Global Construction Summit Construction Project Management Best Practice 2010

- A Springboard for the Next Decade

24 & 25 June 2010 Marriott Rive Gauche Hotel, Paris
The Effects of the Global Economy on Capital Project Execution

The Effects of the Global Economy On Capital Project Execution

Stephen Cabano Pathfinder, LLC June 24, 2010
Marriott Rive Gauche Hotel, Paris

The Effects of the Global Economy on Capital Project Execution

Agenda
Introduction Industry Perspective Capital Project Influences Addressing the Issues Recommendations Question & Answer

The Effects of the Global Economy on Capital Project Execution

Introduction
Stephen L. Cabano, President, Pathfinder LLC Presentation perspective will be from both the Owners and Contractors Project Management views of the oil and gas process industry as of late 2009/early 2010
Including discussion of recent 2010 industry observations

The Effects of the Global Economy on Capital Project Execution

Industry Perspective

The Effects of the Global Economy on Capital Project Execution

Industry Perspective
Owners International financial and political uncertainty is constraining worldwide capital project activity. Many Owners are cautiously optimistic regarding industry growth. Many have cash but are waiting out the storm. Activity still at reasonable levels in Asia/Pacific, slow but reasonable in South America, slow in Europe and slow-to-dismal in North America (but improving).
The Effects of the Global Economy on Capital Project Execution

Industry Perspective
Owners Most industry components are poised to move ahead once the following occurs:
Future financial and taxation policies are clearly established Money borrowing, insurance and interest rates loosen and stabilize at reasonable levels Government intervention points are established & stabilize

Starting to see planning activity for major projects with plans for late 2011 2012 execution starts.
The Effects of the Global Economy on Capital Project Execution

Industry Perspective
Contractors Slowdown of capital spending has made engineering and construction contractors more available. Contractors have worked off their 2007 - 2008 backlogs and are now hungry for work. In many areas, however, they have substantially downsized. Contractors have minimal funds to invest in training or developing resources.

The Effects of the Global Economy on Capital Project Execution

Industry Perspective
Contractors Historically, downturns such as those experienced in the past few years typically create competition and new companies. Downturns also historically breed innovation on how to execute more efficiently.

The Effects of the Global Economy on Capital Project Execution

Industry Perspective
Industry (Overall) The rollercoaster ride of the past 10 years has not helped the public view of engineering and construction as a reliable career path for new engineers.
Still a major demographic issue for engineering and construction resources

The 3 Ds still prevail (Dirty, Dangerous, Divorce).

The Effects of the Global Economy on Capital Project Execution

Industry Perspective
Industry (Recovery) Fear is that all industries will show activity simultaneously, causing massive surge in project activity around the world (2011 2012). Natural disaster rebuilds will cause drain on worldwide construction labor as well (Haiti, Chile, China, etc.). International Economic Stimulus money is trickling down to the field (but slowly).
The Effects of the Global Economy on Capital Project Execution

Industry Perspective
Industry (Recovery) Oil prices hovering around $75+/ bbl US. Worldwide electricity demand is increasing as economy starts to rebound. Alternative energy continues to expand. Manufacturing starting to show slow growth. Auto industry starting to recover slowly (GM has shown its first profitable quarter in 3 years and has repaid a major portion of its bailout).
The Effects of the Global Economy on Capital Project Execution

Industry Perspective
Industry (Impact) Recent increase in the number and size of claims. Owners are more cost conscious and risk averse. Shift to emerging markets (Asia/Pacific). National oil companies taking a larger role in oil industry/geopolitical influences. Focus is on upstream rather than downstream work in established markets.

The Effects of the Global Economy on Capital Project Execution

Industry Perspective
Industry (Impact) Potential for numerous international infrastructure projects. Criteria for borrowing money is much more stringent, more risk averse (higher level of due diligence). Environmental/Sustainability impacts continue to force change .

The Effects of the Global Economy on Capital Project Execution

Industry Perspective
Industry Is economic stability a reality? May go through a number of cycles over the next 10 years.

The Effects of the Global Economy on Capital Project Execution

Capital Project Influences

The Effects of the Global Economy on Capital Project Execution

Capital Project Influences

Material pricing fluctuations. Labor rates have not dropped as dramatically as material pricing (which is a good thing for the industry). Major cost and schedule overruns in the mid 2000s have caused confidence and reliability issues between project organizations and business units.

The Effects of the Global Economy on Capital Project Execution

Capital Project Influences

Across-the-board cost cutting by Owners (reductions in staff, mandated reduction in support services, mandatory reduction in engineering cost, etc.) may result in actual overall project cost increases. Reshuffling of industry resources over past 5 years (people are learning new corporate processes/practices, owner resources moving to contractors and vice versa).
The Effects of the Global Economy on Capital Project Execution

Addressing the Issues

The Effects of the Global Economy on Capital Project Execution

Addressing the Issues

Aggressive companies are spending capital today while the resources are available and pricing is attractive (several major oil companies). Companies are still moving forward with capital spending but looking for every opportunity to save/cut costs.

The Effects of the Global Economy on Capital Project Execution

Addressing the Issues

Companies need to be cautious not to shortchange operations and maintenance by minimizing capital cost. Many Owners are choosing the lowest cost approach rather than the highest quality. This may result in long-term operational issues as well as a deterioration of the quality of resources in the industry.

The Effects of the Global Economy on Capital Project Execution

Addressing the Issues

Owner purchasing departments driven towards lowest cost and minimizing risk through Terms & Conditions. Owners are attempting to drive for better project outcomes with fewer low-cost resources.

The Effects of the Global Economy on Capital Project Execution

Recommendations

The Effects of the Global Economy on Capital Project Execution

Recommendations
1. Create an industry/worldwide engineering and construction public relations campaign.

Develop an international initiative to attract high quality people back into the engineering and construction industry

The Effects of the Global Economy on Capital Project Execution

Recommendations
2. Apply your Project Delivery Process efficiently and effectively and do not circumvent key critical decisions. Use the proven Work Processes to assure high quality projects are selected and executed efficiently

The Effects of the Global Economy on Capital Project Execution

Recommendations
3. Value quality Front End Loading (FEL).

Trust the benefits of early planning and full stakeholder involvement

The Effects of the Global Economy on Capital Project Execution

Recommendations
4. Plan deviations with the same rigor as the Front End Loading.

Use the same early planning and stakeholder buy-in on project changes

The Effects of the Global Economy on Capital Project Execution

Recommendations
5. Consider Project Management as a competitive advantage.

Invest in your Project Managers; do not shortcut Project Management development

The Effects of the Global Economy on Capital Project Execution

Recommendations
6. Set realistic, achievable goals and objectives.

Do not kid yourself that this project will be different if the execution strategy is the same

The Effects of the Global Economy on Capital Project Execution

Recommendations
7. Realism is needed on behalf of Owners and Contractors.

Restrain from gauging on either side of the table during the initial stages of the recovery period (dont be greedy)

The Effects of the Global Economy on Capital Project Execution

Recommendations
8. Thoroughly plan and schedule the work.

Ensure that FEL work is complete before proceeding into Execution phase. 100/100 rule (100% FEL complete and 100% Project Execution Planning complete before approval for Execution)
The Effects of the Global Economy on Capital Project Execution

Recommendations
9. Use the most qualified Contractors available and appropriate contracting platforms.

Rely on your Contractor selection processes and select the most qualified Contractor for the job. Insist on the best people. Beware of untested Joint Ventures.

The Effects of the Global Economy on Capital Project Execution

Recommendations
10. Consider a Senior Advisory Council structure.

Have most experienced resources act as your Project Risk Managers who wear the Black Hat and seek out project problems and risks. These individuals need to have the proper level of paranoia
The Effects of the Global Economy on Capital Project Execution

Recommendations
Remember: People build projects

Find the best people for the task; people make the difference!

The Effects of the Global Economy on Capital Project Execution

Question & Answer

The Effects of the Global Economy on Capital Project Execution

Contact Information
Stephen Cabano, President Pathfinder, LLC slcabano@pathfinderinc.com www.pathfinderinc.com
Corporate Office 11 Allison Drive Cherry Hill, NJ 08003 (856) 424 - 7100
Houston Calgary Mexico City

The Effects of the Global Economy on Capital Project Execution