Nick Lavingia 1

World-Class Project Performance with Value Improving / Best Practices

Dr. Nick J. Lavingia, P.E.

Chevron

Project Management Consultant

APEGGA Annual Conference, Calgary

April 26-27, 2007

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Dr. Nick J. Lavingia, P.E.Project Management ConsultantChevron

Nick has over 30 years of Global Project Engineering, Management, Consulting and Training experience in the Energy industry. As a Project Management Consultant at Chevron, he provides Consultation and Training to Project Professionals worldwide.

Nick has a B.S. and M.S. in Chemical & Petroleum-Refining Engineering and a Ph.D. in Engineering Economics & Management from the Colorado School of Mines. He is a registered Professional Chemical Engineer in the State of California.

Nick is a member of Project Management subcommittee for Athabasca Oil Sands expansion project. He has published and presented many papers at technical organizations and is a recipient of industry award from Pathfinder for outstanding Contribution to the advancement of Project Management Technology and Chevron Chairman’s award for implementing Value Engineering throughout the corporation.

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Agenda

• What are Value Improving / Best Practices?• What is the Impact of these Practices on the

Bottom Line?• When to Conduct these Practices?• What is Selection Criteria for Applicable

Practices?• Who should Participate in the Workshops?• What Information is Needed for the Workshops?

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• Pre-Funding Assessment

• Value Improving Practices by IPA

• Peer Review

(Share)

• Decision & Risk Analysis

• Project Execution Planning

• Lessons Learned

(Seek)

Legend: AFE = Appropriation for Expenditure D = Decision Point PFD = Process Flow Diagram IPA = Independent Project Analysis, Inc. P&ID = Piping & Instrumentation Diagram

P&ID$

EST AFEPFD D D D D D$

EST

Phase 1IDENTIFY & Assess

Opportunities

Phase 2SELECT fromAlternatives

Phase 3 DEVELOP Preferred Alternative

Phase 4EXECUTE

(Detail EPC)

Phase 5OPERATE &

Evaluate

Value Improving / Best Practices

• Post Project Assessment

• Business Evaluation

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Project Execution Planning--Part A(The Strategic Project Planner by Richard Westney)

Defining the business goals that will determine project success

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Project Execution Planning--Part B(The Strategic Project Planner by Richard Westney)

Defining major phases, milestones, risks, organization, staffing and best practices to be used

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Project Execution Planning--Part C(The Strategic Project Planner by Richard Westney)

How time, cost, quality and resources will be managed

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What are Value Improving Practices (VIPs)?According to IPA: “VIPs are out-of-the-ordinary practices used to improve cost, schedule and reliability of capital projects”.• Used primarily during Front-End Loading• Formal, documented practices involving a repeatable work process with measurable results• Almost always facilitated by specialists from outside the project teamThere are dozens of special practices used in the industry that are possible VIPs such as team building, peer reviews, etc. Only practices with a demonstrated, statistically reliable connection between use and better outcomes are deemed VIPs.VIPs are more than:• “Just good engineering”• A special look at some aspect of the project• Cost reduction exercises• Audits• Project readiness reviews

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Impact of FEL & VIPs (from IPA)

1.0

1.1

1.2

0.9

Rel

ativ

e C

apit

al C

ost

Best Practical Good Fair Poor

Industry Average Cost = 1.0

FEL Improvement plus VIPs

FEL Improvement Only

FEL Rating

RELATIVE CAPITAL COST AS A FUNCTION OF FEL

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Value Improving Practices by IPA*

• Classes of Plant Quality

• Technology Selection

• Process Simplification • Design to Capacity - System Levels

• Constructability • Customized Standards • Waste Minimization • Energy Optimization

• Process Reliability Modeling

• 3-D CAD

Phase 1IDENTIFY & Assess

Opportunities

Phase 2SELECT fromAlternatives

Phase 3DEVELOP Preferred Alternative

Phase 4EXECUTE

(Detail EPC)

Phase 5 OPERATE & Evaluate

• Value Engineering

- Equipment Sizing

• Predictive Maintenance

Legend: AFE = Appropriation For Expenditure (Full Funding) EPC = Engineer, Procure & ConstructCAD = Computer Aided Design PFD = Process Flow Diagram D = Decision Point P&ID = Piping & Instrumentation Diagram

P&ID$

EST AFEPFD D D D D D$

EST

* IPA’s Value Improving Practices are Statistically Correlated with added value.

AFE

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Classes of Plant Quality

“A structured team review focused on validating project objectives and establishing the corresponding purpose design approach that best correlates with business needs. Also establishes the necessary facility to meet business goals. Characteristics such as capacity, life, product quality, flexibility, expandability, reliability, etc. are agreed to with decision maker”.Selection criteria:• Required on ALL projects to align project team with business objectivesDocuments required:• Spreadsheet with information on all 4 categoriesWho should attend:• Project Team and Project SponsorWhen Used:• Phase 2

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Classes of Plant Quality--Categories

RANGE from CATEGORY I TO CATEGORY IV

CAPACITY

PLANT LIFE

PRODUCT QUALITY

FLEXIBILITY

MARGINAL INVESTMENT CRITERIA

EXPANDABILITY

RELIABILITY

CONTROLS

MAINTENANCE

Designed for specific capacity

2-5 years

Meets specifications at one setof conditions

Little with limited turndown

Not considered even if highpayout

Difficult, tight plot plan

Sparing for orderly shutdownonly, less than 80% operatingfactor.

Simple, labor intensive

Little maintenance facilities,high maintenance costs

Over capacity expected

20 + years

Exceeds specifications

A lot with high turndown

Could be less than project payout

Easier, open plot plan

Sparing to keep plant up, 95% +operating factor

Complex, highly automated

Good accessibility, no majormaintenance costs contemplated

CHARACTERISTICS

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Technology Selection

“A formal systematic process by which a company searches for technology outside of the company (or, in some instances, in other divisions within the company) that may be superior to what is currently employed”.Selection criteria—Use this VIP if:• Alternate technologies are available• There are significant benefits in new technology• Future position in market can be enhanced• Risks and rewards for new technology are understood• There are various types of equipment to perform process functionDocuments required:• PFDs and cost estimateWho should attend:• Project Team and Technical ExpertsWhen Used:• Phase 2

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Technology Selection--Ranking CriteriaTECHNOLOGY SELECTION

POTENTIAL RANKING CRITERIA (Determined by Project Objectives)

FINANCIAL Rate of Return Net Present Value Life Cycle Cost Capital Constraints Low Cost Producer

WEIGHTING FACTOR

TECHINOLOGY Degree of Commercialization Process Risk License Fees Cost of Additional Development Time to Implement Yield Advantage

WEIGHTING FACTOR

ENVIRONMENTAL/SAFETY Emissions Incident Rate Potential Future Liability

LICENSOR Experience with the Technology Ability to do Total Process

Scope Experience with Retrofits

OPERABILITY Feedstock/Rate Variability Product Specification Ease of Handling Upsets

OTHER

MECHANICAL Reliability East of Maintenance Utility Requirements Plot Space Constraints Ease of Retrofit

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Process Simplification

“A disciplined analytical method for reducing investment costs--and often operating costs as well—by combining or eliminating one or more unnecessary process steps. This VIP uses the traditional Value Engineering methodology (Functional Analysis) to focus on process steps rather than individual equipment”.Selection criteria—Use this VIP if:• Project involves large number of process steps• There are alternative options for performing process functionDocuments required:• PFDs and cost estimateWho should attend:• Project Team and Process RepresentativesWhen Used:• Phase 2

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Value Engineering

“A disciplined method used during design, often involving the use of an internal or external V.E. consultant, aimed at eliminating or modifying items that do not contribute to meeting business needs. V.E. is a creative and organized method for optimizing the cost and performance of a facility. It is a function-oriented, systematic approach to eliminate and prevent unnecessary costs. The purpose of a V.E. study is to improve decision making and obtain lowest life-cycle cost without reducing quality.”.Selection criteria—Use this VIP if:• Capital investment is a key driverDocuments required:• PFDs, Plot Plan, P&IDs and cost estimateWho should attend:• Project Team, Experts from outside the Project Team and V.E. FacilitatorWhen Used:• Phase 3

Nick Lavingia 1796-06-10

Function of a Pencil

CO

MP

AN

Y

Component Function(s) Cost ($)

Eraser

Band

Wood

Paint

Lead

Alternatives--Mechanical Pencil, Marker, Chalk, etc.B = Basic FunctionS = Support Function

Logo

0.05

0.03

0.09

0.03

0.02

0.18

Pencil

B S

0.40

xx

x

x

xx

Make Marks

Remove Marks

Secure Eraser

Improve Appearance

Support Lead

Transmit Force

Display Info

Protect Wood

Improve Appearance

Advertise Company

Make Marks

xx

x

x

x

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FAST Diagram -- Definition

DESIGN

CONSTRAINTS

HOW

SCOPE LIMIT

SAMETIME

PRIORLATER SCOPE LIMIT

INPUT

LOWER FUNCTION

CRITICAL PATH

WHY

• Identify functions, not equipment.• Breaks large complex problem down into manageable pieces to facilitate evaluation.• Good basis for brainstorming.• Look for non-value adding steps; Functions that you Do and then Undo:

• Cool off, then heat.• Solidify, then melt.• Let down, then repressure.• Dissolve, then dry.• Store, then retrieve.

• Use in conjunction with cost information.

OUTPUT

HIGHER FUNCTION

CONCURRENTOR

SUPPORTINGFUNCTION

BASIC FUNCTION

SEQUENTIAL FUNCTION

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FAST Diagram--Big Oil Example

R EM O VEM ER C APTA N S

STA BALIZEC R U D E

SEPAR AT ELIQ U ID /V APO R

C O M PR ESSVAPO R

D ESALTC R U D E

TR EA TPR O D U C ED

W A TER

SW EETENG AS

D R YG AS

FR AC T IO N AT ELIQ U ID S

TR EA TAC ID G AS

M EETC R U D E P IPELIN ESPEC IF IC AT IO N S

C O LLEC TW E LL

PR O D U C TIO N

F.A.S.T. D IAGRAMBIG O IL PROJECT

SC O PELIN E

SC O PELIN E

DESIGN CRITERIA

K.I.S .S .

PR O JEC T F AC IL ITYO BJEC TIVE S

9 IT EM S

R EU SE BO U G H TEQ U IPM EN T

M EET N EWPIP ELIN E SC H ED U LE

6%

13%

19%

38%C LA U S - 22%

S C O T - 15%S U LF U R H A N D LIN G - 1%

W hyH ow

4%

20%

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FAST Diagram--Offplot Facilities Example

LOADPRODUCT

TESTPRODUCT

TRANSFERPRODUCT

OPERATEPIPELINES

BURNVAPOR

OPERATEPUMPS

SHIPPRODUCT

PRODUCEPRODUCT

F.A.S.T. DIAGRAMOFFPLOT FACILITIES

SCOPELINE

SCOPELINE

WhyHow

OPERATELOADING

ARMS

BURNVAPOR

STOREOFFSITE

BURNVAPOR

METERPRODUCT

TRANSFERPRODUCT

OPERATEPIPELINES

OPERATEPUMPS

RECYCLEOFFTESTPRODUCT

STOREOFFPLOT

TRANSFERPRODUCT

OPERATEPIPELINES

OPERATEPUMPS

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FAST Diagram—Office Building

HOW? WHY?

F.A.S. T. = Functional Analysis System Technique

Provide Heat

Distibute Air

Transport Air

CoolAir

Induce Outside Air

Control Temp

TenantsWork

Return AirPump

Chilled Air

Filter AirProvide Cooling

MixAir

HVACNeeded

Exhaust Air

$130K

$40K

$85K$2,600K

$510K$2,000K$1,600K

$1,000K

$70K

$130K

$35K$1,600K

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Value Engineering Documentation

No. FAST

Block

Idea Advantages Disadvantages Potential

(Cost) or Savings

Action

Item

Who When

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Design to Capacity

“The heart of this VIP is choosing how much allowance should be added to each major piece of equipment or system to meet business requirements. This practice is to set the lowest practical over-design factors to minimize excess capacity. Different equipment types or parts of the plant may be built to different levels of conservatism”.Selection criteria—Use this VIP if:• There is complex process with a number of process steps• Equipment costs represent a major portion of total project cost• Future expandability is critical• Significant pre-investment options exist• Significant cost increase of major equipment at specific capacity pointsDocuments required:• PFDs, equipment drawings and cost estimateWho should attend:• Project Team, Process Representatives and Equipment ExpertsWhen Used: • Phases 2 and 3

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Design-to-Capacity - Level Objectives

EQUIPMENT DESIGN-TO-CAPACITY LEVELS

EQUIPMENT Level 1 Level 2 Level 3 TYPICAL PAST PRACTICE

COLUMNS 1.0 1.10 1.25 1.25HEAT EXCHANGERS 1.0 1.10 1.25 1.25REACTORS 1.0 1.10 NOTE 1 1.0API FURNACES 1.0 NOTE 2 NOTE 2 1.0LEVEL CONTROLLED

PUMPS (NOTE 3)1.0 1.10 1.25 1.0

FLOW CONTROLLEDPUMPS (NOTE 3)

1.0 1.10 1.25 1.10

PIPING 1.0 N/A - NOTE 4 N/A - NOTE 4 1.0 - NOTE 5

RECYCLE CENTRIF.

COMPRESSOR1.0 1.10 NOTE 6 1.05

RECIPROCATING COMPRESSOR 1.0 N/A - NOTE 7 N/A - NOTE 7 1.0

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Design to Capacity--Example

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Design to Capacity Documentation

System / Equipment

Design

Basis

Function List Variables and their Causes

Design Allowance

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Constructability

“Analysis of the design, usually performed by experienced construction manager, to reduce cost or schedule and improve safety in the construction phase”.Selection criteria—Required on ALL projects:• Construction safety is important• Congested plant layout• Require special lifting arrangements• Complex plant for construction or constructed during a plant turnaroundDocuments required:• Plot plans, piping layouts, equipment drawings and craft discipline drawingsWho should attend:• Project Team, Construction Specialist and Heavy Lift ContractorsWhen Used:• Phases 2, 3 and 4

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Customized Standards

“Engineering standards and specifications can affect manufacturing efficiency, product quality, operating costs and employee safety. Sometimes the cost of a facility is increased by the application of codes, standards and specifications that exceed the facility’s needs”.Selection criteria—Use this VIP if the project:• Life cycle cost is the key driver• Owners standards and specs are not mandatory• New specs and standards applyDocuments required:• Local and industry specs and standards and cost estimateWho should attend:• Project Team, Specs and Standards ExpertsWhen Used:• Phase 2

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Waste Minimization

“A stream-by-stream analysis of how waste is generated by a process and how those waste streams can be eliminated, reduced, recycled, turned into saleable by-products or treated”.Selection criteria—Use this VIP if the project:• Is an environmentally driven project• Generates significant waste• Located in environmentally sensitive area Documents required:• Heat & Material Balances and PFDs Who should attend:• Project Team, Licensors and Technical SpecialistsWhen Used:• Phases 2

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Energy Optimization

“A simulation methodology for optimizing the life cycle costs by examining power and heating requirements for a particular process. The objective is to maximize total return based on selecting the most economical methods of heat and power recovery”.Selection criteria—Use this VIP if the project:• Is a significant energy consumer• Alternate designs exist that can reduce energy consumptionDocuments required:• Heat & Material Balances and PFDs Who should attend:• Project Team and Pinch Analysis ExpertsWhen Used:• Phases 2

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Process Reliability Modeling

“Reliability simulation uses sophisticated computer simulation modeling capabilities to simulate the mechanical reliability of a process facility. Reliability modeling is a quantitative analysis of annual production and plant availability aimed at improving overall production capability. The practice is a method for evaluating the affect of different design configurations on plant availability and can help decide what equipment to spare and how to minimize downtime”.Selection criteria—Use this VIP if the project:• Reliability and availability are key project drivers Documents required:• PFDs, Plot Plans, P&IDs and Equipment Failure and Repair DataWho should attend:• Project Team, Reliability Group and Simulation Modeling ExpertWhen Used:• Phases 2 and 3

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Reliability Modeling Vs. Reliability Centered Maintenance

Reliability Modeling

• Reviews impact on total facility

• Highlights areas of opportunity

• Allows unlimited “What-If” cases

• Model can easily be updated

• Highlights impact on revenue stream

• Determines overall plant or facility operating factor

Reliability Centered Maintenance

• Reviews one piece of equipment

• Identifies how to improve operating factor

• Reviews how to decrease maintenance expense

• Develop contingency plans in the event of a failure

• Determine how to mitigate failures

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Reliability Modeling--Data Needed

Operating Rate(Units/Hour)

Scheduled Outages--Frequency (#/Year)

Scheduled Outages--Duration (Hours)

Equipment Description (Model #)

Equipment Failure Rate (#/Year)

Equipment Repair Time (Hours)

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Reliability Modeling--Benefits

• Quantifies Operating Factor

• Provides a Tool for “What if” Cases

• Provides data to justify Capital Expenditures

• Identifies areas for Reliability Centered Maintenance (RCM)

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3-D CAD

“Extensive use of 3D Computer Aided Design (CAD) during FEL and detailed engineering. The objective is to model the project in the computer to reduce the frequency of dimensional errors and spatial conflicts that cause design changes during construction. The use of 3D CAD also improves visualization for operations input and training”.Selection criteria—Use this VIP if the project:• Is a greenfield project or stand alone• Existing facility drawings are available in 3D CADDocuments required:• PFDs, Plot Plans, P&IDs, Detailed Equipment Arrangements and Equipment DrawingsWho should attend:• Process Licensors, Technology Specialists and ContractorsWhen Used:• Phases 2, 3 and 4

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Predictive Maintenance

“An approach to maintaining facilities whereby equipment is monitored and repairs effected as indicated before failure. Predictive maintenance makes use of advances in sensor and instrumentation technology to monitor characteristics such as heat, lubrication, vibration, cracking, noise, and presence of corrosion products”.Selection criteria—Use this VIP if the project:• Involves large rotating equipment or machinery• Reliability and availability are key project drivers Documents required:• PFDs, Plot Plans, P&IDs and Equipment DrawingsWho should attend:• Project Team and Predictive/Preventive Reliability GroupWhen Used:• Phase 3

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Summary

Structured Project Development & ExecutionProcess and Application of Applicable VIPs at the Right Time with the RightParticipants can help achieve World-ClassProject Performance:• Better• Cheaper• Faster• SaferPROJECTS