“The Art of Project Leadership: Delivering the World’s Largest Projects“, a recent study by McKinsey, one of the world’s leading consultants, begins with a reminder that the builders of the Pyramids of Giza faced essentially the same challenges as project managers of today. Obviously, the technology, financing and quality controls have greatly changed since but they remain just “inputs” into basically the same task of creating something that did not exist within the specific timeline and budget for predefined objectives. Particularly, if this “something” is as large as a refinery or a 146 meters high pyramid in the desert…
You are offered a review of key Russia-specific risks that have been identified by the participants of Downstream Project Management conference (based on conference materials).
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Most projects in downstream fall under the category of megaprojects where the project value exceeds 1 billion dollars while the implementation lasts more than 5 years. As a result, the associated risks grow exponentially and involve numerous factors – investment levels and ROI, ensuring the optimal logistics scheme and uninterrupted supplies, choosing the right technology, contractor selection and performance process, climatic and economic considerations.
Deciding between construction or modernization of a plant is always down to the project owner’s business interests and ultimately driven by the fastest ROI. A downstream business, however, seldom has engineering, design and construction competencies. Speaking at the conference, Nikolay Efremov, Head of Engineering and Major Projects, said that the project owner ought to make products, not projects. In his interview to Andrei Kostin, Mr Efremov also points out that project owners will never be able to distance themselves from project implementation completely. It is always up to the project owner to handle payments, FEED and pre-design, decision-making and monitoring milestones during implementation. Can this be avoided? And what are the deliverables of FEED?
In his presentation at the conference, Andrei Kostin, CEO of RUPEC, Russian think tank and analytical agency, reviews the standard approach to FEED and says that a lot of time and money is spent at this stage on elaborating variables which are not worth it in terms of project risks mitigation. One of such variables is CAPEX, and refining it still yields a value several times lower than halving the standard deviation of product prices.
Competence vs Motivation
Project management studies primarily dwell on processes, standards and control tools but tend to overlook interactions within project team and their motivation while it is the latter that is highlighted by conference participants as most important. Vitaly Protasov, Business Development Director at Baltic Gas Chemical Company, said in his interview “processes can be streamlined, the right contractors can be engaged on a correct EPC or lump sum turnkey contract (which they can help you to prepare), a team with a proven track record in project implementation can be involved (which will surely help), but even with this whole package a project may still fall short if there is not enough motivation in the project team.” It can be caused by wrong KPIs, or staff turnover, or a number of other reasons, but in the end, the lack of competencies is manageable unlike the lack of motivation, which can cost a lot more in the final run.
The study by McKinsey places these soft risks into a separate category, which is called “the art of leadership” and associated with the culture and morale of the project team and its collaboration.
During Downstream Project Management which will be held on 4-5 October in Frankfurt, the partner of McKinsey who led the study will make a review of recommendations for downstream projects based on the results of this research.
During the discussions at the conference, Alexander Babynin, Director General of Orgneftekhim Holding, one of design leaders in Russia, said that a decision-making system with maximum risk hedging and controls by the project owner has been established in Russia. “It is like a car with 50 brakes that can only begin moving when each one of the 50 people releases their brake.” More often than not project implementation is slowed down because of protracted decision-making by the owner.
Alexander Rappoport, Head of Construction and Project Implementation Control Department at Lukoil, commented on it by suggesting that owners should put together teams of good managers capable of selecting the right partners and building a relationship of trust with them to assure there are no excessive controls impeding the project development.
Automation in the Early Stages
Sergey Mishin, Strategic Sales Director for Russia and CIS at EMERSON says in his interview at the conference that not making use of modern automation capabilities in the early planning stages by the owner presents a serious issue. Automation yields savings not so much per se but through related project areas.
He gives an example of compact actuators can reduce the distance between pipelines and minimize the size of the installations. The cost of such devices will be largely offset by the savings they can generate if envisaged from the outset. Incorporating innovation during the design phase will require certain changes to the project approach in general.