Scope #12 (6/2020)

12th Prohoc Stakeholder Magazine Summer / Autumn 2020 prohoc.fi

RENEWING INFORMATION SERVICES STRATEGY

INVITING CUSTOMERS AND PARTNERS TO A DIALOGUE PROJECT MANAGEMENT IN FOCUS

Become an exceptional project delivery organization

12th

Contents

16

4

18

2

8

Jakamo: Just ditch the non-value adding work already!

Renewing the strategy for Information Services

14

6

Proactor: Winning as a team

16

8

Lessons from the playing field

18

10

WOIMA: Disruptive Business Model

4

Top tips for remote work (and life)

How to Become an Exceptional Capital Project Delivery Organisation — part 2

SCOPE is a stakeholder magazine giving insight to the daily business and development of Prohoc

Oy and its personnel. PUBLISHER: Prohoc Oy EDITOR-IN-CHIEF: Matti Manner ART DIRECTOR: Jonne-Pekka Stenroos/Staart COVER PHOTO: Mikko Lehtimäki PRINTED BY: Printhaus Pori Oy, Finland.

Papers and inks used are eco-friendly and produced responsibly.

KEYNOTE

EXTRAORDINARY TIMES call for PROHOC 3.0 I have found that there are many among us who have caught themselves realigning their direction during these strange times. What is the real driving force for me? Is it helping our customers achieve

tion Services offering. We also cover lot’s of other

their goals or is it making the world of projects a bit

interesting topics, not to forget a deep-diving article

better for everyone, project by project? Prohoc set

on requirements management in capital investment

its course in 2017 to become the best employer in

projects – an excellent piece every project director

the engineering industry. We’ve been successful in

should get familiar with.

doing that. Now it’s time to take the next step and renew our entire organization and leadership style

Finally, I know many of us have been sad to see

to be successful in this new era.

what is happening in US and elsewhere with racial and other types of discriminatory behavior lately.

Major company upgrade to Prohoc 3.0 includes a

I want to encourage everyone to bring their best

new group structure with three subsidiaries: Prohoc

voice to stop this discrimination and exclusion

Projects, Prohoc Services and Prohoc Proactor. It

whether racial, gender, ethnic or any of its form. We

also means we are tearing down old hierarchical

need to work together to enable same opportunities

organization and replacing it with a dynamic lead-

for prosperous good life for everyone. Meaning also

ership model where matters are managed by equal

same opportunities at work, same opportunities for

and inclusive round tables. We are doing this also to

happiness. When you fill a room with compassion

become more agile and lean. It is easier to navigate

and empathy, there is no room for hate, intolerance,

in a volatile market with a faster ship. We also invite

or exclusivity. Let us work with this together. I

all our people and partners to co-create the better

assure that we will do our part here at Prohoc.

future – together. More about the transformation in That being said, let’s not forget to tune in the Sum-

next episode.

mer mood. Enjoy a relaxed summer break, I’m sure This Scope introduces you Proactor – our new

we will be strong together to fight for a flourishing

subsidiary with Matias explaining the winning team

inclusive future, project by project.

strategy and Nita tells you more about our Informa-

Matti Manner CEO

Sport enthusiast, yachtsman and all-around business engineer Matti is the chief executive officer of Prohoc. After traveling around the globe trying to find world class suppliers he is now navigating Prohoc to become one. • TWITTER: @MattiManner

3

INFORMATION SERVICES

Tailored service throughout THE PROJECT LIFE CYCLE A

4

s we begin the new decade, we see constant change happening within information management in project business. Renewing Information Services strategy to tackle the digital challenges of customers is done in two ways; developing and expanding our existing core competences and adding new services into the portfolio.

Prohoc’s current core business within Information Services includes project documentation services and information management consulting services as well as on-demand archive and archive services.

“We need to be able to evolve into a wider scope solution provider to better respond to our customer needs.” Says Nita Päivärinta, Operations Manager of Information Services.

As the importance of information management increases, we see that our customers will have a need for a solution that covers the information management throughout the project life cycle from sales phase to delivery. Offering a tailored service that includes not only resourcing but also co-ordination and management of the work can enable customers to really stay focused on their core business.

NITA'S PHOTO: MIKKO LEHTIMÄKI

WORKING REMOTELY BRINGS POSSIBILITIES FOR FLEXIBLE PROJECT CONTROL

Working remotely brings new ways of working and makes companies think of new digital solutions to existing challenges.

In some industries working remotely is already a reality, but during the COVID-19 crisis the more traditional industries are also forced to develop new digital strategies and learn to manage projects remotely. This exceptional time is highlighting some information management related challenges that companies have, such as digital safety and understanding own digital tools and environments.

Prohoc has enabled working remotely for some time now and the benefits can be seen in terms of flexibility and efficiency.

“I believe that we can help our customers to become in

control of their information management processes and practices.“ Says Nita. “Another change that we believe will take place is that as working at customer premises full time will not be as crucial, we can for instance manage the project information and documentation tasks for our customers around the world from one place. In addition, getting the best experts will be easier when we can offer flexibility in terms of location”.

Information Services is seen as a current topic and area of development in project business and it brings many possibilities for flexible cooperation. Therefore, we invite our customers and partners to a dialogue on how Prohoc could expand it’s Information Services portfolio to better assist our customers to improve the quality of their information management practices.

Nita Päivärinta is a passionate about operating in the Information Services sector and developing Prohoc as a company.

Nita strives to lead the IS team towards success and to further promote employee wellbeing.

You have been part of the Information Services department in the past. How does it feel to get a leadership position in an already familiar team?

"The majority of the Information Services’ experts were already more or less familiar to me, so I already knew how great they are. I hope I can promote and prioritize our

"THE MOST SIGNIFICANT ADVICE HAS BEEN TO DO

work culture and wellbeing because of how familiar I am with our team."

"My academic background and work expe-

MY JOB IN MY OWN STYLE

rience will be valuable to succeeding in this

AND NOT BE TOO AFRAID TO

amount of support from management and

MAKE DECISIONS."

role. I have in addition received an incredible my colleagues. The most significant advice has been to do my job in my own style and not be too afraid to make decisions."

Nita Päivärinta POSITION

Operations Manager of the Information Services

What are the future development goals in Information Services?

"We will focus on our value proposition and the strategic development of the services.

We have analysed many of the alterations

FROM

Pietarsaari, Finland. Now residing in Vaasa.

ACADEMIC BACKGROUND

BBA - International Business, currently studying a Master’s Programme in Industrial Management.

IN PROHOC

Prohocian for 5 years. Previously worked in project documentation. Her latest side project was upgrading Prohoc’s continuous improvement process.

FREE TIME

Badminton, walking the dog, and renovating her home.

in the industry caused by the COVID-19 situation and how we can adapt to these circumstances and provide the best solutions to our customers."

You have participated in various Prohoc company development projects. What motivates you to be an active member of the Prohoc community?

"Somehow, I have a constant urge to learn something new and be involved in many areas. It’s marvellous to see when certain issues develop, like for example our internal and external communication."

5

PROACTOR

EMPOWERING PRODUCTION and WINNING as A TEAM

6

"PROACTOR’S CURRENT TEAM CONSISTS OF A VERSATILE SET

PHOTOS: RAMI LOUKE & JUSSI LAINE / LOWLINE CREATIVE

P

OF YOUNG AND

rohoc has been serving Finnish export industries industrialization services, and various project managesince 1997 with project and construction man- EXPERIENCED ment, DFMA and manufacturing improvement services. agement services and growing into a serious player Proactor is currently working with Wärtsilä in a ASSEMBLERS WITH A close partnership to deliver engine model W20 and in the market known for its people-centric approach. associated engine modules. The scope includes the Prohoc's new subsidiary, PROACTOR, was established CHANGE-ORIENTED assembly of engine modules for other Vaasa-based end of 2019 as part of Prohoc's strategy to build new MINDSET. " services on its strengths: strong company culture, verengine types W31, W32 and W34. A major part of our satile knowledge in the industry and great back office co-operation with Wärtsilä has also required extensive capabilities. Proactor is all about bringing a fresh approach to the project management capabilities to deal with challenging delivery manufacturing industry and production services. times and special project needs.

At its core, Proactor aims to disrupt both the employee experience Proactor’s current team consists of a versatile set of young and and the capacity and delivery management in the manufacturing experienced assemblers with a change-oriented mindset. In order to context. This is implemented by bringing flexible yet fixed cost-based create Proactor a great place to work, operations are being shaped by manufacturing services to support the export industry. The focus segtruly fostering the wellbeing of both customers and employees. Therements for the service are ETO, ATO and MTO (engineered, assembled, fore, winning and celebrating as a team is a strong foundation when and made–to–order) types of low and medium volume machinery and co-creating the culture and operations. Engaging people is crucial, equipment manufacturing businesses. In these businesses volumes and it is done by enabling all Proactor employees to participate in the typically fluctuate, and dynamic capacity management is needed. decision-making and encouraging a open communication between Proactor’s services include fixed cost manufacturing services, product employees and managers.

USE CASE

Developing flexible end-to-end co-operation model The first time Proactor’s project management ability was tested was when Wärtsilä needed its eight W31SG flagship power plant engines to be partly dismantled for project delivery.

The dismantling work of the engines was performed successfully in critical time slots, which was caused by lack of factory storage space and tight delivery times, without compromising the quality and safety. Proactor’s flexible working culture suited these needs perfectly.

Proactor is set to develop a flexible end-to-end co-operation model with Wärtsilä to deal with this kind of special projects. The person behind the coordination and planning process from Wärtsilä’s side was Marko Myllykangas (Manager, Development & Industrialization) “There is still a lot be learned and implemented, but Proactor has shown their project management capabilities and will for development, which is something I am very satisfied with. It is highly beneficial for our ecosystem when our partners take responsibility and develop the way of working.”

MATIAS TRÄSKBÄCK:

"A big part of the operation manager ‘coaching’ in Proactor is to emphasize ownership and entrepreneurial mindset" ON NEXT PAGE ≥

7

PORTRAIT: Matias

Träskbäck

THE BEST TEAMWORK PRACTICES IN ACTION

MATIAS' PHOTO: MIKKO LEHTIMÄKI

8

Matias Träskbäck has extensive experience from a wide range of communities and teams, whether those are work-related or sports-based. The world of sports has also taught Matias a lot about leadership.

Now, he is coaching Proactor team for achieving goals and evolving company culture.

“LEADERSHIP IS ABOUT TAKING CARE OF THE TEAM AND REMOVING ANY OBSTACLES FROM THE WAY, SO THAT THEY HAVE EVERYTHING THEY NEED TO SUCCEED.”

This is how Matias perceives leadership from his perspective as an operations manager. In late 2019, Matias was asked to join in a new venture called Proactor and bring a hands-on approach. It was also an opportunity to Matias to start creating company operations and culture from scratch together with the newly established team.

This new role is different from where Matias started in Prohoc in 2015 when he was contacted about the possibility to work in a large semi-submersible drilling rig site project in Baku, Azerbaijan. He was responsible for the commissioning and final documentation.

“I had been working within marine projects before Baku, but the site opera"THE GREAT tions during the intensive commissioning TEAM SPIRIT phase were exciting to go through. Matias comments.”

IS EVIDENT IN After the trip, Matias focused on improving project information flows, quality EVERYDAY LIFE documentation processes and managing AT PROACTOR, key accounts for information services beWHERE PEOPLE fore it was his time to join Proactor. Today, Matias and his team want to establish something unique and shake the old ways CAN EXPRESS of operating. For example, they actively THEIR FEELINGS drive the mindset of ownership to Proactor operations and build goal-driven compenAND IDEAS." sation models. Winning and celebrating as a team are the stable foundation of the Proactor culture and team-based manufacturing models. He emphasizes people are the key factor behind a successful start.

“We have a varied group of assemblers with strong expertise, ready to face any challenges. They are performing with the right attitude and actively participating in shaping Proactor’s development.”

CAPTAIN OF THE TEAM

The teamwork mentality is characteristic of Matias not only in working life but also on the football field.

Laihia, Ostrobothnia, Finland is the place where Matias lived and studied as a child, but he was taken to Vaasa for practices since relatively early age for the sake of his football ambitions.

This sports enthusiast has been a part of various squads during the years, learned a lot from different coaches and have met amazing people around Finland.

Currently, he plays football in FC Kiisto on the second division and futsal on the first division.

“My father made a huge effort and drove me to Vaasa almost every day starting when I was around 12 years old. I am grateful for that. Sports have given me a lot, and hopefully, they will for many more years to come!”

According to Matias, football and any other team sport can give great life lessons to youngsters about determination and resilience in general and how to act in a group. Sports can also teach valuable lessons about leadership.

A big part of the operation manager ‘coaching’ in Proactor is to emphasize ownership and entrepreneurial mindset to assemblers. One tool for this is to provide so-called stretch assignments, where the skilled assemblers can take the lead on a new project or take the lead in a team to coordinate work.

“We are going towards a more autonomous perspective on the decision-making, and for this we have the 'number 10' - the captain - in our groups”, Matias describes.

One of the key elements of a successful team is a safe atmosphere. The great team spirit is evident in everyday life at Proactor, where people can express their feelings and ideas.

“It has been fascinating to see up close how our skilled assemblers build great engines and products for our customer. I am delighted about how our company operations and culture are evolving”, Matias praises.

9

INDUSTRY FORCES

+

+ KEY TRENDS

VALUE CHAIN LEVELS

REGULATION

STAKEHOLDERS

CULTURE

COMPETITORS

SOCIOECONOMICS

SUBSTITUTES & SERVICES

TECHNOLOGY (I.E. DIGITALISATION)

Disruptive Business Model

10

GLOBAL MARKET CONDITIONS

MARKET SEGMENTS

ECONOMIC INFRASTRUCTURE

NEEDS & DEMAND

CAPITAL MARKETS

SWITCHING COSTS

RAW MATERIALS & OTHER RESOURCES

MACROECONOMIC FORCES

MARKET ATTRACTIVENESS

+

+ MARKET FORCES

WOIMA’S DISRUPTIVE BUSINESS MODEL

CHANGING THE WASTE-TO-VALUE MARKET FOREVER 11

A

disruptive business model disturbs the market by addressing the repressed demands ignored by the leading suppliers and manufacturers in the industry. It provides solutions for which the current industry has failed in or is incompetent to deliver. The key in this business model is disruptive innovation, which helps create new niche within an existing market or create a new market altogether by creating, refining, reengineering, or optimizing a product and/or a service.

Disruption is based on understanding the market, in particular the opportunities which the current market players have been ignoring. It must be supported by an innovative strategy — a foolproof plan to outperform the competition. Only innovation which solves current key challenges, such as climate change, environmental degradation, or lack of affordable power, and at a justified cost, can form the base of a disruptive business model.

Typically, it is easier for new market entrants to be successful with a disruptive business model, but that does not mean that

it would be impossible for established businesses to become disruptive. Industry leaders with many resources and large budgets should be able to figure out how to disrupt, but startup businesses actually have the advantage because of their willingness to pursue unproven opportunities. Market leaders are also haunted by the “Innovator’s Dilemma”.

Innovator’s Dilemma is a concept introduced by Harvard Business School professor Clayton Christensen that explains why established companies have a hard time getting innovation right. Stable businesses fail because they focus on making improvements through launching sustaining innovations to existing products and services based on the demand of their current customer base. At first glance this seems like the right course of action for growth, but by following this path, the market leader is not setting itself up to be disruptive. It is merely following convention. Disruptive innovations, on the other hand, create entirely new value rather than just improve on what already exists.

These innovations address the needs of customers that do not just want a better version or a product or service, but instead desire a completely different one or new way of doing things. Disruptive innovations hold appeal because they are more productive, flexible, accessible, and/or cost-efficient.

The waste-to-value market is an excellent example of a market in need of disruption.

There is a multitude of challenges ranging from waste collection to protecting the environment and from local power generation to tackling the climate change. Furthermore, the market requirements differ greatly according to the development level of the country in question. Yet, the incumbents are treating the market as a homogenous power generation market and waste as just a substitute fuel for biomass or fossil fuels. WOIMA is disrupting the waste-to-value market on several different levels thanks to its modular, flexible, and pre-fabricated solutions.

CONTINUES ≥

WOIMA’S DISRUPTIVE BUSINESS MODEL

FIRST, we create a completely

SECOND, we challenge the current

THIRD, our business model offers

FOURTH, our solutions signifi-

new market segment addressing smaller cities and rural areas.

This market has been largely ignored by the big players, yet they are the ones with the least capacity for waste management and the most need for energy.

“bigger is better” paradigm with our decentralized waste management and power generation model. Utilizing local waste in local power generation offers huge savings e.g. in waste logistics and power distribution. And this model is especially beneficial in large cities struggling with traffic congestion.

practically unlimited project delivery capacity. Our distributed sub-contractor network adapts quickly to changes in demand.

And our trained globally-mobile installation and supervision teams are available for all markets.

cantly lower both the capital and operative (CAPEX/OPEX) costs of the facility. Standardization, modularization, and replication offer savings in manufacturing, installation, and maintenance alike.

REQUIREMENTS & EXECUTION

8 8

1

PARTNER Selection of relevant partners for sustainable business success

12

7

KEY RESOURCES

7

Essential resources for the successful operation of the business model

Business Model Development 6

KEY ACTIVITIES Main (differentiating) activities pertaining to the implementation of the business model

5

6

REVENUE MODEL Definition of the main revenue sources per customer (segment) defined

5

4

FIFTH, the project duration from

SIXTH, our design enables the lo-

SEVENTH, our design is done with

initiation to commissioning is substantially shorter than with traditional built-on-site projects.

Our standardized product and documentation solutions reduce the time spent in both project development and project delivery.

calization of manufacturing of for many of the WOIMA solution components. In some markets, the whole project delivery process can be licensed to a local cooperation partner.

project delivery logistics in mind.

The sea-container-sized modules act simultaneously as secure enclosures during transportation, installation platforms for technical solutions and protective housing on-site. They flow easily across oceans and continents.

CUSTOMER (SEGMENTS) & SOLUTIONS

CUSTOMER (SEGMENTS) Selection of most attractive customer (segments) for the solution / service in question

2

2

IMA ECOSYSTEM COMBINES THE BEST-IN-CLASS WASTE-TO-VALUE SOLUTIONS TO SUPPORT THE CIRCULAR ECONOMY PRINCIPLE and to

extract the maximum amount of value out of the different waste streams.

WOIMA’s disruptive innovation work puts us in the forefront of the waste-to-value market globally. All the WOIMA solutions are modular and adapt easily to the changes in waste generation, whether increases through population and economic growth or decreases through better source sorting and recycling. Thus, they are already future-proof. They offer several levels of flexibility in design, project delivery, operation, and new business generation.

PROBLEMS

PHOTO: RAMI LOUKE & JUSSI LAINE / LOWLINE CREATIVE

1

And last but not least, instead of relying on one solution, such as mass burning, THE WO-

Specification of problems to be solved from customer (segment) perspective

3

SOLUTIONS Definition of solutions for identified problems of the customer (segments)

3

4

CHANNELS Selection of the distribution channels via which the solution / service will be distributed to the customer (segments)

Disruption is here to stay.

Get in touch and let's figure out the world of tomorrow — together.

Henri Kinnunen CEO WOIMA CORPORATION

13

JAKAMO

ARE YOUR PURCHASERS STILL SPENDING

14

50

%

SOURCE: WORLD BANK

OF THEIR TIME FOR NON-VALUE ADDED WORK IN 2020?

It is amazing how much nonvalue added work manufacturing companies are still doing nowadays in purchasing and supply chain management.

A

s a part of Jakamo’s business design and user research processes, we are conducting a lot of interviews, observations and co-design workshops in our customer companies in the manufacturing industry.

With these methods, we research what types of pain points the companies and their employees are facing in their daily operations and how supply chain digitalization could help them with that.

NON-VALUE ADDED WORK OVERLOADS PURCHASERS

Timo Rossi CDO & CO-FOUNDER OF JAKAMO Timo is an environmentalist and design thinker who holds wide knowledge of supply chain management, user-centric design and value creation in industrial context.

Problems and improvement initiatives are found in many areas, for instance, in supplier quality management, engineering collaboration and sourcing, but let’s take biggest problem area, operative purchasing, as an example for more precise analysis at this point.

According to our research, approximately 50 % of the working time of an operative purchaser in a typical manufacturing company is spent to non-value added work. That’s four hours per day!

Common examples of that type of work: • Comparing information of a purchase order and supplier’s order confirmation • Typing purchase order confirmations to ERP system • Handling and manually sending purchase order related documents • Delivery control: reminding suppliers of late order confirmations, late deliveries and upcoming important deliveries • Searching purchase order-related communication information that is scattered in tens of emails of many people • Searching purchase order related material certificates and quality documents This is all clearly non-value added work and not any customer wants to pay anything for that. This type of manual routine work decreases significantly the company’s operative throughput, creates additional costs, causes unnecessary delays in the delivery process, and what is maybe the worst, reduces employee satisfaction.

It is very common in the manufacturing industry that due to heavy manual workload

purchasers are overloaded and do not have enough time to do more value-added (and personally much more pleasant work), such as, supplier collaboration, quality management, coordinating, development, sourcing, bidding and negotiating. Imagine what more your company could achieve if your purchasers could use four hours every day for that instead of non-value added work.

A DIGITAL TRANSFORMATION JOURNEY TOWARDS BETTER PRODUCTIVITY AND HAPPIER STAFF

Luckily this type of manual work can be easily automatized by a holistic digital platform and based on our customer value mappings we have gained good customer evidence of the benefits of that. Our customers have improved their productivity significantly and purchasers’ work time has been released for value-added and more pleasant work. In general, their purchasing teams focus has changed from operative manual routine work more towards strategic and development-oriented work.

Below I have summarized SOME PRACTICAL EXAMPLES OF THE BENEFITS GAINED IN OUR CUSTOMER COMPANIES:

100 % improvement in white-collar productivity of the operative purchase team 2 % savings in annual purchase budget 20 %-points improvement in suppliers’ OTD 20 % decrease in supplier quality costs Significant improvement in employee satisfaction Impressive numbers and it is not difficult at all! Technology to do this is already available. It is just about to take this in purchase management’s priority list and to start the digital transformation journey towards a huge productivity leap and much happier purchasing staff.

15

WELLBEING

GET THE MOST OUT of REMOTE WORK Spring 2020 has taught us all to work remotely, whether we’ve done it before or not. In the future, at least partial remote work is likely to become a new normal. Check these tips to take care of your home office ergonomics and efficiency, both now and in the future.

ILLUSTRATION: JONNE-PEKKA STENROOS

16

Make an effort to CREATE AN ERGONOMIC WORKING AREA. Working by the dining table isn’t the best option neither for your ergonomics nor separating work from free time. If you don’t have a separate workroom in your home, organize a working corner somewhere. If possible, go fetch your work chair and your monitor from the office. Having a space dedicated only for work and nothing else will do magic for your motivation, too.

Now that your schedule is probably a bit more flexible, you can enjoy a jog in the daylight. Or you can do your yoga routine, or even take a nap in the middle of the day. ANYTHING THAT MAKES YOU FEEL REFRESHED and helps you go on with your work.

If you struggle with starting the day when you lack the routine of commuting, TRY BEGINNING EVERY MORNING WITH A WALK AROUND THE BLOCK. There, you

have just walked to the office!

And naturally at the end of the day you walk back home.

THINK ABOUT WHAT YOU WEAR.

PLAN YOUR DAYS. Spend

While the old sweatpants might be the most comfortable choice, a bit more formal outfit might help to put you in the work mood. Do it at least when there’s a video call.

the last fifteen minutes of the day to plan the next day. In the following morning, start with the most challenging task on your to-do list. Once you’ve accomplished that, the rest of the day will feel a lot easier and you have a clear map of moving forward.

How do you cope with remote work?

Share your tips on LinkedIn: @prohoc

MUTE NOTIFICATIONS. Don’t give

HAVE A BREAK! Your brain needs

yourself up to the continuous beeping concert, it will only distract you. You can check your emails and other messages once an hour.

it and so does your body. Stand up once an hour, do some stretching, get a glass of water or a cup of coffee. Try virtual coffee breaks with your colleagues.

Breaks are like fuel for your concentration. And don’t forget about lunch!

17

Please check our earlier article, Part 1 in Scope #11: issuu.com/prohoc

PROJECT MANAGEMENT IN FOCUS: PART 2

DO YOU WANT TO BECOME AN EXCEPTIONAL CAPITAL PROJECT DELIVERY ORGANISATION? Sami Myllyviita

18

M.SC. ENG., ABM, PMP®

Management Consultant, Project Business / Leadership for Project Partnership Services in Prohoc

T

he earlier article, Part 1 in this series of articles, enlightened us about phenomenon called Planning Fallacy including its complications and ramifications carrying along uncertainties and risks in determining baselines (for cost and time). In this Part 2 we will discuss about how to counteract Part 1 introduced psychological biases, for instance, through probabilistic estimating. The advanced estimating methods are paramount for the informed decisions required by the Executives to determine baseline(s) addressing the pertinent uncertainties.

We also conversed about Quality, or by Mr. Crosby words “Conformance to carefully thought-out requirements.” ISO9001 clearly sets out some expectations and requirements to the companies on how they should manage the customer project requirements, not only in the beginning of the project development but also during the project lifecycle,

while high-level needs are translated into initial high-level requirements, which are further refined gradually to more detailed levels. Such refinement takes place during partially concurrent processes of engineering design, procurement, construction, and commissioning. Without digitalized requirements management process, it is challenging to manage the imminent changes to the requirements and relevant change impacts to the scope of work, schedule, and productivity. Inability to prove the cause and effect of the changes and inability to execute change impact analyses, will eventually lead to unrealized compensation. Digitalized requirements management enables the establishment of the prove for the change (traceability – backwards and forwards) for any recorded change. In Part 2 we will start discussing about prudent requirement management and prevalent benefits.

FIG.2.1

The requirements management process 1

Elicitation

Tender documents

• Business goals • Problem to be solved • System constraints

Client organisation Client priorities EIA Permits Stakeholders Industry best practices Constraints Contractor’s Business Goals and Priorities 2

Analysis

Value redefinition

Tender deviations

3

Negotiation

Bid / Contract negotiations

Request for Information

VALUE ENGINEERING CHANGE MANAGEMENT

• Organisational structure • Application domain • Domain knowledge filtering

Change analyses

• Change analysis and costing

• Stakeholder identification • Goal prioritization • Domain knowledge filtering

Claims and Contract Change Control

Cost Impact Analyses Schedule Impact Analyses

• Necessity • Consistency / Completeness • Feasibility

—

Schedule Management and EOT Analysis

—

Cost Estimating and Cost Impact Analysis

• Problem analysis and change specification • Change implementation

• Stakeholder requirements • Domain requirements • Organisational requirements

Competetive edge Clarification needs

Change Control

Change Requests

Pre-Award Negotiations Site visits

5

• • • •

—

Project plan changes

—

Claims and Contract Management

Unnecessary Conflicting Incomplete Infeasible

REQUIREMENT DISCUSSION

• Agreed actions • List of problems

• Requirements prioritization • Stability/volatility 19

Clarification needs Request for information Tender requirements deviations

REQUIREMENTS AGREEMENT

4

Validation

Prioritization Capturing Baseline

REQUIREMENTS MANAGEMENT

The requirements management process is a cascaded gradually refining continuous activity during the capital investment project lifecycle to identify/document, analyse, clarify, prioritize, evaluate, negotiate, verify, and validate the requirements. Rigorous change management and innovative value management are essential adhering processes to ensure value creation for Customer and to ensure financial compensation deserved

by Contractor.

The above picture (Fig.2.1) gives a typical Contractor view on project lifecycle. Digitalized requirement management environment creates means of collaborating with contractor’s internal (and external) stake-

holders during project phases described.

Prohoc offers its Customers a service-solution, which includes customizing the requirements management process by aligning it with Contractors business project model and organisation, and of course needed resources to manage and improve the process when in operation. Prohoc is partnering with a company digital collaboration software service for digitalizing the process.

Benefits Digitalized requirements can be effectively and efficiently managed by estimating / bidding teams, contract negotiation teams, project management teams or any team which are involved to Contractor’s projects. The benefits are simply delivered through con-

tinuum of requirements i.e. traceability (Fig.2.2) achieved by company’s diligent application of requirement management process. Consistently identified requirements are a defining factor for the actual scope of work, so the digitalized process brings in the most effective and qualitative way to ensure that the estimates for cost and schedule are within the set risk profile. Additionally, traceability (backwards and forwards) not only prove the linkage between cause and effect, but also reduces essentially the effort when introducing a new project team member to the project in later phases. The process also facilitates Contractor to improve the ability to collect rightful compensation arising from the changes. Additional benefits are considered n the following section.

CONTINUES ≥

PROJECT MANAGEMENT IN FOCUS: PART 2

FIG.2.2

Continuum of Requirements – Traceability Requirements

Request for quotation

Proposal

• Customer Need • Business Case

• Statutory

BIDDING

NEGOTIATING

Process: Fig.2.1

Fig.2.1

• Regulatory • Functional • Company

• Management • Activities BASELINE 0 DIGITAL CONNECTION

20

Initial Baseline

Risk Management

BASELINE 1 COLLABORATION

Risks / Contingencies / Allowances

Fulfilments

Risks / Contingencies / Allowance

FROM PREVIOUS PAGE

CONTINUUM IN REQUIREMENTS – TRACEABILITY

The inquiry documents like, Request for Quotation (RfQ) or Invitation to Tender (ITT), define the first baseline of requirements. It is utmost important to determine a digitalized requirement baseline 0, especially documenting the requirements which are implied, but not stated. Also references to the standards, code of practices and industry best practices should be well identified, documented, and scrutinized. Contractor’s own requirements should be recognised as well.

Quite often, the customer’s inquiry documents are not grouped according to the organisational setup of the Contractor. For instance, requirements adherent to Electrical engineer may be mentioned also in specifications adherent to Mechanical engineer.

Digitalized requirement management allows improved coverage of adherence to the requirements through an effective collaboration between disciplines or any organisational

setup Contractor has.

Digitalized requirement management elevates the company performance by application of productive method of relaying the selected customer requirements to subcontractors or vendors while preserving the traceability between the chain of the requirements. The defined approach delivers a powerful method of controlling the project complexity, which is especially noticeable upon changes arise.

Collaboration – Speed, Quality, Productivity Speed and productivity in company’s operations are well enhanced through reuse of earlier developed specifications, customers’ typical requirements specifications, standards, and company’s own digitalized requirements.

Incrementally, it is not unusual that some individuals or the whole team changes during the project. For instance, estimating and proposal teams are normally working during Bidding and Negotiating phases and will hand-

over the project to the Project Management Team (PMT). It is important for a successful execution that Proposal team hands the history trail of the cascaded requirements, the intermediate requirements fulfilment verifications and the current baseline of requirements, according to which the project constraints (cost budget and schedule) are defined. The faster the PMT is able to digest the defined baseline and the trail of the cascaded requirements, the better the chance they have in reaching the confidence of being able to deliver the project to conform customer’s expectation (Quality) and still within the constraints and reserves.

RISK MANAGEMENT - MANAGING CONTINGENCY

Especially in complex capital investment projects, there will be number of unplanned events, which may or will influence the course of actions in the project. Despite

Final Test Acceptance

EXECUTING

CLOSING

Fig.2.1

Fig.2.1

BASELINE 2

BASELINE 3

BASELINE X

Fulfilments

Fulfilments

Fulfilments

Risks / Contingencies / Allowances

Risks / Contingencies / Allowances 21

Base Estimate – Naked Estimate Estimation team produces a Base estimate based on Known-knowns (Fig.2.3) in the scope of work. Even Known-knowns embed a degree of uncertainty. Spite of known scope work items which we can explicitly define and understand, there is still need for estimating the range of costs for each

CONTINUES ≥

FIG.2.3

Know your unknows HIGH

line item. Information used in defining the range is based on, for instance: reference databases, historical information from earlier projects, judgement of subject matter experts or suppliers / subcontractors. The name Base estimate implies, that it is starting point for defining the budget.

Estimating team should define a Probabilistic distribution of cost (or time) to consider the probability of not exceeding the targeted cost / price / time. Base estimate is a one-point estimate, it could be called as a naked estimate.

Referring to “Planning fallacy” phenomenon with its implications of estimating team ending up with optimistic line item estimates, it is well obvious that sum of optimistic line item estimates, is even more optimistic. Therefore, Project Champions and Ex-

KNOWLEDGE ABOUT OCCURENCE

of diligent requirements management or flawless estimating efforts, there are always things we simply don’t know – Unknown unknowns, which will affect project’s success, quite often negatively. Executives of Company shall acknowledge this fact and assign a business buffer, a management reserve, which is proportional to size of project to the magnitude obtained from historical performance of company’s earlier projects and risk appetite. Picture Fig. 2.3 “Know your unknowns” tangent the earlier discussion of consequences from psychological biases and deceptions (Ref. Earlier Scope Issue). Let’s elaborate this a bit in the following chapters.

LOW

es

Mechanical Completion

Contract

Project Contingency (PC)

Base Estimate (BE)

KNOWN UNKNOWNS We know there are things we can’t predict

KNOWN KNOWNS Things we are fairly certain of

Management Reserve (MR)

Allowances (AL)

UNKNOWN UNKNOWNS We don’t know what we don’t know

UNKNOWN KNOWNS Other’s know but you don’t know

LOW

KNOWLEDGE ABOUT IMPACT

Baseline, Cost / Schedule New risks

HIGH

PROJECT MANAGEMENT IN FOCUS: PART 2

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ecutives should ask themselves, what is the confidence level we should reach in our cost budget when setting the investment cost into the feasibility calculation model or setting the price into the bid form.

Confidence Level of Estimate The quality and agility of the requirement

management process along with organisation’s ability to refine and record the requirements during the engineering design process and project’s subsequent phases, influence the level of uncertainty of the developed estimates during the consecutive project phases.

Prudently applied project management processes and methodologies will develop information and data which is supporting Executives’ decision making.

For example, like presented in Fig.2.5, a project’s line items have been estimated with 3-point estimating method (optimistic, most likely, pessimistic) and for such an estimate a probabilistic Monte Carlo simulation method has been applied to develop the Probabilistic Cost Distribution (PCD). It is very common, due to the implications of the earlier discussed psychological biases, that project budget is estimated based on sum of Most Likely costs to define Base Estimate on top of which, the Executives apply company policy prescribed percentage as a risk reservation, eventually creating a deceptive view on budget confidence level.

Fig2.5. shows in the example case that Sum of Most Like items (= Base Estimate) give confidence level of 30%, which may not be adequate for an informed decision. Executives

FIG.2.4

Contingency Reserve RANGE OF OUTCOMES LIKELIHOOD

22

Confidence Level in Setting Budgets (or Timelines) In the earlier Scope #11 issue we discussed that psychological biases make our base estimates to be inherently optimistic, thus leaving the project under tremendous risk of exceeding baseline (read: high probability of exceeding baseline). A consideration of a project buffer is required to improve the probability of the estimate. This buffer is often called contingency reserve (Fig.2.4).

Sometimes, there are scope items which we are aware of but there is not adequate amount of information to estimate accurately – Unknown Knowns. In such cases, it is possible to make an Allowance into the estimate based on communicated assumptions (Fig.2.3). Estimation team must communicate the assumptions in the estimates, bids, and contracts clearly, because those are subject to a change order upon Parties becoming aware of missing details. Allowance is a great method for Contractors to collect de-

served compensation for such line items later, but not losing the opportunity initially.

The following category (Fig.2.3) is Known Unknowns or Project Contingency, which is the amount added to the estimates to allow for items, conditions, or events for which the state, occurrence or effect are uncertain, and that according to estimator’s / contractor's experience, will likely result in additional costs / time.

Executives shall assign project contingency to cover the impact of the identified risks (in the Risk register), which has been accepted within the baselines and for which project management team has developed mitigation responses and relevant mitigation cost estimates.

Cost (or Time) baseline is defined by adding Base Estimate + Allowances + Project Contingency together. Ownership of baseline stays with Project Manager, while incremental Management Reserve is a business reserve defined by the company policy (Fig.2.4).

Probabilistic cost (or time) distribution is an excellent technique to evaluate the remaining risk exposure to the business.

Risk to project budget Chance of success

Risk to business

Project Contingency

Management Reserve FINAL COST

BASE COST

FIG.2.5

Probabilistic Cost Distribution 110% 100

45%

90 80

35

70 60 25 50 40 15

30 20

5

10 0

23

24

25

26

27

28

29

Mill.

BASE COST

-10

Sum of Low Costs

Sum of Most Likely Costs

-5

Contingency

Contingency

by Company Policy

"PROBABILISTIC COST (OR TIME) DISTRIBUTION IS AN EXCELLENT TECHNIQUE TO EVALUATE THE REMAINING RISK EXPOSURE TO THE BUSINESS."

Sum of High Costs

Management Reserve

may falsely feel that by applying company policy prescribed risk percentage, the confidence level is satisfactory. In this case it is only 59%. Should the Executives ask themselves if 59% is adequate for an informed decision? Is this approach correct?

It is not. To avoid implications from acts of earlier discusses psychological biases, Executives should lead the organisation to: 1. Apply 3-point estimating of line items in lieu of one-point estimates 2. Apply Monte Carlo Method to define probabilistic cost (or time) distribution curve 3. Present confidence level of the Base Estimate 4. Ask Executives what is the required confidence level for the project 5. Establish contingency reserve amount

23

and compare it to risk exposure presented in risk register 6. Make decision on applicable Management Reserve and 7. Acknowledge the reached confidence level 8. Executives make an informative decision of project cost / schedule baseline.

PROJECT PARTNERSHIP SERVICES

Prohoc’s Project Partnership Service is ready to consult and work with Owners, Investors and Contractors in effort to develop these fields of ability in your organisations and we are devoted to make your business to excel in developing and delivering capital investment projects.

References in Parts 1 and 2 Based in article “Managing capital projects through controls, processes, and procedures” by PwC Based on article “Better forecasting for large capital projects” by McKinsey 2014 Based on Hooks, Ivy F., and Kristin A. Farry. 2001. Customer-Centered Products: Creating Successful Products Through Smart Requirements Management. New York: AMACOM

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