Planning and Execution of the
Investment Project (3 cr)
Project Implementation Methods
24.10.2015
Introduction
• the project implementation policy • end of the day its the client who
or –method is a model which decides which way to go and
describes how a single project will also take the consequences
will be implemented • there is no one single policy or
• in addition to main models there method that is superior to
are mixtures of all these and also others in all cases. The
different names given to these evaluation have to be done
mixtures or even to same case by case
methods
• money is the main driver in • selection of any policy or
selection of the implementation method will not make any work
method to disappear but it will cast the
corner stone for project
• different players in the project success or failure
favour different implementation
policies but also their main driver
is money
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Decision Parameters
What could be parameters
for the
project implementation method?
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Decision parameters
• Financing of the project
• Who has the main process core knowledge
• Experience of similar size projects
• Previous experiences of methods
• Own project personnel
• Investment strategy
• Main challenge – Project Driver
• Need to use local suppliers, contractors, service providers
• Availability of above
• Project complexity
• Location (legal, tax, unions, language)
• Risk taking ability
• Need to know actual costs
• Ready made or tailored ?
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Implementation methods, examples
• EPCM = Engineering -Procurement -Construction Management
• EPS = Engineering -Procurement -Supervision
• EPC = Engineering -Procurement -Construction
• OB = Open Book
• ESS = Extended Scope of Supply
• BOO = Build-Own-Operate
• BOOT = Build-Own-Operate-Transfer
• BOT = Build-Own-Transfer
• DB = Design-Build
• DBO = Design-Build-Operate
• DBFO = Design-Build-Finance-Operate
• FBO = Finance-Build-Operate
• FBOM = Finance-Build-Operate-Maintain
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EPCM – Principle Structure
Owner’s
Supply Contracts
Project Team
Suppliers
Service Contract
Vendors
Sub-Contractors
EPCM-Contractor
Manage, Control, Supervise
Project Team
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EPCM – main characteristics
• Project owner remains fully responsible for the project
• EPCM-contractor is service provider to support owner in
– Project management
– Controlling and supervision of the sub-contractors
• EPCM-contractor is acting ”on-behalf” of owner
• All contracts in the project are signed by the owner and
the resp. supplier/vendor/sub-contractor
• Owner has the right/obligation to take final decisions
• Project owner bears all risk regarding schedule and
cost, but benefits also from gains
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EPCM Project Organisation
Client Project Owner
Client Project Manager Client Plant Manager
Project Manager
Project Office QA/QC/HSE Manager
Engineering Project Controls Procurement Construction Commissioning
Manager Manager Manager Manager Manager
• Eng. Coordination • EPCM Risk Man. • Purchasing • Construction Planning • Commissioning
• Detail Engineering • EPCM Contract- Planning • Constr. Management Planning
• Engineering Tools Management • Purchasing • Constr. Supervision • Training
• Change/Claim Man. Control • Field Engineering • Test Run and
• Cost Control • QA/QC on Site Start-up
• Scheduling • HSE on Site • Process Testing
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EPC – Principle Structure
Owner’s
Project Team
Supply Contract
EPC-Contractor
Project Team
Sub-Contracts
Suppliers Vendors Sub-Contractors
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EPC – main characteristics
• EPC-Contractor takes over full responsibility for the
project execution through a fixed price contract
(Lump sum turn-key (LSTK-) contract)
• All Sub-Contracts in the project are placed by the EPC-
Contractor with the resp. supplier/vendor/sub-contractor
• Project owner has limited rights to take decisions after
signature of the EPC-contract
• Risks, but also possible gains are transferred to the
EPC-Contractor
• To cover such risk, EPC-Contractor will include a risk
provision/contingency in his fixed price
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EPC Project Organisation
Supervisory Board
Internal Audit Team Client Project Owner
Project Sponsor
Project Manager Client Project Manager
Project Office QA/QC/HSE Manager
Engineering Project Controls Procurement Construction Commissioning
Manager Manager Manager Manager Manager
• Process Eng. • Risk Management • Procurement • Construction Planning • Commissioning
• Plant Engineering • Contract- Planning • Constr. Management Planning
• Mechanical Eng. Management • Purchasing • Sub-Contract Man. • Training
• E+I Engineering. • Change/Claim • Expediting • Constr. Supervision • Test Run and
• Architecture Management • Logistics • Field Engineering Start-up
• Civil Engineering • Cost Control • QA/QC on Site • Process Testing
• Struct. Steel Eng. • Scheduling • HSE on Site
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Comparison EPCM vs. EPC
Advantages/Disadvantages
of the two methods ?
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Comparison EPCM vs. EPC
EPCM EPC
Advantages Advantages
• Owner keeps full control on the project • Full project responsibility with contractor
• Owner benefits from cost savings • Clear structure – single point of contact
• Transfer of certain risk to several parties • Completion guarantee
• Selection of Suppliers/Sub-Contractors on • Fixed lump sum price
basis of detailed specification • Sound basis for financing
Disadvantages Disadvantages
• Compex project structure • Need for early detailed specification of
=> incresed coordination effort technical solution
• Owner’s participation is limited
• No cost cap for owner
• Owner will still suffer from bad performance of
• Financing more difficult contractor
• Full process responsibility and project risk • Contractor may compromise on quality in
remain with the owner order to save cost
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Comparison from Owner’s point of view
EPCM EPC
Need for early decisions Low High
Flexibility for modifications High Low
Owner’s influence possibility High Low
Cost Budget Estimate Fixed lump sum
Financial risk exposure Medium Low
Risk provision Only realized risk Incl. in contract price
Transparency of cost High Low
Overall project risk High Medium
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PROJECT IMPLEMENTATION METHODS
Civil construction could
Main Equipment be included in or excluded
Suppliers from the EPC packages
Project Management
and Engineering
Main Machinery and
Equipment 1 2 3 45 1 2 34 1 1 2 32
(Supply and Erection)
Auxiliary Equipment
Piping, Electrical,
Automation
Civil Construction Work
EPCM Method Multi-package EPC Method
EPC Method (turn-key)
and BOP EPCM
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Implementation Methods
EPCM – Engineering, Procurement and Construction Management
Project Owner
Engineering
Consultant
Main process Standard machinery
MEI-Contractor(s) Civil Contractor(s)
machinery suppliers and material suppliers
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Implementation Methods
Multi-package EPC – Engineering, Procurement, Construction
Project Owner
Engineering
Consultant
Main process Standard system’s
MEI-Contractor(s) Civil Contractor(s)
machinery suppliers suppliers
Standard machinery
and material suppliers
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Implementation Methods
Full EPC
Project Owner
Engineering
Consultant TK Contractor
Main process Standard system’s
MEI-Contractor(s) Civil Contractor(s)
machinery suppliers suppliers
Standard machinery
and material suppliers
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Who carries the Risk
Capital
Risk Premiums
Savings
EPCM multi-package
Method EPC EPC
Risks moved to Turnkey Contractor
Risks moved to Owner
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Conclusion
Succesful project implementation
is all about
Management of Risk
Select project implementation method so,
that risks are allocated to such party,
which is best positioned to manage it !
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Thank you!
CONTACT:
NAME: Jarno Peltonen
TITLE: Director, Pulp Technology
MAIL: [email protected]
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