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Project ControlsAn Owner’s Perspective
Thierry Martel, ing., PMPDirector, Controls - Major Projects, SupportBusiness Development & Growth
Rio Tinto Alcan1188 Sherbrooke Street West, Montreal, Quebec, H3A 3G2, Canada
T: +1 (514) 848 8256 M: +1 (514) 518 3287 F: +1 (514) 848 [email protected] http://www.riotinto.com/riotintoalcan
6 December 2010
December 13, 2010 Rio Tinto Alcan major project development documentation 3
Rio Tinto Alcan – Project Development Framework
December 13, 2010 Rio Tinto Alcan major project development documentation 4
Major projects approval workflow
December 13, 2010 Rio Tinto Alcan major project development documentation 5
Project phases and responsibilities
December 13, 2010 Rio Tinto Alcan major project development documentation 6
How MPS supports major projects
• Ensure Compliance to all RT / Rio Tinto Alcan requirements and Provide Support to Rio Tinto Alcan major project activities (through monitoring of audits, participation in gate reviews and expert advice)
• Promote Uniformity (best practice) and Maximize Sta ndardization in the development and implementation of major projects. All projects should be developed according to common methodology, and in accordance to the gated process.
• Allocation & Deployment of Resources to various projects. Functional link to owner’s team personnel assigned on projects. Functions as “Home Base” for project personnel when not assigned to specific projects.
• Implementation of Major Project HSE Systems, Standa rds and Procedures to take HSE performance to World Class Levels
December 13, 2010 Rio Tinto Alcan major project development documentation 9
Rio Tinto Alcan has adopted the Rio Tinto naming convention
December 13, 2010 Rio Tinto Alcan major project development documentation 10
The way we buy
Communities policy
Antitrust policy and guidance
Major project development
guidance note
Capital cost estimation working practice
Operating cost estimation working practice
Estimating capital cost escalation
Guideline for preparation of PEP
Risk electronic guidance information system
(REGIS)
STANDARDS / PROCEDURES GUIDANCE NOTES CHECKLISTS TEMPLATES
The way we work
Risk policy and standard
Investment committee (IC)
guidance note
Project evaluation guidance
note (PEG)
Technical evaluation guidance
note (TEG)
Rio Tinto approach to risk analysis &
management
Business modelling guidance
note (BMG)
Study definition guidance note
(SDG)
Corporate governance standards
Communities standard
Closure standard guidance
Corporate health standards
Corporate safety standards
Corporate environmental standards
Resource and reserve standards
Construction contracting plan
Commissioning & ramp-up guide
Guideline for preparation of projects
Management control during implementation
Cost control during implementation guide
Cost controlling the scope of work
Rio Tinto closure standard guidance note
Closure costs estimating guideline
Framework for closure development plan
Post project review guide
Investment proposal guideline
Feasibility study checklist
Hazard management gudielines
Project management guideline
Project implementation best practice guide
Owners team tasks and the role of PDE
Appointing / managing an EPCM contractor
preparation of project procedures
Studies and implementation
manual
Standard / Procedure
(mandatory)
Guidance notes / checklists / templates
(recommended)
Policy
(mandatory)
Rio Tinto Alcan Document Map
December 13, 2010 Rio Tinto Alcan major project development documentation 12
Project Controls documentation
STANDARD
GUIDANCE NOTE
PROCEDURE
GUIDANCE NOTE
TEMPLATE
BD&G Studies and
Project Implementation
Manual
MPE-PCS-01
Project Controls
Management
MPE-PCS-02
Work Breakdown
Structure Development
MPE-PCS-05
Planning and
Scheduling
MPE-PCS-04
Estimating
MPE-PCS-03
Scope Management
MPE-PCS-07
Cost Control
MPE-PCS-08
Progress Measurement
MPE-PCS-06
Change Management
MPE-PCS-09
Project Reporting
MPE-PCS-04-02
Contingency
MPE-PCS-04-01
Escalation
MPE-PCS-02-02
Work Breakdown
Structure Dictionary
MPE-PCS-02-01
Capital Projects Work
Breakdown Structure
MPE-PCS-09-01
Monthly Flash
Report
MPE-PCS-09-02
Monthly Progress
Report
MPE-PCS-09-03
Cashflow Curve
Report
MPE-PCS-05-01
Smelter Template
Schedule
MPE-PCS-05-02
Refinery Template
Schedule
December 13, 2010 Rio Tinto Alcan major project development documentation 13
Project Controls document structure
December 13, 2010 Rio Tinto Alcan major project development documentation 14
Guiding principles
• Scope
– Clear definitions between Project Scope (Product) and Scope of
Work (Activities)
– Comprehensive Change Management process for project scope and
scope of work (trends, variations, etc)
– Template documents for WBS development and scope definition
(Facility Dictionary).
– STD WBS for integration of scope, cost and schedule but also
documents, equipment nos, ORP, commissioning, etc for smelter, mine and refinery.
December 13, 2010 Rio Tinto Alcan major project development documentation 15
Work Breakdown Structure
5 1 3 0
Are
a
Sub
-Are
a
Sys
tem
Bui
ldin
g
0 1 2 3 4 5 6 7 8 9
Direct Indirect
Describes an Operational Function
Describes a Plant Localization
Facility Breakdown
= Paste Area Equip
All
+ G B P
Commodities
Cat
egor
y
Typ
e 1
Typ
e 2
Work Breakdown Structure
= Areas
December 13, 2010 Rio Tinto Alcan major project development documentation 16
General Philosophy:
0 0 0 0 OFF-SITE WORKS1 0 0 0 SITE AND CIVIL2 0 0 0 UTILITIES3 0 0 0 RAW MATERIAL AND FINISHED PRODUCTS4 0 0 05 0 0 06 0 0 07 0 0 0 GENERAL SERVICES8 0 0 0 INDIRECT COSTS - PROF. SERVICES & CONTINGENCIES9 0 0 0 INDIRECT COSTS - OWNER'S COSTS
PLANT SPECIFIC
WBS - AREAS
Facility Breakdown - Areas
Primary Metal:
0 0 0 0 OFF-SITE WORKS1 0 0 0 SITE AND CIVIL2 0 0 0 UTILITIES3 0 0 0 RAW MATERIAL AND FINISHED PRODUCTS4 0 0 0 REDUCTION5 0 0 0 CARBON6 0 0 0 CASTING7 0 0 0 GENERAL SERVICES8 0 0 0 INDIRECT COSTS - PROF. SERVICES & CONTINGENCIES9 0 0 0 INDIRECT COSTS - OWNER'S COSTS
WBS - AREAS PRIMARY METAL
Refinery:
0 0 0 0 OFF-SITE WORKS1 0 0 0 SITE AND CIVIL2 0 0 0 UTILITIES3 0 0 0 RAW MATERIAL AND FINISHED PRODUCTS4 0 0 05 0 0 0 REFINERY - REDSIDE6 0 0 0 REFINERY - WHITESIDE7 0 0 0 GENERAL SERVICES8 0 0 0 INDIRECT COSTS - PROF. SERVICES & CONTINGENCIES9 0 0 0 INDIRECT COSTS - OWNER'S COSTS
WBS - AREAS ALUMINA REFINERY
Mine:
0 0 0 0 OFF-SITE WORKS1 0 0 0 SITE AND CIVIL2 0 0 0 UTILITIES3 0 0 0 RAW MATERIAL AND FINISHED PRODUCTS4 0 0 0 MINE5 0 0 06 0 0 07 0 0 0 GENERAL SERVICES8 0 0 0 INDIRECT COSTS - PROF. SERVICES & CONTINGENCIES9 0 0 0 INDIRECT COSTS - OWNER'S COSTS
WBS - AREAS MINE
December 13, 2010 Rio Tinto Alcan major project development documentation 17
Guiding Principles
• Planning and Estimating
– STD WBS for integration of scope, cost and schedule
– Templates for Primavera project schedules (level 3)
– Definitions for important Rio Tinto Alcan project milestones (FHM,
FGA, etc)
– Standard estimating practices aligned to RT
– Alignment with ORP, POV, and commissioning
December 13, 2010 Rio Tinto Alcan major project development documentation 18
Capital ProjectsCost Estimating/Accounting Structures
RFA
Project Costs Operation Cost
Post-NTP Costs Owner's costs Start-up Costs
Direct costs
Indirect costs
Project Team
Operation team
Commis-sioning
Start-up activities
Efficiency losses
Nominal Cost
Concept (Fel 0)G0: OoM Approval
Order of Magnitude (Fel1)G1: PFS Approval
Pre-Feasibility (Fel 2)G2: FS Approval
Feasibility (Fel 3)G3: Notice to Proceed
CapitalisedCapitalised
(1)Capitalised
Execution, constructionG4: Hand Over
CapitalisedCapitalised
(1)Capitalised Expensed Capitalised
Working Capital
Expensed (2)
Expensed
Commissioning and start-upG5: Production
CapitalisedCapitalised
(1)Capitalised Expensed Capitalised
Working Capital
Expensed (2)
Expensed Expensed Expensed
Ramp-UpG6: Financial Completion
Capitalised ExpensedWorking Capital
Expensed (2)
Expensed Expensed
(1) All indirect costs are capitalised except the costs for demolition, soil remediation, clean-up are Expensed(2) All financial costs are Expensed except Capitalized interests are capitalised
Phases GatesOPEX
Stock & WIP
Financial costs
Project < 100 M$ Project Finance (JV)
December 13, 2010 Rio Tinto Alcan major project development documentation 19
Estimating and benchmarkingBake furnace refractory
22,4
18,8
0,0
5,0
10,0
15,0
20,0
25,0
30,0
TOMAGO 1&2
ABI 1&2
ABI 3TOMAGO 3
DUNKERQUELAURALCO
ALMA
ALOUETTE 2
Sites
h/t
moyenne
December 13, 2010 Rio Tinto Alcan major project development documentation 20
Bake furnace refractory
0
5
10
15
20
25
30
35
ABI 1ABI 2
Alouett
e 1Alou
ette 2
Laur
alco
Alma
Arvida
St Jea
nDun
kerq
uePNL F
AC CPNL F
AC DAluc
hemie
7Aluc
hemie
4Tom
ago 1
Tomag
o 2Hills
ide 1&
2Moz
al 1
Sohar
Sites
h/t
MoyenneProductivité main d'oeuvre
CANADA
EUROPE AUSTRALIE
AFRIQUE DU SUD
MOYEN ORIENT
December 13, 2010 Rio Tinto Alcan major project development documentation 21
Substation total historical cost in MUSD (for 1 substation)
0
25
50
75
100
125
150
Dunke
rque
Laur
alco
Alou
ette
1
Alba
4Hills
ide1&
2
Alm
a 1
Moz
al1M
ozal2
Alou
ette
2
Alba
5
Soha
rCoe
gaKi
timat
Substation cost benchmark
MU
SD
December 13, 2010 Rio Tinto Alcan major project development documentation 22
GTC Cost benchmark
Cost assessment
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Civil work
Structural steelDucting
EquipmentsElectrical
AutomationErection
December 13, 2010 Rio Tinto Alcan major project development documentation 23
GTC cost in kUSD per pot GTC cost in USD per metric ton of capacité
050
100150200250300350400450500550600650
Dunke
rque
Laur
alco
Alouet
te1
Alba4
Hillside
1&2
Alma
1
Moz
al1
Moz
al2
Hillside
3Alou
ette
2
Alba5
Sohar
Coega
ALMA 2
Kitimat
GTC Cost benchmark
kUSD/pot
USD/t of capacity
kUS
D
US
D
December 13, 2010 Rio Tinto Alcan major project development documentation 24
Major Project, SupportEscalation update
December 13, 2010 Rio Tinto Alcan major project development documentation 25
US Steel prices
2009 and 2010 appear to be the right time to lock steel prices (fix & firm
or through hedges)
Cement on the other hand do not seem much affected by the crisis
0
2 00
4 00
6 00
8 00
1 0 00
1 2 00
1 4 00
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
0
5 0
1 00
1 50
2 00
2 50
3 00
S tru c tu ra l S te e l S te e l P la te R e b a r H o t-R o lle d S h e e t C e m e n t
Steel in $/t Cement PPI index*
*PPI: Producer Price Index – not a price in $/t like steel but an index from the Bureau of Labor Statistics
December 13, 2010 Rio Tinto Alcan major project development documentation 26
- 3 %
0 %
3 %
6 %
9 %
1 2 %20
06
2007
2008
2009
2010
2011
2012
2013
2014
Matching project spend to FX & escalation
8 4 %
8 8 %
9 2 %
9 6 %
1 0 0 %
1 0 4 %
2006
2007
2008
2009
2010
2011
2012
2013
2014
Esc
alat
ion
per
year
FX
exp
osur
e
by w
eigh
t
Escalation and FX exposures are at their lowest levels for the years 2009 and 2010. Best window to lock prices.
December 13, 2010 Rio Tinto Alcan 28
Contingency
Risks that Drive Accuracy:
• Systemic Risks : Risk drivers– Level of Scope Definition (most dominant at FEL1 and FEL2)– Level of technology in the process – Complexity of the project – Estimating database quality– Inclusiveness in the estimate– Experience and skill level of the estimator– Project Management & Control Effectiveness
• Project Specific Risks– Weather– Site conditions– Delivery issues– etc., etc.
Modeling contingency: best practice• Systemic risk : Parametric models appears to be more powerful than Monte
Carlo simulations since it addresses the problems that MC suffer:– Emotion– Extrema estimates of the triangular distributions (is it really the min or
the max?)• Project specific risks remain specific to each project therefore cannot be
assessed other than with Monte Carlo distributions. Do not forget to account for correlation.
December 13, 2010 Rio Tinto Alcan 29
Estimate accuracyBest practice
Estimate accuracy (width) improves as the level of project scope definition improves
This shows good contingency estimating, and good project control and change management practices
Goal: Cost at 50% Confidence Level Stays the Same
P50
FEL1
FEL2
FEL3
December 13, 2010 Rio Tinto Alcan 30
Estimate accuracyPoor performance
P50 Poor project control and change management practices, andinappropriate contingency allowance lead to huge cost growth
These are the +100% cost disasters that you read about in the press!
p?
December 13, 2010 Rio Tinto Alcan 31
Estimate accuracyImpact on project approval
True cost
OoM PFS FS
Systemic Risk = risk drivers = contingency
overestimation of the risk : Project may be killed with too much contingency
underestimation of the risk : Project value is at risk with too little contingency
December 13, 2010 Rio Tinto Alcan major project development documentation 37
Rio Tinto Alcan Major ProjectsTool set
Rio Tinto Alcan portfolio in Primavera P6, all projects
• Planning of projects through all stages, use of templates
• Rio Tinto Alcan resource planning and future needs
• Project master schedule linked to ORP and commissioning
Cost control, change management in PRISM
• Sustaining capital and major projects (selected)
• Interfacing with SAP
Risk management in Rio Risk
• Database of risk registers
Document control
• Documentum & Sharepoint
December 13, 2010 Rio Tinto Alcan major project development documentation 38
Future enhancements
• Increasing investments in petrochemical and natural resources to sustain growth in India/China
• Reduction in available resources
• Innovation needed to Increase capital effectiveness
• Implementation of value improvement practices
– From business case to scope and execution (Why, What and How)
• Rio Tinto Alcan has begun testing with Lean Construction
• Improve planning to increase efficiency and decrease risk (Execution and safety)