Planning and Execution of the

Investment Project (3 cr)

Project Implementation Methods

24.10.2015

Introduction

• the project implementation policy or –method is a model which describes how a single project will be implemented

• in addition to main models there are mixtures of all these and also different names given to these mixtures or even to same methods

• money is the main driver in selection of the implementation method

• different players in the project favour different implementation policies but also their main driver is money

• end of the day its the client who decides which way to go and will also take the consequences

• there is no one single policy or method that is superior to others in all cases. The evaluation have to be done case by case

• selection of any policy or method will not make any work to disappear but it will cast the corner stone for project success or failure

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Decision Parameters

What could be parameters

for the

project implementation method?

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Decision parameters

• Financing of the project

• Who has the main process core knowledge

• Experience of similar size projects

• Previous experiences of methods

• Own project personnel

• Investment strategy

• Main challenge – Project Driver

• Need to use local suppliers, contractors, service providers

• Availability of above

• Project complexity

• Location (legal, tax, unions, language)

• Risk taking ability

• Need to know actual costs

• Ready made or tailored ?

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• EPCM = Engineering -Procurement -Construction Management

• EPS = Engineering -Procurement -Supervision

• EPC = Engineering -Procurement -Construction

• OB = Open Book

• ESS = Extended Scope of Supply

• BOO = Build-Own-Operate

• BOOT = Build-Own-Operate-Transfer

• BOT = Build-Own-Transfer

• DB = Design-Build

• DBO = Design-Build-Operate

• DBFO = Design-Build-Finance-Operate

• FBO = Finance-Build-Operate

• FBOM = Finance-Build-Operate-Maintain

Implementation methods, examples

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EPCM – Principle Structure

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Owner’s

Project Team

EPCM-Contractor

Project Team

Suppliers

Vendors

Sub-Contractors

Supply Contracts

Manage, Control, Supervise

Se

rvic

e C

on

tract

EPCM – main characteristics

• Project owner remains fully responsible for the project

• EPCM-contractor is service provider to support owner in

– Project management

– Controlling and supervision of the sub-contractors

• EPCM-contractor is acting ”on-behalf” of owner

• All contracts in the project are signed by the owner and

the resp. supplier/vendor/sub-contractor

• Owner has the right/obligation to take final decisions

• Project owner bears all risk regarding schedule and

cost, but benefits also from gains

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EPCM Project Organisation

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Project Controls

Manager

Construction

Manager

Engineering

Manager

Project Manager

Commissioning

Manager

• EPCM Risk Man.

• EPCM Contract-

Management

• Change/Claim Man.

• Cost Control

• Scheduling

• Construction Planning

• Constr. Management

• Constr. Supervision

• Field Engineering

• QA/QC on Site

• HSE on Site

• Commissioning

Planning

• Training

• Test Run and

Start-up

• Process Testing

• Eng. Coordination

• Detail Engineering

• Engineering Tools

Project Office QA/QC/HSE Manager

Client Project Manager

Client Project Owner

Client Plant Manager

Procurement

Manager

• Purchasing

Planning

• Purchasing

Control

EPC – Principle Structure

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Owner’s

Project Team

EPC-Contractor

Project Team

Suppliers Vendors Sub-Contractors

Supply Contract

Sub-Contracts

EPC – main characteristics

• EPC-Contractor takes over full responsibility for the

project execution through a fixed price contract

(Lump sum turn-key (LSTK-) contract)

• All Sub-Contracts in the project are placed by the EPC-

Contractor with the resp. supplier/vendor/sub-contractor

• Project owner has limited rights to take decisions after

signature of the EPC-contract

• Risks, but also possible gains are transferred to the

EPC-Contractor

• To cover such risk, EPC-Contractor will include a risk

provision/contingency in his fixed price

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EPC Project Organisation

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Project Controls

Manager

Construction

Manager

Engineering

Manager

Project Manager

Commissioning

Manager

• Risk Management

• Contract-

Management

• Change/Claim

Management

• Cost Control

• Scheduling

• Construction Planning

• Constr. Management

• Sub-Contract Man.

• Constr. Supervision

• Field Engineering

• QA/QC on Site

• HSE on Site

• Commissioning

Planning

• Training

• Test Run and

Start-up

• Process Testing

• Process Eng.

• Plant Engineering

• Mechanical Eng.

• E+I Engineering.

• Architecture

• Civil Engineering

• Struct. Steel Eng.

Project Office QA/QC/HSE Manager

Client Project Manager

Client Project Owner

Procurement

Manager

• Procurement

Planning

• Purchasing

• Expediting

• Logistics

Supervisory Board

Project Sponsor Internal Audit Team

Comparison EPCM vs. EPC

Advantages/Disadvantages

of the two methods ?

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Comparison EPCM vs. EPC

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Disadvantages

• Compex project structure => incresed coordination effort

• No cost cap for owner

• Financing more difficult

• Full process responsibility and project risk remain with the owner

Disadvantages • Need for early detailed specification of

technical solution

• Owner’s participation is limited

• Owner will still suffer from bad performance of contractor

• Contractor may compromise on quality in order to save cost

EPCM EPC

Advantages

• Owner keeps full control on the project

• Owner benefits from cost savings

• Transfer of certain risk to several parties

• Selection of Suppliers/Sub-Contractors on

basis of detailed specification

Advantages

• Full project responsibility with contractor

• Clear structure – single point of contact

• Completion guarantee

• Fixed lump sum price

• Sound basis for financing

Comparison from Owner’s point of view

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EPCM EPC

Need for early decisions

Flexibility for modifications

Owner’s influence possibility

Cost Budget

Transparency of cost

Financial risk exposure

Risk provision

Overall project risk

High Low

High

High

Medium

High

High

Low

Low

Low

Estimate

Only realized risk

Medium

Fixed lump sum

Low

Incl. in contract price

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PROJECT IMPLEMENTATION METHODS

2 3 4 5 3 4

Project Management and Engineering

Main Machinery and Equipment (Supply and Erection)

Auxiliary Equipment

Piping, Electrical, Automation

Civil Construction Work

Main Equipment

Suppliers

EPCM Method Multi-package

EPC Method

and BOP EPCM

1 1 2

Civil construction could

be included in or excluded

from the EPC packages

3 2 1 2 1

EPC Method

(turn-key)

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Implementation Methods

Project Owner

Engineering

Consultant

Main process

machinery suppliers Civil Contractor(s) MEI-Contractor(s)

EPCM – Engineering, Procurement and Construction Management

Standard machinery

and material suppliers

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Implementation Methods Multi-package EPC – Engineering, Procurement, Construction

Project Owner

Engineering

Consultant

Main process

machinery suppliers Civil Contractor(s) MEI-Contractor(s)

Standard machinery

and material suppliers

Standard system’s

suppliers

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Implementation Methods

Project Owner

Engineering

Consultant

Main process

machinery suppliers Civil Contractor(s) MEI-Contractor(s)

Full EPC

Standard machinery

and material suppliers

Standard system’s

suppliers

TK Contractor

Who carries the Risk

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Capital

Ris

k P

rem

ium

s

multi-package

EPC EPC

Risks moved to Turnkey Contractor

Risks moved to Owner

EPCM

Method

Sa

vin

gs

Conclusion

Succesful project implementation

is all about

Management of Risk

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Select project implementation method so,

that risks are allocated to such party,

which is best positioned to manage it !

Thank you!

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CONTACT:

NAME: Jarno Peltonen

TITLE: Director, Pulp Technology

MAIL: jarno.peltonen@poyry.com