Scheduling Estimating Project ControlsProject Controls, like project management, is much an art as it is a science. The secret of good project controls inside an Engineering, Procurement

A SunCam online continuing education course

Introduction to Scheduling and Estimating for Project Controls

By

Eukeni Urrechaga, PE

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Scheduling for Project Controls


www.SunCam.com Copyright 2012 Eukeni Urrechaga, PE Page 2 of 40

Quick view at Project Controls Project Controls, like project management, is much an art as it is a science. The secret of good project controls inside an Engineering, Procurement and Construction (EPC) environment is not just the tools used in the project, but the way the tools are set, used, maintained and how seriously the project team looks at it. The simplest definition for Project Controls (PC) is: “A unit within an organization or project, tracking continuously the project’s actual and planned conditions. This unit not only has the mission to inform management of current and potential variances between these conditions, but also to provide cause of the problem and potential solutions to reduce or eliminate the gap between them.” (Refer to Diagram 1.1)

Diagram 1.1 For a moment, let us look at PC as a sophisticated trip computer. During the planning phase, the trip computer will be connected to multiple information sources to provide you with choices of potential routes, time/date of arrival, fuel consumption, distance,

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traffic, etc. In addition, this trip computer will inform you how your choices will impact your trip and while on route, it will continuously update status, location and accrued fuel cost. Depending on your previous choices and actual conditions (speed, route, traffic, weather, etc.), the computer will inform you the remaining duration, final distance of travel and cost when the trip is complete. By knowing the status every step of the way and how choices impact the remainder of the trip, the driver will be prepared to make informed decisions that are aligned with his priorities (time and/or cost). One of the primary sources and tools in PC to track the actual conditions, record the plan (baseline), run analysis, and detect variances is the schedule. There are different types of schedules to meet different project requirements. Along this course, the most significant types under a PC umbrella will be introduced.

Diagram 1.2

Since each phase is equally important in an EPC environment and individual impacts can compromise the entire project, the schedules should interconnect all phases to make sure the project’s phases are performing individually and as a group. (Refer to Diagram 1.2). This strong and sensitive bond also requires real time connection to all phases simultaneously in order to perform timely analysis at the phase and overall project levels.

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Before diving into EPC scheduling, it is essential to have a PC Foundation in place (Refer to Diagram 2.1), i.e. the Work Breakdown Structure (WBS), Cost Breakdown Structure (CBS), and Organizational Breakdowns Structure (CBS). These concepts are discussed in the Introduction to Project Controls Planning Course.

E

P

E

C

P CWBS

OBS

CBS

WBS

OBS

CBS

2-D 3-D

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Scheduling EPC scheduling, also known as EPC management, is a group of databases, processes and information used to manage a complex project. By implementing EPC management, project team members are able to standardize processes, obtain insight into existing and potential problems, eliminate poor communication and increase the accuracy of time and cost. PC schedules allows the project manager and the team to:

Build timelines Build a project baseline Obtain and track critical paths and dependencies Manage resources and supplies Level resources and supplies Initiate workflows Provide audit trails Track change requests

EPC scheduling also known as the Controls Schedule (CS) is a fundamental and challenging activity in the management and execution of EPC projects. It combines the choice of technology, the definition of work tasks, the estimation of the required resources and durations for individual tasks, cost, and the ID/documentation of any connections among the different work tasks. A good EPC plan is the basis for developing the budget and timeline to be included in the CS. Developing the EPC plan is a critical task in the management of a project. In addition to these technical aspects of EPC planning, it may also be necessary to make organizational choices about the interactions between project participants and even which subcontractors to include in a project. Essential aspects of EPC scheduling include the generation of required activities, analysis of the benefits and repercussions of these activities, and options among the various alternative means of performing activities. Planners face the usual problem of choosing the best among numerous alternative plans without deviating from the project’s plans and specifications.

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In developing an EPC schedule, it is common to adopt a primary emphasis on either cost control, on time control or priority as illustrated in Diagram 2.2. Some projects are primarily divided into expenditure groups with associated costs. In these cases, EPC scheduling is cost oriented. Within the groups of expenditure, a distinction is made between costs incurred directly in the performance of an activity and indirectly (overhead and administration) for the completion of the project. For other projects, timeline of work activities is critical and is emphasized in the scheduling process. In this case, the planner insures that priorities among activities are maintained and that efficient programing of the available resources prevails. Other scheduling procedures emphasize the maintenance of task priority to avoid project slippage also know as Critical Path Method (CPM), availability of material or efficient use of resources over time (resource leveling).

Diagram 2.2 All EPC projects schedules require consideration of all cost, time, priority and resources in order to have proper planning, status monitoring and documentation.

Time

Cost

Resources

EPC Priority

Material

Control Schedule CS

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When selecting alternative methods and technologies for the CS, it may be necessary to develop preliminary schedules using standard methods and assumptions. Once the full plan is available, then the cost, time and reliability impacts of the alternative approaches can be reviewed. Preliminary schedules are often made in bidding stages, which several alternative designs may be proposed or value engineering for alternative procurement and construction methods to be allowed. The choice of software should depend on the WBS capabilities. The WBS is the backbone to manage the scope of work and for such reason the selected software should perform in the same way. Software packages that include WBS as secondary features should be avoided since these are not designed to manage or analyze the schedule through the WBS. Activities Schedule development is the process to define activities that must be accomplished under each work group of the WBS. These activities represent the necessary effort to complete the work at each work group of the WBS. In addition to the activity, estimating the resources, productivity level, predecessor, and successors are required to develop an appropriate timeline for the schedule. Depending on the phase, activities may be also referred as task, (construction), operation (manufacturing/shop) or package (engineering). All these terms are equivalent. The scheduling challenge is to determine an appropriate set of activity start time, resource allocations, sequence, relationship to other activities and completion times that will result in completion of the project in a timely and efficient fashion. In this planning, defining activities, technology, design and fabrication approach, and construction method are typically done either simultaneously or in a sequence of iterations. The planner’s responsibility is to help coordinate and capture the plan at each individual phase to further analyze and validate that the overall plan is feasible (Refer to Diagram 2.3).

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Diagram 2.3 The description and explanation of appropriate activities can be a laborious and tedious process; nevertheless these are requirements for application of formal scheduling procedures. Since EPC projects can involve thousands of individual activities, this definition phase can also be expensive and time consuming. Fortunately, many activity sequences (a group of activities with developed relationships) may be repeated in different parts of the project due to repetition of work. In addition older project activity sequences can be used as general models for new project. For example, the activities involved in the construction of a highway segment may be repeated with only minor differences for each of the segments of the highway. Also, standard definitions and nomenclatures for most activities exist. As a result, the individual planner defining work tasks does not have to approach each facet of the project entirely from scratch. This activity packages are sometimes referred as “Fragnets”(Refer to Diagram 2.4).

ActivityWork

Sequence

Productivity Dates

Resource

Relationship

Fragnet File

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Diagram 2.4 While repetition of activities in different locations or reproduction of activities from past projects reduces the work involved, there are very few software packages and apps for the process of defining and storing activities packages. Databases and information systems can support in the storage, recall, and distribution of the activities associated with past projects (generic models). Regardless of how sophisticated or extensive the fragnet library is, the quality of the schedule will heavily rely on the skill, judgment and experience of the planner. In general terms, the set of activities defined for a project should be complete or completely thorough so that all necessary work tasks are included in one or more activities. The level of detail of a schedule should be in alignment with the objective and for such reason it is not practical for one single schedule to meet all the objectives of an EPC project. This creates the need to develop different types of schedules, which will be further discussed during this course (Master, Control and Detail). The time required to perform an activity is called the duration. The beginning and the end of activities are markers, indicating the progress of the project. When key requirements are outlined in the contract, it is convenient to define these as activities that have no duration also called milestones. This is a good way to mark important events too. Similarly, receipt of governing approvals would also be specially marked in the project plan as milestones. The extent of work involved in any one activity can vary in EPC projects. It is common to begin with fairly rough definitions of activities and then to further breakdown tasks as the plan becomes better defined. This is called a Top-Down approach, which is the recommended path in most cases. A Detail approach or Bottom-Up is usually not recommended since the planner is focused in the little pieces and looses sight of the big picture. Bottom-Up approach is proven to interfere with other project tasks when these are interconnected. The WBS and the activities must be in line at all times. A good technique is to immediately link every new activity to WBS maintaining the organization structure as you go and not way until the end to perform this task. Similar to the WBS, activities can also have hierarchy or tree type structure. Higher-level activities in the tree represent decision nodes or summary activities, while ramifications in the tree lead to smaller components and work activities.

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The number and detail of the activities in an EPC plan is a matter of judgment, contract requirements and/or standard. As mentioned before, to meet project requirements, multiple schedules should be developed since one single schedule cannot meet all requirements or audiences (further discussed in this course). In general if segmented activities are too sophisticated, the size of the network becomes substantial and the cost of planning excessive. Divided activities yield no benefit if reasonably accurate estimates of activity durations and the required resources cannot be made at the detailed activity level. On the other hand, if the specified activities are too rough, it is impossible to develop realistic schedules and details of resource requirements during the project. More detailed activity definitions allow better control and more accurate scheduling. In practice, the proper level of detail will depend upon the scope, significance and difficulty of the project as well as the specific scheduling and costing procedures that are adopted. Relationships and Sequence After activities have been defined, the relationships among the activities can be specified. Priority relations between activities indicate that the activities must take place in a specific sequence (Refer to Diagram 3.1). Frequent and ordinary sequences exist for engineering, procurement and construction activities due to the nature of the project. For example, design drawings cannot be checked before they are drawn.

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Diagram 3.1

More complex priority relationships can also be specified. For example, one activity might not be able to start for a few days after the completion of another activity. As a normal example, a second lift of concrete pavement cannot be placed until the first has reached a certain temperature or curing time. This restriction on the curing time is called a lag between the completion of one activity and the start of another. Loop activities should be avoided at all cost since these will not allow a task to ever finish (Refer to Diagram 3.2). Fortunately, standard scheduling methods and good scheduling software will find loop errors when running a scheduling forward and backward pass.

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Diagram 3.2

Missing a vital relationship can be critical for the schedule integrity. Ignoring proper activity sequence may result in activities being scheduled at the same time or out of sequence. Adjustments and rectifications may result in increased costs or quality issues in the completed project. Unfortunately, there are few ways in which activity sequence omissions can be found other than with checks by knowledgeable PC staff, project managers, engineering managers, procurement managers and construction managers. Even though a control schedule is PC’s responsibility, all lead staff should support, interact and review the schedule to guarantee their activities, predecessors and successors are in accordance to the approved plan, internal and external work flow and current capabilities. Scheduling software packages help tremendously with this task but will never replace the reviewing eye of an experience manager. It is important to realize that different types of activity sequencing can be defined and that each has different implications for the schedule of activities as shown below:

Various activities have a necessary engineering, procurement or construction relationship that cannot be superseded (Series).

Design

Procurement

Borrow‐Fill

Gravel Base

Bituminous Concrete

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Various activities have a necessary priority relationship over a continuous timeline but can run in parallel once both have started (Parallel). These activities can be started and stopped independently within this constraint.

Various "predecessor relationships" are not theoretically necessary but are enforced due to embedded decisions within the EPC plan. For example, two activities may require the same piece of procurement item or equipment so a predecessor relationship might be defined between the two to insure that they are not scheduled for the same time period. Successor relationships use the same approach of predecessor in a reverse manner or backward perspective. Which activity is scheduled first is arbitrary. As a second example, overturning the sequence of two activities may be technically possible but more expensive. In this case, the predecessor relationship is not physically necessary but only applied to reduce costs as perceived at the time of scheduling.

In reviewing schedules as work continues, it is important to realize that different types of predecessor relationships have quite different implications for the flexibility and cost of changing the construction plan. Unfortunately, many formal scheduling systems do not possess the capability of indicating this type of flexibility. As a result, the burden is placed upon the planner, PC manager and project Manager of making such decisions and insuring realistic and effective schedules. With all the other responsibilities of a project manager, the ultimate responsibility of developing the control schedule relies on the PC manager and the lead planner. Nevertheless, the project manger shall sign off the approved schedule (Refer to Diagram 3.3).

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Diagram 3.3 Activity Networks Representing activities in a network diagram is a great way to determine all the predecessor and successor relationships among the activities. Most of software can change layout views to show the activities in this form (the standard schedule view is Gantt chart). A network representation of six activities is shown in Diagram 3.4, in which the activities appear as links between nodes. The nodes represent milestones of possible beginning and starting times. This illustration is called an activity-on-branch diagram.

Project Manager

Project Controls Manager

Lead Planner

Scheduler

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Diagram 3.4

As another option, the six activities could be represented by nodes, predecessor and successor relationships by links, as in Diagram 3.5. The result is an activity-on-node diagram. New activity nodes representing the start and the end of the sequence have been added to mark these important milestones.

Diagram 3.5 These network illustration of activities can be very helpful in picturing the various activities and their relationships for a project. The illustration as branches or as nodes is largely a matter choice or adopted standard. Activity Duration

0

2

1

3 4

A

BA

CA

DA

EA F

A

Start

B

A D

F C

E

End

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All standard scheduling procedures rely upon activity durations as well as the designations of the predecessor relationships among tasks. Commonly, the most likely duration may be used in scheduling. A direct method to the estimation of activity durations is to keep PC historical records of particular activities and rely on the average durations and factors from this experience in making new duration estimates. Since the scopes of activities are unlikely to be equal between different projects, unit productivity rates are typically employed for this purpose. PC historical records in an organization can also provide data for estimation of productivities and should be kept in a secure place (Refer to Diagram 4.0).

Diagram 4.0 The calculation of duration can be set in multiple ways for estimating and scheduling purposes. For example production rates can be given in terms of single resources, crews, tasks, and multiple units of measurement (unit, linear, area, volume and weight). It is usually the case that characteristics of the project make the accomplishment of a single or group of activities more or less difficult. For example, site access conditions may be difficult; as a result, the mobilization or productivity is lower than the average

Duration

Historical Data

External Factors

Means Production Standards

Experience

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rate for a standard project. Frequently, adjustments based on engineering, procurement and construction judgment are made to the calculated durations. Learning is proportional to productivity. As a crew becomes familiar with an activity and the work habits of the crew, their productivity will typically improve. This is referred as a learning curve (Refer to Diagram 4.1). A common construction example is that the assembly of piping and fittings in a pipeline might go faster even if site conditions deteriorate due to improved productivity even though the transportation or terrain is more challenging.

Diagram 4.1 Applying factors to historical records or subjective adjustments might be made to represent learning curve variations in average productivity. Unplanned factors will also impact productivity rates and make estimation of activity durations uncertain. A planner will typically not know at the time of making the initial schedule the following:

How the actual site conditions are going to be.

Productivity

Time

Learning Process High

Productivity

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How skillful the crew and superintendent be. How efficient is the project team. What other issues may arise during engineering, procurement and construction.

Since not all circumstances can be predicted, the planner can only use average values of productivity. It is recommended that the lead managers should sign off productivity rates for each EPC phase. Weather effects are often very important and thus merit particular attention in estimating durations. Adjustment factors for inclement weather as well as meteorological historical data can be used to incorporate the effects of weather on durations. Resources Resource requirements are usually projected for each activity. Since the work activities defined for a project are complex, the total resources required for the project are the total of the resources required for the various activities. Depending on the type of schedule it is being assembled, resources will be estimated to a level of detail that meets the planning objective (refer to types of schedule and Diagram 5.1).

Diagram 5.1

Control Master

Crew Equipment

Individual

Individual

Single Equipment

Work Front

Detail

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By making resource requirement estimates for each activity, the requirements for particular resources during the course of the project can be identified. Potential holdups can therefore be identified to properly level or increase resources in order to meet the contract requirements. Many standard-scheduling procedures can integrate constraints dictated by the availability of particular resources. Another type of resource is working space. The term “too many cooks in the kitchen” is the best way to describe this. A planner normally will schedule only one activity in the same location at the same time since too many trades in one area may interfere or loose productivity when working in the same area. Resources are categorized in multiple ways. For the sake of standardization, most entities have adopted the following categories (Refer to Diagram 5.2):

Labor which includes craftsman, non manual and management Administration and additional expenses which most of the time are included in

level of effort activities (hammocks) Non-labor which most of it is heavy equipment or specialized tools Materials

The initial challenge in estimating resource requirements is to decide the degree and number of resources that might be defined. On most control schedules, materials are loaded in units of measurement, while labor and non-labor are loaded in hours. Dollar figures should not be loaded directly into the schedules since the information is quite sensitive and can always be incorporated in a straightforward manner. When multiple working shifts are considered, the planner may use full time equivalent (FTE), which is not the same as required bodies to perform the tasks. FTE is a unit that indicates the workload of an employed person in a way that makes workloads comparable across various contexts. Required bodies will depend most of the time depend on housing and transportation.

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Diagram 5.2 Activity Intelligence EPC schedules are usually complex and support enormous quantities of activities and a complicated network of relationships. Activity intelligence is often required to identify activities as stand alone without the need of going through an extensive exercise to figure out the discipline, location, phase, etc. Even though the WBS organizes the information in a structure and hierarchical manner, it is useful to recognize activity characteristics just by looking at the activity ID. One objective in many EPC planning efforts is to define the plan within the constraints of a standard coding system for identifying activities. Each activity defined for an EPC project would be identified by a code or activity ID specific to that activity. The use of a common taxonomy or identification system is basically driven by the need for better integration of phases and project team efforts and improved information flow among them. In particular, coding systems are implemented to provide a numbering system to substitute descriptions and reduce the dependency of complicated and long activity descriptions. In a nutshell these codes reduce the length or complexity of the information to be.

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A common coding system within an EPC project will also help provide uniformity in definitions and categories between phases and among the various parties involved in the project. Common coding systems also assist in the retrieval and exchange of historical information of productivity, cost, and duration on particular activities. Project Controls and the Schedule A well structured and managed schedule is an impressive controlling tool that in combination with sophisticated software packages (databases) will allow PC and the project manager to integrate multiple sources of information, to produce vital status updates and forecasts during the project’s life cycle. As mentioned before, PC’s objective is to know where the project is, where should it be and to point out solutions when variances exist between these two. To make a schedule effective, it is necessary to have a correct level of detail to support the team and the project’s information requirements. Again, the “one size does not fits all” statement comes into place. One single schedule cannot satisfy all requirements and audiences. When a single EPC schedule is forced to meet more that it is designed for, the result is most likely an excessive demand of resources to manage the schedule along with a decrease level of accuracy and reliability. Since EPC projects are complex and sophisticated, different levels of schedules are developed with the key characteristic that all are interconnected to exchange information in all directions. In this course three levels of schedules (level of detail) will be discussed, which will cover the main aspects managed in a PC Zone of Influence (Refer to Diagram 6.0). These are as follows:

Level I or Master Schedule (MS) Level II or Control Schedule (CS) Level III or Detail Schedule (DS)

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Level of Detail Diagram 6.0

MS

CS

DS

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Diagram 6.1

Level I or Master Schedule As shown in Diagram 6.1, the Level I schedule (MS) is in the center of the PC Zone of Influence, where planning information of all EPC phases intersect. This schedule contains high-level activities from engineering, procurement, and construction where all phases are connected in a logical time line. This type of schedule also shows high-level critical and sub-critical paths to create awareness among team members of activities that could seriously impact the project if slippage occurs.

P

E

C

WBS

OBS

CBS

Master Schedule

PC Zone of Influence

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The MS is intended to reflect the project’s complete sequence without going into detail. This schedule could be compared to a 40,000 feet above ground view. The audience for this schedule is the project team and regularly used by the project manager and PC for high-level coordination meetings with the owner and subcontractors. Generally, this type of schedule should not exceed fifty activities, follow the WBS structure, and fit in a single letter or tabloid size sheet for fast viewing. The project manager in conjunction with the project controls manager and key staff of the EPC project should develop this schedule to obtain a true logic sequence and duration. In essence all EPC teams should feel confortable and have a complete understanding of what performance and results are expected from them to deliver. To produce this schedule is not necessary to use sophisticated software packages. At this level (high-level), the logic of the schedule can be set manually using major/critical tasks and long lead procurement items as building blocks.

This schedule should be developed at an early stage to help coordinate the bidding process and revised when the performance period is available. This schedule is own by the project manager and should be maintain with the collaboration of PC.

Note: The master schedule is the most accessed document in management coordination meetings. It is a simple living document that briefly reflects the overall plan and actual status. It is important to make this schedule objective and easy to understand. It is a communication and coordination tool used by a diverse range of individuals with different areas of proficiency. Minor changes in the plan should not affect this schedule.

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Diagram 6.2 Level II or Control Schedule As shown in Diagram 6.2, the Level II schedule (CS) is in the center of the PC Zone of Influence, where planning information of all EPC phases interconnect. Different from the MS, the CS has an increased level of detail and in general terms it has a bigger foot print in the PC Zone of influence to allow a controlling capacity without going into daily activities.

P

E

C

WBS

OBS

CBS

Control Schedule


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PC owns this schedule and it is responsible to maintain it throughout the project’s life cycle. It is crucial that this schedule is in synchronization with engineering, procurement, and construction to provide a controlling capability across the project. Synchronization or updates should have the following frequencies (Refer to Diagram 6.3):

Engineering = Biweekly Procurement = Monthly Construction & Fabrication (Shop) = Weekly

Diagram 6.3

This schedule should follow Critical Path Method (CPM) to highlight and document which activities put the project at risk of slippage. The CS is intended to visualize the plan and current status of every phase with a certain degree of detail. This schedule could be compared to a 10,000 feet above ground view. The audience for this schedule is PC, the project manager, and leaders of every EPC phase. The project manager and PC use this schedule for sophisticated analysis and status reporting.

CS

Engineering Biweekly

Procurement Monthly

Construction Weekly

Fabrication Weekly

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As a general guide, the CS should contain between 1000 to 3000 activities and between 1000 to 5000 relationships depending on the size and complexity of the project. The WBS should be the backbone of the schedule and for such reason it is recommended using a software package that uses the same approach. PC should lead the CS development with the collaboration of EPC lead managers. Success of this tool heavily relies on the collaboration, support, and feedback given to PC. When mounting the CS the team needs to consider the reporting requirements and the frequency in order to coordinate in advance the internal information management process (sources). Having this process planned in advance will assist PC in meeting all requirements as an established process and not reacting when information is needed. Another key component that needs to be evaluated and established is the Information transfer protocol, which is the format and standard to transfer incoming and outgoing information to and from the CS (Refer to Diagram 6.4).

Diagram 6.4

CPM: A technique that analyzes what activities or group of activities have the least amount of scheduling flexibility and then predicts the overall project duration (float) based on the activities that are under the critical path. Activities with a critical path characteristic cannot be delayed without delaying the finish date for the entire project.

Information transfer Protocol

FrequencyType of Reports

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Diagram 6.5 Level III or Master Schedule As shown in Diagram 6.5, the Level III schedule (DS) is no longer in the center of the PC Zone of Influence. The DS is a result of exploding the CS into three child schedules and shifting the focus into engineering, procurement, and construction while increasing the level of detail. When manufacturing is considered part of the scope, a separate detail schedule for the shop is recommended (e.g. machining, assembly, etc.). The detail of each DS should be pertaining to each phase only. If activities outside of a specific phase need to be documented, these can be included as milestones.

P

E

C

WBS

OBS

CBS

Detail Schedule


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Relationships to other phases should be avoided to prevent duplication since these are already linked in the CS. In other words, the common relationships or interconnections among engineering, procurement and construction will be preserved at a higher level or CS. To link all level III schedules simultaneously among themselves and the CS, a parent to child relationship can be implemented. The parent is the CS activity and the child is the detail sub-activity. A CS activity represents multiple sub-activities in the DS with the following characteristics (Refer to Diagram 6.6):

Each sub-activity should belong to one activity in the CS schedule. Many sub-activities can belong to one activity. The activity’s start date is the earliest start date of the set of sub-activities linked

to it. The activity’s end date is the latest end date of the set of sub-activities linked to

it.

Diagram 6.6

Activity | Start | End Plan and Profile Jan 1 Jan 15

Activity | Start | End PP 0+ to 10+ Jan 1 Jan 5



Activity ID1010

Activity ID1010-01

Activity ID1010-02

Activity ID1010-03

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Each EPC manager is responsible for the daily operation of an interior work site, shop, or office and for such reason the DS should keep detail track of tasks, planning, production, progress, and performance. Through the DS the manager should be able to plan and track all direct labor and non-labor positions on the assigned project (engineering, procurement and construction). Due to the nature of the schedule is recommended that planning with this tool, only covers between 30 to 90 days in advance. Exceeding this number of days is simply a waste of effort and resources, given that it is impossible to plan and update such level of detail in advance. For medium and long term planning the team should support on the CS.

Diagram 6.7 It is not recommended to set a critical path at this level given that the CS is already tracking it at the project level. This does not imply that the phase should not follow the project’s priorities, however critical path replication should be avoided in the DS. Since the DS is the main source of information for PC and the lifeline to maintain the CS schedules, it is highly recommended that a standard format, reporting schedule, and QAQC process is established before active work begins at any phase.

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In general terms, the DS is a list of sub-activities related to an activity in the CS. This data can be managed with an electronic spreadsheet and does not warrant the need of a database. In combination with macros, formulas (format, conditional, calculations, etc.) a spreadsheet will be capable to manage this DS. Sub-activities should be loaded or sorted in order of occurrence and parent activity to avoid building relationship in the table (relationships are tracked in the CS). Depending on the type of project, additional DS may be required to track sub-phases, for example machining, assembly or shops. The only ruled that needs to be followed is the connectivity and communication protocol with PC and the CS. Estimating Analysis The estimate in association with the schedule is the keystone of the PC foundation. When cost is not properly controlled and accurately estimated, the chances of success are dramatically reduced. Scheduling and estimating analysis are fundamental processes that need to take place before submitting any formal bid. As a matter of fact, if during the early stage the estimating analysis provides negative indicators, most likely a no bid decision will be made. The estimating analysis is a four-step process. The first step takes place in the initial discovery stage while the remaining three steps will take place when developing the PC foundation. The diagram below shows the sequence of the steps and primary activities associated to these.

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Diagram 7.1

Discovery This first step is targeted to understand the project scope of work before engaging into any type of estimating effort. One of the common mistakes of multiple project teams is that PC is not actively engaged during the early stage of the project. Unfortunately, this creates the action-reaction syndrome simply because the PC team, tools, and information are not synchronized to manage the information as a routine. Project Managers focus on multiple task and they simply should not be running controlling tasks in parallel. PC duties require 100% dedication and this why it is common to see that companies are strongly increasing their PC capabilities over the last ten years. Once the decision has been made to pursue a new project, the PC team should be given a green light to initiate the discovery stage. The priorities under this stage are as follows: Identify project requirements Identify your team’s involvement Identify what is going to be subcontracted Identify key and long lead procurement items Identify the EPC strategy Identify major risks

• Discovery

Discovery

• Plan of Action

• Cost Optimization

• Risk Analysis

• Competitor Analysis

Project Appraisal • Non Manual

• Indirects

• Vendor

• Subcontractor

• Cashflow

• Contingency

• Escalation

Estimate Development

• Validation

Validation

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In a nutshell, during the discovery stage it is essential that the PC team has a strong grip on the contract requirements and completely understands the challenge. The best way to accomplish this is by asking questions and knowing the language of each phase (engineering, procurement and construction). Ask questions: It is important to understand what the data represents. In other words, have a feel for the information to understand what it is happening in each environment (office, shop, field, etc.). PC is about knowing enough about each phase to comprehend and analyze the incoming information and to detect current and potential variances to further proposed solutions. This is not possible if an open line of communication does not exist inside the PC Zone of Influence.

Knowing the language: It is essential for PC staff to speak the engineering, procurement and construction language at different levels. Knowing the language and getting the message across is the best way to be taken seriously and to communicate effectively. When the language is a barrier, in most cases it will deteriorate the PC relationship with the rest of the team and potentially can place the PC staff as an outsider.

Professionals that seek to follow the PC path should spend some time working in each phase environment to learn from each trade, get familiar with the terminology and understand the data used to report status. Project Appraisal Once there is a good understanding of the project’s scope of work, the project team will be in a position to perform the appraisal.

Plan of Action One of the appraisal’s primary objectives is to determine the plan of action for each engineering, procurement and construction phase. Each phase is subject to an analysis based on capability, capacity, schedule, cost, benefit, and risk factors to come up with the best plan. Diagram highlights the main strategies where these factors apply.

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Diagram 7.2

Engineering: Under this phase the team should determine the best plan of action to produce a quality design keeping the lowest cost possible. This

P

E

C

WBS

OBS

CBS

Subcontract Self-perform

using remote resources

Self-perform locally

Vendor selection Subcontractor selection

Subcontract Self-perform Prefabrication Means and methods Equipment

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analysis besides using the standard key appraisal factors (capability, capacity, schedule, cost, and benefit) should keep always in mind the local requirements such as location, governing standards, local codes, language, and specialty design. For example, an organization may have multiple offices across the region with similar discipline capabilities. However, one specific office has idle resources with expertise that falls under the project’s scope of work. Using these resources seem to be the better choice for knowledge, capacity, and capability while cost is similar for the rest of the offices. Another example is that the contract may require meeting local codes, standards and language. In this case a local firm (outsourced) will have better capability to perform. As a result subcontracting the work is the best choice for the engineering action plan. Procurement: Analysis under this phase focuses on vendors (material) and subcontractors (services) selection strategy. Same key appraisal factors apply (cost, schedule, capacity, capability, benefit, and risk) keeping in mind procurement requirements such as mobilization, location, transportation, equipment, export/import regulations, political stability, etc. For example there is an option of purchasing high voltage transformers in Brazil at a lower cost but there is a high demand in Brazil due to the construction boom. The cost of the same transformers in the USA is substantially higher, however meeting the schedule is a governing priority and for such reason going with the US vendor seem to be the best plan of action. Construction: Same as engineering and procurement, the team should determine the best plan of action using key appraisal factors. The team needs to analyze which strategy or combination of strategies will be optimal to implement. Some of these strategies are:

Subcontracting the work or a percentage of it. Self-performing the work or a percentage of it. Pre-fabricating (different location) material to reduce the schedule or

cost considering the challenge of handling pre-fabricated material. Pre-fabricating (different location) equipment to reduce the schedule

or cost considering the challenge of handling pre-fabricated equipment.

Means and methods to increase capacity and capability.

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Means and methods to decrease cost, schedule, and risk. Equipment mobilization. Staff housing (construction camp). Equipment ownership (own vs. lease) For specialty work it may make sense to breakdown construction into

sub phases. For example machining, assembly, etc. Cost Optimization Total cost analysis is done in parallel with the action plan to drive cost to a minimum, always maintaining owner satisfaction and safety. In addition to the strategies, the team should look into alternatives or tradeoffs to lower the cost or increase the margin. Risk Analysis Initial risk analysis should be performed during the project appraisal to identify the events that might impact the performance and successful delivery of the project. Even though risk analysis is performed at an early stage of the project (bidding), after project execution the risk analysis should be transferred to the project and continued through the project’s life cycle. This topic is covered in higher detail under the “Introduction to Risk for Project Controls” course. Competitor Analysis This analysis is aimed to determine the chances of defeating other competitors. This process will help the team in visualizing potential competitors’ strengths, weaknesses, recent accomplishments, and failures that can be used to spin the bid in a more favorable way. In addition, knowing the competition’s current relationship with the customer, presence in the region, workload, capacity, capability, and technology can give the project team an extra advantage to win the project.

If the organization is involved in the pre-evaluation activities to determine the economic viability, most likely a market analysis will be performed to support the client’s decisions. A market analysis is carried out by developing a capital expenditure (CAPEX) and operational expenditure (OPEX) in order to compare these with known market

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information. To enhance this analysis, a life cycle study is also required in order to perform yearly cost projections and potential tradeoffs that can positively impact initial capital and operational expenditures. Estimate Development After completing the project appraisal, the project team will be in a position to decide if it is viable for the organization to proceed with the estimate development or simply call off the effort for the prospect project. When the decision is to move forward, the following steps should be considered to develop the estimate:

Diagram 7.3

P

E

C

WBS

OBS

CBS

Non Manual Manual Labor Indirect

Non Manual

Non Manual Vendors Subcontracts

Commercial Cash flow Escalation Historical

Contingency

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Non-Manual: This analysis takes place in all three EPC phases to determine the cost of design, procurement, construction management, and operation. During this step a solid PC foundation should be available and all estimate efforts and products should follow the PC framework (WBS and CBS). This analysis should be base in hours and wages. Manual Labor (Productivity): Manual labor productivity analysis takes place at the construction phase to determine how many hours by unit of installed material/equipment will be needed to complete the project. Depending on the type of project, the construction phase may be broken down into sub-phases to better manage the estimate. For example a curtain wall project (high-rise) may break the construction into shop, machining, assembly, and installation. Since all sub-phases take place in different locations, different production sequences and different trades, it makes sense to tackle the estimates individually. The following factors should considered when doing manual labor analysis:

Experienced labor (supervisory and craft) Labor qualification Availability Work schedule Work shifts Overtime Labor laws Unions Weather Location (altitude) Site conditions Side access and transportation Holidays Camps

Manual Labor (Wages): Manual labor wages analysis takes place at the construction phase to determine an equivalent unit rate for each type of work. Since the construction work has a direct relation with the field (except when some work is performed offsite) a standard rate most likely will not suffice the purpose of the estimate, creating the need to come up with an equivalent rate

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that accounts for craft variations, fringe benefits, other benefits, overtime, bonuses, transport, and other wage expenses. Indirects: Indirect analysis is meant to account for cost that cannot be attributed directly, but still associated with the project and need to be considered. For example, temporary facilities, supplies, hardware, software, tools, equipment and other services. Vendor and Subcontractor: In addition of budgetary quotes to support the estimate for third party material and services, an analysis is required to verify that the submitted quotes are reasonable. An effective way to do this is by using PC historical data (in present value numbers) and/or by collecting additional bids to run comparisons. Cash flow: Cash flow is the lifeline of every project. For this reason an accounts payable and accounts receivable analysis is required to determine the working capital. Major components to be considered but not limited to these are:

Prime contract (budget) Main subcontract (committed) Main material (committed) Engineering non-manual (committed) Procurement non-manual (committed) Construction non-manual (committed) Construction manual (committed) Overhead level of effort (committed) Contingency (committed) Retainage (committed) Risk mitigation (committed)

Contingency: Contingency analysis is performed to compensate for potential cost not included in the estimate, assumptions, unknowns, unissued risk statements, and provide certain degree of financial buffer to meet management’s confidence level. Escalation: Every project is set to take place in the future and for this simple reason all estimates need to be adjusted to the actual execution dates. In the

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event that a project performance is longer than a year, escalation needs to be adjusted for every additional year under execution.

Validation Once the estimate is developed, PC should run a validation process to self-check before calling an estimate final. The recommended approach is to compare the estimate with previous executed projects.

Project Comparison

PC

E

P CPC

E

P CPC

E

P C

PC

E

P CPC

E

P CPC

E

P C

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Documents

Scheduling Estimating Project ControlsProject Controls, like project management, is much an art as it is a science. The secret of good project controls inside an Engineering, Procurement