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DEVELOPING OPTIMAL

OWNER-CONTRACTOR WORK STRUCTURES


- CASE STUDIES
By
Stuart D. Anderson, Ph.D.
Shekhar S. Patil
G. Edward Gibson, Jr., Ph.D., P.E.

A Report of
The Center for Construction Industry Studies
The University of Texas at Austin

Under the Guidance of the


Owner/Contractor Organizational Changes Thrust Team

Austin, Texas
July 2000

EXECUTIVE SUMMARY
This report is the first of two reports on implementation, improvement
and validation of the Construction Industry Institutes Owner/Contractor
Work Structure (OCWS) process, published in 1997. It covers three case studies
conducted by the Owner/Contractor Organizational Changes Study Team of
the Center for Construction Industry Studies funded by the Alfred P. Sloan
Foundation. The primary purpose of the three case studies was to implement
the OCWS process with the objective of identifying deficiencies in the process,
if any, and developing ways to improve the process. Specifically, the following
tasks were accomplished:
1. Selected owner companies were surveyed to determine the use and
the level of interest in using the OCWS process.
2. Three different applications of the OCWS process in three different
companies were documented and developed into case studies. These
three applications were:

A refining company that used the process to achieve internal


and external (with outside contractors) alignment on the most
appropriate work structure for developing and executing
capital projects.

A chemical company that used the process to determine the


most appropriate work structure for an overseas capital
project.

A power company that used the process to re-organize their


in-house project management division.

3. The existing OCWS process was modified based on findings of the


case studies.

This report describes these tasks and their findings in detail. Chapter 1
provides the background of this study and the methodology adopted for
conducting the research. Chapter 2 provides an overview of the existing OCWS
process and the findings of a survey that examined the extent to which it was
being used in the industry. Chapter 3 includes detailed accounts of the three
case studies and Chapter 4 discusses the findings from those case studies.
Chapter 5 compares the existing OCWS process and the changes that were
deemed necessary based on the knowledge gained from the case studies. It also
provides a concise description of the modified OCWS process. The conclusions
of this research effort are provided in Chapter 6.

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TABLE OF CONTENTS
EXECUTIVE SUMMARY ....................................................................................................... i
TABLE OF CONTENTS........................................................................................................iii
LIST OF FIGURES ...................................................................................................................v
LIST OF TABLES ................................................................................................................... vi
CHAPTER 1: BACKGROUND AND SUMMARY OF ACTIVITIES.............................1
1.1 BACKGROUND ................................................................................................................1
1.2 PURPOSE OF THE RESEARCH ..........................................................................................2
1.3 RESEARCH METHODOLOGY ..........................................................................................2
CHAPTER 2: OWNER-CONTRACTOR WORK STRUCTURE PROCESS..................5
2.1 OVERVIEW OF THE OCWS PROCESS .............................................................................5
2.2 SURVEY OF POTENTIAL USERS OF OCWS ..................................................................13
CHAPTER 3: CASE STUDIES .............................................................................................15
3.1 CASE STUDY 1 COMPANY A.....................................................................................15
3.1.1

Methodology .........................................................................................................15

3.1.2

Company As Capital Program ............................................................................17

3.1.3

Company As Expectations for the Alliance.........................................................18

3.1.4

Plant Site Interviews............................................................................................20

3.1.5

Preparation for the OCWS Workshop..................................................................23

3.1.6

OCWS Workshop .................................................................................................25

3.1.7

Analysis of Sourcing and Work Structure Decisions ..........................................27

3.1.8

Conclusions ..........................................................................................................29

3.2 CASE STUDY 2 COMPANY B......................................................................................30


3.2.1

Background...........................................................................................................30

3.2.2

Company Bs Organization..................................................................................31

3.2.3

Project Organization ............................................................................................32

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3.2.4

Sourcing and Work Relationship Decisions.........................................................32

3.2.5

Conclusion............................................................................................................36

3.3 CASE STUDY 3 COMPANY C .....................................................................................37


3.3.1

Background...........................................................................................................38

3.3.2

Preparation for the OCWS Workshop..................................................................40

3.3.3

OCWS Process Application Workshop ................................................................40

3.3.4

Workshop Results.................................................................................................47

3.3.5

Evaluation of Completed Worksheets ...................................................................48

3.3.6

Post-implementation Review................................................................................51

3.3.7

Conclusions ..........................................................................................................56

CHAPTER 4: KEY FINDINGS FROM CASE STUDIES ..............................................59


CHAPTER 5: MODIFIED OCWS PROCESS....................................................................63
5.1 STEPS IN THE OCWS PROCESS ....................................................................................66
5.1.1

Identify and Define Capital Project Competencies...............................................66

5.1.2

Review for Completeness......................................................................................67

5.1.3

Determine Drivers behind Core Competency Decision .......................................68

5.1.4

Classify Competencies as Core or Non-Core ........................................................68

5.1.5

Assign Appropriate Owner-Contractor Work Relationship ................................68

5.1.6

Define the Role of the Supporting Participant .....................................................69

5.1.7

Estimate Owner Resources ..................................................................................69

5.1.8

Determine Owner-Contractor Work Relationship(s) Over


Various Project Phases .........................................................................................70

5.1.9

Review for Alignment ..........................................................................................70

5.2 OCWS PROCESS IMPLEMENTATION ...........................................................................71


CHAPTER 6: CONCLUSIONS ............................................................................................73
REFERENCES..75

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LIST OF FIGURES
Figure 1.

Owner-Contractor Work Relationship Continuum

Figure 2.

Owner-Contractor Work Relationships

10

Figure 3.

Owner-Contractor Work Relationship for a Competency

11

Figure 4.

Owner-Contractor Work Structure Process: Corporate


Approach

Figure 5.

11

Owner-Contractor Work Structure Process: Project


Approach

12

Figure 6.

Capital Project Organization Chart (Typical)

18

Figure 7.

Sample Work Structure

26

Figure 8.

Distribution of Owner-Contractor Work Relationships

27

Figure 9.

Project Organization

32

Figure 10. Examples of Project Competency Classifications

34

Figure 11. Examples of Project Competency Assignments

35

Figure 12. Distribution of Owner-Contractor Work Relationships

36

Figure 13. CPD-Contractor Work Relationship Continuum

42

Figure 14. EP-CPD-Contractor Arrangement for Capital


Project Development

43

Figure 15. Sample of Work Structure Assignment Matrix

46

Figure 16. Summary of OCWS Process Application Results

48

Figure 17. Steps in the OCWS Process and Process Worksheets

64

LIST OF TABLES
Table 1.

Capital Project Competencies

Table 2.

Results of the Owner Survey

13

Table 3.

Comparison of Three Plants

22

Table 4.

Company Bs Approach to Defining Capital Project


Competencies

33

Table 5.

Strategic Distribution of Primary Roles

50

Table 6.

Distribution of Work Relationships

50

Table 7.

Comparison of the Existing and the Modified

Table 8.

OCWS Process

63

Example of Competencies, Functions and Capabilities

67

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CHAPTER 1: BACKGROUND AND SUMMARY OF ACTIVITIES


1.1

Background
Organizations respond to the changing business environment by

adapting to the demands of that environment. In the current highly


competitive business environment, owner organizations developing capital
projects have had to balance the demands for reduced costs and high
profitability while delivering quality products and services. These effects have
frequently been accompanied by: (i) downsizing; (ii) reducing or eliminating
central project engineering organizations; (iii) shifting project responsibilities
to business units or operating facilities; or (iv) outsourcing more work to
contractors. Concurrent with this phenomenon is the gradual attrition through
retirement of a whole generation of experienced managers having a solid
background in engineering. The combined effect of such changes may leave
owners inadequately equipped to develop and execute capital projects.
Organizational change influences organizational groups that develop
and execute capital projects within owner companies. These groups tend to
focus their efforts on front-end project development activities that have the
greatest influence on project outcomes. At the same time, to ensure that the
overall project objectives are accomplished, the decision-makers in these
groups have to effectively determine the requirement and source of
organizational resources necessary to successfully develop and execute the
project through to completion. This requires an assessment of the resources
and capabilities of each project stakeholder and, the work relationships
between stakeholders. In 1997, the Construction Industry Institute (CII)
published an Owner-Contractor Work Structure (OCWS) process. The OCWS
is a step-by-step decision process to guide project stakeholders in the
assessment and development of most appropriate owner-contractor work
structure for capital projects.

This report presents the findings of research conducted by the


Owner/Contractor Work Structure Study Team of the Center for Construction
Industry Studies, on the use and effectiveness of the OCWS process. The
Construction Industry Institute and the Alfred P. Sloan Foundation jointly
funded this research.

1.2

Purpose of the Research


The purpose of this research was threefold:
1. Investigate current use of the OCWS process as published by the
Construction Industry Institute in 1997.
2. Perform a detailed study of the approaches used by owner companies
for creating optimal owner-contractor work structures.
3. Further develop or suitably modify the OCWS process to incorporate
the needs and expectations of owner companies from a decision process
such as the OCWS process.

1.3

Research Methodology
Among the data collection options considered for research design, were

surveys,

site

interviews,

workshops,

and

telephone

interviews.

Implementation assistance was also provided to interested owner companies.


After approaching several owner companies with a request for participation in
the research, it was evident that the complexity of the problem required an
approach that relied on more than one of these options. Therefore, case studies
involving the use of site interviews, workshops, telephone interviews and
implementation assistance were formulated for conducting this research.
The research was conducted in three phases as follows:
1. In Phase I, a survey of owner companies was conducted, to determine
the use and effectiveness of the OCWS process. The findings of the
survey established a premise for Phase II.
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2. In Phase II, the application of OCWS process in three large North


American owner companies was documented. These case studies
provided the study team with the necessary knowledge for improving
the OCWS process.
3. In Phase III, the OCWS process was modified to incorporate the needs
and expectations of owner companies, based on the case studies
conducted in Phase II. A modified OCWS process was documented, to
be used for revising the OCWS Process Handbook (CII, 1997).
During Phase II, the research methodology evolved based on the
response and requirements of owner companies that agreed to participate in
the research. Although detailed interview instruments were initially
developed, it was evident that the potential participants wanted a different
approach for studying owner-contractor work structures. The interview
instrument was, therefore, used with only one company. The interview
instrument addressed the following:

General information about the participants, project/capital program,


and available documentation

Process application or review of available documentation pertaining to


owner-contractor work structures

Alignment of roles and responsibilities

Process of determining owner-contractor work relationships

Other issues
Another approach emerged out of discussions with the companies

interested in using the OCWS process. This approach was much more time
consuming, since it involved assisting these companies in using the original
OCWS process to develop optimal owner-contractor work structures. It was
not possible to rely on standardized interview instruments for this purpose,
because of the richness of the data to be collected. Therefore, company-specific
proposals were developed with the objective of addressing the companys
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particular problem using the OCWS process. The methodology used for each
case study was as follows:
Company A: This large oil company invited the OCWS research team to
assist their management team in the evaluation of an owner-contractor
work structure for a proposed strategic alliance with an EngineeringProcurement-Construction contractor. This company had not used the
OCWS process prior to this effort. The process application was carried
out over a period of about two months.
Company B: This chemical company had already used the OCWS
process in the development of a large overseas capital project in Europe.
An interview instrument was used to study this process application in
retrospect, over a four-hour interview.
Company C: This large power company invited the OCWS research
team to assist their management team in evaluating the role of their inhouse capital projects division (CPD) in owner-contractor work
structures at their electricity production facilities. This company had
also not used the OCWS process prior to this effort. The CPD had
traditionally been responsible for developing and implementing capital
projects in the company, and it was felt that CPD needed to change its
role from doing to managing.
The following chapter provides an overview of the OCWS process that
was published by the CII in 1997.

CHAPTER 2: OWNER-CONTRACTOR WORK STRUCTURE PROCESS


This chapter provides an overview of the OCWS process published in
1997 by the CII in a document entitled, Owner-Contractor Work Structure
Process Handbook. CII developed the OCWS process to assist owner and
contractor companies in the determination of project competencies, and in
making rational decisions about the most appropriate owner-contractor work
structure for capital projects based on these competencies. The decision process
was developed for use both at the corporate level to address the needs of the
owners capital program, and on a project-by-project basis for a single capital
project.

2.1

Overview of the OCWS Process


The OCWS process provides a qualitative definition of the work

relationship between an owner and contractor(s), depending on the extent of


their individual involvement in the planning, design or execution of a
competency for a particular project, or the capital program. Since the process
was conceived of as an owner-driven process, it was developed from the
owners perspective. The term contractor was intended to imply a contractor
in the traditional sense, or a designer, a supplier or an alliance partner. The
term owner-contractor work structure that was coined in this research is
defined as the distribution of roles and responsibilities between the primary
project participants based on key project competencies. Project competencies
are defined as processes comprised of functions and associated capabilities
needed to develop and execute capital projects. A list of 30 competencies,
shown in Table 1, was developed to serve as a starting point for users of the
process. During implementation of the OCWS process, project competencies
are documented on a competency worksheet, and the work relationship
decisions are documented on the work structure worksheet. An alignment
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worksheet was developed to help the owner and the contractor(s) check the
alignment of their work relationships.
Table 1. Capital Project Competencies
NO.

COMPETENCY

Alliance/Partnering

Benchmarking/
Metrics

Business
Development
Commissioning/
Startup/Performance
Testing
Conceptual Cost
Estimating
Constructability

Construction

Construction
Management
Convert Research To
Project/Scale Up
Definitive Cost
Estimating
Detail Design

9
10
11
12
13

Environmental/
Permits
Field Quality Control

14

Financial Approval

15

Legal/Contract
Administration
Lessons Learned

16

17
18

Maintenance &
Operability
Preliminary
Design/Scope
Development

DEFINITION
Utilizing long term relationships with two or more
organizations for the purpose of achieving business
objectives.
Benchmarking - process of assessing and establishing
standards to achieve excellence in performance; metrics
process of measuring progress of project performance against
established standards.
Conversion of owner business needs into project goals.
Front line development, management, and coordination of
operations and/or contractor personnel to proceed toward
and prove commercial operation.
Preparation of estimates at various stages of scope
development for purposes of project option selection.
Incorporating construction knowledge and experience into
project development and execution.
Installation of permanent facility equipment and materials
including all support required to do so.
Management oversight of field construction operations and
startup.
Defining project requirements based on new or improved
products or processes.
Preparation of estimates for purposes of procurement and
project control.
Completion of design drawings and material and equipment
specifications.
Ensuring compliance with environmental laws and
regulations, filing permit applications, and site assessments.
Conducting inspections required to achieve the specified
level of quality.
Development of appropriation requests, risk analysis for
corporate strategy, and project funding approval and
decision-making at owner level.
Contract negotiation and interpretation to include change
order management and dispute resolution.
Knowledge gained through the collection and analysis of
experiences, successful or otherwise, to be applied to future
projects for purpose of improving performance
Incorporating input from maintenance & operations during
project development and detail design phases.
Conceptual preparation of overall project design and scope.

Table 1 (continued).
NO.

COMPETENCY

19

Process/Conceptual
Design

20

Procurement

21

Project Controls

22

Project Management

23

Project Management
Oversight
Project
Planning/Scheduling

24

25

Risk Management

26

Safety

27

Setting Project Goals,


Objectives, &
Priorities
Teambuilding

28

29
30

Technical Expertise
Total Quality
Management

DEFINITION
Process definition and feasibility analysis congruent with
overall project objectives, including owner proprietary
process know-how.
Corporate procurement buying strategy, contractual
arrangements, and vendor inspections.
Identification and reporting of actual and potential cost and
schedule deviations.
Management and coordination of project development and
execution.
Leadership of owner effort of project development and
execution including decision-making authority.
Determination of project development and execution
strategies such as contracting plan and material management
plan.
Assessment, analysis, planning, and control of risks on a
project.
Ensuring or supporting compliance with operating facility
and OSHA regulations and requirements including
construction safety.
Establishing key project requirements and prioritizing these
requirements to meet the business/developed needs for the
project.
A project-focused process that builds and develops shared
goals, interdependence, trust and commitment and
accountability among project team members.
Specific equipment, systems, or technological specialization.
Provide continuous work process improvement
methodology during project development and execution.

The key terms in the OCWS process are summarized as follows:

Owner/Contractor Work Structure: the strategic distribution of roles


and responsibilities that are defined in terms of owner-contractor work
relationships for each competency, based on key project competencies.

Competency: a project work process that is comprised of functions and


associated critical capabilities needed to develop and execute a capital
project.

Functions: the activities and tasks that describe the work involved in
performing a competency.

Critical capabilities: the knowledge, abilities, skills and experience that


are necessary to perform competency functions.

Core competency: a competency that must be performed in-house by


the owner and is critical to program success.

Non-core competency: a competency that could either be outsourced or


performed in-house, depending on the project circumstances.

Work relationship: a relationship defining the extent of involvement of


the owner and the contractor, in performing, leading, and/or providing
input with respect to a competency.

Project Performance Factors: project/facility performance targets


pertaining

to

the

cost,

schedule

and

operational

compliance

requirements, as defined by the owner organization.


The concept of work relationship in the OCWS process is based on the
extent of involvement the participants have in the execution of a particular
competency. In the absence of a quantitative parameter to measure the extent
of involvement, the concept is best explained on a continuum that assumes 100
percent owner involvement on one end, and 100 percent contractor
involvement at the other end. The term contractor may imply a contractor, a
consultant, a supplier or another person or organization that is outside the
owner organization. The owner-contractor work relationship continuum is
shown in Figure 1.

100%

Owner's
Level of
Involvement

0%

Inter-organizational boundary

0%

Contractors'
Level of
Involvement

100%

Figure 1. Owner-Contractor Work Relationship Continuum


Five types of owner-contractor work relationships are defined to
characterize the owner-contractor work relationship continuum shown in
Figure 1. The five relationships are identified as OP, OP/CI, OL/CP, CP/OI
and CP. These are defined as follows:
1. OP: The owner performs all functions involved in the competency using
owner resources and the owners work process.
2. OP/CI: The owner performs most functions using its work process with
contractor input. The majority of work is performed using owner
resources. The contractor provides input or acts as a consultant.
3. OL/CP: The owner leads overall function performance with contractor
performing detailed work using the owners work process. The owner
leads by setting guidelines, directing, reviewing, and approving the
work.

The contractor performs most of the competency functions

according to the owners work process.


4. CP/OI: The contractor performs most functions using the contractors
work process with input from the owner. The majority of work is
performed using contractors resources.
5. CP: The contractor performs all functions involved in the competency
using contractor resources and the contractors work process.
9

The

owner can still supply input and guidance by performing project


management oversight.
Figure 2 provides a conceptual illustration of the owner-contractor work
relationship continuum for a particular competency with the five types of
owner-contractor work relationships given on this continuum. The location of
the inter-organizational boundary determines the type of work relationship
that is most appropriate for the competency being evaluated.
100%

0%

Owner's
Level of
Involvement

Contractors'
Level of
Involvement
Inter-organizational boundary

0%

OP

OP/CI

OL/CP

CP/OI

CP

100%

Figure 2. Owner-Contractor Work Relationships


This concept is further illustrated in Figure 3 by applying the ownercontractor work relationship continuum shown in Figures 1 and 2 to an
individual competency. This diagram illustrates the true nature of the interorganizational boundary that splits the competency into two parts.

The

location on the inter-organizational boundary depends on the extent of


contribution of the owner and the contractor towards the execution of that
particular competency.

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CONTRACTOR

Contractor Functions / Resources

COMPETENCY
Inter-organizational boundary
for the competency

OWNER

Owner Functions / Resources

OP/CI (Owner Work Process)

Figure 3. Owner-Contractor Work Relationship for a Competency


The steps in the OCWS process are somewhat different, depending on
whether it is used as a project level process or a corporate/capital program
level process. The corporate level process is shown in Figure 4.
Determine
Corporate
Work Structure
A0
Determine Key
Capital Program
Competencies
A1

Evaluate
Sourcing of
Competencies
A2

Identify
Key
Competencies
A11

Evaluate Use
of In-House
Resources
A21

Classify
Capital Program
Competencies
A12

Evaluate Contracting
Community
Resources
A22

Review
for
Completeness
A13

Select Corporate
Sourcing
Approaches
A23
Corporate
Review for
Alignment
A24

Figure 4. Owner-Contractor Work Structure Process: Corporate Approach


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The project level application of the OCWS process involves an


additional step of determining the work structure by project phase. The
purpose of this step is to enable the owner and the contractor(s) to make
changes in the work relationships during various phases of a capital project.
The project level process is shown in Figure 5.
Determine
Owner/Contractor
Work Structure
A0
Determine Key
Project
Competencies
A1

Evaluate
Sourcing of
Competencies
A2

Determine
Owner/Contractor
Work Structure
A3

Identify
Key
Competencies
A11

Evaluate Use
of In-House
Resources
A21

Evaluate Potential
Project Execution
Strategy
A31

Classify
Project
Competencies
A12

Evaluate Use
of Contractor
Resources
A22

Document
Owner/Contractor
Work Structure
A32

Review
for
Completeness
A13

Select Best
Sourcing
Approach
A23

Review
for
Alignment
A33

Figure 5. Owner-Contractor Work Structure Process: Project Approach


Rather than relying on objective characteristics of projects, the typical
OCWS process relies extensively on the perceptions of organizational decision
makers for identifying the competencies of firms, determining whether the
competencies are best performed in-house or by contractors, and evaluating
whether the work structure chosen was effective (Gibson, et al., 1998). The
research work that preceded the development of the process did not make any
attempt to draw upon the relevant theory pertaining to cooperative strategies
and organizing transactions. The process was also not fully validated by
testing all components of the process. Notwithstanding the shortcomings of the

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existing CII owner/contractor work structure process, this was the first formal
research effort that addressed the issue of optimal work structures on capital
projects.
2.2

Survey of Potential Users of OCWS


In order to assess the extent to which owner companies had begun using

the OCWS process since its publication by CII, an owner survey for Phase I
was conducted in the summer of 1998. The objective of this survey was to
determine the use and effectiveness of the OCWS process in assisting owner
companies to establish optimal owner-contractor work relationships for capital
projects. A total of 62 owner companies were contacted, 42 of which were
members of the CII. The survey instrument was a short one-page questionnaire
that asked owner companies questions about the process that they use to
determine work structures with contractors on capital projects. The findings of
this survey are presented in Table 2.
Table 2. Results of the Owner Survey
Companies
Contacted

Respondents

62

23

Responses Received
Users of
Process
Process
CII
Reviewed
Not
OCWS
Though
Reviewed
Process Not Used
3

11

Considering
Pilot
Implementation
Assistance
4*

* One respondent is a user; three respondents have reviewed the process.


The results indicated very limited use of the OCWS process. Nearly half
of the twenty-three respondents had decided not to use the process after
reviewing it, although three of them said they would consider implementing
the process with some assistance from the research team. Further inquiries
revealed that out of the three stated users of the process, only one company
implemented the CII OCWS process in its entirety. The other two companies
had implemented concepts similar to OCWS in their organizations.
13

Interestingly, nine respondents had not even reviewed the process, even
though each CII member company was given a copy as soon as it is published.
The respondents cited a variety of reasons for not using the OCWS
process, including the following:

Organization already has a process to accomplish the same objectives

Organization is currently using other CII best practices; it is difficult to


implement all CII practices simultaneously

The CII OCWS process is too detailed

The corporate OCWS process is impractical

The CII OCWS process is a subjective tool, as are the results


The relatively low use of the OCWS process and the concerns regarding

practicality and ease of use established the premise to undertake a more indepth, exploratory research through case studies. Those companies that were
considering a facilitated pilot implementation were contacted for this purpose.
The following chapter provides detailed accounts of each of the three case
studies, and the findings from each.

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CHAPTER 3: CASE STUDIES


The following sections outline three case studies in which the CII OCWS
process was tested in real world applications.
3.1

Case Study 1 Company A


This case study included a series of interviews followed by a workshop,

involving participants from the Owner-Contractor Work Structures (OCWS)


study team at Texas A&M University and the management team at a large
refining company in the United States (hereafter referred to as Company A).
These interactions were part of the owners effort to establish a strategic
alliance with an Engineering-Procurement-Construction (EPC) contractor for
outsourcing portions of their capital projects on a continuing basis. The
strategic alliance would support capital projects for three plants located in
three different states. The objective of the OCWS study team was to provide
assistance to Company As management team in conducting a comprehensive
analysis of competencies required for capital projects, and determining
appropriate work relationships with an alliance contractor. The OwnerContractor Work Structure process was used for this purpose.
3.1.1 Methodology
The specific methodology adopted by the OCWS study team for
evaluating this case consisted of two tasks. The first task involved interviews
with project management personnel at three plant locations. The objective of
these interviews was to acquire the necessary information that would serve as
an input to the OCWS process application. Prior to visiting the three plant
locations, the study team provided project management personnel at each of
these locations with pertinent information on the OCWS process, and copies of

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the worksheets that would be completed as part of the process. They were also
given an agenda for the interview, identifying the key areas of discussion.
These key areas were as follows (Patil, 2000):
1. Nature of operations at the plant site
2. Current approach to organizing projects
3. Human resources at the plant site
4. Current owner/contractor arrangements
5. Organizational relationship between the plant and the corporate office
The on-site interviews typically lasted between three and four hours.
This information provided the study team with an understanding of the
owners operations and their expectations for the alliance. This understanding
enabled faster implementation of the OCWS process during the workshop
conducted in the second task.
The workshop took place during one working day, in January 1999. The
agenda for the workshop was as follows:
1. Overview of objectives, expectations and scope
2. Overview of the OCWS work structure process
3. Determination of key competencies and core versus non-core
classification
4. Evaluation of sourcing and work relationships
5. Determination of most appropriate work relationships
6. Discussion of relevance of the OCWS process to the request for proposal
(RFP) to be sent to potential contractors
A discussion of background information and the workshop results are
provided in the following sections. It was proposed that Company A would
include the results of the OCWS process application in their Request For
Proposal as a mechanism to solicit responses from potential contractor(s) on
the work structure for the alliance.

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3.1.2

Company As Capital Program


Company As capital program classifies three categories of projects -

regulatory, maintenance and strategic. Regulatory projects are aimed at


upgrading existing facilities to meet environmental and other regulatory
requirements mandated by Federal, State or local ordinances. Maintenance
projects cater to the maintenance needs of the plants and strategic projects are
aimed at improving the companys return on investment. The company is in
the process of increasing the number of strategic projects in order to enhance
its return on capital employed.
The capital project organization of Company A typically involves
project teams based on a matrix organization concept. The configuration of
project teams is primarily based on the size of the project. Projects are
categorized in terms of dollar value, although the categories are not meant to
be inflexible. The categories are: 1) $1 million and less; 2) $1 million to $5
million; 3) $5 million to $25 million; and 4) above $25 million. The project
engineer is usually the only full-time member of the team, except on projects
above $5 million. On small projects (less than $1 million), the project engineer
may be responsible for more than one project. The other project team members
belong to various functional areas such as process engineering, electrical,
instrumentation, operations, maintenance, construction, and project controls.
Extended teams are used on large projects, with additional team members
from areas such as safety, environmental and business optimization. A typical
capital project team structure is shown in Figure 6.

17

Project Manager

Project
Clerk(s)

Procurement
Representative

Operations
Representative

QA/QC
Expediting
Purchasing

Maintenance
Representative

Construction
Manager/
Inspector

Project
Engineer

Field Engineer
Field Inspector
S/C Administr.
Safety
Process
Engineer

Controls
Coordinator

Electrical
Engineer

Instrumentation
Engineer

Environmental
Representative

Safety
Representative

Reliability
Representative

Loss Control
Representative

Civil
Engineer

Mech./Piping
Engineer

Cost Engineer(s)
Sched. Engineer(s)
Cost Estimator(s)

Figure 6. Capital Project Organization Chart (Typical)


3.1.3

Company As Expectations for the Alliance


Company As management team did not anticipate any significant

changes in the structure of their project teams, although some of the team
members could be drawn from the alliance contractor once the alliance was in
place. The following expectations for the alliance were identified. The
expectations were divided into three categories Project level, Capital Program
level and Relationship level. The project level expectations from the alliance
were identified as follows:
1. Quality design, including low rework due to engineering efforts and
effective turnover and start-up.
2. Meeting business objectives.
3. Meeting or exceeding stretch cost and schedule targets.
4. Disciplined scope management.
5. Innovative and creative designs to meet business needs.
6. Use of CII Best Practices and Value Improvement Practices.
18

7. Good team dynamics, including good communication, team integration,


conflict resolution and stakeholder buy-in.
8. Effective project close-outs, lessons learned and post-project evaluation.
9. Good construction performance.
Capital Program level expectations from the alliance were identified as follows:
1. Application of CII Best Practices and Value Improvement Practices.
2. Improvements in project execution technology.
3. Achievement of Best of the Best status.
4. Establishment of a continuous improvement process.
5. Establishment of systems to validate performance.
6. Establishment of high quality

work processes/procedures and

disciplined, effective project reporting.


7. Promotion of good team dynamics, including good communication,
team integration, conflict resolution, new member orientation and
business unit buy-in.
8. Effective use of lessons learned database.
9. Addition of value as measured by increased return on investment.
10. Improvement in management of alliance projects and issues.
11. Creation of a learning environment that is open to new ideas.
12. Bringing expertise to the alliance in a cost-effective manner.
13. Reduction in employee turnover.
14. Elimination of redundant tasks and positions.
15. Ensuring active participation of contractors in setting stretch targets for
project performance.
Relationship level expectations from the alliance were identified as follows:
1. Best key individuals assigned to alliance.
2. Excellent team dynamics.
3. Trust and open communication among participants.
4. Team that is responsive to business unit needs.
19

5. Adding value to the business.


6. Expectation that the contractor will earn most or all of the potential
incentives.
7. Expectation that the alliance will improve business synergy and increase
opportunities.
In order to develop an understanding of how the OCWS process could
assist Company A in meeting these expectations, data-collection interviews
were conducted at plant sites of company A. The following section provides
the salient details of the information collected during interviews of project
management personnel at each plant site.
3.1.4

Plant Site Interviews


Interviews were conducted at each of the three plant locations that

would be involved in the alliance. The information collected in these


interviews is described in the following paragraphs.
3.1.4.1 Plant 1
Plant 1 has an average annual capital budget of $120 million, 95 percent
of which is outsourced. Therefore, this plant expects to derive substantial
benefits from an alliance. Project personnel at this site includes 12 project
management personnel, 10 construction personnel, 9 process personnel, 1
instrumentation engineer and 5 planning personnel. The capital projects group
at this plant has five years of prior experience with an alliance contractor for
implementing its capital projects. This alliance relationship had not been
perceived as successful, reportedly because of a lack trust between the two
organizations. The owner organization expected to learn from this experience
while establishing a new alliance, and also to extend the alliance relationship to
its other two major refineries.

20

3.1.4.2 Plant 2
The capital projects group at Plant 2 has an average annual capital
budget of $32 million and is expected to increase over the next five years.
Nearly 90 percent of the capital project budget is typically outsourced.
Individual capital projects typically range from $25,000 to $40 million, with
about 50 projects undertaken each year. Project personnel at this site include 8
project managers, 22 project engineers, 5 process technicians, 3 reliability
technicians and 9 inspectors. Although the projects group at this facility has
had no experience with a formal alliance in the past, they have used
continuously renewable agreements with some contractors in the past.
3.1.4.3 Plant 3
Plant 3 has an annual capital budget of $60 million, more than 90
percent of which is outsourced. Individual capital projects typically range from
$25,000 to $30 million, with about 50 projects undertaken each year. Project
personnel at this site include 5 project managers, 12 project engineers, 3
construction representatives, 1 safety representative, 1 environmental
representative and 8 draftsmen. Although the projects group at this facility has
had no experience with a formal alliance in the past, they have had outline
agreements (similar to evergreen agreements) with some contractors and
strategic sourcing agreements with suppliers (three years or evergreen with
annual review).
3.1.4.4 Summary
A comparison of the key characteristics of the organizations at the three
refinery sites is shown in Table 3.

21

Table 3. Comparison of the Three Plants


Key
Characteristic
Plant output
Annual budget for capital
projects
Capital Project Personnel:
Project Management
Construction
Process Engrs./Technicians
Others
Experience with alliances

Plant 1
320,000 bpd
$120 million

Plant 2
170,000 bpd
$ 32 million

Plant 3
160,000 bpd
$ 60 million

12
10
9
6
Terminated
one alliance

26
9
12
Evergreen
Agreements

5
12
3
10
Evergreen
Agreements

The capital projects organizations at each of the plant sites include two
groups. One group is responsible for large projects that justify the allocation of
dedicated staff, and the other group is responsible for developing and
implementing smaller projects. These groups are organized within a
department called the Technical Services and Engineering department. The
capital project development and execution process is quite similar across the
three facilities. It involves the following key steps:
1. Engineering work request
2. Project study basis
3. Project study
4. Project design basis
5. Detailed engineering
6. Procurement
7. Construction packages
8. Construction
9. Commissioning and start-up
10. Operations acceptance
11. Financial closeout
12. Project performance evaluation

22

The owner does not have a centralized engineering group at this time.
As a part of the strategic plan, a new Corporate Engineering and Projects (CEP)
group is proposed, to perform the necessary coordination and oversight after
the alliance is in place. An important issue to be resolved by the CEP will be a
scheme for the simultaneous utilization of alliance contractor resources by each
of the three plants for their respective projects.
3.1.5 Preparation for the OCWS Workshop
Information obtained during the site interviews was synthesized in
preparation for the OCWS workshop. The CII list of 30 competencies (see Table
1) was used as a starting point for competency evaluation and classification in
the workshop. The existing competency listing was modified and additional
competencies were defined, based on feedback from the site visits. As a result,
the number of capital project competencies used in the workshop increased to
38. The CII competency list was also re-organized from the existing
alphabetical list of competencies, to four categories of competencies, namely
Project Management Competencies, Engineering and Project Competencies,
Project Functional Competencies and Project Business Planning Competencies.
This was considered necessary to enable the stakeholders to better relate to the
definitions of each individual competency. Competencies that were considered
not applicable were deleted or modified. Competencies deleted or modified
included the ones involving conversion of research to project/scale up,
constructability, and definitive cost estimating. The first of the three was not
relevant to the owners business. Constructability was not separately identified
as a competency, since it is included in the value improvement practices (VIPs)
adopted by the company. Definitive cost estimating was replaced by control
cost estimating. In all, eleven competencies were redefined, some of which
were new and others were spin-offs of the original CII competencies. The
additional competencies were defined as follows:
23

1. AFE Cost Estimating: Estimate of project costs for obtaining


Authorization For Expenditure (AFE).
2. Project Controls Oversight: Oversight of project controls activity.
3. Best Practices/Value Improving Practices (VIPs): Implementation of
practices recommended by the Construction Industry Institute (CII) and
private consultant(s). For example, using constructability, which means
incorporating construction knowledge and experience into project
development and execution.
4. Document Control: Documentation and record keeping of vendor
drawings and other project drawings and specifications.
5. Material Management including Expediting: Process of conducting
frequency checks on fabrication, testing and transportation including
vendor inspections and follow-up actions.
6. Plant Infrastructure Management: Management of plant utilities and
capacities, such as steam balance, instrumentation, electrical, and
analysis of the impact of new capital projects on existing processes and
capacities.
7. Process Safety Management (PSM)/Risk Management Plan (RMP):
Preparation and update of PSM and RMP based on OSHA and EPA
requirements respectively.
8. Benchmarking/Metrics: Implementation of standards to achieve
excellence in performance and measuring performance against
established standards. Three distinct metrics should be used: a) Project
Metrics; b) System Metrics; and c) Performance Metrics.
9. Legal: Review of contract terms and conditions including impact of case
law, indemnities, and insurance.
10. Field Quality Assurance: Process of conducting inspections required for
achieving the specified level of quality.
11. Asset optimization: Economic optimization of assets.
24

The OCWS worksheets were modified based on the additional


competencies and included space for writing comments during the workshop.
The study team prepared transparencies of the worksheets for use in
facilitating the workshop.
3.1.6 OCWS Workshop
The workshop involved project management representatives from each
of the three plants. It commenced with an overview of the application of the
Owner-Contractor Work Structure Process to capital programs, and was
followed by application of the process based on Company As objective of
evaluating and selecting an alliance contractor. Participation from each of the
plants ensured comprehensive evaluation, classification, and sourcing of
competencies, defined in terms of work relationships.
The conceptual representation of the owner-contractor continuum of
work relationships (shown earlier in Figures 1 and 2) was used to explain the
OCWS concept to the participants in the workshop. The first step in the OCWS
process implementation was the core/non-core classification of each
competency. The second step was the determination of owner-contractor work
relationships for each competency. Several lengthy discussions were required
to facilitate a reconciliation of the different perspectives held by the
participants. A sample of the final work structure that resulted from these
discussions is shown in Figure 7.

25

WORK STRUCTURE
No.

COMPETENCY

CORE

NONCORE

PROPOSED WORK STRUCTURE


OP

OP/CI OL/CP CP/OI

CP

COMMENTS

Project Management
Competencies

1 AFE Cost Estimating:


Estimate to obtain Authority
For Expenditure.

2 Conceptual Cost
Estimating: Preparation of
estimates at various stages
of scope development
through project option
selection.
3 Control Cost Estimating:
Preparation of estimates for
purposes of procurement
and project control.

4 Project Controls:
Identification and reporting
of actual and potential cost
and schedule deviations.

+/- 15%. Based on


project design basis.
May use some
contractor work
processes.

Owner input consists of


information on the
process and the plant
site.

+/- 5 to 10%. Based on


material take-off.
Owner provides input
on estimate basis and
estimate approval.

Figure 7. Sample Work Structure


Although the workshop participants did not anticipate the possibility of
a change in the work structure for a competency during project phases, the
discussion concluded by proposing such a change for three competencies.
These competencies were Project Execution Planning, Materials Management
including Expediting and Teambuilding. The OCWS process includes a Project
Work Structure Worksheet for documenting changes in work relationships
during the life-cycle of the project. However, the worksheet was not completed
in the workshop.

26

3.1.7

Analysis of Sourcing and Work Structure Decisions


The sourcing decisions made in the workshop indicate that 24 out of the

total 38 competencies were identified as core. This provides some indication of


Company As desire to maintain control over the majority of capital project
competencies. Another observation is that most of the competencies
considered non-core are associated with project activities such as control cost
estimating, detailed design and construction. A histogram showing the agreedupon owner-contractor work relationships and corresponding percentages of
competencies is shown in Figure 8. The As Is work relationships are the
ones being used at the time of the workshop, by Plant 1, which is the largest
among the three. The comparison is shown to indicate the overall impact of
the alliance relationship on the existing work structure for developing and
implementing capital projects.
32%

32%
28%

28%

24%

18%
13%
10%

10%
5%

OP

OP/CI

OL/CP

"As is" relationships (Total 29)

CP/OI

CP

Target relationships (Total 38)

Figure 8. Distribution of Owner-Contractor Work Relationships


The distribution of work relationships shown in Figure 8 is based on the
work relationships initially assigned to competencies. This distribution
indicates Company As desire to retain control over 63 percent of the
27

competencies, which are either owner performed or owner led. Since the
objective of the workshop was to develop the work structure for the company
as a whole, the impact of target work relationships on the human resources at
each plant site was not evaluated.
While assigning work relationships to each of the competencies, the
workshop participants acknowledged the need to clearly define what the
input would be in case of OP/CI and CP/OI relationships. An attempt was
made to document the inputs in the comments section on the worksheets.
One way to address this problem is by defining the functions involved in
carrying out each competency. Adequately defining the functions and,
perhaps, the associated critical capabilities prior to the use of OCWS
worksheets would, therefore, be a critical requirement for potentially
successful use of the OCWS process.
After completing the application of the process, it was felt that the
rationale behind core/non-core classification of competencies and subsequent
work relationship assignments should have been documented in some form.
This was accomplished by first identifying the factors that drive core versus
non-core decisions. The following factors were identified and agreed upon:
1. Level of ownership and accountability.
2. Risk of poor performance affecting the ability to meet project objectives.
3. Achievement of employee morale.
4. Extent of experience that the owner may have, and contractor may not
have.
5. Protection of owners business interests.
6. Degree of financial stake involved and legal liability.
7. Certainty of business unit buy-in.
8. Long term impact of capital project stakeholders contribution.
9. Implications of cost trade-offs.

28

The core/non-core classifications and work relationship assignments


were reviewed to ensure that each of the above factors were accounted for
while making these decisions.
3.1.8

Conclusions
This study provided the OCWS study team with a valuable opportunity

to test the CII OCWS process in a practical setting. Based on this experience,
the following conclusions were drawn:
1. The process provides a useful approach for generating a discussion on
core/non-core competencies, appropriate sourcing approaches, and
work relationships for project competencies.
2. The process serves as an effective internal alignment tool with respect to
competencies, and the work relationships assigned to competencies,
when several entities are involved in capital project execution.
3. The results of the process can be used to solicit information from
potential contractors on how they can best meet the non-core
competency requirements of the owner organization as well as
providing input for core competencies.
4. Overall, the process is a useful tool in the development and execution of
capital projects.
This exercise also identified several areas that have the potential for
improving the OCWS process. The specific elements of the process that can be
improved upon are as follows:
1. The current design of the process order could be improved by making
core/non-core decisions and work structure assignments concurrently
for each competency. Although this is different from the existing
process, it is deemed necessary since part of the discussion pertaining to
core/non-core decisions seems to be repeated during the discussion on
work relationships. Moreover, from the point of view of understanding
the process, the project management personnel were better able to relate
29

to the drivers of core/non-core decisions if they evaluate the potential


work relationships concurrently.
2. Functions and critical capabilities for at least the support role in the
work relationship(s) need to be identified and defined, such as,
contractor input in the OP/CI work relationship.
3. Existing project management procedures need to be reconciled with the
project competencies described on the worksheets.
4. Metrics need to be developed for assessing the impact of the process.
5. A mechanism is required for evaluation of cost and resources while
making core/non-core decisions and assigning work relationships.

3.2

Case Study 2 Company B


This case study is based on an interview and discussion with the

Director of Engineering for a large U.S. chemical company (hereafter


Company B). The topic of discussion was the application of OCWS process
to a $22 million capital project in Europe. The case study was conducted in
retrospect, after the project was complete. Since none of the actual documents
were available, Company Bs key representative (Director of Engineering)
completed the OCWS worksheets during the interview, based on his
knowledge of the process application exercise that was carried out during
project development and execution. The advantages and deficiencies of the
OCWS process were discussed during the interview, with the objective of
identifying potential improvements in the process. A quantitative evaluation of
the OCWS process was also conducted. Perceived deficiencies in the process
and potential improvements were identified.
3.2.1 Background
The OCWS process was used for developing a capital project involving
the expansion of the Acrylic Emulsion manufacturing capacity of an existing
chemical plant, using proprietary technology. The Engineering department of
30

the owner used the OCWS process in conjunction with the contractor, after the
project development phase was completed and before project execution
commenced. In this case, Company B worked with a new contractor with
whom the company had not previously worked. When the contractor was
brought in, the owner had already completed Process & Instrumentation
Diagram work. The key objectives of the application of this OCWS process
were as follows:

Communicate the competencies required for execution of the project

Decide the sourcing of each competency.

Determine the most appropriate work structure for each competency.

Ensure that the owner and the contractor were well aligned and did not
work at odds.
A negotiated target price contract with a bonus/penalty clause was

used, owing to the nature of the project and the prevailing contracting
practices in that part of Europe. The contractors work began in early 1997, and
manufacturing from the new facility began in late 1998.
3.2.2 Company Bs Organization
Company B is a large chemical company in North America, with
worldwide operations. The owners central engineering organization is located
in North America, with closely integrated working relationships between the
plants, central engineering, and their contractors. Four phases that are typically
identified in the life cycle of a project are project development, design,
construction and start-up. The contractor is primarily involved in the design
and construction phases. The focus of Company Bs engineering organization
is on total installed cost, as opposed to engineering man-hour costs. Therefore,
contractors incentives are generally tied to the total installed cost.

31

3.2.3

Project Organization
Company Bs project organization for this project was primarily

comprised of two project engineers, a process control engineer and other


support disciplines. The contractor project group included engineers for civil,
mechanical, electrical, HVAC and instrumentation work, and personnel
responsible for contracts, procurement, construction management and safety.
An architect was also part of the contractors team to ensure that building
aesthetics met the requirements of local authorities. Three main contracts on
the project involved civil and building work, mechanical work, and the
instrumentation and electrical work. The project organization chart is shown in
Figure 9.

Owner
Project Manager
(Acrylic Emulsion Expansion Project)

Project
Engineer
1

Project
Engineer
2

Central
Engineering
(USA)

Process Control
Engineer

Contractor
Project Manager

Discipline
Engineers

Contracts

Construction
Management

Procurement

Safety

Figure 9. Project Organization


3.2.4

Sourcing and Work Relationship Decisions


Company Bs approach to capital project development emphasized a

focus on Key Technical Capabilities and Technical Capabilities. The


company had identified 16 key technical capabilities and 11 technical

32

capabilities. A partial list of Company Bs key technical capabilities and


technical capabilities is provided in Table 4.
Key technical capabilities are conceptually similar to the notion of core
competencies, and technical capabilities similar to non-core competencies in
relation to the CII OCWS process and will be referred to as core or non-core
from this point forward. A competency is considered as core if it is critical to
the success of Company Bs capital program and the project. Non-core
competencies are competencies that can be performed by a contractor at the
same level of quality that Company B can perform them. The non-core
competencies can be easily sourced from the market.
Table 4. Company Bs Approach to Defining Capital Project Competencies
4A. Key Technical Capabilities

4B. Other Technical Capabilities

Cost estimating
Process design
Project Management
Reliability

Civil/structural
Construction management
Detailed design services
Planning/scheduling

Prior to completing the worksheets in the OCWS process, an exercise


was carried out to compare and relate the key technical capabilities and
technical capabilities to the list of competencies developed by CII. It was
observed that competencies such as field quality control, lessons learned,
maintenance and operability and teambuilding were not covered in the
owners list of technical capabilities required for developing and
implementing capital projects. A comparison of 30 competencies in the project
competency worksheets also suggested that 6 competencies were not required
on this project. Business development and financial evaluation were already
completed when the OCWS process was used. In addition, the project involved
construction of a one-of-a-kind facility, using a new contractor and in a new
location for Company B. As a result, the competency alliance/partnering was
not used on this project. Converting research to project/scale up was not
33

relevant

because

an

existing

process

was

being

used.

Similarly,

benchmarking/metrics, team building and total quality management were also


identified as competencies not needed on this project. Since the project was
already past the development stage, risk management was not included.
Thirteen out of the remaining 24 competencies were classified as core, and 11
were classified as non-core. Examples of the core/non-core classifications are
shown on the partial project competency worksheet in Figure 10.

PROJECT COMPETENCY WORKSHEET


Not Needed
on This Project

No.

Competency

Benchmarking/Metrics: Benchmarking process of assessing and establishing standards


to achieve excellence in performance; metrics process of measuring progress of project
performance against established standards.
Construction: Installation of permanent
facility equipment and materials including all
support required to do so.
Construction Management: Management
oversight of field construction operations and
startup.
Detail Design: Completion of design drawings
and material and equipment specifications.

5
6

Technical Expertise: Specific equipment,


systems or technological specialization.

Core

NonCore

x
x
x
x x
x
IBL

OBL

Figure 10. Examples of Project Competency Classifications


Interestingly, construction management was classified as core, since it
included safety management. Detailed design was split into Inside Battery
Limit (IBL) and Outside Battery Limit (OBL). The IBL portion included the
layout and design of the process plant and reactors. OBL included the layout
and design of raw material storage facilities, product storage facilities and
utilities. IBL detailed design was considered as core since the process
technology was of a proprietary nature. The central engineering group was
34

responsible for the IBL detailed design. The OBL detailed design was non-core.
Legal/Contract Administration was considered non-core, excluding the
engineering contracts. A partial project assignment worksheet that was used to
assign work relationships to each of the project competencies is shown in
Figure 11.

PROJECT ASSIGNMENT WORKSHEET


Competency

OP

OP/CI

OL/CP

CP/OI

CP

Benchmarking/Metrics

Construction
Construction Management

XIBL

Detail Design

Technical Expertise

X
XOBL
X

Figure 11. Examples of Project Competency Assignments


The Phase-wise Work Structure Worksheet was not used in this
application since the owners project management team did not anticipate any
changes in the owner-contractor work relationships during the project. The
Alignment Worksheet was also not used on this project.
The distribution of work relationships shown in Figure 12 is based on
the work relationships initially assigned to competencies. In the case of one
competency, Technical Expertise, a change from OL/CP to CP/OI was
anticipated in the work structure. In the initial phases, Company B had the
necessary expertise in areas such as rotating equipment design. During the
execution phases, vendors of rotating equipment were deemed to have the
necessary expertise to complete fabrication and ensure proper installation of
this equipment. In addition, HVAC work required an understanding of local
codes for which the expertise of local contractors was utilized.
35

10
8

4
1

OP

OP/CI

OL/CP

CP/OI

CP

Owner-Contractor Work Relationships

Figure 12. Distribution of Owner/Contractor Work Relationships


3.2.5 Conclusion
The OCWS process served as a useful tool for the project management
team during the development of this overseas capital project. The process
provided a link between the strategic objectives of the company defined at an
upper management level, and the tactical assignment of roles and
responsibilities defined on-site by the project management team. While
applying the process to this project, Company B had to use the CII process in
conjunction with their company-specific process of identifying and defining
key competencies. In this case, in addition to the list of competencies identified
in the competency worksheet, Company B used other competencies as defined
by their company at the corporate strategic level. These additional
competencies are the Key Technical Capabilities and Technical Capabilities
explained earlier. The technical capabilities are thus defined as extensions of
the definitions of some of the competencies listed in the OCWS competency
list. Defining the functions and critical capabilities for each competency was
not considered to be a value-adding exercise. This effort would require
detailed knowledge of project activities that was not available at the stage of
project development when the OCWS process was used. The owner-contractor

36

work relationship continuum was found to be adequate for defining


relationships on this project.
The key conclusions from this process application were as follows:
1. Overall, the process was helpful in planning the execution of the capital
project, especially with the involvement of unknown contractors. The
process provided a formal mechanism for establishing well-aligned
owner-contractor

work

relationships

based

on

project-specific

circumstances.
2. The process provides an excellent tool for communication when project
participants come from diverse backgrounds and their understanding of
the project development and execution process differs significantly.
Some potential changes/improvements in the OCWS process that were
identified in this study were as follows:
1. Addition of a step to define the support role in a relationship (the
Input in OP/CI or CP/OI) would add value to the process.
2. Addition of a step to determine estimated owner work-hours for each
competency based on the work relationship assigned to the competency.
3. Use of the alignment worksheet for annual review at the capital
program level and for a post-completion review at the project level.
4. Development of metrics to test the effectiveness of the OCWS process.
5. Reduction in number of phases in the project work structure worksheet
to three key phases: development, detail design/construction and startup.
3.3

Case Study 3 Company C


This case study is based on the application of the corporate level OCWS

process in a large power company (hereafter Company C). Company Cs


existing project management capabilities were embedded to a large extent in
the plant organizations. Management also felt that despite being the owner, the
37

company was more involved than necessary in the doing part of construction
than managing part of it. Therefore, management decided to restructure the
capital projects division, with the objective of focussing on the companys core
business of electricity production. The product of this effort provided a basis
for restructuring their capital projects division (CPD), intended to offer project
management services to all plant sites. The OCWS study team assisted
Company Cs team in using the process to accomplish this goal. The effort was
streamlined by a champion of the process on Company Cs team, who
understood the company and the OCWS process very well, and took keen
interest in implementing the process.
The following sections provide a summary of the OCWS process
application and the recommended path forward.
3.3.1 Background
This study was conducted at a time when Company C was in a state of
transition, with a long-term objective of adapting to a more competitive
business environment by refocusing on its core business of electricity
production (EP). Company C owns over 50 hydroelectric power plants and
several fossil fuel based power plants, with a total installed capacity of 32,000
megawatts. Depending on the size of the plant, a plant manager or plant
superintendent is responsible for managing anywhere from one to five plants.
The capital projects at each plant typically consist of major repair work
focused on facility improvements in the plants and increased production
capacity. The capital project phases identified in the EP project management
process model were: identification of opportunity, project initiation, project
definition and project execution. Although construction work on large projects
was normally outsourced to contractors, the CPD had traditionally played a
major role in construction activities on plant sites and the CPD was typically
accountable for managing the execution of the project on behalf of the plants.
38

However, the plants could choose to execute a project with plant staff. The
CPD would not own the project, though corporate policy dictates that CPD is
the plants only alternative when seeking outside project management
assistance for managing capital projects.
According to Company Cs business plan, the CPD is expected to play
an increasingly significant role in the early phases of capital projects in the
future. In the project initiation phase, the CPD would perform work
predominantly with their staff. In the project definition phase, this group
would still perform much of the work. However, the extent of outsourcing
portions of the work to external contractors or consultants will be much greater
than the initiation phase. In the project execution phase, work would be
predominantly outsourced and CPD would manage the work executed by
external resources, in the capacity of the owners representative.
From an annual capital program budget of approximately $300 million,
Company C expects a progressive reduction in the program by about 50
percent over three years. In line with these and other goals defined below, the
new CPD organization would be in-place after a transition period of two years.
An overall objective of the exercise was, therefore, to reduce the utilitys
dependence on its own personnel for activities that are outside the core
business of electricity production. The specific goals of the sourcing strategy
for the immediate future were defined as follows:

Focus on core business of electricity production.

Adapt the organization to the changing business environment.

Provide employees with an environment that nurtures their abilities and


provides opportunities to advance in their career in EP.

Transfer

primary

responsibility

of

Engineering,

Procurement,

Construction and Management of capital projects to CPD.

Use CPD to provide high level program and project management


support in the pre-project planning stages of capital projects.
39

Reduce embedded costs while retaining the skills and capabilities


needed to deliver projects with excellence and flexibility.

Maximize CPDs contribution to EP goals.

3.3.2 Preparation for the OCWS Workshop


In preparation for the workshop, the CPD team prepared a detailed
evaluation of the capital project management activities in the company. The
focus of this evaluation was the identification of capital program competencies
based on the initial list of 30 competencies in the OCWS process, and defining
the functions and associated critical capabilities necessary for successful
development and implementation of capital projects. The following five new
competencies were added to the OCWS list by the CPD team:
1. Community/public affairs
2. Divisional management
3. Document and record management
4. Engineering oversight
5. Labor relations
The functions and capabilities were defined to a level of detail sufficient
for achieving a reasonably accurate determination of core/non-core
competencies and assignment of owner-contractor work relationships during
the workshop. The CPD provided this list of competencies, functions and
capabilities to the OCWS study team for review prior to the workshop. Based
on this input, the study team adapted the OCWS process worksheets for
efficient application of the process.
3.3.3 OCWS Process Application Workshop
The process application workshop was conducted over a two day
period. Besides the two OCWS study team members, ten managers
representing Engineering, Project Management, Construction Management,
40

Procurement, Human Resources, and the Corporate Office participated in the


workshop. The workshop agenda was as follows:
1. Overview of OCWS process and the research funded by the
Construction Industry Institute and the Sloan Foundation.
2. Review of owners business plan for the CPD.
3. Identification of drivers for classifying a competency as core.
4. Determination of core/non-core classification for each competency.
5. Determination of the most appropriate work relationship for each
competency.
6. Assessment of the As-Is work relationship for each competency.
7. Discussion of CPD business model and the relevance of the OCWS
process.
8. Review of process application results.
9. Discussion of CPDs path forward.
An overview of the OCWS process on the first day of the workshop
provided the team members with a better appreciation of the salient features of
the process. The overview explained the concept of the owner-contractor work
relationship continuum that is at the heart of the OCWS process. This concept
is illustrated in Figure 13, which is an adaptation of the continuum shown in
Figure 2 earlier.

41

100%

0%

Owner's
Level of
Involvement

Contractors'
Level of
Involvement
Inter-organizational boundary

0%

CPDP

CPDP/CI

CPDL/CP

CP/CPDI

CP

100%

Figure 13. CPD-Contractor Work Relationship Continuum


The concept of an owner-contractor work relationship continuum fit
particularly well with the goals of the workshop, and CPDs overall objective
of structuring the division. The five types of relationships shown on the CPDContractor relationship continuum in Figure 13 are defined below. It is
important to note that due to the distinction between CPD and EP (Electricity
Production, i.e. the plants), more than five types of relationships had to be
used. The plants perform a competency in some cases, and were likely to
provide input in some other cases. The triadic arrangement between the CPD,
the EP and the contractors is graphically illustrated in Figure 14.

42

Non-core to CPD

Electricity Production
(EP) Plants
Contractors (C)

Capital Projects
Division (CPD)

Figure 14. EP-CPD-Contractor Arrangement for Capital Project Development


The types of relationships are:
1. CPDP: CPD performs all functions involved in the competency using
CPD resources and the CPD work process.
2. CPDP/CI: CPD performs most functions using CPDs work process
with contractor input. The majority of work is performed using CPD
resources. Contractor provides input or acts as a consultant.
3. CPDL/CP: CPD leads function performance with contractor performing
the detailed work using CPDs work process. CPD leads by setting
guidelines, directing, reviewing and approving the work.

The

contractor performs most of the competency functions according to the


CPDs work process.
4a. CP/CPDI:

The

contractor

performs

most

functions

using

the

contractors work process with input from CPD. The majority of the
work is performed using contractor resources.
4b. EPP/CPDI: EP (the plants) performs most functions using a work
process developed by the plant, with input from CPD. The majority of
the work is performed using plant resources.

43

5. CP: The contractor performs all functions involved in the competency


using contractor resources and the contractors work process. CPD can
still supply input and guidance by performing the project management
competency.
The OCWS study team also explained each of the worksheets in the
original process to Company Cs team during the process overview. During the
actual workshop, the team used and completed two worksheets from the
OCWS process. It was evident through the questions and the discussion that
members of the team continued to understand the finer nuances of the OCWS
process and the implications of each of the decisions on the resulting CPD
organization during the course of the workshop. The discussion concerning
CPDs business model helped the workshop participants align the objectives of
the process application exercise to CPDs needs. The plant sites were termed
EP to suggest their focus on the core business of electricity production.
A brainstorming session was conducted prior to core/non-core
classification of each competency to determine the drivers of core
competencies. This exercise was necessary to ensure that the thought processes
of all team members were properly aligned. The team identified eleven drivers
that were the deciding factors leading to classifying a competency as core. The
drivers were as follows:
1. Creating effective relationships between stakeholders.
2. Achieving cost effectiveness and economy of scale.
3. Considering risk tolerance of Company C during decision-making.
4. Protecting proprietary information about Company Cs business.
5. Meeting business objectives, ROI, external customer/market for the
product, business decisions.
6. Adhering to mandated corporate policy, due diligence environmental
/safety/collective agreements.
7. Focusing on where CPD wants to be in 2 to 4 years.
44

8. Achieving and maintaining competitive advantage.


9. Utilizing market leverage.
10. Achieving required quality of facility construction.
11. Focusing on project functions in the front-end of the project life-cycle.
Three other drivers were initially considered, but dropped from the list
prior to commencing the core/non-core classification exercise. The team
believed that these drivers would have a biasing effect on the decisions made
during the course of the workshop. The three other drivers were:
1. Meeting project objectives.
2. Availability of external resources.
3. Owner/internal customer influence.
The second day of the workshop continued with the determination of
most appropriate work relationship(s) for each competency. This step in the
process application generated significant discussion on the specific roles
considered appropriate for CPD, EP, and their contractors. The discussion
helped the team to attain the necessary alignment on the perspectives of each
of the team members.
After determining the work relationships, the team carried out an
assessment of the As Is work relationships between the stakeholders. A
comparison between the proposed work relationships and the As Is work
relationships provided interesting insight concerning the shift from high CPD
involvement to higher plant involvement in some competencies, and higher
contractor involvement in others. The key theme in the proposed transition
was a desire on the part of the CPD to change its involvement in projects from
a perform role to a manage and control role. A sample of the Work Structure
Assignment Matrix that resulted from the OCWS process application
workshop is shown in Figure 15.

45

WORK STRUCTURE ASSIGNMENT MATRIX

No. COMPETENCY AND DEFINITION


1 Alliances/Partnering: Utilizing
long-term, trust-based
relationships between two or
more organizations for the
purpose of achieving business
objectives.
2 Benchmarking/Metrics:
Benchmarking - Process of
assessing and establishing
standards to achieve excellence
in performance. Metrics - process
of measuring progress of project
performance against established
standards.
3 Business Development (PreProject Planning): Conversion
of business needs into project
goals.

4 Commissioning/ Startup/
Performance Testing: Front line
development, management and
coordination of operations and/or
contractor personnel to proceed
toward and prove commercial
operation.

CORE/
NON-CORE

Core

PMD-CONTRACTOR RELATIONSHIP

CORE
NON-CORE
CPD CPDP/CI CPDL/CP CP/CPDI CP

COMMENTS
No "as is"
relationship for this
competency.

Core

Non-core

Non-core

Business
Development
provides resources
and work
processes, CPD
Provides the
necessary input.
Core to the Plant
Groups and stations
because they
provide the staff.

X : "As Is" work relationship; X: Proposed work relationship.

Figure 15. Sample of Work Structure Assignment Matrix


After successful completion of the Competency Worksheet and the
Work Structure Worksheet, the study team presented some ideas for increasing
the effectiveness of the process to the workshop participants. These ideas were
based on insights gained by the study team from the two prior implementation
efforts of the process by Company A and Company B. The specific
recommendations were as follows:

46

1. Define the supporting roles of Input and Lead in OP/CI, OL/CP and
CP/OI type of relationships, in terms of the functions that are involved
in providing the Input or the Lead.
2. Estimate CPD resources in terms of Full-Time-Equivalents required for
performing each competency.
3. Use the Alignment Worksheet for a periodic check of the alignment of
work relationships.
A summary of workshop results is provided in the following section.
3.3.4

Workshop Results
A summary of the results of the OCWS process application to the CPD

is shown in Figure 16. The histogram shows a movement from the owner end
to the contractor end of the CPD-contractor work relationship continuum
illustrated earlier in Figure 13. This was consistent with CPDs objective of
focusing on Company Cs core business by outsourcing non-core capital
project competencies.
An important observation that was critical for correct interpretation of
the results and their potential implications was that the increased outsourcing
of capital projects competencies is predominantly for those competencies that
require substantially higher resources. These included non-core competencies
such as detailed design, construction, construction management, and field
quality control. The resource implications for CPD were clearly in the direction
of reduced numbers of in-house personnel.

47

41%
37%

25%

23%

17%
14%

16%
13%
9%

6%

CPDP

CPDP/CI

CPDL/CP

CP/CPDI

CP

CPD-Contractor W ork Relationships


"As is" relationships

Target relationships

Figure 16. Summary of OCWS Process Application Results


The following section provides a discussion of the worksheets
completed by Company Cs team during the workshop.
3.3.5

Evaluation of Completed Worksheets


The Competency Classification Worksheet was used on the first day of

the workshop to classify the competencies into core and non-core. The drivers
for core competency decisions were displayed on a board to help team
members remain focused on the rationale behind classifying the competencies
as core. The CPD proposed to deviate from its traditional style of operation for
detailed

design,

definitive

cost

estimating,

construction,

construction

management, constructability, field quality control, and project control. Since


these competencies require knowledge, skills and abilities that are not
necessarily core to the business of electricity production, it was proposed to
outsource substantial portions of these competencies to external contractors.
Competencies such as business development including pre-project planning,
community and public affairs, environmental compliance, financial approval,
maintenance and operability, procurement, and setting project goals, objectives
48

and priorities were perceived to be closely related to the business of electricity


production. Therefore, the plants (EP) were responsible for carrying out these
competencies with necessary input from CPD. The competency of project
management oversight was also considered to be EPs responsibility, since the
plants would have to oversee the development and execution of projects.
CPDs focus would be on the development and execution of capital projects
involving competencies such as conceptual cost estimating, preliminary and
process design, contract management, and project management. The proposed
strategic distribution of competencies in the capital project management
process is provided in Table 5. The competencies listed under EP, CPD, and
outside contractors are those competencies that these entities will be
responsible for performing, in the proposed new work structure.

49

Table 5. Strategic Distribution of Primary Roles


CPD

EP
(Plants)
1.
2.

3.
4.
5.
6.
7.

Business
development
Commissioning/
Startup/
Performance Testing
Community/public
affairs
Financial approval
Maintenance/
operability
Project investment
management
Setting project goals,
objectives and
priorities

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.

Outside Contractors

Alliance management
Benchmarking/Metrics
Conceptual cost estimating
Contract management
Convert new technology to
project/scale up
Divisional management
Document and record
management
Engineering oversight
Labor relations
Lessons learned
Preliminary design
Process design
Project management
Project
planning/scheduling
Risk management
Safety and Health
Team building

1.
2.
3.

Constructability
Construction
Construction
Management
4. Detail design
5. Definitive cost
estimating
6. Environmental
compliance
7. Field quality control
8. Procurement
9. Project control
10. Technical expertise
11. Total Quality
Management

The Work Relationship Assignment worksheet was used on the second


day of the workshop to assign the most appropriate work relationship(s) to
capital project competencies. As shown earlier in Figure 16, the final
assignment of work relationships indicated a move to outsource a significant
number of competencies away from the CPD, either to the plants or to
contractors. The distribution of work relationship assignments is shown in
Table 6.
Table 6. Distribution of Work Relationships
CPDP

CPDP/CI

CPDL/CP

EPP/CPDI

CP/CPDI

CP

As defined earlier, the Contractor Performs / Owner Input type of


relationship was split into two types of relationships, EPP/CPDI and
CP/CPDI, due to the involvement of the Capital Projects Division (CPD),
50

plants (EP), and contractors (C) in capital project development. This


modification in the relationship definitions enabled the study team to help
each of the stakeholders focus on their role in the capital project development
and execution process.
Based on the recommendations made by the study team at the end of
the workshop, Company C decided to proceed with using the Support Role
Definition Worksheet, the Phase-wise Work Structure Worksheet and the Full
Time Equivalents Worksheet after the workshop. It was agreed that
completing these worksheets would be an inevitable part of a comprehensive
case that would have to be presented to their top management.
3.3.6

Post-implementation Review
Company Cs application of the OCWS process was the most extensive

effort among the three case studies, since the implementation team made every
effort to use all elements of the process. The results of the process
implementation were presented to their management, and were also made
available to the OCWS study team. The OCWS study team was also invited for
a post-implementation review in which lessons learned from the effort were
discussed. The first part of this discussion focussed on lessons learned from
OCWS process implementation, and the second part focussed on strategies to
update the existing CII OCWS implementation resource. The review served as
an excellent opportunity to generate ideas on how best to use the process in
future applications.
3.3.6.1 Lessons Learned Review
The objectives of the lessons learned review were to discuss the overall
application of the process at Company C to determine if it was successful or
otherwise, and to highlight the benefits and difficulties in using each
worksheet or step in the process. In addition to the OCWS study team, the
51

Director of CPD, the champion of the process in Company C and three other
individuals representing various groups in the organization attended the
meeting.
Overall, the attendees agreed that the application of the OCWS process
was a successful and worthwhile effort for Company C. The only area where
the implementation team had encountered significant problems was in the
estimation of full-time equivalents for each competency. It was not possible for
the team to estimate human resources at the level of each competency, since
the company was not set up to collect work-hours or work-days for each
competency. Therefore, no historical data was available for such estimates.
Other than this problem, the team agreed that the process constituted an
effective tool to conduct a gap analysis between where the company is and
where it wants to be. It was also suggested that the process could serve as a
vehicle to convey information to contractors. Some attendees did, however,
feel that the OCWS project process would be more amenable to large projects
or to ones that are developed and executed through an alliance contractor. The
other lessons learned regarding the application of the process are described in
the section on conclusions.
The majority of the discussion in the post-implementation review
focussed on the benefits and difficulties in using each worksheet and the
corresponding steps in the process. The team was of the opinion that
computerizing the worksheets or the entire logic of the process and the
worksheets would eliminate much of the repetition in updating the worksheets
and making changes. It would also reduce the possibility of the accumulation
of errors as one moves forward with implementation. The key findings specific
to each step and each worksheet are as follows:
1. Competency Definition: Defining competencies on the Competency
Definition Worksheet facilitates discussion and understanding of what
is required for successfully developing and executing capital projects.
52

Although the definition of functions was thought to be very important,


it was felt that defining critical capabilities does not serve any purpose
other than, perhaps, to help the participants to understand the definition
of a competency.
2. Core/Non-Core Classification: The team was in unanimous agreement
on the criticality of defining the drivers of core competencies before
commencing with core/non-core classification. In the same context, it
was also pointed out that defining who is the Owner would be
crucial. In case of this application, Company C was comprised of the
CPD and the Electricity Production groups. Therefore, not defining CPD
as the Owner at the outset could have caused confusion during the
implementation of the process. The following recommendations were
made with regard to the step of core/non-core classification:
(i)

A business model indicating the strategic direction and objectives


to be achieved by implementing the OCWS process must be
documented prior to implementation.

(ii)

The drivers for classifying a competency as core should be


documented on a separate sheet.

(iii)

A list of relevant drivers for each competency and a brief


summary of the discussion should replace the Comments
column on the Core/Non-Core Classification Worksheet.

(iv)

The as is position of what is core and what is non-core must be


documented after the would be is documented. This avoids any
potential biasing of the would be decisions.

3. Work Relationship Assignment: It is critical to develop a clear


understanding of who the owner is, for the success of this step. After
assigning work relationships, the team developed a responsibility
matrix to further define the roles and responsibilities of organizational
units within the owner company. The responsibility matrix was derived
53

from a Responsible-Accountable-Consult-Input (known as RACI) matrix


used by some other owner companies.
4. Support Role Definition: This step was part of the recommendations
made by the OCWS study team at the end of the workshop. Company C
decided to use this step subsequent to the workshop. Defining the
support role in terms of the functions involved in the Lead or Input
role of a work relationship served as a verification and validation of the
competency definition and work relationship assigned to the
competency. It also resulted in the addition of more functions for many
competencies on the competency definition worksheet. The team
believed that support role definitions would be very helpful in their
discussions with contractors.
5. Full-Time-Equivalent Estimates: This step was another part of the
recommendations made by the OCWS study team at the end of the
workshop. After several unsuccessful attempts to carry out this step,
Company Cs implementation team concluded that determination of
FTEs is a function of many variables, including the workload,
geographic spread of capital projects, involvement of multiple
individuals in one competency, and historical data that gives
competency-wise FTEs. It may not be possible to properly account for
all these variables in a corporate application of the OCWS process. It
may, however, be possible to estimate FTEs for a single capital project,
if the projects are set up to collect data on resource utilization for each
competency.
6. Phase-wise Work Relationship Assignment: Assigning owner-contractor
work relationships for each competency in each project phase would
serve as a validation of the initial work relationship assignments.
7. Alignment Worksheet: There was some concern about the value of
measuring

alignment

immediately
54

after

completing

process

implementation. However, the team agreed that the tool could be


valuable as a periodic alignment check once the work structure is
implemented.
These insights from a team that had used the complete OCWS process
for a corporate application provided useful evidence in support of the merits of
the OCWS process. The team also provided valuable recommendations on
updating the Construction Industry Institutes (CII) implementation resource
for the OCWS process, which are discussed in the following section.
3.3.6.2 Recommendations for Revising CII Implementation Resource 111-2
This research began with the premise that the existing OCWS process
needed review since very few owner companies were using the process. The
case study with Company C and the two preceding case studies provided the
opportunity to review the process through three different applications. The
OCWS implementation team at Company C was very gracious in sparing the
time to provide their views on how best to modify the existing CII OCWS
process, based on lessons learned through the application of the process.
Company C was informed that the objective of revising the CII resource was to
incorporate modifications to the process based on the experience gained in the
case studies, and to restructure the layout and format of the CII resource in a
manner that most companies would find convenient to use. The following
recommendations resulted from the discussion:
1. Give the user the freedom to use part(s) of the process.
2. Develop a computerized database of competencies and definitions
that would evolve over time.
3. Present the corporate process in a manner that can be used by owner
companies for managing the change in strategic organization of the
company.

55

4. Emphasize that there is no perfect solution. The application and


the solution become more refined through repeated applications.
5. Computerize the worksheets and if possible the logic of the process.
6. Prepare a checklist based on the process to determine contracting
strategies for capital projects.
The following section provides the conclusions of OCWS application in
Company C.
3.3.7

Conclusions
This application of the OCWS process within the capital projects

organization at this company demonstrated that the process is effective in


providing useful input for structuring capital projects organizations that are
properly aligned with the companys strategic objectives. The lessons learned
during this application of the process are as follows:
1. The process is particularly suitable for structuring a capital projects
organization, since it helps decision-makers to conduct a review of the
organizations competencies and to align them with strategic objectives of
the company and the business units (plants). The process forces discussion,
consensus, definition and decisions. It was also evident in this application
that it is important to clearly define who the owner is, since it could be a
group or a division within the company.
2. The process requires input from various sources. Therefore, adequate
representation from all concerned departments within the owner
organization is crucial. With such input, the process serves as an excellent
tool to build and document a common language between departments.
3. Defining functions and capabilities, to the extent possible, is crucial to
successful application of the process. It enables the decision-makers to
create

common

language

that

56

facilitates

an

understanding

of

competencies and the associated work relationships. It also serves as a


crucial input while defining the roles and responsibilities of stakeholders.
4. It is important to document the functions and capabilities that will be
provided by the supporting entity in a work relationship. This
documentation effort provides a review and validation of the work
relationships assigned to each competency. In the context of the work
relationships defined in the OCWS process, this means the Input and
Lead roles.
5. Although an estimate of Full Time Equivalents (FTE) of owner resources
would provide for a strong case to secure top management buy-in, it was
not possible to estimate resources at the level of each competency. The level
of FTE requirement by each competency for an organizational unit was too
small. Moreover, it is difficult to estimate FTEs in the absence of historical
data of human resources used for each competency.
6. The process requires facilitation by an unbiased individual. This is
suggested because the process requires a continuous resolution of
differences between members of the implementation team, and alignment
with strategic directives from top management. The facilitator must also
have a thorough understanding of the owner organization as well as the
OCWS process.
7. The process is flexible. It can be easily adapted to user requirements. It is
also particularly valuable for increasing the understanding of project
management requirements among senior managers, because of the ease of
presentation of the results.
8. Time and appropriate resources must be applied to the process to obtain
meaningful and defendable results.
Overall, Company Cs use of the OCWS process was the most extensive
and insightful application of the process. Each of the three case studies
demonstrated the utility of the OCWS process for structuring a capital projects
57

organization. The case studies also underscored the need to modify the process
as necessary to include the additional tasks that were carried out during
Company Cs implementation. The following chapter discusses the key
findings from the case studies.

58

CHAPTER 4: KEY FINDINGS FROM CASE STUDIES


The three case studies provided valuable evidence in support of the
benefits of using the OCWS process in three different scenarios. The nature of
each of the three applications also highlighted the flexibility of the process. The
following advantages of the process became evident during these applications:
1. The process provides a useful mechanism for generating discussions on
strategic classification of capital project competencies as core or noncore, and for determining the most appropriate sourcing strategy and
work relationship for each competency.
2. The process provides an excellent tool for communication when the
participants come from diverse backgrounds and their understanding of
project development and execution differs significantly.
3. The process is particularly helpful in structuring capital project
organizations, since it helps decision-makers conduct a review of the
organizations competencies and aligns them with the strategic
objectives of the company and the business units.
4. The process provides a mechanism for assessing alignment within the
owner organization, and also between the owner and other
stakeholders.
5. Overall, the process is a useful and flexible tool to provide assistance
while structuring a capital projects organization at the corporate level as
well as for a specific project.
Despite the generally favorable findings, the case studies did identify
some weak areas in the OCWS process as it is described in CII Implementation
Resource 111-2 (CII, 1997). Although the weaknesses do not require any
fundamental changes in the original process, they do nevertheless warrant
some changes in the decision flow and the description of the process. The
specific areas that call for modifications in the process include:
59

1. The OCWS process as described in the CII Implementation Resource


was perceived to be cumbersome and somewhat complicated to
implement, and needs to be streamlined.
2. The decision flow in the process does not put adequate emphasis on
generating

dialogue

on

the

factors

that

drive

competency

classifications, before starting to classify the competencies as core and


non-core.
3. Assigning a particular work relationship to a competency does not
identify the specific roles and responsibilities of the stakeholders,
especially Input in the case of OP/CI and CP/OI, and Lead in the
case of an OL/CP relationship.
4. Although the process suggests that the functions and critical capabilities
should be defined for each competency, it would be helpful to provide
such a list as part of the process tools.
5. The process does not provide any mechanism for quantifying resource
requirements for each competency.
6. The process is not clear on how and when the alignment worksheet is to
be used.
7. The process does not put adequate emphasis on the fact that it works
best when implemented with the help of an independent facilitator who
can reconcile opposing viewpoints, and who has a thorough
understanding of (at least) the owner organization.
In the first case study involving Company A, it was felt that making
core/non-core decisions and work relationship assignments concurrently for
each competency would improve the users understanding of the process. This
conclusion was deemed necessary for two reasons. The first reason was that
part of the discussion pertaining to the core/non-core decisions seems to be
repeated during the discussion on relationships. The second reason was that
project management personnel were better able to relate to factors that drive
60

core/non-core decisions if they evaluate the potential work relationships


concurrently. However, the case study involving Company C indicated that
revisiting the core/non-core decisions at the time of assigning work
relationships serves as an important validation of the decisions made earlier.
Therefore, those two steps in the process were left unchanged.
An important potential of the OCWS approach is the development of a
process for use in general business applications. Such a business evaluation
process could be used for a strategic review of core and non-core competencies,
a guideline for post-merger or post-acquisition alignment between two
counterparts, or for setting up strategic alliances similar to the one described in
this report.
The above findings led the OCWS study team to make the necessary
modifications in the OCWS process in order to increase its utility and
effectiveness. Each of the areas that called for such modifications is addressed
in the following chapter. Various illustrations are also provided to help the
potential user understand the concepts, the steps in the process, and the tools
available.

61

62

CHAPTER 5: MODIFIED OCWS PROCESS


Each of the case studies provided an excellent opportunity to assess the
OCWS process approach. They enabled the research team to reverseengineer the original OCWS process, and make improvements with the
objective of enhancing the utility, effectiveness and application potential of the
process. As a result of the knowledge and insight acquired through the case
studies, the original OCWS process has been substantially altered. The
modified process is illustrated in Figure 17. The modifications also address the
concerns expressed by respondents in the owner survey that preceded the case
studies. Table 7 identifies the changes in the modified process in comparison
with the OCWS process described earlier in Chapter 2.
Table 7. Comparison of the Existing and the Modified OCWS Process
No.

Existing OCWS Process

Modified OCWS Process

Cumbersome description of the


process; likely to be a disincentive for
potential users
Illustrations are not easy to follow

Objective and concise step-by-step


description of the process; facilitates
understanding and generates interest
Simplified illustrations (Figures 1
and 2) and easy-to-understand
decision flow diagram (Figure 17)
Provides a list of 30 competencies,
approximately 176 functions and 150
capabilities typically needed on
capital projects
A mandatory process step is
introduced to identify the drivers
In-house and contractor resources
are evaluated while selecting project
sourcing approach only; corporate
sourcing is based on strategic
objectives
Support roles are defined in terms of
functions, on a Support Role
Definition worksheet
An additional step is introduced to
estimate full-time-equivalents of
manpower required

Detail competency definitions in


terms of functions and capabilities are
not provided

4
5

Identification of core competency


drivers is not adequately emphasized
In-house and contractor resources are
evaluated prior to selecting the
corporate or project sourcing
approach

Support roles (Input and Lead) in the


relationships are not defined

The step to evaluate owner and


contractor resources does not provide
any tool for such an evaluation

63

SCOPE OF PROJECT / CAPITAL


PROGRAM STRATEGIC OBJECTIVES

COMPETENCY DEFINITION WORKSHEET

Competency

Functions

Capabilities

IDENTIFY AND DEFINE CAPITAL


PROJECT COMPETENCIES
(USE CII LIST AS A STARTING POINT)

REVIEW FOR COMPLETENESS

COMPETENCY CLASSIFICATION WORKSHEET

Competency

Core Non-Core Comments

DETERMINE DRIVERS FOR CORE


COMPETENCIES

CLASSIFY COMPETENCIES INTO


CORE AND NON-CORE
CORPORATE
LEVEL
APPLICATION

WORK RELATIONSHIP ASSIGNMENT WORKSHEET

PROJECT LEVEL
APPLICATION

Competency OP OP/CI OL/CP CP/OI CP

EVALUATE OWNERS AND


CONTRACTING COMMUNITY
RESOURCES

ASSIGN APPROPRIATE OWNERCONTRACTOR WORK


RELATIONSHIP

SUPPORT ROLE DEFINITION WORKSHEET

Competency Work Relationship Support Role


Assigned
Functions

DEFINE THE ROLE OF THE


SUPPORTING PARTICIPANT

ESTIMATE
OWNER RESOURCES
CORPORATE
LEVEL
APPLICATION

FULL-TIME-EQUIVALENTS WORKSHEET

Competency Relationship Estimated Full


Assigned Time Equivalents

PROJECT LEVEL
APPLICATION

EVALUATE PROJECT
EXECUTION STRATEGY

PROJECT WORK STRUCTURE WORKSHEET

Competency

Project Phases

DETERMINE PROJECT
PHASE-WISE WORK
RELATIONSHIPS

Owner/Contractor Work Relationships


REVIEW FOR
ALIGNMENT

ALIGNMENT WORKSHEET

Competency Relationship Alignment Scale


Assigned

OWNER-CONTRACTOR
WORK STRUCTURE

1
1
1
1

2
2
2
2

3
3
3
3

4
4
4
4

Alignment Index = Sum of alignment for each


competency Total number of competencies

Figure 17. Steps in the OCWS Process


and Process Worksheets

64

It is strongly recommended that there is adequate representation from


all stakeholders on the owners project management team, to increase the
effectiveness of the process application as well as the results. Prior to the
application of the process, company policies and procedures should be
analyzed and understood by those representing the owner. In the case of a
project level application, the project objectives and performance factors, and
the scope of the project must be understood to the greatest extent possible.
Since the OCWS process is likely to generate a considerable amount of
discussion among team members, implementation with the help of an
unbiased facilitator is more effective.
The following paragraphs provide an overview of the modified OCWS
process and guidelines for using the process at the corporate level and at a
capital project level. It is important to note the distinction in the application at
the corporate level and at the capital project level. Although the key concepts are
the same at both levels, the corporate level application should precede the
capital project level application. The results of the corporate level application
serve as a strategic guideline for using the process for a specific capital project.
At the capital project level, there is also an additional element of project phasewise determination of owner-contractor work relationships. The notion of
phases is absent at the corporate level, since it entails strategic evaluation of
work relationships on a periodic basis, for as long as the company builds
capital facilities.
Application of the OCWS process to defining owner-contractor work
relationships at the project level or for the capital program requires that user(s)
have the necessary knowledge and authority to make decisions regarding the
commitment of resources to the competencies. Such user(s) may include
division managers, project managers, technical managers and operations
managers associated with project development and execution. Many of the
65

resource allocation decisions require adequate evaluation of owner and


contractor resources by the team. The work relationship framework illustrated
earlier in Figures 1 and 2 is intended to assist the users of this process, in
conducting the resource evaluation.

5.1

Steps in the OCWS Process


Each of the steps involved in the OCWS process illustrated in Figure 17

are described next.


5.1.1

Identify and Define Capital Project Competencies


All key competencies required for capital projects are identified and

clearly defined in this step, to clarify the perspectives of various project


participants (business units, operations, central engineering). The Competency
Definition Worksheet is completed in this step, based on the objectives, project
performance factors, company policies and procedures, characteristics of
capital project(s) and historical data.
It is important to thoroughly define competency functions and the
associated critical capabilities in terms of knowledge, skills, abilities and
experience. These definitions provide a common language that facilitates a
thorough

understanding

of

competencies

and

the

associated

work

relationships. This also helps the decision-makers in determining the


core/non-core classification of competencies, in the next worksheet. Many of
the competencies, their functions and associated capabilities are already
defined on the Competency Definition Worksheet. This worksheet provides a
list of 30 competencies, approximately 176 functions and about 150 capabilities
typically needed on capital projects. This information is particularly relevant
for clarifying the roles and responsibilities of the owner and contractor, and
may be suitably modified depending on the needs of the owner company or

66

the type of project. An example of competencies, functions and associated


capabilities is provided in Table 8.
Table 8. Example of Competencies, Functions and Capabilities
Competency
Conceptual
cost
estimating

Environmental
compliance/
Permitting

5.1.2

Functions

Capabilities

1. Determine estimate
basis (scope) for facility
components
2. Review estimates with
team
3. Determine historical
basis
4. Convert estimate basis
to costs
5. Check key cost ratios
1. Determine what
permits are required
and when
2. Identify regulatory
agencies and establish
communication
channels with them
3. Acquire and maintain
knowledge of
requirements
4. Conduct
environmental
assessments

1. Ability to visualize the entire project


2. Understand technology involved
3. Design and construction knowledge
and experience
4. Understanding of how major facility
components fit together
5. Knowledge of estimating and
project control processes
1. Understanding of laws and
corporate facility requirements
2. Understanding of permitting
process and relationship to design
stages
3. Understanding of owners business
4. Knowledge of process by-products
5. Engineering knowledge
6. Public relations and
communication skills
7. Understanding of risk and liability

Review for Completeness


A review of the competencies, competency definitions, inherent

functions and the associated capabilities is conducted by the team members at


this point to confirm that all key competencies are identified and adequately
defined in terms of all relevant functions and associated critical capabilities.
The team should agree with and understand each competency and its
definition in terms of functions and critical capabilities. This definition serves
as a common language for all stakeholders.

67

5.1.3

Determine Drivers behind Core Competency Decision


This step helps the team members align themselves with the strategic

objectives of the owner company, and the capital project(s) program. The
drivers that lead to classifying a competency as core to the owner are evaluated
in this step. Typically, such drivers include: i) considerations of proprietary
technology; ii) how closely the competency relates to the owners core
business; iii) owners ability to sustain competitive advantage; iv) risk and
liability considerations; and v) the cost, schedule and quality implications.
5.1.4

Classify Competencies as Core or Non-Core


Each competency is classified as either core or non-core, based on the

drivers behind core competency decisions. A core competency is usually one


that must reside with the owner and is also critical to successful project
performance. Core competencies are the ones that help the owner sustain a
competitive advantage in the business environment. In the words of Peter F.
Drucker, core competencies define where an organization must excel in
order to maintain leadership (Drucker, 1994). The classification of each
competency as core or non-core is documented on the Competency
Classification Worksheet.
5.1.5

Assign Appropriate Owner-Contractor Work Relationship


This step is somewhat different if the process is being carried out at the

capital program level, as opposed to using it for a specific capital project. At


the capital program level, selecting the most appropriate owner-contractor
work relationship from the five alternatives (OP, OP/CI, OL/CP, CP/OI and
CP), is based on the overall strategic objectives of the company. For example, a
strategic objective of increasing or reducing the in-house project management
staff will have important implications on the choice of an owner-contractor
work relationship.
68

On a capital project, the information pertaining to the capital


program/corporate level owner-contractor work relationship would be
available, since the capital program level application should precede the
project level application. The project management team is, therefore, required
to take into account the owner-contractor work relationship at the capital
program level, as well as the adequacy and availability of owner and
contractor resources. Based on these considerations, the Work Relationship
Assignment Worksheet is completed in this step.
5.1.6

Define the Role of the Supporting Participant


The supporting participant refers to Input in OP/CI and CP/OI types

of relationships, and the Lead in the OL/CP type of relationship. Several


applications of the original OCWS process have identified the need to define
the Input and the Lead as a crucial aspect of this process. The Support
Role Definition Worksheet is created to address this need. This worksheet is
completed by identifying specific functions from the Competency Definition
Worksheet, that the supporting participant in the relationship is expected to
perform.
5.1.7

Estimate Owner Resources


Owner resources are estimated in terms of work-hours and the

corresponding Full Time Equivalents (FTEs) of the expected contribution of


the owner to the competency being considered. The FTEs are estimated on an
annual basis at the capital program level. For a specific capital project, these
estimates can be made for the entire project effort, on a project-by-project basis.
The Full Time Equivalents Worksheet is completed using this information.

69

5.1.8

Determine Owner-Contractor Work Relationship(s) Over Various


Project Phases
The owner-contractor work relationship is documented phase-wise in this

step. It is only necessary to carry out this step at the project level. It enables the
user to incorporate the time element into the project level process, by making
changes in work relationships where necessary, during the project life cycle. It
is important to consider the impact of the potential project execution strategy
while deciding on an optimal owner-contractor work relationship for various
phases of a capital project. Project execution strategy consists of three major
elements. They are the organizational relationship (one-off, repeat business,
alliance/partner), project delivery approach (design-build, design-bid-build,
single or multiple contractors) and the type of contract (lump-sum, cost plus
incentive/fee). The decision regarding project execution strategy is based on
the relevant company policies and procedures, strategic objectives of the
capital program, project scope, project objectives and project success factors.
The Project Work Structure Worksheet is completed in this step, based on the
Competency Classification Worksheet and the Work Relationship Assignment
Worksheet, and the project execution strategy. The completed Worksheet
serves as a framework for assigning roles and responsibilities to individual
project team members in the project execution plan. The assignment of phasewise work relationships must, therefore, take into consideration that one
individual/team may perform several competencies that are related, or require
the same skill-base.
5.1.9

Review for Alignment


The objective of alignment review is to assess the suitability and

effectiveness of the overall owner-contractor work structure, and the


individual work relationships assigned to each competency. It could be
conducted periodically for the entire capital program. On a specific capital
project, it is recommended that the review is conducted at the end of project
70

development, and at the completion of the project, as part of the postcompletion project evaluation. The alignment index is calculated separately by
each stakeholder, by completing the Alignment Worksheet. The variation in
the index calculated by each stakeholder gives an indication of the agreement
or disagreement among the stakeholders, on the sourcing and the work
relationships that were used. This information constitutes valuable input for
future determination of competency sourcing and work relationship decisions.

5.2

OCWS Process Implementation


The steps described in the preceding paragraphs serve as a part of the

organizations strategy for developing and executing capital projects. Although


this process is universally applicable to nearly all types of capital projects,
some steps and the sequence of carrying out the steps in the process may
require modifications, depending on the needs of a particular application and
the operating style of the user organization.

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72

CHAPTER 6: CONCLUSIONS
The following conclusions of the case study phase of the research are
indicative of the readiness of the modified OCWS process for a detailed
validation, to be performed in a subsequent research effort.
1. The process provides a useful mechanism for generating discussions on
strategic classification of capital project competencies as core and noncore, and for determining the most appropriate sourcing strategy and
work relationship for each competency.
2. In order to increase the effectiveness of process implementation, it is
important to define and document the Input and Lead roles in
terms of functions and capabilities required of the organization that
provides the input or lead.
3. The process works very well for creating a common language based on
project competencies, functions and critical capabilities. Therefore, it
provides an excellent tool for communication when the project
participants come from diverse backgrounds and their understanding of
project development and execution process differs significantly.
4. The process is particularly suitable for assisting management when
structuring a capital projects organization, since it helps decisionmakers conduct a review of the organizations competencies and align
them with the strategic objectives of the company and the business
units.
5. The process provides a mechanism for assessing alignment within the
owner organization, and also between the owner and other
stakeholders.
6. The effort required for successful implementation of the process varies
depending on the expectations of the user from each implementation.

73

7. Implementing the OCWS process involves continuous resolution of


differences between members of the implementation team, and
alignment with strategic directives of top management. Therefore,
facilitation by an unbiased facilitator who is thoroughly knowledgeable
about the implementing organization can greatly enhance the
effectiveness of the effort.
These conclusions provide valuable input for making improvements in
the CII implementation resource that was published in 1997 (CII, 1997). The
potential improvements that were identified in this research could enhance the
value of the OCWS process in the following areas: (i) ability to assist owner
companies in outsourcing decisions; (ii) ability to assist owners and contractors
in the formation of optimal work relationships based on capital project
competencies; (iii) potential to address the problem of loss of knowledge and
expertise in capital project development and execution, in the form of
retirement and losing people to other companies; and (iv) ability to assist
companies in the formation of strategic alliances.

74

REFERENCES
Gibson, G.E., Davis-Blake, A., Broschak, J.P., Rodriguez, F.J. April 1999.
Owner/Contractor Organizational Changes: Phase II Report, Center for
Construction Industry Studies, University of Texas at Austin, Report 1.
Construction Industry Institute (CII). April 1997. Owner/Contractor Work
Structure Process Handbook. CII Implementation Resource 111-2.
Drucker, Peter F. September-October 1994. The Theory of the Business.
Harvard Business Review.
Patil, Shekhar S. August 2000. Optimal Owner Contractor Relationships Based
on Capital Project Competencies. Doctoral dissertation (In Print), Texas
A&M University.
Sullivan, G.R., Yupari, M.A. and Anderson, S.D. 1996. Owner/Contractor
Work Structure: A Process Approach. Report to the Construction
Industry Institute, University of Texas at Austin, Research Report 11111.

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