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Planning and Execution of the
Investment Project (3 cr)
Project Implementation Methods
24.10.2015
Introduction
• the project implementation policy or –method is a model which describes how a single project will be implemented
• in addition to main models there are mixtures of all these and also different names given to these mixtures or even to same methods
• money is the main driver in selection of the implementation method
• different players in the project favour different implementation policies but also their main driver is money
• end of the day its the client who decides which way to go and will also take the consequences
• there is no one single policy or method that is superior to others in all cases. The evaluation have to be done case by case
• selection of any policy or method will not make any work to disappear but it will cast the corner stone for project success or failure
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Decision Parameters
What could be parameters
for the
project implementation method?
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Decision parameters
• Financing of the project
• Who has the main process core knowledge
• Experience of similar size projects
• Previous experiences of methods
• Own project personnel
• Investment strategy
• Main challenge – Project Driver
• Need to use local suppliers, contractors, service providers
• Availability of above
• Project complexity
• Location (legal, tax, unions, language)
• Risk taking ability
• Need to know actual costs
• Ready made or tailored ?
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• EPCM = Engineering -Procurement -Construction Management
• EPS = Engineering -Procurement -Supervision
• EPC = Engineering -Procurement -Construction
• OB = Open Book
• ESS = Extended Scope of Supply
• BOO = Build-Own-Operate
• BOOT = Build-Own-Operate-Transfer
• BOT = Build-Own-Transfer
• DB = Design-Build
• DBO = Design-Build-Operate
• DBFO = Design-Build-Finance-Operate
• FBO = Finance-Build-Operate
• FBOM = Finance-Build-Operate-Maintain
Implementation methods, examples
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EPCM – Principle Structure
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Owner’s
Project Team
EPCM-Contractor
Project Team
Suppliers
Vendors
Sub-Contractors
Supply Contracts
Manage, Control, Supervise
Se
rvic
e C
on
tract
EPCM – main characteristics
• Project owner remains fully responsible for the project
• EPCM-contractor is service provider to support owner in
– Project management
– Controlling and supervision of the sub-contractors
• EPCM-contractor is acting ”on-behalf” of owner
• All contracts in the project are signed by the owner and
the resp. supplier/vendor/sub-contractor
• Owner has the right/obligation to take final decisions
• Project owner bears all risk regarding schedule and
cost, but benefits also from gains
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EPCM Project Organisation
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Project Controls
Manager
Construction
Manager
Engineering
Manager
Project Manager
Commissioning
Manager
• EPCM Risk Man.
• EPCM Contract-
Management
• Change/Claim Man.
• Cost Control
• Scheduling
• Construction Planning
• Constr. Management
• Constr. Supervision
• Field Engineering
• QA/QC on Site
• HSE on Site
• Commissioning
Planning
• Training
• Test Run and
Start-up
• Process Testing
• Eng. Coordination
• Detail Engineering
• Engineering Tools
Project Office QA/QC/HSE Manager
Client Project Manager
Client Project Owner
Client Plant Manager
Procurement
Manager
• Purchasing
Planning
• Purchasing
Control
EPC – Principle Structure
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Owner’s
Project Team
EPC-Contractor
Project Team
Suppliers Vendors Sub-Contractors
Supply Contract
Sub-Contracts
EPC – main characteristics
• EPC-Contractor takes over full responsibility for the
project execution through a fixed price contract
(Lump sum turn-key (LSTK-) contract)
• All Sub-Contracts in the project are placed by the EPC-
Contractor with the resp. supplier/vendor/sub-contractor
• Project owner has limited rights to take decisions after
signature of the EPC-contract
• Risks, but also possible gains are transferred to the
EPC-Contractor
• To cover such risk, EPC-Contractor will include a risk
provision/contingency in his fixed price
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EPC Project Organisation
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Project Controls
Manager
Construction
Manager
Engineering
Manager
Project Manager
Commissioning
Manager
• Risk Management
• Contract-
Management
• Change/Claim
Management
• Cost Control
• Scheduling
• Construction Planning
• Constr. Management
• Sub-Contract Man.
• Constr. Supervision
• Field Engineering
• QA/QC on Site
• HSE on Site
• Commissioning
Planning
• Training
• Test Run and
Start-up
• Process Testing
• Process Eng.
• Plant Engineering
• Mechanical Eng.
• E+I Engineering.
• Architecture
• Civil Engineering
• Struct. Steel Eng.
Project Office QA/QC/HSE Manager
Client Project Manager
Client Project Owner
Procurement
Manager
• Procurement
Planning
• Purchasing
• Expediting
• Logistics
Supervisory Board
Project Sponsor Internal Audit Team
Comparison EPCM vs. EPC
Advantages/Disadvantages
of the two methods ?
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Comparison EPCM vs. EPC
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Disadvantages
• Compex project structure => incresed coordination effort
• No cost cap for owner
• Financing more difficult
• Full process responsibility and project risk remain with the owner
Disadvantages • Need for early detailed specification of
technical solution
• Owner’s participation is limited
• Owner will still suffer from bad performance of contractor
• Contractor may compromise on quality in order to save cost
EPCM EPC
Advantages
• Owner keeps full control on the project
• Owner benefits from cost savings
• Transfer of certain risk to several parties
• Selection of Suppliers/Sub-Contractors on
basis of detailed specification
Advantages
• Full project responsibility with contractor
• Clear structure – single point of contact
• Completion guarantee
• Fixed lump sum price
• Sound basis for financing
Comparison from Owner’s point of view
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EPCM EPC
Need for early decisions
Flexibility for modifications
Owner’s influence possibility
Cost Budget
Transparency of cost
Financial risk exposure
Risk provision
Overall project risk
High Low
High
High
Medium
High
High
Low
Low
Low
Estimate
Only realized risk
Medium
Fixed lump sum
Low
Incl. in contract price
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PROJECT IMPLEMENTATION METHODS
2 3 4 5 3 4
Project Management and Engineering
Main Machinery and Equipment (Supply and Erection)
Auxiliary Equipment
Piping, Electrical, Automation
Civil Construction Work
Main Equipment
Suppliers
EPCM Method Multi-package
EPC Method
and BOP EPCM
1 1 2
Civil construction could
be included in or excluded
from the EPC packages
3 2 1 2 1
EPC Method
(turn-key)
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Implementation Methods
Project Owner
Engineering
Consultant
Main process
machinery suppliers Civil Contractor(s) MEI-Contractor(s)
EPCM – Engineering, Procurement and Construction Management
Standard machinery
and material suppliers
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Implementation Methods Multi-package EPC – Engineering, Procurement, Construction
Project Owner
Engineering
Consultant
Main process
machinery suppliers Civil Contractor(s) MEI-Contractor(s)
Standard machinery
and material suppliers
Standard system’s
suppliers
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Implementation Methods
Project Owner
Engineering
Consultant
Main process
machinery suppliers Civil Contractor(s) MEI-Contractor(s)
Full EPC
Standard machinery
and material suppliers
Standard system’s
suppliers
TK Contractor
Who carries the Risk
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Capital
Ris
k P
rem
ium
s
multi-package
EPC EPC
Risks moved to Turnkey Contractor
Risks moved to Owner
EPCM
Method
Sa
vin
gs
Conclusion
Succesful project implementation
is all about
Management of Risk
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Select project implementation method so,
that risks are allocated to such party,
which is best positioned to manage it !
Thank you!
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CONTACT:
NAME: Jarno Peltonen
TITLE: Director, Pulp Technology
MAIL: jarno.peltonen@poyry.com
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