Web Site: www.GBHEnterprises.com

GBH Enterprises, Ltd.

PROJECT MANAGEMENTA Handbook for Small Projects

Process Information Disclaimer

Information contained in this publication or as otherwise supplied to Users isbelieved to be accurate and correct at time of going to press, and is given ingood faith, but it is for the User to satisfy itself of the suitability of the Product forits own particular purpose. GBHEgives no warranty as to the fitness of theProduct for any particular purpose and any implied warranty or condition(statutory or otherwise) is excluded except to the extent that exclusion isprevented by law. GBHEaccepts no liability for loss, damage or personnel injurycaused or resulting from reliance on this information. Freedom under Patent,Copyright and Designs cannot be assumed.


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Contents

SECTION 1 PRINCIPLE AND PRACTICES

1 INTRODUCTION

2 GBHE PROJECT PROCESS2.1 Introduction2.2 Project Opportunity2.3 Project Definition2.4 Project Implementation2.5 Project Benefit2.6 Project Review2.7 Business Ownership2.8 Measurement and Auditing

3 KEY CAPABILITIES3.1 General Skills3.2 Personal Competencies

4 PROJECT MANAGEMENT PRACTICES - PROJECT DEFINITION4.1 Business Opportunity Testing & Objectives Setting4.2 Developing the Project Scope4.3 Project Strategies4.4 The Project Organization4.5 Project Estimating and Planning/Work Breakdown

5 PROJECT MANAGEMENT PRACTICES PROJECTIMPLEMENTATION

5.1 Team Building and Team Management5.2 Risk Management5.3 Design Management5.4 Contract Management5.5 Construction Management5.6 Commissioning Management5.7 Change Control5.8 Cost Management5.9 Progress Monitoring, Control and Reporting5.10 Information and Document Management


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6 PROJECT MANAGEMENT PRACTICES - PROJECT REVIEW6.1 Project Close Out and Reports/Reviews6.2 Measurement and Learning

7 VALUE IMPROVING PRACTICES7.1 Introduction7.2 Types of Value Improving Practice

FIGURES1 PROJECT PROCESS2 COMMERCIAL STRATEGY & RISK RELATIONSHIP3 GBHE RISK MANAGEMENT PROCESS

SECTION 2 CHECKLISTS AND REFERENCES

8 INTRODUCTION TO THIS SECTION

9 PROJECT DEFINITION CHECKLISTS9.1 Business Opportunity Testing & Objectives Setting9.2 Developing the Project Scope9.3 Project Strategies9.4 Developing the Project Organization9.5 Cost Estimating9.6 Contractor Selection9.7 Work Breakdown Structure (WBS)9.8 Planning and Control

10 PROJECT IMPLEMENTATION10.1 Cost Management10.2 Change Control10.3 Document Management10.4 Construction Management

11 PROJECT REVIEW CHECKLISTS11.1 Project Review, Reporting and Close-Out11.2 Measurement (Learning Log)

12 REFERENCES

DOCUMENTS REFERRED TO IN THIS INFORMATION FOR ENGINEERSDOCUMENT


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SECTION ONE PRINCIPLES AND PRACTICES

0 INTRODUCTION

This Information for Engineers document comprises two sections.

Section 1 contains the components of the GBHE Project Process, the capabilitiesand competencies required by a Project Manager and, finally, specific projectmanagement good practices including value improving practices.

Section 2 contains information that supports the practices contained withinSection 1. This includes helpful checklists, references and information aboutdeliverables and other examples, all of which will provide practical help to ProjectManagers and their project teams.

The document assists client sites in meeting the necessary engineeringrequirements related to safety, health and environmental matters on their sites,and supports the GBHE Safety, Security, Health and Environmental Policy.

WHAT PROJECTS CAN IT BE APPLIED TO?

Although the information contained is applicable to most projects, the documentis aimed primarily at GBHEs Consultancy and Associated Projects in the rangeof $40k to $5m and is adaptable across a wide range of technologies andgeographic locations within this range. How you apply it depends mainly uponyour Business and project strategies, the complexity of your project and theBusiness you belong to.

Projects that are of higher cost or have some particular complexity may requirethe application of additional and more rigorous procedures. Such procedures canbe found within each Business or organization and these will deal with therequirements of projects that are not covered by this document.

WHY HAS IT BEEN WRITTEN?

All GBHE's major competitors apply and work to a companywide consistentproject process, one of the important features of which is a common language forall those involved. Evidence also shows that as a result, most achieve high levelsof performance in delivering their projects. GBHEs guidelines for capitalinvestment projects now require GBHE Businesses to apply a consistent, GBHEProject Process.


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This document has been written, therefore, to describe the content of the GBHEProject Process and also to provide a framework for good practice. This,supported by checklists and examples, will thereby help Project Managers andtheir teams to further raise GBHE's all round investment performance.

Finally, although GBHE's Guidelines require the GBHE Project Process to beused company wide, this document has been produced to provide guidance notestablish hard prescription. Following the GBHE Project Process or the contentof this document does not imply working within a straight jacket of bureaucracy,nor does it guarantee success; but will go a long way towards making successmore likely.

WHO HAS IT BEEN WRITTEN FOR?

It is hoped that both seasoned Project Managers and those learning the role willfind the contents useful and helpful. Seasoned Project Managers as a usefulreminder and new Project Managers as statement of the standards they need toachieve. It has not been produced to replace the need for project managementexperience and training but as a supplement to these.

2 GBHE PROJECT PROCESS

2.1 Introduction

The GBHE Project Process is part of a total business investment process whoseprime aim is helping to ensure that capital and revenue resources within thecompany are spent effectively and that key safety, health and environmentalstandards are met. The Project Process is set out in Figure 1 and defines the keystages and decision points that are required for all projects. It does not prescribethe way in which those stages are undertaken, this will normally be done by localproject procedures appropriate to the nature and size of the project as well as thelocal business and regional context. For larger or more complex projects,additional decision gates may well be required. Business and project strategyusually determines how the Project Process is applied.


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FIGURE 1 PROJECT PROCESS

2.2 Project Opportunity

The Business identifies the opportunities and their nature, reviews alternativesand identifies the potential risks and benefits before defining the businessobjectives for the project and appointing a Business owner. The decision toproceed with the project and to provide appropriate resources is recorded.

2.3 Project Definit ion

The project definition stage tests that the business objectives are clear and

establishes critical success criteria for the project. The scope of the project isdefined in sufficient detail to satisfy the sanctioning criteria; and planning of theexecution of the project is completed in order to define roles and responsibilitiesand resourcing requirements; schedules are produced which are based on anappropriate work breakdown structure and estimation of costs. A defined projectstrategy, definition package, project schedule and sanction cost estimate areproduced at this stage.

2.4 Project Implementation

Following the sanction decision, project implementation proceeds in accordance

with the defined project strategy and scope. The stages of implementation varywith the nature of the project but typically include detailed design, procurement,construction and start-up.


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Appropriate monitoring, validation and control measures are employed to trackprogress, control costs, ensure safety and limit change to ensure the projectobjectives are achieved. The deliverable at the end of this stage is a productiveasset, which meets the business objectives.

2.5 Project Benefit

The Business ensures that the project benefits defined at the outset of the projectcontinue to be realized throughout the operating life of the asset.

2.6 Project Review

All projects complete an appropriate review process, which ensures that learningfrom the project, both positive and negative, is captured and recorded. Thisincludes both project learning and business learning in terms of whetherbusiness objectives have been achieved by the investment. Appropriatemechanisms are put in place to ensure such learning is disseminated throughoutthe Business and project communities to maintain effective feedback for futureimprovement.

2.7 Business Ownership

Each GBHE project has an identified Business owner responsible for delivery ofthe project benefit and accountable for managing the integration of activities fromidentification of project opportunity through to delivery of project benefit andcompletion of project review. The Business owner has responsibility for ensuringthat the capability is in place for the effective delivery of all stages of the projectprocess. This usually requires the appointment of a suitably qualified ProjectManager. The Business owner also has responsibility for ensuring that essentialsafety, health and environmental requirements are met throughout the projectprocess.

2.8 Measurement and Audi ting

Each stage of the GBHE Project Process includes the definition of keydeliverables. These deliverables form the basis on which decisions will be madeto proceed, or otherwise, to the next stage of the project process. It is importantthat these deliverables are measurable and that suitable audits or projectassessments are carried out from time to time to ensure that the process is beingeffectively and consistently applied.


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These can take the form of self-assessments or may be peer assessments orindependent audits. It is particularly important that regular assurance of SHEcompliance on projects is undertaken.

3 KEY CAPABILITIES

In order to successfully complete projects there are a number of keycompetencies and skills that are required within the project team. If the team islacking in any of these capability areas, the project may still be successful but therisk of failure is greatly increased. Project management is both an art and ascience, combining a structured logical approach, which requires discipline with arange of skills which require experience and judgment. The need for these keyskills and competencies is not reduced merely because the project is small.

3.1 General Skills

The key skill areas are as follows:

Adoption of a project process and appropriate procedures to ensure thatobjectives are understood, scope defined and strategy planned beforeimplementation takes place. The GBHE Project Process is defined inSection 2. It is part of the responsibility of the Project Manager to ensurethat the discipline of the process is applied throughout the project.

The project team needs clearly defined roles and responsibilities, whichcover all the project requirements. The internal interfaces between projectteam members need to be clear as well as the interfaces outside theproject team (e.g. with the Business, works, other projects, etc.). Theinterfaces with contractors and suppliers are especially important andneed to be properly managed.

The Project Manager must ensure that all the appropriate skills areavailable and harnessed at the right time. Unlike many line management

jobs, the Project Manager will often need to draw upon the skills of peoplewho have other accountabilities in the organization. Access to resources isa key requirement of project management.

Since projects usually involve the integration of related activities in adefined time frame, good team building and communications skills arerequired by the Project Manager. Similarly, good projects depend heavilyupon planning and preparation and it is essential that those skills areavailable within the project team.


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It is a key requirement in all projects that knowledge in the technology isavailable to the project team. For the core skills of project management,process and engineering design, knowledge of hazards and statutoryrequirements, operational knowledge, construction management,

purchasing and contract management etc., these will often exist within theproject team. There are, however, other knowledge and skills which maybe required to ensure a successful project, such as risk management,scientific know-how, legal and financial knowledge, and the project teamneeds to have access to these where appropriate.

Some knowledge and skills can be developed through training andeducation; others are only developed by practice and experience. It isimportant that all members of the team have been trained to a level thatenables them to discharge their responsibilities and have the appropriatelevel of experience where skill and judgment is required. It is the

responsibility of the Project Manager to ensure that the skill balance in theteam is sufficient to enable the project to be successfully completed.

3.2 Personal Competencies

The following make up the basic personal competencies required by the ProjectManager and they also need to exist to some extent or another within the rest ofthe project team.

3.2.1 Defining

This is about helping customers, suppliers and the project team makes up theirminds and is aware of the consequences of their decisions.

3.2.2 Scanning

This is surveying the totality of the project including such things as businesspolitics, the market, goals, technology and progress against plans and budgets,whilst maintaining a clear appreciation of the whole project.

3.2.3 Strategic Thinking

This is being able to identify key methods of approach that, if successfullyaccomplished, will greatly facilitate the completion of the many tasks to be done.Once decided, these become the key elements of the strategy.


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3.2.4 Selecting

This is differentiating between those issues having a potentially great impact onthe project and those not so important.

3.2.5 Resourcing

This is finding the necessary resources to take advantage of an opportunity or toresolve an issue or problem.

3.2.6 Influencing

This is using personal skills to get things done.

3.2.7 Interfacing

This is making sure that intergroup relationships promote the project rather thandraining its energy.

4 PROJECT MANAGEMENT PRACTICES - PROJECT DEFINITION

4.1 Business Opportunity Testing & Objectives Setting

A successful project not only meets its own targets but delivers a benefit andacceptable rate of return for the Business. It thus follows that both the projectobjectives and the underlying Business drivers must be fully aligned, developedand understood. If the latter have not been thoroughly developed, then theexpenditure incurred by the project team is likely to be abortive or wasted.Further, it is difficult for a Project Manager to set the project objectives if there islimited clarity around the reason for proceeding with the project and the issuesthat affect it.

Hence it follows that the Project Manager needs to establish the background tothe project when they first become involved and certainly before committingsignificant expenditure or other key resource. There are a number of keyquestions (see Section 2 checklists) which can aid this process.


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Having answered these questions, the Project Manager can then develop theproject strategy and objectives. This is sometimes best achieved by workingbackwards from the end of the project and questioning what each stage of theproject requires from the preceding stage (i.e. what do commissioning require

from construction)? What does construction need from design and procurementto achieve this, and in turn, what does procurement require from design? TheProject Manager then can set objectives for each area and stage of the projectwhich are consistent with the overall direction of the work. They can then usethese objectives to determine and select the relevant resources and services forthe project.

4.2 Developing the Project Scope

4.2.1 Introduction

Successful projects are categorized by good early definition, enabling only viablebusiness options to be evaluated, approved and implemented.

The Project Definition stage is concerned with developing definition, identifyingand assessing options, evaluating and recycling them through a series ofdecision stages. Only viable proposals are then taken forward and considered forapproval by the sanctioning authority concerned.

There are 3 key phases during definition (i.e. Assessment, Optimization andDevelopment). Normally, 2 key documents are produced:

Project Proposal;

Project Specification and Strategy.

These are used to describe for example project boundaries, scope, cost andtiming. They are key documents and are used to drive out issues and ensurealignment between the client, engineering and operational stakeholders.

The Project Manager takes the project team through the 3 important and distinctphases, assessment, optimization and development, which systematically andprogressively improves definition and limits costly re-cycle and re-work. Poordefinition leads to a poor project outcome. Throughout, the project proposal andproject specification are re-visited, improved and re-issued.


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Perhaps only the more complex of small projects will involve these 3 discretedefinition and re-cycle phases. However, following such systematic discipline isgood practice and can only help in improving the completeness of the scope andthe viability of the overall investment (not just the project).

4.2.2 Importance of Scope Development

A good scope is a prerequisite for a successful project. Scope development is akey activity that involves taking the clients Project Proposal and building it into aworking project scope. The Project Manager in conjunction with the ProjectOwner makes certain this work is carried out thoroughly and that the scope fulfilsthe original intent and is supported by all stakeholders. A Project Scopedocument is produced which, amongst other reasons for its production, helps thescope to be tested to ensure adequacy and value.

The scope documents are important because:

By reviewing the project proposal and specification documents with theclient it confirms correct interpretation of Design Brief by the ProjectManager. Also:

o Becomes the official record of agreement between client andProject Manager;

o Serves as a base case from which to control change;

o Ensures a consistent understanding of the brief across the projectteam;

o Is the basis for the estimate;

o Is the basis for the program;

o As new people are brought into the Project Team this is where theystart;

o They are key documents in the Project Review, which is animportant part of the Project Process.


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4.2.3 Getting the Right Project

The scope development phase is the stage at which the client and project teamhave the maximum influence on the project outcome. More projects have failed

to deliver business benefit through doing the wrong project than through poorexecution.

The client discusses the business case with the Project Manager, stresseswhats important and what is less important. Alternative solutions and ideas arealso investigated. It is rare that first ideas cannot be improved upon. Whereappropriate, input from the following is also key:

Business.

Marketing.

Engineering, Design and Construction.

Purchasing, Tax positions for overseas projects.

Commissioning.

Operations.

Maintenance.

Environmental.

Safety.

Occupational Health.


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4.2.4 Value Improving Practices (VIPs)

Studies of past projects have shown that applying VIPs at the right stage willenhance the quality of the project scope. Value improving practice is covered in

Section 7 of this document. However, the following are examples of thosedeployed during Project Definition:

Value Analysis:

Breaks the scope down into its functional elements and allocates theestimated costs allowing judgments to be made on value for money.

Conceptual Analysis:

Similar to above but carried out earlier in the project process using a

conceptual or very preliminary estimate.

BETA Studies - (Business, Engineering and Technical Assessment):

Compares business aspirations and needs with proposed engineeringsolutions.

Risk Management:

Identifies project risks and develops a risk management process tomanage through the project.

4.2.5 Defin ition Phases

Assessment:

This is concerned with establishing understanding of the key project drivers andinfluences, the development of an outline scope and the evaluation of the projecteconomics to assess viability. The project scope is developed to a point wherean order of cost estimate can be produced (likely 30%) and the timescale canbe confirmed with reasonable confidence. With this information a first-passeconomic assessment can be made by the Business to support decision making.


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Optimization:

This involves further developing understanding and optimizing the projecteconomics. It is the phase, for example, where such things as the site would

normally be confirmed and process design and layouts optimized. Alternativetechnologies are evaluated and VIP practices are applied such as VA. If thisphase is carried out properly, costs can be reduced considerably and/oroperability improved. Optimization and risk mitigation are the key drivers. Thelikely outcome at the end of this phase is that an optimal solution is developed;confidence in the outcome increased considerably, scope fixed and key projectstrategies in place which will exist through to completion.

Only fully optimized and viable investments are taken forward to the developmentphase. Costs will be evaluated to 20% confidence. If this is completed then theclient will have reworked economics and be in the position to considercommitments to increased pre-sanction funds.

Development:

This is concerned with developing definition, improving implementation strategiesand commercial arrangements to a point where the implementation phase can beinitiated. It helps reduce risk by increasing knowledge/definition and starts thepreparation for implementation.

At the end of development the project will have been defined to a point wheredelivery, in accordance with the investment case, can be formally assured. Costsare evaluated to 10% confidence and a firm project schedule is available.Contractual/commercial strategies and arrangements will also be fully developed.

4.3 Project Strategies

4.3.1 Introduction

To meet the business objectives and to provide a firm basis for management andcontrol requires a project strategy to be established as an early and key part ofproject definition. The project strategy considers, for example, such things aspurchasing and contracting options, project organization roles andresponsibilities, timing and budgeting, information management, how the projectis to be designed, constructed and commissioned, role of the client,communications and much more.


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Formulating the project strategy involves considering all issues likely to affect theproject and the way in which they can be satisfied; the outcome provides aframework for carrying out all subsequent project activities. As such, the projectstrategy provides alignment of business objectives with those of the project and

this is therefore central to the successful outcome of the project.

4.3.2 Contract and Procurement Strategy

4.3.2.1 Contract Strategy

The Project Manager must make available all the required skills and resources tothe project to effectively achieve its aims. It is only on very small projects,however, that all of the skills required are available in-house. For the majority ofprojects, some skills within the project team must be supplemented by the useof outside resources. Procuring these skills will be done through a contract. Theefficiency of the project will be determined by the Project Manager's selectionand subsequent management of the contract.

The successful management of any Contractor depends on a mutually respectfulrelationship, with the objectives of both parties aligned to the objectives of theProject. The relationship is crucial to success, and recognizing that theContractor has been engaged to supplement a skills shortfall within the projectteam is the best way of avoiding the temptation for scarce specialist clientresources to get involved in detail which is the scope of the Contractor. Many anescalation in scope and project cost has occurred because of 'preferentialengineering' - a difference of professional opinion, when either solution wouldachieve the contract objective. It is worth bearing in mind that:

"A Contractor selected with the appropriate skills for the scope of works required,and with appropriate reward for the complexity of the work and the marketconditions prevailing at the time, will perform to the standard required by theterms of engagement"

A comprehensive contracting strategy is therefore essential for all projects and itneeds to cover all "procurement" activities. This is the foundation for effectivecontract management and formulation commences during Project Definition. Thekey to a successful outcome is a strategy that is aligned with the overallinvestment objectives of the project and the aspirations of the contractor orsupplier. The contracting strategy defines the number of different contracts, thescope of work of the contracts, the structure of the contracts, the timing ofcontractors and so forth.


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Choosing the contract type should be based on sound objectives with respect tosuch things as performance, time schedule, quality, and scope, flexibility ofdesign, the clients involvement and risk allocation. The way in which you engageand manage the contractor is therefore extremely important. A "win - win"

approach which embodies appropriate incentives balanced with associated risk isthe most likely route to success. The type of contract that emerges will then helpto deliver the required outcomes for GBHE in terms of efficiency, scope, cost andtime and will also be aligned to the aspirations of the contractor or supplier.

Careful planning is essential, and preparing a contract plan whichembodies the key elements to be contracted out, the preferred strategyand a related schedule is good practice. Having enough time to completecontract negotiations is key to getting the strategy you need, and makingsure that you have enough time for all the steps is essential.

It is essential to reflect the kind of constraints (some of which are identifiedbelow) the project is facing in the strategy. Identifying these as soon aspossible during project definition, as part of the overall process forformulating overall project strategy, will help you.

Consider and promote strategy that includes innovative approaches toincentives as far as you can. For instance, these could be based uponschedule, total project cost, quality, man-hours, client satisfaction and soon.

If the project is part of a joint venture or other type of co-operative alliance,

this will have significant impact on the contract strategy. The joint venturepartners, or similar, will have specific objectives of their own in addition tothe overall product strategy, this also needs to be incorporated and youwill need to plan for a long lead time to complete the strategy stage.

A key output of the strategy is the decision on the type of contract. Thereare a number of contract options. All arrangements bring with themdifferent risks, advantages and, importantly, dictate the need for differentlevels of contribution and hence responsibility from the client.

A project is different from a manufacturing operation. In addition to direct

labor and direct materials a project organization may involve multiplelayers of management for example, as subcontractors work under largercontractors and vendors. The result being mark ups for overhead andprofit and contingencies have a great effect on the final cost. The ProjectManager is however expected to achieve efficiencies through the selectionof an appropriate contract strategy and, specifically, thereby:


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Eliminating mark ups by eliminating layers of subcontracting;

Eliminating mark ups through selection of competitive bidders who are

matched to the size of the project;

Eliminating mark ups for contingency during the bidding and procurementcycles through good scope definition;

Reducing construction costs through proper evaluation and selection ofalternatives;

Reducing engineering design costs through leadership and complimentaryservices.

The Project Manager, specialists within the project team and the ProjectOwner are jointly involved and responsible for the development of thecontract strategy. Examples of the constraints that the projects face thatneed to be taken into account are as follows:

Flexibility in execution;

Time schedule;

Client involvement;

Project budget;

Availability of client personnel;

Risks connected with the project;

Technical complexity of the project.

Capabilities of available contractors;

Location of the project;

Uncertainties;

Quality of the work;


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Point in life cycle of product.

4.3.2.2 Types of Contract

There are a number of contract types frequently used and referred to industry-wide. However, the use of this terminology is often variable; therefore theimportant consideration is that a contract needs to be selected which will beaimed at delivering the project objectives, and the scope must be clearly andunambiguously defined in the contract document.

The following are some frequently used contract types:

Management by Client:

Each complete work package is contracted separately. The commercial basis forthe different contracts is variable. The client supervises the contracts andmanages the contractors. This type involves a high management overhead forthe client in terms of the management effort needed to control the individualcontract interfaces.

Engineering, Procurement, Construction Management (EPCM):

Detailed engineering, procurement and construction contract. The commercialbasis can vary from anything between lump sum and full reimbursable. If a singlecontract is placed on a lump sum approach, the client usually places a contractwith a single contractor who carries the total responsibility for the project. Thecontractor may in turn subcontract part of the work, but remains totallyresponsible. If established properly and managed effectively thesearrangements, based on a well-defined scope, involve the least amount ofcontract interface management effort for the client.

Turn Key:

The scope of works normally comprises detailed engineering, procurement andconstruction up to and including commissioning. The commercial basis for thetotal project is always a lump sum price. A Main contractor handles the contractand may sub-contract specialist works to appropriate subcontractors. Completeturnkey contracting involving little or no client involvement up to take-over has notbeen widely used by GBHE.


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Construction Installation Contracts:

Construction/installation contracts can be grouped into four approaches based onthe risk allocation and commercial arrangement:

Lump Sum Construction Contract:

A single contract approach on a lump sum basis. The client places a contractwith the construction contractor who carries the total responsibility for theconstruction. The contractor may in turn subcontract part of the work, butremains totally responsible. The contractor bears the economic risk of theexecution. A lump sum contract based on full design generally leads to thebest defined program and lowest costs, but not necessarily the shortestproject execution time.

Management Contractor:

Single contract approach. The client places a contract covering the entireconstruction with the management contractor, for a fee related to a target totalcost for the installation subcontracts. The contractor will manage theconstruction/installation subcontracts, which may be on a fixed price orreimbursable basis. The client agrees to pay the management contractor forthe actual cost of the subcontracts, which may be a higher or lower figurethan the target set. The contractor carries responsibility for the entireconstruction activity.

Main Contractor (sometimes called Coordinating Contractor):

Multiple contract approach. The client places several contracts with variouscontractors to execute the construction. One of the contractors also managesthe other contractors and co-ordinates the execution. Each contractor isresponsible for and carries the financial risk for its own scope of work. Thecommercial basis for the contracts is variable. This approach usually alsorequires a higher level of client management activity.

Construction Management:

Similar to coordinating contractor, with the difference being that theconstruction management contractor performs construction management onlyand no actual construction.


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Contracts are placed in the name and on behalf of the client with installationcontractors by the construction management contractor. The constructionmanagement contractor carries financial risk for its own scope of services.The commercial basis for the contracts is variable.

4.3.2.3 Commercial Considerations

The key to commercial success must be in acquiring commercial awareness.This is a subject in itself and too large to be covered in detail here. Help isavailable through both internal and external courses that are designed toreinforce practical experience.

Contracts are classified by the price type, examples being, firm and fixed price,cost plus, reimbursable and incentive. You cant rely too heavily on thisterminology, for example some of these are sometimes transposed in tradepractices and combined as fixed firm price or firm fixed price etc. leading toconfusion.The degree to which cost, time, performance and profit is linked is reflected bythe type of contract selected and needs to be resolved as part of the contractstrategy.

In addition, payment and the mechanisms involved is an exceedingly importantpart of the commercial considerations. Performance driven contracts will often,for example, benefit by payment being linked to completion of specificdeliverables or other specific milestone achievements. This greatly improves thelikelihood for control and helps to mitigate against risk.

4.3.2.4 Commercial Ar rangements

The two extremes of the wide variety of commercial arrangement available are:

(1) Lump Sum (or fixed price).(2) Reimbursable (or cost plus).

The variations between Lump Sum and Reimbursable are almost limitless. Foreach project the optimum commercial basis has to be developed based on theproject objectives, client requirements and specific circumstances. Thecommercial strategy should be developed by a team including the Project Owner,where appropriate the Commercial Manager and the Project Manager. Figure 2illustrates the decision process. The commercial strategy reflects on thecommercial basis of the contract and is independent of its scope of work.


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FIGURE 2 COMMERCIAL STRATEGY & RISK RELATIONSHIP

Some frequently used arrangements include:

Guaranteed maximum pr ice:

This variation is essentially reimbursable but puts a ceiling on the totalproject cost and provides more certainty in critical budget and financingsituations. A reasonable scope definition is required. It is usually combinedwith an incentive plan related to cost savings.

Unit Rates:

This variation is preferred where the specifications are well defined but thescope of work and therefore material and labor quantities are subject tovariation. The contract quotes unit rates (including labor) per definedquantity and quality of material or item of work.

This type of contract requires a labor intensive supervision (quantitysurveying) of the contractor.

Fixed Fee:

The contractor is reimbursed for his material costs but the profit and somegeneral overheads are included in a fixed fee based on an agreed scopeof work.


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Fixed Price with Escalation (variation of f ixed fee):

The contractors risk is reduced by means of an indexed adjustment to theinitially quoted contract price. This variation may be appropriate in

unstable economic conditions.

Omnibus Fee:

This approach is a combination of the lump sum and fixed fee typecontracts. A portion of the contractors cost is fixed, with a percentage feeapplied to other reimbursable costs. Strict control procedures should beestablished to keep the fixed and reimbursable parts of the work separatebefore using this type of contract.

4.3.2.5 Incentive Plans

Irrespective of contract types, the contractor can be stimulated to betterperformance by means of incentives built into the contract. These incentives aregenerally based on achieving mutual benefit for client and contractor by means ofincreased productivity, efficiency or cost effective execution. Incentives are oftendirectly self-funding.

Incentive plans are becoming increasingly sophisticated. They can be based onschedule, total project cost, productivity, safety, quality, man-hours, clientsatisfaction and so forth. Incentives can be unilateral or of the bonus/penaltytype. In the first case the contractor is only rewarded for better than targetperformance, in the latter the contractor will also be penalized if the targetperformance is not achieved.

Penalty clauses, however, may cause the contractor to re-assess his risk andadd an allowance to the contract price for the possible imposition of a penalty, orto relax the targets set for its performance.

4.3.2.6 Contractor Pre-Qualification

Contractors often need to be pre-qualified to assess their suitability to carry outthe work. Where this is the case, a formal and objective process is used and theresults and decisions are recorded. The Project Manager ensures that this iscarried out objectively against consistent criteria. There are at least 2 routesdepending upon the size and scale of the contract. One is to carry out "bench"surveys based upon existing local intelligence and completion of thequestionnaire and the second is a more detailed and rigorous approach based onvisits and interviews.


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The first route can also be used in conjunction with the second to refine a longerlist of possible suppliers or contractors down to a short list when the secondapproach can be used to focus on the likely bidder list.

4.3.2.7 Enquiry Parcel

Preliminary engineering or definition is insufficient for instructions to third parties.A bid package or enquiry parcel is required. This must provide sufficientinformation for the contractor or supplier, based upon the instructions to tender,to bid for the work including the completion of any pre-contract work that mayrequire to support the tender price.

The checklists contain help with putting together the contents of an enquiryparcel.

4.3.2.8 Tender Evaluation and Contract Award

Tender Evaluation:

Following receipt of the bids, strict confidential and consistent procedures needto be followed. The instructions to tender will contain information for the supplieron how the bid is required to be structured and when it must be returned. It isessential that this is maintained so that such things as co-operate governanceand commercial professionalism can be maintained at all times. It may well benecessary to clarify detail with the contractors or suppliers concerned followingreceipt, however it is important that confidentiality and discretion is maintainedwhen providing answers to any questions they might ask.

The bids are compared and analyzed consistently against criteria developed priorto enquiry. Perhaps where complex projects or contractual arrangements areconcerned, it is sometimes useful to have the bids validated or compared by anindependent organization to provide greater objectivity from an industry wideperspective. It is good practice to include a (GBHE) purchasing professional inthis process.

The outcome of the evaluation process is recorded including reasons for theconclusions and final choice made.


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Contract Award:

Contract award is the final step in the process leading to execution of the

works and management of the ongoing contract. Care is required to ensurethat the award of the contract is a formal step including the issue of allnecessary paperwork, and contract related activities are not inadvertentlyentered into which might prejudice or jeopardize the eventual ongoingcontract.

Negotiation is a key activity at this stage and merits a complete manual in itsown right. The negotiation might be related to:

A contract issue; The process of agreeing the contract;

or, following award, other post contract negotiations.

Negotiating is a critical and specialist task and requires professionalassistance and training. Preparation and formulation of strategy and a plan iskey to a successful outcome.

4.3.3 Design Strategy

This concerns not only how the design will be handled in terms of theorganizations best equipped to do it, proportions of the work they will handle,

consideration of the skill balance needed, the resource levels required but alsoconsideration of the tools and techniques to be used to support the designprocess. Resources like IT are often key to the successful outcome of design andparticularly for projects where people are dispersed over a wide area.Communication is a key element of the design strategy; poor communicationprocesses add considerable inefficiencies to the design process and overallsuccess of the project.

Contributions required from the client, roles of external specialists are also keyitems to be considered when formulating and establishing the design strategy.


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4.3.4 Construct ion Strategy

The strategy for construction (including its management) is developed as early aspossible during project definition as a key part of the overall project strategy. In

addition, it needs to be formally recorded and communicated within the projectteam. The construction strategy also plays a key part in developing contractingand purchasing strategies and is likely to be refined and developed during thetime these are being considered and when detail design is being carried out.

Some key aspects of this strategy will include considerations for siteestablishment, resourcing, contracts, construction SHE, off-site assemblies,construction risk and arrangements during the hand-over to operations.

Additional items for consideration are included within the checklists.

The Project Manager, in conjunction with construction, formulates andestablishes the appropriate construction strategy.

4.3.5 Commissioning Strategy

This covers not only the events after completion of the construction, but also therole commissioning plays in the development of the overall project process.

Resourcing, the extent of interface with operating plant, batch trials, hand-oversequence, availability of raw materials for start-up, production windows are someexamples of the things to consider. The Project Manager in conjunction withcommissioning formulates and establishes the commissioning strategy.For a project to be successful, an effective communication strategy is essential.The objective of this is to make certain that all those involved in the project areregularly and effectively informed on the state of the project. Small projects oftenhave teams whose members work very closely to each other and therefore thestrategy for projects of this sort will be very different than where the project teamis dispersed over great distances. However, considering the following goodpractice improves any communications process:

The communication process is established at the start of the project andreviewed thereafter at regular intervals to make certain that any newcommunication requirements are incorporated.

The following is typical of the organizations who may need to be keptregularly informed:

Business; Production works;


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Project Team; Other GBHE management; Contractors and subcontractors; Suppliers.

The amount of information communicated to each individual needs to beestablished carefully to make certain that relevant messages arecommunicated and individuals are not overwhelmed with data.

The presentation of information needs to be carefully designed to makecertain that it can be effectively absorbed. Use of graphical presentationgets the best results and should be considered.

The means of transferring information, either electronic, paper orcombinations of both is important and needs to be established as part of

the strategy.

Circulation of the routine project status report (or a summary of it) is a verygood way of communicating project status formally.

Regular project team meetings, formal or informal can also used to keepthe team informed.

Regular presentations on the status of the project at the following:

Steering group meetings;

Appropriate meetings of works personnel, particularly worksmanagement;

Routine review meetings with contractors, subcontractors andsuppliers.

A regular project newsletter is another very effective way of communicating.


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4.4 The Project Organization

4.4.1 Introduction

The project organization and its roles and responsibilities are a key ingredient forthe success a project. The organization and certain of the roles andresponsibilities vary from project to project depending on such things ascomplexity and size. Smaller and less complex projects are less likely to requireas many of the roles needed by larger and more complex projects. Multi-discipline projects, for example, will have matrix organizations, whereas singlediscipline projects may not. The organizational model chosen will reflect suchconsiderations whilst avoiding the need for overly complex interfaces roles andresponsibilities.

Studies show that team integration is an important characteristic of particularlysuccessful smaller projects. Projects with truly integrated teams cost less thanprojects without and implement the project around 20% faster. Project Managersoften find themselves responsible for multiple smaller projects, and studies showthat for each additional project managed the schedule grows longer by 4% anddefinition worsens. However, setting pacesetter targets, achieving business buy-in and support and communicating effectively the importance of the project onthe project team improves cost performance. In addition, results also show thatdefining the business and project objectives (and communicating theseeffectively within the project team) clearly and resisting changes can double costperformance. These are key considerations to take on board when building anddeveloping your project team.

4.4.2 Roles & Responsibil ities

For any project to be successful there needs to be clarity with regard to who iscarrying out what role, and what the individual responsibilities are. This needs tobe agreed and understood by the key individuals involved with the project, andcommunicated effectively to all who are in any way connected with the ventureas early as possible.

Everyone involved in the project should be fully aware of the individuals (byname) assigned to the various projects roles, the extent of their respectiveaccountabilities and the tasks that fall within each persons remit. It is generallymore effective to have one person only accountable for each given task(committee responsibility can result in some tasks not being attended to).


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Roles and responsibilities should be clear at all levels of the project organization,with those in leadership positions setting these out for their respective teams.The Project Manager plays a key role at Business and Project levels, and shouldensure that these roles and responsibilities are clear, agreed and documented.

Note that one individual may adopt more than one of the roles outlined below. Itis, however, important that where an individual carries out more than one role,these roles should be complementary and do not create potential areas ofconflict.

At the Business level, the following roles/persons should be identif ied:

(For larger and/or more complex projects, they should meet regularly as asteering committee, to ensure that the project work is directed towards andfunctions to meet Business requirements):

The person who holds the active ownership for the delivery and successof the project; the projects customer; the person who will champion theproject, who is responsible for gaining and retaining the Business supportand who seeks the requisite funding and resources.

The person who sets the technical and SHE standards for the project.

The person accountable for Business Planning who can evaluate theproject against this background.

The person who co-ordinates the various Business functions involved inthe project, ensures that the project is in the Capital program and whoprepares the Expenditure Proposal.

The person who will accept and operate the assets delivered by theproject.

The person responsible for ensuring that the products manufactured onthe new asset will be marketed and sold.

The person responsible for managing the execution phase of the project.

The person for ensuring that SHE performance of the new asset isacceptable.


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The person responsible for overall project finance and ensuring that thereis a Business case for the project.

The person managing the R & T effort which affects the project.

The person accountable for closing the project and preparing the closurereport.

At Project level, the following persons need to be identif ied.

They will need to meet regularly to focus on the delivery of the project and todrive it forward.

(as above) the person who co-ordinates the various Business functionsinvolved in the project, ensures that the project is in the Capital program

and who prepares the Expenditure Proposal.

(as above) the person responsible for managing the execution phase ofthe project.

The person responsible for preparing and maintaining the project plan,and communicating and agreeing it with all interested parties.

The person responsible for estimating, preparing and maintaining costreports, tracking costs and communicating these as required.

The Chemical Engineer who specifies the process requirements for theproject and who underwrites the process engineering.

Engineers with the knowledge and experience to lead the design work andwho underwrite the engineering in their respective disciplines.

The people from the Works which will receive the asset, who ensures thatoperational and Works needs are incorporated into the project design andexecution, and who communicates project information to the Works.

The person who develops the procurement strategy with the Project

Manager and assists with its execution.

The person responsible for site work aspects of the project.


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The person responsible for managing the commissioning of the new assetand its hand-over to the Works.

In addition to the above, the Engineering Project Manager needs to

appoint the following:

Design Authorities.

Design Verification Authorities.

Hazard Study Leader.

All of these are defined in the GBHE Engineering Procedures.

4.4.3 The Organization

Projects are initiated for a wide variety of reasons and against varyingenvironments. Further, project teams are made up of individual persons, eachof whom have their own unique blend of skills and experience. Consequently,projects are set up and organized in different ways, in part to respond to therequirements and constraints laid upon the project and in part to reflect thebalance of ability and skill within the team. It is essential that the ProjectManager take full account of these issues when determining the projectstrategy and organization.

Likewise, it is rare for a project to be handled completely in-house, and thus

the project team is likely to include contractors, consultants, vendors and/orother service providers. The Project Manager needs to consider how eachparty can best contribute to the success of the project and then create andsustain the working environment that will enable this.

The organizational model selected to deliver it is likely to vary from project toproject depending upon characteristics such as size, technology, complexity,degree of contractor involvement, role of external authorities, joint ventureconsiderations and many more. Good practice will involve making sure thatthe organization has clear and unambiguous lines of accountability andreporting, avoids duplication and has uncomplicated interfaces as far as is

practicable.


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4.5 Project Estimating and Planning/Work Breakdown

4.5.1 Introduction

Planning typically involves deciding what needs to be done, how it should bedone and whos responsible. Estimating and planning involves deciding howlong it is going to take and when it is best to do it. Monitoring provides thefeedback loop required for effecting control by checking whether plans andschedules are being achieved and, if they are not, what forecasts can bemade and what re-planning is needed for the future to take corrective action.Good planning relies upon the establishment of project strategy, definition,deliverables, and allocation of responsibilities and subsequent managementof the overall project process.

The Work Breakdown Structure (WBS) is a key tool for identifying anddisplaying the basic elements of the project deliverables. The plan and theWBS often develop simultaneously.

4.5.2 Developing the WBS

Breaking down the project scope into clear accountabilities for deliveryand control will help bring about effective project control. The time to dothis is when there is reasonable understanding of the project scope. WorkBreakdown Structure (WBS) is a technique that can be used to achievethis. Producing a WBS will also provide a framework for the project budgetand a structure for progress reporting.

In order to develop the WBS it is essential that the Project Objectives areclearly defined in terms of what the Project Team expect to have producedby the end of the project.

The development of the WBS takes place by identifying the projectdeliverables and then sub deliverables which are required to complete themain deliverables. This sub-dividing of deliverables continues to the pointwhere a clearly quantifiable final element is identified.

A final element sub-deliverable does not need to be a single function task but

must be capable of being assigned as a single accountability. In some casesthis may mean assignment of a whole work package to a specific contractor,in other cases an individual may be responsible for the provision of aparticular element of the design.


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The completed WBS can be displayed either as a hierarchical listing or in theorganization chart format.

When completed, the WBS can be used to help with:

Identifying resource requirements; Developing the estimate (from Order of Cost to Grade B); Assigning Responsibilities; Resource Identification; Sequencing and Scheduling the Project; Monitoring and Controlling Change.

4.5.3 Estimating

It may seem a statement of the obvious, but the key to accurate estimating isto ensure that everything that is required from the project has beenconsidered. The best opportunity for this is within the WBS.

Where possible, the production of the estimate should be a team effort withproduction of various sections in line with accountabilities within the WBS. Insome cases, particularly when developing very early order of cost estimates,the Project Manager/Engineer may have to rely on their own experience toproduce the estimate; in such cases the value of a comprehensive WBS willbecome apparent.

The first stage in producing the estimate is the identification of the individualresources needed to complete the deliverables as displayed in the finalelements of the WBS. The typical resource types which may be requiredinclude:

Human - designers, planners, construction management; Facilities - buildings, furniture, team accommodation; Equipment - types, hire/purchase; Materials - bulk, one-off, specialist, MPI.

Having identified the types of resources needed, the next step is to identify

the unit rate of each resource and how much of each resource is needed.

Use of Value Analysis allows for future decision making against ChangeRequests to be based on sound cost information.


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At the earliest stage of project definition, identification of resourcerequirements will facilitate ball-park or Order of Cost estimates to beproduced. As the definition develops, the same process can be used toproduce grade 'B'(10%) estimates for sanction. Though this level of estimate

will normally be produced within a functional group such as piping, vesselsetc. it may be expected that each function has considered its own WBS for itscontribution.

As definition improves, uncertainty and risk will, in general, reduce. However,it is very important that the potential impact of individual risks is assessedwhen considering the level of contingency required within a sanction estimate.It is entirely legitimate to have a general level of contingency below 10% andin addition to have a specifically defined contingency for an individual risk.

4.5.4 Planning

This involves deciding and recording what needs to be done, how it should bedone, how long it will take, who should do it and how many resources areneeded. The purpose of planning is to organize the delivery of the project and theresources required for delivery in order to avoid future problems.

The WBS is the tool which shows WHAT must be done to complete a project;however, in order to plan WHEN it must be done, it is necessary to combine bothavailability of resources (WHO) required to achieve the task and the logicalsequencing of those tasks.

Deciding project strategy is an essential element of planning, and establishingthis as early as possible is good practice, providing a firm basis for detailedplanning, scheduling and subsequent project control.

Establishing appropriate measures of project performance as early aspossible (and agreeing these with the project owner), likely based uponcritical success factors, will help in benchmarking the delivery of benefit atcompletion.

Deciding and establishing as early as possible, systems for managing hand-overs will help the effective and efficient hand-over of design packages to

construction, equipment and process system packages to commissioning,operating asset to operating management.


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