December 2017

Special Focus: Plant Design, Engineering and Construction

Incorporate assurance into an operational readiness program—Part 1

This two-part article will examine how to address common issues on large projects, and how to make an ordered, structured transition in a systematic and repeatable way.a

Pincheo, G., Reed, W., Jacobs Consultancy

This two-part article will examine how to address common issues on large projects, and how to make an ordered, structured transition in a systematic and repeatable way.a

In its 2016 New Policies Scenario, the International Energy Agency (IEA) estimated a cumulative investment1 of $22.8 T in the oil and gas sector between 2016 and 2040. Statistics2 show that nearly half (47%) of the capital projects in the oil and gas sector suffer from significant operational problems and production shortfalls that severely impact the return on capital employed and the reputations of the companies.

Investors have a critical need for assurance that the asset will achieve continuous operation at the designed rates, and will safely meet—and hopefully surpass—reliability, availability and maintainability targets.

To achieve required production rates, leading companies routinely implement a structured operational readiness process in their capital project transitions. The key factor that differentiates leading companies from the rest of the industry is the shift from a static culture of conventional, even classic project delivery, to a more dynamic, holistic and pragmatic approach that targets, in early project phases, future operations and production phases.

This enlightened approach goes beyond the commissioning and startup phases. These companies devote significant resources to leverage the benefits of their operations experts and apply the lessons learned from previous experiences.

Takeaway: The value leakage of capital projects that fail to achieve operational targets is unacceptable, and much of this can be avoided or mitigated.

The benefits of an operational readiness assurance (ORA) program

Several attempts have been made to estimate the return on investment (ROI) of conducting ORA programs. Providing an accurate measure of the cost savings that capital projects have realized by implementing an ORA program is difficult. However, in the authors’ experience, clients will benefit mainly in terms of reduced operations, maintenance and materials costs during their transition. An ORA program implemented over multiple project phases can realize an estimated return of approximately 5% of the total original capital investment.

Takeaway: An ORA program will have a major impact on cost savings.

Ownership transition: The critical path to success

The structured transition of a capital project to a safe-value producing asset is the most sensitive point in the whole lifecycle for a typical production facility. The impact of poor decisions and the lack of operational inputs during the early stages of a project are often underestimated and heavily influence budget overruns and production deficiencies.

The operability of a new production facility is strictly related to the quality and completeness of the transition, which typically includes milestones such as mechanical completion, commissioning activities, and functional and performance tests. The ability of the owner-operator to take ownership of the new asset is the key factor for a successful capital project transition.

The increasing demand to provide assurance of the state of operational readiness must include an objective measure that can be used to track progress and to benchmark against industry best practices. This assurance requires a 360° assessment that includes process design, operability, strategies, organizational capabilities, and supporting and enabling systems (e.g., operating management system).

The lack of international standards that specifically support and explain operational readiness, and any recognized accreditation/qualifications for ORA professionals, push asset owners to search for pre-defined, “one-size-fits-all” solutions that neglect the unique nature of their project, thereby rendering it unable to provide reliable assurance.

An efficient and effective ORA program must be grounded on three pillars:

  1. A consistent and structured process to measure the readiness for the transition to operate the plant
  2. Empowering the operational readiness team to be both responsible and accountable for the successful implementation of its assurance program
  3. The use of industry best practices for benchmarking.

Focus on operations

More than 200 operational risks and existing ongoing issues related to the readiness of projects—referred to as “readiness bugs”—have been analyzed and categorized. These bugs are identified in different organizational functional areas and across different project lifecycle phases. Companies can benefit from utilizing web-enabled assessment and planning applications to run data analysis on readiness bugs and to benchmark new projects. This application is a dynamic portal that allows stakeholders to see the status of their plan. The intention is to mitigate the burden of circulating, updating and coordinating spreadsheets, and to use that finite time to produce quality deliverables and put them to use.

Most operational risks and issues are generated from the short-term orientation of the asset owner organization, with a primary focus on the construction phase.

Takeaway: The keys to achieving readiness are a focus on operations and using time wisely to produce quality deliverables and put them to good use.

Short-term focus significantly increases risks

Schedule pressures tend to shift attention to construction completion rather than safe and sustainable operations/production. Examples of readiness bugs (symptoms) include:

  • Operational risks and issues that are typically seen as something that can be handled in the future
  • An insufficient focus on equipment maintainability and operability during design to prevent an increase in capital expenditure (CAPEX)
  • The unrecognized operational implications of (late) design changes
  • Project management teams that are generally inefficient in bridging the interfaces between the commissioning and startup (CSU) team and the engineering, procurement and construction (EPC) contractor
  • Inadequate operations and maintenance training
  • Inexperienced and fragmented CSU teams, which are generally understaffed and mobilized too late
  • Project owners that often remove important operational readiness requirements from the front-end engineering design (FEED) stage to reduce development costs
  • A lack of operations and maintenance support during early project phases
  • Ambiguous operational readiness requirements and deliverables in EPC contracts
  • The late development of CSU and operating plans/procedures
  • The late development of a CSU integrated schedule—complete-by-system
  • The lack of engineering and construction back-end support during CSU.

Readiness bugs reflect the symptoms of the unhealthy condition of an owner’s organization that struggles to take proper control under constant pressures due to aggressive schedules and limited budgets. This business-related, short-term focus results in a significant increase in health, safety and environmental risks when approaching the transition (FIG. 1).

Takeaway: A short-term focus significantly increases risks.

FIG. 1. An increase in operational bugs before the transition to operations (top 80%). Source: Jacobs Consultancy research and analysis.
FIG. 1. An increase in operational bugs before the transition to operations (top 80%). Source: Jacobs Consultancy research and analysis.

CAUSES OF A POOR TRANSITION TO OPERATIONS

Some of the major factors that are responsible for a poor transition from startup to operations are identified here.

Staffing

Staffing capital projects is one of the main challenges for future asset owners. A misalignment often exists between the recruiting process of the project team and the evolution of the project itself. This misalignment is often exacerbated by changes in the project’s scope and schedule delays.

The slow growth and turnover rate of the project team raises several potential perils. Most importantly, it generates discontinuity of the operational readiness process at the early stages of the front-end loading. The effect is that the operability of the asset is dramatically impacted.

Secondly, the team’s ability to provide proper operational inputs to the project—from engineering and design to construction—can be disrupted. As a result, the project suffers from incomplete input at crucial times, changes in scope and significant rework, and extensive delays in startup.

Interfaces

Another cause of poor readiness performance during transitions is related to the management of interfaces between the owner and stakeholders (e.g., project management consultants, EPC contractors, subcontractors, licensors, authorities, etc.) at the end of the construction phase.

The sheer number and complex dynamics of the interfaces require experience and understanding of the project’s goals and active management of these interfaces. Contractors tend to take leading roles, while the evolving owner’s organization is not staffed in numbers or expertise and unprepared to gather and process all of the information. The transition of ownership is filtered through multiple layers, including the project management consultant. As a result, the owner’s organization struggles to shift from an observer to an operator.

The direct consequence is that urgency dictates the agenda, and workarounds are frequent and become accepted practice when approaching the operations phase. As the EPC contractor demobilizes, operating organizations often fill their needed staff with construction personnel. The dangerous underlying assumption is that the very same people who built the plant are the best candidates to operate it. This is often not the case.

Data/information handover

Finally, asset owners struggle with the data and information handover process, which is just as critical as the transition period for the physical assets. The weakest areas of the handover transition are related to the alignment of the procedures to recycle, approve and exchange as-built documents and operation and maintenance records, resulting in incremental inefficiencies in the field.

Specifically for greenfield projects, the asset owner’s IT infrastructure is in place only at the later stage of construction, leading to a strong reliance on the EPC contractor’s systems to manage data and documents.

The lack of proper handover procedures, dossiers and protocols is the most critical issue. Frequently, this is the result of unclear roles and responsibilities within the asset owner’s team and inefficient interfaces with contractors, leading to additional delays and schedule inefficiencies at the start of operations.

An additional issue related to poor handover data is the management of punch list items. A lack of, or unclear set of, procedures to define, categorize and prioritize punch list items will set the stage for detrimental discussions with the EPC contractor, while simultaneously deteriorating the project’s readiness status.

An operational readiness program—defined as a structured framework of work processes based on industry best practices—enables future asset owners to adapt quickly to changes and incorporate all required operational inputs to ensure the readiness to operate and maintain their new production facility.

Takeaways: Staffing, interface management and information handovers are the main contributors to disruption and poor transition performance.

The ORA work process

FIG. 2. The ORA approach.
FIG. 2. The ORA approach.

The sequential flow of the ORA approach is shown in FIG. 2. This process is overlaid onto the project’s master business process. As the project unfolds in real time, the ORA process adapts to the new readiness requirements. The primary “result,” as an outcome of the ORA process, is the degree of assurance. A score as a percentage or index alone will not be enough. The score or index must be supported by what comprises that measure, and where that measure is vs. where it must be during various stages of the project.

Assurance

Assurance refers to the confidence of the stakeholders that the project will have no (or acceptable) deviations, that risks are not being overlooked and that deliverables are not omitted, as these would jeopardize or prevent the proper, safe and sustainable operation of the asset. The stakeholder cannot, and should not, wait until a project is completed to have a degree of assurance of the asset’s readiness and of the operating organization. Assurance refers to the act of reassuring the various project stakeholders that their asset and organization are in a state of operational readiness, or providing a measure of assurance that they will be when required.

Timing is crucial for readiness

It is important to understand that timeliness matters. There must be a deep understanding of the project’s specifics, including what needs to happen, why it needs to happen and when it needs to happen.

Too early. The ability to create and use certain deliverables is impacted by the availability of data and personnel at that time in the overall cycle of the project. Conducting an activity, producing deliverables and putting them to use early in the process is ideal. Having deliverables ready for use is preferable to creating them from scratch just before they are needed.

Too late. Deliverables that come too late risk being totally or partially ineffective when needed. The deliverable is then pure cost, without added value, and may contribute to embedded latent risk. A partially ineffective deliverable occurs when the time window for the use and benefit from the deliverable is very limited (e.g., finalizing a punch listing procedure six months after punch listing started).

Demonstrated in use and working

Producing deliverables too early or partially too late is a problem that has been previously discussed. If deliverables are put on a shelf because they are simply a necessary tick on a project’s checklist, or if they do not actually work as intended, any degree of real assurance will vanish, costs will be incurred and risk may be increased.

In practice on recent projects, the authors questioned whether the presence of a document, policy, procedure, etc. will be enough to have assurance. The consensus is that this is insufficient. In recognition of this, personnel must demonstrate to their clients whether the named deliverables are:

  1. Demonstrated in use
  2. Working as intended
  3. Measurable and proven.

The devil is in the details

It is mutually useful to dive into the details as the various project-specific operational readiness plans begin to unfold. Details include:

  • Where are the discrete deliverables stored, managed, tracked and kept safe?
  • Who (names, not departments) are the users of each discrete deliverable?
  • What are the intended uses of each discrete deliverable? Owners will change naturally as the project progresses and there will be multiple, concurrent users of the same deliverable, the next- and lower-level sub-deliverables, and the sub-levels.
  • How can it be confirmed that each main and sub-discrete deliverable is in use?
  • Added measurements can be used to show the impacts of that use.

Ownership

The subtle and often too-convenient changes in the wording of activities in operational readiness plans can create a false view of the degree of readiness assurance. Early activities may be premised with define, develop, review and prepare, but these must be augmented with implement, use and measure impacts. It is necessary to be brutally candid when assigning ownership within an operational readiness plan. An owner is responsible and accountable for managing the risks and the consequences of that discrete activity, and for its deliverables not working/performing as intended. When this is made evident, some owners will concede that they are not the owner. Only then can the contributors and the true owners come into the spotlight. The process must segregate and differentiate between contributors and owners.

Tracking in real time

FIG. 3. An example of an active ORA scorecard.
FIG. 3. An example of an active ORA scorecard.

As the ORA process operates in real time, personnel must be able to measure and manage the conduct of activities and the production of deliverables, as well as the deployment and use of the outcomes from those deliverables. FIG. 3 shows how the process is monitored via its own scorecard. An active scorecard with a suite of key performance indicators (KPIs) must be available that enables operational readiness leaders to run the program and provide fact-based data on its progress.

Takeaway: Ownership does not end when the task to create a deliverable is initially concluded. This notion would be analogous to filling a library shelf with books in the hope that somebody would be able to do what is needed simply by reading them. Assurance means more than the production of things—it extends to their demonstrable use and measurable impacts. Programs must be tactile, granular and project-specific.

Running an operational readiness program

FIG. 4. Running the ORA program.
FIG. 4. Running the ORA program.

A clear methodology must be in place to run an operational readiness program. The ready-to-operate (RTO) plan crosses numerous functional boundaries in the overall project organization. Multiple interfaces and handoffs emerge as a project matures, and the organization naturally changes its shape, size and structure. The ORA scorecard monitors the program and should be used proactively. There will be conflicting pressures for the time of functional teams and named individuals that are owners within the RTO plan. FIG. 4 shows an example of how a program was mapped out to run over a monthly cycle. If any of the “no” answers are flushed out, corrective actions must be taken. Routinely, the complete series of these questions must be answered with a “yes” by the operational readiness team.

Takeaway: The ORA program must be dynamically and systematically run with the best and most up-to-date facts.

Next month

Part 2 of this article will move from theory to practice. The authors will explore a recent and ongoing case study, and will show how the client dealt with its unique operational readiness needs. The authors will provide conclusions and offer thoughts on the risks and opportunities that are present beyond the project’s startup.

There is sufficient information in the public domain to illustrate that a compelling need exists to address the operational readiness topic better than what the industry is presently doing. Readiness is necessarily a constant, and must be considered an integral part of operational excellence rather than something that is only carried out during the transition into normal operations.

It is time to apply the lessons learned. The authors believe that effort should be applied to documenting, in a standardized way, what operational readiness must be. The industry should level the playing field and craft an international standard on operational readiness for the oil and gas community, and augment that with professional qualifications and certification for operational readiness professionals. HP

Notes

     a  This article is an expanded and revised version of Jacobs Consultancy’s article, “Project-to-asset: Smooth transition to operation; operational readiness assurance.” The article was originally presented at the 22nd World Petroleum Congress.

LITERATURE CITED

  1. World Energy Outlook 2016, International Energy Agency (IEA), 2016.
  2. Merrow, E. W., Industrial megaprojects: Concepts, strategies and practices for success, John Wiley and Sons Inc., Hoboken, New Jersey, 2011.

The Authors

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