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Contents
The Construction Management Landscape is difficult and getting worse
Construction costs continue to escalate
Global construction activities increasing, fuel continued demand-driven cost increases
Competition for key construction resources (e.g., project managers, heavy equipment, etc.) to
complicate domestic / U.S. power projects
Compressed project schedules as owners wait for environmental picture to crystallize
Construction Management Tables Have Turned
Owners held the trump card previously when construction and supplier over-capacity was rampant;
now contractors and suppliers have the leverage
Building (or Rebuilding) Construction Management Skills
Owners need to build (or rebuild) a number of construction management skills, both organizational and
individual, to succeed in the new environment
How ScottMadden Can Help You
1
Copyright 2008 by ScottMadden. All rights reserved.
6%
300
80%
Copper
Yield (%)
5%
4%
3%
2%
1%
0%
Current
6 Months Ago
1 Year Ago
3 Years Ago
Source: SNL Financial
275
70%
250
2003
2004
2005
Compressor
& Drivers
Structural
Steel
2006
60%
225
50%
200
Steel mill
products
175
150
Cement
125
30%
20%
100
GDP Deflator
75
50
3 Month 6 Month 1 Year 2 Year T 3 Year T 5 Year T 10 Year 30 Year
1997
1998
1999
2000
Note
Note
Note
T Note T Bond
Bill
T Bill
T Bill
(BEY) (BEY) (BEY)
Sources: The World Bank; Edison Foundation; The Keystone Center; U.S. Geological Survey; SNL Financial;
U.S. Bureau of Labor Statistics; U.S. Bureau of Economic Analysis; EIA; The New York Times; Platts Electric Utility Week (Feb. 19, 2007)
(citing CERA)
40%
10%
0%
2001
2002
2003
2004
2005
2006
Columns,
Vessels
Line Pipe
Exchangers Switchgear
Pumps &
Drivers
Other
Equipment
3
Copyright 2008 by ScottMadden. All rights reserved.
GDP Deflator
170
160
150
140
130
120
110
100
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Construction
Price
Hikes
ConstructionEquipment
Equipment
Price
Hikes
7%
6.9%
6%
5%
4%
3.7%
3%
Craft Labor
Year
Common Labor
180
Power Generation
Oil refiners are continuing to roll out plans for expansions and
upgrades 1
2%
1%
0%
3.2%
2.5%
2.3%
1.4%
0.9%
0.2%
1.5%
1.3%
National
Average
Labor
Cost
Index
National
Average
Labor
Cost
Index
Petroleum Industry
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Note: Year-to-year percent change for August
1. Upgrade Plans Flow While Oil Prices Ebb, ENR, October 2, 2006 by Thomas Armistead with Beth Evans
2. Refineries Summer Break, The Wall Street Journal Online, June 26, 2007
3. New Realities Bring About a Construction Climate Change, ENR, September 18, 2006 by Thomas Armistead with Peter
Reina and Dan OReilly
4. Costs Hit Coal Building Plans, February 2007, Power Engineering by Amethyst Cavallaro
4
Copyright 2008 by ScottMadden. All rights reserved.
65000
Amount (Millions of $)
55000
50000
45000
40000
35000
30000
0.2
0
National
Utility
Infrastructure
Indices
National
Utility
Infrastructure
Cost Cost
Indices
Total Plant-All Steam Generation
Gas Turbogenerators
GDP Deflator
Transmission
Distribution
190
180
Annual
Backlog
at Major
Firms
Annual
Backlog
at Major
EPCEPC
Firms
60000
0.4
alv
es
0.6
lV
More delays (start and ongoing) are due to labor and skill
availability constraints (management, engineers, craft
levels)
Co
ntr
o
1
0.8
rs
Co
mp
re
ss
or
Pu
s
mp
s(
ex
cl.
LN
G)
Co
ntr
ol
Va
lve
s
Re
ac
tor
s
Ve
ss
els
ns
Co
lum
Ex
ch
an
ge
rs
Ai
r
Co
La
ole
rg
eM
rs
oto
rs
(>
50
0H
P)
Pu
mp
s
20
1.2
ns
/V
es
se
ls
40
1.4
lum
60
Co
Weeks
80
oo
le
100
rs
120
Shop Capacity
Ex
ch
an
ge
2006
Ai
rC
2005
170
Index (1991 = 100)
2004
Mo
tor
s
Delivery
Schedules
Delivery
Schedules
160
150
140
130
120
110
100
25000
2002
2003
2004
2005
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
2006
Year
Year
Compressed
CompressedProject
ProjectSchedules
Schedulesare
arethe
theResult
Result
1. From The Top 400 Contractors, Prosperity Allows Firms to be More Selective, ENR, September 24, 2007 by Gary
Tulacz
5
Copyright 2008 by ScottMadden. All rights reserved.
Creation of
scope-level
design for
planning and
estimating
Information
structure [for
work
management,
scheduling and
cost systems]
prepared
Development
of project PEP
Contract
strategy (make
versus buy)
development
Design
Detailed
engineering
design
development
Contract
specifications
development
Scheduling
Execution
Planning and
materials supply
Implementation/
installation
Assessing
(detailed
estimate
information
inputted into
work
management
and scheduling
systems)
Permitting
Work
performance
monitoring
Work
management/
schedule and cost
monitoring
Completion of
work package
Weekly progress
status reporting
Construction
check and testing
Development of
operations and
maintenance
documentation
Outage planning
interface
Commission
Certification and
testing of
equipment
operability
Operations and
maintenance
documentation
delivery
CloseClose-Out
Design drawings
updated with
field changes
Documentation
closed-out
Initial training
completion
7
Copyright 2008 by ScottMadden. All rights reserved.
ent
opm
l
e
v
De
Des
ign
on
c ut i
Exe
Scheduling
Com
miss
i on
Engineering
design delays
Fabricator /
equipment
supplier queues
lengthening
Acquisition of
labor
Pressureto
to
Pressure
Finish
Finish
Sooner
Sooner
Out
Close-
Competitive markets
Cash flow
Low reserve margins
Underestimated costs
Lack of commissioning
Adverse impacts on
and under funded
time and plans
other projects
project
Delayed
Inadequate contract
Delayed start-up
permitting
specifications
Missing or incorrect
documentation
Incomplete designs and
design documentation
Risks
Schedule
ScheduleCompression
CompressionEscalates
EscalatesEvery
EveryProject
ProjectRisk
Risk
8
Copyright 2008 by ScottMadden. All rights reserved.
Financial
Management
Stakeholder
Management
Work
Management
Performance
Drivers
Quality
Management
Workforce
Performance
Management
Process
Management
10
Copyright 2008 by ScottMadden. All rights reserved.
Regulatory requirements
management
Scope management
Job estimating
Project controls
Decision making
Sourcing
Project
Management
Regulatory
Management
Project scoping
Project financing
Budgeting
Financial
Management
Work
Management
Workforce
Performance
Management
Performance
Drivers
Stakeholder
Management
Quality
Management
Staffing
Productivity management
Overtime management
Contract management
Skills training
Safety
Process
Management
Work continuity
Environmental management
Standardization
Procedure management
Process measurement
Knowledge management
Intervener management
Governmental relations
Community relations
11
Copyright 2008 by ScottMadden. All rights reserved.
MarketMarket-Based Approaches
Description
Key Practices
Relevance
12
Copyright 2008 by ScottMadden. All rights reserved.
100%
100%
80%
80%
% of Total Cost
Spend
0%
Planning
Detailed
Engineering
Procurement
Construction
Project Activities
13
Copyright 2008 by ScottMadden. All rights reserved.
Performance
High
Impact
Design /
Information
Technology
Zero Accident
Technique
Project
Performance
Schedule
Reduction
Medium
Impact
Pre-Project
Planning
Project
Change
Management
Team Building
Planning for
Startup
Constructability
Materials
Management
Low
Impact
4th Quartile
Low
3rd Quartile
2nd Quartile
Best Practice
Use
1st Quartile
Low
Impact
High
Medium
Impact
Cost Savings
Low
High
Impact
Impact
14
Copyright 2008 by ScottMadden. All rights reserved.
Constructability
Up-front decisions have the most significant impact on downstream activities
All upstream events (e.g., design, engineering, etc.) must be executed around construction and commissioning requirements
>15% overall project cost and schedule improvements common with constructability implementation
Applications of constructability implementation typically include severe-duty projects such as oil pipelines, power plant construction, shale-oil
refinery construction, etc.
Stage Gating
Stage gating is used to control major project segments with approval to proceed to subsequent stages contingent on meeting each stages
preset objectives
Stage gating technique is being pursued in some regions as a regulatory management tool
Large projects employing stage gating also have seen >15 % project improvements with severe-duty construction efforts (e.g., Suncor at
Alberta refinery construction) benefiting from this technique
Lean Construction
Lean construction is the adoption of the lean manufacturing technique pioneered by Toyota and Honda
The key to lean construction is the decentralization of planning and decision making, managing for process, not speed, and the minimization
of process waste through ruthless standardization
Constructability concepts of feed-forward process input are also included in lean construction
Elimination of process variance within this methodology has seen >15% cost and schedule improvements in large projects such as airport
design and construction
15
Copyright 2008 by ScottMadden. All rights reserved.
QUALITY
SAFETY
COST
SCHEDULE
Decision Drivers
Contract
Contract
Management
Management
Procurement
Procurement
Management
Management
Project
Project
Execution
Execution
Project
ProjectRisk
Risk
Management
Management
16
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Procurement Management
Supported by
Organizational
Process
Tools
Contract Management
Measurement
17
Copyright 2008 by ScottMadden. All rights reserved.
TQM
Value Engineering
Front-End Loading
Constructability
Low
High
18
Copyright 2008 by ScottMadden. All rights reserved.
Work Management
Workforce
Performance
Management
Process Management
Quality Management
Assessment Areas
Project roles and responsibilities
Tools and measures for decision making and
progress reporting
Skill training and organization depth
Scope definition and control processes
Project estimating procedures and data sources
Work package structures suitable for estimating and
construction
Maximo and Passport management
ScottMadden
Demonstrated Capabilities
Hands on experience managing large
capital projects and fossil plant outages
Major projects readiness assessment
ScottMadden proprietary best practices
library
Outage planning and preparation
Construction organization design
Documentation hierarchy (management
model)
Strategic sourcing and supplier
management
EPC contract management best practices
Communication planning and execution
Outage management augmentation
QA/QC program augmentation
Productivity sampling (wrench time
studies)
Post-project reviews, lessons learned,
and knowledge transfer
20
Copyright 2008 by ScottMadden. All rights reserved.
Week 1
Week 2
Week 3
Week 4
Week 5
Week 6
Week 7
Week 8
21
Copyright 2008 by ScottMadden. All rights reserved.
Execution
Lessons Learned
22
Copyright 2008 by ScottMadden. All rights reserved.
Jere Jacobi
Partner
ScottMadden, Inc.
Ten Piedmont Center
Suite 805
Atlanta, GA 30305
Phone: 404-814-0020
Mobile: 262-337-1352
jjacobi@scottmadden.com
Steve Sanders
Partner
ScottMadden, Inc.
Ten Piedmont Center
Suite 805
Atlanta, GA 30305
Phone: 404-814-0020
Mobile: 770-490-8684
stevesanders@scottmadden.com