Engineering Encyclopedia Saudi Aramco DeskTop Standards
Controlling The Project Scope
Note: The source of the technical material in this volume is the Professional Engineering Development Program (PEDP) of Engineering Services. Warning: The material contained in this document was developed for Saudi Aramco and is intended for the exclusive use of Saudi Aramco’s employees. Any material contained in this document which is not already in the public domain may not be copied, reproduced, sold, given, or disclosed to third parties, or otherwise used in whole, or in part, without the written permission of the Vice President, Engineering Services, Saudi Aramco.
Chapter : Project Management File Reference: PMT30102
For additional information on this subject, contact Rod Kuan on 873-9701
Engineering Encyclopedia
Project Management Controlling The Project Scope
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DOCUMENTS THAT CONTROL THE PROJECT SCOPE ................................................ 3 The Capital Planning Process .................................................................................... 3 Development of the Capital Plan.................................................................... 3 The Planning Brief .................................................................................................... 3 Project Execution Plan .............................................................................................. 3 Purpose ......................................................................................................... 3 PEP Components as Defined by SAEP-12 ..................................................... 3 Project Proposal and Approved ER ........................................................................... 3 Purpose and Timing....................................................................................... 3 Project Proposal Content as Defined by SAEP-14.......................................... 3 The ER Estimate Package ......................................................................................... 3 HOW THE PROJECT ENGINEER CONTROLS THE PROJECT SCOPE AFTER ER APPROVAL......................................................................................................................... 3 Purpose and Uses of the Project Change Request ...................................................... 3 Purpose of the Project Change Request.......................................................... 3 Uses of the Project Change Request............................................................... 3 Defining a Project Scope Change .............................................................................. 3 Categories ..................................................................................................... 3 Cost Basis and Execution Approach .............................................................. 3 Preparation of Project Change Request...................................................................... 3 Appeal Procedure .......................................................................................... 3 Routing of PCRs ....................................................................................................... 3 Approval of Project Change Request......................................................................... 3 ER With an Approved Value of $2 to $5 Million ........................................... 3 ER With an Approved Value of Greater Than $5 Million and Less Than $10 Million.................................................................................................... 3 ER With an Approved Value of Greater Than $10 Million............................. 3 Project Change Request Procedure Flowchart ........................................................... 3 ER Redefinitions ........................................................................................... 3 Proponent Appeal Procedure ......................................................................... 3 Saudi Aramco DeskTop Standards
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CONTROLLING QUALITY DURING THE PROJECT LIFE CYCLE ............................... 3 Application of Quality Controls ................................................................................ 3 Value Engineering..................................................................................................... 3 Purpose of Value Engineering ....................................................................... 3 Value Engineering During Engineering ......................................................... 3 Optimize Design............................................................................................ 3 Materials/Equipment Selection ...................................................................... 3 Implementation of Value Engineering............................................................ 3 Constructability Analysis............................................................................... 3 HAZOP ................................................................................................................................ 3 Total Quality Management........................................................................................ 3 ISO 9000 .................................................................................................................. 3 GLOSSARY......................................................................................................................... 3 ADDENDUM....................................................................................................................... 3
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DOCUMENTS THAT CONTROL THE PROJECT SCOPE The Capital Planning Process During the year, each of the operating organizations identifies modifications and improvements which they feel would be beneficial to the Company. As one might imagine, over time the number of projects that are accumulated by the various organizations becomes substantial. In order to look at each of the projects according to their own merits, an independent and unbiased group is needed. In most companies, this group is called the Facilities Planning Department. The Facilities Planning Department evaluates each project so that they can approve the projects that represent the best use of the Company's money. Some projects are approved for reasons other than economics, for example, safety or employee well-being. Once the projects have been determined for each year, they become a part of the Company’s plans. In Saudi Aramco the one year plan is called the Capital Plan. Development of the Capital Plan Project Selection Process - In order to select a project for the Capital Plan, some assumptions have to be made (e.g., the cost of the project, the length of time it will take to complete the project, and the quality of the product). The margins that cause management to select one project over another are so small that a slight deviation in any of the assumptions may actually change the projects that make up the Capital Plan. It is the responsibility of the Project Engineer to define the project scope to within 10 % accuracy during the Project Proposal development. When the project is submitted for approval, called the Expenditure Request Approval (ERA), management reconfirms that the assumptions made when the project was included in the Capital Plan were accurate and therefore the project should proceed. Economic Analysis - It should be recognized that there are many projects in the Capital Plan. Each project is going through the same economic analysis process. A project may be deleted from the Capital Plan because one of a project’s assumptions was found to be wrong and the project’s economics have caused a reevaluation of the project in the Capital Plan. The Planning Brief In the early stages of the project’s life when the operational proponent is explaining the project to the Facilities Planning Department, the project takes the form of a Planning Brief. Naturally, the scope of the Planning Brief is just what the name implies - brief. The cost assigned to the Planning Brief is plus or minus 40% of the estimated ER value.
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The Facilities Planning Department turns the Planning Brief into a more definitive document called a Design Basis Scoping Paper (DBSP). During the DBSP process, the Facilities Planning Department constantly consults with the operating proponent to validate the scope development. This is the point in the capital development process when Project Management may get involved. Generally, the Facilities Planning Department will ask the SAPMT to define the schedule that is required to accomplish the project. This schedule will be used on the DBSP. The DBSP is expected to have an accuracy of plus or minus 40%. As one might expect, decisions that are made at plus or minus 40% could be different than decisions that are made based on plus or minus 10%. Project Execution Plan Purpose Successful execution of projects requires the highest order of project management planning, implementation, and dedication. The Project Execution Plan (PEP) is a comprehensive multielement document that describes what is to be accomplished and defines thoroughly and specifically how the SAPMT intends to staff, execute, and manage the work to achieve the established project objectives and scope. The PEP represents the broadest and highest order of project execution planning; therefore, it sets the governing framework and strategy from which all other project plans become extensions. The Project Manager must ensure that all the elements of the PEP are consistent with the project objectives and with Saudi Aramco’s existing procedures. Inconsistencies must be eliminated and proper interfaces must be established to ensure that the PEP becomes a viable and valuable document in the successful project planning and execution process. The PEP is a baseline document, in which SAPMT establishes a strategic plan that is utilized to develop, execute, and complete a project that has been assigned to it. The PEP formally establishes the Project Manager’s front-end project planning. The PEP is a management tool that the Project Manager uses to communicate the SAPMT's project execution strategy to the Executive Management for their review and approval. The PEP represents an agreement between the SAPMT and the Project Proponent. The PEP defines the execution plans of the project including scheduling, method(s) of executing the work, and the responsibilities of all parties who are involved. In addition, the PEP also accomplishes the following important purposes: •
It highlights all of the unique features of a Saudi Aramco project.
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It establishes a realistic and balanced execution plan early enough to permit its efficient and orderly implementation, utilization, management, and control.
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It provides early definition of all major interfaces and dependencies between both the project organization and the functional groups.
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It defines achievement levels and standards of performance.
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It establishes appropriate control methodology and mechanisms - techniques for monitoring performance and measuring progress.
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It brings about a consistent understanding of the project by all participants and a common and coordinated program for its achievement.
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It identifies the project’s organization, participants, and the respective roles, duties, responsibilities, and authority of the key personnel.
PEP Components as Defined by SAEP-12 Following the approval of a Budget Item (BI), the PEP is developed by the assigned Saudi Aramco Project Management Team in accordance with the procedures given in Saudi Aramco Engineering Procedures SAEP-12. Since the PEP is a comprehensive document that requires input and information from various organizations and sources, its development is timeconsuming. Depending upon the size and complexity of a project, initial development of a PEP can take several months after the approval of a BI. For a PEP to be an effective document, it must contain information that is pertinent to project execution strategy. Preparation of the PEP, coordination of reviews, and obtaining approval signatures are the responsibilities of the Project Manager and the Project Engineer. Approval by the Area Project Management Department Manager and General Manager and concurrence by the Proponent Organization Department Manager are required for all initial and updated PEPs. The appropriate Proponent Vice President reviews all initial and updated PEPs and concurs before final approval by the Executive Director (typically) of Project Management. All PEPs contain information regarding cost, schedule, and contracting strategy. It is the responsibility of the Project Engineer and the persons who receive copies of the PEP to ensure that the document remains confidential. Depending upon the size, complexity, and location of a project, the PEP contents can vary. Saudi Aramco Engineering Procedure SAEP-12 provides a suggested format for the PEP development and its essential components. A PEP on a Saudi Aramco Project must have the following contents as described in SAEP-12.
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1. Project Summary - The Project Summary provides a brief synopsis and the objectives of the Project. Incorporated into the Project Summary are the following: Project Overview - Summarize the purpose of the work explaining why it is being done (e.g., to increase production capacity of a plant by 100,000 barrels/day). Design Basis - Provide a synopsis of how the work is to be accomplished (e.g., to increase production by expanding existing facilities or by constructing a new plant) by summarizing the project's basis of design as described in the current scoping paper. Project Scope - Briefly describe what is to be accomplished by the project, and what physical facilities are being built, demolished, revamped, etc. This information will be a summary of the work described in the current Design Basis Scoping Paper and/or Project Proposal scope of work 2. Contracting Plan - The contracting plan is the result of an analysis and evaluation of the various contracting alternatives for the work to be contracted. The contracting plan is tailored to the specific work needs of each contract. It takes into account the economics of various contracting alternatives and assesses scheduling, operating costs, influences of location, type of work, and size in order to develop a recommended course of action. Alternative contracting routes, which could be used if market conditions or other factors preclude using the preferred route, should also be considered. The Contracting Department and the Project Engineer, who is also called the Contract Proponent, are jointly responsible for contract planning. They consider the above factors, other proponent concerns, and suggestions in developing the contracting plan. The basic contracting plan should accomplish the following: •
Provide a concise description of work to be contracted.
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Provide an analysis of each contract request for each interrelated series of contract requests, including alternatives.
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Provide the justification for the proposed method of contract procurement. For selective or negotiated procurement, this includes a slate of all technically and financially qualified bidders or an explanation of the method of contractor screening to develop a slate of bidders.
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Present a contract procurement schedule, which sets forth all contracting activities through award.
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Establish appropriate contracting milestones in procuring services of various contractors:
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Expenditure Request Approval (ERA)
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Prepare and Issue Bid Packages
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Contract Award
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Mechanical Completion
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On Stream
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Determine the type of contract to be used and whether the contractor will be permitted to subcontract portions of the work.
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Provide written documentation supporting all of the above. If applicable, include an overall economic analysis in support of the proposed contract type, bid slate, schedule, and cost estimate.
3. Material Procurement Plan - The Material Procurement Plan discusses major considerations concerning project materials and their procurement and movement. It should state the proposed procurement and traffic responsibilities of Saudi Aramco and the contractor, specifically addressing the following: •
SAMSS and Direct Charge (DC) Material and/or Equipment - This section should discuss the responsibilities that Saudi Aramco will assume in supplying material for installation, Saudi Aramco Material System (SAMSS), front-end purchasing efforts in requisitioning Direct Charge (DC) materials, and turnover to Contractors of Purchase Orders.
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DC Surplus Material and/or Equipment - A study of the DC Surplus Material must be made to prepare an initial listing of possible DC surplus usage. This listing serves as the basis to estimate a preliminary target dollar level of utilization during the project proposal and it is further refined and finalized.
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Long Lead Time Material and/or Equipment - Prepare a listing of materials identified as "long lead items" and what actions will be taken to ensure that their field-need dates will be met.
4. Project Cost and Funding - The PEP describes preliminary cost estimates and how they will be monitored and updated until the time of Expenditure Request Approval (ERA). In addition, the PEP defines which procedures will be implemented to ensure proper reporting and control of the Project Budget throughout the life of the project. The PEP provides an estimated timing and the amount of Preliminary Engineering Funds (TC68) that are required for items such as studies, specifications, soil investigations, and Project Proposals.
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5. Project Execution Sequence - The Project Execution Sequence is in the form of a time-scaled logic diagram, which depicts the major activities and milestones that are required to successfully complete the project. Emphasis is placed on the front-end engineering, materials, and Contracting Development Activities. 6. Project Milestone Schedule - The Project Milestone Schedule is a bar chart that summarizes the major project activities and project milestones, including Contracting Development Activities. 7. Project Responsibility Matrix - This section addresses the responsibilities of SAPMT personnel. 8. Project Interface/SAPMT Personnel - The interfaces between the current project and other projects and organizations are identified where involved in the project. 9. Areas of Concern - This section identifies project concerns where corresponding plans of action or solutions have not been completely defined. Any unusual efforts or procedures that are required for successful project completion will be included in this section. Also, any anticipated problems that may affect operability, cost or schedule should be highlighted in this section. 10. Exhibits - All relevant documents that help to define or to understand the scope definition or other factors that are related to the project should be included in this section. In addition to the above contents, the PEP must have two additional sheets in the front, namely: 1.
Approval Sheet
2.
Revision Control
Depending upon the size, complexity, and execution strategy, additional sections could be added in a PEP. In adding other sections to a PEP, the Project Engineer must demonstrate that the additional sections are unique and that they carry significant importance similar to the other sections. The Project Engineer may consider any of the following additional sections depending upon the unique characteristics of the project: • • • • • •
Environmental Plan Quality Plan Safety Plan Technology and Process Licenser Information Project Construction Execution Strategy Project Controls Plan
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Each PEP must have an approval sheet with a signature from the Project Manager to the final approval of the Vice President of Project Management. This document is intended to get commitment and approval within various management levels of the Saudi Aramco Project Management Organization and the project Proponent. Project Proposal and Approved ER Purpose and Timing The Project Proposal is a document that confirms the design basis as presented in the project DBSP. The Project Proposal establishes the detailed design basis and scope of a proposed facility, including its size and general layout, and it specifies the functional and performance requirements of the integral systems and subsystems. Project Proposals can vary in the level of detail depending on the type and complexity of the project. The approved Project Proposal defines the basis of the final detailed design and the scope of work from which all subsequently approved scope changes are measured. The Project Proposal documents the project scope and design basis agreement among the SAPMT, Project Proponent, technical groups, and other support groups. The Project Proposal defines the detailed project requirements which are the result of careful evaluations of project objectives, procurement, and construction strategies. To ensure optimum results, project requirements and plans are defined by the SAPMT, Project Proponent, Engineering Services, and Engineering Contractors. The approved proposal represents a firm commitment to the project scope from safety, quality assurance, environmental, technical and other supporting disciplines. The Project Proposal also establishes the basis for the Expenditure Request (ER) funding estimate and the major milestones schedule. Project Proposal Content as Defined by SAEP-14 The following 9 topics are typically included in a Project Proposal. 1. Table of Contents - The Table of Contents provides a list for easy reference of the sections of the Project Proposal books. Because there are usually at least two volumes of the Project Proposal books, it is best to make the Table of Contents cover all of the material for all volumes. 2. Project Summary - This section provides: a history of the existing conditions; a brief discussion of the proposed facilities and their justification; an outline of the Project Objectives; and a brief description of how these objectives will be achieved.
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3. Project Description - This section provides scope and design information about the major elements of a project. It provides details concerning the design basis, proposed facilities (including sizes, capacities, location/layouts), and other project-related information. As required, the drawing index is cross–referenced to produce a clear and complete project description. The list below provides typical elements that are found in a project description. •
Plant location and layout
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Process description and design basis
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Process flow diagrams (PFDs)
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On–plot and off–plot facilities (above and below ground)
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Major mechanical, electrical, and utilities systems requirements
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Electrical one-line diagrams
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Piping and Instrumentation Diagrams (P & ID's)
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Site topography and soil data
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Modifications to existing plants
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Operating variables (as required by Central Dispatch Center)
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Corrosion control
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Impact on and interface with other related projects
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Environmental Impact Assessment (Refer to SAEP-13)
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Security, fire protection and safety requirements (including a risk impact statement, if necessary)
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Communications
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Control systems (including SCADA and land use permits for communication cables routes and building sites).
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Project schedules
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Training requirements
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Saudi Aramco construction projects normally require both temporary (during construction) and permanent communication systems. As procurement approval for radio frequencies and materials involves long lead times, communication systems require early identification and coordination between Computer, Communication & Offices Systems (CC&OS) and the SAPMT. To facilitate these requirements, the proposal should contain the following: •
Summary of temporary and permanent communication system requirements. Identification of additional communication facilities and/or modification to existing facilities necessary to meet the project requirements.
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Identification of communications requirements to be handled by the communication organizations (Communications Operations Department).
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Schedule of communication material requirements with an estimated site delivery.
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Identification of all communication disaster recovery aspects of the project including how they will be implemented.
During the Project Proposal preparation, SAPMT may request assistance on material related questions from Materials Control Department. The proposal should identify critical project materials requirements along with their ex–works delivery time. 4. Materials Source List - The materials source list identifies major equipment and material items and their procurement source. When possible, an estimated dollar value and the quantity of the material that is required should be indicated. The proposal effort should include the development of all engineered equipment to a draft requisition stage. The requisitions for critical items should be issued on a Quotation Request (QR) basis to vendors for determining price and delivery schedules. The major equipment list should indicate the following by Account Number (Job Order): the item number; a brief description; a data sheet; the requisition number, if available; the estimated value; and any other pertinent information. The following areas should be segregated: •
DC surplus materials
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SAMSS excess materials
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Locally manufactured materials
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SAMSS allocation
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DC purchases
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Contractor procurement in the case of Lump Sum Turn Key (LSTK) or Lump Sum Procure/Build (LSPB) Contracts
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The proposal shall briefly describe the procedure used to maximize use–up of previously purchased materials. Specific "design–around" investigations, which result in decisions to use or not to use surplus or excess materials, shall be described. Technical and/or financial justification of the decision shall also be shown. During the Project Proposal development, the listing of local products to be utilized by the project will be developed. Soon after Project Proposal engineering begins, the SAPMT should obtain a current list of approved locally manufactured products (Saudi Arabian Manufactured Materials Catalog). A study of this list will be made as the Project Proposal is being developed. At the time of Project Proposal completion, a firm listing of materials to be used will be developed along with an updated targeted value. 5. Waivers of Saudi Aramco Engineering Standards and Materials Specifications - The SAPMT should identify equipment and materials which will require a waiver prior to incorporation into the facilities. The Project Proposal should include waivers which will reduce project cost without impacting design or operational integrity of the facility. Describe the variation in sufficient detail to permit technical evaluation by the appropriate reviewing agency. Include copies of waiver applications and approvals. 6. Drawing Index and Drawings - This section provides an index and copies of the drawings that define the scope of the project. The section should include such key drawings such as PFDs, P & ID's, plant and equipment layouts, electrical one-line diagrams and other necessary drawings that are required to establish the design basis and to assist in producing an ER quality estimate. 7. Project Milestone Schedule - This section contains the project's major milestones and activity dates. Typically the list includes: •
Engineering and Environmental studies (as applicable)
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Project Proposal Approval and the approval cycle
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Expenditure Request Approval
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Final Design Engineering
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Communication and Control System Design Review (as applicable)
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Procurement (lead times, Factory Acceptance Test dates and jobsite delivery dates of major equipment and materials)
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Estimated release date of first and last requisitions
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Estimated placement dates of first and last purchase orders, including spare parts
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Dates when the first and last material deliveries, including spare parts, are expected at the site
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Fabrication activities
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Construction activity (civil, electrical, mechanical)
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Testing requirement / Commissioning period (as applicable)
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Project completion dates (mechanical completion and Expenditure Request Completion dates)
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Completion dates of other dependent projects (as applicable)
8. Estimating Support - To prepare the ER quality estimate, crucial estimating information must be provided before the Project Proposal is presented for approval. The Engineering Contractor should provide data such as: bulk Material Take-Offs (MTO); Quotation Request (QR); pricing for critical engineered items; detailed procurement plans; contracting plans and other appropriate information, which will allow review by the SAPMT, and PS&CD/Cost Services Division during formulation of the ER quality Estimate. Remember, the level of detail should be sufficient to define the ER estimate within 10%. 9. Appendix - The Appendix should include letters, minutes, and other pertinent documents that help to understand and/or define the Project Proposal. The ER Estimate Package The ER Estimate Package is prepared by the Project Engineer and it is transmitted to Project Support Services Division (PS&CD) and later to the Facilities Planning Department (FPD) Budget Director as the document and supporting information for the request for ERA. The ER Estimate Package must contain the following six components and it must be submitted by the Project Engineer to PS&CD in its entirety: •
Project Execution Plan (for projects in excess of $50MM)
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Expenditure Request Form, Saudi Aramco 56D
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Basis of Estimate
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Detailed Estimates
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Contractor's Supplement Package
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Schedule
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HOW THE PROJECT ENGINEER CONTROLS THE PROJECT SCOPE AFTER ER APPROVAL The Project Engineer is responsible for assuring that the project stays on track. Part of this responsibility is to assure that work that is not a part of the project scope is not performed, either intentionally or unintentionally. In some cases, the Project Engineer will have to tell the Proponent that work that they may want the project to accomplish is not within the project scope. When the Project Engineer agrees to a scope change, it is recorded on the Project Change Request (PCR) form (Addendum 1). When project needs or work conditions change in relation to the work that is described in the contract, either Saudi Aramco or the contractor can document these deviations as the Scope Changes. The term "Scope Change" is used to refer to all of the alterations, variations, deductions, and extras to the Scope of Work that result in changes from the project's baseline cost or schedule plans. The Scope Changes can be due to the action and/or inaction of either the Contractor or the SAPMT in the execution of a project. The magnitude of these changes on a project depends on a number of factors. Some of the reasons for Scope Changes on a project are: •
Poor work scope definition prior to the contract award.
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Incomplete design, which impedes the development of realistic construction work scopes, estimates, and schedule plans.
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Unpredictable circumstances and changes in the work environment, such as project delays, excessive studies, etc.
Scope Changes are normally disruptive to the project performance and tend to adversely impact the project cost and schedule plans. The SAPMT must strive to minimize these changes on a project. Some of these changes may require additional time to perform, while others may impact only the cost. To efficiently manage a project, it is essential for the SAPMT to initiate and maintain a system to track all the Scope Changes. Such a change management system will ensure that the SAPMT always has a current status of all of the Scope Changes and their combined impact on a project's cost and schedule.
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Purpose and Uses of the Project Change Request Purpose of the Project Change Request The purpose of a Project Change Request (PCR) is to document and gain approval of: •
Changes in Project Scope
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Changes in Budget Item on stream dates, i.e., Expenditure Request Completion (ERC)
ERC is the final on stream data for the completion of a full ER. The PCR procedure is applicable to the following Projects: •
Capital
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Non-Capital
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Special Expense
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Exploration and Development
The PCR applies to projects after ER approval, including projects with partial cancellation, supplemental, and/or redefinition ER’s. The PCR is sometimes referred to as Form 3000. The ER funding amounts refer to the latest ER amounts that were approved by the Board of Directors or Executive Committee (EXCOM). Uses of the Project Change Request The use of a PCR is mandatory for all changes in the Project Scope (additions or deletions) and/or changes in BI on stream dates. Approval of a PCR does not add or subtract from ER funds that are approved by the Board of Directors/EXCOM. It takes the Board of Directors or EXCOM to approve an ER; therefore, the authority to revise the funding for the ER cannot be accomplished by the signature levels required by the PCR. Refer to G.I. 20.500, Expenditure Control for ER Supplement, redefinition, and partial cancellation procedures. It is the responsibility of the contractor and the SAPMT to identify the Scope Changes, analyze their impact on project performance, and document the changes for approval and project records.
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Defining a Project Scope Change A Scope Change is a specific work activity that would not ordinarily be assumed to be required to complete the project's original scope of work. A change may also be an instruction to perform a specific work assignment in a different way from the execution approach that was previously defined. The SAPMT must clearly specify the causes for Scope Changes before the Scope Change can be processed as a change order for adjustments to the contractual budget. Categories The SAPMT and the Contractor must fully understand what constitutes a Scope Change in order to avoid constant conflicts and debates as to which changes qualify as Scope Changes and which do not qualify. According to Saudi Aramco, the Scope Changes (which later become change orders) must be within the "general scope" of the contract and they will normally be used to accomplish one or more of the following: •
To add, modify, or delete work or services to be accomplished under the contract.
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To add, modify, or delete standards, drawings, or specifications that affect the contractor's performance.
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To change the project execution requirements that are contained in the contract.
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To modify the sequence of work performance, to change the scheduled completion date, or to adjust critical milestone dates under the contract (the expiration date of a contract concluded for a specified term can be changed only by contract amendment).
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To perform repairs or to correct deficient work that is required by Saudi Aramco for which the contractor is not responsible by warranty or otherwise under the contract.
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To address the time and price effects of unforeseen field conditions for which the contractor is not responsible under the contract.
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To address the cost and schedule effects of a force majeure occurrence.
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To authorize or approve compensation for standby time for which Saudi Aramco is responsible.
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To take possession of facilities or portions of the work prior to final acceptance where such early possession or use by Saudi Aramco is permitted by the contract.
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To authorize the purchase of certain contract-related materials directly from sources within Saudi Arabia.
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To authorize other types of contractual modification that the Company representative, the contract representative, and the Law Department agree should be accomplished by change orders.
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Cost Basis and Execution Approach Depending on the type of contract and nature of the Scope Change, the SAPMT has the option to decide the cost basis and execution approach to get the work done. The SAPMT may choose to execute the Scope Change based on any of the three following options: •
Reimbursable basis
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Unit price
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Lump sum
For projects valued in excess of $50 MM, the majority, if not all, of the contract action will be by way of the General Engineering Contract (GEC). The SAPMT should evaluate all the options in determining the execution approach for Scope Changes. Some of the issues that the SAPMT should take into consideration are: •
the existing contract arrangements
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the urgency to accomplish work
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the mechanisms to track cost of changes
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the source of the material supplier - Saudi Aramco or Contractor
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the magnitude of the change
Preparation of Project Change Request Saudi Aramco projects are required to implement a Project Change Request (PCR) system to manage Scope Changes that impact the Expenditure Request (ER) funding and/or Expenditure Request Completion (ERC) dates. This PCR system ensures that Scope Changes that impact ER funding and on stream dates are documented, quantified, and processed in a timely fashion. Without a good PCR system, it would be difficult to identify the project's forecast cost and completion status. The PCR must address the entire ER, even though the change may only affect a single Job Order. Approval of a PCR under this procedure does not add or subtract ER funds that were approved by the Board of Directors/EXCOM. Refer to G.I. 20.500, Expenditure Control for ER supplement, redefinition, and partial cancellation procedures.
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To process a PCR, the Project Engineer prepares or sees that the following are prepared: •
An ER quality estimate and an economic evaluation/analysis to support the scope change
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A schedule change analysis to support any change to the on stream date
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The supporting cost and schedule data that are required for the PCR
When the PCR is originated by the Proponent Department, only the upper portion of the form and the PCR No. is to be filled out before the form is forwarded to the assigned Project Department for completion. It is necessary for the PCR to be routed back to the Proponent Department for approvals after the estimate of cost and timing impact have been determined. The Facilities Planning Department (FPD) is responsible for reviewing the PCR and for endorsing all proposed PCRs that have a positive or negative change in value of $1 million or more. If the PCR covers more than one change, each change will be reviewed separately for this endorsement. The Capital Programs, Forecast & Analysis Division reviews all PCRs to: •
Ensure that all necessary data is included
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Determine the capital and expense nature
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Review scope changes for financial and approval authority
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Ensure that proper approvals have been obtained
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Check the 10% or $10 million limitation
The Capital Programs, Forecast & Analysis Group distributes the PCR copies and retains the original in their files. Each PCR is to be assigned a sequential number and a file copy is to be maintained by the Project Engineer while routing for approval. The file copy is to be replaced with the approved PCR when it is returned. If the BI on stream date is changed via an approved PCR, the Project Completion Schedule (PCS) must also be revised and approved accordingly. Appeal Procedure If a PCR initiated by the Proponent Organization is disapproved at any level in the Project Department, it is to be returned to the initiator who may appeal through his organizational Vice President.
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Routing of PCRs All PCRs for Saudi Aramco projects should be routed as follows: 1.
The Coordinator, Capital Programs, Forecasts and Analysis Division reviews the propriety of financial data and assists in capital vs. expense determination.
2.
The Project Manager signs to indicate approval for PCRs that require an approval level 1 and concurrence for PCRs that require a higher level of approval.
3.
Appropriate Approval Authority – As per the PCR Approval Routing Flowchart in Addendum 3, all PCRs that require an approval above level 3 shall be coordinated through the Budget Director.
4.
The Project Manager transmits the original to the Coordinator, Capital Programs, Forecasts and Analysis Division who makes distribution as shown on the PCR Approval Routing Flowchart in Addendum 3.
Approval of Project Change Request If the cumulative value of positive or negative PCRs, taken separately, exceeds 10% of the currently approved ER appropriation or $10 million, the SAPMT reports the PCR status as described below. ER With an Approved Value of $2 to $5 Million For an ER with an approved value of $2 to $5 million, the Executive Director, Project Management, reviews the PCR and determines if there is a substantive scope change that requires the report to be escalated to the Senior Vice President, Engineering & Project Management. ER With an Approved Value of Greater Than $5 Million and Less Than $10 Million For an ER with an approved value greater than $5 million and less than $10 million, the Senior Vice President, Engineering & Project Management, reviews the PCR to determine if there is a substantive scope change that requires the report to be escalated to the Management Committee. Finance's Capital Programs, Forecast & Analysis Division provides the Senior Vice President, Engineering & Project Management, with its comments on the scope-change aspect. If the PCR does not involve a substantive scope change, the Senior Vice President, Engineering & Project Management, approves the PCR. Any unresolved definitions of scope change are reported to the Management Committee.
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ER With an Approved Value of Greater Than $10 Million For an ER with an approved value greater than $10 million, the Management Committee reviews the PCR status report. If the management committee does not believe that the circumstances of the PCR warrant the attention of the Board of Directors or EXCOM, it approves exceeding the limitation. Otherwise, a Board/EXCOM-approved ER Redefinition is necessary. Project Change Request Procedure Flowchart A Project Change Request Procedure Flowchart (Addendum 3), which shows the project change request procedures, is attached to show the sequence of activities in the development and approval of a PCR on a Saudi Aramco project. ER Redefinitions If an ER Redefinition is required and there are existing approved PCRs, the ER Redefinition will incorporate all the PCRs in the redefinition. Board/EXCOM approval returns the PCR cumulative value to $0. Proponent Appeal Procedure If a PCR that is initiated by the Proponent Organization is disapproved at any level in the Project Department, it should be returned to the initiator who may appeal through his organizational Vice President.
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CONTROLLING QUALITY DURING THE PROJECT LIFE CYCLE Application of Quality Controls Quality is necessary during all phases of the Project Life Cycle. The Project Engineer is responsible for providing quality in each of he phases. Quality means that the Project Engineer must perform the work of the project in conformance with the standards and procedures of Saudi Aramco. The standards and procedures define the minimum level of quality that is acceptable to be provided. The two primary documents that are available to the Project Engineer are: •
Saudi Aramco Engineering Standards
•
Saudi Aramco Engineering Procedures
Value Engineering Value engineering is a function-oriented multi-disciplinary team approach for planning projects and eliminating unnecessary costs without sacrificing total performance and quality. Value is defined as the lowest cost to reliably perform a function without compromising performance requirements. A value engineering study can be performed during any phase of the project life cycle; however, the greatest return on the value engineering investment can be expected when the value study is initiated during the preliminary engineering phase. During this phase, the ability to impact costs is greatest because the major emphasis is to determine the scope rather than the details of the project. The greatest opportunity to impact life cycle costs of a project occurs during the preliminary engineering and design stages; therefore, it is extremely important to allocate sufficient time and money for meaningful planning and evaluation of the project. The project should include funds for a formal value study during the initial phases of a project. Purpose of Value Engineering The principal purpose of value engineering is to explore new design approaches and/or material substitutions, which help to reduce the project cost, without compromising the project's operability and performance objectives. The concept of value engineering was developed in the 1950’s and 1960's. Initially, value engineering was used on large defense projects. Now, the concepts of value engineering is being applied to any project regardless of its size and/or complexity.
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Implementing value engineering concepts forces the project team to think about new costeffective approaches without sacrificing project objectives and long-term reliability. Value engineering discourages the management and design philosophies of "status quo," i.e., "Why change now when we have been doing it this way for all these years?" The Project Engineer must systematically analyze the functional requirements of the project's systems; equipment that makes up the system; the facility as a whole; and the procedures for the purpose of achieving the objectives at the least cost. The Project Engineer looks for areas where value can be added which exceeds the cost implications. Value Engineering During Engineering The Project Engineer should make value engineering an integral part of the preliminary engineering phase. The SAPMT and the Preliminary Engineering contractors should constantly explore improved design approaches to achieve cost savings, enhance schedule performance, and benefit the project economics through all the phases of the Project Life Cycle. The value engineering process consists of five phases: 1.
Information
2.
Creativity
3.
Evaluation
4.
Development and Presentation
5.
Implementation
The phases are briefly explained as follows: Information - In the first phase of value engineering implementation, the emphasis is on collecting the data that is needed to evaluate the existing project concepts and to decide if there are opportunities to apply value engineering techniques. In the information phase, the project engineer seeks answers to the following questions: •
What is the Item?
•
What purpose does the Item actually serve?
•
What should the Item really do?
•
What is the cost of the Item as planned?
•
What are the alternatives?
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Some important data that should be gathered in the information phase includes: •
Design specifications and graphic data such as flow diagrams and schematics
•
Pertinent guides/codes/standards and technical manuals
•
Cost figures
•
Special information, historical data, schedules and pertinent owner or user requirements
•
The people to be consulted
Creativity - The creativity phase starts after the project functions have been identified and classified in the information phase. During the creativity phase, techniques are used to generate alternative solutions to perform the functions that were listed and were assigned costs during the information phase. Consider asking these types of questions to improve creativity: •
Can the function or component be eliminated, modified, combined or minimized?
•
Are aesthetic features justified?
•
Can modified specifications reduce cost?
•
Can simplified design and construction methods reduce costs?
•
Will operation and/or maintenance costs be reduced by design changes?
There is no such thing as a stupid solution during the creativity phase - all criticism of a proposed solution is reserved for the evaluation phase. Evaluation - In this phase, the impractical solutions to perform the functions are deleted, including those that solve some functions, but cause problems for others. High cost components that can be traced to functions that are considered to be of low value (value mismatches) are eliminated or reduced. The objective of the evaluation phase is to determine the best possible solution to the problem. The alternative solutions that were generated during the creativity phase are thoroughly reviewed and evaluated to assure that the highest value and significant savings are realized.
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Development and Presentation - The objective of this phase is to re-analyze the best alternatives that were selected during the evaluation stage. Alternatives are developed in detail and a presentation is prepared for management. The following procedures should be followed for the development phase: •
•
Research the alternatives in sufficient depth to enable the development of a specific recommendation for implementation. Some considerations are: -
Ensure that users needs are satisfied by the alternatives.
-
Determine technical adequacy.
-
Develop definitive costs and schedules for implementation of the alternatives.
Prepare a written report that covers the following study results and recommendations: -
Identification of the project
-
Summarization of the problem
-
Before and after descriptions
-
Cost of original design
-
Cost estimate of alternatives
-
Technical data to support alternatives
-
Quantity requirements
-
Cost of implementing changes
-
Summary of potential savings
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List of actions necessary for implementation
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Acknowledgment of contributions
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Suggested implementation schedule
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List advantages and disadvantages
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Explanation of implementation problems
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Implementation - This is the final step in the value engineering study. In this phase, the engineer makes sure that the ideas that were developed and accepted during the value study are implemented. The Project Engineer prepares an implementation plan and then instructs the people who are responsible for carrying out the recommendations. The implementation plan is a list of procedures and milestones to be accomplished during the course of implementing the recommendations of the value engineering study. Optimize Design The Project Engineer should review each classification of drawings on the project for application of value engineering. He should begin with the basic drawings as listed below and continue through the detailed drawings: •
Plot Plans
•
Process Flow Diagrams
•
Piping & Instrumentation Diagrams
•
Electrical One-line Diagrams
•
Underground Diagrams
•
Major engineered equipment specifications
By following the above systematic approaches in implementing value engineering concepts, the following situations may result in enhancing cost performance: •
Simplification of the design
•
Standardization of specifications for similar equipment
•
Cost-effective material substitutions
•
Faster material deliveries
•
Less field fabrication
•
Reduced construction activities
•
Creation of a cost conscious work environment
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Materials/Equipment Selection The Project Engineer has a good opportunity to apply value engineering in the area of engineered equipment specification and selection. The Project Engineer should apply the list of questions given above to the equipment specification sheets. The Project Engineer should also review the selection of SAMSS materials. For example, the selection of a slightly more sophisticated valve may improve the mean time between shutdown, which causes the operating factor to improve significantly and results in a significant improvement in the Company's return on investment. Also, the Project Engineer may recognize situations where a ball valve has been specified and a gate valve would be acceptable. The change would result in a cost savings to the project. In fact, similar changes could be made in more than one location in the project, which results in significant savings without compromising performance . Implementation of Value Engineering Paragraph 22 of Schedule "A" of the standard local contract is entitled "Value Engineering Incentive." The introductory paragraph states, “In order to encourage the Contractor to initiate, develop, and submit to the Company proposals for changes in the work to be performed under this contract which will result in a reduction in the cost to the Company of the work to be performed by the Contractor ("Direct Costs"), the Company is prepared to share with the Contractor reductions in direct costs resulting from such proposals ("change proposal") which are submitted by the Contractor and accepted by the Company.” The Project Engineer should incorporate this concept of value engineering incentive into all contracts and he should make every effort to induce the contractors to think in terms of value engineering. The contractor's incentive is in the fact that he will receive some share of the cost saving due to an accepted value engineering change proposal. Constructability Analysis Constructability is one of the tools that is available to the Project Engineer to improve quality of the overall project. Constructability is the use of construction knowledge and experience in all phases of the Project Life Cycle to achieve the project objectives. The Project Engineer should involve project personnel with experience in construction from the earliest phases, i.e., the planning phase of the project. Constructability is more than just sending the design drawing to a construction engineer for his review, it includes looking at the project scope from all angles.
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The Construction Industry Institute, of which Saudi Aramco is a member, has the following to say about constructability: Projects that emphasize constructability have four common characteristics: 1.
Owner and contractor (design and construction) managers are committed to the cost effectiveness of the whole project. They recognize the high cost influence of early project decisions.
2.
The managers use Constructability as a major tool in meeting project objectives concerning cost and schedule.
3.
The managers bring construction aboard early. This means finding the right kind of construction personnel who are experienced people with a full understanding of how a project is planned and built, not people who may be available because they are between jobs.
4.
Designers are receptive to improving Constructability. They think about Constructability, they request construction input freely, and they objectively evaluate the input.
There are six basic Constructability concepts that are generally applicable to the conceptual planning phase of any project. 1.
Constructability programs are made an integral part of the project execution planning.
2.
Project planning actively involves construction knowledge and experience.
3.
Early construction involvement is considered in development of contracting strategy.
4.
Overall project schedules are construction driven.
5.
Basic design approaches consider major construction methods.
6.
Site layouts promote efficient construction as well as efficient operations and maintenance.
Similarly, seven basic concepts are generally applicable to the design and procurement phases of any project. 1.
Design and procurement schedules are construction driven.
2.
Designs are configured to enable efficient construction.
3.
Design elements are standardized.
4.
Construction efficiency is considered in specification development.
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5.
Module/pre assembly designs are prepared to facilitate fabrication, transport, and installation.
6.
Designs promote construction accessibility of personnel, material, and equipment.
7.
Designs facilitate construction under adverse weather conditions.
Typical examples of constructability analysis improvements are as follows: •
Logically locating temporary facilities including power, on-site bulk material storage areas, and construction camps to affect easy access to the work.
•
Scheduling all underground materials to arrive on-site for installation during the dry season.
•
Fitting equipment and vessels with piping, instrumentation, platforms and insulation in an adjacent laydown area prior to setting, which results in reduced scaffolding, improved material management and worker productivity.
•
Preassembling process piperacks in 100 foot modules and moving them into place to allow work to proceed in multiple areas simultaneously, which results in schedule gains.
•
Preassembling pipe spools adjacent to the work area, which results in better productivity and quality control.
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HAZOP The best engineered facility may still have hazards. In recent years the Oil and Gas Industry has introduced the concept of Hazard & Operability Studies (HAZOP), which are specific studies conducted by appointed teams of company and contract employees. The objective of the team is to identify hazardous conditions that could occur when the facility is not in normal operation. Examples to be reviewed include: •
Failure of equipment
•
Start up of facility
•
Shutdown of facility
HAZOP studies are normally conducted during detailed engineering; however, they are also applicable to preliminary engineering and they can save considerable effort later in the project. As an example, an equipment layout/plot plan is first defined to minimize piping runs and energy requirements; however, some rearranging of adjustments may be necessary due to hazards that are caused by adjacent equipment that is incompatible. In Saudi Aramco, a Hazard Identification Plan is used. Addendum 4, "Execution Plan for Recommended Preventive Safety-Related Measures to Avoid Construction Accidents on Maintaining Potential Projects" is included for your use. The plan highlights safety-related measures to be implemented from inception of design through construction. Addendum 5, "The HAZOP Technique" gives the Participant another approach to hazard identification. Total Quality Management After World War II, several individuals began to think of ways to improve quality and the process to achieve higher quality. Among these individuals was W. E. Deming. He is considered to be the father of the Total Quality Management (TQM) process. At the time, companies in the United States were too busy converting their factories from manufacturing war machines to manufacturing commercial materials and they did not take the time to listen to men like Deming and Philip B. Crosby. These men carried their ideas to Japan where the Japanese were concentrating on rebuilding. Equipment, toys, and other products that were manufactured in Japan during the 1950s and 1960s were of poor quality and they were priced low. Today, Japanese products are viewed as being of high quality and they are more expensive. This amazing turnaround is the result of the total quality management process.
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Total Quality Management is a process, it is not a destination. There is no end, it is a continual process of improvement. Westinghouse defines TQM as involved, motivated employees who operate world class processes, which are aimed at delighting the customer. The Deming Circle defines the quality process in simplistic terms as shown in Figure 1.
Figure 1. Deming Circle
ISO 9000 The International Organization for Standardization is made up of national standard organizations from 91 countries. The U.S. representative to ISO is the American National Standards Institute (ANSI). The ISO 9000 series is the standard for the selection and use of quality systems and was selected by the European Community in 1992. The ISO 9000 series standards are made up of ISO 9000, 9001, 9002, 9003 and 9004. These standards are called the European Normative (EN) 29000 series standards by the European Committee for Standardization (CEN). This means that European member communities must adopt these standards as national standards. The EN 29000 series are made up of EN 29000, 29001, 29002, 29003 and 29004. Except for the name, the ISO 9000 series are identical to the EN 29000 series standards. There are other national standards from various countries that are technically equivalent to the ISO 9000 series but they have a different name.
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ISO 9000 is the standard for the selection and use of quality systems. ISO 9001 is the standard that specifies quality system requirements for use where a contract between two parties requires the demonstration of a supplier’s capability to design and supply a project. ISO 9001 is more stringent that ISO 9002 or 9003. ISO 9002 is the standard that specifies quality system requirements for use where a contract between two parties requires the demonstration of a supplier’s capability to control the processes that determine the acceptability of the product supplies. ISO 9002 addresses quality in production and installation but it does not address the design and servicing aspects. ISO 9003 is the standard that specifies quality system requirements for use where a contract between two parties requires the demonstration of a supplier’s capability to detect and control the disposition of any product nonconformity during final inspection and testing. ISO 9003 addresses final inspection and testing but it does not address requirements for design, development, projection, installation or servicing. As you can see, ISO 9001, 9002 and 9003 are used for external quality purposes. ISO 9004 is the standard that specifies standards that describe a basic set of elements by which quality management systems can be developed and implemented. The elements of ISO 9004 are for integral quality management purposes and could be used by any company.
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GLOSSARY BI
Budget Item
Constructability
The use of construction knowledge and experience in all phases of the Project Life Cycle to achieve the project objectives.
Contracting Plan
A contracting strategy and planning document, which is developed as the result of analysis and evaluations of various contracting options. It clearly outlines the company's plans to procure various contract services.
DBSP
Design Basis Scoping Paper
DC
Direct Charge Materials
Design Basis
A synopsis of how the work is to be accomplished by summarizing the project basis of design as described in the current scoping paper.
ERA
Expenditure Request Approval
force majeure
An event, which could have been neither reasonably anticipated nor forecast, that renders a party unable to perform its contractual obligations.
Material Procurement Plan
This document discusses the major considerations that concern the project materials and their procurement and movement.
MSO
Material Supply Organization
PEP
Project Execution Plan
PMC
Program Management Contractor
Project Milestone Schedule
A bar chart that summarizes the major project activities and milestone events in the life cycle of a project.
PS&CD
Resource Planning Department
SAPMT
Saudi Aramco Project Management Team
TQM
Total Quality Management
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ADDENDUM 1.
PCR (Form 3000)
2.
PCR Procedure Flowchart
3.
PCR Approval Routing Flowchart
4.
Execution Plan for Recommended Preventive Safety-Related Measures to Avoid Construction Accidents on Maintaining Potential Projects
5.
The HAZOP Technique
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ADDENDUM 1: Project Change REquest (Form 3000)
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ADDENDUM 2: PCR Procedure Flowchart
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ADDENDUM 3: PCR Approval Routing Flowchart
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ADDENDUM 4: Execution Plan for Recommended Preventive Safety-Related Measures to Avoid Construction Accidents on Maintaining Potential Projects - 1
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ADDENDUM 4: Execution Plan for Recommended Preventive Safety-Related Measures to Avoid Construction Accidents on Maintaining Potential Projects - 2
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ADDENDUM 4: Execution Plan for Recommended Preventive Safety-Related Measures to Avoid Construction Accidents on Maintaining Potential Projects - 3
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ADDENDUM 4: Execution Plan for Recommended Preventive Safety-Related Measures to Avoid Construction Accidents on Maintaining Potential Projects - 4
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ADDENDUM 4: Execution Plan for Recommended Preventive Safety-Related Measures to Avoid Construction Accidents on Maintaining Potential Projects - 5
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ADDENDUM 4: Execution Plan for Recommended Preventive Safety-Related Measures to Avoid Construction Accidents on Maintaining Potential Projects - 6
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ADDENDUM 4: Execution Plan for Recommended Preventive Safety-Related Measures to Avoid Construction Accidents on Maintaining Potential Projects - 7
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ADDENDUM 4: Execution Plan for Recommended Preventive Safety-Related Measures to Avoid Construction Accidents on Maintaining Potential Projects - 8
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ADDENDUM 4: Execution Plan for Recommended Preventive Safety-Related Measures to Avoid Construction Accidents on Maintaining Potential Projects - 9
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ADDENDUM 4: Execution Plan for Recommended Preventive Safety-Related Measures to Avoid Construction Accidents on Maintaining Potential Projects - 10
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ADDENDUM 4: Execution Plan for Recommended Preventive Safety-Related Measures to Avoid Construction Accidents on Maintaining Potential Projects - 11
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ADDENDUM 4: Execution Plan for Recommended Preventive Safety-Related Measures to Avoid Construction Accidents on Maintaining Potential Projects - 12
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ADDENDUM 4: Execution Plan for Recommended Preventive Safety-Related Measures to Avoid Construction Accidents on Maintaining Potential Projects - 13
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ADDENDUM 4: Execution Plan for Recommended Preventive Safety-Related Measures to Avoid Construction Accidents on Maintaining Potential Projects - 14
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ADDENDUM 4: Execution Plan for Recommended Preventive Safety-Related Measures to Avoid Construction Accidents on Maintaining Potential Projects - 15
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ADDENDUM 5: The HAZOP Technique - 1
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ADDENDUM 5: The HAZOP Technique - 2
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ADDENDUM 5: The HAZOP Technique - 3
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ADDENDUM 5: The HAZOP Technique - 4
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