Natural Gas in Southern Africa, Part 2: Available gas resources and future development

Natural Gas in Southern Africa, Part 2: Available gas resources and future development

By Anton Putter

This is the second part of a 2-part series of articles covering the natural gas industry in southern Africa.   For these articles, we view southern Africa as comprising South Africa, Namibia, Botswana, Lesotho, Swaziland, Zimbabwe and Mozambique.  The two parts focus on different aspects of the natural gas market, as follows:

In this Part 2, the focus is on current and potential sources of natural gas in southern Africa and we describe a possible future scenario for natural gas.

Introduction

In the first article of this series, an overview was given of the history of the gas industry in southern Africa, a global perspective was given on gas prices and the growth in global gas demand, and the status of the current gas market and infrastructure in southern Africa was reviewed.  Currently, less than 4% of South Africa’s primary energy needs are sourced from natural gas or equivalent. This compares with 14.2% for South Korea, 28.4% for the USA, and 23.1% for Germany (BP Energy Review, 2018).

It was clearly illustrated that southern Africa is lagging the rest of the world in the use of natural gas, primarily due to limited gas supply and not as a result of high gas pricing. The lack of pipeline infrastructure is also a major inhibitor to further development of the gas industry in southern Africa, together with the slow development of local gas resources.

In this article, we discuss current and potential sources of natural gas and describe a possible future scenario for natural gas in southern Africa.  We believe that natural gas can easily exceed 14% of southern Africa’s primary energy needs.

Sources of natural gas in southern Africa

The current and imminent producers of natural gas in southern Africa were discussed in Part 1 of this series of articles (Putter, 2018).  Two current producers are PetroSA offshore gas and the Pande / Temane gas fields in Mozambique.  The Rovuma Venture is progressing their LNG project from the Mamba field offshore Mozambique with first production expected in 2024.

The lack of local gas resources is inhibiting the growth of the gas industry in South Africa.  Following are a few notes on some of the southern African gas resources that could change this:

  • Rovuma gas: This major gas resource in the north of Mozambique (and south of Tanzania) is one of the biggest gas fields in the world.  Unfortunately, the development of floating LNG plants (such as the Rovuma venture) will do nothing for natural gas consumption in southern Africa since all the LNG will be exported.  The only way for this massive natural gas resource to make a meaningful contribution to natural gas consumption in the region, would be for the gas to be brought ashore and transported to the major energy markets in the region, either via electricity generation and transmission, a major natural gas pipeline or possibly conversion to derivatives such as liquid fuels or fertilisers;
  • Offshore gas: Several exploration efforts are underway to find oil and gas off the southern African coast such as Sasol offshore Mozambique, Total and ENI offshore South Africa and Eco Atlantic offshore Namibia.  If the gas would be brought ashore from any of these potential developments, it could make a meaningful contribution to the gas economy in southern Africa;
  • Karoo shale gas: Since this gas would be well located for distribution of energy within the region, it could certainly play an important role in the growth of the gas economy in southern Africa.  Exploration, however, has now been held up for 10 years due to regulatory and environmental considerations, and it is still not clear when this will go ahead; and
  • Coal bed methane (CBM): Several CBM resources are in the region and some with substantial volumes of gas in place.  Amongst others, there are known CBM resources in Botswana, Waterberg and Mpumalanga in South Africa, the western side of Zimbabwe, and Tete in Mozambique.  At this stage it would seem like these CBM resources are the first of the larger resources mentioned here, that will be exploited on large scale within southern Africa.

The distribution of these gas resources is shown in Figure 1.

Figure 1:  Distribution of gas resources in southern Africa

There are also numerous smaller resources that have the potential to contribute to the southern African gas economy.  These include the biogenic gas of the northern Free State province in South Africa, biogas from waste dumps or digester gas from sewerage works or animal farms: 

  • Biogenic gas: Biogenic gas is unconventional gas produced at great depth by microorganisms during respiratory and fermentation processes. Biogenic gas is not generally contained in traps, but is continually being generated at depth and migrates to surface along natural fracture systems, faults and dykes;
  • Biogas: Biogas is a biofuel that is naturally produced from the decomposition of organic waste. When organic matter, such as food scraps and animal waste, break down in an anaerobic environment (an oxygen free environment) they release a blend of gases, primarily methane and carbon dioxide. Methane content is typically between 50 and 55%; and
  • Digester gas: Digester gas is a category of biogas, produced from organic wastes such as livestock manure, and food processing waste in a controlled environment such as a biogas plant. Organic waste such as livestock manure and various types of bacteria are put in an airtight container called a digester, so the process could occur. Depending on the waste feedstock and the system design, biogas is typically 55 to 75 % pure methane.

It is not anticipated that any of these smaller resources in isolation has the potential to contribute more than 2 million GJ/a.

Apart from the above-mentioned ‘normal’ sources of natural gas, there is the possibility to produce synthetic natural gas (SNG).  This used to be the basis of the gas industry in South Africa and even today, the gas going down the Lilly pipeline to KwaZulu-Natal is SNG, called methane rich gas (MRG) by the producer, Sasol.  Various sources of SNG could be considered such as from gasification of coal, biomass, petroleum coke or solid waste, and the conversion of this gasified gas to SNG.  Another possibility for SNG is a mixture of liquefied petroleum gas (LPG) and air, as is practiced on small scale in Port Elizabeth, South Africa.

Possible future scenario for natural gas in southern Africa

It is obvious that there is substantial scope for the growth of the gas industry in southern Africa.  This is also supported by the latest Integrated Resource Plan (IRP) proposed by the South African government which foresees a much larger role for gas in electricity generation than is currently the case (additional 8100 MW from gas by 2030).

OTC runs a gas forecasting model, predicting the gas demand over the longer term.  This model uses a wide range of assumptions and anticipates contributions from most of the potential sources of gas mentioned above.  Under a set of optimistic macro-economic and project-specific assumptions, this model predicts growth in gas consumption in southern Africa as shown in Figure 2, when gas prices remain at the current levels.

Figure 2:  Predicted growth in southern Africa gas consumption (from OTC model)

The following conclusions can be drawn from Figure 2:

  • Growth in gas demand over the next 20 years will be driven by power generation;
  • Gas consumption for derivative manufacture will become a much smaller proportion of the overall gas demand and more in line with global ratios;
  • Industrial offtake of gas will only grow at modest rates and is inhibited by the lack of gas pipeline infrastructure;
  • By 2035, gas-generated power production in the region will be roughly 13000 MW, which seems to be in line with the 11930 MW of installed gas-fired capacity in South Africa by 2030 as foreseen by the latest IRP (RSA DoE, 2018); and.
  • By 2035, gas will then contribute 14% to the total primary energy supply of southern Africa, a similar level to the current contributions of gas in South East Asia where expensive LNG is used, but still short of the 20% level in northern Europe with similar natural gas prices.

Gas competes with other primary sources of energy and as such growth in gas consumption will be very dependent on the price of the gas to the consumer.  Figure 3 shows what the model predicts for gas growth at three different gas prices.

Figure 3: Impact of gas price on southern Africa gas consumption (from OTC model)

These three gas prices were selected to represent extremes of USA type pricing at the one extreme and imported LNG pricing at the other extreme.  At least the following conclusions can be drawn from this analysis:

  • LNG type pricing (the $12/GJ line in Figure 3) will not lead to significant growth in the southern African gas industry unless some other significant event(s) happens such as environmental regulations drastically impacting the generation of power from coal, steep increases in the price of electricity for other reasons or regulatory intervention that promotes the use of LNG imports.
  • Low gas pricing (as represented by the $4/GJ line in Figure 3) can be a game-changer for the southern African economy. In the macro-economic assumptions underlying the model it is assumed that gas available in large quantities at such a low price would boost the GDP growth of the southern African economy by at least 1% per annum over this whole period.

Closing remarks

Gas is underutilised as an energy source in southern Africa.  There is significant potential to grow the gas consumption in this region.  Furthermore, if the gas price at which this growth occurs, is lower than the current gas prices, this development has the potential to have a noticeable positive impact on the economy of the region.

Over the past 10 to 15 years, several gas prospects have emerged in the region.  Each of the four potential sources mentioned earlier has the potential to more than double the current gas consumption in southern Africa.  If several of these sources are exploited in combination, it would change the energy landscape in southern Africa.

Infrastructure development, specifically pipeline networks, will remain a challenge in the region and could inhibit the growth of the gas industry.  Governments in the region and state-owned entities (SOE’s) can play a significant role in facilitating the development of infrastructure. 

References

BP Energy Review., 2018, BP Statistical Review of World Energy. Available from https://www.bp.com/content/dam/bp/en/corporate/pdf/energy-economics/statistical-review/bp-stats-review-2018-full-report.pdf  Accessed on 27 August 2018.

RSA DoE (Department of Energy), 2018, Integrated resource plan 2018, final draft for public input.  Available from http://www.energy.gov.za/IRP/irp-update-draft-report-2018.html.  Accessed on 2 December 2018.

Putter, A.H., 2018, Insight article 055: Natural Gas in Southern Africa, Part 1: current natural gas supply and demand.  Available from http://www.ownerteamconsult.com/natural-gas-in-southern-africa-part-1/ . Accessed on 10 November 2018.

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Natural Gas in Southern Africa, Part 1: Current supply and demand

Natural Gas in Southern Africa, Part 1: Current supply and demand

By Anton Putter

This is the first part of a 2-part series of articles covering the natural gas industry in southern Africa.   For these articles, we view southern Africa as comprising South Africa, Namibia, Botswana, Lesotho, Swaziland, Zimbabwe and Mozambique.  The two parts focus on different aspects of the natural gas industry, as follows:

·      Part 1:  Current natural gas supply and demand; and 

·      Part 2:  Available gas resources and future development.

Introduction

The gas industry in South Africa has a long history.  The first gas was produced by the Johannesburg Lighting Company in 1892.  Following the expansion of the gas network in Johannesburg by the Johannesburg Gas Works (the city utility that took over the Johannesburg Lighting Company), further development of the gas industry in South Africa was closely aligned to the development of the synthetic fuel industry in South Africa (Lauferts & Mavunganidze, 2009).  Sasol pioneered the synthetic fuel industry in Sasolburg in the 1950’s and in Secunda in 1980, while PetroSA (initially called Mossgas) introduced the first natural gas into South Africa in 1992. 

The most significant event in the gas industry in southern Africa up to now, was the development of the Pande and Temane natural gas fields in Mozambique and the construction of a pipeline, the ROMPCO pipeline, to transport that gas from Pande / Temane to Secunda where it linked into the existing gas pipeline network.  The gas flow through the ROMPCO pipeline commenced in 2004, and more than doubled the use of gas in southern Africa.

In this article we take a global perspective on natural gas, consider the current gas market and infrastructure in southern Africa, and discuss the natural gas sources currently exploited in southern Africa.

Global perspective on gas

Globally, gas consumption has grown strongly over the past 10 years and is predicted to surpass coal to become the second biggest source of primary energy within the next 5 to 10 years.  This growth is illustrated clearly in Figure 1, showing the primary energy development over the past 25 years.

Figure 1: Growth in Global Primary Energy Consumption (BP Energy Review, 2018)

The growth in natural gas has been specifically fast in the LNG segment, with growth rates approaching 5 to 10% per year over the past 2 years and LNG consumption now approximately 300 million tpa.  Even so, the LNG consumption still represents only slightly more than 10% of the global natural gas consumption.  Also noticeable from the LNG statistics over the past 27 years in Figure 2, is the fast growth in regasification capacity and the growth in the number of LNG importing countries.

Figure 2: Growth in LNG Trade (IGU, 2018)

Unlike most other commodities, there are significant differences in gas pricing around the world.  These differences are driven by the extremely high logistics cost of moving natural gas around, whether in the form of LNG, by pipeline or any other means, and these differences are expected to persist into the future.  Figure 3 shows a forecast of global natural gas prices from Cambridge Energy Research Associates (CERA, 2014), showing an expectation for these current price variances to persist into the future.

Figure 3: Forecast of natural gas pricing (IHS CERA, 2014)

Current gas market in southern Africa

There has been significant growth in the gas industry in southern Africa with the introduction of natural gas from Pande and Temane, but the consumption of gas in southern Africa still lags far behind the rest of the world as illustrated in Table 1.

Table 1: Natural gas contribution to total primary energy consumption in 2017 (BP Energy Review, 2018)

Region

Total primary energy in MTOE*

Natural gas in billion m³

Natural gas as % of primary energy

World

13511

3670

23.4%

USA

2235

739

28.4%

Germany

335

90

23.1%

South Korea

296

49

14.2%

Australia

139.4

42

25.9%

South Africa

120.6

4.5

3.2%

* MTOE:  Million tons oil equivalent

Even though the above numbers for South Africa does not reflect the methane-rich gas sent from Secunda to KwaZulu-Natal or the PetroSA internal consumption, less than 4% of South Africa’s primary energy needs are sourced from natural gas or equivalent.  This compares with 14.2% for South Korea, a country totally reliant on very expensive imported liquefied natural gas (LNG), 28.4% for the USA where the gas is of the cheapest in the world, and 23.1% for Germany which is mostly reliant on long-distance pipelines for its natural gas supply and with prices similar to South African prices.

In 2017, the gas consumption in southern Africa was approximately 220 million GJ.  The breakdown of this consumption is shown in Figure 4.

Figure 4: Gas demand in southern Africa (from OTC Gas Roadmap model)

The fraction of gas converted in southern Africa to derivatives (such as liquid fuels, wax, ammonia and methanol) is very high when compared to global ratios.  Conversely the use of gas in electricity generation and industrial uses is very low compared to the rest of the world.  This situation is a result of South Africa’s political history where the strategic need to produce synthetic liquid fuels (GTL) was very high.

The high consumption of natural gas into liquid fuels is demonstrated by Figure 5 showing the breakdown of the gas conversion uses in southern Africa in 2017.

Figure 5: Derivative gas demand in southern Africa (from OTC Gas Roadmap model)

Gas infrastructure in southern Africa

The lack of infrastructure is a major inhibitor to further development of the gas industry in southern Africa (together with the slow development of local gas sources).  The few major pipelines in the region is shown in Figure 6 and are concentrated in the east of the region with some branching off these pipelines.

The major pipelines are as follows:

  • ROMPCO pipeline: This 865 km pipeline from Temane in Mozambique to Secunda in South Africa is jointly owned by Sasol, the Mozambique government and the South African government.
  • Lilly pipeline: Transnet owns this 600 km pipeline from Secunda to Durban;
  • Sasol pipelines: Sasol owns several gas pipelines originating in Secunda and reaching destinations such as Johannesburg, Ekurhuleni, Pretoria, Sasolburg and Emalahleni.

Even though South Africa is amongst the top 30 economies in the world, it is not one of those 36 countries (see Figure 2) with LNG import facilities.  Over the past couple of years there has been efforts by the Department of Energy in South Africa to facilitate such a facility.  At this stage, it does not appear that anything will be in place within the next couple of years.

Figure 6: Main gas pipelines within southern Africa

Sources of natural gas in southern Africa

There are currently two producers of natural gas in southern Africa with another project in development, namely:

  • PetroSA gas production: The offshore shallow gas fields supplying the gas-to liquids facility of PetroSA has been producing since 1991 and the gas production has been in strong decline over the past number of years;
  • Pande and Temane gas fields: These onshore Sasol gas fields has been producing since 2004.  Gas production has been steadily increasing, but the latest drilling results reported by Sasol does not sound promising; and
  • Mamba gas field, Mozambique: The Mozambique Rovuma Venture (joint development by ENI, Exxon and CNPC) is progressing their Rovuma LNG project from the Mamba field offshore Mozambique.  The plans entail two floating LNG production trains of 7.6 million tpa each, with first production expected in 2024.

As already alluded to, the lack of local gas resources is inhibiting the growth of the gas industry in South Africa. 

Concluding remarks

It is clearly illustrated in this article that southern Africa is lagging the rest of the world in the use of natural gas.  This is primarily due to limited supply and not because of high gas pricing.  Growth in the natural gas industry in southern Africa will most probably be driven by the exploitation of additional gas resources and substantial development of the local infrastructure.

In Part 2 of this series of articles, we will explore other potential sources of natural gas in southern Africa and possible future growth scenarios.

References

BP Energy Review., 2018, BP Statistical Review of World Energy. Available from https://www.bp.com/content/dam/bp/en/corporate/pdf/energy-economics/statistical-review/bp-stats-review-2018-full-report.pdf  Accessed on 27 August 2018.

IGU (International Gas Union), 2018, World LNG Report.  Available from https://www.lngglobal.com/international-gas-union-2018-world-lng-report  Accessed 28 August 2018.

IHS CERA, 2014, Fueling the Future with Natural Gas.   Available from https://www.fuelingthefuture.org/assets/content/AGF-Fueling-the-Future-Study.pdf  Accessed on 28 August 2018.

Lauferts, M. & Mavunganidze, J., 2009, Ruins of the Past: Industrial Heritage in Johannesburg. Available from https://www.witpress.com/Secure/elibrary/papers/STR09/STR09047FU1.pdf  Accessed on 20 August 2018.

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The Project Management Office (PMO)

The Project Management Office (PMO)

By Koos Taljaard

“Our leaders are great thinkers. We need to take those ideas, make sure they are grounded and able to be executed.   The PMO helps us do that.”President of project services, global construction services provider, North America (Forrester Consulting, 2013)

Introduction

There are many reasons why projects fail. A survey of 1524 organisations by PriceWaterhouseCoopers (PwC, 2013), found that inadequate project estimating and planning constitute 30% of project failures, lack of executive sponsorship constitutes 16% and poorly defined goals and objectives constitute 12%. The survey also found that using established project management approaches increased success as measured by a project’s key performance indicators of quality, scope, schedule, budgets, and benefits. The survey concludes that an established Project Management Office (PMO) is one of the top three reasons that drive successful project delivery.

The PMO is the organisational entity, group or department within an organisation or business, that defines and maintains standards for project and programme management within the organisation. The Project Management Institute (PMI, 2017) defines the PMO as “an organisational body or entity assigned various responsibilities related to the centralised and coordinated management of those projects under its domain.”

The responsibilities of the PMO can range from providing project management support functions, project management oversight to actually being responsible for the direct management of projects. Strategic initiatives are essential to success in today’s increasingly complex business world, yet most initiatives (projects) fail to meet the desired business objectives during implementation. PMOs serve as enablers of strategic change in the organisation to drive successful business outcomes. The PMO is a strategic driver for organisational excellence, which seeks to enhance the practices of execution management, organisational governance, and strategic change leadership.

Project and programme management

Opening remarks

Before we consider the functions and duties of the PMO, it is necessary to first revisit the functions of project and programme management.  This will help in better understanding the role and placement of the PMO in the organisation.

Role of project and programme management

The objective of project and programme management is to complete projects which comply with the client’s business objectives.

Project management is the practice of initiating, planning, executing, controlling, and closing the work of a team to achieve specific goals and meet specific success criteria at the specified time. A project is a temporary endeavour designed to produce a unique product, service or result with a defined beginning and end (usually time-constrained, and often constrained by funding or staffing) undertaken to meet unique goals and objectives, typically to bring about beneficial change or added value.

The temporary nature of projects stands in contrast with business as usual (or operations), which are repetitive, permanent, or semi-permanent functional activities to produce products or services. In practice, the management of such distinct production approaches requires the development of distinct technical skills and management strategies.

The primary challenge of project and programme management is to achieve the organisation’s project and programme objectives within the given resource constraints. The primary constraints are scope, time, quality and budget. The secondary – and more ambitious – challenge is to optimise the allocation of necessary inputs and apply them to meet pre-defined objectives.

Programme and project Governance

According to van Heerden et al (2015), programme and project governance fits within the overall governance of the organisation and is therefore ultimately the responsibility of the board of directors.  It is regarded as a subset of the organisation’s overall corporate governance as illustrated in Figure 1.

Figure1 Project Governance

Figure 1:  Programme and project governance is a subset of corporate governance (van Heerden, Steyn & van der Walt, 2015)

Referring to Figure 1, the outer circle reflects all the business activities of the organisation.  Within this sphere of operation, there are governance activities and programme/project management activities.  The overlap of these two sets of activities, i.e. the intersection in the diagram, represents governance of programme and project management.  Programme and project governance principles for an owner organisation will be entrenched in the owner’s project/programme management work methodologies.

Governance of programme and project management defines the framework within which programmes and projects will be conducted.  It sets out the structure, resources, communication, reporting and monitoring systems to manage projects consistent with the organisation’s corporate or strategic vision.  Ideally, this will be the responsibility of the PMO.

The Project Management Office

Opening remarks

Ever wondered what it takes to build a great project organisation? Well, a PMO is a good place to start, and will help you to standardise processes and drive up project success rates.

PMO types

PMOs may also take on other functions beyond standards and methodology, and participate in strategic project management either as the facilitator or act as the owner of the portfolio management process. The degree of control and influence that PMOs have on projects depend on the type of organisational and governance structure within the organisation.  The PMO can typically be one of three types from an organisational exposure perspective, namely:

  • Supportive PMO:  PMO with a consultative role only;
  • Controlling PMO:  Enterprise PMO which requires compliance with standards and procedures (this is the default option); and
  • Directive PMO:  PMO taking control and managing the projects.

The PMO strives to standardise and introduce economies of scale and repetition in the execution of projects. The PMO is the source of documentation, guidance, oversight, training and performance metrics on the good practice of project management and execution.

The PMO supports the strategic objective of the organisation and fulfils a key organisation management and/or oversight role in programme and project management and governance processes.

The PMO roles and responsibilities

There’s no one-size-fits-all PMO for an organisation. Typical roles and responsibilities of the PMO are shown in Figure 2, and include:

  • Organisation programme strategy: Research, analyse, review, assist and advise on the development of effective organisational strategies regarding programme and project effectiveness;
  • Project management framework: Become a Centre of Excellence for project execution: develop, maintain and continuously improve a common set of project and programme management systems, gate review and approval system, methodologies, procedures, standards, governance principles, practices and templates for managing projects in line with best practices and organisational requirements;
  • Project portfolio management: Compile the project portfolio by classifying, selecting and prioritising projects and programmes based on the company strategy and available resources, preparing decision-making support documentation and facilitating decision-making for the portfolio board. Review recommend and report progress to top management on strategic decisions and priorities of projects to be included in the feasibility pipeline, approval for implementation: continue, postpone or cancel.  Manage programmes and projects on behalf of the organisation, if there is no-one else to do so;
  • Project portfolio optimisation:  The selection of the best combination and timing of programmes and projects to ensure that all strategic and mandatory business needs are met and that the company generates the optimal return on investment for its shareholders.
  • Project governance and portfolio tracking:  Ensure that project management procedures and standards are followed by performing regular project health assessments.  Ensure that the projects and programmes are executed according to the company’s project procedures, and executed as efficiently as possible within the policy framework;
  • Project prioritisation and stage-gate support:  Develop and maintain a project stage-gate execution model.  Support the organisation and project teams in taking ideas through structured prioritisation and stage-gate review and approval processes.  Responsible for stage risk reviews, gate readiness reviews, and quality assurance deep-dives;
  • Project knowledge management:  Create a knowledge base with lessons learned, best practices and improvement steps from past projects to avoid repeating errors over and over;
  • Project related training:  Develop training materials and train and coach project leaders, sponsors and stakeholders.  Select, implement and train employees on applicable project management methodologies, tools and software;
  • Project resources management:  Manage a resource capacity plan or resource forecast to help understand the resources required for projects and programmes.  Maintain current project employee data, especially in terms of capacity, project allocations and skills;
  • Project operational support:  Administrative and operational support for project managers and project teams in the areas of conflict management, risk management, integration management, safety, health and environmental management, quality management, workshop moderation, government relations and public affairs; and
  • Promote information flow and communication; Improve project and programme management and transparent communication: The PMO in today’s digital world is a PMO that has the capability to provide projects’ management tools, systems and information to any relevant stakeholder, at any time, on any device. It is real-time data processing, made available in a web and mobile-friendly format. As the speed and complexity of our operating environments continue to steadily accelerate, a consistent point for coordination, collaboration, and sourcing information becomes essential. Digital PMOs use new technologies to facilitate collaboration and information sharing inside and outside project teams. An example is the way OTC is utilising Google’s G Suite to effectively communicate, create, collaborate, track and update documents and deliverables on projects, between the entire team.

Fig 2 Roles of the PMO

Figure 2:  Roles of the PMO

Often PMOs base project management principles on industry-standard methodologies such as PRINCE2 and PMBOK®.  PRINCE2 (an acronym for PRojects IN Controlled Environments) is a process-based method for effective project management and is used extensively by the UK Government and in the private sector, both in the UK and internationally (PRINCE2, 2018).  PMBOK® is the acronym used by the Project Management Institute, and refers to their Project Management Body Of Knowledge, a fundamental resource for effective project management in any industry (PMI, 2017).

Concluding remarks

It is essential for the PMO to play a crucial role in delivering organisational value by supporting the implementation of key strategic projects and programmes. To do this, PMOs must become more strategic, shifting their emphasis from process to value delivery, while developing their capabilities and processes accordingly.

Building on the findings of Forrester Consulting (2013), we identify five imperatives for PMOs to better engage and support senior leaders are as follows:

  • Have a seat at the executive table: Strategic results require strategic positioning. PMOs that are highly effective in driving business growth report to the top management;
  • Be part of the strategic planning team: They are a vital part of the strategic planning team. Since portfolio management is a core competency, PMOs actively participate in strategic planning and help shape strategy by providing feedback to executives about performance, labour costs, and customer feedback;
  • Focus on critical initiatives: While the PMO is essentially an organisational structure that centralises, coordinates, and oversees the management of projects and programmes, it must be set up, to align with the organisation culture, structures and requirements;
  • Foster talent and grow competencies: They embrace core competencies. Excellence in project management remains a critical capability for PMOs. The most successful organisations recognise the specific role of the project manager and build significant learning and development programmes to mature project management skills; and
  • Embrace new digital technology: Every organisation, in whatever industry it operates, must have an information technology layer with a strong focus on innovative and creative technologies. The organisation needs to be quick to respond to a changing business environment. The PMO of today must actively seek ways to improve overall organisational performance as well as ways to communicate performance improvements across the enterprise using new technologies and flexible operating models.

Successful implementation of initiatives requires that PMOs be given corporate commitment and are empowered. The selection of, culture, professionalism and management style of the PMO is critical, as this establishment is expected to enhance stakeholder value and satisfaction. However, poorly conceived and managed PMOs could lead to significant dissatisfaction and resistance by stakeholders, project leaders, and management due to the oversight role it must fulfill.

Maritato (2012) shows how a business analysis approach can be used for defining a PMO business case through a full enterprise analysis process and introduces some useful techniques to define the PMO benefit vs. cost, tightly linked to the business need.

References

Forrester Consulting, 2013, Strategic PMOs play a vital role in driving business outcomes. Commissioned by Project Management Institute. Pdf file available from  https://www.pmi.org/-/media/pmi/documents/public/pdf/learning/thought-leadership/forrester-pmos-play-vital-role.pdf. Accessed on 26 September 2018.

PwC, 2013, The third global survey on the current state of project management. PriceWaterhouseCoopers.

Maritato, M., 2012, Creating a PMO business case through a business analysis approach. Paper presented at PMI® Global Congress 2012 held in Vancouver, British Columbia, Canada. Available from https://www.pmi.org/learning/library/pmo-business-case-solution-6054.  Accessed on 28 September 2018.

PMI, 2017, A guide to the project management body of knowledge (PMBOK® guide), 6th edition, Project Management Institute, Newtown Square, PA.

PRINCE2, 2018, PRojects IN Controlled Environments.  Available from https://www.prince2.com.  Accessed on 26 September 2018.

van Heerden, F.J., Steyn, J.W. & van der Walt, D., 2015, Programme management for owner teams- a practical guide to what you need to know, OTC Publications, Vaalpark, RSA. Available from Amazon.

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Structuring the Business to the Project Opportunity

Structuring the Business to the Project Opportunity

By Charl Buys

Introduction

The world constantly provides us with a myriad of challenging and exciting business opportunities. Whether you are an entrepreneur developing the opportunity or it is being developed by the business development department of a major corporation, the focus is normally on the capital asset development portion of the project. Many a time developing the business to fit the project opportunity is neglected or left too late.

While most organisations follow some form of stage-gate process for the asset development portion, very few organisations do the same for preparing the organisation for the new business.

Both the entrepreneur creating a new organisation and the large corporation need to follow the same steps to optimise structuring the business to the opportunity.  These steps form the basis of this insight article.

The Structuring Process

The normal process for structuring a new business is summarised below:

  • Industry and systems analysis: Execute an industry strategic analysis using models such as PESTLE or STEEPCOIL.   PESTLE is a framework used by marketers to analyse and monitor the external marketing environment factors that have an impact on an organisation. STEEPCOIL is an acronym used by Steyn (2018) to identify risks associated with a new venture. Then conduct a business systems analysis using models such as Porter’s 5 Forces, Industry Trends Analysis, Industry Driving Forces or Industry Key Success Factors;
  • Business strategy definition: Develop a compelling Vision that will align and direct all the stakeholders. The vision should take into consideration the corporation’s value statement towards government, the environment and society. The corporation’s view towards employees, suppliers and its investment should also be considered.  Define the Mission of the company to enable it to achieve the vision.  Decide on the Product line that the company will produce to satisfy a specific need in the identified market segment.  Finally, do a SWOT analysis to understand the company’s unique position or Competitive Advantage (Kim & Mauborgne, 2009);
  • Business support strategies: Develop marketing, operations, organisational development and financial strategies in support of the business strategy; and
  • Create the correct delivery system: The creation of the correct delivery system means structuring the business for best fit with the project opportunity.  See also the article by Bennett et al (2000) entitled: The organisation vs. the strategy – Solving the alignment paradox.

For the purposes of this article, it is assumed that the first three steps have already been completed and that the traditional buy, make and sell business process as depicted in Figure 1 has been developed.

Figure 1: Traditional business process model

The question now is how to create the correct foundation for development?  This question has many subsections and includes the design of the company, how to structure the governance and control processes, how to manage suppliers, customer and partner agreements, and lastly, how to design the work processes and organisation structure.

To answer these questions, we will take a closer look at how the operations and organisational development strategies will be executed. To ensure an integrated flow, the following process considerations are proposed:

  • Shareholders;
  • Strategic alliances;
  • The Board;
  • Business processes to be governed;
  • Management structure;
  • Commercial & Legal;
  • Human resources processes;
  • Customer relations; and
  • Business Operations.

Each of the nine process considerations listed above is discussed in more detail in the following section.

Discussion of the Process

Shareholders

Decide the current and future distribution of ownership, how the founding partners should be rewarded and develop the shareholding policy for initial employees, future employees, advisors, board members, 1st and 2nd round investors.

Strategic alliances

Decide on whether the new business will be wholly owned by the mother company, or whether a joint venture or other strategic alliance is more appropriate.

Consider strategic alliances with major feedstock and technology suppliers as well as one or two major customers. Other strategic alliances that can be considered are: business associations, resource sharing communities, purchasing associations, market collaboration and industry cluster associations.

The Board

Select the appropriate members of the board and/or advisory board for your specific case such as an economist, banker, entrepreneur, industry expert, client, technical expert, employee organisation representative, politician, IT, marketing or HR and communications expert.

Ensure that the selection of board members, and specifically appointment of the chairman of the board is in accordance with the King IV requirements.

Business processes

Defining the main business processes to be governed is a crucial step in structuring the business.  According to Bizmanualz (2018), there are ten core business processes, namely four business drivers, five business operations processes and management responsibility to be defined and mapped, as depicted in Figure 2.

Figure 2: The main business processes (Bizmanualz, 2018)

Management structure

From an analysis of the main business processes above, an estimate of the number of personnel and the required span of control of an organisation structure needs to be addressed.  Figure 3 depicts the typical organisation structure for the buy-make-sell business process and can be utilised in this regard.

Figure 3: A typical organisation structure

It must also be taken into consideration that the capital project organisation will be structured for execution of the project. Many of the personnel that will operate the plant in the end will, during the project execution phase, be employed as part of the project owner team. According to van Heerden, Steyn & van der Walt (2015), a typical project owner team consists of the following members, as depicted in Figure 4. Depending on the project complexity and size, the owner team can consist of anywhere from 10 to 200 people.

Figure 4: A typical owner project team (van Heerden et al, 2015)

Commercial & Legal

The next step is to address the legal and contractual issues.  There are various contracts to be drawn up and signed depending on the type of business being developed.  It is important to consider the major decisions about the company prior to engaging with a lawyer to ensure that this resource can be directed correctly.

In this regard, we consider the following agreements:

  • Client agreements: General sales agreements, order confirmation notes, service agreements, license and or royalty agreements;
  • Supplier agreements: General purchasing terms, procurement contracts, rental and or lease agreements, insurance agreements;
  • Product or services agreements: This includes disclaimers, knowhow, trademark and copywrite protection;
  • Shareholder agreement: The shareholder agreement defines the rights, shareholding, conduct, conditions for entry and exit, and compensation of shareholders;
  • Confidentiality agreements: Confidentiality or non-disclosure agreements with partners, suppliers and contractors;
  • Partnership agreements: Distribution contracts, agency agreements, collaboration agreements, co-branding agreements and joint venture agreement; and
  • Employee agreements: Employment contracts, bonus agreements, incentive schemes, share options or warrant programs.

Customer relations

After completing the commercial and legal landscape, the interface between the company and its customers is developed. To do this, a stakeholder influence diagram is prepared to determine the best influencing lines (Morphy, undated). From this the company network diagram can be developed which forms the basis for the marketing strategy. The next step is to develop the sales network and outbound logistics process, followed by the public relations and communications strategy and lastly, the branding strategy.

Human Resources processes

From the organisation structure developed under Management structure, above, a job description needs to be developed for each position. The roles and responsibilities of each position should be uniquely defined, with reporting requirements and decision authority allocated to the position.

The performance management and recruitment processes also need to be developed. Lastly, the succession planning process is addressed.

Business Operations

After completing all the stakeholder management processes, that is the client, supplier, shareholder and employee, the internal business processes can be developed to support all the stakeholder management processes.

The financial analysis, reporting and capital asset management processes, as well as the IT, business systems and knowledge management processes need to be developed to support all the stakeholder management processes.

Concluding remarks

In a competitive market, where time, money and resources are of the essence, one is constantly striving to optimise processes and procedures. In this endeavor, it is often the case that business owners and or project managers may overlook the essentials of comprehensive planning and structures. It is therefore imperative to ensure that a proven stage-gate model is followed in developing the organisation that must accept, own and operate the new facility. In fact, it is just as imperative to use a stage-gate model to develop the organisation as it is to develop the capital asset.

It is also crucial to make sure that the business is sufficiently developed to support the correct decision-making processes during project development and to prevent rework due to new stakeholders joining the business. On-boarding new stakeholders invariably brings new requirements to the business or project. If the business is sufficiently developed the requirements will be fixed and aligned and the project can simply execute these requirements.

References

Bennett, J.W., Pernsteiner, T.E., Kocuorek, P.F. & Hedlund, S.B., 2000, The organization vs. the strategy: Solving the alignment paradox in strategy and competition.  Available from https://www.strategy-business.com/article/14114?gko=9918e.  Accessed on 31 August 2018.

Bizmanuals, 2018, Critical business process, policies and procedures.  Available from https://www.bizmanualz.com/improve-business-processes/critical-business-processes-policies-and-procedures.html. Accessed on 27 August 2018.

Kim, W.C., & Mauborgne, R., 2009, How Strategy Shapes Structure.  Available from https://hbr.org/2009/09/how-strategy-shapes-structure.  Accessed on 31 August 2018.

Morphy, T., Undated, Stakeholder analysis, project management, templates and advice.  Available from https://www.stakeholdermap.com/stakeholder-analysis.html.  Accessed on 31 August 2018.

Steyn, J.W. 2018, Insight article 045: Introduction to project risk management: Part 1 – Planning.  Available from http://www.ownerteamconsult.com/introduction-to-project-risk-management-part-1-planning/. Accessed on 30 August 2018.

van Heerden, F.J., Steyn, J.W. & van der Walt, D., 2015, Programme Management for Owner Teams – a practical guide to what you need to know.  Available on Apple Books and Amazon.  OTC Publications, Vaalpark, RSA.

 

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Disrupting Project Controls – Fast Forward 20 Years

Disrupting Project Controls – Fast Forward 20 Years

By Kevin Mattheys

Introduction

Sitting in the OTC office in Wellington, Western Cape (near Cape Town, South Africa), I was looking out of the window at the welcome rain falling gently to the ground and providing the trees and vegetation some much needed sustenance.  I was also thinking about how the world has changed over my lifetime. It was then that my weekly issue of MindBullets popped up in my email account.  MindBullets is a free weekly publication from Future World where they try and predict future events based on current knowledge and technology.

This MindBullets article discussed ‘disruption’, the rate at which it is happening and some of the technologies creating the disruption.  Whilst reading the article, I thought it prudent to write this article on where the project controls industry will find itself 20 years from now as a ‘conversation starter’.  Twenty years might sound like a long time, but it could also happen sooner, so I have been somewhat conservative.  I suspect not much work has currently been done on topic, as there still appears to be a proliferation of spreadsheet and in-the-drawer databases being used.

This phase in the ongoing advancement of humanity is what is commonly referred to as the ‘4th Industrial Revolution’.  Some of the questions that will need to be asked are:

  • Can machines and /or technology help us implement projects better?
  • Will project controls even exist in future and, if so, in what shape or form?
  • How much automation will take place? and
  • What skills will be required to get the best from technology?

These are some of the questions that will need to be tackled in almost all organisations involved in projects and project controls activities.  There will no doubt be advantages and disadvantages, but will the advantages outweigh the disadvantages?

I guess the question can be asked for project management and other disciplines as well, but for now let us focus on project controls.

Background

Innovations in technology and technology related applications continue to proliferate at an astonishing pace.  Moore’s law certainly seems to be playing out in this field.  What was considered revolutionary a few years ago has had its head overturned and is now outdated.

I have been receiving the weekly articles from Future World since 2011.  What tweaked my interest in 2014 was their prediction for a concept called 3D printing (sometimes referred to as additive manufacturing) and ever since then I have been intrigued by this technology.  Of course, this is not the only technology that is causing disruption, but the advances made in the past four to five years in this field have been staggering.

By implication one can probably assume that similar strides are being made in other technologies.  Let us look at each of the technologies out there currently that I am aware of and dissect them a little.  They are not addressed in any particular order but provide a sample for the reader to better understand what is happening behind the scenes so that they can be factored into the conversations.

Current Disruptive Technologies

3D Printing (additive manufacturing)

Essentially this technology uses filaments of various type e.g. plastic, metal, nylon, wood filler, carbon fiber, etc. The filaments are then passed through a heating nozzle which essentially reduces the filament to a liquid type of substance which is then applied layer by layer to the object being produced.

Houses have been produced in some areas of the world using 3D printing (Byttner, 2016).  In Holland, the architectural firm Dus Architects has already printed a ‘Canal House’ with 3D-printers.  Another example is that the Chinese company Yingchuang New Materials in Shanghai is already 3D-printing 10 houses per day.  Recently, a 3D-printed office building was unveiled in Dubai.

Unconfirmed reports state that NASA no longer sends spare parts with their space ships.  If needed, they can simply print a spare part in space. Other applications have already been developed in the medical, manufacturing, healthcare, optics, education and food industries.

Drones

Drones are a relative newcomer to the scene.  To the American military, they are UAVs (Unmanned Aerial Vehicles) or RPAS (Remotely Piloted Aerial Systems). However, they are more commonly known as drones.  Drones are used in situations where manned flight is considered too risky or difficult.

Areas where drones are currently being used is in agriculture, recording of live events, surveying dangerous areas, delivery of small items, tracking wildlife, law enforcement and shooting of commercials and movies.  Agriculture is also adapting to this technology to monitor crops, watering patterns and soil suitability.  This is an area that will continue to grow as more and more creative uses are found for these machines.

As a practical application why not use drones to view a project being built and the images sent back to a central location where further analytics, project progressing, etc. can be done without having to go to the site?  Furthermore, if cameras on drones are fitted with appropriate lenses, then e.g. welds can be analysed for cracks, or hot spots can be detected.  The opportunities go on and on.

Artificial Intelligence (AI)

Artificial intelligence (AI) is intelligence demonstrated by machines, in contrast to the natural intelligence displayed by humans and other animals. AI strives to replicate human thinking and analysis, but via the machine.  Apart from being adept at playing chess, other areas where AI is currently used is in voice recognition, speech recognition, medical diagnosis and search engines.

If recent predictions are to be believed, then this is a huge growth area.  According to a new market research report, Artificial Intelligence (AI) in Construction Market – Global Forecast to 2023 (MarketsandMarkets™, 2018), the global market is expected to grow from US$ 407.2 Million in 2018 to US$ 1,831.0 Million by 2023, at a compound annual growth rate of 35.1% during the forecast period.

Data Analytics

Data analysis is a process of inspecting, cleansing, transforming, and modeling data with the goal of discovering useful information, suggesting conclusions, and supporting decision-making.  In the past large companies used relational databases to extract information for decision making, but this was somewhat limited.  With the vast amounts of data available both inside and outside the organization, it has now become necessary to analyse this information quicker and more reliably.

Cloud Data Storage

Cloud storage allows world-wide storage and retrieval of any amount of data at any time.  You can use cloud storage for a range of scenarios, including serving website content, storing data for archival and disaster recovery, or distributing large data objects to users via direct download.  I think this is also an area that is going to improve greatly.

Most of our work at OTC is based on working in the cloud and the benefits are not difficult to see.

Internet of Things (IoT)

The Internet of Things is the network of physical devices, vehicles, home appliances and other items embedded with electronics, software, sensors, actuators, and connectivity which enables these objects to connect and exchange data.

We already see widespread application of this technology, but what will the future hold for project controls practitioners?  Working from home, always available, data at the touch of a button.

Blockchain

Blockchain refers to a type of data structure that enables identifying and tracking transactions digitally and sharing this information across a distributed network of computers, creating in a sense a distributed trust network.  The distributed ledger technology offered by blockchain provides a transparent and secure means for tracking the ownership and transfer of assets.

What will this technology bring to the procurement processes of companies?  It will almost certainly ensure the integrity of materials and equipment delivered to site.

Cryptocurrencies

Bitcoin, Ethereum, EOS, Ripple, Litecoin, Bitcoin Cash, Binance Coin, IOTA, TRON and NEO.  Do you recognize these terms? If you do not, then I suggest you find out what they are. A good place to start is the article, Bitcoin for beginners (Mayer, 2017).

According to Wikipedia (2018), a cryptocurrency is a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets.  A cryptocurrency is a kind of digital currency, virtual currency or alternative currency. Cryptocurrencies use decentralised control as opposed to centralised electronic money and central banking systems. Who knows how many other ‘currencies’ will pop up in future to challenge the current crop of cryptocurrencies.

Now the questions get interesting.  What does this mean for projects and companies who use traditional payment, financing and procurement currencies?  Are cost controllers and estimators able to control and estimate costs with this technology?  How will the financial reports be prepared and presented? Remember with this technology it is possible that many traditional transaction fee costs, interest rate costs and other costs associated with lending institutions could be rendered for ‘free’.

Facial / Object Recognition

A facial recognition system is a technology capable of identifying or verifying a person from a digital image or a video frame from a video source.  There are multiple methods in which facial recognition systems work, but in general, they work by comparing selected facial features from a given image with faces within a database.

John Holland is an Australian construction company who are actively embracing technology.  In the field of safety, they use facial recognition technology to identify workers who are not wearing the appropriate personal protective equipment (PPE) on site (McLean, 2018).

Other disruptive technologies

Other disruptive technologies which are out there, and which we haven’t even touched on, are clean energy, self-driving vehicles and biotechnology.  It seems as if ‘disruption’ is the new way of the world. The more it can be done, the better it seems.

I sometimes wonder about whether it is always a good thing…

Generic Skills for the Future

The generic skills listed below will remain essential in the future work environment:

  • Complex Problem Solving: The skill to see relationships between industries and craft creative solutions to problems that are yet to appear;
  • Critical Thinking: People who can turn data into insightful interpretations will be sought after due to the complexity and interconnectedness of fields such as computer science, engineering and biology;
  • Creativity: The ability to build something out of ideas is a skill that will pay off now and in future;
  • People Management: Robots may acquire analytical and mathematical skills, but they cannot replace humans in leadership and managerial roles that require people skills;
  • Coordinating with others: Effective communication and team collaboration will be a top demand in any company;
  • Emotional Intelligence: Qualities such as empathy and curiosity for future managers;
  • Judgement and Decision-Making: The ability to condense vast amounts of data with the help of data analytics into insightful interpretations and measured decisions;
  • Service Orientation: People who know the importance of offering value to clients in the form of services and assistance;
  • Negotiation skills: Deriving win-win situations with businesses and individuals will be extremely important; and
  • Cognitive Flexibility: The ability to switch between different persona as the situation demands.

Do your corporate training programs address these areas?  Will you need to up-skill yourself?

The future of project controls Fig 1

My View on Project Controls in 20 Years

I am of the firm opinion that all the above technologies, as well as others which will still be developed in the future, will in some way, shape or form impact on project controls.

Data Analytics (or what is sometimes referred to as ‘Big Data’) will play a large role in project controls enabled by cloud computing. Modelling of plants or facilities will become the norm, and everything will be planned and modelled to the finest detail before any work is done on site.  Schedules will be automatically produced by the modelling software along with cost estimates, etc. from standardised templates.

Imagine a world where statistical simulations (possibly Monte Carlo or some other disruptive application) are the norm on cost estimates and schedules and then live data is used to track and monitor progress related to engineering, procurement, construction etc.  This data is then used to provide an almost real time statistical forecast on the end of job cost and schedule which means a narrowing of the conventional distribution curves of today.  The data is then fed back automatically into the respective data engines leading to significant productivity and forecasting gains for future projects. What then are the implications of a company managing multiple projects concurrently and all this data is available real time? Astonishing to say the least.

There will be fundamental change in procurement (Blockchain) and construction practices (3D printing and recognition software for permitting, site access, etc.).  Collection of as built drawings will no longer be an issue as all drawings are attached to their correct repositories and updated online for immediate storage back into the database.

Project controls in its current format will change and may even merge with the project management function or just become a data engine feed, but with analytical capabilities. The availability of real time data will increase the project controllers’ productivity enormously as the required data will be online and not in some obscure place where it is difficult to find. Collecting, updating and storing data will continue to ensure decisions can be made easier and faster.  Transparency of data will be enhanced.  No more in-the-drawer spreadsheets or databases.  No more hiding of data.  No more manipulating of data and reports to play to someone’s agenda.

Gavin Halse, who is currently a consulting partner at OTC, discusses the impact that product life-cycle management (PLM) may have in an interesting article on the subject.   He contends that in the world of future projects he sees a shift from traditional megaprojects towards smaller, more agile projects that involve many more stakeholders / participants in a new networked economy (Halse, 2017).  This will have a significant impact on project controls because project complexity will increase exponentially. The long waterfall design, build, commission, hand over to the operator, operate will change.

Multi-purpose factories will adapt product lines to toll manufacture on demand, many of the projects will be to retread plant to produce new products – this is like staying in business, but on a much bigger scale. The owner’s role will also change, as will the operator’s. This will mean that project controls and business modelling/operations will converge much more and not operate in separate silos.

I think a new change that will emerge from all of this will be in the commercial / legal fields as I do not believe we have thought about this going forward, e.g. how do we write / manage contracts for a digital age and with so much disruption going on?

Concluding remarks

What was very interesting for me while preparing this article was the lack of articles that have been published on the world wide web relating to use of technology in the project controls or project management arenas.  It may mean that people are actively working on this in the background, but I doubt it.  Another interesting take away is a comment by Byttner (2016) that the construction industry has been somewhat reluctant to get dragged into the digital age and that it is now ready for disruption.

In the article above I have not delved into huge detail, but rather tried to make it light reading to stimulate the thinking and the conversations which will be necessary in preparing for disruption. It should serve as a starting point for tackling the role that will be required of project controls people (and others) in the future.

Whatever your view of the future of project controls is, be assured it will be different.  I would like to convey my thanks to John Hollman and Gavin Halse for providing further insight into this complex topic.

References

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Effective Process Safety Management

Effective Process Safety Management

By Christine Render

“Keep it in the pipe!”

Introduction

Process safety management (PSM) defines a framework for managing hazards in the process industries and is intended to reduce the frequency and severity of incidents resulting from releases of chemicals and energy.

This paper addresses the elements of a process safety framework through the stages of a project from concept design, to detailed design, to operations; and translates these into elements of a process safety management programme.

Process Safety Framework

Life-cycle of a process plant

A process safety framework incorporates ‘cradle to grave’ activities that encompass the life-cycle of a facility and are based on clear identification of potential hazards and the risk management programme to control the hazards.

Hazards are contained by multiple protective barriers, which may be physical engineered containment or procedural controls dependant on people. This means that a thorough PSM approach will need to address both physical and behavioural aspects of building and operating a process plant. Hazard elimination is better than prevention, is better than control, is better than mitigation, is better than emergency response!

Different approaches to safety are used during the life-cycle of a facility.  During the concept development (front-end loading) phase, the focus is on inherent safety.  During the detailed design phase, the technology has now been selected and the focus is on engineered safety.  What fail-safe systems do we need and how do we design out operator error?  Does it make sense to consider a fully automated facility?  During commissioning and the operations phase, the technology and engineering is in place and the focus is on procedural safety.  Procedural safety covers the availability of safe working procedures, suitably qualified resources, management of change procedures, etc.

Figure 1 shows a portion of the OTC Stage-Gate Model, the different approaches to safety and risk reduction effectiveness of each of these approaches.  This simply says that technology selection and the use of inherently safer design has the biggest impact on the future safe operation of a facility.

Fig 1 Safety approach

Figure 1: Safety approach and risk reduction effectiveness

The safety approach for the different life-cycle phases is discussed in more detail in the following sections.

Concept Design

Concept design of a new facility addresses selection of technology and defines the integrated process and major equipment requirements. Inherently safer design is used during this phase to ensure safer technologies are selected and engineered which are less likely to incur serious process incidents. In other words, this approach addresses eliminationof hazards.

Inherently safer design principles are:

  • Intensification: Consider the reduction in the inventory of hazardous materials and products in the facility;
  • Substitution: Substitute hazardous substances like catalysts, additives and solvents with lower hazard materials;
  • Attenuation: Attempt to keep operating temperatures and pressures as low as possible by prudent selection of technology and catalysts to reduce the operating severity; and
  • Simplification: Simplify the design as far as possible and streamline the processes.  A tank you don’t have cannot leak…

Detailed Design

The detailed design phase looks at engineered risk reduction measures(engineered safety) and addresses layers of protection including plant (equipment), process and people. Risk reduction measures include prevention, control and mitigation.

The three strategies used during detailed design to prevent, control or mitigate hazards are:

  • Passive strategy: Minimise the hazard via process and equipment design features that reduce hazard frequency or consequence;
  • Active strategy: Engineering controls and process automation to detect and correct process deviations; and
  • Procedural strategy:Administrative controls to prevent incidents or minimise the effects of an incident.

Plant Operations

Once the facility is up and running, hazard reduction relies mainly on plant process control systems (process) and on procedural controls (people). The plant will operate for twenty-five or more years, and hence from the start the company leadership need to demonstrate commitment to a culture of process safety.

Management of the facility must ensure:

  • Competent resources: Provide adequate resources, safe work procedures and a proper training environment;
  • Safety culture: Develop and sustain a culture that embraces process safety and lead by example. This includes the availability of safety resources, and a budget for safety training;
  • Safety compliance: Identify, understand, and comply with all relevant safety codes and standards;
  • Continual improvement: Put structures in place to continually enhance organisational competence; and
  • Operational discipline: Management systems should maintain operational discipline and celebrate successes.  Complacency should not be allowed to creep in at any time!

Process Safety Management Programme/Plan

Process safety management elements

To maintain focus on process safety, many companies draw up a PSM programme, define leading metrics and an integrated set of key performance indicators, and schedule frequent audits that probe each element of the programme.  These PSM programmes typically comprise six, or more, elements.

The US Occupational Safety and Health Administration (OSHA) lists fourteen elements of a process safety management programme for employee protection, supported by management commitment, as represented in Figure 2. This is just one example of the elements of a PSM programme and provides an excellent checklist of what could be included in an effective PSM programme for your organisation.  The names of the different elements are self-explanatory, except for the one called ‘trade secrets’.  In the past, some companies kept process information secret from their own employees under the guise of proprietary information.  ‘Trade secrets’ states that operations and maintenance employees have the expressed right, under this element, to be made aware of those secretive processes and formulations that might affect the health and safety of employees. The foundation of the 14 elements, ‘management commitment’, can also be considered an element of PSM.

Fig 2 14 Elements of OSHA

Figure 2: 14 Elements of OSHA’s process safety management programme (Adapted from Wikipedia, 2018)

A PSM programme should be drawn up by a company team, with all stakeholders represented, and should be tailor made for that company and its business activities. External PSM specialists can be contracted to assist the company team, but should never be allowed to develop a PSM programme on behalf of the company.  The company team should be intimately involved to ensure ownership.

Any effective PSM programme comprises four main categories of elements, namely:

  • Commitment to process safety;
  • Understanding hazards and risks;
  • Management of risks; and
  • Learning from experience.

Each of these is discussed in turn.

Commitment to Process Safety

Commitment is the first step in ensuring that a culture of process safety is entrenched within a business, and includes the following elements:

  • Leadership/Management commitment;
  • Accountability/roles and responsibilities;
  • Process safety culture;
  • Company standards, codes & regulations; and
  • Workforce and stakeholder involvement.

Understanding Hazards and Risks

Understanding hazards and riskscovers the systems and information required to analyse and understand the risk and type of potential hazards in a business.  It potentially includes the following elements:

  • Process knowledge management;
  • Process safety information;
  • Inherently safer design;
  • Process hazard analysis;
  • Risk analysis; and
  • Capital project review.

Management of Risks

Management of risksincludes all activities, processes and systems required to manage the identified potential hazards in a business.

Examples of these elements are:

  • Pre-Startup Safety Review for new facilities;
  • Safe operating procedures and practices;
  • Operational readiness testing;
  • Management of Change procedures;
  • Asset integrity and reliability (maintenance, inspection, testing, QA/QC);
  • Training and performance assurance;
  • Competence testing (operations, technical and contractor personnel);
  • Contractor management; and
  • Emergency management.

Learning from Experience

Learning from experienceincludes all lessons learned from incidents and near misses, and any improvements that are identified during reviews and audits.

Examples of these elements include:

  • Incident investigation;
  • Sharing of lessons learned;
  • Measurement and metrics;
  • Compliance audits; and
  • Management review and continuous improvement

Concluding remarks

Effective process safety management is highly dependent on the quality of leadership in an organisation and on their commitment to embracing a culture of safety and process safety.

A PSM programme is essential to identify and measure safety activities that should be on the radar for all company employees and stakeholders. Measurement should focus on leading metrics and an integrated set of performance indicators, and frequent audits should probe each element.

Organisational competence should be continuously enhanced (through recruitment and training), and excellent examples of operational discipline should be highlighted and celebrated!

References

Wikipedia, 2018, Process Safety Management.  Available from https://en.wikipedia.org/wiki/Process_safety_management.  Accessed on 29 June 2018.

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