10th PwC and Minex Moscow Mining Club meeting Mining investment process and project management Mega-projects - how to increase confidence in delivery and success MOSCOW MINING CLUB
What we’ll discuss today • Why do projects fail? • Enterprise/Group Capital Strategy • Project Level Controls • Case Studies • Risk modeling – Quantitative Risk Assessment • Schedule Analytics • Package Level Risk Profiling PwC Slide 2
• Why do projects fail?
The vast majority of failures are due to managerial aspects Technical problems 4% Directly related 8% Suppliers ’ failures to technical aspects 4% Inappropriate/inadequate 10% resources Only 2.5% of companies Inadequate 11% Project Environment deliver their projects within the Inadequate Planning/ 15% Monitoring deadline, costs, scope and with 92% the benefits expected for the Lack of clear 20% business. objectives Directly related to managerial aspects Lack of management Technical 36% (organizational) and managerial aspects PwC Slide 4
Enterprise Level Strategy
How do Companies React? Establishment of Capital Project ‘Center of Excellence’ / Centralized PMO Central planning and execution across regions with resource optimisation • • Establish interdependencies and central coordination between functions • Clearly defined criteria for group level control and strengthened functions for Group support including: • Project portfolio prioritisation and optimisation within set criteria to inform future investments and risk profile of major capital projects; • Enhanced maturity of business cases, via cross-functional teams; • Increased transparency on project and portfolio performance; • Standardized project development /execution (consistency and quality); • Improved support in contract formation and enforcement Enhanced use of project steering committee’s, and group level investment • and procurement committees PwC Slide 6
Mining Industry Best Practice Front end loading – phased project planning Pre-feasibility Feasibility Post Imp. Review Pre-concept Concept Implementation • Plan for • • • • • Identify Quantify Basic Detailed design Track plan vs. resources • opportunities economics engineering Plan and real • Define roles • • • and scenarios Define options Operations plan logistics Measurement • Define success • • • • Classify risks and portfolio Risk plan Risk KPI monitoring criteria • • • • Align objectives Rank by value, Contracting management Plan correction • Define models • • • Identify quick risk and effort Sanctioning Execution and scope • wins required Supervision • Measurement Implementation Detailed Design Construction Concept Pre-feasibility Feasibility Start Up Approval Expenditure s Influence Front End Loading Mechanical Completion PwC Slide 7
Constantly Refine Cost and Contingency Estimating 100% Class 5 Adapted from the AACE 0%-2% <+100% Cost Estimate Classification System Class 4 1%-15% +50% Estimate Amount +30% +20% Class 2 +15% Class 3 Class 1 40%-70% 10%-40% 70%-100% -10% -15% Estimate -20% Amount -30% -50% Nominal Level of Design Detail 0% Project Schematic Design Construction Definition Design Development Documents 3%-5% 15%-20% 35%-45% 90%-100% Construction Cost Estimate Accuracy Ranges Confidential - For the sole use and benefit of Minex PwC
Scalable Governance / Delivery Models Avoid a ‘One Size fits all’ approach Capital investment risk scenarios Mega Project Margin The mega project is an order of magnitude (or OH/Risk $ Capex more) larger than the typical project for the Feed/Opex organization. Time One-Time Large or Very Large Project Margin Capital projects are not executed as a normal OH/Risk $ Capex course of business and this is a single capital Feed/Opex investment. Time Program of Small and Medium Projects Margin The program involves a collection of projects for OH/Risk $ Capex meeting a specific objective (e.g. growth or Feed/Opex regulatory) Time Capital Intensive Routine Projects Margin $ OH/Risk The asset base for the company requires steady Capex capital investment to maintain production. Feed/Opex Time PwC Slide 9
Scalable project governance and delivery model ($ vary ) (< $10m) ($10m-$100m) ($10om-$250m) ($250m-$1b) (> $1b) Routine Small Medium Large Very Large Megaprojects Projects Projects Projects Projects Projects Business Basic to simple support Comprehensive and detailed analysis Case Approval Business unit Divisional and executive Board Authority Execution Division or department Capital project cross-functional group Tools, Systems, Custom Basic office Standard project and ERP systems and Processes Oversight and Dept. ‘Flash’ Board PMO, Steering Committee Assurance reports reports Independent Audits PwC Slide 10
Project Level Controls
Effective Project Governance Structures Assurance Oversight Project Sponsor Executive External Steering Program Committee Advisory Board Execution Project Director Project Quality Engineering Procurement Construction Commissioning EHS Controls Management Owner’s Material EPC Vendor Fabricators Engineer Suppliers Consultants Subcontractors PwC Slide 12
Procedural framework Project life-cycle Evaluation Design Development Production Turn-over M & O Organization Project resource plan, Mobilize and Ongoing Operations staff design and HR organization, roles and manage project Demobilization requirements / planning management responsibilities labor skill review Procurement and Contractor Contract Vendor Contract Contractor selection Trouble-shoot contract qualification and compliance qualification and strategy and negotiation and punch-list management evaluation review selection Scope and change Project and Detailed design Owner Asset change Change control management scope definition and scope freeze acceptance management Project Elements Project cost Cost control and Cost to Complete Final payment / Cost management Project estimate M & O budgeting baseline Modeling retention release Schedule Project schedule Project schedule Schedule management and data Completion Ongoing management requirements baseline analytics checklist maintenance Business systems Project systems Implement Transition to enterprise asset System support and maintenance and technology strategy project systems management Risk and issue Risk and issue Confirm issue Ongoing issue management Risk and issue tracking and resolution management resolution management plan Design review, QA / QC, Safety Health and Training, Safety Assessments, Safety file method O&M Manuals Management Safety plan Independent testing and inspection handover statements Stakeholder Communication, Project status Operations and assessment and Permits, Licensing Asset reporting and and regulatory Project close-out financial reporting Project performance performance regulatory filings reporting requirements PwC Slide 13
Establish contracting strategy selection criteria Define objectives and establish parameters • Typically output of Front End (scope, cost, schedule, etc.) Loading (FEL) Segregate scope • Typically bulk of services associated with direct (self performed, alliance vs. contractor) project costs • Project: Schedule, scope, definition, funding Evaluate delivery options • Owner: Internal capabilities, risk aversion, contract (EPC, EPCM, Multi-prime, etc.) restrictions, strategic, regulatory/political factors • Market: Resource s, competitiveness, commodities Evaluate pricing options • Qualitative Risk Assessment (lump sum, cost +, • Desired allocation of risk incentives, etc.) • Ability to manage risk Evaluate award • Relationship considerations options (bid, , • Commodity vs. Service negotiated, Etc.) • Regulatory requirements Contract strategy PwC Slide 14
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