Engineering procurement and construction
|✅ Paper Type: Free Essay||✅ Subject: Project Management|
|✅ Wordcount: 5410 words||✅ Published: 1st Jan 2015|
Integrated Project Teams With Multi Office Execution, A Study Of EPC Projects
Engineering procurement and construction (EPC) projects in the Canadian oil and gas industry have gained significant economic importance due to rising hydrocarbon commodity price. The oil and gas industry in Alberta has planned to spend approximately 142 billion dollars (Government of Alberta, 2010) within the next two decades on capital projects. Alberta has recognized the shortage of human resources during peak economic activities, to execute mega capital projects. Multi office execution (MOE) is a way forward for all the major EPC houses in Canada to meet the demands of Clients within budget and on schedule.
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Further, it has been identified by the industry needs that integrated project teams are critical to the success of these complex oil and gas projects. In this environment, project management techniques need to be adapted to match project complexity. This paper will provide much insight through case studies related to project teams in multi office execution, and review the existing literature body of knowledge. An analysis is presented based on the project management knowledge areas. Recommendations are made based on this analysis.
The objectives of this paper are to review literature related to managing MOE projects and to determine the keys to success and areas that need improvement in MOE.
Alberta oil and gas industry has gained significant economic importance over the past decades. In 2010, it is estimated that the industry has an inventory of 57 capital oil and gas projects with a total value of 142 billion dollars (Government of Alberta, 2010).
Engineering, Procurement, and Construction (EPC) companies have been providing oil and gas owner companies with expertise and resources to execute these capital projects. Under current market condition, the oil and gas owner companies want the EPC companies to share more risks. More and more projects are based on lump sum and fixed-fee contracts and are executed under lower budgets and tighter schedules. To stay competitive, many EPC companies have adopted global execution business model. Work is carried out in multiple offices or even by multiple organizations (Macquary, 2003). Cost saving benefit is achieved by allocating project scopes to high-value low-cost offices in other provinces or other countries. The companies may develop a partnership with other companies with specific technical expertise or local business expertise in order to gain market share in a new or emerging market. The MOE improves resource availability under booming economy, where resource shortage becomes a significant problem in executing large projects.
Despite several benefits, MOE projects can be very challenging to manage. Although the project management methodology is applicable to both single-office and multi-office projects (Cowle et al, 1995), the multi-office projects require particular emphasis on some of the project management processes.
The objectives of this paper are to review literature related to managing MOE projects and to determine the keys to success, challenges and areas that need improvement in MOE. Interviews with project management experts from the EPC industry who have experience managing multi-billion dollar MOE projects provided insights into MOE best practices. The interviews were designed based on project management knowledge areas established by Project Management Institute or PMI (Project Management Institute, 2004) in order to present the findings using internationally accepted framework. These knowledge areas are: project integration management, project scope management, project time management, project cost management, project quality management, project human resource management, project communication management, project procurement management, and project risk management.
The paper is organized as follows. Section 2 reviews literature related to MOE. Section 3 briefly describes methodology and the MOE projects studied in this paper. Keys to success and challenges for MOE are discussed in Section 4. This is followed by conclusions in Section 5.
Multi-Office Execution Concepts
Engineering and Construction Risk Institute (2009) defines two main elements of a multi-office executing organization: 1) Lead office – which is an office that provides leadership and has overall responsibility for the execution of the project; 2) Support office – which is an entity participating in the project under the overall management and supervisory control of the lead office.
The multi office execution strategy is found to be popularly framed within concepts such as virtual teams and offshore outsourcing (off shoring). A common definition available for a virtual group/team is a group of geographically and temporally dispersed individuals who are assembled via technology to accomplish an organization task. Joseph (2005) specifically defines Global Virtual Engineering Team (GVET) as a group of geographically dispersed individuals organized through communication and information technologies that need to overcome space, time, functional, organizational, national, and cultural barriers for the completion of a specific engineering task. According to Joseph (2005), the following comparison can be made between a virtual team and a conventional team. The most critical and important feature of virtual teams is that they cross boundaries of space. Whereas the members of traditional teams work in close proximity to one another, the members of virtual teams are separated, often by many miles or even continents. Although many traditional, localized teams also communicate through computerized communication media, technology such as video conferencing is typically used by virtual team members to supplement their rare face-to-face communication. In physically collocated teams, members of the team are likely to have similar and complementary cultural and educational backgrounds since they have gone through the same recruitment and selection procedures as they are employed by the same organization. In a virtual team the members may vary in their education, culture, language, time orientation and expertise. There can also be conflicting organizational and personal goals among the members of a virtual team.
Multi-office execution also can be part of off shoring when local EPC companies subcontract project activities to branches or a different company in a foreign country. Off shoring is an extreme version of outsourcing, and it refers to the transfer of production/service capacity from a site within a country to a site in another country and then importing back for national consumption of goods and services that had previously being produced locally (Goff, 2005). Off shoring business operations offer a potential for 15-20% cost savings, but further analyses show that organizations that properly plan and operate offshore initiatives can reap substantially higher rewards (Fox and Hughes, 2008). According to Goff (2005) the benefits of off shoring for large companies include: maintaining or increasing profitability by reduced labor costs if resources with the same or higher level of expertise can be obtained in the foreign countries; maintaining its competitive position or even protecting it from going out of business; and increasing the market share of a company by improving their capacity and utilizing available in-house resources to more value added ventures. Canada ranks high among most attractive host countries for companies wishing to locate abroad to improve their financial position according to the offshore location attractive index (Goff, 2005).
The multi-office execution has been made possible and successful, solely due to the advancements in the information and communication technology. With the rapid advancement of the electronic age the ability to staff a project from multiple offices has gone from a dream to a practical reality (Cowle et al, 1995). The latest developments in communication technology such as teleconferencing, video conferencing and host of other online applications coupled with ever increasing speed of data, voice and video transfer literally eliminate distance barriers. According to Macquary (2003) we are at a point in time where information technology is allowing us to change many of our traditional way of doing work. Hence it is possible to create an organizational structure agile enough to accept them and quickly apply them to add value.
MOE Driving Forces
Economy conditions are the main driving forces for the MOE strategy (Macquary (2003), Joshep (2005), Global Insight USA (2004), and Engineering and Construction Risk Institute (2009)). Under booming economy, labor shortage becomes a problem for many organizations and the MOE is a way to acquire project teams from other remote offices or even other companies. The MOE strategy is also used to add resources in order to meet tighter/compressed project schedules. On the other hand, slower economy growth demands constant vigilance over cost. Companies with global operations often allocate or outsource work to high-value low-cost offices, especially when qualified resources with lower wages are available. For instance, offices in India, China or Far East countries could be candidates for such support offices.
Company policy to gain market share is another driver for MOE strategy. Companies can setup offices in other countries or develop business partnership with local companies to capture global or emerging markets. A joint venture between companies (or even competitors) with complementing expertise to take on a project that requires diversified expertise is also another driver for MOE.
Other driving forces are: development in technology such as internet connections and other communication tools; a need to free resources for core business or higher value purposes; change in educational trend which results in smaller number of graduates in some studying fields (Joseph, 2005).
Managing MOE Projects
Engineering and Construction Risk Institute (2009) suggested issues to be addressed for MOE projects during sales/pre-execution, project mobilization, project execution, and project completion phases. Key issues are: early engagement with the client to obtain agreement to MOE and address client’s concerns; early engagement of the support offices; clear definition of scopes and responsibilities for individual offices and kick-off meetings; alignment of work processes, deliverables, and reports; selecting suitable key project roles who are opened to MOE; and communication plan.
Joseph (2005) has identified technology, management, organization, project control and team communication as important items to consider in global virtual team formation and execution. Clear and frequent communication, periodic face-to-face meetings, good communication tools and compatibility in information technology, standard work processes and communication procedures, and clearly defined scope & expectations are named as top success criteria for multi-office execution. Whereas lack of or poor communication, lack of face-to-face meetings, lack of understanding of local work practices/ cultural differences and/or language issues, lack of management involvement & experienced leadership, changes not handled properly, slow response to changes, incompatible or poor technology including hardware and software are top failure factors found within EPC industry for multi-office execution.
Chinowsky and Rojas (2003) outlined the top 10 management issues that must be addressed when initiating and maintaining virtual teams. They are categorized as Team issues and Process issues. Team issues include: initial face-to-face meetings are required to develop a sense of ‘‘team”, managers must visit remote participants during the course of the project, trust between team members is difficult to establish when operating in a virtual environment, and virtual team leaders should be selected with an acknowledgment of the unique demands placed on distributed teams. Process issues includes: project objectives must be restated and reinforced frequently to ensure that all members remain focused on a common outcome; conflicts must be addressed quickly to prevent unresolved issues from interfering with communications; discussions on decisions will be more difficult as participants continue discussions via electronic media; expectations of each team member must be stated clearly to assist the members as they work independently; team member workloads should be monitored to ensure that significant increases do not occur due to increased electronic communications; and regular training must occur equally for all members of the virtual team.
Methodology And Studied MOE Projects
The methodology used in this paper to gain insights into MOE best practices and challenges is interviewing project management experts who have experience managing MOE projects in EPC industry. The interviews were designed using project management knowledge areas: project integration management, project scope management, project time management, project cost management, project quality management, project human resource management, project communication management, project procurement management, and project risk management. The project management knowledge areas are identified by its knowledge requirements and described in terms of their component processes, practices, inputs, outputs, tools, and techniques (Project Management Institute, 2004).
The two major reasons for the projects to implement MOE strategy found in this paper are resource constraint and cost saving. All of the projects discussed in this paper were executed during the booming economy (i.e. high oil price) and manpower shortage became a problem for many projects. Therefore, the MOE beame a necessary strategy to acquire project teams with required skills from locations with more resource availability. To save cost, project scopes were allocated to high-value low-cost offices in either other provinces or other countries (e.g., India and China). Cost benefit was achieved in both cases. Some of the projects allocated “less technical” work such as cloning design work and closing project work to these support offices.
Another driving force identified is a company strategy to expand and maintain national or global operations. The MOE strategy is used to balance resource utilization. In booming economy, work is allocated to reduce workload at some offices. During an economy down turn, work is allocated to maintain support offices as it is more economical than closing the support offices and rebuilding them when demand resumes.
Engineering work is usually allocated among lead and support offices. For better coordination, a procurement organization is usually setup in the offices that perform engineering design. However, smaller projects may choose to have only one procurement organization in the lead office. Construction is mostly executed by the lead office. However, some construction scopes (e.g., fabrication and modularization programs) may be subcontracted to local or international third-parties, therefore they are considered as MOE.
Prime contract management/ legal functions are usually executed by the lead office only. Other project functions such as Project Management, Project Controls, and Document Management are executed from the lead office. However, depending on the size of the project and project strategy, these functions may also be executed from other support offices.
Keys To Success & Challenges In MOE
Further discussion on keys to success, challenges, and areas required improvement for MOE projects is divided into 9 subsections per Project Management Knowledge Areas (Project Management Institute, 2004): project integration management, project scope management, project time management, project cost management, project quality management, project human resource management, project communication management, project procurement management, and project risk management. The discussion is summarized at the end of this section.
Project Integration Management
For MOE projects, the lead office is normally responsible for developing the project charter and preliminary project scope statement. This is due to closer contact with the Client. Furthermore, at the early stage of the project, the support offices may not have been involved yet. It is important that the project management team provides MOE justification to gain support from the Client.
It is recommended that the project management plan developed during the planning phase addresses the MOE strategy including high-level justification, organization, resource utilization and scope allocation. Some projects may choose to develop a separate subsidiary plan which addresses MOE issues such as scope allocation, responsibility, and communication in more detail.
The MOE brings many challenges in monitoring and controlling project work. All offices should take responsibility for their own work but the lead office must take the responsibility to monitor and control overall project work. Managers in the lead office need to understand their roles in monitoring and controlling project work even though the work may be executed by the support offices. Basic communication approaches such as regular phone calls and VDO conference meetings and information systems that allow progress information to be collected from support offices are used for monitoring and controlling project work.
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Project changes should be managed and controlled centrally by the lead office. Changes are initiated from all offices but only the lead office should have authorization to approve changes. The approved changes need to be captured and project plans (e.g., budget and schedule) are adjusted accordingly. It is important that no office should start executing the changes before they are approved even if the changes are initiated by the Client.
Closing project is identified in this paper as one of the major challenges in MOE. Each office is normally responsible for closing the work under their scopes. However, the support offices have smaller scopes of work, therefore they usually de-staff earlier than the lead office. If the support offices de-staff before the close out is complete, the work is transferred to the lead office which may not have sufficient background understanding to properly close out the work/scope. To avoid this circumstance, the projects must plan and execute the project closing process carefully. It is also important that sufficient budget is allocated for the project closing process. Electronic archiving of project documents is recommended to facilitate the project closing.
Other challenge identified for project closing process is lessons-learned management. Lessons learned from all offices need to be captured, analyzed for follow-up actions or recommendations, archived, and internally published. Lessons learned are proprietary and required careful review before they are published to avoid any commercial or legal impacts. Some EPC companies may have a corporate function dedicated to manage lessons learned from all projects. If not, the project management team in the lead office should be responsible for managing lessons learned from all offices. As this is a part of project closing, management of lessons learned needs to be planned, scheduled and have budget provided for like other project work.
Project Scope Management
After the preliminary project scope statement is developed, the project scope must be further refined. Scope allocation among the offices is a major part of scope management for MOE projects. Depending on the types of projects, the scope can be further divided vertically or horizontally. For example, oil and gas facility construction projects normally divide scope vertically by geographical areas of the facilities while power plant construction projects usually divide the scope horizontally, by specialized technical systems such as steam lines, control systems, rotating equipments, etc. Nevertheless, the project scope should be divided in the fashion that requires as little coordination as possible. In reality establishing a balance between MOE scope division and effort to coordinate the project scopes becomes a fine art for the project management team.
Several criteria are used to allocate the scopes among the multiple offices. These include expertise and experience, cost, resource availability, and organizational strategy. The lead office is mainly responsible for scope allocation. It is identified in this paper that clear understanding of scope is one of the key elements to successful MOE. Therefore, it is highly recommended that the lead office organize kick-off meetings to engage the support offices as soon as possible in order to develop the scope definition and WBS. It is crucial that these processes are a joint effort between the lead office and support offices. This will develop a better understanding of the scope and a sense of ownership for the support offices which will later benefit the scope control process (e.g., recognizing scope changes and their impacts).
Tools that are used for scope planning are responsibility matrices that clearly indicate the responsibility among the offices at project deliverable level (e.g., division of responsibility, material assignment schedule, control and monitoring needs, etc.). Detail responsibility to verify and accept the project deliverables can also be included in the responsibility matrix. Critical deliverables are accepted directly by the lead office for review before transferring to the Client, while the other deliverables can be submitted directly by the support offices to the Client. However, the lead office has overall responsibility to ensure that the project deliverables are completed as per project scope.
The scope should be controlled centrally by the lead office as a part of integrated change management discussed in the previous section. As a result, it is important that the lead office has a good understanding and control of the scopes that are performed by all offices.
Project Time Management
Project work broken down into tangible components and assigned to a resource is essential for schedule development. Project schedules should be developed by the lead office in close communication and cooperation of support offices. The lead office usually initiates high-level schedule which contains major project milestones usually knows as master schedule, then the support offices provide detail information (e.g., activity sequence, activity resource estimating and activity duration estimating) to be incorporated into the master schedule. Once the project schedule is developed and adopted as a time management tool, activity status information required to update this schedule is collected from all offices. It is important that all offices follow the master project schedule. Use of universal scheduling tools that provides visibility to all offices particularly benefits the MOE execution.
Communicating and resolving schedule misalignments among offices is considered to be one of the challenges for MOE. Therefore, it is recommended that the master schedule control is centralized and the lead office assign personnel to coordinate schedule information from all offices.
Project Cost Management
Cost estimating is a significant activity during the early execution of the project. During the early stage the scope and responsibilities are with the lead office, therefore the cost estimating is also performed by the lead office. Early estimates are conceptual estimates with some details (e.g., major equipment cost, estimated bulk quantities and construction cost). When further design development takes place and if significant scopes are allocated to support offices, area estimators could be assigned to provide input to the lead estimating team.
Detail estimates are developed when significant engineering is completed. Input and feedback from all the execution offices are used in developing detail estimates. Once the detailed estimates are approved and implemented each support office is responsible for its scope of work. Typically, total cost management and final reporting remain the responsibilities of the lead office.
Cost control strategy can be either centralized or decentralized, depending upon the scope splits, project staffing, level of effort needed to control and report project cost. For instance, if a support office is allocated a small scope (e.g., the support office only produces isometric drawings), total cost control can be performed by the lead office. On the other hand, if a support office has significant scope (i.e. a complete plant area), cost control for that area can be assigned to the support office with periodic reporting to the lead office. Regardless of centralized or decentralized cost control strategy, the lead office has a responsibility to control and report to the Client overall project cost.
Project Quality Management
The quality planning should be initiated by the lead office with consideration to Client’s quality standards and requirements.
Project quality assurance and quality control are typically executed by all offices. For the MOE projects that involve support offices from foreign countries or from different companies, different quality practices may be allowed as long as they comply with the project quality management plan. In case the quality assurance and control of support offices do not comply to project quality plan, the lead office may need to execute these two processes as appropriate.
Project Human Resource Management
For MOE projects, the lead office should initiate the human resource planning by providing allocated man-hour budget to the support offices. Factors such as capability, reliability, quality, and expertise of the support offices should also be considered when developing the budgets. Then the support offices are responsible for developing their own staffing plans. The lead office should also ensure that: the budgets allocated to the support offices are appropriate; all managers are trained to do staff planning; and the staffing plans developed by the support offices align with project plans (e.g., budget, schedule, and scopes of work).
As leadership is crucial for project success, the project lead roles (e.g., engineering leads) in the support offices should be identified early. These lead roles provide direction to the teams and are communicating channels between the lead office and the support offices. Some projects may instead select to assign a coordinating role for smaller scope of work allocated to the support offices.
Lead offices may influence staff assignments at support offices especially for the lead positions. However, the support offices are usually responsible for acquiring their own project teams for the reasons that they have better knowledge and understanding of their staff as well as they are directly responsible for the staff career development.
MOE projects have to overcome many challenges in developing the project team. Phone calls and meetings between offices in different time zones are more difficult to arrange while communicating only via emails may not be an ideal approach to develop a working relationship. Cultures and languages also add challenges to communication. It also takes time to develop trust and working relationship between offices which is a challenge for offices that have never worked together before or offices that have high-turnover or are downsized. Other challenges are standardizing or aligning work processes.
This paper identifies that having staff from the leading office visit support offices at regular intervals and vice versa is an effective approach to build project team for MOE projects. These visits could be for training, meetings, or trouble shootings. The project should arrange these visits as often as possible during the project life cycle. VDO conference is also recommended as a more effective meeting tool than just a phone conference. The project management should be instrumental in arrange all-office team building activities such as project progress presentation, discipline presentations and recognition and reward program.
Each office is responsible for managing its own staff. However, the lead office needs to manage overall performances of the support offices. Cultural difference should be considered for appropriate management style. It should also be noted that the performances between offices should not be compared without understanding the legitimate factors that may impact the performance from each office (e.g., expertise & experience). Other challenge found in managing the MOE team is that delivery and performance issues (e.g., rework, delay, or actual amount of remaining work) may not be communicated to the lead office. These are often driven by fear of negative consequences such as losing work. Therefore, it is important to set reasonable performance targets based on capability of the support offices and the lead office provides support in solving any performance issues such as training and trouble shooting.
Project Communication Management
As a part of communication planning, it is recommended that the stakeholder analysis is performed for all offices to determine the project communication requirements. Communication planning should address information, information originator, information receiver, frequency, and communication medium. It is important that the lead office is the only point of contact for handling commercial and contractual matters. When appropriate, mass communication methods such as group email, project portal, shared drive are recommended for MOE projects. It is important that project changes (e.g., revisions) are communicated with high priority between offices to prevent rework, especially if work is shared between multiple offices (e.g., outputs from one office become inputs for the other offices).
To facilitate the information distribution during the execution phase, the use of information distribution matrix is recommended. The matrix determines the list of employees that the information is to be distributed to and is managed by document management group.
Overall project performance reporting should be a responsibility of the lead office with inputs from support offices. The performance reporting should be included in the communication management plan. Reporting schedule and format should be developed and agreed upon by all offices. Necessary trainings (e.g., use of tools to collect performance information, data gathering and data analysis) should be provided to all offices to ensure reporting accuracy and consistency.
Project Procurement Management
One of procurement decisions to be made at the beginning of an MOE project is purchasing and managing strategy for each material commodity. It is generally more economical that bulk material (e.g., bulk piping materials, steel, and cables) requirements from all offices are consolidated and purchased together by the lead office. However, commodities that require customized engineering design such as mechanical and electrical equipments may be managed more effectively if they are procured by the same engineering office. After the decisions are made, the procurement organization then can be setup to support the commodity management strategy. It is a best practice to have procurement organizations in all engineering offices. However, some smaller projects may choose to setup only one project procurement organization in the lead offices. Subcontract function (which is a part of procurement management per project pr
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