00 Preface

I am writing to give the reader new to project management the best possible framework for success, and to prod the experienced project manager into thinking harder and deeper about what really works and why.  I am fascinated by the process in which good and true thinking, courage and competence,  produces results.  Keeps its promises.  Designing and building great things is one of life’s most noble efforts, and it ought to be fun and profitable.

I present a classic (Exxon/Mobil (1), Chevron, IPA) project management framework which has worked well for me.  The new twist is to integrate into that framework stochastic probability tools to better deal with uncertainty and risk, inherent in every such endeavor.

Let’s design and build a project.  And let’s do it right.

 

Project

 

First, exploring terms.

What do I mean by a project?

Here are the quick hits for “What is a Project” on google:

∙    Noun: An individual or collaborative enterprise planned and designed to achieve an aim.
Ref:  Google Search: What is a Project?

 

∙    Project management is the discipline of planning, organizing, securing, and managing resources to achieve specific goals. A project is a temporary endeavor with a defined beginning and end (usually time-constrained, and often constrained by funding or deliverables),
∙    [1] undertaken to meet unique goals and objectives,
∙    [2] typically to bring about beneficial change or added value. The temporary nature of projects stands in contrast with business as usual (or operations),
∙    [3] which are repetitive permanent, or semi-permanent functional activities to produce products or services.
In practice, the management of these two systems is often quite different, and as such requires the development of distinct technical skills and management strategies.
Ref: Wikipedia: Project Management

 

∙    A project is generally defined as a programme of work to bring about a beneficial change and which has:-
∙            a start and an end
∙            a multi-disciplinary team brought together for the project
∙            constraints of cost, time and quality
∙            a scope of work that is unique and involves uncertainty
Ref:  quote

 

For me, I like this working definition:  You’ve got a project whenever it is not immediately obvious what to do, how to do it, and what people you are going to need to sign up and to coordinate to get it done.

Some of the projects I intend to discuss include the Pyramids in Egypt, the Empire State Building, an Exxon Polyethylene Plant  I helped buid in modules in Korea, and home remodels – one illustrated by Frederick Brooks (“The Mythical Manmonth”) in his book: “Designing for Design”, and one of my own home in Montana.

I also compare and contrast lessons learned from four companies (Suncor, CNRL,Petro-Canada, and Exxon-Imperial) for which I helped manage four grass roots builds and two fire rebuilds  in the Canadian Oil Sands.  Scattered are also lessons from planned and emergency turnarounds I ran for Chevron, and from shorter term consultancies for new projects in Italy, England, Ireland, Brasil, Bolivia, Chile, offshore Nigeria, the US Gulf Coast and California.

 

Doing it Right

 

Now for the harder part.  What is meant by “doing it right”?

In the above, we see goals like: “acheive an aim”, “acheive specific goals”, and “bring about beneficial change”.  Nice.  But let’s go deeper.  Starting with the end in mind is always useful.

Doing it right means maximizing PEVA (a project specific version of EVA) in a way which solidifies and strengthens relationships with the contractors and suppliers you will continue to do business with on future projects, and also mentors the up and coming technical and project people on your staff.  I guess the corollary is that doing it right includes doing what’s good.

PEVA? EVA?

We will get into details later, but Economic Value Added (EVA) is a trademarked measure of how much a company’s returns exceed those required by its (intellectual and) financial capital. It therefore tells one how much wealth the company has created.

I propose the term PEVA as a project specific non-trademarked version predicated on the bones of EVA.  PEVA models the discounted present value of the project’s future earning stream less the cost of capital used to build it.  PEVA is a performance metric, not a wealth metric; it is based more on factors within the company’s control than pure market valuation, (though they should merge).(2)

The beauty of PEVA is that it is a richer metric than comparison to a project’s cost estimates and schedules, no matter how carefully they are developed.  PEVA predicts a stream of cash flow that the company should actually see, (and have available for such things as incentive bonuses…)  and it factors in whether the project has been clever in its design and execution, meets nameplate product rates, utilizes energy and raw materials efficiently and should even anticipate operating factor and maintenance costs.  These are things the project done right should optimize.  Current practice focusing solely against a cost estimate and a schedule may have the unintended consequence of designing and building a facility less focused on discovering and implementing the most profitable design options, less sensitive to improving earnings stream with increased operating factor and ongoing maintenance efficiencies.

 

Introducing “my posse”

 

In the process of doing it right, I am going to want to introduce you to some very successful clear thinkers about projects.

Frederick Brooks I have already mentioned, and in particular we will want to visit  his thinking on “the constrained resource”.

Ed Merrow, founder and president of IPA has will be presented along with the following quote, among my favorites regards timing:

Project systems by their nature, and especially major project systems, cannot be managed by results. Management by results is a good management consulting phrase, but it is absolutely hollow when it comes to projects. Projects must be managed by the leading indicators (3)

We will also utilize Forest D. Clark (Exxon) on cost estimating, Jamie Bent (Mobil) on planning and scheduling, including some useful “what’s normal” graphs, and personal notes from the inimitable Bill Emmons on contracting.

And the brilliant yet accessible Sam Savage is the one who inspired the “stochastic” in my title.  He and I some time ago discussed the beneficial application of probability theory, and in particular his invention of the DIST ( distribution data type – a probability matrix  that can replace averages in spreadsheet models) in regards to Project Management.  And a lot of the early thinking for this work was in preparation for a class we planned to co-teach for the Stanford Advanced Project Management Program.

 

Point of View and Emphases

 

Dealing with uncertainty is inherent in all project work, and new thinking and methodologies regards it can greatly increase success.  But…  and this is the spark of realization that drives this work… such stochastic tools are not a sauce to be added to any old project methods, they need to be integrated step by step into a solid framework.  The framework I offer is one I would consider classic, or orthodox, relying heavily on what has worked for me – Exxon project methods and procedures from their golden era (late 60′s through early 80′s), which dovetail with IPA’s best practices, both of these coupled with what I learned from a Chevron mentor who would go on to be Operations / Refinery Manager from every unit he built, hence enhancing a longer term PEVA type perspective.

You will note that I have some different emphases on managing projects than the popular press.  Of the national and international project management and construction associations I have no problem with PMI nor IPMA nor Prince nor the COAA, like a lot of what comes from the ASCE and am particularly impressed with CII.  And I do not go along with those who think the scheduling program Primavera in geek hands without project perspective inevitably leads project awry, rather I think it is a devil easily tamed.

You will see more of an emphasis on people than you might be used to.  In particular I am enamored of the concept of what it takes to “go pro”, how to identify pros and how to develop them.    And as in tracy Kidder’s  “The Soul of a New Machine”, the people process of “signing up” seems key.

I will discuss information theory (information defined as analyzed data):  the utility of such information is zero unless it informs a timely and beneficial management decision.  Less can be more.  Inaccurate or untimely information can be worse than none.

You will note that like Warren Buffet’s right hand man Charlie Munger I am a believer in the efficacy of properly targeted incentive plans, and in chapter x I meditate on how such can be based on PEVA evaluations.

I am also indebted to a good (late) friend at CNRL, Steve Seguin, for sharing with me what he called a Bechtel Standard: the four aspects that need to come together (in my book, at work package granularity) for success:

  1. Materials (properly marshaled, bagged and tagged),
  2. AFC drawings and specifications (at operations and maintenance reviewed quality – unlikely to change),
  3. trained, motivated, well supervised Crafts, and
  4. a well thought out Work Sequence.

It’s a beautiful thing when these all come together choreographed like a ballet, but even when they come together rough and tumble like a rugby scrum it works.

So, let’s design an build a project.  And do it right.

 

Footnotes:

(1) Like Exxon/Mobil, but faster on our feet, closer to the customer.  This was the rationale for the CED organization within Exxon when I joined it: make use of the incredibly rich tools developed by Exxon Research and Engineering, but execute without their perceived bureaucratic stodginess.

(2)  Regarding the statement that the PEVA performance metric should eventually converge with the MVA wealth metric.  Financial theory – that is, the discounted cash flow (DCF) model – says that the intrinsic value of a firm equals the present value (also known as “discounted value”) of its future free cash flows. In other words, if we can predict early, and then over time measure, the future free cash flows, they can be discounted into a single present value.  The Market Value, MVA, should theoretically find this value, but a lot of market factors are outside the control of the company.

(3) -Edward W. Merrow, founder and president of Independent Project Analysis, Inc. ( IPA), “Proceedings of Government/Industry Forum: The Owner’s Role in Project Management and Preproject Planning” (2002) Committee for Oversight and Assessment of U.S. Department of Energy Project Management, National Research Council, ISBN 0-309-08425-3 here.

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