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Given the unique requirements of large scale and mega projects, the benets of early formal risk management are many; a few more tangible benets are listed below: Selection of most appropriate contract form Establish optimum contingency strategy Establish most appropriate risk distribution Reduced premium for insured risks Reduced disputes Increased stakeholder awareness Increased certainty of successful projects
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PricewaterhouseCoopers LLP
Getting started
PwC has developed a methodology and a set of tools that help us move easily from risk assessment to controls to reporting and remediation. These principles can be tailored to any size of company or project and any size of exposure. Our experienced construction and controls specialists have advised numerous clients undertaking major projects with all aspects of the control environment. Using the risk management framework illustrated below, we separate the project into a number of elements. Organizational frameworkincluding the project organizational framework and structure, oversight, roles and responsibilities of key members of the project management team and skills gaps. Systems and technologythe tools used to support project control and management functions, relevant enterprise wide and corporate systems. Procurement and contract managementincluding contracting strategy, procurement methods for vendor contracts. Evaluate vendor and contract management practices and processes. Scope and change controlevaluate how changes to scope are managed, controlled and approved including the methods of costing change; analyze how the changes are monitored against budget. Financial managementincluding estimating, budgeting, forecasting, monitoring actual spend against budgets and payment application approval process. Schedule managementassess what control processes and procedures are in place to guarantee schedule accuracy and completeness, what methods are used for progress measurement, and how schedule issues are managed. Issue and risk managementincluding identication, analysis, mitigation planning and monitoring/control, as well as the tools utilized to administer and manage risk. Communication and reportingincluding internal and external communication tools, reports, status updates, project issue tracking and reporting methods. This element includes the quality of reports provided to the regulator.
Project management plan and stafng External contracting options Denition of project elements and benets Capital budgeting and ratemaking approach Project schedule requirements Project purpose funding & approval Vendor qualication RFP process EPC contract evaluation Design project components (phase 1 transition plan) Cost & schedule forecast Baseline project schedule (WBS & predeployment schedule)
Project elements
Scope & change management Cost management Schedule management Business systems & technology Risk & issues management Communication, reporting & regulatory requirements
Business needs Integration & executive oversight assessment & technology framework
Continuous improvement and reasonableness reviews Conrm issue resolution Project close-out performance Ongoing issue management process Financial reporting
Project risk & issue Risk & issue tracking & resolution management planning Project reporting requirements (project communication strategy) Project status and regulatory lings Project cost, schedule Project quality & budget variance performance
Schedule analytics
To achieve quality and transparent reporting, schedule analytics should be employed and balanced with hands-on experience. Quantitative schedule analysis is used in mega project management to evaluate the integrity, nature and compliance of the active schedules produced by the project team. Qualitative schedule analysis provides us, and our clients, insight into the contractors ability to comply with schedule provisions, accurately model the contractual scope, and transparently report intentions, critical tasks, interface dates and milestones. In short, it provides timely reporting of progress actually achieved. Over the counter software compares two schedules or updates and provides diagnostic and integrity reports based on changes made between them. PwC uses a proprietary tool to extract data from Primavera P3/P6 databases and organize into a manageable transparent reporting format. Results of the analysis provide an indication of: The underlying schedule design and integrity; The dynamic nature of the project and supporting schedules; a comparison of any individual schedule against the entire schedule catalogue; and A comparison of the schedule catalogue and trends against a number of relevant industry standard metrics. A quantitative analysis should not be considered in isolation and should form part of an overall schedule assessment that includes an evaluation of the general control environment, the nature of the schedules and the underlying processes and procedures. PwC analytics tracks parameters, such as duration variance, (see bottom left) as well as several other integrity and performance indicators: Constraint analysis Mandatory constraint analysis Free oat constraint analysis Open end analysis Criticality summary Float density analysis Duration variance When combined with our qualitative analysis, our schedule analytics provides our clients with the transparency and information needed to determine if the information provided is accurate, reliable and credible for the purposes of critical decision making. Duration variance
Description This chart illustrates the difference between Actual Durations and Original Durations for a number of schedules. Observations The curves generally illustrate lower actual durations than planned. This is a good indication that schedules are not overly aggressive and may be achievable. However, it may also indicate embedded activity contingency. Recommendation Duration variances should be monitored. The TFA2 and TFA8 schedules show high variability in original and actual durations and should be further investigated.
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0% -40
TFA2 TFA3 TFA7
-30
TFA8 TFA12
-20
-10
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40
Notes
This analysis is performed on activities (Task Dependent), with an Actual Duration greater than 0 and with a Completed activity status.
Often projects require re-baselining. Too often contractors attempt to use re-baselining as a technique for sequestering oat, or preventing comparison of actual performance against original baseline, or intended performance. Criticality summary provides visibility as to which areas of a project, program have oat. Float is an integral part of critical path method scheduling and project management, and is a relative, quantiable value which can and should be treated as a resource, like money. Time is a nite resource, which can be used to:
identify slippage that is occurring to an activity or sequence of activities; identify critical paths, sub-critical paths or concurrent critical paths; allow re-sequencing of activities to mitigate preexisting delay; identify areas where acceleration will most efciently benet the project; and allow re-sequencing of activities to reduce or avoid disruption due to discontinuity of work, adverse weather or seasonal conditions.
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Constraint analysis allows our team to identify manipulation of the schedule and systematic optimism bias that are preventing true critical paths to emerge and be managed by the project team. Float can easily be
manipulated to enhance a contractors ability to gain an extension of time for completion through the use of various oat suppression techniques, for example: Preferential logic;
Excessive lead/lags; Excessive use of date constraints; Zero total or free oat constraints; and Extended activity durations.
Altering activity durations or historic as-built start/nish dates is the simplest method of oat sequestering. It is also the simplest to detect, but requires diligent adherence to schedule management and review procedures.
PwC can address a wide scope of project risks as needed through our global network of CP&I professionals.
Program governance, fraud, and ethics Project management and project controls Risk management, security and safety Managing cost and schedule Technology design and implementation Public-private partnerships Country-specic risk Impact of government stimulus funds Regulatory requirements Environmentally safe construction
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Advice to plan, manage and deliver large scale individual projects for the Engineering, Procurement and Construction sectors
Program design Project structuring & nancing including: Specication Risk analysis Contract structuring Financial structuring Procurement strategy Advising on debt/equity, restructuring and tax advice Independent and ongoing evaluation of risk, project governance and control structure Monitor and assess project risk and controls structure on a periodic basis Evaluate risk management processes Perform ongoing metrics evaluation and trend analysis focusing on project completion Provide observations to senior management regarding the strengths and weaknesses of the project governance as compared to best industry practices Identify control gaps and assist in development of recovery plans Serve in an ongoing advisory role to senior project management to identify issues, trends, and potential mitigating actions Provide periodic reports to document observations and mitigating actions taken by the project management team Contract administration support Review control structure to monitor and evaluate data supplied by vendors for completeness, accuracy, and compliance with contract terms Provide outside expertise to support dispute identication and resolution process Provide specic contract audit support Research industry operating experience and provide subject matter expertise Regulatory support Review and advise on monthly status and semi-annual construction monitoring lings (consistency, completeness) Periodic review of coowner reporting for consistency and accuracy Evaluation of decision support criteria available for regulatory review Review control processes to ensure adequate information is gathered to support required audit trail and validation Provide support on discovery requests from regulatory agencies Provide expert witness testimony in regulatory proceedings Project execution support Provide subject matter expertise to monitor and advise in the area of vendor quality oversight such as prototype testing, acceptance criteria, documentation requirements, etc. Provide subject matter expertise to monitor and assess the schedule performance of the project Monitor and evaluate the logistics plan for the project Contract reviews Regulatory support Internal Audit support/ advice Asset management and benet realization Disputes and investigations
PwCs CP&I practitioners have a broad base of experience in domestic and international capital projects including:
Airports Power plants Pipelines Processing plants Manufacturing facilities Transportation projects Medical facilities Mining (exploration and production) IT system development and implementation Oil reneries and off-shore platforms Dams Ofce and retail buildings Sewage and water treatment plants Electric transmission and distribution Reneries Sport complexes Correctional facilities
Stephen Lechner is a Principal in PwCs Capital Projects & Infrastructure practice and is based in San Francisco, California. He is experienced in providing cost and schedule analysis, project management consulting, economic and cost accounting analyses and general consulting for clients in design, construction, environmental, energy, manufacturing and other commercial industries. Steve has been retained as an expert on cost, schedule, performance and regulatory issues related to major capital projects and other programs in the US, Canada, Hong Kong, Mainland China, Australia and the Philippines.
Stephen Lechner
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Mark Rauckhorst
Mark Rauckhorst is a Managing Director in PwCs Capital Projects & Infrastructure practice in Atlanta, Georgia. He is a nuclear engineer with over 28 years of engineering, program management, controls development, and utility construction experience on a variety of major capital projects. Mark has advised clients and led the implementation of Project Management Organizations focused in the environmental, construction, energy and utilities sectors. These programs included the design and implementation of fully integrated project and program control systems.
Tony Caletka is a Managing Director in PwCs New York Metro Capital Projects & Infrastructure practice. He has 23 years of experience providing program, project, and construction management advice to clients on large capital projects as well as expert witness and conict resolution services to the legal industry as a subject matter expert on construction related issues. He is a certied construction manager (CCM), professor at NYU-Poly School of Civil Engineering, is an experienced arbitrator, author, recognized international expert in CPM scheduling and project controls and has worked on large scale infrastructure and mega-projects, including hydro-power, nuclear, rail, stadia, ports and tunnels. He has experience working throughout the US, Europe and the Middle-East, providing clients with the benet of his knowledge of, program management, project controls, project governance best practices and dispute avoidance and resolution.
Tony Caletka
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PricewaterhouseCoopers LLP
Major LNG facility constructor Evaluation of global LNG facility construction program
PwC provided continuous external project assessment services to a major LNG facility constructor in relation to its LNG construction program. To date PwC has completed project assessments on projects in China, United Kingdom, Peru and Angola. The project assessments have involved comprehensive assessment of the project control tools implemented on projects related to cost, time and change control to identify areas of risk and advised on opportunities for performance improvement.
Condential Southeastern US public utility Capital project risk management and regulatory support
PwC has been acting as an independent advisor to a utility client to assist them with establishing, monitoring and testing the project controls for multiple power plant construction projects (including two new nuclear units and a steam generator replacement project at an operating nuclear plant). This included advising them regarding the creation of a framework within which to manage the projects strategic elements and associated risks. Our work also involved helping establish an organizational framework and procedural structure and approach for categorizing the strategic elements, establishing processes for documenting risks, creating mitigation plans, and conducting risk assessments. PwC also advised the Utility in its evaluation of bidders and its estimating approach for one of its nuclear projects and performed a comprehensive evaluation of the commercial terms and conditions of an EPC contract for a major power plant repowering project. On these matters, PwC continues to act as an independent advisor to the utility, providing periodic audits, evaluating contractor and regulatory reporting, advising senior utility executives regarding commercial and regulatory risks, and performing periodic testing of project control tools and procedures in place for the various capital projects.
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North American gas company contract reviews Contract cost effectiveness review
A large integrated oil & gas company was seeing substantial cost increases and margin pressure due to resource constraints and greater service and construction company market power. In addition, costs associated with construction projects, new gas discoveries and more technically challenging extraction requirements were increasing. This company was also concerned that its existing cost management and control strategies were no longer sufcient to combat the external cost pressures and trends within the sector. No common framework to manage contractor costs resulted in inconsistencies and a lack of role clarity and accountability. Our team performed a Contract Effectiveness Review for key suppliers to assess contract performance and identify overcharges, off-contract/non-compliant spend, abuses by contractors due to vague contract language, and other non-compliance issue. Key components of the Contract Effectiveness Review included: contract compliance analysis; contract spend analysis; invoice analysis; contract user interviews; contract management assessment; and procurement to pay controls review. The contract compliance analysis identied $12 million one-time cost recovery opportunities to be pursued with contractor and suppliers. An additional $17 million cost avoidance recurring opportunity was identied for capture by improving the companys contract management processes and controls within the companys procure to pay cycle. Non-nancial benets included: immediate cost control stabilization; improved understanding of contracts and third-party value; clarity of contractual cost drivers; transparent contract management information to simplify decision-making process; and better resource allocation accountability.
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PricewaterhouseCoopers LLP
Major oil company Development of program controls framework for $8 billion oil project
PwC is currently providing capital project advisory services to a Major Downstream Oil and Gas client who is undertaking a multi-billion dollar project to increase its production capacity. The project is high prole and a similar such undertaking has not occurred in North America in the past 30 years. PwC was retained to provide subject matter expertise on project management control tools and procedures for large-scale capital projects. Specically, PwC is assisting this client with the following initiatives: Assisting in the establishment of adequate governance, risk and compliance oversight functions Developing a Governance Framework to support the proper use of a Project Management methodology Advising client on program management standards and controls; Integrate existing client processes with common practices found in similar large scale capital projects; Periodic review of program / project scope, cost, and schedule controls and provide observations and recommendations; Develop Program Decision Board to assist in the evaluation of moving from one stage of the project to another; Develop program management metrics and Key Performance Indicators; Develop program reporting requirements for client management and executive teams; Review tender evaluation processes and provide recommendations for Procurement and Contracts work stream; and Develop document management plan and system. An example of our detailed work efforts on this engagement involves the development and management of the Project governance framework. The framework includes a system of processes and tools created to ensure a proper project management methodology is used. It leverages the current stage gate approach used by the client to track and record progress towards the completion of the entry and exit criteria for each phase of the project.
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Representative Project Experience Below are additional examples of our direct experience supporting our clients in a variety of engagements. Further client experience can be provided upon request.
Company
Multi-state electric and gas supplier
Project type
Description
Summary
PwC evaluated the policy, procedures and control environment supporting a multi-billion dollar portfolio of construction projects for this large US utility company. PwC developed a series of reports detailing areas of potential risk in relation to these areas and in addition, PwC advised the client on the development of a governance and oversight organization, development of an enterprise risk management system and supported internal audit with the development of construction audit plans. PwC provided continuous external project assessment services to this company in relation to its construction operations. These assessments involved comprehensive evaluation of the controls in order to identify areas of risk and opportunities for performance improvement. PwC also evaluated their global project management functions including Global Project Controls assessing the functions effectiveness and providing recommendations for performance improvement. The Global Engineering review included assessing performance and effectiveness of global engineering capabilities related to large scale Engineering Procurement and Construction programs. Policies, processes and procedures associated with engineering management were assessed. PwC presented recommendations to enhance and/ or standardize process and procedures to help engender consistently high performance across all global engineering ofces. For this $2.3bn construction project, PwC provided a team of experienced program and project management professionals with deep expertise in facilities planning and construction, risk and portfolio management and performance management. Specically, PwC: Offered disciplined and comprehensive portfolio and program management support; Designed and implemented the appropriate project management methodologies and tools; Developed and managed a master schedule; Developed a quality control system and culture that led to both immediate results and instilled on-going process improvement; Developed a comprehensive risk management approach to minimize the impact of risks.
Energy/Utilities Review and assess potential process, procedural, controls and organizational risks
A company Engineering & specializing in Construction the ngineering and construction of large steel structures
Project assessment and recommendations to enhance and/or standardize processes and procedures
Government agency
Government
Project management
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PricewaterhouseCoopers LLP
Company
A major US utility company
Project type
Description
Summary
A major US utility was nalizing its plans to construct new plants costing several billion dollars. Working in a highly regulated environment, the client recognized the importance of a strong control environment to manage the project. The client requested a governance readiness review to determine whether its systems and controls could support a project of this magnitude and complexity. The PwC team delivered a comprehensive picture of the projects risks and controls throughout different stages of the projects lifecycle. We also worked with the client to set up the control environment, which involved leveraging data management specialists to develop a system to track the project estimate to complete. We helped our client build a risk and issue management system, develop a master schedule of all project work, and establish a reporting framework for communicating the status of key project metrics to management and regulators.
Project management
The client's rapid growth had led to a lack of consistency in how it managed development real estate projects. Based on PwC's review and recommended solutions, the client is now benetting from additional efciencies due to increased visibility and improved information ow throughout the company. Regional ofces are better aligned under a cohesive, consistent project management governance framework, and new reporting metrics give executives real-time insight into their operations. As a result the company has improved control of projects and is better equipped to foster further growth under a new, more structured approach to project management. PwC worked with this utility company during the initial stages of a major engineering and construction project, to repower a gas red power station. PwC helped the company address and craft the project delivery model and assisted in drafting the details of contract requirements and setting the proper expectations and terms. PwC also assisted this client with two other major capital engineering and construction projects from a project management and governance perspective which included providing detailed recommendations for performance improvement in the areas of organization, people, policy and procedures and systems. Further, PwC assisted with the strategy and development of standardized approaches to the execution of large scale engineering and construction projects at the portfolio level.
An integrated Energy/Utilities Project delivery model, energy company contract requirements and construction management
Energy/Utilities Capital project advisory PwC provided capital project advisory services to a major downservices stream oil and gas client who is undertaking a multi-billion dollar project to increase its production capacity. The project is high prole and a similar such undertaking has not occurred in North America in the past 30 years. PwC was retained to provide subject matter expertise on project management control tools and procedures for large-scale capital projects.
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PwC contacts
Daryl Walcroft San Francisco, CA +1 (415) 498-6512 daryl.walcroft@us.pwc.com Steve Lechner San Francisco, CA +1 (415) 498-6596 stephen.p.lechner@us.pwc.com Mark Rauckhorst Atlanta, GA +1 (678) 419-2087 mark.rauckhorst@us.pwc.com Tony Caletka New York, NY +1 (646) 471-5405 anthony.caletka@us.pwc.com
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www.pwc.com/us/capitalprojects
2011 PwC. All rights reserved. PricewaterhouseCoopers refers to PricewaterhouseCoopers LLP, a Delaware limited liability partnership, or, as the context requires, the PricewaterhouseCoopers global network or other member rms of the network, each of which is a separate legal entity. This document is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. AT-11-0237