Tuning Into Your Client

Ginette B. Basak, MBA, P.E.

Calgary, CANADA

Summary Tuning into your client will improve chances for project success and avoid client dissatisfaction. This paper will help contractor project controls understand how the project fits into the clients wider business to not only meet stated project controls needs but also assist the owner in defining and clarifying them fully. INTRODUCTION There is increasing dissatisfaction in the ability to control capital projects within owner organizations for large-scale complex industrial facilities such as oil refineries, gas and chemical processing plants, and mining. Engineering/Procurement/Construction (EPC) contractors provide planning, design and construction services to owners, including extensive project controls capabilities. Often, a contractor must rely on their perception of which project controls information would be important to the owner. If this does not align then it results in conflict and frustration for both groups. The terms client and owner will be interchangeable in the context of this paper. The objective of this paper is to help the contractor understand how the EPC project fits into the clients wider business by focusing on key areas in the clients world that impact project controls. This paper will also present suggestions on how contractor project controls personnel can tune into their client and establish an on-going dialogue through the life of the project. It will also address what owners can do to facilitate this process. It is important to remember that the client has a vested interest in the contractors success (1). CURRENT SITUATION Owner Dissatisfaction with Project Controls A recent survey of owners/operators involved in capital construction projects in the chemical and hydrocarbon process industries revealed dissatisfaction in the ability to control projects and to provide good information to owner project teams within their organizations (2). The survey attributed the decline in project control capability to several factors, including substantial downsizing, and even elimination, of owner project controls resources. This reduced capability often results in poorly communicated project control expectations to contractors, starting with contract bid documents deficient in what owners are looking for from contractors. Contractors must then rely on what they feel is important project control information for owners. If this does not align with what an owner wants or needs then the requested changes in desired information during the execution phase result in owner/contractor confrontation.

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Contractor Project Controls Contractor project controls provide key information at different suitable levels of detail to various stakeholders to help them manage their work. It is easy for contractor project controls personnel to become engrossed in the heavy immediate demands of complex multiple tasks, frequent deadlines, and the assessment of inevitable changes on their project. Once a project is approved, there is pressure on project controls to quickly set up their tracking and reporting systems. If client project controls specifications are minimal or unclear at set-up time, then subsequent client demands for additional or different information and/or different timeframes are disrupting and frustrating. Failure or Success? The perception of the failure or success of a project may differ based on individuals. A project deemed to be successful by a contractor may still be perceived as less than stellar by the client if some of the owner expectations were not well met. There are excellent resources that deal with project success factors (3,4,5). Understanding the clients business and organizational culture will make it easier to clarify and meet their project control objectives, resulting in reduced frustration levels for the client and contractor as well as enhanced opportunities for success. THE CLIENTS WORLD Understanding the clients business is not necessarily easy for the contractor. However, it is important to know how the project fits into the clients wider business (6). The objective of this section is to focus on some key areas within the clients world that have a major impact on project controls to enable contractor project controls personnel to understand the demands and pressures on client representatives during the planning, design and construction of capital facilities. The contractor will then be better equipped to develop and implement appropriate project controls processes and deliverables to meet client needs. Client Organization Client organizational structures vary from company to company, based on history, economics and culture. Contractor project controls need to understand the extent of owner project control capability as well as the decision-making process in order to better define and meet client needs. The following are examples of various types of owner configurations as related to capital project controls capabilities. Some clients have large capital project support groups while others have none. Owner capital project controls group. No project controls group but a project management group. Project engineer only. Accounting group only (usually ERP systems).

The further the move away from an established owner project management/project controls group, the more questions contractor project controls will need to ask to ensure mutual understanding and definition of project controls needs and deliverables.

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Business Life Cycle And Project Life Cycle Although designing and building complex industrial facilities may seem all encompassing, these activities only represent the acquisition phase of the business life cycle of this asset. The owner is responsible for the entire asset life cycle, including the planning, acquisition, operation, retirement and disposition of the facility. There are usually many components and well-defined approval gates within each major phase. Early planning includes several iterations based on economics and corporate strategic plans. This phase may span several years before a contractor is awarded the design and construction of the facility. In some instances, a contractor will also assist owner in-house personnel in developing cost estimates and feasibility studies during earlier planning exercises. Fiscal Versus Project Time Frames Although contractor project controls primarily focus on project durations, it is important to understand why the client needs project information broken down by the companys fiscal units, i.e. calendar months, quarters and years. Owner companies are usually operating companies with very long-term time frames. Capital expenditures are components of annual budgets leading to the importance of fiscal reporting for client reps on projects. Owner Costs Design/build contractor project costs represent a sub-set of the clients total costs. Additional capital costs may include such items as land acquisition, infrastructure, owner team members and cost of financing. The owner also needs to consider operating costs, including early items such as the purchase of operating spares and catalysts. At all times, the owner has to keep in mind the impact of changes during the capital cost phase on ensuing operating costs. Sometimes a cost reduction in capital costs that seems viable may lead to an increase in operating costs. Although contractors may not be responsible for providing operating costs they need to take them into consideration during process studies and equipment selection, as well as in the assessment of changes. The owner also has a contingency in addition to the contractor project contingency. This is to take into account anticipated scope growth and evaluated risks for total capital costs, including contracted facilities by one or multiple contractors and other owner costs. In some owner organizations such as Exxon, there is a rigorous process in place that includes periodic review and depletion of contingency as the project progresses. Project Funding When dealing with a major multi-national company it would be wrong to assume that funds for a specific capital project are limitless. It is important to understand how capital projects are funded within owner organizations. In some cases, companies are self-financed, often based on projected annual revenues. In other cases, owners will share the risk by forming partnerships or joint ventures with other companies. Banks or governmental agencies may also finance some projects. In large companies with multiple concurrent projects, there is usually fierce competition for capital funds at various stages of project development and execution. Changes to the costs or schedule of a capital project during the design/construction phase need to be communicated to the client

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as early as possible to assess the impact on funding resources within the owners organization. For example a two-month project delay that slides into the next fiscal year or a major increase in costs may lead to client reassessment of both timing and sourcing of funds. Sometimes, the economic viability of the project itself may need to be re-examined. TUNING INTO YOUR CLIENT Armed with an appreciation of the clients business and organizational culture, contractor project controls can better assist the owner to identify key project decision points as well as define and clarify realistic and specific cost objectives, common terminology, desired level of reporting, deadlines, cash flow management, risk analysis and contingency management. This may also include educating the client as to what constitutes good practices with respect to project controls, leading to further mutual understanding and agreement. Initial Project Set Up Defining a project is a process of establishing clear objectives, key success criteria and evaluated risks. Initial project set up activities are critical in promoting a dialogue between the client and the contractor that will lead to developing a solid project execution basis. It is assumed that basic project management practices will be implemented leading to the definition of such items as governance, client organization and rosters, roles and responsibilities, project strategies, reporting and communications. There are many publications available outlining project initiation activities and checklists. The intent of this paper is to focus on project controls aspects rather than the broader sphere of project management. It is imperative that project controls personnel be involved in these early discussions and planning activities as it would be risky to assume that other project personnel can speak on behalf of project controls. Each client and project have unique elements that need to be considered beyond simply repeating what was done on a past project. If there is not enough time to cover all of the project controls items at the kick-off meeting, then a separate meeting on project controls is warranted. The following are examples of project controls items that should be considered: Terminology There is a multitude of different interpretations when it comes to project controls terminology, even within the contractors project team. It is essential to ascertain what people perceive to be their understanding of the following key project controls terms by asking the right questions. If there are different perceptions, then there is an urgent need to arrive at a mutual agreement for this particular project or these issues will come to haunt the project throughout its life, and even after project completion: o o o o o o Budget and forecast (original and current) Schedule hierarchies: levels Estimate classifications and accuracy ranges Scope base, cost and schedule control baselines, and scope changes Types of costs: Incurred costs, committed costs, expended costs Contingency

Estimates A detailed checklist will help determine if the client has specific inputs or constraints based on their experience or the particular project (location, legal, environmental, permits, economics, community relations, operations), as well as risk ownership for escalation and currency

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fluctuations. project.

It is also important to establish what comes under owner costs for this particular

Timeframes It is important to clarify the timing of reports to the client. Contractor systems are often based on bi-weekly periods and 4-week accounting cycles. The client is fiscally driven and usually needs cost data by calendar months, quarters and years. This includes establishing owner deadlines for forecasts needed to support client funding requests. Client codes Any requirements for client coding should be defined early while the contractor is setting up its systems. If problems arise in mapping to contractor codes, then these must be resolved quickly before values start populating the database. The worst-case scenario would be client changes to their coding after set up. Cash flow forecasts Establish and clarify what types of forecasts are required, including cost types, level of detail, format and timing. Funding and cash management are key deliverables to client organizations to meet their corporate financial needs. Reports Timely, accurate, and meaningful cost and scheduling reports are required. Verify the end use for which information is required, i.e. the decisions it supports, to determine the clients needs. Unless dealing with a project controls counterpart in the client organization, dont assume that there is a common understanding of standard project controls reports ask, explain, discuss, show sample reports and agree. The ultimate aim is to meet client needs while adhering to basic project controls principles. Key items to consider are content and level of detail to be communicated, as well as frequency and format. It is important to differentiate between control level details for contractor work and summarized project levels of detail for presentations to management and client use. Communications Client feedback systems should be established to ensure an on-going dialogue with client representatives and client project controls counterparts. When in doubt, the contractor should ask the client questions to ensure mutual understanding of requirements and expectations. If there is a difference in perception, the contractor should work it out with the client resisting the temptation to carry on or produce standard reports regardless. Contractor project controls should not assume what the clients priorities are without asking as these may change over time depending on various factors and upset thresholds. HELPING THE CONTRACTOR TUNE IN The client can help the contractor tune into his needs in various ways. examples of what an owner can do to facilitate this process: The following are

Present an overview of the client organization, with specific reference to cost and scheduling objectives, project controls capability and financial reporting requirements. State explicit and clear project controls objectives. Provide prompt responses to contractor inquiries. Meet decision point timelines as agreed to. Provide early warning of potential new requests.

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Minimize changes in order to minimize extra work and delays. If unsure or unclear about any project controls information, talk to the contractor. Maintain an on-going dialogue with contractor project controls.

CONCLUSION The benefits of tuning into the client far outweigh the efforts involved in trying to understand the clients business and in establishing a continuing dialogue with the client through the life of the project. Some of these benefits are quite concrete such as more informative project controls reports, suited to the clients needs. Other benefits are less tangible but extremely valuable in the long run as strong business and professional relationships are developed between owner and contractor. In the end, project controls personnel are really information brokers who are highly dependent on a continuous flow of quality information from project stakeholders in order to provide timely and meaningful cost and schedule impacts and recommendations. Tuning into the client is a vital component of project controls. ACKNOWLEDGEMENTS In addition to my colleagues at Teck Cominco and TransCanada PipeLines, I would like to thank the following client reps and colleagues, Greg Sillak (PetroCanada), Duncan Lancaster (Shell), Dave Squires (Esso Resources), Jim Overall (Canadian Natural) and Horace Gopeesingh (EnCana), for their guidance and comments over the years. REFERENCES 1. 2. 3. 4. 5. 6. Mindconnection. Project Management: Doing it better. 2003, internet website article, (mindconnection.com/library/business/projectmanagement.htm) Cabano, Stephen L. Regaining Control of Project Control. 2003 AACE International Transactions, CSC11. Morgantown, WV: AACE International, 2003. Industry Search. Building Success: The Owners Perspective in Construction Management. 2003, website article, (searchsubmit.com.au/features/building.asp) Rad, Parviz. Project Success Attributes. Cost Engineering, Vol. 45, No. 4, April 2003. Managing the Project as a Whole. Building Projects Practice Manual, Exposure Draft #2.3, March 2003, Internet website. Major Projects Association. Setting the Objectives and Understanding the Clients th Business. MPA 19 Annual Conference, Buckinghamshire, U.K., Sept 2001.

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