FP1 - Week 8 - Final Responce - LTG

FINAL PROJECT No. 1 – WEEK 08 / FINAL RESPONSE

KMGT-685-5 SUSTAIN PROGRAM & PORTFOLIO MANAGEMENTMSC PROJECT MANAGEMENT – OIL & GAS

NAME: LEONARDO TRIGOS GUERRERO

STUDENT ID: H00024346 DATE: 09 / 07 /2014 PAGE 1 OF 27

FINAL PROJECT No. 1

WEEK 08

SUSTAIN PROGRAM & PORTFOLIO MANAGEMENT

LEONARDO TRIGOS G.





TABLE OF CONTENTSFINAL PROJECT – WEEK 8..............................................................................................................................4

1. RECOMMENDATION MEMO....................................................................................................................4

2. INTRODUCTION.......................................................................................................................................14

3. BACKGROUND.........................................................................................................................................14

4. SBUs............................................................................................................................................................15

4.1. Automation and control.........................................................................................................................16

4.1.1. Mission and strategy..........................................................................................................................16

4.2. Process plants........................................................................................................................................16


4.3. Pipeline....................................................................................................................................................17


4.4. Onshore...................................................................................................................................................18


4.5. Offshore...................................................................................................................................................18


5. ORGANIZATIONAL STRUCTURES.......................................................................................................19

6. PORTFOLIO PROCESS...........................................................................................................................20

7. SELECTION CRITERIA............................................................................................................................21

7.1. Economic Return....................................................................................................................................22

7.2. Market Research....................................................................................................................................23

8. PROJECTS.................................................................................................................................................25

8.1. Project A: ABC Plant Automation Upgrade Project...........................................................................25

8.2. Project B: ABC Refinery expansion Project.......................................................................................26

8.3. Project C: ABC Storage and Transportation......................................................................................26

8.4. Project D: Heavy Crude Production Facility.......................................................................................27

9. CONCLUSIONS.........................................................................................................................................27

10. REFERENCE LIST................................................................................................................................27

11. APPENDIXES.........................................................................................................................................28





FINAL PROJECT – WEEK 8

1. RECOMMENDATION MEMO

MEMORANDUM TO: Evito Dolores de Hoyo

CEO - LTG Company

Latin America and the Caribbean

FROM: Leonardo Trigos Guerrero

Portfolio Manager – Colombia / LTG Company

DATE: 9th July 2014

Subject: New trends on Oil & Gas Economy in Colombia motivate changes of Project Portfolio of the ABC Company.

With the development in the Oil & Gas industry since the last decade in Colombia, the Oil & Gas companies Ecopetrol (NOC of Colombia), Ocensa, Bicentenario, ODL, Pacific Rubiales and Perenco has an increased request of projects related to project management, engineering, procurement, and construction in industrial facilities for upstream, middlestream and downstream to provide a enhance in the production perspective. The production of Oil and Gas has increased to promising figures, and the trends are very positives according to the EIA (2014).

According to the EIA (2014), Colombian proven reserves at the end of 2010 stood at 1.9 billion barrels (bbl), representing a rise of 39.1% on the previous year's figures and almost reaching its 1990 level of 2 bbl of reserves. Colombian reserves represented 0.1% of global oil supply. Colombia's National Hydrocarbons Agency (ANH) believes that reserves could rise to 4 billion barrels by 2020. Between 2007-9 Colombia's oil production levels rose 42.8% to reach 801,000 barrels per day (bpd) in 2010. According to EIA (2014), Colombia is likely to reach its goal of 1.5 million barrels per day (bpd)





in oil output by 2015. The government set a target of 1’000,000 bpd for 2013 and 2014, however production reached almost 950,000 bpd in July 2014. According to his analysis, increases in oil and gas reserves since 2010 can be put down to further investment in existing fields rather than from major new discoveries.

Figure 1. Colombia Oil Production [Source: EIA (2014)]

The portfolio board with the support of the executive members of the LTG Company has analyzed in deep the actual situation of the oil and gas market in the region, comparing its perspective with previous experience on the portfolio management with the objective to update the organization business strategies and improve the results of the company to guarantee stability on the market, brand positioning, recognition that helps to be the first choice in project management, engineering, procurement and construction operation in the region of Latin America and the Caribbean.

In this way, the business units of LTG Company has been specially developed with the objective to improve positive results on the Oil and Gas sector on the region. The LTG’s SBU can be summarized as:

Automation and Control Industrial Offshore Onshore Pipeline Process plants





The actual portfolio projects of the LTG Company has interesting projects of the Oil and Gas sector in each of the SBU described previously, showing a high diversity of project focused to minimize the risk of failure and bring a positive results to the company with a diverse portfolio of project with high value. The most important projects on the actual portfolio are:

Project A: ABC Plant Automation Upgrade Project

A. Description:

LTG Company has a new project to replace the ABC existing gas plant pneumatic control system with an Allen-Bradley ControlLogix system and Wonderware HMI. The project included approximately +1000 new (I/O) signals to the new control system and five operator consoles in the existing control room. LTG has the challenge to execute this work as a turn key project and provided direct hire construction services through a combination of Bogota based and local resources.

B. SBU related

Automation and control

Project B: ABC Refinery expansion Project

A. Description:

LTG Company has develop detail engineering design, procurement and construction management for the ABC refinery expansion project, which will include a fluid catalytic cracking (FCC) complex to support additional light synthetic crude oil processing from Colombia’s oil sands. LTG must develop the front-end engineering design for the project and will provide over +600,000 man-hours of work to complete the detailed design.

B. SBU related

Process plants

Project C: ABC Storage and Transportation

A. Description:

The Orinoco’s Hub Gas Storage and Transportation project will be a high deliverability natural gas storage facility designed for injection, storage and withdrawal of natural gas in salt caverns to be created in the West of Orinoco region, in Colombia. The Orinoco’s Hub facilities will provide a nominal 1 BCFD of withdrawal and 600 MMSCFD of injection capacity with the capability for six turns per year with the initial 16 BCF working gas capacity expandable to 30 BCF working gas.

Installed gas compression will total some 32,000 HP with a combination of low emission engine drives and electric drives providing injection pressures to 3000 psig. Facilities include compression, dehydration, metering and pressure control, methanol injection, noise abatement, ground flare, dual 24” transportation pipeline to two customers, and ANSI 1500 30” facility to gas storage pipeline.





Project includes solution mining facilities and pipelines with capacity of 4000 GPM, installed pump horsepower of some 12,000 HP. Facilities include fresh water wells, brine disposal wells, pump station, filtration, tankage, and dome well safety and fire suppression.

Power to the site will be provided by a new 138 KV overhead transmission line, substations, and on site 24 KV distribution lines.

B. SBU related

Pipeline

Project D: Heavy Crude Production Facility

A. Description:

Huron Natural Gas’ crude facility in the Piedemonte Region of the Eastern of Colombia. LTG Company has the challenge to performed engineering design, procurement, and construction management for an 80,000 BOPD API 14 gravity crude facility, including 330,000BWPD treating and injection, 110MMSCFD gas treating and injection, 20MW autonomous power plant in remote region. Includes field gathering and power distribution, infrastructure development, export pipeline and facilities, and two satellite production facilities.

B. SBU related

Onshore

Project Portfolio Process

The LTG Company will implement some steps of the project portfolio process to prioritize projects according the convenience of its implementation:

Step 1st: Methodology Selection

LTG has selects the methodologies according its business strategy. These methodologies are: Economic Return (NPV, and IRR) and Market Research (customer satisfaction and the willingness to recommend).

Step 2nd: Strategy development

The LTG Company has identify four possible projects to execute inside its portfolio. Projects A, B, C and D provide high value outcomes and experience to the company in an Oil & Gas sector in development. The company has the experience and the resources to execute these type of projects according to the expertise obtained from previously projects related.





Table 1. Project Comparison

Project Strengths Weaknesses Resources Required

Project A

• LTG has a vast experience onAutomation and control projectsin the sector of Oil & Gas• The projects executed in theSBU of Automation and Controlgenerates confidence on clients• LTG offers a large experienceas MAC• This project not requireconsiderable resources for itexecution• The tools in PM and Automationand Control can be provided byLTG

• The project is Fast Track accordingthe requirements of the client• The execution schedule is highly tight• Its required to execute the project on arunning plant and guarantee the minoraffectations possible to the normaloperation of the plant• Require the association with othercompany to develop the project• The company has not available thewell trained and experienced group ofprofessionals to develop the project

• The resources required to executethe project is approximately of $5Million.• The company has to searchavailable well trained andexperienced professionals to developthe project

Project B

• The projects executed in theSBU of Process Plantsgenerates confidence on clients• The tools in PM and Processplants can be provided by LTG

• LTG has a short experience on largeprocess plant projects in the sector ofOil & Gas• This project require considerableresources for it execution• The project is Fast Track accordingthe requirements of the client• The execution schedule is highly tight• The company has not available thewell trained and experienced group ofprofessionals to develop the project

• The resources required to executethe project is approximately of $1500Million.• The company has to searchavailable well trained andexperienced professionals likeprocess engineers, instrumentationengineers and mechanical engineersto develop the project

Project C

• The projects executed in theSBU of Pipeline generatesconfidence on clients• The tools in PM can be providedby LTG

• LTG has a short experience onpipeline projects in the sector of Oil &Gas• This project require highlyconsiderable resources for it execution• The company has not available thewell trained and experienced group ofprofessionals to develop the project• The tools and machinery to executethe project must be subcontracted

• The resources required to executethe project is approximately of $300Million.• The company has to searchavailable well trained andexperienced professionals like pipingengineers, geologist and civilengineers to develop the project

Project D

• The projects executed in theSBU of Onshore generatesconfidence on clients by thesuccess results obtained• The tools in PM, Processanalysis and Equipment selection can be provided by LTG• LTG has a large experience ononshore (production facilities)projects in the sector of Oil &Gas• This project requireconsiderable resources for itexecution• The Company has financialfacilities in related projects• The company has available thewell trained and experiencedgroup of professionals to developthe project

• This project require considerableresources for it execution

• The resources required to executethe project is approximately of $35Million.





Step 3rd: Individual Project Analysis

In this step, projects are analyzed individually according a set of parameters to establish an equitable comparison based on previous studies or historical information of related projects. The parameters to perform comparison are defined on the methodology for project selection.

The Table 2 shown the individual project analysis performed applying the parameters selected.

Table 2. Parameters and Metrics Analysis of Projects

Net Present Value Internal Rate of Return Customer Satisfaction Willingness to Recommend

Project A $1,5 Million 13,6%

SBU: Automation and ControlScore: 4,8Responses: 58Percentage: 96%

SBU: Automation and ControlScore: 4,5Responses: 58Percentage: 90%

• Positive NPV with a valueinteresting according the inversion• Positive IRR• High score that represents Verysatisfied in Customer Satisfaction• High score that represents Verysatisfied in Willingness toRecommend• Relative low level of Risk

Project B $ 30 Million 3,2%

SBU: Process PlantsScore: 3,8Responses: 3Percentage: 76%

SBU: Process PlantsScore: 3,5Responses: 3Percentage: 70%

• Positive NPV but with a value thatcan be risky according the highinversion required• Positive IRR, but with a rate notmuch significant• Medium score that representsNeither satisfied or some dissatisfiedin Customer Satisfaction• Medium score that representsNeither satisfied or some dissatisfiedin Willingness to Recommend• High level of Risk

Project C $ 8 Million 2,5%

SBU: PipelineScore: 4,0Responses: 25Percentage: 80%

SBU: PipelineScore: 4,1Responses: 25Percentage: 82%

• Positive NPV but with a value thatcan be risky according the highinversion required• Positive IRR, but with a rate notmuch interesting to the investments• Medium score that representsNeither satisfied or some dissatisfiedin Customer Satisfaction• Medium score that representsNeither satisfied or some dissatisfiedin Willingness to Recommend• High level of Risk

Project D $ 9,5 Million 15,7%

SBU: OnshoreResponses: 47Percentage: 94%

SBU: OnshoreScore: 4,8Responses: 47Percentage: 96%

• Positive NPV with a valueinteresting according the inversion• Positive IRR• High score that represents Verysatisfied in Customer Satisfaction• High score that represents Verysatisfied in Willingness toRecommend• Relative low level of Risk

ECONOMIC RETURN MARKET RESEARCHProject Comments





Step 4th: Screening

The portfolio committee of LTG examining the detailed analysis performs to Projects A, B, C and D has decide to eliminate Project B and Project C by the follow reasons:

High level of Risk associated to the ProjectsValues of NPV and IRR that are not significant positive to the investorsNot much level of experience on projects relatedNot good acceptation of some projects performed by these SBUs

Step 5th: Optimal Portfolio SelectionThe portfolio committee of LTG has analyzes deeply the Project A and Project D according to the portfolio metrics defined and considering quantitative and qualitative characteristics of each project. In this point is performed an optimized selection of projects having in account aspects like interaction among projects, interdependences, competition for resources, and timing.

Figure 2. Inversion Required by Projects

Figure 3. NPV estimated of Projects




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Figure 4. IRR estimated of Projects

Figure 5. Customer Satisfaction of SBU associated





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Figure 6. Willingness to Recommend of SBU associated

According to the analysis performed, Project A and D has a significant low level of inversion and a high NPV and IRR in comparison with the inversion required by projects. The image of the company according the associated SBU related to the projects A and D are highly positive. In particular, the Project D has a slightly high performance over the Project A. It’s due to the successful results obtained by projects associated to onshore facilities.

The company has a very good perspective on onshore projects to the high level of exploration on regions like Piedemonte, Llanos Orientales and Putumayo in Colombia. Clients like Chevron, Occidental, Exxon, Pacific Rubiales, Perenco, Petrominerales and Petrobras are highly interested on develop projects and services to feasibility studies, well pad designs and gathering facilities to pump and compressor stations, oil and gas treating, and NGL recovery and storage facilities.

The implication of the selection of Project D over Project A could be highly to the company because it’s important to have a varied portfolio of project to reduce the level of risk associated to dependence with the Oil and Gas sector and particularly to projects associated only to onshore and production facilities.

The selection finally of the portfolio committee was to select strategy both Projects A and D to execute based on the high demands of projects associated and to use the good image that the company has on the Market. It open the possibilities to strengthen SBUs like Process Plants, Pipeline and Offshore due to the company will has increased incomes that help to booster this new strategies.

Step 6th: Portfolio Adjustment and Evaluation

At the end of each project, it’s important to perform an evaluation of project and its correlation with the portfolio strategies with the objective to optimize and balance the portfolio and implement the required actions of improve in the processes of the organization. The exercise developed provide significate feedbacks to decision makers on the portfolio committee of LTG by suggesting changes on resources and portfolio optimality.

The project evaluation provide a useful learning for future portfolio selection exercises. This step helps LTG to improve the portfolio process by implementation of improvements to optimize the future project selection to get better results.

We are really optimistic about the results obtained by the projects selected and the benefits that they will bring to the organization. The process implemented to evaluate are in constant change and improvement, which get its purpose with the feedback and valuable comments of all the LTG Company Team.

Hopping your comments and feedback,

Regards





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Leonardo Trigos GuerreroPortfolio Manager - LTG Company

2. INTRODUCTION

According to Tan & Faris (2008), “portfolio management is an integrated set of key business processes that when consistently applied enable you to plan and control investment that return optimal value”.

Veth (2006) explains that initiatives are the means to achieving the intent and purpose of the strategic objectives. This key components of initiative portfolio management that fits into the strategy related and closes the loop between strategy and action are: (1) explicit funding of investment in strategic initiatives, (2) the adoption of a formal and rigorous PM methodology and (3) a periodic review of the measurable impact of initiative on the business.





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As Luciano (2013, p. 1) explains, project portfolio management has a series of responsibilities that are indispensable, and must be guaranteed its fulfillment in an organization that has projections of a better picture of business focused on projects:

Determining a viable project mix, one that is capable of meeting the goals of the organization Balancing the portfolio, to ensure a mix of project that balances short term vs. long term, risk

vs. reward, research vs. development, etc. Monitoring the planning and execution of the chosen project Analyzing portfolio performance and ways to improve it Evaluating new opportunities against the current portfolio and comparatively to each other,

taking into account the organization’s project execution capacity Providing information and recommendations to decision makers at all levels

3. BACKGROUND

A. Company overview:

The selected company is the LTG Company that has established its reputation for engineering, design, project management, and construction management services of high quality associated to the oil and gas sector: refining and chemical; piping, automation & control, and process and manufacturing industries. The LTG Company provides a wide range of services for offshore structures and onshore production facilities, pipeline projects and industrial facilities for upstream, middlestream and downstream on the oil and gas industry. LTG performs all projects with innovation, energy, quality and excellence.

LTG has a valuable human resource with the best industry specialists from every discipline, supported with innovative technology and tools. The LTG services are focused in the belief of simplicity and fit-for-purpose, cost-effective approach following a simple philosophy: Provide the highest quality, highest value projects on time, within budget and assuring the customer satisfaction.

LTG Company facts:

Over 100 employees Headquartered in Bogotá, Colombia Over 100+ projects for 25+ clients

B. Mission:

The LTG Company has as mission to be recognized as a company leader and the first option in engineering, project management, procurement, and construction projects and operation in Colombia.

C. Vision:

The LTG Company quest is to embody an inspiring culture to motivate people to be heroes of our clients, partners and stakeholders and contribute to the development of a better society.





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D. Business situation:

With a new Boom in the Oil & Gas industry in recent years in Colombia, companies like Ecopetrol (NOC of Colombia), Ocensa, Bicentenario, ODL, Pacific Rubiales and Perenco has an increased request of projects related to project management, engineering, procurement, and construction in industrial facilities for upstream, middlestream and downstream to provide a enhance in the production perspective. This companies are currently LTG clients. According to EIA (2014), it’s expected that the Colombia's production continue growing in the next years.

Having in mind that perspective, LTG Company has selected inside its valuable portfolio strategies to promote some of its strategic business units (SBU) like automation and control (independent solutions for designing, developing and integrating client’s automation systems), process plants (Expert design and vast experience make LTG Company the top choice for petroleum refining and chemicals), pipeline (End-to-end pipeline solutions for the most challenging projects), onshore (provide the best solutions to production facilities) and offshore facilities (Award-winning engineering, design and support services for offshore production facilities), with the implementation of the best practices on project portfolio management to provide high benefits to the organization and ensure a best market position that allows to achieve its organizational goals.

E. Business value:

The business value of the portfolio developed and managed by LTG Company is to achieve the satisfaction of all its clients, and increase the participation of the company on the market of EPCM projects related to oil and gas in Colombia and in the region (Latin America) ensuring the implementation of core values like safety & assurance, relationships, social responsibility, people, innovation, financial responsibility and integrity as the heart of its business.

4. SBUs

According to Kerzner (2010), a SBU is an autonomous division that has a discrete marketing plan, competition analysis, and marketing campaign, and it’s a part of the larger business entity.

The business units of LTG Company are:

Automation and Control Industrial Offshore Onshore Pipeline Process plants

4.1. Automation and control

4.1.1. Mission and strategy





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In the Automation and Control Unit, the LTG Company offers independent solutions for designing, developing and integrating the client’s automation systems. The mission and strategies of this SBU are described in detail as follow:

A. Mission:

The Mission of the Automation and Control Division of the LTG Company is to become in a leader in providing engineering, integration and implementation of automation and control, and technologic solutions (IS) to the process industries in Colombia and in the region (Latin America).

B. Strategies:

The strategies provided by the Automation and Control division to improve the business unit outcomes are:

Provide full-services capabilities (from front end design to commissioning) Provide solutions fit-to-purpose Offers the vendor-independent advantages to assist in the selection process Share the large project experience as Main Automation Contractor (MAC) Supply customers with long-term client alliances Provide multi-discipline resources available to complement customer requirements and offer

single-source solutions Supply a structured approach of Project Management by the implementation of recommended

practices in PM, tools and systems for improve efficiencies and communication

4.2. Process plants


In the Process plants Unit, the LTG Company offers expert design and vast experience for petroleum refining and chemicals. The mission and strategies of this SBU are described in detail as follow:

A. Mission:

The Mission of the Process Plants Division of the LTG Company is to become in a leader in providing engineering, consulting and support services to the refining, chemicals, petrochemicals, and polymers industries in Colombia and in the region (Latin America).

B. Strategies:

The strategies provided by the Process Plants division to improve the business unit outcomes are:

Provide a vast process plant experience to all the clients Supply multi-discipline resources (including process engineers and project managers) with

high experience and knowledge in process industry





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Offers a high quality backed by a strong support team and project management and design tools

Supply solutions that minimize expenditures and optimize production Focus on successful execution, on schedule and on budget

4.3. Pipeline


In the Pipeline Unit, the LTG Company offers end-to-end pipeline solutions for the most challenging projects. The mission and strategies of this SBU are described in detail as follow:

A. Mission:

The Mission of the Pipeline Division of the LTG Company is to become in a leader in providing a full consulting service of pipeline systems in Colombia and in the region (Latin America).

B. Strategies:

The strategies provided by the Pipeline division to improve the business unit outcomes are:

Has trained personnel available when and where the client needs Offers high expertise to manage and implement any part of a pipeline or associated facility

projects Provide solutions in projects that includes: Onshore/Offshore Pipelines, Compressor/Pump

Stations, Meter/Regulator Stations, and Processing Facilities Provide engineering services that include: Feasibility/Due Diligence Studies, Engineering,

Design, Purchasing and Integrity Management. Field Services include Surveying, Drafting, Mapping, Right-of-Way Acquisition, GIS, Environmental Permitting, Inspection, and Construction Management

Focus on provide successful solutions on execution, on schedule and on budget

4.4. Onshore


In the Onshore Unit, the LTG Company offers its services on solutions related to production facilities. The mission and strategies of this SBU are described in detail as follow:

A. Mission:

The Mission of the Onshore Division of the LTG Company is to become in a leader in providing the best solutions to production facilities in Colombia and in the region (Latin America).

B. Strategies:





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The strategies provided by the Onshore division to improve the business unit outcomes are:

Provide project services from feasibility studies and concept development to completion for a range of oil and gas projects ranging from well pad designs and gathering facilities to pump and compressor stations, oil and gas treating, and NGL recovery and storage facilities

Offers experience on projects executed on a fast-track basis, with a fit-for-purpose design requiring innovation and environmental sensitivity, all are performed at the highest level of safety

Provide high experience and quality on projects related to CO2 enhanced oil recovery (EOR) projects, as well as gas fractionation plants and gas storage facilities

4.5. Offshore


In the Offshore Unit, the LTG Company offers its services on solutions related to offshore facilities. The mission and strategies of this SBU are described in detail as follow:

A. Mission:

The Mission of the Offshore Division of the LTG Company is to become in a leader in providing the best solutions on offshore facilities in Colombia and in the region (Latin America).

B. Strategies:

The strategies provided by the offshore division to improve the business unit outcomes are:

Offers offshore experience to major oil and gas producing regions in Colombia and Latin America

Provide consistently solutions on the cutting edge of innovation, and leadership in the design of lightweight and deepwater facilities with an emphasis on safety, operability/maintainability and cost effectiveness

Offers to our clients a complete project solution: From concept selection, FEED and detailed design all the way through to construction and project management, plus startup assistance

5. ORGANIZATIONAL STRUCTURES

According to Gereis (2000, p. 1), “a project-oriented organization performs simultaneously a number of different projects, associated with a portfolio”.

The selected structures for the LTG Company is a Project Oriented organization, because it can bring some of the follow benefits to the organization like shown by Gereis (2000, p. 1) as follow:

Defines “Management by Projects” as an organizational strategy Applies temporary organizations for the performance of complex processes Manages a project portfolio of different project types





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Has specific permanent organizations to provide integrative functions Applies a “New Management Paradigm” Has an explicit project management culture Perceives itself as being project-oriented.

Therefore, with this organizational structure, the LTG Company has the following organizational objectives to pursue:

Organizational differentiation and decentralization of management responsibility Quality assurance by project teamwork and holistic project definitions Goal orientation and personnel development Organizational learning by projects.

Figure 7. Influence of Organizational Structures on Projects [Source: PMBOK(2013, p. 22)]

Figure 8. Projectized Organization [Source: PMBOK(2013, p. 25)]

6. PORTFOLIO PROCESS

The selected portfolio process is based on the process model for portfolio selection described by Morris & Pinto (2007, pp. 102 – 106). Its selection is based on a compendium of reasons like:

An ordered sequence of steps that facilitate a clear documentation of the complete process since proposed projects to portfolio completion

It’s a process with flexible and logical activities that requires the complete participation of the portfolio selection committee





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The method described by Morris & Pinto (2007, pp. 102 – 106) provides a combination of the best characteristics of existing methods based on theory and the experience recollected by successful cases of study like described by Kerzner (2010, pp. 567 – 583).

In this way, the LTG Company will adopt the follow steps as the portfolio process:

Figure 9. Organizational Portfolio Management context

Step 1st: Methodology Selection

In this key step, LTG selects the best methodologies that fit according the requirements of its business strategy. In particular, LTG has selected Portfolio Matrices, Economic Return and Market Research. This selection is performed based on the flexibilities of that metrics with the different compendium of possible projects according the organization portfolio, and based on a decision maker understanding that facilitates the process of selection.

Step 2nd: Strategy development

The strategy development by LTG must to have in account factors like the local market, strengths and weakness of the company to build the strategic direction to develop the objectives of the project portfolio and estimate the resources required. This strategy developments can be performed with the experience, knowledge of the Oil and Gas sector in Colombia and the region, and the knowledge of the competition to create specific initiatives for competitive advantage to enhance the outcomes of the SBUs of LTG Company.

Step 3rd: Individual Project AnalysisIn this step, projects are analyzed individually according a set of parameters to establish an equitable comparison based on previous studies or historical information of related projects. The parameters to perform comparison are defined on the methodology for project selection.

Step 4th: Screening

Here, the portfolio committee of LTG examine in detail the projects to eliminate those that not meet the criteria defined previously.

Step 5th: Optimal Portfolio Selection





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In this step, the portfolio committee of LTG uses portfolio matrices because this tool consider a range of quantitative and qualitative characteristics. In this point is performed an optimized selection of projects having in account aspects like interaction among projects, interdependences, competition for resources, and timing.

Step 6th: Portfolio Adjustment

This steps performs a portfolio evaluation with the objective to get an optimized and balanced portfolio and provide feedback to decision makers on the portfolio committee of LTG by suggesting changes on resources and portfolio optimality.

Step 7th: Project Evaluation

The project evaluation provide a useful learning for future portfolio selection exercises. This step helps LTG to improve the portfolio process by implementation of improvements to optimize the future project selection to get better results.

7. SELECTION CRITERIA

Having in account the methodologies shown by Morris & Pinto (2007, pp. 99 -102) to select projects, LTG Company has define the follow methods that best fit the business requirements of the organization and helps the project portfolio selection:

Table 3. Methodologies to select projects in a Portfolio.

7.1. Economic Return

According to Valakevicius & Vaznelyte (2012, p.1), these quantitative techniques are very useful to provide a ranking information for decision makers having in account cost and schedule data with a high accuracy. The parameter to be applied on LTG process are:

NPV (Net Present Value)





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According to Chang, et al. (2010), the NPV should be calculated for every project so that all proposed projects in the PPM system can be compared. These project selection criteria consider only projects with positive NPV for funding, and higher NPV are favored over the lower. When a project has a zero NPV other factors may be analyzed. Projects with negative NPV are usually not funded.

IRR (Internal Rate of Return)

According to Chang, et al. (2010), the internal rate of return (IRR) is an estimate of rate of return of the investment that produces NPV zero. The IRR should be calculated for every project and used in the project ranking of the entire PPM system. Projects with higher IRR should be favored over projects with lower IRR. The LTG company should define the minimum IRR required as part of the project selection criteria so that projects with an IRR below that minimum IRR wouldn’t be funded unless there are other factors in the business case.

The selection criteria of Economic Return can be resumed as illustrated in the Figure 10.





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Figure 10. Economic Return selection criteria

The criteria for select this technique are:

According to Valakevicius & Vaznelyte (2012, p. 7), the risk and return provided by this method to select projects are tolerable (higher rate of return and low risk).

It provides a quantitative approach to measure important paramethers of projects to improve decision making process.

7.2. Market Research

According Rohland (2002, p. 1), an important aspects of a project success specially in NPD projects depends on anticipating consumer demands and scheduling projects to capitalize on these demands. Rohland (2002, p. 1) explains that more than one research method will give a clearer view of the market. LTG Company must select the correct methods that best apply to obtain significant information from market.

According to Morris and Pinto (2007, p. 100), the market research helps to take the historical information and research the market for the new product or new line of service of the company. The market research study the new potential clients or the new market. LTG Company identify some advantages of the implementation of Market Research on the organization:

The LTG company believe that market research guides communications with current and potential customers

Market research helps LTG to identify opportunities in the marketplace Market research helps to minimize risks Market research measure the LTG reputation Market research can help to establish trends It helps to establish the LTG market positioning

The selected metric for market research according to Farris et al. (2006), are the customer satisfaction and the willingness to recommend. Customer satisfaction is generally based on survey data and expressed as a rating. See the Figure 11 to get more details.





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Figure 11. Market Research Metrics selected

The implemented scale for the customer satisfaction and the willingness to recommend metrics can be seen in the Figure 12.

Figure 12. The Customer satisfaction Scale

According to Farris et al. (2006), within organizations, customer satisfaction ratings can have powerful effects. They focus employees on the importance of fulfilling customers’ expectations. Furthermore, when these ratings dip, they warn of problems that can affect sales and profitability.

A second important metric related to satisfaction is willingness to recommend. When a customer is satisfied with a product, he or she might recommend it to friends, relatives, and colleagues. This can be a powerful marketing advantage.

Purpose: Customer satisfaction provides a leading indicator of consumer purchase intentions and loyalty.

Customer satisfaction data are among the most frequently collected indicators of market perceptions. Their principal use is twofold.

1. Within organizations, the collection, analysis, and dissemination of these data send a message about the importance of tending to customers and ensuring that they have a positive experience with the company’s goods and services.

2. Although sales or market share can indicate how well a firm is performing currently, satisfaction is perhaps the best indicator of how likely it is that the firm’s customers will make further purchases in the future. Much research has focused on the relationship between customer satisfaction and retention.

Willingness to recommend is a key metric relating to customer satisfaction.





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Customer Satisfaction: The number of customers, or percentage of total customers, whose reported experience with a firm, its products, or its services (ratings) exceeds specified satisfaction goals.

Willingness to Recommend: The percentage of surveyed customers who indicate that they would recommend a brand to friends.

These metrics quantify an important dynamic. When a brand has loyal customers, it gains positive word-of-mouth marketing, which is both free and highly effective.

Customer satisfaction is measured at the individual level, but it is almost always reported at an aggregate level. It can be, and often is, measured along various dimensions.

The criteria for select this technique are:

It’s the method that best reflects the needs of the market The knowledge of the market and its needs are one of the most important aspects in a

successful portfolio and highly influences project selection

8. PROJECTS

The LTG Company has shown a high diversity of project according its business units.

8.1. Project A: ABC Plant Automation Upgrade Project

C. Description:

LTG Company has a new project to replace the ABC existing gas plant pneumatic control system with an Allen-Bradley ControlLogix system and Wonderware HMI. The project included approximately +1000 new (I/O) signals to the new control system and five operator consoles in the existing control room. LTG has the challenge to execute this work as a turn key project and provided direct hire construction services through a combination of Bogota based and local resources.

D. SBU

Automation and control

8.2. Project B: ABC Refinery expansion Project

C. Description:

LTG Company has develop detail engineering design, procurement and construction management for the ABC refinery expansion project, which will include a fluid catalytic cracking (FCC) complex to support additional light synthetic crude oil processing from Colombia’s oil sands. LTG must develop the front-end engineering design for the project and will provide over +600,000 man-hours of work to complete the detailed design.





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D. SBU

Process plants

8.3. Project C: ABC Storage and Transportation

C. Description:

The Orinoco’s Hub Gas Storage and Transportation project will be a high deliverability natural gas storage facility designed for injection, storage and withdrawal of natural gas in salt caverns to be created in the West of Orinoco region, in Colombia. The Orinoco’s Hub facilities will provide a nominal 1 BCFD of withdrawal and 600 MMSCFD of injection capacity with the capability for six turns per year with the initial 16 BCF working gas capacity expandable to 30 BCF working gas.

Installed gas compression will total some 32,000 HP with a combination of low emission engine drives and electric drives providing injection pressures to 3000 psig. Facilities include compression, dehydration, metering and pressure control, methanol injection, noise abatement, ground flare, dual 24” transportation pipeline to two customers, and ANSI 1500 30” facility to gas storage pipeline.

Project includes solution mining facilities and pipelines with capacity of 4000 GPM, installed pump horsepower of some 12,000 HP. Facilities include fresh water wells, brine disposal wells, pump station, filtration, tankage, and dome well safety and fire suppression.

Power to the site will be provided by a new 138 KV overhead transmission line, substations, and on site 24 KV distribution lines.

D. SBU

Pipeline

8.4. Project D: Heavy Crude Production Facility

C. Description:

Huron Natural Gas’ crude facility in the Piedemonte Region of the Eastern of Colombia. LTG Company has the challenge to performed engineering design, procurement, and construction management for an 80,000 BOPD API 14 gravity crude facility, including 330,000BWPD treating and injection, 110MMSCFD gas treating and injection, 20MW autonomous power plant in remote region. Includes field gathering and power distribution, infrastructure development, export pipeline and facilities, and two satellite production facilities.

D. SBU

Onshore





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9. CONCLUSIONS

According to Al-Arabi & Al-Sadeq (2008), the PPM has the follow major responsibilities:

Determining a viable project mix, one that is capable of meeting the goals of the organizations Balancing the portfolio, to ensure a mix of projects that balance short term vs. long term, risk

vs. reward, research vs. development, operation vs. project, etc. Monitoring the planning and execution of the chosen project Analyzing portfolio performance and ways to improve it Evaluating new opportunities against the current portfolio and comparatively to each other Providing information and recommendations to decision making at all levels

10. REFERENCE LIST

1. Tan, K. & Faris, R. (2008). A cookbook for Jump-Starting Project Portfolio Management. Project Management Institute Global Congress – Proceedings. Kuala Lumpur: Project Management Institute.

2. Veth, G. (2006). Initiative Portfolio Management: Making Decisions, DM Review, 16, 8, p. 8, Business Source Complete, EBSCOhost, viewed 11 June 2014.

3. Luciano, J. (2013). Risk Management at the Portfolio Level – What we can learn from insurance companies. Project Management Institute Global Congress – Proceedings. Orlando, Florida - USA: Project Management Institute.

4. EIA. (2014). U.S. Energy Information Administration. [Online] Available at: http://www.eia.gov/forecasts/steo/ (Accessed: 11 June 2014).

5. Al-Arabi, M. & Al-Sadeq, I. (2008). Establishing a Project Portfolio Management Office(PPMO). Project Management Institute Global Congress – Proceedings. Malta: Project Management Institute.

6. Kerzner, H. (2010) Project management best practices: achieving global excellence. 2nd ed. Hoboken, NJ: John Wiley.

7. Gereis, R. (2000). Program Management and Project Portfolio Management: New Competences of Project-Oriented Organizations. Project Management Institute Global Congress – Proceedings. Houston, Texas - USA: Project Management Institute.

8. Project Management Institute (2013). A Guide to the Project Management Body of Knowledge (PMBOK® Guide). 5th Edn. Newtown Square, Pennsylvania: Project Management Institute, Inc.

9. Morris, P. & Pinto, J. (2007). Wiley Guide to Project Program and Portfolio Management. 1st ed. Hoboken, New Jersey: John Wiley & Sons, Inc.

10. Valakevicius, E., & Vaznelyte, K. (2012). Development, Implementation and Evaluation of Multistage Investment Strategies. Engineering Economics, 23, 2, pp. 144-153, Business Source Complete, EBSCOhost, viewed 26 June 2014.

http://www.eia.gov/forecasts/steo/





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11. Rohland, P. (2002). Good timing: Marketing Projects that hit the mark. Project Management Network Journal, 16(2), pp. 41 – 42.

12. Sklaver, R. (2007). Driving Adoption of Your Project Portfolio Management System. Project Management Institute Global Congress – Proceedings. Atlanta, Georgia - USA: Project Management Institute.

13. Chiang, Y., Cheng, E., & Lam, P. (2010). Employing the Net Present Value-Consistent IRR Methods for PFI Contracts. Journal Of Construction Engineering & Management, 136, 7, pp. 811-814, Business Source Complete, EBSCOhost, viewed 9 July 2014.

14. Farris, P. et al. (2006). Marketing Metrics: 50+ Metrics Every Executive Should Master. 1st ed. Upper Saddle River, New Jersey: Wharton School Publishing.

11. APPENDIXES

Documents

FP1 - Week 8 - Final Responce - LTG