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Best Practices May 20 2009 Presentation R0 - Benchmarking

This document discusses a benchmarking initiative in Alberta, Canada between the government and industry to address rising construction costs in the oil sands sector. It provides an overview of the importance of oil sands development to the Canadian economy. It then describes the development of the benchmarking program in Alberta, including the creation of an "Alberta Report" comparing productivity and costs of Alberta projects to comparable projects in the US. The report found productivity was similar between Alberta and the US but cost growth was higher in Alberta due to factors like higher wages and indirect costs. The document concludes by discussing plans for the next phase of the benchmarking program.

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Georgi Mitkov Savov
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59 views28 pages

Best Practices May 20 2009 Presentation R0 - Benchmarking

This document discusses a benchmarking initiative in Alberta, Canada between the government and industry to address rising construction costs in the oil sands sector. It provides an overview of the importance of oil sands development to the Canadian economy. It then describes the development of the benchmarking program in Alberta, including the creation of an "Alberta Report" comparing productivity and costs of Alberta projects to comparable projects in the US. The report found productivity was similar between Alberta and the US but cost growth was higher in Alberta due to factors like higher wages and indirect costs. The document concludes by discussing plans for the next phase of the benchmarking program.

Uploaded by

Georgi Mitkov Savov
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
You are on page 1/ 28

Benchmarking and the Alberta Report – a

Government/Industry Partnership
Patricia Armitage, M.Eng., P.Eng. Larry Sondrol
Director, Architecture/Engineering/Construction Stephen Revay FCJC CCC
Industry Development Branch COAA Co-Chairs
Alberta Finance and Enterprise Benchmarking Committee
Importance of the Oil Sands to the
Canadian Economy

 Canada’s oil reserves are second in the world behind Saudi Arabia
 Of 179 billion barrels of Canada’s oil reserves, the oil sands
represents 97%
 For each permanent oil sands related job, 9 additional direct, indirect
and induced jobs are created in Canada
 Currently 240,000 jobs in Canada are directly or indirectly linked to
the oil sands
 Between 2000 and 2020, oil sands development has the potential to
generate at least $124B (Cdn) in royalty and tax revenues for
Canada’s federal and provincial governments

Page  2
Why Benchmarking in Alberta ?

 Alberta was experiencing major cost overruns on it’s mega-projects

 Many of these mega-projects were in Alberta’s oil sands sector

 Oil sands are an important and growing sector of Alberta’s economy

 Something had to be done to rein in rising construction costs,


Alberta was being viewed as a high cost jurisdiction in which to do
business

Page  3
Alberta Government Involvement

 Due to rising costs for developing the oilsands, the Alberta


government could see the province’s competitive advantage being
eroded and was having trouble attracting foreign investment

 The Alberta government supports the oil sands sector in it’s pursuit
of higher productivity and lower development costs

 Alberta always compared unfavourably to the US Gulf Coast for


costs and productivity

 What gets measured gets improved!

Page  4
Development of Benchmarking in Alberta

 Benchmarking initiative started in 2003 with the development of


Alberta specific metrics (isolated, camp conditions, winter weather,
size)
 The Construction Industry Institute (CII) chosen for their expertise in
benchmarking
 Phase I now complete
- Company reports generated for participants
- Alberta Report done

 About to embark on Phase II


- Many enhancements added
- Alberta Report 2

Page  5
Alberta Report

 37 (out of a total of 78) projects were analyzed in


August 2008 resulting in the “Alberta Report”
 27 of the 37 oil and gas, half are grassroots
 Total installed costs range from less than $5M (Cdn) to
over $100M (Cdn), with eight projects over $1B (Cdn).
Average = $368M (Cdn)
 In general, Alberta not so bad with respect to
measures of construction productivity when compared
to US projects

Page  6
Alberta Report – An Overview

 Productivity metrics assessed both engineering and construction


productivity (overall and in specific disciplines)
- Metrics are defined as ratios of work hours to quantities
- Performance metrics used included cost, schedule, safety, change and re-work
 14 Best Practices assessed for impact on performance metrics
 18 COAA specific metrics for Alberta included
- Direct and indirect costs
- Use of modularization
- Peak workforce
- Overtime
 Comparisons made between Alberta projects and comparable
projects in the CII database for the USA

Page  7
Alberta Report - Costs

 19% average cost growth for Alberta projects (actual costs exceeded
initial planned cost by 19%).
 Cost growth lower as % detailed engineering complete increased
 Use of Project Risk Assessment Best Practice reduced project cost
growth
 High indirect costs (additional supervision, bussing, camps, etc.)
- Averaged 21% of total project costs
- Indirect cost growth increased as project size increased

 Best Practice of Planning for Startup reduced cost growth in startup

Page  8
Alberta Report - Schedule

 Average schedule growth was 17%


 Constructability Assessments led to reduced schedule growth

Page  9
Alberta/USA Comparisons

 US database 353 projects, 250 Gulf Coast projects


 Similar industrial projects - no adjustments made for differences in
project size, economic conditions or other significant project
drivers.
 Median project size in Alberta dataset is $186M (Cdn) vs. $40M (Cdn)
in the US dataset
 Project cost growth much higher in Alberta (19%) vs. US (3%)
 Alberta project cost growth had much wider range (-27% to 69%)
 Development and scope changes similar between Alberta and the
US

Page  10
Alberta/Gulf Coast Comparisons –
Engineering Productivity

 Engineering productivity measured as the ratio of direct engineering


hours per installed quantity in the field
 Comparisons based on weighted averages (ie: larger projects count
more in the average productivity than smaller projects)
 Engineering productivity for concrete better in Alberta than in US
 Structural steel engineering productivity worse in Alberta
 Engineering productivity for piping comparable.

Page  11
Alberta/Gulf Coast Comparisons –
Construction Productivity

 Construction productivity measured as the ratio of field direct work


hours per installed quantity
 Comparisons based on weighted averages
 Construction productivity for concrete slightly worse in Alberta
 Instrumentation devices construction productivity much worse in
Alberta (non-weighted average between the two was comparable,
further research is warranted)
 Construction productivity for structural steel was comparable
 Insulation construction productivity was better for the Alberta
dataset

Page  12
Economy of Scale may not be equal

Page  13
Construction Approach is Similar

Page  14
Alberta Report - Results

 Before this study it was perceived that Alberta’s productivity was


much worse overall than similar US based projects
 Productivity similar between Alberta and US
 So why the higher cost growth in Alberta vs. US data?
- Average wage rates are higher in Alberta than where most of the US projects
occur
- Indirect costs are higher on mega-projects than on smaller projects
- Initial cost estimates on mega projects weak
- Starting projects with very low % engineering complete

Page  15
Alberta Report - Appreciation

 Phase 1 Funding Partners


- Alberta Finance and Enterprise
- Construction Owner’s Association of Alberta
- Several Owners & Contractors

 Construction industry Institute (CII)


- Dr. Stephen Mulva
- Research Students

Page  16
COAA Benchmarking Phase II

 3-Step Process

Online COAA Benchmarking Data Mining and


Questionnaire Database Reporting Engine

Page  17 17
Phase II Features

 Customized Questionnaire Development


- Absolute Metrics
- Indirect Costs
- Pipeline Projects
- Modularization (Productivity in Fab Yard)

 Alberta-Based Benchmarking Lab


- Full-Time Alberta-Based Support
- Real-Time (OTJ) Training

 Alberta Report #2

Page  18
Phase II System Enhancements

 Internal (Process Unit, Project specific) Benchmarks

 Automated Key Reports

 Company-Level Reports

 Executive Dashboard

 Full Data Mining Capability


- Comparisons with CII (U.S.) Database

- “Level 1” Productivity Metrics (All Disciplines)

Page  19 19
Phase II Data Mining

 Web-Enabled Queries

Page  20 20
Project-Level (Eng) Productivity

4Q Poor

3Q
2Q

1Q
Good

25th to 10th Percentile =


11% Improvement

Page  21
Executive (Portfolio) Dashboard

Page  22 22
Project Key Report-
Construction Productivity-
Structural Steel

Page  23
Project Key Report- Best Practices

Page  24
Phase 2 - Appreciation

 Phase 2 Partners thru 2010


- Alberta Finance and Enterprise
- Construction Owner’s Association of Alberta (COAA)
- Construction Industry institute (CII)
- Owners & Contractors
- Nexen Inc.
- Shell Canada Energy
- Suncor Energy Inc.
- StatoilHydro Canada Ltd. MORE PROJECTS REQUIRED!!
- MEG Worley Ltd.
- Bantrel
- Enbridge Inc.
- JV Driver Projects Inc.
- Boilermaker Contractor Association (BCA)
- Electrical Contractors Association of Alberta (ECAA)
- Industrial Contractors Association of Alberta (ICA)

- Several other Potential Interested Owners & Contractors


Page  25
Workshops

 Workshop Sessions @12:45 and 2:30


 Benchmarking - Phase 2 Plan
 Alberta Report – Overview of Results

Page  26
Engineering Complete
Before Construction Start

1.00
Construction Phase Cost Growth

0.75

0.50

0.25

0.00

-0.25

-0.50

-0.75
0 10 20 30 40 50 60 70 80 90 100
% Design completed before construction started

Page  27
Construction Indirect Cost Growth

1.50
Construction Indirect Cost Growth

1.25

1.00

0.75

0.50

0.25

0.00

-0.25

-0.50
0 200 400 600 800 1000 1200
Adjusted Total Project Cost ($M CDN, in 2007)

Page  28

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