Front End Planning
As projects grow in scope and cost, so does the risk of failure. Add to this growing public scrutiny, health, safety and environment (HSE) concerns, and labour shortages, and it’s surprising that mega-projects ever get off the ground. Robert Baillieul identified his thoughts regarding the Top 3 Challenges Facing Oil Sandscurrently:
- Rising Costs
- Pipeline Gridlock
- Environmentalist Resistance
Over the course of the next 3 blogs, I address each of these challenges, not just within oil sands projects, but across large scale projects as a whole.
The bad news is all types of megaprojects face big challenges leading to schedules slipping and immense cost overruns. The good news is they aren’t doomed to failure – by putting the proper tools, people, and processes in place, projects can and will be successful.
Part 1: Rising Costs – Mitigating Cost Overruns with Front End Planning
In Baillieul’s article, he notes one significant oil sands project is expected to have cost overruns approaching 40% or close to $5 billion. A significant irony of large projects is that most are executed on lump-sum or fixed price contracts to put a ceiling on costs. The reality is, no lump sum contract ever comes in under budget, but most do come in over budget. The reason for this is significant changes are often made after contracting. Change leads to cost overruns and project delays. Proper front end planning combined with systems to manage change will help to mitigate these types of risks.
Industry research shows that projects with more intensive front end planning efforts performed more than 10% better in terms of cost, 7% better in schedule performance, and 5% better in change orders. For major capital projects over $1 billion in total installed cost, a 10% improvement in cost performance, directly attributable to an intensive front end planning effort, presents $100 million in potential savings. There is a significant body of literature on the functions involved in front end planning and processes that can be used in the planning of capital projects, but it is worth underscoring the significance of planning to overall long term project and operational success. A brief diagram of the front end planning or FEED process can be found in figure 1 below, as indicated by FEL 1, FEL 2 and FEL 3.
Without knowing the details it’s difficult to know why a particular project goes wrong, but the likelihood of success or failure begins with front end planning. For example:
- Did the failed project mentioned earlier include the correct people, processes, and systems to guide evolving project information through the proper channels, starting with front end planning?
- Did project stakeholders have the required visibility needed to make decisions and keep up to speed on changing requirements, new design revisions, and changes in resourcing constraints?
- Were processes and systems in place to allow project managers to recognize and manage the downstream effects of change on resources and the schedule?
- Were processes and systems established to manage interfaces and ensure construction and fabrication were successfully completed the first time without costly rework?
- Did project managers have the visibility necessary to optimize their labour resources in a time when labour is in short supply and high demand?
It may sound like a bit of an over simplification but it all starts at the beginning; by empowering the right people through well designed processes and supporting the processes with well implemented and integrated systems early in the planning or FEED stages, success is achievable. Putting tools and processes in place that provide transparency for project teams will help them better manage information and resources, predict future issues, and overcome huge and costly issues down the road.
For more information and best practices for front end planning visit www.construction-institute.org