PROJECT MANAGEMENT HANDBOOK FOR EPC

PROJECT TEAMProject Management Handbookfor EPC2.2 Project OrganizationFor complex EPC projects the project organization ismore than a project manager and his team. Standardslike the PMBoK address the project organization as ahuman resources issue. This is definitely correct andneeds to be addressed here, but it's more than that.With the project organization we assignresponsibilities to the individual shares of scope. Withthe project organization we define the interfacesbetween the different members of this organization,and these organizational interfaces can be the key tosuccess - or failure of the project. With the projectorganization we also need to set up the infrastructure,e.g. the arrangement of offices for the team. ThisSection will provide an overview of what needs to beconsidered for setting up the project organization, andhow this could be written down in a projectorganization procedure.Figure 2-62.2.1Hierarchies of a Project OrganizationThere are a thousand-and-one ways to organize aproject. There are aspects like the availability,capability, efficiency of resources, the minimization ofinterfaces or corporate business strategies thatdetermine the structure of an organization. There arestrong hierarchical organization forms, there arematrix organization forms. There is a permanent anization must fit into. What-ever the final projectorganization will look like: There is always an externaland an internal project organization hierarchy thatfollows some basic principles. And: the projectmanager must be aware that he has to ensure themanagement of all the interfaces within thisorganization.External organizationThe external project organization of an EPC projectdefines the high-level relationships between thedifferent companies involved in the project. From theperspective of the EPC or main contractor(s) in chargeto engineer, procure and build the plant, there aretypically two or more levels of subcontractors andtheir sub-suppliers that need to be managed. Anorganization chart of the external project organizationwill only show the most important ones, sincegenerally subcontractors and sub-suppliers will bemanaged through the procurement organization. If Ritsche 2014- 26 -the EPC or main contractor is not just one company,but a project joint venture (consortium) of two ormore companies, this needs to be reflected in theorganization chart of the external project organization.Above all that is the client as the top-level of theexternal organization, but there could be furtherorganizations that interface with the EPC (or client/owner/ operator) on a high level, e.g. licensingauthorities or an architect engineer. The followingfigure shall iIIustrate an example.

PROJECT TEAMProject Management Handbookfor EPCFigure 2-7The external organization is the basis for manycontractual relations in the project. Each link betweentwo boxes in this chart reflects a contract betweentwo parties. Each link reflects an interface that needsto be managed, and for which a set of proceduresshould be in place, how the two parties shall worktogether. Section 2.1.1.3 has already elaborated on2.2.1.2these procedures. For each of the parties in theorganization the share of scope must be dearlydefined: without overlap, and without gap. The"responsibility assignment matrix" is a tool to assignthe work-packages of the work-breakdown structure(WBS) to the organization - It will be described furtherbelow In Section 2.3.1.2.Internal organizationThe organizational set-up of the project team withinone of these boxes of the external organization is theinternal organization. Where the internal organizationFigure 2-8 Ritsche 2014- 27 -of a small project may simply consist of the projectmanager and his team, there will be a more complexorganizational hierarchy in a large EPC project.

PROJECT TEAMProject Management Handbookfor EPCSection 2.3 of this handbook will deal with the workbreakdown-structure (WBS) of a project, but one ruleshould be already mentioned here: the organizationstructure and the WBS are two different things.However there should be one principle respectedwhen defining the WBS and when defining the projectorganization: On the lowest level of both structures, itmust be possible to assign one single organizationalresponsibility to one or more work-packages of theWBS. This is why the lowest level of the projectorganization chart should be the manager of a workpackage. He has the full responsibility for planning,executing and controlling the scope of his workpackage, and he functions as a project manager for hissmall share of the project. He leads a small team, andhe follows the instructions given by the next highermanagement level of the project organization, wherehe also reports to.This intermediate level I have named the subprojectIevel. There could be more intermediate levels in aproject organization, but their function generally is thesame: The project manager of a subproject is the2.2.1.3interface manager of the work-packages that belongto his subproject. His main role is integrationmanagement, and he has to consolidate the reports ofhis work-package managers on the subproject-Ievel.At the same time he is reporting bottom-up to thenext-higher level.The highest level in a complex project organization isthe project director. He is the leader of the overallproject, and as he has broken down the overall projectinto a manageable number of subprojects, the projectmanagers of these subprojects report to him. Again,the project director is the interface manager of thesubprojects.In addition the project director will support the projectorganization with some centralized support functions.Typically the commercial project manager, timescheduling manager, quality manager or possibly acentral project documentation office are such supportfunctions. They will be described further below inSection 2.2.2.Interface to executive managementThe project director has the authority to take alldecisions within the boundaries of his project. He isempowered by executive management through aproject charter or a letter of delegation to execute theproject with the involvement of the correspondingorganization units of the home organization andexternal organizations.required that are outside the limits of the project, theproject director shall present to the steeringcommittee, which is responsible to drive the decisionto the appropriate level. The project director isresponsible to prepare such decisions with allsupporting facts, such that the steering committee isable to decide.For a large project with several external organizationsinvolved, it is common practice to establish a steeringcommittee, which represents the executivemanagement of the involved organizations. Theproject director will report to this executive steeringcommittee that acts as the ultimate decision level forissues or conflicts that cannot be solved within theproject directors' responsibility. If there are decisionsFor the project director it is important to fix theprinciples of cooperation between his project and thesteering committee in an organizational paper (e.g.the reporting lines, periodicity of board meetings,members of the committee), and to obtain a signedcommitment on these principles. This agreementshould be part of the project plan.2.2.1.4A special case: project joint venturesIn large construction projects two or more companiesmay join their forces in a project joint venture orconsortium. They will split the total scope among theconsortium partners and define their rules ofcooperation in a consortium contract. In front of thecustomer the consortium may act as one face (closedconsortium), or may maintain direct relations between Ritsche 2014- 28 -the individual partners and the client (openconsortium). The consortium contract will also definea consortium leader and the specific rights and dutiesof this leadership role.The responsibilities of the project director of aconsortium are different to those of the project

PROJECT TEAM2.3Project Management Handbookfor EPCProject StructuresThere're various structures in one project, not justone. The work-breakdown-structure (WBS) certainly isthe most important one, as it should break down thework scope in a logical manner reflecting by definition100% of the work scope, without overlaps, withoutgaps. It is one important coding element that will beused for the coding of costs, for the coding ofscheduled activities or for the coding of documents.But: it is not the only one.changing a structure or introducing another structureat a later stage of the project is either impossible orextremely costly. The project plan should dedicate onemodule to these definitions, which may follow thestructure of this Section, but most of the definitionsshould even be fixed before contract signature.The organization structure is another structure in theproject, and in the following Section it’ll be explained,why organization structure and WBS are two differentthings. There're coding structures for the finalproduct: the process plant. There're coding structuresfor the material that’ll be procured. There're codingstructures for documents, account structures for thecosts. Codes for a variety of criteria are assigned to thetime schedule activities that allow filtering and sortingto those criteria.These structures all have one thing in common: Theyneed to be defined at the start of the project, and2.3.1Figure 2-15Work Breakdown StructuresThe work-packages are the lowest level of a WBS, andthe WBS shall arrange these work-packages in ahierarchical and logical structure. Each work-packageshall be clearly described by its scope, but also by clearresponsibility, clear budget, clear scheduled dates tothe scope of each of these work-packages. Theconsequence is: the WBS shall allow an easy mappingto the organization structure, costs breakdown,schedule breakdown. And this is the way the WBSshould be used in the project: It is the element thatties together all the elements in project space; thescope, the costs, the time, the people, the documents,the risks.Important is the deliverable orientation of the WBS,since beside all other coding structures in the project,the WBS is the one that describes the scope. Anydeliverable in the project that cannot be clearlyassigned to a work-package is not part of the project!Work Breakdown Structure (WBS)Definition of PMBoK : The WBS is a deliverable-oriented hierarchical decomposition of work to beexecuted by the project team to accomplish the project objectives and create the requireddeliverables. It organizes and defines the total scope of the project. Each descending level representsan increasingly detailed definition of the project work. The WBS is decomposed into work packages.The deliverable orientation of the hierarchy includes both internal and external deliverables. Ritsche 2014- 39 -

PROJECT TEAMProject Management Handbookfor EPCWork Breakdown Structure (WBS)Definition of PMI Practice Standard for WBS, 2001: The WBSdecomposes (or disassembles) the overall project scope into deliverables and supports thedefinition of the work effort required for effective management.clearly and comprehensively defines the scope of the project in terms of deliverables that theproject participants and stakeholders can understand.supports documenting the accountability and responsibility for the various deliverables byhaving a direct relationship between the WBS elements related to the OrganizationalBreakdown Structure (OBS) identified through the Responsibility Assignment Matrix (RAM).2.3.1.1WBS and Work-Package DefinitionDefining the WBS is a work that includes two activities:Such structuring criteria are e.g.:(1) Defining the content of the work-packages and(2) Defining of the hierarchical structure, how thesework-packages are assembled in a logical order.-Both activities are performed in parallel, but generallyit is the first step to think about the criteria that willstructure the scope.-There're many ways to give a structure to the sameproject, and there may be good reasons to choose oneor the other structuring criterion as a superior orlower level criterion.Figure 2-16 Ritsche 2014- 40 ---by contract: e.g. scope of company A, scope ofcompany Bby plant: e.g. building 1 of the plant, building 2 ofthe plantby time phase: e.g. engineering phase,procurement phase, construction phaseby discipline: e.g. civil works, mechanical scope,electrical, instrumentation & controlsThe following graphics show examples, how the WBScan be arranged using these criteria. It is the projectmanager's challenge to select the model that will fitbest to the specific characteristics of his project.

PROJECT TEAMProject Management Handbookfor EPCMany companies try to standardize the WBS for theprojects they execute. There're some huge advantagesin using the synergies from one project to another:(1) Facilitating bid calculations and speeding uptender preparation: In most cases the only way togenerate complex offers is to reuse the WBS of asimilar project to meet the challenging deadlinesof the tendering process;agree on the best way to arrange them in a structure.Sometimes, the structure is obvious, but a lot of workis needed until the scope of each work-package hasbeen developed to the necessary level of detail.The content of a work-package is described in a workpackage description or a WBS dictionary, which shouldcontain the information shown below.(2) Re-use of design packages and documentationfrom previous projects;(3) Channelling the flow of lessons-Iearned from oneproject to the next.Using a standard WBS may be a compromise,especially if a project specific WBS may better fit withthe controlling needs of the project. Again it is theproject manager's duty to balance between the pro'sand con's of a standard WBS versus a project specificWBS. In some cases there may be good reasons to usetwo WBS in the same project.Defining the structure is one step, defining the contentof the work-packages is another step. There's no rule,what comes first. Sometimes, when the scope is welldefined, it's relatively easy to describe the content ofthe work-packages, but long discussions are spent to2.3.1.2Figure 2-17Work Assignment ProcessI need to stress it again: a WBS is not an organizationstructure. This is often being confused, becausecertainly it’ll be ideal, if the WBS will follow thereporting lines of an organization. But: theorganization may be changed or adjusted, as to theneeds of a project. The WBS should not be changed!And a standard WBS that’ll be adjusted withorganizational changes is no standard WBS.However there's one guiding principle that is valid forboth the WBS and the organization structure: at leaston the lowest level of both structures, the twostructures should allow a direct mapping, whichmeans clear assignment of one organization unit toone work-package must be possible. The tool to dothis mapping is the "Responsibility Assignment Matrix"(RAM). A scope split in the contract is nothing elsethan a high-level RAM. Ritsche 2014- 41 -One word to the organizational breakdown structure(OBS) that should be used in the responsibilityassignment: There will be work-packages that will beassigned to technical departments of the corporatehome organization or work-packages that will beassigned to subcontractors. It is the project specificproject organization that reflects this fact, not thecorporate home organization. Especially in largeprojects with a high content of subcontracting theresponsibility assignment will develop with thesupplier negotiations - another reason, why the WBSshould not focus too much on the OBS.Each work assignment to an external companyestablishes a contractual relationship. This is thereason why the work-package description should be asprecise as possible. If large packages aresubcontracted, the WBS requirements should benegotiated with the supplier, otherwise thereintegration of the subcontracted scope into the

PROJECT TEAM2.7Project Management Handbookfor EPCCost ManagementAt the very end, it’s all about money. Unplannedscope, schedule delays, poor quality, whatever issuejeopardizes the plan – it all translates into costchanges and budget overruns, shrinking margins oreven losses. And no project manager will gain hisbonus payment, when he completed the projectwithin or even before schedule, but overrun his2.7.1Commercial Organization and ProceduresThe responsibility of the commercial organization goesbeyond cost management. Cost management in aproject is cost planning and cost control, including theaccounting of costs (Cash-Out) and the invoicing(Cash-In). Commercial management however alsoincludes all the business administration, such asfinance, tax, insurance or legal issues, and the projectdirector has to ensure that these functions arecovered by the organization, no matter whether it’sthe corporate organization or his project organizationthat is in the lead. The following sections shall not beaimed to educate commercial managers, but the(technical) project manager shall be sensible for thecommercial and administration issues up to a level ofdetail where he’s confident that nothing falls betweenthe gaps.The cost management plan shall cover the areasheadlined in Figure 2-50 and further described herebelow. The commercial organization could be as easyas a simple list of responsibilities, a list of commercialmanagement functions with an assignment ofcorporate departments in charge. The commercialorganization however can be more complex, especiallywhen the project is managed in a consortium set-up.2.7.2budget. Even if in larger projects commercialmanagers will take care for the cost accounting andreporting in a project, neither cost planning nor costcontrol is something th

2.5 Contract Management 50 2.5.1 Contracting: The Bid Phase 51 2.5.1.1 Bid and Contract Preparation 51 2.5.1.2 Bid and Contract Review 52 2.5.1.3 Assumptions, Clarifications, Exclusions 54 2.5.1.4 Legal and Commercial Aspects 54 2.5.2 Contract Management Set-up 56 2.5.2.1 Contract Management Organization 57 2