(10c) Managing International Projects --- Challenges & Opportunities | AIChE

(10c) Managing International Projects --- Challenges & Opportunities

Authors 

Poddar, S. K. - Presenter, Poddar & Associates


Background:

Due to globalization most of the EPC projects are becoming international in nature comprising of owner/contractor from different parts of the world. Sometimes the project is in neither parties homeland but is located in a third country. Such scenarios are becoming more prevalent than ever before.

Managing any project, particularly an international project, requires special leadership skills and awareness of the project manager and his team to harness the challenges and thereby to create opportunities for success. This paper elucidates these challenges and special risks and how to manage them.

Key Drivers to Execute a Project Successfully:

The successful execution of a given project is influenced by properly controlling the Budget (cost), Schedule (time) and quality of all deliverables. All these interdependent factors of success are accomplished by People (Project Manager and his Team). This is schematically shown in Figure 1 below:

The leadership and management skills coupled with the technical strengths of the Project Team (not necessarily Project Management Consultant, PMC) determine the success of the project. In that sense, cost, schedule and the quality, the three measures of success for any given project are the results (dependent variables) and the Team's ability to accomplish this success is the driver (independent variable).

Challenges & Opportunities:

For an international EPC project the challenges are twofold: 1) Technical and 2) Non-Technical or Cultural. The technical and non-technical challenges are manifold. Whereas the challenges associated with the technical part are similar irrespective of whether they are for a national or an international project, the challenges associated with the non-technical part deserve special attention and leadership skill sets. Some of the important challenges are:

? Understanding and cementing out the project scope (SOW)

This being the starting point of any project execution, a clear understanding of the scope of work is vitally important. For an international project, one has to be very careful via discussions, including face-to-face clarification meetings to arrive at the client's expectation. During this step the team needs to address carefully all four Ws (Which, Where, When and Why ) and one H (How). Often, the SOW included in the request for proposal (RFP), may not be exactly what the client's expectation is of the project. So, for the execution of the project, this step is even more important for the bid preparation. Any divergence in understanding can potentially cause a lot of monetary loss and lasting dissatisfaction of client. Although it is of technical category, this is a significant part

? Implementing a disciplined approach to engineering (from the conceptual stage to detailed engineering)

For a typical project involving Engineering, Procurement and Construction (EPC), the Total Installed Cost (TIC) is split between the above three phases 10 to 20% , 35 to 45% and about 40 to 50% respectively. Therefore the common notion is to focus heavily on the Procurement and Construction phases of the project because P&C are two significantly higher cost components However, the cost influence of E on an EPC project most often could be very significant. Such importance needs to be taken into account at the very beginning of the development of project execution plan.

Following a rigorous systematic methodology and gated approach during engineering phase, E helps to avoid any adverse impacts on the remaining two significantly higher cost components of the project viz., P & C. The influence of various phases of any EPC project on the project cost is described and elucidated by the author elsewhere(1) . Once the E phase is completed the influencing factor of the opportunity to minimize cost overrun as well as project schedule of the overall project gets significantly minimized often to complete elimination..

? Arriving at various levels of cost estimates with the progress of the project execution:

This aspect of activity is purely technical. Typically with the progress of the project along its life cycle, the cost estimate accuracy improves from order of magnitude (±40) to preliminary (±25%) to definitive (±10%). Although the terminology and the associated % accuracy may change from country to country or organization to organization, they are basically same. There is no special consideration of skills necessary for an international vis-à-vis an in country project.

? Developing a realistic project schedule:

For this activity one has to understand the client's culture. Depending on the country and the client's culture some could be more tolerant than others. In general most of the projects are schedule driven and adherence to schedule becomes very important.

? Negotiating a suitable contract and adhering to the contract terms to drive the project execution through E (Engineering) to P (Procurement) to C (construction) phases:

Understanding of the contract language and pros and cons of various types of contract, and an understanding of the culture of the client are extremely important to achieve successful negotiation.

Basically there are four types of contracts. They are:

Lump?sum or Fixed price (Hard ? money)

Reimbursable

Reimbursable with fixed fee

Unit price

Contract types and associated risks were discussed else where (2).

? Implementing an appropriate quality assurance (QA) and quality control(QC) scheme :

A rigorous QA and QC procedure need to be developed so that the project performance is monitored appropriately. An open discussion with the TEAM members with appropriate level of involvement and input from the client are essential to establish a detailed QA & QC procedure

? Determining the Environmental, Safety and Health (ES&H) issues & requirements and integrating them in well-planned project execution strategy:

Success of this activity is dependent on the technical knowledge as well as requirement of local government and other non governmental entities where the project is located. Special attention to and consideration of these requirements and integrating them ahead in the project execution planning (PEP) is very important for any international project

? Understanding and managing risk factors associated with international projects:

These risks could be of different nature: Technical risks especially when the project involves new technologies, or a first of a kind situation without any prior experience of the kind. There could be Engineering and other performance risk involving construction performance. For international projects specially, the interface management risks with client, specially with a first time international client and/or any major supplier in overseas location could be a big challenge. Other type of risks could be in working with sub contractors. A few other risks to pay attention to will be managing suppliers especially new/unproven ones, traffic & logistics risks including heavy haul to the project construction site, expatriate content, hazardous operations risks, risks for customs & duties.

If the project is of LSTK type then the project pricing risks includes currency issues as appropriate. Sometimes it is mitigated by choosing basket of currency in the offer as well as incorporating currency hedging In an international project, project location risks which include local politics, security, labor availability and quality could be of great importance

Prior knowledge and understanding and proper proactive recognition of these risks in the PEP are critically important for successful execution of any international project

? Selecting and managing the subcontractors:

Caution should be taken in selecting subcontractors and negotiating subcontract languages. This requires a thorough knowledge of the local government and non government requirements including the local content requirement. Sometimes a project specific JV may be a better approach to mitigate some of the risks associated with subcontractors.

? Understanding the in-country rules, regulations and requirements

A thorough understanding of these is important even before a project bid is prepared, let alone during the project execution stage. Very often that becomes a catch up effort and creates a lot of difficulties to assimilate and implement.

Concluding remarks:

Very often the successful project execution calls for not only the project manager's and his team's technical competencies in effectively managing the above, but also the special leadership skill-sets to understand, integrate and manage the cultural diversity.

Most often it is not the technical strength of the project management team (which is accepted as given) but the soft leadership skills like understanding of cultural differences, effective communication skill and the extraordinary level of interpersonal skills which create TRUST and drive the project success. This is even more true for an international project.

References:

1. Poddar, S.K., ? Systemic Engineering Drives EPC Project Success?, abstract # 137748, Presented at the AIChE Centennial Fall National Meeting, Philadelphia, November 2008

2. Poddar, S. K., ?Managing Uncertainties in Project Management of Hydrocarbon Projects? abstract # .144398, Presented at the AIChE Spring National Meeting. New Orleans, April, 2008

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