COAA Benchmarking Program

COAA B h ki P
“Project Performance Predictability”
Stephen P. Mulva, Ph.D.
CII
CII Associate
Associate Director

Construction Industry Institute  /  Construction Owners Association of Alberta

COAA Best Practices Conference XXI
May 15, 2013 – Edmonton, Alberta
Agenda (20 Minutes)

• How does COAA benchmark projects?
• Activity
• Performance predictability research
Performance predictability research
• 10‐10 Program
• 2013 CII Performance Assessment Workshop
• Questions?
CII History
CII History
• CII is an Organized Research Unit 
(ORU) of the Cockrell School of 
Engineering at the University of Texas 
at Austin
at Austin
• Founded in 1983 by 29 companies; 
now 135+ members
now 135+ members
• Purpose is to MEASURABLY improve 
the delivery of capital facilities
the delivery of capital facilities
• CII Benchmarking began in 1995; now 
j (
2,100 Projects (incl. COAA) )
HOW DOES COAA / CII BENCHMARK 
HOW DOES COAA / CII BENCHMARK
CAPITAL PROJECTS?
COAA / CII Benchmarking Process

Three‐step Process

Online Benchmarking Data Mining and 

Q
Questionnaire Database Reporting Engine 
p g g
COAA Project 
Key Reports

• General 
Performance
• Engineering 
Productivity
• Construction 
Productivity
COAA PAS – Data Miner • World’s First
ACTIVITY
Arrange the following eight practices
Arrange the following eight practices 
(from highest cost savings to lowest cost savings):
– Front End Planning (FEP) / PDRI
/
– Working Relationship (Owner / Contractor)
– Contract Method (LS vs. C/R)
– Constructability
– Project Risk Assessment
– Change Management
– Zero Accident Techniques
– Planning for Startup
Answer (Cost Savings Absolute Difference)
Owners Contractors

• Working Relationship  • Working Relationship 
(36.1%) (33.6%)
• Contract – LS vs. C/R 
/ • Contract – LS vs. C/R 
/
(20.2%) (20.3%)
• Change Mgmt. (11.4%) • Planning for S/U (10.8%)
• FEP / PDRI (10.5%)
FEP / PDRI (10 5%) • FEP / PDRI (6.6%)
FEP / PDRI (6 6%)
• Planning for S/U (5.2%) • Constructability (6.2%)
• Proj. Risk Assmt. (4.8%) • Change Mgmt. (6.1%)
• Constructability (‐0.6%) • Proj. Risk Assmt. (6.0%)
• Zero Acc. Tech. (‐2.6%) • Zero Acc. Tech. (4.4%)
CII PERFORMANCE 
CII PERFORMANCE
ASSESSMENT
RESEARCH
(PERFORMANCE PREDICTABILITY)
CII Owners’ Capital Efficiency
(Ratio of Cash Flow (CFfOA) to Construction In Progress (CIP))
(Ratio of Cash Flow (CFfOA) to Construction In Progress (CIP))

4.0 Early 1990s Early 2000s Late 2000s N=64

Recession Recession Recession
3.8 3.68 (1999)

3.6

34
3.4

3.2
AfOA/CIP

3.0
CA

2.8
2.53 (2012)
2.6

24
2.4

2.2

2.0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Year
Correlation between Construction In Progress (CIP) and 
Cash Flow (CFfOA) for CII Owners
Cash Flow (CFfOA) for CII Owners
100% 95.2% (1991) N=64
CIP and CFfOA))

90%

80%

70%
Correlation Coefficieent (between C

60%

50%
R² = 0.88
40%

30%

20%
20.2% (2008)
10%

0%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Year
 CII Owners’ Weighted Average Cost of Capital (WACC)

10.0% N=64

9 5%
9.5% R² = 00.7079
7079
Capital (%)

9.0%
Weighted Average Cost of C

8 5%
8.5%

8.0% Avg. WACC = 8.2%

7.5%

7.0%

6.5%

6.0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Year
Capital Project Performance ‐ CII Owners
Owner (NTotal=975)
N=310 (31.8%) N=239 (24.5%)
Avg. Cost Growth = -10.2% 10% Avg. Cost Growth = 16.2%
Avg. Schedule Growth = 29.1% Avg. Schedule Growth = 32.0%

2.7% N=53 (5.4%)

Avg. Cost Growth = -0.47%
Avg. Schedule Growth = 0.24%

Project Cost Growth

-10%
10% -3.0%
3.0% 3.0% 10%

-2.7%

N=271 (27.8%) N=102 (10.5%)

Avg. Cost Growth = -12.7% -10% Avg.
g Cost Growth = 12.3%
Avg. Schedule Growth = -8.2% P j tS
Project h d l G
Schedule th
Growth Avg. Schedule Growth = -9.8%

69.7% Projects Not Shown
Cash Flow for an “Average” CII Owner Project
Slope of Revenue = 2.7% per year
(Incremental Rate of Corporate CFfOA)
$20

“Average” CII Owner Projected Cash Flow $14.4

14 4 M

$9.5 M
$10

$0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
Cash Flow ($ Million)

-$5 M 20 years
-$10

CII Calculated Hurdle Rate

-$20 “Average” CII For Industrial Projects
-$20 M Owner Project
= $65 Million IRR = 14.1%
-$30
$30 (Morningstar Estimated Hurdle Rate
for Oil and Gas Companies = 14.7%)

-$40
-$40 M
Startup
-$50
Year
 Cash Flow Diagram for an “Average” CII Owner
(Includes Forecast 2012 ‐ 2016)
CIP CFfOA Predicted_CIP Predicted_CFfOA

$7,000

$6,000
$4
4.107
107 Billion
(2012) UCL_CFfOA
$5,000 Predicted CFfOA

$$4,000
,
LCL_CFfOA
w ($ Million)

$3,000

$2,000
Cash Flow

$1,000

$0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

-$1,000
LCL_CIP
-$2,000

-$3,000 Predicted CIP

UCL_CIP
-$4,000
$2
-$ 165 Billion
2.165
Year (2012)
Source: Capital IQ Courtesy of McCombs School of Business, UT Austin
Scenario 1: High Cost and Schedule Growth
As-Is Cash Flow
$5,000 $4,292 M $4,430 M $4,567 M
$4,017 M $4,155 M
$4,000
$3,000
Cash Flow ($ Milliion)

$2,000
$1,000
$0
2011 2012 2013 2014 2015 2016 2017 2018
-$1,000
$2 000
-$2,000
C

-$3,000
-$2,165 M -$2,268 M -$2,372 M -$2,476 M -$2,579 M
-$4,000 Year
Cost Growth = 16.2%
To-Be Cash Flow Schedule Growth = 32.0%
$5,000 $4,430 M $4,567 M
$4,155 M $4,292 M
$4,017 M
$4,000
$3,000
Million)

$2,000
Cash Flow ($ M

$1,000
$0
2011 2012 2013 2014 2015 2016 2017 2018
-$1,000
-$2,000
$3 000
-$3,000 -$2,516
$2 516 M -$2,635 M -$2,756 M -$2,877 M -$2,997 M
-$4,000 Year

NPVTarget= $7.6 Billion NPVScenario 1= $5.7 Billion

25.3% Loss of NPV
Scenario 2: Low Cost and Schedule Growth
As-Is Cash Flow
$5,000 $4,292 M $4,430 M $4,567 M
$4,017 M $4,155 M
$4,000
$3,000
Cash Flow ($ Milliion)

$2,000
$1,000
$0
2011 2012 2013 2014 2015 2016 2017 2018
-$1,000
$2 000
-$2,000
C

-$3,000
-$2,165 M -$2,268 M -$2,372 M -$2,476 M -$2,579 M
-$4,000 Year
Cost Growth = -12.7%
To-Be Cash Flow Schedule Growth = -8.2%
8.2%
$5,000
$3,987 M
$4,000 $3,627 M $3,747 M $3,867 M
$3,507 M
$3,000
Million)

$2,000
Cash Flow ($ M

$1,000
$0
2011 2012 2013 2014 2015 2016 2017 2018
-$1,000
-$2,000
$3 000
-$3,000 -$1,890
$1 890 M $
-$1,980 M -$2,071 M -$2,162 M -$2,251 M
-$4,000 Year

NPVTarget= $7.6 Billion NPVScenario 2= $6.8 Billion

11.1% Loss of NPV
Net Present Value (Forecast for 2012‐2016)
NPV = $ 6.4 Billion Owner (NTotal=975) NPV = $ 5.7 Billion
10%

Target
2 7%
2.7%
NPV = $ 7.7 Billion

Project Cost Growth

-10% -3.0% 3.0% 10%

-2.7%

-10%
Project Schedule Growth
NPV = $ 66.88 Billion NPV = $ 66.66 Billion

Expected NPV = $ 6.5 Billion

NPV Impact of Suggested P.M. Practices
Practices Expected NPV Gain/Loss Improvement
CII Owners’ Average $ 6.45 Billion N/A N/A
Lump Sum $ 6.81 Billion $ 360 Million 5.5%
Contract Method
Cost Reimbursable $ 5.50 Billion - $ 950 Million -14.8%
Work w/ CII Contractor $ 6.80 Billion $ 350 Million 5.3%
Working Relationship
Work w/ Non-CII Contractor $ 4.61 Billion - $ 1,840 Million -28.5%
<=200 $ 6.48 Billion $30 Million 0.5%
PDRI
>200 $ 6.10 Billion - $360 Million -5.6%
High Use $ 6.45 Billion $ 0 Million 0.0%
Planning for Startup
Low Use $ 6.23 Billion - $220 Million -3.4%

• Best Strategy to Maximize Expected NPV
– Lump Sum Contract, Working with CII Contractor, PDRI<=200, and High Use of 
Planning for Startup

($360) 2 + ($350) 2 + ($30) 2 + ($0) 2 = $496 Million

– Expected NPV can increase $496 Million
– Expected NPV can decrease $2,113 Million
Conclusion: Opportunity Exists To Improve

Target NPV $7.65 B

Expected NPV $6 45 B
$6.45
KNOWN
B.P. Enhanced NPV $6.95 B
UNKNOWN
(RESEARCH)
Optimal NPV $8.00 B
Resource
• Posting
Posting to COAA 
to COAA
Best Practices 
Conference 
Conference
Website (Post‐
Conference)
LESSON (RE)LEARNED:
( )
IN CAPITAL PROJECTS, 
IT IS ABOUT THE TEAM!
IT IS ABOUT THE TEAM!

EMBODIMENT
EMBODIMENT:
“WE STAND FOR THE PROJECT”
CII Performance Assessment: Back to Basics

• 5 Principles of Project Integration 
– Work and Work Process
– Organizational Engineering
g g g
– Leadership and Governance
– Communication and Information Flow
– Culture and Environment
• Best Practices
Best Practices
• Benchmarking / Performance Assessment
THE FUTURE:

CII’S PERFORMANCE ASSESSMENT

CAMPAIGN (THE 10-10
10 10 PROGRAM)
CII’s 10‐10 Performance Assessment Campaign

• Phase‐Based Benchmarking (4 pages each)
• Outcome Metrics (e.g., Cost/Capacity)
O M i ( C /C i )
• 10 metrics (from 10 projects)
•A
– Planning – Human Resources
– Organizing – Quality
– Leading – Sustainabilityy
– Controlling – Safety
– Design Efficiency – Partnering & SCM
Partnering & SCM
A PROFESSIONAL DEVELOPMENT 
A PROFESSIONAL DEVELOPMENT
OPPORTUNITY… 
(
(DON’T MISS IT!)
’ !)
2013 CII Performance Assessment Workshop

• Peabody Hotel Memphis, TN
– June 10
June 10‐12
12, 2013
2013
– “Building Performance Culture”
• Interactive Workshop
Interactive Workshop
– 4 “Hands On” 10‐10 Sessions
– Detailed Case Studies
• Keynote Speaker Michael Dockery (FedEx)
p
• Companies Scheduled to Present:
– Kaiser Permanente, ConocoPhillips, Eli Lilly & Co., Burns & 
McDonnell, and Others
• Includes Optional Benchmarking Training
CII Support
CII Support

Stephen P. Mulva, Ph.D. Questions?
Associate Director
(512) 232‐3013
(512) 232 3013
smulva@cii.utexas.edu
Thank You!

http://www.construction‐institute.org/benchmarking