APPLICATION OF CRITICAL CHAIN ON HIGH
VALUE PETROCHEMICAL PROJECTS
Brandon J Loots
Krupp Uhde, Johannesburg, South Africa
This paper examines the practical application of the critical chain philosophy in the project management of high value petrochemical projects.
Krupp Uhde is an Engineering Contractor operating in the Petrochemical field involved in the design, procurement and construction of medium to large-scale petrochemical plants for clients like Sasol. These contracts are in various forms, usually Lump Sum Turn Key, but can also be reimbursable for and on behalf of the client and various hybrids between the two. The Critical Chain approach has been successfully applied on two contracts in our company with a high degree of success. This paper highlights the transformation from where we were, the successes, the problems, the lessons learnt and proposed future improvements.
2. THE PROBLEM
As with all Project Management Companies the organisation sits with all the age-old problems of managing contracts. These include:
· Targets not met
· Numerous changes (client and internal)
· Tight budgets
· Re-work and cost thereof
· The conflict of time vs. money
· Uncertainty factor in all aspects resulting in misestimating, omissions and the unknown
· High conflict environment (internal and external with vendors, sub-contractors and with the client)
· Highly chaotic environment
· Project Managers accountable but with limited line authority.
In our company these problems are usually addressed by sheer force of management. Large amounts of overtime hours are worked to bring targets back on track with the obvious associated negative financial implications. We are forced to go to extreme lengths to eventually complete projects to the clients’ satisfaction with the obvious toll on personnel and cost. A major problem that was being encountered on every project was that, although we had the most fantastically detailed complicated schedules with all the sophisticated logic links in place, these schedules were simply wrong. This is always discovered too late. When for example it is discovered that a particular task has not been started or completed because its predecessor information is not there, it is too late do much about the situation. In the past we tried to address this by insuring better involvement of the leads in the schedule to the point where they were asked to sign and approve schedules before the start of the contract. The problems persisted and solving of this problem, which is discussed in the next chapter, was critical to the application of the critical chain process; as without a correct schedule the process would be worthless.
How to solve the problem of the plan?
Marketing was selling projects with a schedule and as soon as all the activities were applied the resultant conclusion always showed that the contract could not be completed in the required time. Schedules were cut. This meant we lost the buy in and commitment from the personnel in completing tasks on time. This was further worsened by the fact that the logics in the schedule were simply incorrect. This even after each discipline was completely involved in drawing up the schedule. What was the problem? Were our people incompetent or incapable of scheduling? Obviously not. Upon detail investigation into the schedules it became obvious to me that the schedules were so complicated and detailed it was impossible for anyone to understand all the links. Thus the problem was in our approach in terms of the application of the detailed activities. This was simply solved by starting with a simple graphic PERT schedule of less than 100 activities to ensure all parties involved understood the schedule and links. This ensured buy in from all parties and the correct logic. The detailed activities are then added later by the specific disciplines without affecting the logic.
Once we had an agreed schedule, all activities were cut throughout by 50%. An activity entitled critical chain float was added to the critical path at the end of the schedule. The duration allocated to this activity was half of what had been cut i.e. 25% of the entire project duration. The contract management team made themselves intimately aware of the critical path and set ourselves with two primary goals. These were to ensure that the critical path remained the same and that we would be as stingy as possible in terms of handing out critical chain float to the disciplines. This would ensure that we had some critical chain float left at the end of the project thereby ensuring that as a minimum a 25% overall improvement on the contract schedule would be achieved.
Weekly meetings were held between the planner, project manager and each discipline lead to assess progress and allocate critical chain float where required.
Another important step in the implementation was the workings with vendors and subcontractors. Our first major change, which has turned out to be one of the most important breakthroughs in the process, was during the enquiry stage. Instead of specifying a required delivery date for a piece of equipment, service etc. we simply requested the supplier to provide a best end date by which he could provide the goods or service. The importance of this step is that when in the past we provided a date we would hardly ever receive the goods on time because even if the vendor had plenty of time to do the work he would leave it right until the end (student syndrome) which meant that if something went wrong he could not fulfil his commitments. This we realised would result in a moving critical path, which we knew would be impossible to manage. The second important thing was that using this approach we could determine which goods and/or services were the constraints or bottlenecks. The narrowing down of these is crucial for the successful management of a contract as efforts can then be concentrated where they are most effective. The number we were left with that were critical even on the cut schedule turned out to be far less than anyone in our organisation would ever have imagined. The number was less than seven out of over one hundred suppliers on both the contracts where we used this approach.
Once we had identified the so called “bottleneck” vendors we called them in one by one and spent a long time selling them on the critical chain approach. This involved the cutting of their schedule, removal of penalties with regards the cut schedule, incentives and numerous other activities that could be the subject of a paper in their own right. The most important of these that does require mention here is the partnership approach. This allowed the supplier to set targets for certain deliverables from our side and if these were not met the equivalent time of the delay was added to their schedule from the critical chain float with no questions asked.
5. THE RESULT
The results of the process exceeded our expectations. The projects were completed way ahead of schedule. Resource usage was significantly improved. The relationship with suppliers was greatly improved to the point were integration with certain key vendors was as if they were part of the same company. It was as if a type of boundary less project team had been created which involved several organisations all working toward the same goal.
Due the kitty of critical chain float available, internal relations improved greatly. When a discipline was behind on a task due to just cause, float was handed out on a common understanding without the pressure of having to jump through hoops to achieve the unattainable. This pot of float turned out to be a kind of potion to solve whatever problems we had on the contracts. In the end the pot turned out to be significantly larger than required. Internally the attitude of personnel also improved dramatically on the projects. The in and out box syndrome was greatly reduced due to improved proactiveness by individuals. This made discipline interfaces much improved. The project organogram became less formal as all individuals became more goal orientated. Personnel now tended to build on each other’s strengths and cater for what weaknesses existed. Conflict was almost entirely eliminated.
Specific results on the contracts worked on:
High Purity Ethanol
· Contract completed in 16 months vs. industry norm of 24 months
· No late equipment deliveries (never before achieved in our organisation)
· Great improvement on envisaged profit at contract award (figures unavailable due to confidentiality)
· Reports from suppliers that they also experienced improved profitability.
NMP Gum Removal
A special mention concerning the background of this project is required. A certain side stream from a new plant at Sasol in Secunda was being fed back into one of their refinery plants. Unfortunately a contaminant in this stream was damaging the catalyst and resulting in the catalyst having to be regenerated several times a month instead of annually, as was the norm. The losses due to the direct costs as well as the downtime was in the order of several hundred thousands of rand per day. This was a perfect case study for the critical chain approach as due to the financial pressure there were none of the conventional constraints.
· Contract complete in 4 month including working over the Christmas period vs. an industry norm of 12 months for a plant of this size. This is phenomenal when one considers that the conventional equipment delivery time for a large distillation column, which was part of the plant, is 9-10 months.
· New innovative fast track design methods were implemented.
6 LESSONS LEARNT
· Always start with a simple plan.
· Do not allow the momentum of a large project lull you into a false sense of security in terms of progress. A large project is like a large ship with a huge amount of momentum, once you are going in the wrong direction it is very difficult to steer onto the right course. The critical chain approach makes for easy steering.
· Identify critical path and manage to keep one critical path.
· Identify “bottleneck” vendors/sub-contractors early on.
· Do not fast track by traditional methods like early orders and start of construction before you know what to order and what to build. These methods give a false sense of security in terms of schedule progress. The true result of such steps is the snowballing of errors that will exist in any project. It is cheaper and quicker to fix something on paper than in concrete and steel.
· Give change management the highest priority.
7 FUTURE DEVELOPMENTS/GOALS
· Application of critical chain process to multi projects.
· Convince organisation and client to accept different reporting on progress i.e. rate of consumption of critical path float vs. weighted progress.
· Create project incentives for team members related to project goals.
· Change organisational procurement conditions to exclude penalties and move to incentive based contracts with suppliers and sub contractors.
Critical Chain Project Management is logical and practical approach to managing projects that has certainly proved its worth in our organisation. The field of application in our business is large and what has been applied to date is only a fraction of the scope of application.
Author: Brandon Loots holds a B.Sc. Chemical Engineering from the University of the Witwatersrand. At present he is the Project Director on a large multi national project for Sasol. He leads a Joint Venture between Krupp Uhde and Mitsubishi Chemical Engineering Corporation of Tokyo.
The paper is presented by Brandon Loots.