Introducing the Project Execution Plan

Introducing the Project Execution Plan

By Kevin Mattheys

Introduction

Globally, skilled human capital is in short supply, thus impacting the quality, cost and schedules of projects. This applies in both operating and service companies alike as experienced personnel retire, while projects become ever more complex. In many cases, the result is the inability of projects to meet the delivery expectations as set out in the business case, which directly impacts on the financial and reputational health of the business concerned. It is therefore important to have the appropriate systems in place, with the supporting tools, processes and resources to protect against these increasing levels of risk and thereby assist in enhancing project performance.

Independent Project Analysis (IPA), a reputable project benchmarking company, state that project execution planning is the process of defining and documenting (via the Project Execution Plan) the approach to be followed in executing a capital project (Merrow, 2011). The Project Execution Plan must answer some basic questions, such as:

  • What is the business need and what are the project objectives?
  • Who will participate, when will they participate and what roles will they have?
  • How will the project be contracted, sequenced, managed and controlled?
  • When will stage transitions and specific activities take place?
  • What monitoring, control and governance criteria need to be applied?
  • Are there any extraordinary initiatives that may be required which need to be planned and budgeted for?

By answering these and other questions in a definitive manner, and committing it to paper in the project execution plan (PEP), substantial cost and schedule duration savings could be achieved, quality improved and scope changes reduced.

Merrow (2011) highlights the fact that one of the most important drivers of project success during the Implementation phase of a project lies in developing a sound and well thought through PEP during the early stages of the project. A well-defined and communicated PEP is a key driver of cost and schedule reduction, with as much as 10% to 15% saving in schedule slip and cost. Other noteworthy findings were that a well-defined PEP correlated with improved start-up duration, early operational performance, the amount of contingency required in the estimate as well as the number of design changes during execution.  These findings confirm the results of a 2006 study by the Construction Industry Institute (CII, 2006).

The Project Execution Plan is used by the project team and management to assure, firstly, that the right aspects for project implementation are considered and secondly, that the project has been described in such a way that during each stage of front-end loading (FEL) it is clear and concise as to what needs to be done.

Setting the scene

A section of the OTC Stage-Gate Model is shown in Figure 1. It depicts the Initiation phase where the business will prepare the initial idea, the Front-end Loading (FEL) phase consisting of 3 stages where the project team will develop the business idea further, the Implementation phase including Delivery and Commissioning followed by a sustainable Operation phase and eventual Closure. This is not to say that this is the only model to be followed, but it is important that the model being followed is at least similar to the model below and has a gated approach to delivering on projects.

Figure 1:  Section of the OTC Stage-Gate Model

The PEP goes through a cyclical process of updates during each of the FEL stages until the end of FEL 3 is reached. At the start of the project (FEL 1) there is only preliminary information available and what is known is written up in the PEP. As the project develops further, more clarity is gained and this is then captured in the PEP until the project is sufficiently defined to implement.

Development of a Project Execution Plan

A PEP development model

The Project Execution Plan development is initiated at the start of the FEL 1 stage. Although there are many variations of a PEP available, the development of a PEP should be based on a similar model to that developed by OTC and shown in Figure 2. We normally find that several elements are missing or incomplete, e.g. close out and next stage planning, and that is why this comprehensive model was developed.

Figure 2:  The PEP Development Model

The PEP is a document which is continually updated during each of the FEL stages until the end of FEL 3. Each of the major sections which form the construct of the PEP Development Model is described in more detail below:

Background, Overview & Scope

We start off with the yellow oval in the PEP Development Model.  A vital part of any PEP is to describe the project by looking at the business objectives, the business value chain, the project scope, potential risks that could stop or delay the project, boundary conditions for the team and other critical elements of the project to align all parties.

It is important that this section is well written as it sets the scene (and the scope) for the remainder of the project and provides the basis around which further development, and eventually implementation, of the project takes place.  The business charter (what the business expects from the project team) is also included here.

Frame the Project

This section starts with a comprehensive business chain development workshop (called a Framing & Alignment meeting) and includes an overview of the scope, some high-level milestones and a first pass cost estimate. This is shown in the pink/orange coloured oval above.

Of key importance here is, inter alia, confirming the project execution outcomes, understanding the Work Breakdown Structure and capital cost estimate, the key project milestones and schedule assumptions, key project stakeholders, the high-level implementation strategy, as well as requirements for integration management (normally required on larger projects).

Planning Project Implementation

Here one would describe the project team and systems required to prepare the project for executing the various FEL stages as well as for final project implementation. This is the green oval shown below.

The grouping of blue ovals describes the various plans required for the implementation of the project. This is when all the plans come together and specifically addresses design/engineering, contract/procurement plans, construction, commissioning and close out of the project. It is very important to plan for project close out as this activity is typically not done due to time, resource or budget constraints.

Turning to the dark blue central circle of the PEP model we find four categories of plans listed, namely monitor and control plans, supporting plans, support services and project governance plans. We discuss each in turn.

Monitor and Control Plans

It is understood that if there is no control, you are flying blind and you will end up in unexpected places with less than desired results. The various plans which are required for control and monitor activities during the project are described here. Typical plans will be the project controls plans, safety, health & environmental plans, risk management plans, change management plans, quality plans, and others.

Supporting Plans

Every project invariably needs support services which are traditionally available within the business and its structures. Typical support areas are project accounting, human resources, document management, lessons learnt and industrial relations. These should be listed and included in the PEP to support the project to achieve its objectives successfully.

An area usually neglected by project teams is ensuring excellent communication to stakeholders and shareholders via a communication and engagement plan. It is also important for budgeting purposes that these items are identified and included in the overall PEP.

Support Services

Described in this section is a list of generic services which may or not be required for the project.

It is important that the various services required during the project are described as resources and budgets will need to be sought. These could be items such as project benchmarking, team effectiveness surveys, corporate social responsibility programmes or other initiatives to assist the project.

Project governance

For any good project to be implemented successfully, certain key decisions need to be made at various junctures along the project time line. In order to support or guide these decisions, certain governance activities are either mandatory or negotiable. Gate reviews are mandatory as are certain procedures or approval limits. Negotiable items could include exceptions to the corporate approved vendor database or spending approval levels depending on the unique nature of the project. They need to be documented and agreed, however.

A governance structure consisting of reporting requirements, boards, steering committees and other steering and/or approval forums is also a prerequisite for this section.

Additional requirements

The sections above describe the PEP in broad outline.  Not shown on the model in Figure 2 are two important items that should be included in a PEP, namely:

  • Next Stage Plan: Whilst the sections above are related to the generic project, this section requires that a certain amount of preparation work be done to ensure the activities and deliverables required in the next stage are addressed. As an example, the work to be done during FEL 3 must be planned during FEL 2.
  • References: Certain documents are critical inputs to a PEP but are normally too lengthy to include in the PEP. An example is the Business Plan or Project Information Memorandum. Critical information is gleaned from these documents, but they are very comprehensive documents and do not fit well within a PEP. Rather extract the required information and refer the reader back to the source documents that can also be attached as an addendum to the PEP.

The various sections described above are then translated into a typical table of contents for the PEP. This is by no means a definitive list, but is a very good starting point for most projects.  By following this model, a generic PEP can be a useful way to ensure a consistent approach is used.  It also provides a useful framework for communicating and aligning with all role players.

The PEP Development Cycle

It is extremely important to remember that the development of a PEP is an iterative process from FEL 1 to the end of FEL 3 where the level of information for each section of the PEP becomes progressively more detailed as more knowledge and insight is gained about the project. At the end of FEL 3, the PEP becomes the definitive plan for project implementation. It also describes/prescribes the role and governance requirements of engineering and other contractors as part of their work in contributing to the success of the project. The development of a PEP starts during the FEL 1 or prefeasibility stage as shown in Figure 3.

Figure 3:  The PEP Development Cycle

The input required to start the development of the PEP is the sponsor mandate and a project kick-off meeting. The project charter and business objectives also provide inputs that need to be considered in developing the PEP. By following the model shown in Figure 3, one gets a good idea of the level of definition the PEP requires during each of the stages.  These range from philosophy statements to preliminary plans to definitive plans by the end of FEL 3.

PEP development is not the responsibility of the project manager on his own, but every team lead needs to understand the PEP and provide his or her input into the sections that they are responsible for. The items covered in the PEP however remain consistent throughout the project life-cycle, but the level of detail increases through FEL 1, 2 and 3 as demonstrated above.

At the end of FEL1 and FEL 2, the PEP contains an overall view of the total project life-cycle and implementation plan, as well as the detailed plan for the next stage. At the end of FEL 3 the PEP contains the full Implementation phase plan, covering project delivery and commissioning, and will therefore form the definitive basis for the Project Control Base against which all progress, performance payments and changes will be measured and reported.

Closing remarks

Front-end planning has long been recognised as an important process that increases the likelihood of project success (Hansen, Too & Le, 2018).  CII (2006) state that front-end planning and the development of a PEP is a process of developing enough strategic information with which owners can address project and business risk and decide to commit resources to a project. 

The PEP is a vital component of the project manager’s and project team’s armoury.  It sets out the scope, mandate, plans, etc. of what the project is going to deliver.  It acts as an extremely important communication tool and should not be treated lightly.  Many project teams seem to think that once the plan is updated that is the end.  On small projects you may get away with it, but on large projects you do so at your peril.

References

CII (Construction Industry Institute), 2006, RS213-1 – Front End Planning: Break the Rules, Pay the Price. Austin, Texas: Construction Industry Institute, The University of Texas at Austin.

Hansen, S., Too, E. & Le, T., 2018, Retrospective look on front-end planning in the construction industry: A literature review of 30 years of research. International Journal of Construction Supply Chain Management Vol. 8, No. 1.

Merrow, E.W., 2011, Industrial megaprojects: concepts, strategies, and practices for success., John Wiley & Sons, Inc., Hoboken, New Jersey.

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The Widening Trust Gap in Projects

The Widening Trust Gap in Projects

By Jurie Steyn

Introduction

This article was triggered by four recent events, which caused me to reflect on what the future holds for projects.  These events are:

  • A thought-provoking Insight Article on the future of project controls (Mattheys, 2018);
  • The Insight Article on the role and responsibilities of a project management office (PMO) (Taljaard, 2018);
  • Cenpower Generation’s recent termination of its contract with the construction company, Group Five, to complete the $410m Kpone power station in Tema, Ghana (Claassen, 2018); and
  • A second down-scaling in a period of four years of the engineering and project management departments at a petrochemicals company where I spent most of my working career.

Literature is freely available on future trends in project management and what would be expected from future project managers (Alexander, 2018; Evamy, 2017; Jordan, 2017; Schoper, Gemünden & Nguyen, 2016).  However, discussions on the widening of the trust gap and its impact on project success is extremely limited.

Keep in mind that I’m based in South Africa, and my observations might be unique to Africa and third world countries.

The trust gap

Independent Project Analysis (IPA) have been analysing megaprojects for over 30 years to determine the requirements for project success and to help their customers create and use capital assets more efficiently.  They’ve highlighted the crucial role that a strong, fully staffed, owner project management team, with the appropriate work and governance processes in place, plays in delivering successful projects (Merrow, 2011). It is the owner project management team that typically leads the front-end loading phase of projects.  Merrow (2011) emphasises the extraordinary degree of trust, cooperation and communication required between the owner organisation, as represented by the project sponsor, and the owner project management team.

van Heerden, Steyn and van der Walt (2015) build on these principles and propose a preferred structure for theowner project management team, as shown in Figure 1.  The owner project management team is shown as a collection of four blue triangles, representing business management, project management, engineering and operations, arranged in a larger triangle.  Below this, and shown as a red box, we have contracted in functional services, technology suppliers, and engineering and project management contractors.

 

Figure 1:  Trust gap between owner PMT and contractors(Adapted from van Heerden, et al, 2015)

I refer to the interface between the owner project management team and contractors, suppliers and service providers, i.e. the gap between the blue triangles and the red box in Figure 1, as the trust gap.  Obviously, the working relationship between these parties, responsibilities and deliverables must be described in numerous carefully worded contracts, but significant trust is essential for project success.

Before getting to the factors that contribute to a widening trust gap, let us first consider the different roles and perspectives of the owner organisation and the owner project management team on the one hand, and the contractors on the other.

Different roles and perspectives for owners and contractors

Owner organisations, and specifically the owner project team, have a different role and perspective than the contractors in projects.  This difference stems from the fact that owner organisations implement projects to achieve strategic business objectives, whereas contractors only focus on delivering projects which meet the agreed performance standards, on time and within budget.  A summary of the different objectives, roles and perspectives of owners and contractors is given in Figure 2.

 

Figure 2: Different perspectives for owners and contractors

Project scope changes can lead to cost overruns and schedule slip and should be diligently managed to that which can result in significant, demonstrated improvement to the project, or that which is essential to achieve safety and compliance objectives.  However, from the point of view of an engineering contractor, scope changes could mean thousands of extra, recoverable, engineering hours.  Scope changes can also be used as an easy excuse for schedule slip by contractors.

Current trends at owner organisations

Owner organisations can be public companies, private companies and state-owned enterprises (SOE). Owner organisations typically own and operate the production facilities and/or infrastructure delivered by projects.

Over the past number of years, we’ve seen a gradual eating away at the numbers and experience base of primarily the engineering and project management departments in owner organisations.  Reasons for this are plentiful, and range from the inability to raise capital for projects, to poor strategic vision for the company.  Restructuring of top management and personnel cuts in the operations department also result in fewer individuals in these areas being available to focus on capital projects. Business and operations management are important stakeholders in any project, and play a significant role in the commissioning of facilities and the running of a sustainable business.  This situation is reflected in Figure 3 as mice eating away at the underbelly of primarily the engineering and project management departments, and so widening the trust gap.

 

Figure 3:  Widening of the trust gap (Adapted from van Heerden, et al, 2015)

In SOE, most top positions are political appointments.  In South Africa and in the Gupta state-capture era, important project and tender decisions were often made by individuals with little or no project management or engineering background.  The primary focus seemed to be self-enrichment, and not project success. There are many instances where SOE’s ignored their own tender regulations when awarding contracts, for example, South African railways officials imported brand new locomotives from Europe worth hundreds of millions of rand, despite explicit warnings that the trains are not suited for local rail lines (Myburgh, 2015). 

In South Africa, we have the additional burden of complying with Broad-Based Black Economic Empowerment (BBBEE) requirements, with the implication that individuals with extensive experience are made redundant, or are replaced with candidates with limited experience.  Project management and engineering departments thus not only become smaller, but tend to be staffed with less experienced personnel.

Trends at engineering and PM companies

Referring to Figure 3, it is obvious that the widening of the trust gap is not only as a result of personnel cutbacks, loss of project and engineering experience, and greed from the side of the owner organisation.

The trust gap can also open from the side of contractors, suppliers and service providers, as illustrated by the erosion of the red box in Figure 3.  Some of the factors that can contribute to this erosion of trust are listed below:

  • Financial standing:Construction companies in South Africa are in a difficult situation at present and personnel cutbacks are frequent.  Companies are downsizing and/or put up for sale;
  • Bribery: Attempts at bribery of technology suppliers, service providers and contractors by personnel from state or owner organisations prior to the signing of a contract or during the execution thereof can lead to strained relationships and would impact the chance of project success;
  • Communication:Unclear project objectives and charter, from an immature or understaffed owner project management team, combined with ad hoc and incomplete communication will erode trust;
  • Interface management: Insufficient effort or resources for proper client liaison by contractors and service providers, most likely due to in-house cost cutting at the contractors and service providers;
  • Relationships: Soured relationships following a history of schedule and cost overruns on previous projects for same owner organisation.  This can also be a concern based on underperforming end-products from previous projects and outstanding claims;
  • Coordination:No experienced managing contractor to keep a project on track, despite poor decision-making from the owner project management team.  This is a certain recipe for disaster; and
  • Incompetence:Disregard of owner company tender procedures may lead to the selection of incompetent contractors and service providers, often with catastrophic results.

Impact of a widening trust gap

IPA measure five dimensions of project effectiveness in their assessments to determine whether a project is a success, or not (Merrow, 2011). If a project surpasses the threshold limit for failure on any one of these dimensions, the project is considered a failure.  The five dimensions are cost overruns (>25%), cost competitiveness (>25%), schedule slip (>25%), schedule competitiveness (>50%) and production vs. plan in year 2 of operation.  Project success is defined as a lack of failure.

As the trust gap widens, the probability of remaining below the threshold limit for failure on any of these dimensions decreases, i.e. the wider the trust gap, the larger the likelihood of an unsuccessful project. 

Closing the trust gap

Given the state of the South African economy and political uncertainties, the question is whether the trust gap can be reduced to improve the likelihood of project success.  Two options immediately spring to mind:

  • Eliminate corruption: Elimination of corruption in specifically SOE should receive attention at the highest level and proper governance should be instituted to ensure that tender procedures are always followed.  The decision of which contractor to employ should always be made by a team of professionals with the necessary experience and knowledge, and using a predetermined decision matrix; and
  • Use external resources: The southern African market is awash with highly competent engineers and project managers, many of whom were put on early retirement due to the factors described in previous sections.  Many of them are available as consultants to fill critical vacancies on owner project teams, especially during the early project stages. These are people who understand the business requirements and can translate strategic business objectives into clear project objectives.

The future of the Project Management Office (PMO)

Taljaard (2018) describes the roles and responsibilities of the PMO very clearly in his recent article.  Based on the trends described above, it is obvious that owner organisations must make a fundamental mind-shift where it involves project implementation.  Although all the PMO functions remain relevant, I forecast a downscaling of some of the functions, and a possible sharing of some of the PMO roles, like project portfolio management and optimisation by other senior business leaders.

I forecast a growth in the number and utilisation of owner project team support professionals.  Lastly, the role of the owner project sponsor will become increasingly important.  For large and complex projects, the project sponsor is seen as an executive, full-time position by competent individuals who have been trained as sponsors, understand the business objectives and can make decisions based on facts

Figure 4 is summary of my view of the future of the PMO and the project sponsor.

 

Figure 4:  The future of the PMO

Closing remarks

The widening of the trust gap is very visible in southern Africa and may be applicable in most third world countries.  The wider the trust gap, the lower the probability of project success… Fortunately, the widening can be curtailed by improved governance and the elimination of corruption, as well as the use of freelance project management and engineering professionals.

OTC, and other consulting groups like us, should see an increase in the demand for our services, once owner organisations make a mind-shift in their approach to projects.

References

Alexander, M., 2018, 5 Project management trends to watch in 2018. Available from https://www.techrepublic.com/article/5-project-management-trends-to-watch-in-2018/.  Accessed on 28 December 2018.

Claassen, L., 2018, Ghanaian power firm ends troubled contract with Group Five.  Published in BusinessDay of 2 December 2018. Available from https://www.businesslive.co.za/bd/companies/energy/2018-12-02-ghanaian-power-company-ends-troubled-contract-with-group-five/. Accessed on 28 December 2018.

Evamy, M. (ed),2017, Future of project management., Publication by the Association of Project Management, Arup and The Bartlett School of Construction and Project Management at UCL.

Jordan, A., 2017, The technology-driven future of project management: capitalizing on the potential changes and opportunities.Publication by Oracle, projectmanagement.com and Project Management Institute.

Mattheys, K., 2018, Insight Article 052: Disrupting project controls – fast forward 20 years.  Available from http://www.ownerteamconsult.com/publications/  Accessed on 14 December 2018.

Merrow, E.W.,2011, Industrial megaprojects: concepts, strategies, and practices for success., John Wiley & Sons, Inc., Hoboken, New Jersey.

Myburgh, P-L., 2015, SA’s R600 million train blunder.Available from https://www.news24.com/SouthAfrica/News/SAs-R600-million-train-blunder-20150704.  Accessed on 28 December 2018.

Schoper, Y-G., Gemünden, H-G. & Nguyen, N.M., 2016, Fifteen future trends for Project Management in 2025.Published in the Proceedings of the International Expert Seminar in Zurich in February 2016 on Future Trends in Project, Programme and Portfolio Management.

Taljaard, J.J., 2018, Insight Article 054: The project management office (PMO).  Available from http://www.ownerteamconsult.com/publications/  Accessed on 14 December 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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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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