Driving Field Productivity - SCOAR€¦ · · 2017-11-17Driving Field Productivity Southeastern Construction Owners & Associates ... •All these strategies add cost to a project

Driving Field Productivity Southeastern Construction Owners & Associates

Roundtable (SCOAR) Meeting

Presented by: Lara Keefer, PhD

January 29, 2015

CONFIDENTIAL 2 INDEPENDENT PROJECT ANALYSIS

Confidentiality Statement

This document and the information contained herein are proprietary

and the property of Independent Project Analysis, Inc., which

expressly reserves all copyright and other ownership rights in its

contents. Information about the subject matter, content, and structure

of this document is confidential and proprietary. Neither this

document nor any information contained herein may be disclosed

without the prior written consent of IPA. This document is not to be

copied or distributed without authorization.


• In early 2013, we observed a dramatic increase in labor costs; all-in wages jumped from ~$60 to $70 in just over 6 months

• Project announcements along the U.S. Gulf Coast (USGC) in response to shale oil and gas sparked much of the increase

• However, recent delays and cancelations have lessened the effect

• The magnitude of a US hot market is unknown, yet we need to be prepared

The Labor Market in the USGC Is Uncertain


FACT: Recent trends around real prices show

steady increase in the cost of capital projects.

The Perfect Storm?




FACT: Engineering quality is declining (driven by

aging-out of engineering talent) which is driving

increased problems in project execution.

The Perfect Storm?


1.25

1.35

1.45

1.55

1.65

1.75

2000 2002 2004 2006 2008 2010 2012

Nu

mb

er

of

En

gin

eers

(m

illio

ns)

Year

The US Is Losing Engineering Resources

Source: US Department of Labor Bureau of Labor Statistics


• Experience is falling rapidly because of engineering workforce demographics

• Lack of engineering experience is translating into lower quality engineering design

‒ Owners have mostly been able to identify and correct engineering quality problems before they show up in the field

‒ However, frequency of basic design errors in vessel sizing, pipe stress calculations, and other core tasks is increasing

• Combination of declining owner and contractor experience will eventually lead to projects failing in execution or operation

Engineering Quality Continues to Degrade How Does This Relate to Field Labor?







FACT: We are heading into a period of increased

capital activity in the US where labor demand

may outstrip labor supply.

The Perfect Storm?


Announced Spending for Large Projects in the U.S.

0

10

20

30

40

50

60

70

80

2000 2005 2010 2015

Yearly C

apital S

pe

nd (

$B

B)

IPA Database ($2013) As Announced

Projects entering FEL 2

after 2014 have yet to

be announced

IPA


Severe Accidents Tripled in the Hot Market

DART = Days away from work, job restrictions, transfers, and fatalities

For a large project

with 1 million safety

hours

Pre-hot market

projects experienced

less than one DART

Hot market projects

experienced just

over two DARTs

Prob > χ2 = 0.0002







FACT: We are heading into a period of increased

capital activity in the US where labor demand may

outstrip labor supply.

CONVERGENCE: The implication is even higher

capital cost and significantly poorer safety.

We risk losing the license to operate.

The Perfect Storm?


• Strategies to manage the stresses on the

construction labor market:

• All these strategies add cost to a project relative

to typical project environment

• But, given the project context, each decision is

based on a cost / benefit analysis

Weathering the Storm Labor Risk Mitigation

INCREASING

THE SUPPLY SIDE

Training Programs

Importing Labor

Paying Per Diems

etc.

.

.

DECREASING

THE DEMAND SIDE

Pre-fabricated equipment

Modular construction

Resource leveling

etc.

.

.


• Improving field labor productivity benefits both sides of

the cost / benefit equation

Fewer hours per task, fewer hours per quantity

Doing more with less

• Improved productivity is the least costly way to address

the labor supply chain weakness

• Improved productivity can be achieved through more

rigor in work processes

• This talk will focus on what IPA research shows are the

drivers of better field productivity

Productivity Improvement as Labor Risk Mitigation Strategy


Agenda

Introduction

Who is IPA?

Labor Productivity in a Hot Market

Improving Labor Productivity


• IPA studies capital projects as a field of empirical research for over 25 years

• IPA employs a unique business model based on face-to-face meetings with the teams to assure data quality

• IPA has a database containing project data on over 16,000 projects from process industries (oil and gas, refining, pipelines, chemicals, consumer products, pharmaceuticals, minerals, power, paper, etc.)

• IPA employs about 250 staff members world wide

• IPA is a global company with offices in the US, Brazil, The Netherlands, UK, Singapore, Australia, and China

Who is Independent Project Analysis (IPA)?


• IPA evaluates about 800 major projects each year for companies

around the world with all data collected in person by IPA analysts

• We evaluate:

‒ The quality and completeness of the business case and commercial

arrangements

‒ The competitiveness of the project at the end of scope development

‒ The readiness of the project for sanction

‒ The execution practices employed during engineering and construction

‒ The relative success of the project after startup

• We develop a very complete technical, business, and people history

of each project from front-end through early operation

• These histories become the data that we use to find what works and

what doesn’t work in capital projects

What IPA Does


IPA’s Approach: Use the Data to Determine Best Practices

Controlling for: Project Characteristics, Scope, and Technology

Operability

Schedule

Cost

Parametric

Statistical

Techniques

Safety

Reserves Volatility

(E&P / Mining)

Project Inputs

Business Case/

Development

Strategies

Technological

Innovation

Front-End

Loading

Functional

Representation/

Integration

Project

Management

Practices

Project Practices That Demonstrate

Significant Relationship With

Outcome Performance Metrics


Clients Represented in IPA’s Databases

Abbott Laboratories

Abitibi-Price

Access Midstream

ADNOC

Agip KCO

AGRA Simons

Agrium

Air Liquide

Air Products

AkzoNobel

Alcoa

Alyeska

Anadarko

Anglo American

AngloGold Ashanti

Antofagasta Minerals

Arkema

AstraZeneca

Athabasca Oil

Atlantic LNG

AVR

AWE

BAPCO

Barrick

BASF

Bashneft

Bayer

BC Hydro

BG Group

BHP Billiton

Bluescope Steel

Boise

Borealis

BP

Braskem

Bristol-Meyers Squibb

Cairn India

Caltex

Canpotex

Cargill

Chevron

Chevron Phillips Chemical

China Three Gorges Project

Development Corp.

CITGO

CNOOC

CNRL

Codelco

Colonial Pipeline

ConAgra

Conoco Phillips

Constellium

Cosan Biomassa

CSR

Dana Petroleum

De Beers

Dominion

Dow

Dow Corning

DuPont

Eastman Chemical

Ecopetrol

Eli Lilly

Enbridge

EnCana

Eni Petroleum

Entergy

Eskom

Evonik Industries

ExxonMobil

Flint Hills

Florida Power & Light

FMC

Freeport LNG

Freeport-McMoran

GASCO (Abu Dhabi Gas)

Gazprom Neft

GDF Suez

Genentech

George Weston Foods

Georgia-Pacific

Gerdau

GlaxoSmithKline

GS Caltex

Noble Energy

Norsk Hydro

Nova Chemicals

Novartis

Novus

Numico

Nynas

Oando

Odebrecht Agroindustrial

OMV

Orica

Origin Energy

Pacific Energy Partners

PDVSA

PEMEX

Pertamina Hulu Energi

Petrobras

Petro-Canada

PetroChina Petroleum

Petroleum Development Oman

PETRONAS

Phillips 66

Pioneer Natural Resources

Praxair

Premier Oil

Procter & Gamble

PTT Group

Qatar Petroleum

Quadra FNX

Reliance E&P

Repsol

Rio Tinto

RockTenn

Roc Oil

Rohm and Haas

RWE

SABIC

Samarco

Sanofi Pasteur

Santos

Sasol

Saudi Aramco

Saudi Electric

Hess

Hoffmann-La Roche

Honeywell

Husky Oil

Incitec-Pivot

INEOS

INPEX

International Paper

Invista

Irving Oil

Johnson & Johnson

Kellogg

Kimberly-Clark

Kinder Morgan

Kinross Gold

Koch Industries

Kraft

Kuwait Nat’l Petroleum

Lanxess

Laricina Energy

London City Airport

Lukoil

Lundin Norway

LyondellBasell

Maersk

Manabi

Marathon Oil

Marathon Petroleum

MeadWestvaco

Melbourne Airport

Merck

MillerCoors

Milliken Chemical

Mineração Serra Verde

Mineração Usiminas

Miro

Mosaic

Motiva

Mubadala

NaiKun Wind Energy

Nederlandse Gasunie

Newmont

Nexen

Shell

Sibur

Singapore Economic

Development Board

Singapore Refining Co.

S-OIL

Solvay

Southern California Edison

Southern Company

Staatsolie Suriname

Star Petroleum Refining Co.

Statoil

Stepan

Suncor Energy

Sunoco

Syncrude

Talisman Energy

Tennessee Valley Authority

Tengizchevroil (TCO)

Tesoro

Texas LNG

Total

TPC Group

TransCanada

UK Government

US Department of Defense

US Department of Energy

US Department of State

US Gypsum (USG)

US Steel

Vale

Valero

Vetra Group

Votorantim Metais

Wacker

Westlake

Williams

Wintershall

Woodside

Xstrata

Yara

YPF


Example of IPA Data on US Productivity


Example of IPA Data on USGC Productivity

Baton Rouge

Baytown

Beaumont

Borger

Channelview

Chocolate Bayou

88

127

67

63

70

36

Convent

Deer Park

Freeport

Geismar

Houston

La Porte

41

170

127

99

132

98

Lake Charles

Norco

Orange

Pasadena

Plaquemine

Port Arthur

147

122

66

105

56

109

Sweeny

Texas City

Victoria

80

185

40


• We collect the wage make-up for all-in wages and productivity on each project we analyze

• We compare these data and analyze variance

• What we have learned:

‒ Basic skills levels determine the raw material for productivity

‒ But management determines what you really get

‒ For projects in the same place at the same time with the same

labor pool, the variation around craft productivity is +/- 25

percent on a single standard error

• This means there is a lot to be made with better management

Productivity is Management-Driven


Agenda

Introduction

Who is IPA?




0.80

0.90

1.00

1.10

1.20 C

onstr

uction P

roductivity I

ndex

Yearly Moving Average

Construction Productivity Deteriorated in the Hot Market

BE

TT

ER

W

OR

SE

Hot Market


• Labor productivity was the proximate cause of failures in past hot markets, but not the root cause

‒ It is a symptom of much deeper problems

‒ Poor construction management contributed to the problem but also did not cause it

‒ Poor controls also exacerbated, but did not cause, the problem

• Engineering problems were (and always will be) the principal cause of poor craft productivity

Labor Productivity Was Not the Root Cause

24


• Engineering started earlier

‒ Projects increased overlap of engineering and definition in hot market

‒ Scope was not closed when long leads were ordered

• Vendor data were frequently late (driven by changes)

• Engineering slipped more

• Construction started on time (before engineering was half done)

• Labor productivity was poor

• Construction slipped more

Project Behavior in a Hot Market


The Downward Productivity Spiral

Falling Behind in

Field

Add (poor) Labor,

degrading existing

Late Permits

Incomplete Scope

and FEL

Late Engineering

Poor Quality Engineering

Premature Field Start

Overextended

Engineering Contractors

Tight Engineering Schedules

Poor Controls

Late Materials

Poor Labor Productivity

Schedule-driven

Businesses


Agenda

Introduction

Who is IPA?




• Performance in the field is heavily influenced by what precedes construction

• Understanding front-end practices (design, planning, and controls) can provide a more systematic way of addressing labor risk

Practices That Improve Labor Productivity


0.90

1.00

1.10

1.20

1.30

1.40

Co

st

Ind

ex

Front-End Loading Index at Sanction

Hot Markets Increase the Cost Penalty of Poor FEL

Wo

rse

B

ett

er

INADEQUATE POOR FAIR GOOD BEST


0.90

1.00

1.10

1.20

1.30

1.40

INADEQUATE POOR FAIR GOOD BEST

Co

st

Ind

ex

Front-End Loading Index at Sanction

Normal Market

Hot Market

Hot Markets Increase the Cost Penalty of Poor FEL

Wo

rse

B

ett

er


Site

Definition

Engineering

Definition

Project

Execution

Plan

IPA’s Front-End Loading Index A Measure of Execution Risk


• In USGC, industry record on site definition tends to be better than other locations

• However, hot markets put more pressure on projects to follow every step, look at every deliverable

‒ Not form over substance!

• Environmental permitting can be a surprise in a hot market

‒ Permit durations grew 300-400%

• Final HAZOPs provide an opportunity to slow down

Site Definition In a Hot Market


Site

Definition

Engineering

Definition

Project

Execution

Plan

Measuring Engineering Definition at Authorization Both the “What” and “Who” Matter


• The quality and completeness of the basic design package are drivers of how reliable the quantity take-offs can be, which, in turn, directly relates to the labor hours required

• IPA measures engineering definition as an element of Front-End Loading using the following ratings:

‒ Screening Study

‒ Limited Study

‒ Advanced Study (Best Practical)

‒ Full Design

Quality of Engineering Definition

34

* The appendix includes the engineering rating definitions


0%

5%

10%

15%

20%

25%

30%

35%

Full

Design

Quality of Engineering Definition Drives Labor Hour Growth and Changes

La

bo

r H

ou

r G

row

th

Wo

rse

B

ett

er

= +14%

*Advanced

Study Limited

Study Screening

Pr < 0.001

*Best Practical at Authorization Controlled for Multiple Factors


Site

Definition

Engineering

Definition

Project

Execution

Plan

Fully Define the Execution Schedule to Improve Field Productivity


• Project teams attempt to shorten schedules in a number of ways

• One of the most common is to increase the overlap between the engineering and construction phases

• If field mobilization begins with insufficient design or lagging procurement, field productivity is eroded and labor hours grow

Driving Schedule Hurts Labor Productivity


0%

10%

20%

30%

40%

50%

Overlap Between Engineering and Construction Larger Projects Are Hurt More

Wo

rse

B

ett

er 20 Percent Average

Overlap

30 Percent Average

Overlap

40 Percent Average

Overlap

Lab

or

Ho

ur

Gro

wth

$50 MM $250 MM $500 MM

Controlled for Multiple Factors


Project Controls Reduce Schedule Slip

0%

10%

20%

30%

40%

50%

6 5 4 3 2 1 0

Execu

tio

n S

lip

Project Control Index

Deficient Poor Fair Good

P r < 0.0001

* Controlled for FEL

Physical Progressing of Both Engineering and Field Labor Improves Performance


• It is likely that the US labor market will be constrained in the coming years

• There are several strategies to address the risk of labor shortages

• One key strategy is improving labor productivity: getting more from less

• There are early levers – focused on rigor in the front end process – that you can turn to achieve better productivity in the field

Conclusion


Practices That Improve Labor Productivity

Practices That Reduce Field Hours

In Project Team Control in a Hot

Market?

High Skill Craft Labor NO

High Skill Supervision NO

Best Practical Engineering Definition YES

Fully Defined Execution Schedule YES

Non-Aggressive Schedule / Overlap YES

Effective Controls / Physical Progressing YES

No Scope Changes YES

Hot markets are less forgiving of early errors

and oversights.

Follow your work process!


42

Thank you for your attention

Documents

Driving Field Productivity - SCOAR€¦ · · 2017-11-17Driving Field Productivity Southeastern Construction Owners & Associates ... •All these strategies add cost to a project