ID: 58095

Lessons learned in engineering development for Major Projects CERTIFICATION PAPER FOR CCE/CCC exam. May 07, 2011

Table of Contents
ABSTRACT ............................................................................................................................................................................. 4 INTRODUCTION AND PROBLEM STATEMENT ..................................................................................................................... 5 CRITICALITY OF DETAILED ENGINEERING ............................................................................................................................ 6 HOW MAJOR PROJECTS DIFFER FROM SMALLER PROJECTS?............................................................................................. 6 SCOPE OF THE STUDY ........................................................................................................................................................... 7 LESSONS LEARNED MAP ...................................................................................................................................................... 9 FEL (FEED) DEVELOPMENT: ........................................................................................................................................ 9 PROJECT EXECUTION: ............................................................................................................................................... 13 ORGANIZATION CAPABILITY: ................................................................................................................................... 19 PROJECT CONTROLS AND ESTIMATING: .................................................................................................................. 20

CONCLUSION ...................................................................................................................................................................... 23

List of Tables Table 1: Scope of study ......................................................................................................................... 7 Table 2: PEP content findings .......................................................................................................... 14 Table 3: Phased vs. all at once approach - Pros and Cons .................................................................. 15 Table 4: Procurement and contracting strategy - lessons learned ..................................................... 16 Table 5: Engineering norms sample for estimate validation .............................................................. 22 List of Figures Figure 1: Stage gate process ................................................................................................................. 5 Figure 2: Factors impacted by detailed engineering ............................................................................ 6 Figure 3: Study: project cost growth..................................................................................................... 8 Figure 4: Study - home office cost growth............................................................................................ 8 Figure 5: Lessons learned map ............................................................................................................. 9 Figure 6: Permitting timeline sample ................................................................................................. 10 Figure 7: Pending change orders at end of FEED ................................................................................ 11 Figure 8: Impact of open scope at the end of FEED ........................................................................... 12 Figure 9: FEED - Detail engineering overlap ....................................................................................... 13 Figure 10: Health and process safety studies road map ..................................................................... 13 Figure 11: Phased vs. all at once execution ........................................................................................ 15 Figure 13: Quality management lessons learned ............................................................................... 17 Figure 14: Sample KPI report .............................................................................................................. 18 Figure 15: Engineering / Construction overlap ................................................................................... 19 Figure 16: Sample engineering budget development ........................................................................ 21 Figure 17: Schedule assurance lessons learned.................................................................................. 21 Figure 18: Sample engineering discipline progress report ................................................................. 22

Abstract Over the last ten years, the market has witnessed an increased number of major refinery projects that were executed to meet the market demand and reap the benefits of commercial opportunities. These projects often intended to reposition and expand existing refineries through building new process units and revamping existing ones. This resulted in complex engineering scope requirements and hence execution challenges and significant performance issues. From experience, projects that fail in engineering often end up with construction and field problems, operability issues, start up delays and significant budget and schedule overrun. This paper examines the challenges faced by five major projects during the front-end engineering and design (FEED) phase that led to significant performance issues and deliver a lessons learned map of key areas of interest to best develop and execute the detailed engineering phase.

Introduction and problem statement The decisions to execute major projects are typically based on the competitive analysis, scope definition and execution planning performed during the FEED stage. The FEED is the most critical stage where its easy to influence the design at a relatively low cost [7]. Unfortunately, projects that are under time constraints often shorten the timing of the FEED stage to meet their respective schedule. The perception is that any open scope and planning deliverables can be finalized after project sanction. However, without the appropriate scope definition, the sanction estimates will not carry the level of confidence needed at this stage. This exposes the project to the risk of major issues in detailed engineering, field construction and eventually start up and commissioning. Most of the owner companies now adopt a stage gate process for the execution of their projects as shown in figure 1. The process emphasize on completing the deliverables at each stage and going through a stringent decision making process before proceeding forward. The process reaches a major decision point at the end of the FEED phase where project sanction (full authorization and funding) is sought.

Figure 1: Stage gate process

The FEED phase typically focuses on preliminary design and execution planning deliverables that helps the stakeholders understand the process systems capabilities, execution difficulties, schedules and most importantly the economics of the projects. At the end of this stage, the project team will request full authorization to commit to procurement activities and detailed engineering work. The authorization request is typically supported by +/- 20% estimate and appropriate schedule to depict the execution path of the project. Its fair to say then that if the FEED phase is not complete, yet the project is authorized to move forward to detailed engineering, authorization estimates and schedules may have been based on incomplete scope definition. The incomplete scope and poor planning will creep to the detailed engineering phase and cause rework in engineering deliverables produced during the FEED. This will eventually lengthen the detailed engineering and construction phase. This paper examines the challenges faced by five major projects during the FEED that led to significant projects performance issues. Lessons learned map detailing key areas of interest is also presented to help direct the managers attention to some of the common occurrences during the life the project that often leads to poor performances. The paper is structured as follows: 5

I will first address the criticality of the detailed engineering phase. Since the study focuses on the detailed engineering aspect of major projects, I will discuss what characterize major projects and add to their complexity. Using data from the five major projects, I will then construct a lessons learned map and discuss the respective areas of interest. Criticality of detailed engineering Engineering performance will likely affect the parameters listed in Figure 2. To declare a failure in detailed engineering in a specific project will be dependent on cost and schedule overruns, process safety issues and if the unit is not performing according to design specs (operability). The magnitude of cost and schedule overrun and how acceptable they are, is mainly dependent on the stakeholder requirements and analysis of the overall project. Its important to note that a 10% engineering overrun will increase the project cost by 2% (impact of engineering only). Additionally, the greater impact will be due to the extension of the engineering schedule, field rework, delay in construction and start up and operability problems. One must consider the impact this has on the project economics and project feasibility. Is the project still economical with this overrun? These overruns can definitely be avoided!

Figure 2: Factors impacted by detailed engineering

How major projects differ from smaller projects? The Projects cost is 200MM 1BB - This is however is not a standard May trigger complex environmental and regulatory requirements - The environmental and regulatory requirements may dictate the availability of permit before authorization. In some projects, this may trigger changes in scope. For example, building a new process unit to handle sulfur levels or firing limits. Will stir the labor market (engineering and construction) - Due to their size, these projects will require huge labor pool to execute engineering and constructions. This becomes extremely challenging if different projects are competing for these 6

resources which will impact cost and schedule (projects will pay more to acquire these resources). Have longer schedules > 40 months, from alternative selection through start up. Process engineering and OSBL (outside boundary limit) complexity the complexity in the ISBL (inside boundary limit) will drive complexity in the OSBL. Since OSBL engineering often lags ISBL, OSBL estimates are often understated. May require the use of several contractors - This also poses a challenge and requires stringent plan to manage the interface among the various parties. Requires significant owners organization and financial profile It is extremely important for the projects to have dedicated owners team to oversee and review the work being executed by the contractors. May be part of a program Major projects are often part of major modernization programs. The execution requires an integrated project management team to manage the changes and scope evolution and assess the impact on other projects within the same program.

Scope of the study Lessons learned were based on a study performed on five major projects as outlined in the table below: Project Execution Schedules 2003 - 2007
Project Sanctioned Cost Project Type
All Process Units

280MM 850MM 3 Greenfield (projects C, D & E) 2 Mix of Revamp, Brownfield & Greenfield (projects A&B)

Owners Companies represented EPCm represented

3 2

Table 1: Scope of study

A series of interviews were conducted by the project team with 15-25 people on each project. Upon analysis of the project data, it was found that the average cost overrun for these five projects was about 6% and ranged from 4% to 9% as seen in figure 3. This increase is above the project contingency plus management reserves. Projects that consisted of revamp and brownfield scope have typically experienced more cost growth than those of a greenfield type projects. This is not uncommon considering the amount of discovery that could be encountered on site, specifically for 7

older process units. This would result in engineering design rework and field delays which can extend the turnaround (TAR) window.
Total Project - Cost Growth 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Project A Project B
Mix of Revamp, Brow nfield & Greenfield Greenfield

Project C

Project D

Project E

Figure 3: Study: project cost growth

Furthermore, the average home office cost growth for these five projects was about 14% and ranged from 11% to 19% as shown in figure 4. Its important to note that projects with highest engineering growth contributed to the highest overall cost growth.
Project Definition & Detailed Engineering Cost Growth 30% 25% 20% 15% 10% 5% 0% Project A Project B Mix Project C Project D Greenfield Project E
Project Definition Detailed Engineering

Figure 4: Study - home office cost growth

One may perceive the results as typical cost growth (9% isnt that bad). I believe an acceptable level of overrun, is dependent on the stakeholder requirements, market strategy and conditions. However, when considering the impact of the overrun on the IRR and the economic feasibility of the project, this may present a serious issue. Additionally, if the project was built as part of a program, the impact of the scope change and cost overrun will drive changes downstream on other projects being executed. The 9% overrun becomes multiplied for the overall program. 8

Regardless of the magnitude of the overrun and the perception of its adequacy or not, these challenges can be minimized and even avoided by simply following best and recommended practices around project execution and understanding business priorities. I intend to present some of the shortcomings that major projects always experience and how they can be converted into lessons learned to help deliver projects with best in class safety, cost, schedule and operability performance. Lessons learned map The lessons learned on these projects were generated using workshops at close out, a series of questionnaires to the project team and personal interviews. The results were then analyzed and categorized into four different main categories and six sub categories as shown in figure 5.

Figure 5: Lessons learned map

FEL (FEED) Development: Research in the construction industry has always identified good scope definition as a critical factor in executing a successful project [3,4] Without the appropriate definition, any work that is estimated and planned may not reflect a true picture of what the project is intending to build. The lessons learned generated around this area were focused on the teams understanding of the business priorities, the level of scope definition and the impact of the environmental regulations on

the scope and schedule. This area also tested the importance of applying the value improvement practices and the outcome they generated. Clear business objectives: it was found that projects personnel didnt believe they had a clear understanding of the business objectives and even when decision criterias and boundary conditions were set on the project, they were changed multiple times causing the development of more project alternatives. When the business objectives remained unclear after sanction, they triggered major late scope changes which are costly. It was also noted during one of the interviews that economical evaluations of the alternatives didnt consider any inherent specific risks or opportunities within each alternative. A SWOT (strength-weakness-opportunities-threat) workshop would have generated risks or opportunities list to support the financial analysis. This would have also supported minimizing the number of alternatives going into the next stage and hence shorten the FEED duration. Environmental regulations and requirements: During the feed development, some projects didnt identify accurately the impact of permitting and potential environmental regulations on the cost and schedule for each alternative. For example, the change in sulfur specifications would have increased the estimated cost for one project by more than 50 million but was not incorporated until late FEED. This caused not just an increase in the project cost but delayed the schedule as well. Additionally, the early project schedules didnt allow sufficient time for the receipt of permit (sample high level schedule in figure 6). If the permit application from submittal to receipt required two years, this might have rendered some alternatives infeasible. This might also require the team to commit funding before sanction which increases the risks of regret spend in the case the permit was not approved.
Year 2011 Quarter 1 Project Selection Review Permit Strategy Prepare Permit Application Application Submittal Permit Review & Issuance Project Sanction
Figure 6: Permitting timeline sample

2012 3 4 1 2 3 4

2013 1 2 3

Soil data and site information: The workshop conducted revealed that soil data and hydrology were not definitive by the end of the FEED stage. As such the test for 10

contamination was not done and triggered the involvement of the remediation contractors which extended the project schedule. Furthermore, some of the assumptions around site plan could have been narrowed if several walkthroughs were conducted with the engineering and construction contractor and led by the site operations team. Value improvement practices (VIP): All project team personnel reported pressure from senior management to apply as much VIPs as possible. This would have helped the project in increasing their FEED score when external and internal reviews are conducted. The teams felt however that some VIPs workshops were compressed to the point they lost their true value and noted more benefits could have been attained if only critical and relevant VIPs were conducted. Scope definition and offsite utility requirements: The analysis of the data set as shown in figure 7 depicts that all projects in this study had pending design changes that rolled over to detailed engineering. This might have been a reflection of unclear business objectives but the correlation with the cost overrun was expected.
Pending Changes Count @ End of FEL

Pending Changes Count

20

30%
Det. Eng Cost Grow th Pending Changes

12

20% 15%

10%
4

5% 0% Project A Project B Project C Project D Project E Mix Greenfield

Figure 7: Pending change orders at end of FEED

Projects were allowed to go through to detail engineering knowing too many scope items were still open. This would typically happen because the business would like to maintain some flexibility as the project go through the stage gate process. This need for flexibility resulted in significant project cost and schedule overrun. Figure 8 below supports this argument. The first Gantt chart depicts high level project schedule with a common overlap between engineering and schedule. Typically, 70-80% engineering complete will support the start of construction effort, specifically in site and civil work.

11

% Cost Growth

16

25%

Figure 8: Impact of open scope at the end of FEED

The second Gantt chart depicts a project with open scope items at the end of FEED. Because there is a perception that these open items can be finalized in execute without any impact to the schedule, the project is allowed to go through the stage gate. Once in the execute stage; the project team finds themselves doing the actual FEED work in execute. This typically results in delays in the engineering schedule and eventually delays in the construction schedule and start up. In the third Gantt chart, the team realizes that the engineering schedule is slipping but decides to maintain the construction schedule as is, to finish the project on time. However, maintaining the construction schedule would mean that construction work would start early. This results in major rework when engineering deliverables and issue for construction (IFC) are issued. Some projects overlaps the FEED with detail engineering. While this is typically done to accelerate the schedule, the results are weak engineering products and cost overrun. Figure 8 shows how the overlap undermines the importance of the FEED stage and increases the projects minimum exposure / cancelation costs. Other engineering schedule slippage revolved around underestimating the OSBL scope of the project. Most projects in this set didnt perform any comprehensive OSBL scope studies in the FEED and allowed for a percentage in their estimate. Unfortunately, changes in ISBL costs and schedule drove changes in the OSBL scope, cost and schedule.

12

Figure 9: FEED - Detail engineering overlap

For health, environmental and process safety studies, the questionnaires identified the criticality of conducting process safety studies early in FEED. This would help ensure that the alternative selection process account for the process safety risks that would be incorporated into the preliminary design for that selected option. Furthermore, hazop (hazard and operability study should be performed on IFD (Issue for design) drawings at the end of FEED to assess any risks/ causes of loss of containment and the existing safe guards and whether they are sufficient. These studies would be eventually be followed by a detailed review on mature and vendor packages P&IDs (Process and instrumentation diagrams) before IFC are issued. The road map outlined below depicts the teams perception of what process safety and health studies need to be completed over the project life cycle.

Figure 10: Health and process safety studies road map

Project Execution: The success of major projects largely depends on how well the team plan the work and work the plan to achieve the project objectives, while maintaining good cohesion between all aspects of the project [6,10]. The questionnaires and interviews focused next on the project execution plan (PEP) 13

developed for each project during the FEED stage. The critical performance indicator here was to ensure that the final PEP addressed all project functions to close out. Additionally, topics such as procurement and contracting, quality management, cashflow constraints and the interface with the plant projects and turnaround process were assessed. Project execution plan: Table 2 finalizes the findings from the different projects in this study regarding the content of the project execution plan.

PEP document length

Roles and Responsibilities

Stage gate review timeline

Permitting timeline

Interface with the turnaround / shutdown

Delegation of authority / Financial authority

PEP should be concise and simple and reference the what in the project. The PEP should reference detail plans to address the hows This was an area that caused issues and scope shifts in three of the five projects. The PEP should clearly state the scope areas and responsibility division between the owner and contractor. This should also be part of the estimate assurance review to ensure that the estimate covers all costs. The PEP should include key dates for any reviews needed in the schedule. This will allow internal and external stakeholder to account for these reviews in their schedule. If the project is being done under a joint venture (JV) umbrella, some stakeholders may require thirty to sixty days to make a decision on specific gate. If this is not planned from the outset, schedule delays is expected. As addressed in the previous section, key permitting dates and assumptions should be stated in the PEP. The TAR process in most of the companies may include constraints regarding the review of IFCs, material on site and any other plant reviews. Projects should incorporate these specific milestones in their schedule and state the assumptions clearly in the PEP. Some projects faced serious schedule issues due to change order approval delay. The PEP should include the first line approval authorities and their delegates in the instant critical approvals are sought.

Table 2: PEP content findings

14

 Program / project interface: The survey questioned the considerations that were assessed for each project that was executed within a program. It was realized that in this study set, multiple major projects were executed concurrently within the program which posed various execution challenges. To understand the consequences of this approach, a comparison was made between programs that utilized a phased approach for their execution against projects that were executed concurrently (figure 11).
PROJ A

PROGRAM A
Phased approach

PROJ B PROJ C PROJ D

PROJ A

PROGRAM B
all at once

PROJ B PROJ C PROJ D

Figure 11: Phased vs. all at once execution

While the impact affected procurement and construction, the emphasis here was on the FEED and detailed engineering work. Table 3 depicts the advantages and disadvantages of the two approaches. Program B Program A

Engineering design

Risk that changes in design in one project are not incorporated into other projects Possibility of Rework Potential Project team continuity/learning curve benefits Can be negatively impacted by inefficient construction of infrastructure to support the phased investment. Significant need for large and skilled pool of labor Larger Owners organization to manage the interface. Heavy annual cash flow is needed. If program becomes cash flow constrained, problem is magnified.
Table 3: Phased vs. all at once approach - Pros and Cons

Team & knowledge transfer OSBL

Labor shortage Team interface Cash flows

15

 Procurement and Contracting Strategy: The lessons learned identified in the survey are summarized in table 4 for procurement and contracting:

Procurement Projects must invest some time in FEED (through a contract strategy workshop) investigating an effective form of performance or hybrid contracts (mixed strategy contracts) Project controls must participate in shaping the contracting and procurement strategy. This will help set the standard for effective execution and a contract that can be easily controlled Consideration a competitive bid process for FEED and detail engineering if the schedule allows. This would prevent the existing contractor from becoming complacent.

Contracting Ordering equipment during FEED will help set the pace for a faster execution and provide an understanding of the project scope which will drive minimum scope changes. Since minimum exposure is increased now for the project (if cancelled), consider negotiating cancellation terms or pay only for preliminary vendor engineering data to support the preliminary design at the end of FEED Vendor and fabrication shops limited capabilities may add significant time to the schedule. Hence the importance of historical experiences and prequalification assessments in understanding the vendors performance and impact on schedule. Allow the risk analysis workshop conducted early FEED to reflect the risks of major equipment fabrication and delivery cycle time.

Allow sufficient time in the schedule for a contractor change out. If there is a shift in contractors, consider the time and cost it takes for a smooth handover. Develop a licensor-EPC interface plan / clarify roles and responsibilities regarding design package delivery.

Table 4: Procurement and contracting strategy - lessons learned

Cashflow constraints /Schedule driven projects: Multiple projects in this set had experienced cashflow constraints several times during their life cycle. The cashflow constraints triggered major changes to project execution planning, staffing and caused the loss of key team members. This impact was even multiplied when the project was schedule driven. Team members reported that a thorough analysis of the impact of the cashflow constraint was never conducted by the respective personnel. Surprisingly, the message to senior management was the ability of the project to conform to the cashflow constraints and still meet the project schedule. This was demonstrated by the team going through the FEL 2 and FEL 3 stages with incomplete deliverables because the funds were not available. The incomplete FEED 16

work was thought to be non-critical because deliverables would be finalized in execute. The results were deliverables rework, inconclusive scope and major execute stage delays. Quality management: A quality management system (QMS) provides the basis to develop and deliver quality requirements by integrating quality management processes into the design, procurement, construction and handover activities. The study conducted on the five projects revealed areas that were not incorporated as part of the PEP, or didnt work according to plan. The areas are highlighted in figure 12 in the context of the standard quality management processes; 1) quality planning, 2) quality assurance, 3) quality controls and 4) quality improvements.

Figure 12: Quality management lessons learned

Main findings as noted by the core teams in these projects were around having ambiguous roles and responsibilities, the lack of a clear interface plan with the contractors and suppliers and lack of standard tools to measure key performance indicators on the projects. Furthermore, the team noted that contractors in three of the projects didnt provide any details on how they would go about self assessing their quality levels, specifically around the design. Typically every discipline would have an activity plan that determines all procedures to be followed. This also would serve as a 17

checklist for future quality audits. One contractor did have an activity plan for each discipline but upon review, it was found out that the discipline lead didnt need to comply with all checklist requirements in some areas. This for example should have checked by the owners lead during the FEED for compliance versus their policy and procedures. The commitment to improvement as viewed by these projects should have been apparent by the team dedication to record all issues and disseminate the information internally and externally as part of a bigger knowledge management effort. Root cause analysis should have been done also to understand reoccurring quality issues. A sample KPI report is shown in figure 13. The KPI report could assesses the number of non conformance reports generated on design versus or number of audits performed versus planned.

Figure 13: Sample KPI report

Engineering / Construction interface: Engineering typically should not overlap construction by more than 30- 40% [1]. This is mainly because if the overlap is larger, 18

engineering is still not matured enough to start construction. The early construction efforts will likely trigger rework in the field as engineering deliverables are finalized.

Figure 14: Engineering / Construction overlap

Organization capability: The criticality of the availability and dedication of resources to the project success are often understated. Project teams often reports that they dont have the resources to provide the necessary oversight on the project. This in turn affects cost and schedule. This area is also overlooked when assessing the capability of the contractors, suppliers and fabricators. The lessons learned recorded from the five projects emphasized the same message. Market conditions and labor shortage: With the execution of more major and mega projects, the market ability to respond to the demand is often constrained by the availability of the resources in both the owner and contractor organization. The project schedule must allow time for the ramp up of the resources. Additionally, the project team must assess carefully the quality of the resources brought on the project during peak time. In three of the projects in this study, project managers responded to schedule delays by bringing in more labor, only to realize the additional labor was not as efficient as they expected. Owners organization: The owners team is the backbone to the success of any project. Any deliverables produced on the project will require the owners team approval before proceeding forward. Projects often underestimate the size of the owners team and in many cases resources are brought in at partial capacity (resources not fully dedicated to the project). This contributed to the schedule delays in two projects in this study. 19

 Stakeholder management: The lessons learned recorded in this study suggested that stakeholders might not have been involved enough in the stage gate review and decision making process. Their late involvement caused rework issues and had greater impact on the schedule. Peer review: Peer reviews are always planned on the project for assurance purposes and to capture the peers experience in executing similar projects. However, due to the wide range of resources needed in the peer review, early planning is needed to secure their attendance at the meeting. Team alignment / retaining: Managers always agree that people is the number one contributor to the project success. Hence, retaining key team resources must be a priority in all projects. This task not only fosters a homogeneous environment within the team, but is critical for knowledge management transfer internally within the project and externally with the business. Project controls and estimating: A successful project controls system will serve as an early alarm system to depict deviation from the project plan and recommend the appropriate actions. A successful system will start with the development of processes and procedures for effective budget and schedule development and the respective monitoring and reporting effort. Key lessons learned identified in this area are shown below. Project controls requirements: Effective project controls starts with strict project controls requirements. The effective planning for project controls should start early in FEED and involve owners and contractor team members. One of the early activities would be in finalizing the project controls calendar for cost and schedule reporting timeline. Additionally: o For projects executed by multiple contractors, standard reporting template would support and accelerate the reporting process. o The contractors physically progressing procedures should be evaluated, understood and audited consistently. o Detailed engineering estimates should be based on discipline hours by drawings and should directly link to the engineering schedule. o A rigorous change management program should be implemented early in the process. Potential changes should be identified regardless of the teams conception of their relevance and size. o A cost risk analysis must also reflect the changes and risks identified in the schedule. Schedules and estimates cant be divorced. Budget development: An effective way to develop engineering budgets is to prepare a deliverable based cost estimate by determining at the discipline level, the amount of hours needed by drawings, allowing for supervision hours, recycling and revisions. The hours generated by discipline are then reflected in the detailed engineering schedule and resource leveling occurs to ensure a feasible schedule. The resource loaded schedule generates the resource histograms and man-hours curves. A sample engineering budget template for mechanical engineering is shown in figure 15. 20

Figure 15: Sample engineering budget development

Schedule assurance: There are many papers that identified excellent techniques for evaluating and assessing the quality of the schedules [1,2]. Schedule assurance activities may depict areas of concerns in the native file, the basis of schedule or quantitatively through benchmarking with industry projects. This is shown in figure 16.

SCHEDULE ASSURANCE

SCHEDULE SYSTEM VALIDATION

QUALITATIVE

QUANTITIAVE

Alignment of the schedule with the business objectives Review of the native files Constraints Average activity float Resource loading Schedule logic review Excessive lag check Project schedule Progress stated Permitting timeline Contracting strategy Procurement long lead items Cashflow assumptions Critical path Risk analysis Design model reviews timeline High level project duration comparisons against similar industry projects Other metrics check Drawings IFCs to installation

Figure 16: Schedule assurance lessons learned

21

 Estimate validation: Current trends in cost estimation of major projects are driving owners to emphasize on the importance of producing reliable and accurate estimates to avoid any potential overruns [5,8,11] .The estimate validation process in general should assess alignment of the estimate with the schedule and execution plans. Additionally, quantitative analysis could address engineering norms such as: Engineering norms Detailed engineering costs as a % of Total costs, field or equipment costs. Engineering hours per drawing type. Engineering hours per construction quantities. Engineering labor rate / use of international offices.

Isometric drawings per piece of equipment. Construction quantities per piece of equipment. Staffing plan analysis in comparison to the schedule.

Table 5: Engineering norms sample for estimate validation

Productivity measurements: This area is concerned by having a detailed physical progressing plan that has been reviewed and agreed on among all parties. One of the key issues that projects experienced in this study was the inconsistent and out of order reporting of physical progress (for example: piping leading process engineering). Figure 17 depicts a sample progress report that could be utilized to verify the contractors progress:

Figure 17: Sample engineering discipline progress report

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 Change management: The following are essential for implementing an effective change management program: Changes in scope that impacted the estimates from FEL1 and FEL 2 must be recorded because the trend in estimates from the early feed phases to sanction often catches the stakeholders by surprise [9]. A clear process to accept/ reject a change should be documented and agreed. The team should be encouraged to freeze the design and execution strategy by the end of FEED stage. Methodologies for scope deletion / scope addition change order estimates should be agreed. Project controls audits: The owners team must always be involved in auditing the contractors processes and procedures, cost and schedule reporting. The audits should be planned per the quality control audit schedules and should be as periodic as needed to assure continuous compliance and improvements. Conclusion This paper presented metrics and analysis on detailed engineering from five major refinery projects. The analysis was married with a study on the lessons learned captured from these projects to demonstrate how certain aspects of the planning and scoping during FEED may have contributed to the cost growth. This study concludes in general that projects that are pushed through a concise FEED stage often end with significant cost overruns and delays. This does not mean that projects should take their time during the FEED, but it means that the scope and planning basis should be complete to enable the projects to move forward with minimal changes. The study revealed that successful projects will have clear business objectives; ambiguous business objectives will often result in major late changes. Additionally, a scope and design basis that is frozen at the end of the FEED stage will help accelerate the schedule and minimize changes in the detailed engineering phase and eventually rework in construction. Projects must spend sufficient time developing a project execution plan that emphasizes a good contracting and procurement strategy and understands the impact of the interface with other projects being executed concurrently. Projects must define the quality control requirements and set the process to periodically evaluate and measure improvements in all aspects of the project. This study also reviewed the impact of the organization capability on the performance of the project. It was concluded that projects must have sufficient and dedicated resources to execute the work and provide adequate oversight. The impact of market conditions on the availability and quality of resources must be taken into consideration during the planning phase of the project. An efficient project controls system will allow for detailed estimate and schedule reviews before a baseline is finalized. The project controls organization must also participate in shaping the contracting strategy in order to support the controlling of the cost and schedule. One area that is found to be typically weak is the assurance about the physical progress reporting system. Owner must review, understand and periodically audit this system for inconsistency or overstatement. 23

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