How to Include Digital Physical Progress Measurements in Capital Project Control Setups

Getting an accurate measure of physical progress is essential to maintain capital projects under control. New technology is getting deployed on projects based on advanced imaging (digital photography, 4D scans, drones) often associated with Artificial Intelligence (AI). This remains an emerging discipline and does not cover the full scope of the project. In our new White Paper 2022-08 ‘How to Include Digital Physical Progress Measurements in Capital Project Control Setups’, we explore the possibilities offered by this new technology and the challenges that must be overcome to include those digital measurements in the overall project control framework.

A reliable measure of physical progress is essential data for knowing the current state of the project (where we are). Having this reliable foundation is also essential for any forecasting activity (where we are heading).

Measuring physical progress requires up-to-date reports on the status of certain indicators identified as representative of physical progress. Two practical problems arise:

• The relevance of the choice of indicators
• The accuracy of the data, which requires quality and reliability of the progress measurement

Digital technology allows us to respond to the immediacy challenge of the availability of data. It can make it possible to significantly increase the data capture frequency. It also allows automatic processing of data (by aggregation, analysis, etc.) provided that it is correctly coded at its origin. Digital can also enable data to be captured at a greater level of detail, closer to operations.

Read our new White Paper 2022-08 ‘How to Include Digital Physical Progress Measurements in Capital Project Control Setups’ for an update on current digital capture technology and on using AI for physical progress measurement. The White Paper also covers issues that need to be overcome to fully benefit from digital capture of physical progress.

Many initiatives exist and some progress is made towards integrating digital physical progress data in project control setups. However, this requires a particular effort at project start-up as the amounts of data thus generated must be specified, coded, and checked to fit into the overall project control setup. Project professionals must recognize that this focus has to be included in project setup plans and that this issue also needs to be addressed in the requirements to the specific contractors and subcontractors that will be involved in the project. Early consideration of such solutions is thus paramount to their successful implementation in projects.

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2022-08_digital_physical_progress_v1.pdf

How to Manage Long Term Industrial Capex Programmes That Get Approved Piecemeal

Owners sometimes decide to proceed on a series of successive industrial capital expenditure projects that form a full and consistent programme but get approved progressively. This can reflect particular financing constraints or a general approach to allow more flexibility and adaptation to the market circumstances. When individual projects get approved, the consistency with the overall programme must also be checked and maintained. In our new White Paper 2022-07 ‘How to Manage Long Term Industrial Capex Programmes That Get Approved Piecemeal’, we investigate practices needed to ensure sufficient control is maintained by the owner.

In certain circumstances, capital investment programmes can be split and approved piecemeal. This is actually quite a common practice in certain cases. Examples include upgrades to a number of existing facilities along a full industrial value chain (such as for mining and chemical value chains that may involve several sites across the world), or a number of upgrades within a single industrial compound. This can also apply to greenfield projects, for example, development of a mine first without a processing plant, and later or separate development of the processing facilities, or the progressive development of an oil field through successive Capex projects. This will also apply if the financing schemes of the various projects in the programme are different.

Proceeding with such an approach will allow progressive investment and possible adaptation of individual projects scopes to the current condition of the economy and other external factors that may warrant flexibility and adaptation.
Irrespective of the successive approval of several projects within an overall programme, it is still essential to maintain a view on the overall consistency of the scopes including standardisation and interfaces between projects. Therefore, a sufficient minimum programme management oversight must still be implemented.

Read our new White Paper 2022-07 ‘How to Manage Long Term Industrial Capex Programmes That Get Approved Piecemeal’ for more insights about the risks and good practices for capital programmes that get approved progressively.

When individual projects within a programme get approved piecemeal over time, it is still essential to preserve the overall value and strategic intent to maintain a programme vision. This only requires a limited effort and team, however, the voice of the programme must be formalized and heard as part of all those projects’ governance and key decision gates to make sure the organisation actually reaps the expected benefits of the full programme.

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2022-07_Managing_Long_Term_Programmes_v1.pdf

How To Adapt to the Increasing Share of Financial Owners for Capital Projects

An increasing proportion of large industrial and infrastructure owners are pure financial players. Such owners lack the deep industry and technology experience of more traditional industrial owners. This creates a number of issues in terms of project execution and performance. In our new White Paper 2022-06 ‘How To Adapt to the Increasing Share of Financial Owners’, we investigate the consequences of this trend on owners and contractors for the actual execution of such projects.

Following a general economical trend, pure financial players are increasingly getting involved directly as owners in large industrial and infrastructure projects with the objective to create an asset that will deliver substantial and regular returns over their lifecycle. This can be through special purpose vehicles or directly as funds taking majority equities in projects or industrial operators. Often those financial players will look to exit the project with substantial return on equity at a shorter horizon than the infrastructure lifetime through refinancing exercises (typically 5-7 years); financial owners actually only concentrate on the project development phase.

While usually very cognizant about financial structuring, financial owners have much less competency on technical or industry-specific aspects. Beyond hiring a limited number of industry experts to help frame their investments, they thus generally seek the support of owner assistance or project management contractors to effectively deliver the projects. They will also often delegate asset operations and maintenance to third party companies. However, this setup may also create issues and project performance concerns, in particular in the following areas:

• Excessive expectations regarding project and asset performance,
• Lack of competence of the owner to drive the right technical decisions during project definition and execution, in the interest of the full lifecycle value of the asset. This is also linked to poor governance including inadequate control of key project milestones,
• Lack of alignment of interests between owner and owner assistance leading to decision delays. This additional complexity may have a significant impact on project delivery.

Read our new White Paper 2022-06 ‘How To Adapt to the Increasing Share of Financial Owners’ for more details on those issues and how to manage them.

The trend towards financial pure players as owners for major industrial and infrastructure projects reinforces the need to have a clear view of the minimum skills and competency that an owner needs to have and cannot delegate – even to apparently benevolent owner assistance contractors. General expectations in terms of owner competency apply, and financial owners must be ready to internalise a limited number of experienced project personnel that will allow them to effectively drive project performance and avoid being taken hostage by contractors.

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2022-06_impact_increasing_financial_clients_v1.pdf

Why Project Funding Must be Considered Earlier in Project Development for Owners

Many owners of large projects consider project financing to be a somewhat independent exercise from project development, often delegated to the finance department. However, our experience shows that financing participates deeply in project strategic development. In addition, it is essential to avoid delays in final investment decisions due to financing issues. In our new White Paper 2022-05 ‘Why Project Funding Must be Considered Earlier in Project Development for Owners’ we explore best practices in the field of project financing from the perspective of overall project development.

Most large and complex projects require some financing setup beyond the main owner’s internal resources, and external funding is actually an increasing trend for major infrastructure and energy projects. This financing can take many forms and lead to setups of various degrees of complication, and will include a combination of the following:

• International / multilateral institutions financing (development bank for the continent or country)
• Export Credit Agencies
• Capital-level financing: partnerships, financial market/market introduction of ad-hoc project entity, private equity
• Debt: commercial banks, etc
• Government subsidies and tax rebates
• Future client funding (may include a production take-off commitment)

Financing does influence project development and later project execution at several levels. Many owners being focused on the technical and project management aspects of project definition tend to start the setup of project financing relatively late, however, our experience shows that this often creates substantial performance issues for the project. Read our new White Paper 2022-05 ‘Why Project Funding Must be Considered Earlier in Project Development for Owners’ to understand better how financing must be taken early and how it influences project development.

Project financing is an increasingly important topic for large industrial projects. Many owners consider this to be an independent exercise that can be performed in parallel to project development. However, it is an integral part of project definition and project financing must be integrated within the project team. Also, it has to be considered early enough; we recommend the overall financing strategy to have been set prior to embarking into the Detailed Feasibility Study (DFS) phase, even if the final parameters will only be set at Final Investment Decision (FID).

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2022-05_consider_funding_earlier_V1.pdf

How the Essential Purpose of the Integrated Project Schedule is to Coordinate Project Contributors

In projects, various schedules are being used: contractual schedule, strategic schedule, integrated project schedule, and more detailed schedules covering only part of the scope. The integrated project schedule, fully linked and covering the complete project scope, can effectively be used to coordinate all contributors which is actually its main objective.
In our new White Paper 2022-04 ‘How the essential purpose of the Integrated Project Schedule Purpose is to Coordinate Project Contributors’, we investigate how this function translates in terms of differences with other schedules and in terms of information needed in integrated project schedules.

Integrated project schedules are essential in projects. Those fully linked schedules cover the complete project scope and provide the main reference in terms of project execution and decision-making (refer to White Paper 2015-14 ‘How to Build a Proper Project Schedule Hierarchy’ and White Paper 2015-18 ‘How to Produce an Adequate Integrated Project Schedule’). Unfortunately, they are often much too detailed which creates quality and accuracy issues (refer to White Paper 2012-28 “How too much Detailed Planning often Kills Project Success”).

The main purpose of the integrated project schedule is to coordinate the various contributors of the project. No other schedule can accomplish this. This implies a number of properties and characteristics that are described in detail in the White Paper.

The purpose of the integrated project schedule is to coordinate all project contributors. This purpose should not be overseen. As a consequence, it should focus on interfaces between such contributors without delving much into each contributor detailed activities. This is really the differentiator with any other schedule used in the project hierarchy. This is worth remembering when setting it up, because this purpose will inform how it is setup and coded. Read our new White Paper 2022-04 ‘How the essential purpose of the Integrated Project Schedule Purpose is to Coordinate Project Contributors’

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2022-04_integrated_schedule_contributor_mgt_v1.pdf

How To Better Use the Project Schedule as a Communication Tool

The integrated project schedule is an essential tool for piloting the project, and it also needs to be used to coordinate contributions. In our project reviews we observe that project schedules are too often not communicated systematically to project team members, which misses the point. In our new White Paper 2022-03 ‘How To Better Use the Project Schedule as a Communication Tool’, we explore why schedules are not actively communicated and what solutions can be put in place to achieve this objective.

Projects invest a lot of resources and effort in schedule management. Proper maintenance and forecasting using the integrated project schedule and more detailed schedules is essential for proper project piloting and taking decisions. (refer to White Paper 2015-14 ‘How to Build a Proper Project Schedule Hierarchy’ and White Paper 2015-18 ‘How to Produce an Adequate Integrated Project Schedule’).

One of the objectives of schedule management is also to ensure schedule data is communicated to all contributors. This is an essential action for actual synchronisation of all contributions and will also provide feedback that is useful for maintaining a realistic schedule. However, irrespective of possible weaknesses in the field of updating and reforecasting the integrated project schedule, we too often observe that the schedule is not systematically communicated to project team members. How can they then know what is expected from them and when?

In addition to those relatively conventional schedule sharing approaches, some advanced techniques can also be used based on the observation of the slippages between the few last schedule updates.

It is quite amazing that although projects expend significant effort and resources on schedule management, they tend to use only a limited value from the full dataset thus created. By exploiting historical variations between each schedule update and observing how key dates and floats evolve with respect to key project convergence points, a lot of insight can be gained on the actual trends of project execution (refer to White Paper 2016-06 “How to Use Float Monitoring Techniques”).

Too many projects expend significant effort on scheduling while exploiting little of its potential benefits. It is essential to ensure that integrated project schedule updates are widely communicated to make sure all contributors know what is expected and thus can coordinate their actions. Various approaches can easily be deployed to achieve a much-improved communication. In addition, advanced visualisations like float and key milestones monitoring over several successive schedule updates can also provide deep insights into project trends

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2022-03_need_extend_schedule_comm_v1.pdf

How to Adapt to an Increase of Compliance Assurance from Public Owners

We observe through our interventions an increase in compliance assurance from public and semi-public owners. This implies more formality in demonstrating compliance to requirements and the approval of possible deviations, as well as delays regarding the treatment of contractual claims. This compliance activity is not always properly planned and implemented, making it an increased burden on the teams. In our new White Paper 2022-02 ‘How to Adapt to an Increase of Compliance Assurance from Public Owners’ we discuss the reasons for this evolution and what needs to be anticipated to minimise the impact on project execution.

Societal evolution requiring more accountability from public and semi-public institutions is the underlying reason for a significant increase of compliance assurance activities by the project owners. This increased assurance activity is however sometimes compounded by bureaucratic developments and the expectation by owner staff to avoid any possibility of blame. This leads to significant efforts to document decisions, develop and formalise objective assessment criteria for all important decisions to be taken on projects (from contract awards to the acceptance of changes, or any decision impacting schedule, cost or quality). This in turn often creates additional delays in taking decisions because of the need to document them and to ensure that the decision file is watertight and can support audit scrutiny; in addition, decisions are often expected to be taken as a group during steering committees to ensure proper alignment.

While there had always been a substantial difference in actual bidding and contract management approaches by public and semi-public owners in particular with regard to competition rules, an evolution towards increased compliance requirements is quite noticeable in the last few years in developed countries and marks an increased difference with private owners in the way projects are run. Compliance requirements do increase as well for publicly listed private owners but are generally not significantly affecting project execution.

For all the aspects mentioned above, it is essential for the contractor to plan and prepare in advance a strategy to support compliance. This includes particular attention to agreeing with the owner how compliance is expected to be proven and setup the required systems and processes for timely collecting all the expected documentation and proofs. A requirements management system can often be a good solution to support those needs.
In addition, specific cost and schedule management strategies must be put in place, which may require a specific way of setting up project schedules so as to accommodate the specific compliance needs, for example in terms of owner response time on certain aspects.

Compliance requirements for public owners have increased significantly over time and this has led to substantially increased hurdles for the proper execution of those projects. Increased documentation requirements, less flexible specifications and most importantly, longer and delayed decision-making, do affect projects. Those issues need to be taken into account and anticipated during project planning; however, they still may significantly affect projects particularly when unexpected events happen that require to rebaseline the execution plan. Contractors for public owners need to be fully aware of this trend and its implications and anticipate accordingly at project setup. Read our new White Paper 2022-02 ‘How to Adapt to an Increase of Compliance Assurance from Public Owners’!

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2022-02_impact_increasing_compliance_public_clients_v1.pdf

Why the Owner Always Takes the Most Risk in an Industrial Project

During our work with project owners and financers, particularly those that have a limited experience and low maturity in terms of project management, we have realized that they don’t always understand their actual risk associated with industrial projects. Moreover, they often live under the delusion of having transferred their risk to a turn-key contractor. In our new White Paper 2022-01 ‘Why the Owner Always Takes the Most Risk in an Industrial Project’ we re-establish that most of the risk always lies on the owner side, and therefore that it is its own responsibility to setup an adequate organisation to manage this risk proactively.

Although the owner can only transfer to contractor a very small proportion of the actual risk it takes, owners and financers too often live under the illusion (or delusion) of having transferred their risk to a turn-key contractor and they tend to minimise involvement into risk management activities. This is particularly the case of financers with limited technical knowledge that often live under the delusion of risk transfer by requiring all contracts to be turn-key lump sum contracts. Lump sum contracts don’t fare better in terms of project execution performance than other contract forms; any change is an opportunity for a claim from the contractor that will inflate cost; and contractors may fall prey to the temptation of diminishing quality to save costs which may affect the long-term reliability and operability of the facility if not properly monitored by the owner during project execution. Therefore, turn-key lump-sum contracts are not a panacea, and they are actually only usable for mature technology and well-known project circumstances.

In general, risk should only be sustainably transferred to another party if that party is much more competent or capable in addressing the risk. In reality, due to competitive pressures or market habits, risk can get transferred and accepted by contractors that may not be much more able to manage it than the owner. When the parties to which the risks are transferred are contractors, they will only be able to bear the risks to a limited extent which is much less than the impact of the risk on the owner. Therefore, risk transfers only work when the risk remains limited but always fail when it grows beyond a certain proportion. Even when the risk has been accepted contractually by the contractor, if such a risk were to occur, the contractor could potentially go bankrupt or be forced to default so as to limit the exposure to the cap. In either case, the owner would have to change contractor, incur substantial delays, potential quality issues and substantial costs.

Ideally, the owner would hope to transfer risks that can be controlled as much as possible to other parties. Unfortunately, the owner will in all cases continue to bear a large majority of the risks associated with the project. Therefore, the owner must implement a thorough risk management process covering all types of risk from its perspective. This requires resources and specialist personnel, since it remains deeply necessary to really understand the amount of risk taken and to monitor and manage it appropriately. Read our new White Paper 2022-01 ‘Why the Owner Always Takes the Most Risk in an Industrial Project’.

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2022-01_how_owner_always_takes_most_risk_v1.pdf

How to Change the Main Contractor on a Problematic Project

Struggling projects sometimes require a change of the main contractor. This is feasible although it will have consequences on the overall project performance. However, having the possibility of this choice requires a number of precautions from the project onset. In our new White Paper 2021-12 ‘How to Change the Main Contractor on a Problematic Project’, we investigate in detail under which conditions swapping the main contractor can be possible and beneficial.

Sometimes a contractor will deliver a much weaker performance than expected. Consequences can be significant in particular if there are possible interface issues with other contractors (who will of course claim for delay, possible disruption and change of sequence and thus additional cost waiting for the last contractor to deliver).

From time to time, it is thus necessary for the owner to descope some part or an entire contractor remit and transfer the scope to another more competent or available contractor in the midst of project execution. This is a major event that has to be prepared carefully, if possible, by a dedicated discrete taskforce operating in parallel to the project implementation team.

This decision will require a lot of effort and be necessarily overall more expensive and time consuming than the original plan. However, it is sometimes the only way to complete the project in an acceptable span of time and budget.
This transition can only happen at certain definite milestones of project execution which correspond to a transition between activities.

In order for the owner to be in the best negotiation position in this occurrence, certain conditions need to be fulfilled in terms of contracts, document control systems, project control and procurement.

Descoping a contractor is a rare occurrence but may be necessary depending on the circumstances. We have witnessed successful occurrences, therefore it needs to be considered as a viable strategy. Certain conditions need to be fulfilled, in particular a good grip of the owner on its documentation and project control, so as to be able to pursue the project in good conditions. In general, it is important for the owner, from the beginning, not to place itself in a position to be taken hostage by the contractor. While de-scoping and re-awarding part of the scope will generate substantial work and have consequences on the project, it can be better than sticking with the original plan and this should always remain in the mind of the owner as an option.

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2021-12_changing_main_contractor_v1.pdf

How Contractor Capability Should Be The Main Driver for Project Contracting Strategy Development

When it comes to developing a contracting strategy for a project, owners would like to have a minimum number of contractors to avoid having to deal with interfaces. At the same time, contractors often wish to expand their scope as an opportunity for development. This often leads to overextended contractor scope compared to their competency, creating delivery challenges for the project. In our new White Paper 2021-11 ‘How Contractor Capability Should Be The Main Driver for Contracting Strategy Development’, we explore this issue, showing that it is more important to focus on actual contractor capabilities even if this leads to a larger number of contractors that need to be coordinated.

Contractors that do not master their scope are significant threats to the actual execution of the project and its success. The owner will need additional supervision and could find itself in the need to guide or even get involved in the actual delivery to compensate for areas of contractor weakness, while not being organised and resourced to do so.

If there was a single rule to follow in terms of contractual strategy, it would be that it is essential to hire contractors on scopes for which they are competent (and their competency is proven by their track record). Hiring contractors on scopes for which they are inexperienced is a sure recipe for failure.
Competency includes a proven track record in terms of HSE, and the actual demonstrated usage of best-in-class HSE practices, which should be a decisive criterion. It is also important to understand that the notion of competency when it comes to the construction phase also requires adequate experience in the specific country, its rules and habits; and of the site conditions (for example, arctic projects require experienced contractors for those specific climatic constraints). In brownfield projects, competency also includes experience working on the specific site under site requirements, therefore long-term maintenance and improvement contractors are often the most competent for the tie-ins of new units.

The contractor competency rule would look quite straightforward and reasonable enough however experience shows that it is too often not followed, often due to various stakeholder pressures such as financing or project governance. Still, experience shows repeatedly that it is better to coordinate a number of contractors competent on their scope rather than to over-extend scopes beyond their abilities. Punctual consortiums as a way to push down the coordination activities are not either a good solution if the consortium participants don’t have the experience of working together or a proven coordination capability. At the end, the contracting strategy will be defined by the actual contractor market at the time of launching the project. Read our new White Paper 2021-11 ‘How Contractor Capability Should Be The Main Driver for Contracting Strategy Development’ to understand more about this essential issue.

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2021-11_how_contractor_capability_key_contracting_strategy_v1.pdf