PDM 001 Project Development Manual (Rev 0)

PROJECT DEVELOPMENT MANUAL Document No: PDM-001 Revision 0 (uncontrolled when printed) Electronic version at: https://eroom.bhpbilliton.com/eRoom/Facility53/ProjectManagement/0_9f17

FOREWORD The fuel that drives this Corporation is the amount and quality of its investments. Over the next several decades, no single activity will have a greater impact on our employees or our shareholders than the performance of our investments in our project pipeline. To support that activity, this Project Development Manual was established to be used in concert with our Major Capital Projects GLD and the project Hub concept within our Corporate Operating Model. The combination of these tools in the hands of our employees is meant to do one thing – establish BHP Billiton as the industry leader in Project Management. Over time, we expect to invest greater and greater amounts of annual capital expenditure and we will continue to execute some of the largest and most complex projects in the world. Both our Minerals projects and our Petroleum projects will be enhanced by the use of these Project Management tools that we intend to keep at a leading edge of industry expertise. So, to those of you that work for this Corporation in a Project Management role, we thank you for helping us build these modern project tools, and we know you will use them daily. Our colleagues and shareholders are counting on us. Mike Yeager Group and Chief Executive, Petroleum

1.0

2.0

3.0

4.0

INTRODUCTION 1.1

BACKGROUND

1.2

PURPOSE

1.3

STRUCTURE

1.4

CHANGE CONTROL

1.5

PROJECT CLASSIFICATION

THE BHP BILLITON APPROACH TO PROJECTS 2.1

OVERVIEW

2.2

PROJECT DEVELOPMENT PROCESS

2.3

PORTFOLIO MANAGEMENT

2.4

PROGRAM MANAGEMENT HUBS

2.5

PROJECT MANAGEMENT

2.6

MAXIMISING VALUE

GROUP LEVEL DOCUMENTS 3.1

GLD OVERVIEW

3.2

MAJOR CAPITAL PROJECTS GLDS

3.3

MANDATORY DELIVERABLES

STRATEGIC PROCESSES 4.1

BUSINESS OBJECTIVES AND STRATEGIC FIT

4.2

RISK MANAGEMENT

4.3

HSEC MANAGEMENT

4.4

PEOPLE AND TEAMS

4.5

STAKEHOLDER MANAGEMENT

4.6

OPPORTUNITY REALISATION

4.7

VALUE IMPROVEMENT

4.8

INVESTMENT PROCESS

5.0

6.0

7.0

CORE WORK PROCESSES 5.1

ENGINEERING MANAGEMENT

5.2

CONTRACTS AND PROCUREMENT MANAGEMENT

5.3

CONSTRUCTION MANAGEMENT

5.4

COMMISSIONING MANAGEMENT

5.5

TRANSITION TO OPERATIONS

5.6

PROJECT CLOSE-OUT

CONTROL PROCESSES 6.1

STUDY MANAGEMENT

6.2

PROJECT MANAGEMENT

6.3

SCOPE DEFINITION

6.4

SCHEDULE DEVELOPMENT

6.5

COST ESTIMATING

6.6

PROJECT CONTROLS

6.7

QUALITY MANAGEMENT

6.8

AUDIT AND REVIEW

GLOSSARY & ABBREVIATIONS 7.1

ABBREVIATIONS

7.2

GLOSSARY

7.3

REFERENCES

7.4

SUBJECT INDEX

8.0

INVESTMENT PHASE CHECKLISTS

9.0

TOOLBOX

This document has been prepared for use by project practitioners in support of the development and delivery of projects in which the BHP Billiton group has an interest (BHP Billiton Projects). Use of this document is restricted to BHP Billiton personnel, consultants and contractors engaged in the development and delivery of BHP Billiton Projects. By reading this document you undertake not to disclose this document to any other person (other than a person supporting the development and delivery of a BHP Billiton Project) and not to use it for any other purpose.

Refer to Project Management eRoom to obtain the latest version of this document: https://eroom.bhpbilliton.com/eRoom/Facility53/ProjectManagement

PROJECT DEVELOPMENT MANUAL CHAPTER 1.0 INTRODUCTION Document No: PDM-001 Revision 0 (uncontrolled when printed)

Table of Contents 1.0

INTRODUCTION ................................................................................................................1

1.1

BACKGROUND ................................................................................................................................................3

1.2

PURPOSE .............................................................................................................................................................4

1.3

STRUCTURE .......................................................................................................................................................5

1.4

CHANGE CONTROL ......................................................................................................................................6

1.5

PROJECT CLASSIFICATION...........................................................................................................................7

Tables Table 1.3.1 PDM contents - summary...............................................................................................................5

Figures Figure 1.1 Project Development Manual context...........................................................................................2

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1.0

INTRODUCTION Over the past decade, BHP Billiton has been spending ever increasing amounts of annual capital expenditure and will continue to execute some of the largest and most complex projects in the world. Safe, predictable and competitive projects are fundamental to BHP Billiton’s continued growth and there is an overall program within the corporation aimed at improving our performance in this area. The key elements of this improvement program are: 

An excellent project management process, including: 







The new Major Capital Projects (Petroleum) and Major Capital Projects (Minerals) Group Level Documents (GLDs) 1 which clearly outline the performance requirements and accountability for our major projects. The new Project Development Manual (PDM) which consolidates all the project development and delivery knowledge across BHP Billiton and provides guidance to support achievement of the GLD requirements.

Improving BHP Billiton’s project capability to ensure that the corporation continues to have the people and teams required to lead and deliver on the project pipeline. This includes a program aimed at enhancing the skills and experience within the project community across the whole of BHP Billiton. The establishment of global program management hubs, where BHP Billiton has centralised project delivery in several geographic locations in order to create excellence in project delivery in conjunction with Tier 1 implementation contractors.

This PDM has been developed for use by all BHP Billiton personnel, consultants and contractors engaged in project development and delivery activities. It represents a consolidation of all of BHP Billiton’s project development knowledge and lessons learnt. The PDM is not mandated, it is designed to assist project teams in accessing and using best practice in the development and delivery of BHP Billiton projects. Figure 1.1 shows the context of the PDM in relation to the Major Capital Projects GLDs and the hub or CSG project delivery processes.

1

The two GLDS for major capital projects are hereinafter in this PDM referred to as the Major Capital Projects GLDs.

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Figure 1.1 Project Development Manual context Major Capital Projects GLDs Minimum requirements by phase  Defines project management process  Defines “What”, not “How” 

MAJOR CAPITAL PROJECTS GLDs

PROJECT DEVELOPMENT MANUAL

HUB or CSG PROCESSES (Standards and procedures)

Project Development Manual  Overview of project development process  Expands on key GLD requirements  Best practice ToC, guidelines, examples  Not mandated  Continuously improved Hub or CSG Processes  Must achieve GLD minimum requirements  Mandated by the CSG or hub  How minimum requirements are achieved  Detailed standards and procedures  Can build on PDM

The GLDs outline key minimum requirements for project development and delivery. They provide the high level project management process elements required for effective project development and delivery. The PDM enhances the GLDs by expanding on the content required for the key deliverables described and mandated in the GLDs. The PDM also describes the overall project development process in BHP Billiton and in particular the application of the strategic, core work and control processes. The hub or CSG processes are developed to describe how the minimum GLD requirements are met. These include standards and procedures and draw on the content and overall delivery methodology described in the PDM.

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1.1

BACKGROUND During the late 1990s BHP experienced a number of project failures while pursuing an aggressive growth strategy. Initiatives to prevent a recurrence were instigated following the merger of BHP and Billiton in the early 2000s. These initiatives were:    

development of a set of minimum standards for the study and project execution phases development of investment process, including phases, independent review and benchmarking creation of governance and approval structures such as the Investment Committee (IC) creation of a functional project group (formerly Project Development Services (PDS) and now Project Management Services (PMS)) to provide governance and support to the projects and the project community.

In the latter part of the 2000s significant pressures arose from shortages of project delivery resources of all kinds (both within BHP Billiton and in the industry in general) and there was an associated:   

escalation of costs delay to scheduled completion decline in the predictability and quality of project development.

As a result of these constraints and an increased recognition of the importance of the project pipeline to BHP Billiton’s continued success as a corporation a series of further project improvement programs were implemented in 2009/2010 as outlined in Chapter1, including this PDM.

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1.2

PURPOSE The overall purpose of this PDM is to support BHP Billiton in improving its project effectiveness and achieve its growth objectives in a safe, predictable and competitive manner. The specific objective of the PDM is to support the Major Capital Projects GLDs and it contains important checklists and examples which are not in the GLDs but which are considered essential to successful project delivery. The PDM:      

describes key core work processes such as engineering, procurement, construction, commissioning and handover to operations describes control processes associated with study management, project management, estimating, scheduling, project control, quality and assurance. describes frameworks for implementing key strategic processes such as HSEC, risk, people & teams, investment evaluation and value maximisation includes guidelines, checklists, templates and examples provides a fully integrated “one stop shop” for all BHP Billiton major capital project teams in the support of the GLD minimum requirements and the CSG/hub processes is aimed at stimulating continuous improvement from lessons learnt.

The PDM currently excludes the following work processes which are covered by other corporate, CSG or hub specific processes:   

geological and mineral resource investigation and analysis metallurgical processing mine design.

An outline of the processes outside the PDM is provided in the project management processes roadmap in Section 2.5 Project Management. The PDM is intended for use primarily by the BHP Billiton Owner’s team and by all BHP Billiton personnel associated with the development and delivery of a major capital project. The PDM may also be used for background information and briefing of consultants and major implementation contractors including the hub program delivery teams. Through the implementation of the PDM, the opportunity exists to:      

take account of the factors that contribute to business success realise a project’s full potential value efficiently and effectively manage a project through all phases of study and execution stimulate Owner’s teams to continually look for and document better ways of achieving best practice promote ongoing development of project management skills of BHP Billiton’s project personnel through mentoring and by the experience of participating in successful projects enhance the capability of BHP Billiton to meet the growing pipeline of capital project investment.

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1.3

STRUCTURE The structure and content of the PDM is set up in an easy-to-use format of nine chapters. Chapters 1, 2 and 3 provide an overview of the context, background and review and approvals processes of how BHP Billiton develops its capital projects. The body of the PDM is based around Chapters 4, 5 and 6 which cover the key strategic, core work and control processes. These are the essential components for development of a major capital project. Chapter 7 contains abbreviations, glossary, references, and a subject index. The content of the PDM is supported by investment phase checklists in Chapter 8 and tools (examples, guidelines, templates etc) summarised in Chapter 9. The summarised contents of the chapters are shown in Table 1.3.1. Table 1.3.1 PDM contents - summary Chapter

Title

Content

Chapter 1

Introduction

Outlines the purpose and structure of the PDM.

Chapter 2

The BHP Billiton Approach to Projects

Explains the corporate management processes and methodologies to achieve excellence in delivery of major capital projects.

Chapter 3

Group Level Documents

Outlines the mandated performance requirements of project development and delivery and quality of work needed to meet gating criteria.

Chapter 4

Strategic Processes

Describes the processes used to ensure capital projects are rightly chosen, clearly defined, appropriately resourced, optimised and safely developed to add maximum value.

Chapter 5

Core Work Processes

Describes those processes used to progress the core project work, e.g. engineering, procurement, construction, commissioning, etc.

Chapter 6

Control Processes

Describes the study and project management processes used to plan, define scope, and control the outcome of the work processes.

Chapter 7

Glossary and Abbreviations

Contains the references, acknowledgements and a detailed subject index.

Chapter 8

Investment Phase Checklists

Contains checklists by investment phase.

Chapter 9

Toolbox

Contains the examples, guidelines, templates and the like.

The different chapters and sections of the PDM are based on functions e.g. Engineering Management. They include the key elements across all the investment phases, though the emphasis is placed on the dominant phase. As an example, Section 5.1 Engineering Management focuses heavily on the requirements for developing an Engineering Management Plan prior to gating into execution, as this is a critical component of successful project delivery and the bulk of the engineering is conducted in the execution phase.

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1.4

CHANGE CONTROL The PDM is a dynamic document, continuously updated to capture project lessons learnt and best practice. In order to maximise its usefulness, it is highly desirable that feedback is provided by project teams and all suggestions for improvement of the chapters and contributions to the tools and lessons learnt are very welcome and can be sent to [email protected], using the following feedback form: Toolbox 9.1.4B PDM Feedback Form. PMS is the owner of the document on behalf of the CSGs and the latest electronic copy of the PDM (along with the associated checklists, examples and toolboxes) is located in the Project Management eRoom (refer https://eroom.bhpbilliton.com/eRoom/Facility53/ProjectManagement). For further details on the PDM section champions, refer also to Toolbox 9.1.4C PMS PDM Contacts. A log which outlines (at a high level) the changes incorporated in the various revisions of the PDM is included in Toolbox 9.1.4D PDM Change Log. The log does not detail any changes to the referenced examples, toolboxes or checklists.

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1.5

PROJECT CLASSIFICATION BHP Billiton currently classifies its operated and non operated capital projects as follows:   

Major (>US$250 million) Medium (US$5 to US$250 million) Small (1.20

Capital Efficiency Ratio All Phases - NPV

All Phases - CER

All Phases – CER v NPV

Feasibility Only - NPV

Feasibility Only - CER

Feas. Only – CER v NPV

Pre-Feasibility Only - NPV

Pre-Feasibility Only CER

Pre-Feasibility Only CERvNPV

Slide 4

The competitive capability classification depends on asset attractiveness, where the asset attractiveness ratings are as follows: 

Low (related business): 

2

related business opportunity (including vertical integration) which does not have an obvious fit with BHP Billiton’s existing capabilities

Note for confidentiality reasons the names of the actual investments have been removed from the diagram.

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

Moderate:  



High:  



investment in an existing non-core business, or horizontal acquisition with synergies arising from increased revenues (market share) greenfields project which expands a core business, or horizontal acquisition with synergies arising from cost savings

Very High:  

non-greenfields project (e.g. to sustain production, small brownfields, cost reduction initiative) in a core business (e.g. iron ore, aluminium, oil & gas), or horizontal acquisition which significantly improves industry dynamics.

Additional details on the prioritisation process used at the Group level are available from I&VM.

Group reporting At the Group level, various standard reports are available from ITS, including both execution phase projects and investments in the study phase. An example study phase pipeline report is shown in Figure 2.3.3. There is also a similar report for projects in the execution phase. Figure 2.3.3 Example of ITS pipeline (study phase) report

These reports are issued monthly to the GMC by I&VM.

2.3.2 CSG level At a CSG level, the respective CSG senior management (executive committee or ExCo) normally focus on ‘program management’. Again as part of the CAP process, each CSG prepares a set of priorities for their capital growth pipeline which is discussed at the annual strategy appraisal. Most CSGs have a regular monthly capital projects meeting (known variously as project review committee, capital committee, or steering committee). PROJECT DEVELOPMENT MANUAL CHAPTER 2.0 THE BHP BILLITON APPROACH TO PROJECTS Revision 0 (uncontrolled when printed) Section 2.3 - Portfolio Management

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The objectives of these meetings are essentially the same, to discuss the priorities, approval, status and governance of the CSG’s projects.

CSG prioritisation At a CSG level, the prioritisation of the overall pipeline program is left to the respective CSGs. Each CSG uses slightly different prioritisation criteria, although the overall principles (balancing benefit against cost, risk and complexity) are the same. CSGs may elect to prioritise their projects based on some or all of the following: 

capex  



complexity     



who is project operator? what is their experience level? relationship

special risks  

 

additional product to CSG throughput operating cost product issues (new, quality etc) operability HR requirements (industrial relations)

Joint venture partners   



project location e.g. new country entry project capability technology complexity (existing/new) environmental impact regulatory environment

operations      



gross net

business risks reputation risks

NPV total life cycle cost (TLCC).

CSG reporting At a CSG Level the reporting of the program is again left to the individual CSGs. The majority of CSGs have an overall set of structured project reports including single page project dash boards. Refer to Section 2.4 Program Management Hubs for details on program reporting.

2.3.3 Asset and operation level At an Asset or operation level there is the same focus on ‘program management’ as at the CSG level but obviously on a smaller population of projects. Within each Asset there is normally a ‘project prioritisation process’ which enables the Asset management team to rank the respective value of the project to the business in terms of benefit, risk, complexity etc. This methodology is used to decide which projects require to be delivered when and why. At an Asset level, one of the key constraints is often the resources to develop and execute the project. Where possible, the same prioritisation method or criteria is used across a CSG’s Assets and operations. PROJECT DEVELOPMENT MANUAL CHAPTER 2.0 THE BHP BILLITON APPROACH TO PROJECTS Revision 0 (uncontrolled when printed) Section 2.3 - Portfolio Management

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Where possible, a standard portfolio management software program (like Mariner or similar) is used on all Assets and operations within a particular CSG so that it is possible to roll up the overall project program at a CSG level.

2.3.4 Program management hubs Recently BHP Billiton introduced the ‘hub’ concept of grouping the corporation’s major capital projects together into a global network of program management hubs. Several of these are multi CSG hubs where a pipeline of pan-CSG projects are grouped together to optimise the benefits and leverage available from developing and executing multiple projects at one location. The program management hub concept is explained in more detail in Section 2.4 Program Management Hubs.

2.3.5 Compliance with GLDs The Major Capital Projects GLDs have four sections where the minimum performance requirements for portfolio and program management are mandated, as follows: 

Section 1.0 Project Initiation. Major capital projects must be initiated and prioritised in accordance with the corporate objective, CSG strategy and CSG approved 5 year plan. What this means is that the individual projects need to be initiated and prioritised in accordance with both the overall BHP Billiton corporate growth strategy (portfolio management) and the CSG growth strategy and 5 year plan (program management).





Appendix 2.0 Section 1.1 Business Objectives and Strategic Fit. Ensure the investment is consistent with the corporate objective, CSG strategy and CSG approved 5 year plan.  Provide a concise overview of the strategic rationale, strategic fit and any required exit strategy. Reference existing material from the CSG approved 5 year plan and CSG strategy appraisal. This is an identical requirement to that highlighted above but specific to the identification phase. Note that there is not a requirement to repeat the full CSG approved 5 year plan and CSG strategy appraisal text in either the study report or the IAR but to reference the relevant documents and include a strategic summary and highlight/confirm that there is a good strategic fit between the current project and both the BHP Billiton and CSG growth strategies. 



Appendix 3.0 Section 1.1 Business Objectives and Strategic Fit. Provide a concise description of the strategic fit and any required exit strategy for the preferred investment alternative. Reference existing material from the approved CSG 5 year plan and CSG strategy appraisal. This is a similar requirement to Appendix 2.0 but specific to the selection phase. Again there is not a requirement to repeat the full CSG approved 5 year plan and CSG strategy appraisal text in either the study report or the IAR but to reference the relevant documents and include a strategic summary and highlight/confirm that there is a good strategic fit between the current project and both the BHP Billiton and CSG Growth strategies. It is important to also include details of any exit strategy in the study report and IAR.





Appendix 4.0 Section 1.1 Business Objectives and Strategic Fit. 

Provide a concise description of the strategic rationale, strategic fit and any required exit strategy for the preferred investment alternative. Reference existing material from the approved CSG 5 year plan and CSG strategy appraisal.

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This is a similar requirement to Appendix 2.0 but specific to the definition phase. Reference the relevant documents and include a strategic summary, confirm that there continues to be a good strategic fit between the current project and both the BHP Billiton and CSG Growth strategies. Include details of any required exit strategy in the Study Report and IAR.

2.3.6 Current portfolio status The current status of BHP Billiton’s portfolio of projects can be found in Toolbox 9.2.3B Current Portfolio Status. Examples of Group Level reporting can be found in Toolbox 9.2.3A ITS Reports, while examples of CSG Level reporting can be found in Toolbox 9.2.4C Program Reporting Guideline.

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2.4

PROGRAM MANAGEMENT HUBS In the past, BHP Billiton carried out studies and projects on an individual project by project basis. However, due to the very high levels of global demand for most of BHP Billiton’s commodities and therefore the associated increase in BHP Billiton’s project growth pipeline, in 2008 the GMC endorsed the proposal that the corporation move towards a model where all BHP Billiton major capital projects were grouped and resourced from a global network of program management hubs. Initially these were identified as Perth, Brisbane, Houston and Santiago with others to follow on an as required basis. This section of the PDM provides:   

information on the overall program management hubs strategy detail on how to comply with the hub requirements in the Major Capital Projects GLDs relevant statistics and information on the individual hubs.

Context The hub concept, where BHP Billiton gains increased effectiveness through the leverage of multiple projects in a single location, was introduced before the global financial crisis (GFC), when there was a severe shortage of experienced project resources from both the Owner’s team and the implementation contractor 3 . While labour shortages subsequently abated, the longer term increase in BHP Billiton’s capital spending and the start-up of new businesses, such as uranium and potash, are indications that the resourcing of major projects will continue to remain a challenge for the foreseeable future. As a result, the hub strategy is seen as a key mitigation in addressing this issue. The other benefits of the hub strategy include:    

locking in access to Tier 1 implementation contractors realising significant supply chain leverage achieving simplicity through common systems, processes, standards and procedures developing a scalable major project delivery model to facilitate future growth.

Hub definition A program management hub is a centre of excellence for the study and execution of a portfolio of projects. Each hub uses a program management approach, provides continuity of work for key Owner’s team and implementation contractor’s project resources, enables the consistent application of best project practices, normally has a long-term commitment to a Tier 1 engineering, procurement and construction management (EPCM) contractor and facilitates driving continuous improvement in the corporation’s project performance. Key features of a hub must include:     



3

a central location where BHP Billiton co-locates its major capital projects in order to realise the benefits and synergies (standardisation, replication, continuity and leverage) a sufficient pipeline of continuous projects that is treated as a program continuity of key owner and implementation contractor resources and to enable the development of project team capabilities typically includes a long-term relationship with one or several aligned Tier 1 implementation contractors who provide program management support individual projects in the hub are afforded sufficient flexibility in order to maximise value (e.g. use of different engineering support contractors) without eroding the benefits of the hub model consistently employs excellent project management standards and processes.

Includes EPCM service providers.

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Hub locations The current program management hubs are:     

Perth – Iron Ore Brisbane – multi commodity, managed by Metallurgical Coal Santiago – multi commodity, managed by Base Metals Houston – Petroleum Vancouver – multi commodity, managed by Diamonds and Speciality Products.

Figure 2.4.1 identifies the locations of these program management hubs. Other hubs may follow on the basis of portfolio demand. Figure 2.4.1 BHP Billiton program management hubs

The individual status of each hub is detailed in Section 2.4.5 Current status and details on individual program management hubs.

2.4.1 Compliance with the GLDs What is required? The Major Capital Projects GLDs have three sections where the minimum performance requirements for the program management hub strategy are mandated, as follows: 

Appendix 3.0 Section 14.7 Program Management Major capital projects, where BHP Billiton is the project manager, must be developed where possible via a program management hub in the selection phase. The individual major projects need to be developed via one of the established program management hubs from the start of the selection phase onwards.





Appendix 4.0 Section 14.7 Program Management Major capital projects, where BHP Billiton is the project manager, must be developed where possible via a program management hub in the definition phase. This is an identical requirement to above, however specific to the definition phase.





Appendix 5.0 Section 2.3 Project Execution

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Major capital projects, where BHP Billiton is project manager must be executed where possible via a program management hub This is an identical requirement to above, however specific to the execution phase. 

When is it required? As highlighted above, the requirement is that the individual major projects need to be developed via one of the established program management hubs from the start of the selection phase onwards. The appropriate time therefore to be considering which hub to use is during the latter part of the identification phase.

How do I find a suitable hub? Contact PMS for the latest information on, the current workload in each hub and the optimum hub to use for a particular project. Toolbox 9.2.4A Hub Procedure 001 Project Entry provides details on the process for entering a project into a hub.

How do I get approval for my program management hub strategy? To obtain approval for a particular program management hub strategy, apply the following steps:   

The project leader, sponsoring CSG and landlord CSG (hub) all need to decide on the optimum hub strategy and then following due process, recommend this for formal approval. The Head of PMS will endorse the recommendation as defined in the Major Capital Projects GLDs. Note that the default is to put major projects in a hub unless a specific reason exists. The CSG president then approves the recommendation as defined in the Major Capital Projects GLDs.

Exemptions from development of major capital projects via a program management hub requires endorsement by Head of PMS and approval by the CSG president sponsoring the project.

2.4.2 The program management hub strategy Objectives The market drivers for BHP Billiton’s project pipeline delivery are the same as those for the rest of the minerals and petroleum industries i.e. meeting developing market demand for natural resources which has continuously shown strength and resilience over an extended period of time. In periods of high global demand, the international market for experienced project management, engineering, fabrication and construction resources is highly stretched. This limited market for skilled human resources has lead BHP Billiton to approach its projects in a new and innovative way via program management hubs. For BHP Billiton to meet its overall project delivery objectives, it is essential for the program management hubs strategy to:    

achieve zero harm to people, the community and the environment enable the BHP Billiton project pipeline to be delivered according to the respective project business cases and investment processes use an innovative approach to consistently capture and improve value deliver predictable capital cost, schedule, and operating performance.

The hub objectives statement (Figure 2.4.2) presents the business objectives of the program management hubs.

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Figure 2.4.2 Hub objectives statement BHP Billiton will view the hub as being successful when

 The hub program management contractor (PMC) delivers a program with zero harm.  Projects are resourced and delivered to a schedule consistent with CSG objectives.  There are no significant deviations from the authorised cost of any project.  There are no significant quality deviations.  The CSGs want to place their sub $250 million projects into the hub.  The hub provides certainty of access to key resources that are scarce in the market but are essential to the development of the CSGs assets through major projects.  Reliable business outcomes are delivered for the specific needs of each project.  The value delivered by each project is greater than if treated as separate projects competing in the market.  Each project in the hub receives appropriate levels of management attention and support.  Each project is resourced with high quality, experienced project professionals.  The planned program of projects is studied and executed in a controlled and predictable manner.  The hub structure is able to flex and accommodate the planned program and occasional incremental projects.  The hub seamlessly integrates key specialist contractors where they are best able to support projects.  High quality studies are produced that routinely apply best team development, front end loading, value improving practices and project control practices.  The hub PMC is an extension of the Owner’s team.  Additional project resources are made available to the projects including: o engineering value centre capability and established offices o international resource base o international procurement o China procurement o modular design, fabrication and construction o highly experienced functional leadership.  There is a reduction in engineering and management man hours and overhead cost.  Allows for relationship building and trust development over time between Owner and hub PMC.  The structure and longevity of the hub allows for career development and talent management of both the Owner’s and hub PMC’s staff. The hub PMC will view the hub as successful when

 The program provides certainty of work over an extended period of time (5-10 years).  The commercial arrangement suitably rewards the hub PMC for the provision of their best project management resources with additional upside for successful business/project outcomes.  The program provides a critical mass of project volume to support: o attraction and retention of highly experienced resources o the personal and career development of project resources o the application of standard processes, standards and systems o resource levelling of key project management and engineering resources.  The program uses additional services offered by the hub PMC including: o engineering value centres o international resource base o international procurement o China procurement o central procurement o modularisation centres.  The hub PMC is an extension of the Owner’s team.  The hub PMC delivers successful projects to a major corporate client that enhances their reputation and business value.  The CSGs want to place their sub $250 million projects into the hub.

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2.4.3 Hub scope of work and services Hub scope of work The scope of work for any individual hub is determined by the specific projects that need to be studied and executed through the hub at that time, which in turn is driven by the CSG’s individual growth pipelines. Typically, each hub has around US$10-20 billion worth of capital projects in development or execution. BHP Billiton major projects typically include the following types of scopes:     

mining or hydrocarbon drilling (typically Owner’s scope) materials handling systems e.g. crushing, screening, transport, transfers mineral processing plants e.g. hydrometallurgical or pyrometallurgical processes upstream oil and gas systems e.g. SPJ, TLP, FPSO, associated topsides supporting infrastructure e.g. power generation, water supply, road, rail, ports.

Services provided by hub PMC A typical hub PMC provides the following services:     

development of a program level plan for project coordination and program wide resource levelling and planning monitoring of the overall program and individual project progress provision of high-level expertise to support BHP Billiton with conceptual and identification studies provision of expertise for the completion of detail definition and project execution planning for selection and definition phase studies provision of a functional centre of excellence for shared services across all projects within the program including:             

 

   

estimating planning and scheduling project controls engineering management engineering procurement and contracts health and safety management environment and community management project human resource management information management construction management quality management commissioning management

provision of common program and project systems, procedures and standards for all studies and projects managed through the hub development and retention of project information including estimates, procurement outcomes, contracts, engineering deliverables, correspondence, vendor data, engineering and construction labour productivities, escalation, lessons captured and learnt development of a human resourcing program to support projects within the hub, including training, career development and talent management selection, allocation, mentoring and monitoring of performance of key project personnel including project managers/directors provision of engineering value centre capability to support hub projects identification of and development of long term relationships with key suppliers, consultants and construction contractors

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      

assisting BHP Billiton to develop strategic supply agreements for key process equipment where appropriate development of standard scope elements to support replication within and across projects development of standard commercial terms for suppliers and contractors for across individual studies and projects leadership of innovation programs to support the hub projects capture and application of lessons learnt to improve project performance across the program capture of project data to allow the measurement and benchmarking of program value delivery development of alignment programs with Owner representatives.

For project implementation, the hub carries out the work using the full range of contracting models from self perform to engineer, procure and construct (EPC), traditional EPCM, through to modified forms of third party EPC, dependant upon the project scope, risk profile, business objectives and the contracting strategy developed during the front-end loading phases of the project. Subject to BHP Billiton’s approval (required on a case by case basis), contracting services provided by the hub PMC could include the bidding, assessment and the recommendation of lower tier EPCM and/or engineering services contractors. This is expected to be performed under the procedural guidance and governance of BHP Billiton because of commercial sensitivities. The contract with the lower tier contractors may be with BHP Billiton however, the management, coordination and functional leadership of lower tier EPCM and/or engineering services contractors are specifically included in the hub PMC’s project scope.

Services not provided by the hub PMC The scope of services by the hub PMC typically excludes the primary responsibility for the following (but does include supporting BHP Billiton in these activities):           

government relations regulatory approvals land tenure native title community relations geology and mineral resource investigation mine design market analysis investment evaluation operating philosophies development of the Owner’s specific scope e.g.  

pre-strip start-up.

Implementation contractor Regardless of who is executing the specific project work, whether the hub PMC or a third party EPCM, for the purposes of this document, herein after they are referred to as the implementation contractor.

2.4.4 Hub structure A typical hub structure is shown in Figure 2.4.3.

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Figure 2.4.3 Typical hub structure Align hub to ferrous, non ferrous, petroleum (if possible) GMC Executive

Influence hub program manager on group portfolio management Chaired by hub landlord (VP Projects) Ensure operation within hub framework

Hub Steering Committee

Steer hub performance and improvement initiatives Hub Program Manager: Group focus

Hub Program Manager

Reporting to hub landlord (CSG VP Projects)

(accountable for hub functions, hub performance,

Ensure hub operates effectively to support all projects

project oversight though not project delivery outcome)

Functional specialists to drive hub benefits Management of hub program management contractor

CSG1 Project Program

CSG2 Project Program

Proj 1

Proj 4

Proj 2

Proj 3

Proj 5

Proj 6

Project Delivery: CSG focus and reporting CSG responsible for project delivery outcomes, leveraging hub performance Delivery within hub program to enhance performance Processes, standardisation, replication established by functions

Services

Functions: Group focus, audit role, standardisation, performance Services: Leverage supply, standard processes and systems

Engineering

Engineering: Replication, standards, processes

Commercial

Commercial: Own contract for hub program mgmt contractor

Approvals

Approvals: Foster reltionships, accelerate, faster to market

Safety

Safey: Drive worrld class processes, systems and standards

People

People: Project resources, performance, capability development

The key elements of the organisational structure are: 



A steering committee made up of representatives from the BHP Billiton CSGs that have projects in the hub, PMS and the executive sponsors from the hub PMC. The steering committee’s role is to provide management oversight and guidance to the hub management team including the relative priority of projects within the hub, the mandated use of the other contractors and an assessment of the performance of the hub. The CSG program management team are a relatively small group of project professionals whose role is to ensure BHP Billiton’s best interests are served by the hub. This includes three main elements:  





The hub PMC has two major roles:  



The overall program performance – ensuring value is being delivered from the program approach of the hub. Functional leadership – ensuring the provision of functional services is consistent with BHP Billiton’s internal requirements and the processes and standards agreed with the hub PMC. individual project Owner‘s teams who manage the Owner’s scope, internal (e.g. operations and corporate) and external stakeholders (e.g. government) and working collaboratively with the hub PMC’s project team to deliver the optimal project outcome. the overall program management role an individual project delivery role.

The hub PMC role is to effectively and efficiently manage the program of projects by ensuring that the program benefits of aggregation and portfolio planning are realised. This includes project timing for optimal resource allocation and the provision of proven project management functional systems and expertise. The hub PMC ensures all projects included in the hub are consistently applying standardised best practices in the front-end loading and execution phases.

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



The role of the hub PMC varies for each project undertaken by the hub on the basis of the project scope, risks and resource availability. The extent of involvement is determined by the most appropriate contracting strategy for the individual project and may range from self perform to EPC through to a traditional EPCM role or the project management of a third party lump-sum turnkey contractor. However, the common element is a project management team to ensure the business objectives of the project are delivered. Other specialist consultants, vendors and construction contractors are expected to be a key element of the hub program. In some instances they will be specialist process design engineers that BHP Billiton has decided are necessary to meet the business’ objectives. They may be a third party EPCM contractor that has appropriately skilled resources available or long term vendors of key process equipment. In other instances they may be construction contractors with capacity that the program needs to secure for a range of projects in a region. Although these third parties will be integrated into the hub planning processes, ultimate oversight and management of the hub projects remains with the hub PMC.

The typical role of the Owner’s team, the hub PMC team and the various project specific teams differ from more typical project delivery models.

2.4.5 Current status and details on individual program management hubs Details on individual program management hubs and their current status can be found in Toolbox 9.2.4B Current Hub Status.

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2.5

PROJECT MANAGEMENT Project management is defined as “the application of knowledge, skills, tools and techniques to project activities in order to meet or exceed stakeholder needs and expectations from the project” (PMBoK). In BHP Billiton, project management commences immediately an opportunity is identified and a group of people is established to examine its viability. It entails the application of a number of standard processes to a particular opportunity or project. These include:       

initiating planning executing monitoring and controlling reporting closing out operating.

The project management process is applicable to all phases of a project. Further detail on study management and project management in BHP Billiton is included in Section 6.1 Study Management and 6.2 Project Management. There are various industry documented project management processes such as PMBoK and PRINCE. Further information on these is included in Toolbox 9.2.5C Project Management Processes Guideline.

2.5.1 BHP Billiton project management process The project management process in BHP Billiton is defined collectively in the Major Capital Projects GLDs and in this supporting PDM. The GLDs outline the minimum requirements and the PDM includes further supporting detail to enable effective project development and delivery in BHP Billiton. The PDM and GLDs are consulted by all project practitioners within BHP Billiton so they can gain an overall understanding of the project development and delivery processes (refer Figure 2.2.2) including interfaces to other related processes such as the investment process.

2.5.2 Project fundamentals The fundamentals of project management in BHP Billiton, based on lessons learnt on past projects, are outlined in Table 2.5.1. Table 2.5.1 The fundamentals of project management in BHP Billiton Principles Alignment

Integration management

Description It is essential all project team members and stakeholders are aligned to the business objectives, the goals of the project and the values to which the project is being delivered (consistent with the BHP Billiton Charter and Values) A key project management role is to ensure that the various functions in the study or execution team are led in a way that ensures they integrate effectively. This requires the project manager to promote collaboration within the team members and ensure they are aligned to a common purpose. Further to this, the integration of the project team with the commissioning and operations team also requires significant focus.

Expectations and goals

Effective project management relies on an ability to clearly outline expectations and goals to the project team members.

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Principles Consistency and discipline

Managing upward

Description Effective project management is not just about processes, it also relies on leadership. A consistent, disciplined approach to management is expected from our leaders as this will set the scene for the project team. Project management includes both an ability to manage the project team and also the key business decision makers (e.g. steering committee, CSG president, Asset president). Equal attention is required on each aspect, with particular focus on managing perceptions of decision makers early in the development. It is important that guidance is sought on a regular basis from the key business leaders to enable firm direction to be given to the project team.

Stakeholder communications

It is important to ensure stakeholders are informed of the development status at all times e.g. monthly reporting. Consistent, concise and unambiguous communications is a focus for the project.

Steering committee

The project manager relies on the steering committee to provide business direction to the development. The steering committee is embraced in this capacity and used to the advantage of the project.

Single point accountability for business outcomes

Continuity of key people

It is important that ultimately there is one identified person accountable for the direction of the project – for both the business and project outcomes of the investment. In the end they are responsible for decisions on implementation and fulfilling the submission promises made at authorisation. The project manager ensures clear accountability throughout the organisation and reinforces this accountability in a consistent manner throughout the development phases. Experience from a large number of projects indicates that continuity of key people across the definition and execution phases of a project delivers a measurable improvement in project outcomes. This stresses the need to identify the right people early and involve them early in a project’s development. Benchmarking shows conclusively that turnover of key people has a significant detrimental impact on the project and business outcomes.

Applicable project experience

Front end loading

Projects come in all different shapes, sizes, complexity and maturity. Different skills and experience are required dependent on the project circumstances and it is important to ensure the project team members have the necessary skills and experience for the particular project. FEL is the process of undertaking sufficient detailed studies, design work, estimates and analysis associated with a project so that a significant level of accuracy can be achieved before a project is submitted for authorisation. Benchmarking work indicates that when sufficient quality FEL is undertaken, a business enjoys significant savings in both time and costs – along with quicker production/operations ramp-ups. A key focus is on optimising the level of investment on all projects and minimising non value adding investment. This has the immediate benefit of increasing the NPV of a project proposal. This is about basing effort on the best business outcome for BHP Billiton. It could be seen as a process of questioning:

Investment optimisation

 Do we need this project?  Do we need this component?  Is there a better way?  Indeed, do we have to invest capital to achieve our desired outcome?  Is the balance between capex and opex best for the project life cycle? Both business leaders and project managers, with their skills and experience, are a key part of this debate.

Minimise and manage change

By adopting the concept of FEL to improve the accuracy of project definition, BHP Billiton can expect authorised projects to be well thought out in business terms and well engineered. There is then an expectation that those outcomes, once clearly defined prior to authorisation, can be delivered without further change.

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Principles

Description In other words, a “minimal changes” philosophy applies to all authorised projects. If events impact significantly on a project’s NPV criteria (or other key business measures or project KPIs) then any remedial changes are approved by the authorising body. Locking in quality and accountability early with an overlaying “minimal changes” philosophy also has the capacity to provide BHP Billiton with improved business and project outcomes. In the event of changes occurring, there is in place a disciplined process to tightly manage them. This process includes analysing both the direct and indirect impacts on the basic project parameters of scope and quality, cost and schedule. Following this, a review of all relevant project KPIs is necessary. The change management process clearly spells out the necessary levels of authorisation required prior to implementation of the change. Finding the best people and the best process for the task at hand is a central issue for any project and the breadth of BHP Billiton’s activities and the depth of quality people within BHP Billiton represent an invaluable source of ongoing learning.

Independent and internal reviews

A process of regular independent reviews is a powerful way of tapping this knowledge. Reviewers are experienced people within their area of expertise and all project teams openly engage them at key stages during the project life cycle. Tollgate reviews by a project review committee provide the opportunity for independent review during project definition. Post implementation reviews provide an opportunity for independent review following project completion.

Management of risk

Managing risk and maintaining an up to date risk management plan that is used and reviewed regularly and pro-actively populated are essential to successful project delivery.

2.5.3 Project management training For training associated with project management, refer to Toolbox 9.2.5B Project Management Training Curriculum.

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MAXIMISING VALUE The value of a capital project investment opportunity can be maximised by:     

maximising NPV minimising TLCC minimising project development cycle times (whilst maintaining an appropriate balance between quality, operability, cost and schedule) obtaining or exceeding planned production rates meeting the market requirements for the product.

The above is achieved while working with integrity in accordance with the BHP Billiton Charter, Values and the Code of Business Conduct. In simplistic terms, maximising value for a capital project can be defined as doing the right work at the right time. Most project practitioners have experienced the situation where a site fix-up has been required that has cost much more than if the right work had been done at an earlier time. Alternatively, a study has been delayed because test work or a baseline survey has been left to too late in the schedule. Even more significantly, there have been occasions when hand-over and acceptance has been delayed because some part of the project did not meet perceived stakeholder requirements. These problems will generally not arise in a well conceived, planned and managed project. Project value can be maximised by taking the following key actions:    

strict adherence to the Major Capital Projects GLDs following the guidelines of this PDM, in particular application of the strategic processes, core work processes and control processes application of the principles of FEL adhering to the 15 fundamentals for project success.

The application of FEL is described in the following sub sections in more detail. A key aspect of maximising value is for Owner’s teams and senior CSG personnel involved in the project to recognise the optimum time to add the most value. This is demonstrated in Figure 2.6.1. The higher the amount of FEL, the higher the value that can be extracted from the project. Figure 2.6.1 The value of front end loading Good execution

FRONT END LOADING

Poor execution VALUE

2.6

Good FEL

Poor FEL

Good execution

Poor execution

TIME

Identify/Add Value

Maintain Value

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Figure 2.6.1 clearly demonstrates:   

that the most value is created in the identification and selection phases there is a subsequent fall off in the potential to create value in the later phases of development the importance and influence of good FEL.

Whilst there are no absolute values or times attributed to the graph, these principles are backed up by practical experience and by benchmarking by Independent Project Analysis Inc. (IPA). With the introduction of Gate 2A, which is when the highest value alternative (accounting for risk, uncertainty and embedded option value) must be selected as mandated in the Major Capital Projects GLDs, the succeeding study and execution works become a matter of refining the details of the single preferred investment alternative. Hence the opportunity to add value is diminished after Gate 2A and therefore it becomes a critical decision point that will have a major influence on the final outcome and value of the project. The key lesson that can be learnt from the above is that the identification and selection phases must be well planned. They must be set up with adequate numbers of appropriately skilled personnel and allocated a budget that enables the full scope of work to be carried out. That is not to say that the resources, time or cost should be excessive. On the contrary, that approach is counter to best practice. It is worth noting here that the skills required to lead the early study phases are different from those appropriate for the definition and execution phases. Whilst the principles of good project management must be applied across all development phases (refer Section 1.2 Purpose), one of the key characteristics of a good study leader is the ability to engender a wide ranging, flexible and open approach to the early study phases. By contrast, a good project manager brings a more focussed and results oriented approach that is relevant to the work of a definition phase study and project execution.

2.6.1 Front end loading FEL is the process of undertaking sufficient detail studies, design work, estimates and analysis of a project so that the appropriate level of accuracy can be achieved before the project is submitted for authorisation to proceed to the next phase. FEL is one of the corner stones of BHP Billiton’s philosophy for success in developing and executing projects. It must be stressed that FEL is more than just a detailed scope definition. It also includes establishing an appropriate project team, defining the dynamics and interactions amongst various project stakeholders, formulating the PEP under which the project will be implemented and implementing the appropriate project control systems. FEL also seeks to minimise change during the execution phase by obtaining buy-in from key stakeholders early in the development of the project. Early and extensive FEL undertaken by project teams contributes significantly to minimising project changes in the execution phase. FEL includes putting significant time and effort into developing site factors, project execution planning and engineering definition aspects in the study phases. While the study phases may take longer than industry average, as shown by IPA benchmark data, the construction and start-up schedules can be well ahead of industry average and result in an overall shorter project development cycle time. The capital cost estimate classification guide that is included Section 6.5 Cost Estimating is an excellent basis for determining the level of detail for deliverables at a particular phase of the project. As well as assuring the required accuracy of cost estimate is achieved, its use provides a good guide to the level of FEL for any phase. The more definition that can be provided prior to Gate 3, the more the chance of success is increased. A definitive phase scope of work based on sound FEL provides the cornerstone for the success of the execution phase.

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There are key elements that IPA looks for and measures to understand the level of FEL employed on a project. Table 2.6.1 shows those elements (a guide only, not a definitive list) that IPA uses to determine the FEL index for a prospective evaluation at the end of the definition phase. Table 2.6.1 IPA front end loading index Site Factors

Engineering Definition

 local labour o cost o productivity  materials availability  equipment layout  soils data  environmental requirements  health and safety requirements  site data

Project Execution Plan

 engineering tasks o detailed scope o feedstock/product properties o heat and mass balance o block diagrams o PFDs and P&IDs o GAs and single line diagrams o major equipment specifications o cost estimate  participant buy in of: o operations o maintenance o business

 contracting strategy o who? o how?  team participants and roles  integration schedule o critical path items o identification of shut downs for tie-ins o overtime requirements  plans o commissioning o startup o operations o manpower o quality assurance

The other important attribute of FEL stems from the fact that the ability to influence the value of a project is at its maximum in the selection phase. As a project progresses further into the definition and execution phases the implementation of changes creates a disproportionate rise in expenditure and adverse impact on the schedule. This is illustrated in Figure 2.6.2. Figure 2.6.2 Maximum influence on project value

Detailed Design

Construction

Startup

Approval  Influence

Expenditures

Front End Loading

Mechanical Completion 

An important component of FEL is the value improvement process. This is one of the strategic processes and is described in Section 4.7 Value Improvement. Benchmarking between projects and companies has found a correlation between the use of value improvement and the success of the project. With respect to FEL, Figure 2.6.2 (produced by IPA) outlines where BHP Billiton projects typically have difficulties.

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Figure 2.6.3 Areas where BHP Billiton projects typically have difficulties (IPA)

FEL 3 Define Project

“Pseudo” Best Practical FEL prepared Unsound basis for project control

FRONT- END LOADING

Scope Development phase not complete Detailed, resource loaded plan for FEL 3 not prepared and agreed FEL 2 Scope Development

Basic Data not complete. Project Scope and Objectives not closed out Functionally Integrated Core Project Team not formed.

Bus/Project Interface

FEL 1 Business Appraise

Plan for FEL 2 not fully developed and agreed

The above occurs when a company does not truly embrace capital effectiveness as core business

2.6.2 Learning from the past BHP Billiton wants to ensure that its project development processes and practices represent best industry practice and provide a source of competitive advantage for the corporation. BHP Billiton has established a set of project fundamentals for the development of projects, which are listed and described earlier in Table 2.5.1. These fundamentals have been developed from project benchmarking outcomes, studies of the processes and systems used by other companies and from BHP Billiton’s own lessons learnt. The fundamentals apply to the development of all types of capital projects including greenfields and brownfields projects, minerals projects and petroleum projects and include capital projects to implement new systems or make business changes. The fundamentals are underpinned by the BHP Billiton Charter, specifically “an overriding commitment to health, safety, environmental responsibility and sustainable development”.

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PROJECT DEVELOPMENT MANUAL CHAPTER 3 GROUP LEVEL DOCUMENTS Document No: PDM-001 Revision 0 (uncontrolled when printed)

Table of Contents 3.0

GROUP LEVEL DOCUMENTS ..........................................................................................1

3.1

GLD OVERVIEW................................................................................................................................................1

3.2

MAJOR CAPITAL PROJECTS GLDS..............................................................................................................3

3.3

MANDATORY DELIVERABLES......................................................................................................................4

Tables Table 3.3.1 Key mandatory deliverables (in alphabetical order) .................................................................................4

Figures Figure 3.1.1 GLD Phase II timetable ..................................................................................................................................2

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GROUP LEVEL DOCUMENTS

3.1

GLD OVERVIEW All project activities carried out within BHP Billiton must be in executed in accordance with the minimum requirements as stipulated by the group level documents (GLDs). The GLDs are generally ordered by function, so the various functions within a project team can readily identify the GLDs appropriate for their work activities. Projects, by their very nature, effectively recreate the business, or parts of it, in either new greenfields operations or extensions to existing operations via brownfields expansions. As a result, a number of different function GLDs also apply either to the development phases of the project, its execution or in establishment of the new or modified operation. As a result, project teams must be aware of the applicability (or not) of all GLDs to their specific functional area. The BHP Billiton portal (link: https://inside.bhpbilliton.net/irj/portal) provides details of the status of the new Phase II GLDs that are being rolled out during 2010. Where a Phase II GLD is not yet available, project teams must refer to the existing Phase I GLDs until the new Phase II GLDs are available. In developing and executing of projects, project teams must achieve the minimum requirements identified in all relevant GLDs. Included in Figure 3.1.1 is the roll out timetable for all 65 of the Phase II GLDs.

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Figure 3.1.1 GLD Phase II timetable

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3.2

MAJOR CAPITAL PROJECTS GLDS The minimum performance standards, for all major capital project undertaken within BHP Billiton, are detailed in GLD Major Capital Projects (Minerals) and GLD Major Capital Projects (Petroleum). These are mandatory. The GLD documents available on the portal contain the minimum requirements broken down by phase. In order to assist project teams with understanding the increasing level of detail and definition required as the project proceeds through the various project phases, the same GLD requirements are shown in an “all phases on one page” format in:  

Toolbox 9.3.2B Study Phase GLD Requirements (Minerals) Toolbox 9.3.2C Study Phase GLD Requirements (Petroleum)

If there is any discrepancy between the Major Capital Projects GLDs and these toolboxes, the formal GLDs available on the portal must be followed.

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3.3

MANDATORY DELIVERABLES A list of the key deliverables mandated in the Major Capital Projects GLDs is included at Table 3.3.1, along with either a reference to a section of the PDM or another Group document where more information on the requirement is available. Table 3.3.1 Key mandatory deliverables (in alphabetical order) GLD referenced deliverable

PDM or external reference

Basis of design

Section 5.1 Engineering Management

Basis of estimate (capex and opex)

Section 6.5 Cost Estimating

Basis of schedule

Section 6.4 Schedule Development

Business objectives for the investment opportunity

Section 4.1 Business Objectives and Strategic Fit

Board papers, Board presentation, draft Media release and Media Q&As

Refer to corporate eRoom for templates:

Contracts and procurement plan

Section 5.2 Contracts and Procurement Management

Close out evaluation report

Section 5.6 Project Close-out

https://eroom.bhpbilliton.com/eRoom/Facility31/CorporateCalendar

Section 6.1 Study Management Prepared by IPA - examples are provided in Section 6.1. Closure and rehabilitation plan

Section 4.3 HSEC Management

Commissioning management plan

Section 5.4 Commissioning Management

Communications plan

Section 4.5 Stakeholder Management

Conditional agreements

Refer to CSG specific contracts and procurement management processes and procedures.

Contracting strategy

Section 5.2 Contracts and Procurement Management

Control action plan

Section 4.2 Risk Management

CSG funding approval document

Refer to CSG specific investment processes and procedures.

E&SIA

Section 4.3 HSEC Management

Engineering management plan

Section 5.1 Engineering Management

Estimate (capex/opex etc)

Section 6.5 Cost Estimating

Exploration and appraisal program (selection or definition phase)

Refer to RBO Group Function processes and procedures.

HSEC management plan (selection or definition phase)

Section 4.3 HSEC Management

HSEC management plan (execution phase)

Section 4.3 HSEC Management

HSEC risk register

Section 4.2 Risk Management and Section 4.3 HSEC Management

IM management plan (definition or execution phase)

Refer to CSG specific IM processes and procedures.

Investment approval request

Refer to I&VM eRoom for templates:

Investment committee notification (ICN)

https://eroom.bhpbilliton.com/eRoom/Facility30/InvestmentOffice

Investment evaluation model IPR summary and functional reports Joint venture interface plan

Section 4.5 Stakeholder Management

Legal and regulatory approvals plan

Section 4.5 Stakeholder Management

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GLD referenced deliverable

PDM or external reference

Legal and regulatory approvals register

Section 4.5 Stakeholder Management

Marketing – strategy & other documentation

Refer to Marketing Group Function specific processes and procedures.

Mineral resources statement (JORC compliant)

Refer to JORC code:

Monthly project progress report

Section 6.2 Project Management

Monthly study progress report

Section 6.1 Study Management

Operations plan

Section 5.5 Transition to Operations

Operational readiness and handover plan

Section 5.5 Transition to Operations

Operations strategy

Section 5.5 Transition to Operations

Ore reserves statement

Refer to JORC code:

http://www.jorc.org/

http://www.jorc.org/ Ownership register

Section 4.5 Stakeholder Management

Petroleum resource and reserves reporting

Refer to US Securities and Exchange Commission website:

Post investment review

Refer to I&VM eRoom for templates:

http://www.sec.gov/

https://eroom.bhpbilliton.com/eRoom/Facility30/InvestmentOffice Procedures

Refer to CSG specific processes and procedures.

Program management hub strategy

Section 2.4 Program Management Hubs

Project close-out plan

Section 6.2 Project Management

Project close-out report

Section 5.6 Project Close-out

Project execution plan

Section 6.2 Project Management

Project execution strategy

Section 4.1Business Objectives and Strategic Fit Section 6.2 Project Management

Project master schedule

Section 6.4 Schedule Development

Project objectives

Section 4.1Business Objectives and Strategic Fit

Project operations resources plan

Section 5.5 Transition to Operations

Project resource (or HR) plan (selection, definition & execution phase)

Section 4.4 People and Teams

Project review and audit plan

Section 6.8 Audit and Review

Quality management plan

Section 6.7 Quality Management

Prospective Evaluation Report

Section 6.1 Study Management Prepared by IPA - examples are provided in Section 6.1.

Resource model

Refer to RBO Group Function processes and procedures.

Risk register

Section 4.2 Risk Management

Risk management plan

Section 4.2 Risk Management

Scope of work

Section 6.3 Scope Definition

Stakeholder management plan

Section 4.5 Stakeholder Management

Stakeholder register

Section 4.5 Stakeholder Management

Statement of requirements

Section 6.3 Scope Definition

Study budget

Section 6.1 Study Management Section 6.5 Cost Estimating

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GLD referenced deliverable

PDM or external reference

Study report

Section 6.1 Study Management

Study Work Plan (SWP)

Section 6.1 Study Management

Value improvement plan

Section 4.7 Value Improvement

Work breakdown structure

Section 6.3 Scope Development

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PROJECT DEVELOPMENT MANUAL CHAPTER 4.0 STRATEGIC PROCESSES Document No: PDM-001 Revision 0 (uncontrolled when printed)

Table of Contents 4.0

STRATEGIC PROCESSES ..................................................................................................1

4.1

BUSINESS OBJECTIVES AND STRATEGIC FIT .........................................................................................2 4.1.1 Stage 1 - Business objectives.........................................................................................................3 4.1.2 Stage 2 - Project objectives ...........................................................................................................3 4.1.3 Stage 3 - Phase objectives..............................................................................................................3 4.1.4 Stage 4 - Industry attractiveness ..................................................................................................4 4.1.5 Stage 5 - Strategic rationale & fit..................................................................................................5 4.1.6 Stage 6 - Project execution strategy............................................................................................5 4.1.7 Stage 7 - KPIs....................................................................................................................................5

4.2

RISK MANAGEMENT .......................................................................................................................................8 4.2.1 Risk management, leadership and accountability ......................................................................9 4.2.2 Risk management system ............................................................................................................ 10 4.2.3 Risk management process........................................................................................................... 11 4.2.4 Risk management plan ................................................................................................................. 14 4.2.5 Risk management workshops .................................................................................................... 15 4.2.6 Reference materials and the risk champion eRoom ............................................................. 16 4.2.7 Materiality and tolerability .......................................................................................................... 16 4.2.8 Risk register................................................................................................................................... 17 4.2.9 Risk control action plan .............................................................................................................. 17 4.2.10 Maximum foreseeable loss and residual risk rating............................................................... 18 4.2.11 Changes arising from risk management ................................................................................... 18 4.2.12 Range analysis ................................................................................................................................ 18

4.3

HSEC MANAGEMENT .................................................................................................................................. 19 4.3.1 The zero harm roadmap ............................................................................................................. 20 4.3.2 Zero harm culture........................................................................................................................ 22 4.3.3 Management leadership and commitment............................................................................... 22 4.3.4 Operating discipline ..................................................................................................................... 23 4.3.5 HSEC risk assessments................................................................................................................ 23 4.3.6 HSEC management plan (study phases)................................................................................... 25 4.3.7 HSEC management plan (execution phase) ............................................................................ 28 4.3.8 Environmental and social impact assessment ......................................................................... 32 4.3.9 Environmental Management Plan .............................................................................................. 33 4.3.10 Closure and rehabilitation .......................................................................................................... 36 4.3.11 Lessons learnt................................................................................................................................ 36

4.4

PEOPLE AND TEAMS .................................................................................................................................... 37 4.4.1 Organisation design & structure ............................................................................................... 39 4.4.2 Project human resources management plan........................................................................... 41 4.4.3 Operations human resources management plan ................................................................... 47 4.4.4 Skills and experience profiles..................................................................................................... 48 4.4.5 Endorsement of key resources.................................................................................................. 48 4.4.6 Capability development program.............................................................................................. 49 4.4.7 Organisational development ...................................................................................................... 50 4.4.8 Demobilisation .............................................................................................................................. 52

4.5

STAKEHOLDER MANAGEMENT .............................................................................................................. 54 4.5.1 Types of stakeholders.................................................................................................................. 55 4.5.2 Stakeholder management plan ................................................................................................... 56

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4.5.3 4.5.4 4.5.5 4.5.6 4.5.7 4.5.8

Stakeholder register..................................................................................................................... 57 Communications plan .................................................................................................................. 58 Statement of roles and responsibilities.................................................................................... 59 Ownership, legal and regulatory approvals plan .................................................................... 59 Key contracts list.......................................................................................................................... 60 Joint venture interface plan ........................................................................................................ 60

4.6

OPPORTUNITY REALISATION.................................................................................................................. 62 4.6.1 Introduction................................................................................................................................... 62 4.6.2 Opportunity realisation process overview ............................................................................. 63 4.6.3 Opportunity framing process..................................................................................................... 66 4.6.4 Opportunity selection process.................................................................................................. 71

4.7

VALUE IMPROVEMENT ................................................................................................................................ 79 4.7.1 Value improvement plan ............................................................................................................. 79 4.7.2 Value improvement process....................................................................................................... 80 4.7.3 Value improving practices........................................................................................................... 80 4.7.4 Technology planning .................................................................................................................... 87 4.7.5 Benchmarking ................................................................................................................................ 89 4.7.6 Lesson learnt ................................................................................................................................. 90

4.8

INVESTMENT PROCESS ............................................................................................................................... 92 4.8.1 Investment phases ........................................................................................................................ 92 4.8.2 Approving authority..................................................................................................................... 94 4.8.3 Engagement with IPR team ......................................................................................................... 94 4.8.4 IPA engagement ............................................................................................................................ 94 4.8.5 Execution phase review .............................................................................................................. 94 4.8.6 Supplementary approval requests ............................................................................................. 95 4.8.7 Project close-out review............................................................................................................. 95 4.8.8 Post investment review............................................................................................................... 96 4.8.9 Investment evaluation.................................................................................................................. 96

Tables Table 4.1 Chapter contents.................................................................................................................................................1 Table 4.1.1 Key business objectives and strategic fit requirements............................................................................2 Table 4.1.2 Project KPI template (from IAR)...................................................................................................................6 Table 4.1.3 Typical project KPIs .........................................................................................................................................7 Table 4.2.1 Key risk management requirements.............................................................................................................8 Table 4.2.2 Structure and content of the risk management plan ............................................................................. 14 Table 4.3.1 Key HSEC requirements.............................................................................................................................. 19 Table 4.3.2 The zero harm roadmap .............................................................................................................................. 21 Table 4.3.3 Structure and content of a study phase HSEC management plan(s).................................................. 26 Table 4.3.4 Structure and content of the execution phase HSEC management plan(s)...................................... 29 Table 4.4.1 Key people and teams requirements ........................................................................................................ 37 Table 4.4.2 Section 4.4 contents ..................................................................................................................................... 38 Table 4.4.3 Characteristics of organisation structures ............................................................................................... 40 Table 4.4.4 Structure and content of the project HR management plan................................................................ 41 Table 4.4.5 Key project resources endorsement ........................................................................................................ 49 Table 4.5.1 Key stakeholder management requirements........................................................................................... 54 Table 4.5.2 Stakeholder management plan key elements........................................................................................... 56 Table 4.6.1 Issue categorisation....................................................................................................................................... 68 Table 4.6.2 Sample decision grouping table .................................................................................................................. 69 Table 4.6.3 Sample strategy table .................................................................................................................................... 70 PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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Table 4.6.4 Sample strategic themes............................................................................................................................... 70 Table 4.6.5 Key inputs into the opportunity selection process................................................................................ 72 Table 4.6.6 Economic evaluation summary ................................................................................................................... 76 Table 4.6.7 Risk evaluation summary.............................................................................................................................. 76 Table 4.6.8 HSEC/sustainability evaluation summary .................................................................................................. 76 Table 4.7.1 Key value improvement requirements ..................................................................................................... 79 Table 4.7.2 Structure and content of the value improvement plan ......................................................................... 80 Table 4.7.3 Value improving practices............................................................................................................................ 82 Table 4.7.4 VIP use by phase ............................................................................................................................................ 86

Figures Figure 4.1.1 Typical industry cost curve ...........................................................................................................................5 Figure 4.2.1 Elements of the BHP Billiton risk management process...................................................................... 10 Figure 4.2.2 Project risk management system .............................................................................................................. 11 Figure 4.2.3 Project risk management process............................................................................................................. 12 Figure 4.3.1 Zero harm – key elements......................................................................................................................... 21 Figure 4.3.2 Diagrammatic representation of the HSEC risk assessment process ............................................... 24 Figure 4.3.3 HSEC risk assessment process steps ....................................................................................................... 24 Figure 4.3.4 Hierarchy of controls .................................................................................................................................. 25 Figure 4.3.5 EMP based on the ISO14001 principles................................................................................................... 35 Figure 4.4.1 Example of an execution phase Owner’s team greenfields project >US$1bn................................ 41 Figure 4.4.2 Project management competency framework ....................................................................................... 50 Figure 4.4.3 Tuckman’s Four Stages of Team Development ..................................................................................... 51 Figure 4.4.4 Resource continuity via Hub resource management............................................................................ 53 Figure 4.5.1 Contents of the stakeholder management plan..................................................................................... 56 Figure 4.5.2 Core steps for stakeholder management................................................................................................ 56 Figure 4.6.1 Overall selection phase opportunity realisation process .................................................................... 64 Figure 4.6.2 Sample decision hierarchy .......................................................................................................................... 69 Figure 4.6.3 Opportunity selection - fundamental questions .................................................................................... 72 Figure 4.6.4 Project type ................................................................................................................................................... 73 Figure 4.6.5 Project workflow example ......................................................................................................................... 75 Figure 4.6.6 Example of alternative selection summary.............................................................................................. 77 Figure 4.6.7 Example of alternative selection summary table ........................................................................... 77 Figure 4.6.8 Typical selection phase decision tree....................................................................................................... 78 Figure 4.7.1 Proposed timeline for VIPs application.................................................................................................... 86 Figure 4.7.2 Identification of novelty or innovative technology................................................................................ 88 Figure 4.7.3 Thinking aid for formal technical risk analysis........................................................................................ 89 Figure 4.7.4 Technology novelty matrix......................................................................................................................... 89 Figure 4.8.1 Investment Phases ........................................................................................................................................ 92 Figure 4.8.2 Investment process map ............................................................................................................................. 93

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4.0

STRATEGIC PROCESSES Strategic processes are aimed at delivering the maximum value to the business, ensuring alignment and effective communication with all project stakeholders and teams and delivering projects in a manner that has minimal impact on the health and safety of project personnel, the environment and to communities impacted by BHP Billiton’s operations and projects. The contents of the chapter are summarised in Table 4.1. Table 4.1 Chapter contents #

Title

Details

4.1

Business objectives and strategic fit

 How to ensure a project meets its business objectives, determine the level of strategic fit and developing project and phase objectives which are in alignment with the business objectives.  Outlines the risk management framework.

4.2

Risk management

 Details the process for risk management planning.  Details the process for risk identification, assessment and control.  Provides details on BHP Billiton’s zero harm culture and other requirements.

4.3

HSEC management

 Details the process for HSEC management planning.  Outlines E&SIA and EMP requirements.  Details the process for human resources planning and management.

4.4

People and teams

4.5

Stakeholder management

4.6

Opportunity realisation

 Covers human resources issues such as organisation structures, skills and experience profiles and organisational development.  Explains the process for identification and management of communication with project stakeholders.  Details the process for ownership, legal and regulatory approvals planning.  Details the opportunity framing, selection and realisation process.  Details the requirements of Gate 2A.  Details the process for value improvement planning.

4.7

Value improvement

 Details the various value improvement methods including (value improving practices) VIPs, technology planning and benchmarking.  Outlines the gating process.

4.8

Investment process

 Provides an overview on the minimum governance requirements, the independent peer review (IPR) and Independent Project Analysis Inc. (IPA) requirements.  Provides a high level overview of the key investment evaluation issues to be addressed on a project.  Should be read in conjunction with the Investment Process GLD.

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4.1

BUSINESS OBJECTIVES AND STRATEGIC FIT The key business objectives and strategic fit requirements through the investment phases are shown in Table 4.1.1. Table 4.1.1 Key business objectives and strategic fit requirements Identification

Selection

Definition

Execution

 Develop and clearly document the business objective(s) for the investment opportunity.

 Describe the main strategic options considered and the reasons for selecting the preferred investment alternative.

 Prepare a detailed set of project objectives based on the agreed business objective(s).

 Deliver on the business objective(s) for the investment.

 Ensure that the investment is consistent with the corporate objective.  Provide a concise overview of the strategic rationale, strategic fit and any required exit strategy.  Identify how this project fits into the development potential of the province (minerals) or basin (petroleum).

 Ensure that the preferred investment alternative will meet the agreed business objective(s).  Provide a concise description of the strategic fit and any required exit strategy for the preferred investment alternative.  Show how the preferred investment alternative fits in the context of the development potential of the province (minerals) or basin (petroleum).

 Ensure that the project objectives are clearly measurable, cover all required areas and will demonstrably meet the business objective(s).  Confirm that there has been no significant change to the external or internal business drivers for the investment.  Update the description of the strategic rationale, strategic fit and any required exit strategy for the preferred investment alternative.  Show how the selected investment alternative fits in the context of the development potential of the province (minerals) or basin (petroleum).

Starting in the identification phase the customer sector group (CSG) needs to clearly articulate the business case for the investment opportunity and how this fits within the overall CSG strategy. This business case is again re-visited in the selection phase to ensure that it is still valid (the market may have changed for example) and that the proposed investment alternative will meet the business need. At the end of the selection phase, the business objective is translated into a clear set of project objectives (scope, cost, schedule, opex, production etc) and these are then firmed up during the definition phase and then delivered on during the execution phase. There are several key steps in this process as follows:     

Stage 1 – develop clear business objectives Stage 2 – develop project objectives Stage 3 – develop study phase objectives Stage 4 – confirm industry attractiveness Stage 5 – ensure strategic rational & fit

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 

Stage 6 – detail project execution strategy Stage 7 – develop project execution KPIs.

4.1.1 Stage 1 - Business objectives As maximising the investment return for the opportunity against a clear set of business objectives is one of the primary focuses of the identification and selection phases, it is important to have a project fully aligned with the short/long term growth plans of the CSG. These growth plans in turn are aligned with BHP Billiton’s corporate objectives and annual letter of intent (LOI). The source information for this alignment are the 2 and 5 year plans for the CSG growth strategy i.e. brownfields, greenfields or combination of both. These documents establish the CSG targets for new growth. The investment opportunity business objectives must include the overall strategic intent of the investment from the CSG's perspective (rather than the investment objectives for each phase for example). As an example, for an underground mining project like Perseverance Deeps, the overall business objective might be to "Develop the Perseverance resource below 11 level, to meet the shortfall in smelter capacity at KNS from 2012 onwards". Very few of BHP Billiton’s investments have this clarity from the project sponsor up front and this has been shown through industry benchmarking to be a critical success factor in ensuring that projects deliver on their investment objectives. Once an investment opportunity has proceeded through the selection phase and the preferred investment alternative has been identified, then the project objectives can be developed from the business objectives. The project objectives for the same underground mining project might be to "Develop the Perseverance resource between 11 and 14 levels, to deliver xx tonnes/day of Nickel at an overall Cost of US$800million by 30 Sept 2009 with an HSEC performance of 2.0 LTIFR”. Toolbox 9.4.1B IPA Institute Gatekeeper - Mod 4 Business Objectives, from IPA outlines the detailed benefits of having clear business objectives for investments and gives an example of what a good business objective statement looks like.

4.1.2 Stage 2 - Project objectives Once the business objectives have been established and there is a clear preferred investment alternative identified (Gate 2A) then the development of the project objectives can be initiated in order to provide additional clarity around how the project will meet the overall business need. The project objectives need to be a clear statement of the key performance areas including HSEC, cost (capex), schedule, ramp up and operations factors like capacity, reliability and opex. The project objectives need to be clearly measurable and achievable.

4.1.3 Stage 3 - Phase objectives The phase objectives provide a clear focus for the study or project teams on the requirements of each of the project phases i.e. identification, selection, definition and execution. In the identification phase, the key considerations are:     

Is the resource of a size to meet the growth needs of the business? Is it in a location that can be operated in successfully? Is there a technical process that can produce a saleable product? Is there a market for the produced product? Can mine and process operations be permitted in this area (baseline site conditions)?

In the selection phase, the key considerations are: 

confirm the extent of the resource for proven and probable reserves

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        

develop a list of alternatives to evaluate options to develop the reserve start the permitting process with engineering support at Gate 2A select and then obtain endorsement from the IPR with CSG president approval for the preferred investment alternative perform sufficient engineering to support selecting the preferred investment alternative at Gate 2A develop to a Class 3 standard a cost estimate and schedule for the selected investment alternative (only) establish the need for pre-commitments of long lead items and timing to release establish whether to use the Hub or award to implementation contractor to carry through execution establish key members in the Owner’s team complete study report.

In the definition phase, the key considerations are:         

confirm the resource to a 80% confidence level perform sufficient engineering to support the development of a Class 2 cost estimate and schedule IPA benchmarking exercise for front end loading (FEL) engineering develop contracting and procurement plans establish and agree the project execution plan (PEP) (Owner’s team, implementation contractor, IPR, CSG, etc) establish the balance of Owner’s team, build the hub/implementation contractor’s team and generate alignment on PEP develop a critical path schedule for the project complete environmental impact statement permitting process complete study report.

In the execution phase, the key considerations are:        

deliver project in accordance with PEP manage and monitor project according to approved KPIs commissioning teams in place a minimum of 6 months, or earlier in cases of greenfields projects in remote locations, prior to plant mechanical completion project controls established and project controlled, monitored, and reported change management implemented, controlled, monitored, and reported transition to operations plans in place on equipment operator training programs in place ensuring hiring and training programs align with the start-up of equipment.

4.1.4 Stage 4 - Industry attractiveness Marketing surveys are an excellent means of identifying the demand (or additional demand) for a proposed (or existing) product. The market is explored for value adding opportunities to provide a competitive advantage for BHP Billiton. Market share and projected operating costs establish the potential cost range and competitiveness. The aim with any project is to keep and maintain BHP Billiton in the lower cost quartile for all of its operations. Market constraints are identified and the average Opex are benchmarked for the product to ensure that BHP Billiton remain competitive in the market. The position of the investment’s operating performance is represented in an industry cost histogram that is developed from strategy and marketing intelligence. An example of an industry cost curve is included at Figure 4.1.1.

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Figure 4.1.1 Typical industry cost curve US$/lb Ni

12

10 Yabulu BF NPI Murrin Murrin Doniambo Tocantins Nippon Yakin EAF NPI Vale - SudburySMM - Hyuga Talvivaara Cerro Matoso Punta Gorda PT Inco Moa Nickel Mt Keith Leinster Pamco - Hachinohe

8

6 Xstratra - Sudbury Raglan Voisey's Bay Jinchuan

4

2

Norilsk

0

-2

-4 -

100

200

300

400

500

600

700

800

900

1,000

1,100

1,200

1,300

Cumulative Tonnage CY09 based on Brook Hunt

4.1.5 Stage 5 - Strategic rationale & fit In a similar fashion to industry attractiveness, the new project is evaluated against the approved CSG 2 and 5 year plans and the CSG strategy. A concise description of the strategic fit and any required exit strategy for the preferred investment alternative is provided as well as confirmation that there has been no significant change to the external or internal business drivers for the investment during the development of the project. If there has been a change, the reason(s) and the impact(s) on the expected investment outcomes are documented. This review for fit is carried out at the end of each study phase to ensure the project is meeting the conditions for strategic fit within the CSG and the corporate objectives.

4.1.6 Stage 6 - Project execution strategy With respect to the project execution strategy, the key factor is to ensure that the project delivers on the business objective(s) for the investment and the specific project objectives and KPIs agreed at the end of the definition phase. The key objectives of any project execution strategy therefore need to be: maintaining a zero harm work environment executing a contracting strategy that delivers the project in a timely manner  maintaining the critical path schedule during the project  ensuring the capital costs are within the cost KPIs, and keeping the changes to a minimum  ensuring the transition to operations is smooth and there are no surprises  ensuring ramp-up of the facilities is on schedule with minimal interruptions  verifying that the operability and cost of operations is as estimated  progress reporting in a timely fashion and trending which provides meaningful information  ensuring construction issues are reported in timely fashion and that mitigation plans are implemented. The detailed requirements on the content of a BHP Billiton project execution plan are covered in Section 6.2 Project Management.  

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It is important that these indicators are “fit for purpose”, meaningful and measurable for each project. Study phase KPIs are generally linked to the phase objectives as detailed in Section 4.1.3 Stage 3 - Phase objectives. The minimum KPIs for the execution phase include the following:    

safety measures e.g. TRIFR cost measures milestone completion dates transition to operations (ramp-up in time or production rate).

KPIs must include stretch, target, and threshold ranges. An extract from the IAR guidance notes on project KPIs is included below. “Establish an appropriate KPI Matrix for the proposed investment and complete the table below using relevant, specific and measurable KPIs. Establish the table with a view to execution phase reviews and eventual Post Investment Review (PIR). Note operational KPIs are critical for completing the PIR. The threshold to stretch range must represent 80% confidence intervals (that is, there is an 80% chance that the actual outcome will fall within this range). The KPI table must be completed using an appropriate mix of both deterministic and probabilistic values. If the KPI has been developed using a probabilistic method then the P90/mean/P10 values must be used to derive and set the appropriate threshold, target and stretch outcome expectations. If the KPI has been developed deterministically then the Low, Mid and High values must be used to derive the appropriate threshold, target and stretch outcome expectations. (Careful - neither P90 nor P10 equate to Low or High!). The Investment Amount and project completion milestone must be established carefully, with direct reference to the relevant section of the STA.039 Investment Procedure (see Appendix 7.0 and 8.0 respectively). The definitions must be explicit to avoid any miscommunication, both internally & with the external investment market. Consistency with the data presented in Investment Approval Request - Section 1 (definition to execution) must be assured. The definition of units must be explicitly clear. For example, BHP Billiton share or 100% basis, real or nominal, life of asset average or an average for a particular year. Investment Amount in both 100% basis and BHP Billiton share, in nominal US$M, are required for the tracking of projects in Investment Tracking System (for example, at times BHPB has sole costs in accordance with a JV agreement).” KPIs examples are provided in Table 4.1.2 and Table 4.1.3. Table 4.1.2 Project KPI template (from IAR) Key performance indicator EXECUTION PHASE: Safety HSEC – define* Investment Amount Unhedged – 100% basis Unhedged – NN.N% (BHPB Share) Investment Amount – local currency Unhedged – 100% basis Unhedged – NN.N% (BHPB Share) Project completion (define project completion)2f Completion milestone – define*

Unit

Threshold

Target

Stretch

TRIFR

US$M nom. US$M nom. 1XXXM 1XXXM

nom. nom.

Date

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Key performance indicator

Unit

Threshold

Target

Stretch

Ramp-up time – define* Production – define* Quality – define* Operating cost – define* 1

Investment specific – define local currency (delete if not required). Investment specific – briefly describe at what point Project Completion is achieved. Project completion should be defined specific to the investment, and is generally the date that is the later of the following:  After pre-commissioning and during commissioning, and when care and custody of the completed assets have been formally handed over from the project personnel to operations personnel.  When the assets/equipment directly related to the investment are in a condition and position to accept feedstock and produce product to an appropriate specification at a steady-state capacity (not necessarily the ultimate design capacity).  The time at which capital expenditure is not expected to be at a rate significantly higher than that expected during steady-state normal operations, and is expected to be principally for sustaining purposes.  When the incremental production will generate revenue earned (assuming all products sold immediately) exceeds total incremental operating and ongoing capital expenditures before tax on an un-leveraged basis *Project specific – define and add/remove line items as appropriate. (Remove this note prior to issue.) 2

Table 4.1.3 Typical project KPIs KPI Description

UoM

Threshold

Target

Stretch

Forecast/ Actual

Project CIFR

1) Safety 2) Milestone Dates Project start

Date

Koala RAR#3 bored

Date

Koala FAR#2 Commissioned

Date

First Development Ore

Date

First Production Ore

Date

Second level production blast

Date

Conveyor system commissioned

Date

Project Complete

Date

3) Full production commences

Month

4) Initial capex (nominal 100% terms)

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4.2

RISK MANAGEMENT PMBoK states that “project risk management includes the processes of conducting risk management planning, identification, analysis, responses and monitoring and control on a project. The objectives of project risk management are to increase the probability and impact of positive events and decrease the probability and impact of negative events on the project”. Risk management 1 is a strategic process that is undertaken in all phases of a major capital project from initial conception through to closure of the operations phase and rehabilitation. There will be changes in risk issues and their profile as the project matures and therefore risk management is a continuous activity during every phase of development. For the purposes of this PDM, the project risk management process covers the three study phases and the execution phase. The key risk management requirements through the investment phases are shown in Table 4.2.1. Table 4.2.1 Key risk management requirements Identification

Selection

 Identify and analyse the material business risks associated with the investment opportunity.

 Develop the risk register for each major investment alternative in sufficient detail to be able to select the preferred investment alternative.

 Develop an initial risk register for the investment opportunity.  Identify and describe any special control actions required to manage residual risk to a tolerable level.  Assess the practicality of managing the key business and project risks.  Implement, manage and control the risks associated with the identification phase.  Document any areas of intolerable high residual risk (potential “fatal flaws”).  Prepare a risk management plan for the selection phase.

 Develop outline risk control action plans for each of the major investment alternatives under consideration so that MFL and RRR can be quantified for each alternative.  Develop a preliminary project risk register for the selected investment alternative.

Definition  Develop, update and maintain the detailed project risk register.  Review, update, implement and maintain the detailed project risk control action plans consistent with the risk register.  Implement, manage and control the risk management plan for the definition phase.  Prepare a detailed risk management plan for the execution phase and the transition to the operations phase.

Execution  Implement, manage and control the risk management plan for the execution phase including the associated risk register and risk control action plans.  Provide a high level summary of the key project risks and the project execution phase risk management plan in the PEP and reference the detailed plan.  Put in place the operations management plan, including risk management plans.

 Develop a preliminary risk control action plan for the preferred investment alternative.  Confirm the practicality of managing the key business and project risks.  Implement, manage and control the risk management plan for the selection phase.  Prepare a risk management plan for the definition phase.

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In the context of this manual, risk management refers to project risk management and not business risk management. It is however noted that the process may result in the identification of new business risks, which are managed using the business risk management process once the project moves into the operations phase. PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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BHP Billiton GLDs for risk management, which are consulted to ensure minimum requirements are satisfied, are as listed below:     

GLD.017 Risk Management GLD.018 Country Risk Management GLD.xxx Fraud Management GLD.xxx Internal Audit GLD.xxx Insurance.

The management of risk on major capital projects is carried out in compliance with the above documents and CSG specific risk management requirements and procedures. It is incumbent on all key members of the Owner’s team to read and understand the Group and specific CSG risk requirements as various components are relevant to their areas of responsibility. There may be a situation where the GLD.018 Country Risk Management is applicable to a major capital project. It is good practice for the Owner’s team to be aware of the outcome of the risk rating of relevant countries and the country entry requirements. Any requirements or matters arising from this GLD are taken into account in managing project risks. It can be seen from the many references to “risk” in the Major Capital Projects GLDs that it is a subject that is studied and managed in all aspects and phases of project development. The mandated deliverables in the Major Capital Projects GLDs are:     

a project risk register a project risk management plan a project risk control action plan quantified maximum foreseeable loss (MFL) quantified residual risk rating (RRR).

These deliverables feature in all phases of the project i.e. the current phase being undertaken and future phases through to closure and rehabilitation. As a phase is completed the risks particular to that phase become no longer applicable provided they have been properly closed out. The remaining risks are carried forward, while new risks are identified and become more clearly defined and more accurately quantified as the next phase is developed. Hence all risk deliverables are living documents that are continuously revisited, reviewed and updated as the project matures. During the early study phases it is important to identify and manage the risks associated with field activities. This early project development period usually includes a wide range of site visits and data gathering work, drilling and sampling and various types of surveys. Strong risk management leadership is required at this time because the processes may not be as mature as in the later phases and there is a higher risk potential. Conversely, by the time that a project has progressed to the execution phase the focus is on short term and day to day risk issues. Whilst this is necessary, best practice is also to maintain a big picture and holistic view to ensure that strategic risks are still managed appropriately. This is particularly the case in very large projects with a long execution phase.

4.2.1 Risk management, leadership and accountability The Owner’s team is accountable for:     

identifying material risks assigning materiality criteria (as agreed with the CSG President) assessing the tolerability of risk events ensuring adequate and appropriate controls are implemented for mandatory reporting on project to the CSG, to the Risk and Audit Committee (RAC) and the project steering committee.

Refer Toolbox 9.4.2D Risk and Audit Committee Report Template. Figure 4.2.1 is a graphical representation of the elements of the risk management process. PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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Figure 4.2.1 Elements of the BHP Billiton risk management process Risk management leadership & accountability

Risk monitoring

Risk management process

Risk identification analysis & evaluation

Risk control

Overall, risk management is driven from the top by the Owner’s team project manager who undertakes detailed reviews on a frequent and regular basis. However, risk is a subject that all key members of the Owner’s team own and manage according to their areas of responsibility. Best practice is for the Owner’s team project manager to appoint an appropriately qualified and experienced person as risk manager to manage and coordinate all risk related activities. It is important that the person has sound practical knowledge of the specific actions and accountabilities relating to the BHP Billiton risk management processes. The risk manager’s main responsibilities include:   



ensuring that there is compliance with the BHP Billiton risk policy and other prescribed documentation preparing an overall project risk register and risk control action plan that combines all the separate registers and plans emanating from the various workshops assessing and reviewing the MFL and RRR to ensure that a common methodology has been used in the evaluation of all risks and including a reality check to ensure that risks have been ranked in a consistent manner planning the risk review and managing the updating of all registers and control action plans throughout the development of the project – this includes allocation of an owner to each risk issue, monitoring actions, checking that actions are taken in a timely manner and organising workshops as milestones are reached.

Each area/discipline manager (e.g. mining or wells, processing or facilities, engineering, HSEC, etc) is responsible for developing and maintaining area/discipline specific risk registers and for ensuring that any emerging material risks are escalated into the project and CSG risks registers. A self assessment of the risk process is carried out using Toolbox 9.4.2G PRiME III Template.

4.2.2 Risk management system A conceptual project risk management system is illustrated in Figure 4.2.2. It demonstrates how risks are identified, assessed and managed throughout the project life cycle and the systems and plans that are used to document and report business and project material risks.

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Figure 4.2.2 Project risk management system

Risk & Audit Committee Report

Production HSEC Mining Product and Reagent Movement ER / IR

HAZOP HAZID What If Analysis Quantitative Risk Assessments

Safety Integrity Level

Risk Monitoring (Risk Management Plan)

Project Delivery Constructability Assessments Construction HSEC Construction ER / IR

Project Management System Risk Control (including designing for Zero Harm)

Study Delivery Register Field Risk Register Operations Study Risk Register

Risk Identification, Analysis and Evaluation (including assessment of catastrophic risks)

Project Monthly Report

ER/IR Management Plan HSEC Management Plan Project Management Plan

Operations Risk Management Plan

Closure Risk Management plan

Identification and Management of Catastrophic Risks

4.2.3 Risk management process A conceptual project risk management process is illustrated in Figure 4.2.3.

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Figure 4.2.3 Project risk management process

It is good practice to sub-divide risks into those that are material or potentially catastrophic in terms of the project’s criteria and those that are of lesser severity that can be more appropriately dealt with at an area or discipline specific level. This is illustrated in Figure 4.2.3 and is an outcome of the risk evaluation process. The benefits of this approach are: 

It allows the risks to be managed at the right level within the project and the business by those best equipped to do so.

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   

The risks that could prevent, degrade, delay or enhance the achievement of the business and project objectives and strategies are managed at the highest level of management. Lower profile risks are managed at the most effective level of management and they are not “lost”. Two levels of risk register are produced appropriate to the level of severity, thereby avoiding the risk registers being cluttered with non-relevant items. It facilitates very high level risks being elevated to the CSG level.

The following key actions are necessary for this approach to be successful:   

The same procedures and processes are followed consistently at all levels of risk management. Care is taken to ensure that a risk is at the correct level and is transferred between the project and area levels if its profile changes. The appointed risk manager provides the overview and coordination between the levels.

HSEC risks that are area specific reside within the area registers and broader project wide or HSEC specific risks reside within the HSEC register.

Top-down material risk identification Material risk identification proceeds from the top down with a high level process targeting the identification of material risk events during project development, operations and closure that are perceived to have a material RRR or MFL to the project and/or the CSG. Refer to Section 4.2.7 Materiality and tolerability for an explanation on risk materiality. The top-down assessment is conducted with the Owner’s team, the CSG or Asset project and area leaders, operations senior departmental managers and appropriate CSG senior managers. The material events identified during this assessment are listed in the project and CSG risk registers, and analysed and evaluated along with material risk events identified through the area specific risk management process. The following areas are considered for sources of material events:               

project health and safety project resourcing (people) finance, credit, currency and insurance technology engineering and documentation procurement and logistics quality environmental and community issues construction industrial relations security tie-ins and interfacing with operations on brownfields projects pre-commissioning commissioning handover/process start-up.

Area risk and event identification Each area conducts detailed risk assessments to identify all risk events that need to be covered by the risk management system during the study, execution, operations and closure phases. Overlaps between areas are covered through cross-area participation in risk assessments and through coordination and integration of the registers. The identification process begins with multi-disciplinary/multi-functional risk assessments attended by as wide a range of participants as possible during the earlier stages of the project. This process tends to result PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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in a large listing of potential issues with widely varying impacts, resulting in an extensive risk register that cannot be effectively assessed or tracked. In order to focus the project leadership team on the project material risks, the initial risk registers are refined by extracting the material risks that need to be assessed at the more senior levels. This is achieved by ‘parking’ those issues and events that are fully and adequately covered and controlled by the application and implementation of standard practices, procedures, processes and systems. However, it is very important to ensure that the design process strives to reduce all generic and lower level risk issues along with the material risk issues. This is completed through the generation of activities such as complete design criteria documentation for use by the engineering team and contracts and procurement documentation and procedures for that area. The initial risk issue and event listings are retained as a checklist/cross-check to be used during HAZOPs, HAZANs and in the development of project execution HSEC and other management plans.

Bow tie diagrams Any material risk events identified during the area risk and event identification process are escalated into the project and CSG risk registers alongside the material risks identified by the project leadership team. Bow-ties (refer Toolbox 9.4.2E Risk Register Bow Tie Template) are used to represent material and catastrophic risks. Where appropriate, these are derived through an assessment and evaluation process commensurate with the complexity, potential severity and understanding of the uncertainty around the risk issue. Using the bow-tie template provides a clear understanding with regards to the causes, consequences and controls to prevent or reduce the impact of the risk.

4.2.4 Risk management plan The objective of a risk management plan is to define how the project is to be managed so that risks are maintained as low as reasonably practical (ALARP). The purpose of the plan is to document how the Owner’s team will meet this objective by identifying, analysing, evaluating, monitoring and controlling project development risks. Although the content of the risk management plan is project specific and aligned to the business drivers, scope and execution risks, it is good practice to include the topics as summarised in Table 4.2.2. Table 4.2.2 Structure and content of the risk management plan Section

Content

Scope

A clearly defined scope of the plan.

Strategy and objectives

The strategy and objectives for project risk management and the materiality and tolerability criteria.

Organisation

The organisation and resources required and the roles and responsibilities for all key risk management positions.

Methodology

The risk assessment methodology – the approach to be used, documents developed to support the plan, tools to be used and sources of data.

Processes

The required processes (controls, procedures, reviews, audits) to ensure the risk management scope of activities are achieved.

Reference documents

Identification of the applicable Group Function and CSG documents including risk policies, standards and procedures.

Updates

The updating processes for the register, control action plan and other deliverables.

Reporting

Risk reporting plan and tools, including software tools to be utilised.

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In addition to the above, the risk management plan describes how counterparty risks (including reputation risks) are assessed and managed in respect of joint venture partners, third parties or agents. Refer also to Section 4.5 Stakeholder Management for further details. The risk management plan is maintained for the entire duration of the project. An updated plan for the next phase is required as a deliverable from the current phase and appended to the study report. Examples of risk management plans are included in Toolbox 9.4.2A. Most risks are seen as ‘downside’ risks and are managed to mitigate their effect by elimination, substitution, transfer or minimising through control measures. However, there is potential in some cases to create an opportunity for better outcomes, known as ‘upside risks’. Therefore, a good risk management plan recognises and accommodates achieving and maximising upside potential as well as minimising the downside risks. Insurance may become a component of managing risk. However, in most cases BHP Billiton acts as a self insurer because the cost of premiums exceeds the potential benefits. At the contractor level, insurances are mandatory in matters such as third party liability, construction all risks, transit of materials and equipment, motor vehicle liability, etc. Information on risk management through insurance can be obtained from the BHP Billiton risk assessment and assurance group. Plans for project insurance are included in the risk management plan and it is good practice to include the subject of insurance in the project execution plan.

4.2.5 Risk management workshops Workshops i.e. brainstorming sessions are essential tools in the management of risk and are used to identify, analyse and quantify risks. They are used at the following times:      

at an initial workshop which is held early in each project development phase at appropriate intervals during each of the three study phases and during the execution phase (frequency determined by milestone events) if a major change of scope is proposed a significant new risk occurs or a significant change in circumstance that occurs during the study which requires its own dedicated workshop to assist in the evaluation of different alternatives at any stage of the project e.g. at the Gate 2A tollgate at completion of a study phase (immediately prior to finalising the study report) and in the execution phase prior to commencing commissioning.

The first workshop in the identification phase is used to identify potential material risks and develop the initial risk register. In subsequent phases the main purpose of the first workshop is to review, confirm or revise and further develop the risk data from the previous phase. Importantly, the first workshop in each phase is not just to carry forward the previous assessment. This workshop also becomes a good opportunity for Owner’s team members to familiarise themselves completely with the risk issues. Workshops are arranged according to subject matter and broken down into more detailed sub-headings with increasing detail information as the project matures. Separate workshops are arranged under the following subject headings:  

 

business risks, which at later phases may be subdivided into marketing, ownership, legal, regulatory, contractual, political, stakeholder and investment evaluation risks technical and technological risks, which includes scope and operational risks and at later phases may be subdivided into geology or subsurface, mining or wells, processing or facilities and infrastructure risks project delivery risks, which may be subdivided into organisational, study delivery, execution phase delivery, operations and closure risks HSEC risks.

The above workshops are further subdivided or combined according to the needs of the project. PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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Workshops are best facilitated by persons with relevant experience from the Owner’s team or external to the organisation. A facilitator from outside the organisation would be one that specialises in this work. It is essential that the facilitator has knowledge of the BHP Billiton risk management processes. Workshop attendees are selected relevant to subject matter. They are not confined to the Owner’s team and can be from the operation, Asset, CSG or corporate organisation. In some cases it is good practice to include persons from organisations outside BHP Billiton, for example specialist consultants, implementation contractors, etc. The selection of workshop attendees is best done by the Owner’s team project manager and risk manager in consultation with the relevant risk management personnel in the CSG or Asset. Best practice is to confine the workshop attendees to five to seven people. This can be exceeded at the commencement of a phase when firstly a broad overview is appropriate prior to subdividing risk issues and grouping them in particular areas or categories. The scope of the workshop subject matter changes as more detailed information is developed and as the project matures through the development phases. Even at a more mature stage, workshops on a particular area or category consider risks in the context of other areas of the project. It is important to ensure that any interfaces between subjects in other areas are identified and the risk control actions coordinated to ensure that the risks are appropriately managed. The deliverables from risk workshops are:    

the subject specific risk register, updated as appropriate MFL evaluated RRR evaluated risk control action plans developed.

4.2.6 Reference materials and the risk champion eRoom The BHP Billiton global risk champion eRoom, contains the following useful reference documentation:   

historic risk management files historic toolkits and templates risk management documentation.

The risk champion eRoom link is: https://eroom.bhpbilliton.com/eRoom/Facility03/EWRMRiskChampion.

4.2.7 Materiality and tolerability The criteria for materiality and tolerability applicable to the project and the CSG are as approved by the CSG President after agreement between the steering committee and leadership team who make due consideration of the risk profile of the project in relation to the project scale, its potential impact on the business, and a number of other factors. The following materiality and tolerability criteria are indicative only.

CSG level materiality criteria CSG level material risk issues are those material to the achievement of CSG objectives, strategy, plans and targets. Having been determined, the CSG specific materiality and tolerability criteria are then stated in the risk management plan.

Project level materiality criteria Project material risk issues are those material to the achievement of project objectives, strategy, plans and targets. Project risk issues and events are assessed against the materiality criteria listed below and are set by the project leadership team: 

a RRR greater than or equal to () 30 or

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

a MFL equivalent to a Level 4 HSEC severity (ie a single fatality) or the lesser of US$100 million or 5% of the approved capital.

The objective is to ensure that adequate controls are implemented and to avoid undesirable impacts from study delivery and project execution.

Risk tolerability The tolerability evaluation determines if each material risk, and the overall project risk profile are acceptable, or if further risk reduction measures are warranted or required to reduce the likelihood or consequence of any given event on the project as a whole. For example, it may have been determined that individual events in a project will be considered intolerable if the RRR is greater than 30 or if the individual risk of fatality per annum is greater than say 1 x 10-5. Where the risk ranking exceeds these predetermined risk tolerance criteria and for no further action is to be taken, best practice is that the Owner’s team demonstrates that the risk is ALARP and that the necessary project and CSG approvals have been obtained to categorise the risk as ALARP. To qualify as ALARP, the cost of additional controls is considered grossly disproportionate to the incremental risk reduction that can be achieved through implementing those additional controls.

4.2.8 Risk register Risks are recorded in a risk register. It is good practice to list risks in categories e.g. business risks, technical risks, construction risks, etc and according to rating (either RRR or MFL). In the establishment of a risk register, the following information is included as a minimum:      

    

Risk Issue: Description of the characteristics or circumstances that could affect the achievement of business objective. Risk Owner: Person with authority/accountability for ensuring risk issue is managed. Event: Description of an occurrence or circumstance that is being analysed. The event or circumstance that has a material MFL. Causes: The causes that can give risk to the event. Root, latent and direct causes are specified. Impacts: Impacts if the event occurred. Impacts correspond with the impact types in the severity table. Controls: Existing controls that are in place to manage the risk. Controls are specified as being preventative or mitigating controls. Causes and impacts are linked to controls to ensure there are no control gaps. Control effectiveness: Rating of control effectiveness calculated from the control self assessment process. Residual risk rating: product of severity and likelihood factors. Maximum foreseeable loss: The MFL if the event occurs. Explain how the MFL is calculated. Either a US$ figure or a number of fatalities. Risk control action plan: A list of further actions or additional work required. These actions will improve an existing control, close a control gap or reduce severity or likelihood. Control owner: The person(s) responsible for carrying out the risk control actions.

Refer Toolbox 9.4.2B Risk Register Template.

4.2.9 Risk control action plan Control actions must be tracked through to completion. Refer:  

Toolbox 9.4.2C Control Action Plan Template Toolbox 9.4.2F Control Self Assessments Template.

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4.2.10 Maximum foreseeable loss and residual risk rating Guidelines for calculation of MFL and RRR are available in GLD.017 Risk Management. Risk rating tables i.e. severity and likelihood are included in GLD.017 Risk Management.

4.2.11 Changes arising from risk management The application of risk control measures has the potential to impact on the scope, schedule and cost of the project. The proposed risk control measures are subject to cost benefit analysis and require formal approval processes prior to implementation. These actions are undertaken in accordance with the specific project management procedures. Conversely, when a major scope change to a project is proposed a risk assessment is done prior to introducing the change. This process includes a comprehensive review of the entire risk deliverables to ensure that all aspects of risk are accounted for.

4.2.12 Range analysis At the end of the definition phase, as part of the development of the IAR and the identification of the investment and project KPIs, range analysis workshops are undertaken, specifically related to the execution phase schedule and the capital cost estimate. This provides a “vertical slice” of the project risks (as distinct to the “horizontal slice” provided by the risk management process). A range analysis is a quantitative method, using probabilistic tools to understand the range of possible schedule and capital cost outcomes for the investment, based on an understanding of the uncertainties (i.e. risks) associated with the project. The range analysis process is not to be confused with the need to develop a risk management plan for the project. The range analysis process is a separate process (but it often uses the project risk register as an input) to assist the investment decision makers to understand the risk profile for the investment. Further details on range analysis are included in Section 6.4 Schedule Development and Section 6.5 Cost Estimating.

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4.3

HSEC MANAGEMENT BHP Billiton’s intent to create a ‘zero harm’ environment is well articulated within the BHP Billiton Charter: “We value: Safety and the Environment – An overriding commitment to health, safety, environmental responsibility and sustainable development” The Charter is reinforced by the supporting HSEC GLDs that set the minimum requirements across BHP Billiton. The requirements set out in the following GLDs are mandated and therefore integral to all aspects of project delivery:      

GLD.007 Aviation GLD.008 Community GLD.009 Environment GLD.010 Fatal Risk Controls GLD.011 Health GLD.012 HSEC Reporting.

In addition to the HSEC GLDs, the Major Capital Projects GLDs outline other minimum requirements specific to project development and execution. The zero harm intent is fully supported by all project delivery teams through all phases of project development from identification through to ramp-up. The key HSEC requirements through the investment phases are shown in Table 4.3.1. Table 4.3.1 Key HSEC requirements Identification  Ensure the identification study is conducted in accordance with an approved HSEC management plan(s) that covers all risks e.g. travel, site visits and sampling.  Prepare a zero harm HSEC management plan(s) for the selection phase based on a risk assessment of the selection phase activities e.g. drilling, test work, sampling, travel, etc.  Identify all key statutory approvals and document requirements for a project environmental and social impact assessment (E&SIA) or local equivalent including timelines.  Prepare and document in a risk register initial risk assessments for health/ safety and environment/ community for the

Selection  Ensure the selection study is conducted in accordance with the approved HSEC management plan(s) that covers all risks e.g. travel, site visits and sampling.  Prepare a zero harm HSEC management plan(s) for the definition phase based on a risk assessment of the definition phase activities with particular focus on precommitment field activities and baseline study activity as necessary.  Develop a preliminary HSEC risk register for the investment alternative.  Commence baseline studies and any

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Definition  Ensure the definition study is conducted in accordance with the approved HSEC management plan(s).  Continue to update the HSEC risk register(s) for the investment alternative.  Prepare a detailed execution phase HSEC management plan(s) for the investment alternative.  Finalise the detailed E&SIA and ensure sufficient flexibility to enable future optimisation of the investment alternative.  Ensure the timing for development and approval of the E&SIA is clearly identified in the project master schedule.

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Execution  Update and maintain the execution phase HSEC risk assessment registers and risk control action plans as key inputs into the HSEC management plan(s).  Implement the project execution phase HSEC management plan(s) including detailed safety plans for construction, commissioning and the transition between project and operations.  Ensure the HSEC management plan(s) defines how the project will ensure that the health, safety, environmental and community activities on the project are compliant with the requirements of the HSEC group level Page 19

Identification

Selection

investment opportunity.  Identify and summarise any significant closure and rehabilitation issues associated with the investment opportunity.

necessary investigations to support the E&SIA.  Prepare the detailed E&SIA and ensure sufficient flexibility to enable future optimisation of the investment alternative.

Definition  Prepare a preliminary closure and rehabilitation plan for the investment alternative.

 Ensure the timing for development and approval of the E&SIA is clearly identified in the project master schedule.

Execution documents and how the project intends to achieve zero harm in these respective areas.  Implement the requirements of the project E&SIA.  Provide a high level summary of the HSEC management plan(s) in the PEP (reference the detailed plan).

 Update the summary of significant closure and rehabilitation issues for the investment alternative.

NOTE: In all study phases, all field work (e.g. construction pre-commitments, baseline studies, geotechnical drilling, exploration, etc) is conducted to execution phase standards and under an approved HSEC management plan(s) 2 specific to the activities, including lead and lag indicators, behavioural based safety programs, definition and reporting of KPIs, etc. Effective HSEC management is integrated in the way BHP Billiton does business including the delivery of capital projects through all phases of the project life cycle. Through this approach the intention is not only to add value to the business but also to ensure sustainability of projects for all stakeholders and the environment in which BHP Billiton projects are executed. Line management has accountability for ensuring the successful execution of a project and for achieving HSEC targets and objectives. The involvement of project and contractor management teams in the implementation of these key elements forms the foundation for the success of the project.

4.3.1 The zero harm roadmap Figure 4.3.1 is a diagrammatic representation indicating the key zero harm elements as set out in the GLDs and their interaction on the various project life-cycle phases.

2

Note that depending on the size and complexity of the project and whether the health and safety, environment and community management portfolios are split or not will determine whether there is one HSEC management plan or whether there are a number of plans which together form the HSEC management plans e.g. for a large complex project there may be a separate H&S management plan, an environmental management plan and a community management plan. PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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Figure 4.3.1 Zero harm – key elements Study phases

HSEC Risk Assessments

Execution phase

PLAN

HSEC Risk Assessments

E&SIA

HSE HSEC Specifications

HSEC Risk Assessments

ACT

DO HSEC Management Plans HSEC Management Plans

Continual Improvement

HSEC Management Plans

EMP

CEMP

CHECK Lessons learnt workshop

Legend Contractor

Project Team

Each project team ensures a roadmap to zero harm is developed during the identification and selection phases of the project. The roadmap identifies all work streams associated with HSEC management through all phases of the project and includes the minimum requirements set out in the HSEC GLDs and the Major Capital Projects GLDs. It also includes latest lessons learnt and best practice. The project leadership team plays a significant role in the success of any project delivery on the road to zero harm. Visible and unwavering HSEC leadership is an essential component of successful delivery. The project leadership team develops and implements a zero harm roadmap that describes the key HSEC work streams for the forward phases. This roadmap is developed in the identification and selection phases. It identifies how the project implements the various processes and initiatives and in particular those that are ultimately detailed in the various HSEC related management plans and the E&SIA. The zero harm roadmap covers four integrated areas of activities which if implemented effectively, lead to a sustainable high level of zero harm performance during the project. These four areas are outlined in Table 4.3.2. Table 4.3.2 The zero harm roadmap Area

Aim

Zero harm culture

Establishing and maintaining the desired zero harm culture early in the project life cycle.

Management leadership

Providing visible management leadership and commitment through all project phases.

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Area

Aim

Operating discipline

Achieving excellence by maintaining a disciplined approach to implementation of all HSEC related activities.

HSEC management program

Implementing a comprehensive HSEC management program to target zero harm through the study phases and the execution phase and to ensure all critical documentation is developed and implemented to a strict timeline. The HSEC management program encompasses:  risk assessment of all HSEC aspects of the project  HSEC management plan(s)  environmental & social impact assessment  environmental monitoring and management plan  community engagement and management plan  closure and rehabilitation plan.

Further detail on the elements of the zero harm roadmap activities are outlined in the following sections.

4.3.2 Zero harm culture An established and maintained zero harm culture helps management and employees at all levels adhere to the highest practicable standards for safe performance and the protection of the environment, employees and the people in the community in which the project will operate. The objective is to continuously strengthen the project by aligning the project objectives with the publicly stated BHP Billiton HSEC objectives. The following key principles are adopted by the project team:        

Management is accountable for HSEC performance. All injuries and occupational illnesses can be prevented. All operating exposures above occupational exposure limits can be controlled. Safety is an individual responsibility and a condition of continued employment. It is necessary to train employees to work effectively and safely. Audits and reviews of performance will be undertaken. All deficiencies will be identified and corrected. It is essential to report and investigate all injuries, illnesses and incidents with actual or potential serious consequences. Following these investigations establish agreed corrective actions and assign responsibilities, then actively manage close-out.

A HSEC management program established and implemented in an organisation with a strong HSEC culture will flourish as it is continually strengthened and reinforced by management decisions and actions. A HSEC management program established in an organisation without a strong HSEC culture will rapidly lose focus as it falls prey to other conflicting priorities.

4.3.3 Management leadership and commitment The Owner’s team recognises that management leadership and commitment is the most basic and essential element of any program that aims to achieve excellence in HSEC performance. It is important that actions begin with the project director and extends down through each management or supervisory level in every functional department. Particularly for safety, line supervisors understand and acknowledge their responsibility and accountability for ensuring the safe operation of project activities. While it is recognised that leadership at all levels is integral to success, it is critical that senior management demonstrate visible leadership commitment and encouragement wherever possible. Key HSEC responsibilities for each discipline manager as part of the management team includes: 

establishing and maintaining the culture

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    

reviewing and authorising key management standards and initiatives committing sufficient resources to achieve the HSEC objectives ensuring involvement from all employees establishing clear accountabilities participating in audits and reviews.

The HSEC management plan(s) detail specific initiatives that the leadership group implements to demonstrate visible leadership, while the implementation of these programs represents a good leading indicator of the success of the project in HSEC terms. The plan details the training programs that will be implemented to support the continued development of the leadership group.

4.3.4 Operating discipline Operating discipline is achieved when each individual involved in managing, operating, maintaining or supporting the project has developed the personal discipline and commitment to do each task the right way every time. An organisation that exhibits operating excellence is expected to have:           

a strong HSEC culture management that lead by example sufficient resources to support business initiatives including HSEC full employee involvement active lines of two way communication strong teamwork current documentation e.g. drawings, procedures, records etc practices consistent with documentation excellent housekeeping employees that have pride in the project and the way that it performs employees that are effective ambassadors within the community.

In a similar fashion to the implementation of the HSEC management plan(s), the development of operating discipline is progressive and needs to be measured and reported progressively. The leadership training and organisational development programs associated with a project reinforce operating discipline. This training and development is an essential part of a successful HSEC management plan(s).

4.3.5 HSEC risk assessments HSEC risk assessments are conducted through all the phases of the project life cycle with the objective to identify material HSEC issues associated with the current, as well as future, phases of the project. It is important when conducting the risk assessment for the specific phase that it is not a review of the previous risk assessment. This is prevented if the context of the risk assessment is properly defined. Establishing the context of the risk assessment is one of the fundamental building blocks of the process and is needed to define the scope of the risk assessment. In doing so, it:    

establishes the organisation and project environment in which the risk assessment is taking place specifies the main objectives and required outcomes specifies criteria that allow the stakeholders to measure the success of the project defines a set of key elements for the workshop that assist in ensuring key project areas are covered.

During the execution phase, the high level risk assessment is reviewed and updated with risks emanating from the risk assessments conducted by field contractors. It is best practice to facilitate these from the owner or implementation contractor to ensure they are completed to the required standard.

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All contractor risk assessments, as a minimum, meet the requirements of BHP Billiton risk GLDs identified in Section 4.2 Risk Management. Figure 4.3.2 is a diagrammatic representation of the HSEC risk assessment process, while Figure 4.3.3 provides further detail on the process steps. Full details on the risk identification, assessment and management processes are described in Section 4.2 Risk Management. Figure 4.3.2 Diagrammatic representation of the HSEC risk assessment process

Who should be involved? Communicate and Consult

Establish the context

Identify the risks

Analyse the risks

Evaluate the risks

Treat the risks

What are the most important things?

Select bestwe Whattheare responses

Review controls

What do Stakeholders

we want to Criteria achieve?

happen?

What might happen? How can it happen?

What might that mean for Consequences our key criteria? Level of risk Likelihoods

Rank risks

going to do

Develop risk treatment about them?

Monitor and Review AS/NZS 4360

How do we keep them under control? Figure 4.3.3 HSEC risk assessment process steps

Risk management leadership and accountability Risk identification & assessment

Risk control

Risk management monitoring

Materiality and Tolerance criteria are established and communicated

Adequate trained resources are available to support effective risk management

Risk issues are identified, assessed and ranked. Causes and controls are identified for all material risk issues.

Risk assessment is included in all changes, decisions and projects that are material to the business Lessons from unplanned events are incorporated

Material risk issues are documented in the risk register

Risk reduction projects are monitored to completion

The tolerability of the risk is decided given the existing controls

Suitable measures to reduce intolerable risks are identified and those projects are included in the Planning & Budgeting Processes

The continuing effectiveness of controls is assured. Control Deficiencies are remedied Material risks and risk management performance are monitored, reported and communicated

Risk management performance indicators are established

The outcome from the risk assessment process is captured in a HSEC risk register that is the cornerstone for the successive development and implementation of HSEC management on the project. Many of the elements of HSEC management depend on the outcomes and results from the HSEC risk assessments. The outcomes from the risk assessments conducted during the study phase are taken into consideration in the development of a HSEC specification that is issued to all stakeholders such as the implementation PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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contractor. On the other hand, execution phase risk assessments focus on the processes applied by the implementation and construction contractors. In the case of the appointment of the implementation contractor, the high level risk assessment is reviewed to draw on the experience of the particular contractor. During the execution phase, the risk assessments by contractors, covering their activities and scope of work, are the most important aspect in the development of their respective HSEC management plans for the project. The review of risk assessments submitted by contractors as part of the tendering process is important to ensure an effective approach by the contractors. The use of the control self assessment toolkit is also used as a basis to assess whether the contractor’s risk assessment is appropriate. Contractors conduct risk assessments at the following phases: 

 

Tender phase risk assessments: These assessments are reviewed by the project team to ensure all requirements as set out in the HSEC specification have been taken into consideration by contractors. Execution phase risk assessments: All activities of contractors are covered by a risk assessment. These risk assessments, as a minimum, meet the BHP Billiton requirements. Continuous risk assessments: During the project execution various forms of continuous risk assessments are implemented such as toolbox talks, start lists, job safety assessments and crew talks. The essence of all of these are to ensure that work crews are familiar with the tasks at hand, the risks and the mitigation measures to reduce the risks to a level as low as reasonably practicable.

Further details on the levels of risk assessments are included in Toolbox 9.4.3H HSEC Guideline. Risks which have been identified and require control after any risk assessment are controlled through the preferred order of control methods known as the hierarchy of controls. The hierarchy of controls is depicted in Figure 4.3.4, while further details are provided in Toolbox 9.4.3I HOC Slides. Figure 4.3.4 Hierarchy of controls The hierarchy of controls should be applied in the following order, individually or in combination The complete elimination of the hazard

1. Eliminate

More Effective

3. Redesign

Redesign the equipment of work process

4. Separate

Isolating the hazard by guarding or enclosing it

5. Administrate

6. PPE

Providing controls such as training, procedures, etc.

Less human reliance

Replacing the material or process with a less hazardous one

2. Substitute

Use appropriate and properly fitted PPE where other controls are not practical

4.3.6 HSEC management plan (study phases) A clear concise and comprehensive study HSEC management plan(s) articulates how the project team implements the study activities and achieves the goal of zero harm. The study phase HSEC management PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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plan(s) is developed prior to commencing any study phase activities. The requirement of the Major Capital projects GLDs is to ensure a plan is in place prior to gating into the next phase e.g. a study phase management plan for the definition phase is prepared at the end of the selection phase. Fundamental to development of the plan(s) is an understanding of the study scope and the risks associated with the study activities. Risk assessment workshops are conducted to focus the team on the study activities and document the associated risks and risk controls. The results from the HSEC risk assessments form the basis for the plan(s) in the study phase. The plan(s) ensures that mitigation and control measures identified in the HSEC risk assessment process are implemented in a systematic way. A process of auditing and monitoring the effectiveness of these controls also forms part of the plan(s). The need to recognise separation between the study phase HSEC management plan(s) and the execution phase plan(s) has been highlighted with a number of significant incidents occurring in BHP Billiton during study phase activities in the past, including fatalities. Project teams in the study phase tend to lack the heightened awareness that is associated with execution phase activities and there is a need for strong leadership to maintain team focus. It is common that study phases will include activities that are not encountered in execution phases e.g. establishing fly camps in remote areas. The study phase plan(s) will include provision for establishing the zero harm culture, the leadership commitment and processes for auditing and measuring performance (lead and lag KPIs). The plan(s) encompasses all aspects of the HSEC GLDs. It is typical that activities conducted by the study team include interfaces with existing HSEC management plans e.g. if sampling is being undertaken on an existing site or for engineering in an existing office. Whilst it is appropriate that the study plan(s) references existing documents, a study plan is still required nevertheless. Furthermore, it is essential the plans integrate appropriately. Project teams cannot assume that existing HSEC management plans will be suitable to mitigate risks associated with study phase activities. Project teams tend to be itinerant and exposed to varying cultures when compared with a steady operations team. This requires over-emphasis on particular risk areas to ensure the project team members are aware and prepared for those risks. It is essential the plan(s) covers any pre-commitment field activities at a detail level as if the project was in the execution phase. The structure and content of a typical study plan(s) includes coverage of topics as summarised in Table 4.3.3. While, health and safety, environment and community may be split into three plans, each plan follows the same structure, except of course where a specific element is uniquely related to one of the three areas. Where the plans are split, the relevance of each element to the specific plans is shown in the last four columns of Table 4.3.3. Table 4.3.3 Structure and content of a study phase HSEC management plan(s) Section

Content

Relevance H

S

E

C

Purpose and context Defines the purpose of the plan and context for the project.

  

Zero harm roadmap Outlines the overarching HSEC roadmap for the overall project.

  

Policy & supporting documentation

Include any relevant documents, in particular, any GLDs, BLDs or asset specific documents.



Responsibilities and accountabilities

Outline all responsibilities and accountabilities associated with the study with respect to community, environment, health and safety.



Targets and metrics (KPIs)

Highlight the lead and lag indicators that will be used as part of the study. These are recorded and reported on a regular basis (monthly report). KPIs are selected to reflect the true risk control points for the study.



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Section Home office & engineering

Content  office safety plan

Relevance H

S

E

C

   

 occupational health initiatives  fitness for work  pre employment medicals  injury and incident investigation  workplace inspections  emergency response  office security.

Health

Highlights any health risk issues and outline a plan for ensuring these are appropriately managed and mitigated. Ensure the minimum requirements of GLD.011 Health are met. The plan considers controls for risks such as malaria, denghi or yellow fever.

   

Induction and training program

Defines the training and induction programs required as part of the study. Consider site inductions and training on all aspects of the study, such as aviation constraints.

  

Travel and journey management

Ensures risks associated with travel by car, air, sea are identified and plans implemented to mitigate these. Ensure consideration is made of GLD.007 Aviation.

  

Safety communication and awareness

HSEC targets and objectives are set and clearly communicated to the project team. The plan defines how communication processes occur to ensure all project team members (Owners, implementation contractor, consultants etc) are captured.

  

Reporting

Defines the plan for reporting of HSEC performance and incidents consistent with GLD.012 HSEC Reporting.

  

Environment

Ensures the plan includes the minimum requirements of GLD.009 Environment.

Management of change

The plan defines management of change controls to ensure suitable processes are in place to prevent uninformed decision making with HSEC implications.

Community

Ensures the plan includes the minimum requirements of GLD.008 Community.

      

   

Hazard identification Identifies how HSEC risks and hazards are assessed, documented, updated and risk and managed. management

  

Designing for zero harm

Ensures a plan exists for incorporating safety in design e.g. HAZOPS, HAZIDS, etc. Ensure this includes the minimum requirements of GLD.010 Fatal Risk Controls.

  

Referenced HSEC management plans

Ensure that all relevant HSEC plans are referenced or listed. These include site HSEC plans, existing office HSEC plans. These are scrutinised to ensure they “dovetail” appropriately with the study HSEC management plan(s). Project teams are not to assume that an existing site HSEC plan covers the study phase risks exposed as a result of the study.

  

Ensure key elements of the referenced plans are documented in the study HSEC management plan(s) and references included to define further detail only.

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Section

Content

HSEC specification

A HSEC specification is developed and issued at the tender phase to ensure contractors understand the requirements for performing both study and execution phase activities.

Relevance H

S

E

C

  

Important aspects to consider in the development of the HSE specification include:  the outcome from the HSEC risk assessment process  information from suppliers and technology vendors that needs to be taken into consideration by contractors in the development of their HSEC management plans  lessons learnt from previous projects. Contractor selection Sets out the detail on how the following tendering processes are managed:

  

 pre-award process: o review of submission requirements from contractors as contained in the HSEC specification o review of submitted HSEC management plan  post-award process: o pre-work commencement o performance monitoring  post contract completion phase. Audit and review

The plan(s) will outline the requirement for audits and review of the study HSEC management plan.

  

Implementation Schedule

Includes a schedule for implementation. The schedule includes a breakdown of the key activities, target dates and responsibilities associated with implementing key elements of the plan. Implementation is tracked using a simple s-curve.

  

The plan(s) is reviewed and if required amended on a periodic basis to ensure that it continues to support the project in achievement of its performance objectives. A dedicated HSEC resource is appointed in the selection phase to guide both the study phase HSEC management activities and the preparation for the execution phase planning. Refer:  

Toolbox 9.4.3B HSE Management Plan – Template and Guideline Toolbox 9.4.3C HSE Specification – Template and Guideline.

4.3.7 HSEC management plan (execution phase) All execution phase activities are controlled in line with an execution phase specific HSEC management plan(s) and any pre existing plans for brownfields sites. The plan(s) needs to be developed prior to the commencement of any site activities and prior to gating into the execution phase. Fundamental to development of the plan(s) is an understanding of the scope and the risks associated with the execution phase through the risk assessment processes. Risk identification commences in the Identification phase and progresses with the project to reaching maturity at the end of the definition phase. The results from the HSEC risk assessments form the basis for the HSEC management plan(s). The plan(s) ensures that mitigation and control measures identified in the HSEC risk assessment process are implemented in a systematic way. A process of auditing and monitoring the effectiveness of these controls also forms part of the plan(s). In a brownfields environment, it is typical that activities conducted by the project team include interfaces with the existing site HSEC management plans and supporting procedures. Whilst it is appropriate that the PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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HSEC management plan(s) references and uses existing site documents, a stand alone plan is required nevertheless. Furthermore, it is essential the plans integrate appropriately. Project teams do not assume that existing site HSEC management plans are suitable to mitigate risks associated with execution phase activities. Project teams are itinerant and exposed to varying cultures when compared with a steady operations team. This requires over-emphasis on particular risk areas to ensure the project team members are aware and prepared for those risks. Once the plan(s) is established and approved in the definition phase, it is implemented in accordance with a roll out schedule. The schedule includes a breakdown of the key activities, target dates and responsibilities associated with implementing key elements of the plan. Implementation is tracked using a simple s-curve. The resource plan allows for sufficient resources to enable the plan to be implemented in a timely manner and ensure the HSEC function is fully operational early in the execution phase. The structure and content of a typical execution phase HSEC management plan(s) is summarised in Table 4.3.4. Where the plans are split, the relevance of each element to the specific plans is shown in the last four columns of Table 4.3.4. Table 4.3.4 Structure and content of the execution phase HSEC management plan(s) Section

Content

Relevance H

S

E

C

Purpose and context

Define the purpose of the plan and context for the plan - ensure that the scope and application of the plan is clearly defined.



Policy and supporting documentation

Include any relevant documents, in particular, any GLDs, BLDs or asset specific documents.



Responsibilities and accountabilities

Outline all responsibilities and accountabilities associated with the study with respect to community, environment, health and safety. Ensure that the plan is clear where these responsibilities etc may reside with contracting organisations.

Targets and metrics (KPIs)

Highlight the lead and lag indicators that will be used as part of measuring the success of the project. These are recorded and reported on a regular basis (monthly report). KPIs are selected to reflect the true risk control points for the study.

Site induction and mandatory training

Define specific mandatory training requirements - these may be general (for everyone) or specific to roles or tasks.



Contractor selection, alignment and mobilisation Emergency preparedness and response

Clearly define the process and steps involved in selecting and aligning contractors prior to mobilisation.



This process must also include drills, and where external resource organisations have a role in the implementation of the plan, the drills should include these resources as well. Any resources, including both people and equipment, required to support implementation of the plan must also be defined.

   

Incident management

This needs to consider what, if any, data management processes are planned to be implemented (how these events will be tracked and recorded).

   

Training and development

A documented training matrix of all mandatory training required to support the implementation activities, this should include an implementation plan for this training. It is important that contractors are made aware at the tender stage what the projects mandatory training requirements are.

   

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

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Section

Content

Leadership training

The active engagement of managers and supervisors in the HSEC management system and processes forms the link between the worker and the systems. Ensuring the competency of both managers and supervisors contributes significantly to the successful implementation of the HSEC management system. Training for managers and supervisors as a minimum includes:

Relevance H

S

E

C

   

 An overview of their roles and responsibilities in terms of the management system. This is in addition to any basic project and contractor induction processes.  Communication skills and cultural sensitisation which includes communication types and skills, conflict resolution, relationships and leadership.  Translations skills (where required).  Exposure to benchmark safety performance through engagement with DuPont or a similar best practice organisation. Assessment and audits

Defines the process by which implementation of all aspects of the management plan can be measured.

Kick Off Meetings

Describe the projects requirements, including frequency and attendance.

Task based hazard analysis

Describes what process must be implemented and when. Consideration should be given to having a single project wide procedure, with training included in the initial site induction.

Personal risk assessments (Take 5, etc)

Describes what process must be implemented and when. Consideration should be given to having a single project wide procedure, with training included in the initial site induction.

  



Behaviour based safety

The implementation of a behaviour based safety process plays a key role in achieving success in HSE performance.

  



    

The implementation of behaviour based safety processes is particularly important in driving cultural change, given the transient nature of project workforce. The value of management and supervision engaging in a safety discussion with workers is recognised as one of the keys to success. Behavioural based safety programs will be purpose built to support local cultures. The implementation of industrial theatres is an example of such a program. Toolbox 9.4.3D Industrial Theatres contains a presentation on the process and deliverables associated with an industrial theatre intervention. Toolbox 9.4.3E The frank Process sets out one of the many basic procedures for consideration in the implementation of a behaviour based safety processes. Behaviour attitude and knowledge (BAK) surveys

The main objective of these surveys is to understand the workforce, the perceptions and thus to identify triggers and barriers to safe behaviour. The primary research objective is to unpack the behaviour, attitude and knowledge dimensions of people’s life on site in order to provide input to the design of project interventions to improve HSEC performance on the project.

   

Secondary objectives include:  To measure the progress of current BHP Billiton strategic initiatives.  To establish whether the current project culture will facilitate the achievement of goals. PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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Section

Content

Relevance H

S

E

C

 To establish whether the strength of leadership will help achieve goals.  To understand what drives people in the workforce.  To provide a prioritised list of focus areas needing specific attention, in terms of organisational commitment to BHP Billiton’s values, production, diversity, retention, wellness and safety.  To establish the current levels of knowledge, behaviour and attitude of employees with regards to the working environment, values, diversity, retention, wellness, safety and the environment in general. The insights from the survey act as input to the process of customisation but also offer a benchmark that is used to determine the success of educational efforts. This also assists in the design and modification of future HSEC education programs. Ultimately, the purpose is to contribute towards the reduction of the health and safety risks of workers and their partners/families. Fitness for work

Define what process will be implemented and how they will be managed. Should focus on the specific causes of FFW issues, not just on testing programs.

Daily workplace inspections

Describe what processes need to be implemented by who and on what frequency. Housekeeping is a very good indicator of good safety performance as it requires consistency and strong discipline to maintain good housekeeping.

Near miss/hazard reporting

Include any specific data management requirements that need to be considered.

 

New starter process

This is separate to the training and induction requirements, and in particular needs to focus on those individuals that are new to the industry.

  

Reward and recognition

Define the objectives and mechanism for implementation of the project wide system.

  

Permit to work

Hot Work, Work at Height, Confined Space, Isolation, Critical Lift , Excavation , Scaffolding, LV and HV Services, water, pressure, working alone, working at night, excavations and buried services etc.

  

PPE

Detail the minimum requirements, as well as any specific task related PPE that may be mandated.

  

Housekeeping

Outline a process as to how this will be maintained and what the inspection routine will be.

  

Manual handling

Still one of the most common causes of injuries, specific programs or attention within specific tasks should be evaluated.

  

Transport and traffic management

Define the traffic management requirements for the site, particular focus is paid to goods transport and unloading as well as the provision of walkways to separate people from equipment.



Health and hygiene

Minimum requirements should be the pre employment medical assessment program, but should also include any specific programs or monitoring actions required for specific tasks. This section could also include the projects requirements for use of chemicals on site, including the requirement for pre authorisation for use prior to mobilisation.

Environmental

The HSEC management plan outlines the processes undertaken to engage contractors, reporting requirements and links to reference documents.

  

  









  

A specific environmental management plan is required. This document contains the detail of what actions need to be undertaken by who. PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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Section

Content

Relevance H 

S 

E

C

 

Community (external relations)

Ensure that it is clear within the plan what actions are required and in particular who is responsible for implementation. Project development can involve significant change for host communities, is taken to minimise the negative effects of this change.

Implementation schedule

The HSEC management plan(s) includes a schedule for implementation. The schedule includes a breakdown of the key activities, target dates and responsibilities associated with implementing key elements of the plan. Implementation is tracked using a simple s-curve. The resource plan allows sufficient resources to ensure the plan is implemented in a timely manner to ensure the HSEC function is fully operational early in the execution phase.

   

Audit and review

Once implemented, periodic audits are conducted to verify that the plan continues to match the scope of the project.

   

The project gives careful consideration as to what level of data management is required to support the projects objectives. For example where will incidents be recorded, how will distribution be effected, how will the tracking of actions be implemented etc. In particular, the Behavioural Observations, Audits and Reviews, Workplace Inspections, Incident and Hazard reports will generate a significant number of actions that need to be recorded and tracked to completion, how this is to be completed needs to be considered and the appropriate infrastructure and training identified prior to the commencement of execution.

4.3.8 Environmental and social impact assessment The environmental and social impact assessment (E&SIA) is a key legislative requirement which is prepared during the study phases of the project and in many cases is on the critical path as it normally supports the application for regulatory approvals required prior to project execution commencement. It is typical that projects need to obtain an authorisation from governing authorities prior to commencing any field activities. The E&SIA at all times meets the minimum legal requirements of the country in which the project is planned to be executed. For larger long life projects it is important that the scope consider potential enhancements to regulatory standards that may occur throughout the asset life. It is also important to note that the Sustainability Policy states that BHP Billiton will “uphold ethical business practices and meet or, where less stringent than our standards, exceed applicable legal and other requirements”. The project management team ensures that the applicable legal requirements consider as a minimum the following:         

greenhouse gas emissions energy use biodiversity impacts, including both flora and fauna land, freshwater and marine environments water usage waste generation and disposal air emissions noise and vibration product stewardship.

Key considerations in the management of the E&SIA process are as follows: 

Appoint a service provider with adequate experience in the host country in conducting and/or managing the E&SIA processes.

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

 

  

Appoint a service provider with an understanding of the legislative processes in the host country to identify all required permits, licenses and the average time it takes to obtain these. Establish a register with all required permits and licenses required and track the progress on a regular basis. This provides the project an understanding of when to commence the E&SIA process in order to meet the required deadlines. Commence baseline environmental monitoring as soon as reasonably practicable and ensure the scope of this supports the E&SIA. Ensure consistency of arguments between different specialist areas. The service provider responsible for the management of the specialist areas plays an important role in ensuring this. Ensure that the mitigation of high significance impacts are properly understood and explained to all stakeholders. Communicate to stakeholders how their concerns have been addressed. Transparency in the process is the key to success in the management of community stakeholders. Investigate whether a legal review is either required or recommended. If so, carry out legal review.

Social impact assessment Identifying and analysing social impacts during the study phases is critical to ensuring the long term sustainability of the operation in the region in which the project has been implemented. In order to contribute to the economic and social development of the region, the use of local employees in the execution and operation phases is maximised. It is recognised that not only technical factors, but also people, have an influence on the success or failure of a project. The engagement of stakeholders, such as communities in which the project is implemented, is important to establish community growth targets and ensure the sustainability of the future operation. The establishment of continuous contextual based research projects assists in identifying issues on which the project can focus to ensure the community will grow as a result of a project development.

4.3.9 Environmental Management Plan Following the E&SIA, an Environmental Management Plan (EMP) 3 is developed to ensure all requirements identified in the E&SIA are satisfied. The EMP clearly defines the actions the project will implement in order to meet the mandatory requirements that are detailed within the EIA and any associated regulatory approvals. Care is taken to ensure the actions defined in the EMP are auditable, i.e. that completion of the actions can be objectively measured. There is an EMP developed specifically for the execution phase as well as for the operation phase of the project development. As part of the engineering design environmental design criteria need to be developed and implemented by the design team. Any deviations from the design criteria need to be specifically authorised by the project leader. Toolbox 9.4.3G Environmental Design Guideline contains a set of generic environmental design criteria that should be considered during the study and design phases of the project. The requirements from the E&SIA are captured in the HSEC specification to ensure that field contractors operate in compliance throughout the execution phase. The ability to comply should be a pre-qualification for contractor selection. Each contractor will develop a contractor environmental management plan (CEMP).

3

This may either be a separate stand alone document or incorporated into the HSEC management plan.

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The following is typically taken into consideration when developing and approving a CEMP: 



 

Contractors are to focus on the environmental standards together with the CEMP Guideline Document (see Toolbox 9.4.3F CEMP – Template and Guideline) in order to be able to compile a CEMP that meets the BHP Billiton. This ensures a consistent approach amongst all contractors on the project. Each contractor’s CEMP is approved by the highest authority that is contractually/legally responsible for the environmental impacts that may result from the undertaking of the contract scope of work. The CEMP is reviewed and maintained on site by the environmental management representative. The document is a dynamic “living” document (system) and is managed as such on an ongoing basis up to contract closure.

Refer Figure 4.3.5 for a diagrammatic representation of the structure of the EMP based on the ISO 14001 principles. It is important to note that the project EMP will be assessed against BHP Billiton’s Sustainability Policy.

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Figure 4.3.5 EMP based on the ISO14001 principles Environmental Policy Management Review Planning Checking and corrective action Monitoring

standards

Aspects

Internal audit

standards

Impacts

Mitigation

Construction

Reporting and review Inspection

Environmental Impact Assessment Management Performance

Operational Facility

External audit

Standards Operations

Non - conformance

Management and Mitigation Plans

Conformance Activities Penalties and fines

Objectives

Targets

Design requirements

Method statements

Facilities

Corrective action Environmental trust

Design

Construction

Engineering packages

Contractor ’ s method statements

Engineering specifications

Contractor ’s EMP

Training and awareness (Induction/awareness/competency training) Roles and responsibilities Senior management

Site personnel

Toolbox talks

Implementation and Operation

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4.3.10 Closure and rehabilitation All projects must eventually close, and any associated disturbance must be rehabilitated unless agreement has been reached on leaving facilities in-situ for another beneficial use. It is important that planning for a successful closure commence in the early design stages of a project, this ensures that costly closure is not designed into the project. In addition, contingency planning associated with early closure must also be completed for various project options to ensure that the full life cycle cost of the option is included in the option selection process. During execution, it is important that the closure and rehabilitation costs match the projects implementation. For mines, it is particularly important that the design and location of any landforms, such as waste dumps include what the final intended closed landform is intended to be.

4.3.11 Lessons learnt It is important to capture the HSEC lessons learnt progressively during a project and ensure these are included in the project close-out report (PCOR). Independently facilitated workshop sessions with key stakeholders provides for neutral ground during which the concerns, problems and gaps in the processes implemented during the particular phase of the project are identified and recommendations to improve are made. The objectives of such a workshop include:     

to review HSEC management strategies used on the project to achieve the project goal of zero harm to identify those strategies which were successful in contributing to the goal of zero harm to review strategies which were not successful or which can be improved to ensure they are more effective to discuss other strategies that may be useful in the future to ensure that lessons learnt are transferred to other projects so that other projects can also achieve a high level of HSEC performance.

Key stakeholders that are engaged in such a workshop as a minimum include:     

BHP Billiton project management team BHP Billiton HSEC representatives CSG representatives implementation contractor project management team implementation contractor HSEC management team.

Toolbox 9.5.6A Ravensthorpe PCOR contains the outcome of such a workshop.

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4.4

PEOPLE AND TEAMS People are the foundation to BHP Billiton’s project success. Projects would not be able achieve their objectives without the right people and teams in place during the project life cycle. A major factor in ensuring a project’s success is the assurance that project teams possess the right skills and experience and that they work as a single high performance team with good team alignment. The minimum requirements associated with the management of human resources across BHP Billiton are detailed in the following GLDs:           

GLD.xxx Human Resources Services GLD.xxx Recruitment GLD.xxx Reward and Recognition GLD.xxx Talent Management and Succession Planning GLD.xxx Business Conduct GLD.xxx Performance Enhancement GLD.xxx Mobility GLD.xxx Induction, Onboarding and Separation GLD.xxx Business Travel and Expense Management GLD.xxx Operating Model GLD.xxx HR Policy.

Chapter 3.0 Group Level Documents highlights the other minimum human resources requirements (specific to project development) that are included in the Major Capital Projects GLDs. In addition, there are other activities that can enhance the performance in people and teams and these are discussed throughout this section. The key people and teams requirements through the investment phases are shown in Table 4.4.1. Table 4.4.1 Key people and teams requirements Identification

Selection

Definition

 Develop and implement the resource requirements for completing the identification study including access to operation resources.

 Implement the selection phase project resource plan.

 Implement the definition phase project resource plan.

 Develop a detailed project resource plan as part of the definition SWP.

 Update and finalise the execution phase project human resource management plan.

 Develop detailed project resource plan as part of the selection study work plan (SWP).

 Develop an outline project human resource management plan 4 for the execution phase for the preferred investment alternative.

 Support the finalisation of the operations strategy and development of the operations plan as it pertains to people and teams for activities from the start of the execution phase through to project completion and handover to operations.

 Support the development of the preliminary operations strategy to support the investment opportunity including operational philosophy, operational requirements and key operational issues.

4

 On board (or access) the operations resources required to support development of the operations strategy, the preliminary operations plan and to ensure operations input into design.

 Develop a preliminary operations human resources management

Execution  Implement the project human resources management plan including implementation of the associated organisational development plan.  Implement, update and maintain the execution phase project operations resource plan.  Finalise the operations human resource management plan.  Include in the PEP as a minimum the operations team organisation, a mobilisation chart demonstrating that the operations resources

The term resource plan can generally be used interchangeably with human resource management plan

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Identification

Selection  Ensure key project resources and key operations resources meet minimum competency and experience standards and are endorsed and approved.

Definition

Execution

plan.

will be available in line with the operational readiness and commissioning activities in the project schedule and an overview of the required operations and maintenance training and competency programmes.

 Develop a detailed project operations resource plan for the execution phase.  Ensure key project resources and key operations resources meet minimum competency and experience standards and are endorsed and approved.  Ensure continuity of key project owner’s team and implementation contractors resources between the definition and execution phase.

 Develop and implement the overall training and competency objective for the operations staff and support contractors.  Ensure key project resources and key operations resources meet minimum competency and experience standards and are endorsed and approved.

In addition to the requirements included in Table 4.4.1, for all phases of the project the project team: 

 

 

promotes the use of BHP Billiton project and operations employees and that they are rolled over from a previous project or study as part of a deliberate program to grow internal project capability considers early engagement of resources from operations and CSG/Asset focuses on ensuring that there is recognition that the project team is made up of personnel from the Owner’s team, operations support, the implementation contractor and any other consultants and/or contractors actively engages human resources support develops and distributes organisation charts on a regular basis, highlighting the internal project relationships and the relationship of the project within the business.

The contents of Section 4.4 are summarised in Table 4.4.2. Table 4.4.2 Section 4.4 contents Section

Content

Organisation design & structure

Overview of the role of the steering committee on the project and types of organisational design.

Project human resource management plan

Outline of the content for the project HR plan including key requirements and notable considerations.

Operations human resource management plan

Outline of the content for the operations HR plan including key requirements and notable considerations.

Skills and experience profiles

Outline where to find skills and experience profiles.

Capability development program

Outlines the project management capability development program.

Endorsement of key resources

Identification of key project and operations resources and the approval/endorsement process.

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Section

Content

Organisational development

Overview of strategies and approaches to project team integration.

Demobilisation

Outlines the process of redeployment of project teams.

The organisation structure is defined early in the project life cycle and updated as the project development proceeds. The organisation structure includes a steering committee to guide and direct the development. A steering committee greatly assists the development by giving clear direction, accelerating approvals and by providing a high level review of any proposed deviations from the statement of requirements (SoR). In order to attract, recruit, develop, retain and reassign project personnel, a project human resources management plan is developed for the project. The project human resources management plan provides a project map of organisational capability and management of people resources. As the project transitions through each phase, the preliminary project human resources management plan is updated and further refined until finalised at the end of the definition phase. In addition a specific operations human resources management plan is developed to ensure an operations team is established and mobilised at the appropriate stage of a project’s development. The operations human resources management plan is critical to ensure a smooth transition from the execution to operations phase. Once a project team has been assimilated, team cohesiveness and productivity can be a risk factor and impact on project timelines if not managed effectively. Organisational Development initiatives are incorporated into the strategy to maximise the potential of the organisation. At the end of a project, continuity of project personnel to another project or business adds significant value to BHP Billiton and is a key aspect of managing people and teams.

4.4.1 Organisation design & structure It is important to develop the project organisation structure using a top down approach. It commences with defining how the project is positioned within the CSG or business. It maps out the reporting structure of the project and includes joint venture arrangements, steering committees and relationships with existing operations and business units. Once the business level project structure is established the project level organisation structure is defined in greater detail including Owner’s team, implementation contractor’s resources and the interfaces with the implementation contractor. The organisation structure for the project team and the associated responsibilities varies depending on the phase, project size, execution strategy and contracting plan for the project. The project is overseen by a steering committee with a role to oversee the successful delivery of the project and provide strategic guidance to the project leader. The steering committee is established in the selection phase of the project and continues until project completion. The use of the steering committee becomes more important as the project size and complexity increases (e.g. multiple joint venture partners, complex government interfaces and non government organisation relationships). For more information refer Toolbox 9.4.4B People and Teams Guideline. Ultimately, the organisational structure reflects the key factors affecting the project such as project scope, local culture, whether it is greenfields or brownfields, or being developed in a country new to the organisation. A number of examples for organisational structures are outlined in Toolbox 9.4.4D Project Organisation Design Templates. Key considerations are:   

design from top down understand the business environment the project is going to be delivered in every project is different so one size does not fit all

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   

project organisational structure is critical owner’s team and the implementation contractor is integrated and managed decision making is pushed down to the appropriate level of the organisation to ensure senior management is not overloaded with issues of a minor nature avoiding the modification of an organisation structure to suit deficiencies in skills and experience.

Once the organisational structure is developed the other key activities commence including developing manning charts, roles & responsibilities and accountabilities. In regards to project organisation structures there are a number of different structures available. PMBoK (Chapter 2.4.2 Organisation Structures) for instance outlines the following:    

functional matrix project composite of all of the above.

They have characteristics as outlined in Table 4.4.3. The overall execution strategy (e.g. EPCM managed by Owner, salt and pepper team, integrated team) will influence the organisation structure further. See Section 6.2 Project Management for further detail on execution strategy considerations. It is not appropriate to finalise the organisational structure without an understanding of the execution strategy. Table 4.4.3 Characteristics of organisation structures 5 Organisation structure Project Characteristics

Functional

Matrix

Project

Weak matrix

Balanced

Strong matrix

Little or none

Limited

Low to moderate

Moderate to high

High to almost total

Little to none

Limited

Low to moderate

Moderate to high

High to almost total

Who controls the budget?

Functional Manager

Functional manager

Mixed

Project manager

Project manager

Project manager’s role

Part-time

Part-time

Full-time

Full-time

Full-time

Project managers authority Resource availability

The organisational structure shown in Figure 4.4.1 is an example of an Owner’s team project level organisation structure for a >US$1 billion project in execution. Examples of organisational charts for each phase of a US$1 billion project are included in Toolbox 9.4.4A.

5

Compiled from Table 2-1 of A Guide to the Project Management Body of Knowledge (PMBOK)

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Figure 4.4.1 Example of an execution phase Owner’s team greenfields project >US$1bn

The organisation structure of any project is dynamic and changes as the project progresses from identification, through selection, definition, execution and into operations. It is important that the organisation structure is reflected diagrammatically and distributed on a regular basis. It is also critical to ensure that through appropriate team or organisational development, the team understand the roles, responsibilities and accountability of the team members. Across all project phases the study and project management processes act to reinforce the organisation structure at all times by holding key positions accountable for delivery of aspects of the project at all times. The process relies on design of an integrated meeting diary to ensure collaboration of the team at appropriate levels with empowerment to make project decisions.

4.4.2 Project human resources management plan Prior to the completion of the definition phase, a comprehensive project human resource management plan is prepared. The content differs depending on whether the project is greenfields or brownfields, local or international etc. The plan is reviewed, updated and implemented leading into the execution phase of the project. Typical contents of the project human resources management plan is summarised in Table 4.4.4. Table 4.4.4 Structure and content of the project HR management plan Section

Content

Workforce Planning

Details how the organisation/CSG/Asset is positioned to support the delivery of project resources.

Organisational charts

The full suite of project organisational charts.

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Section

Content

Roles & responsibilities

Outlines considerations when constructing organisational structure for project including roles and responsibilities and job grading.

Global job grades

Benchmarking of remunerations and rewards by reference to external market data and internal comparisons.

Site conditions

Outlines considerations when defining site conditions for brownfields and greenfields sites.

Recruitment strategy

A comprehensive guide to the recruitment approach and process for project teams.

Onboarding

Considerations in the people onboarding process.

Performance management

Reference to the BHP Billiton Performance Enhancement Process.

Training & development

Outlines considerations for the training and development of project people.

Organisation development program

Reference to the requirement for project teams to undergo team development.

Turnover

Importance and application of measuring project turnover.

Employee relations strategy

Key considerations in the formulation of the employee relations plan.

Communication

Reference to the requirement for a project communication strategy.

Risk assessment

Identification of risks associated with the resourcing and management of project people.

Refer Toolbox 9.4.4B People and Teams Guideline for details on minimum plan contents.

Workforce Planning The first critical step in human resources planning is to assess the current labour market where the project is located and the CSG and/or Asset’s ability to source the right people under the right conditions. Additional considerations include the availability of internal shared resources, which can often be an advantage in a Hub environment such as recruitment or procurement processes. This section focuses on the strengths of the organisation and business units to be a part of and support the people strategy.

Organisational design and charts The project human resources management plan details the full suite of project organisational charts including linkages to the implementation contractor and the operations interfaces. Where the project structure is predicted to morph toward the end of the execution, the future chart is also included. See Section 4.4.1 Organisation design & structure for further information on the types of organisational structures.

Roles & responsibilities In finalising the project organisational structure, roles and responsibilities are clearly defined to ensure that the skills, competencies, experience, boundaries and authorities are articulated for each of the roles. This assists in minimising overlaps, gaps and misunderstandings between the people on the project and sets a platform for a successful team. The organisational design and role profiles (job descriptions) for projects provide the opportunity to demonstrate the interfaces with support contractors. Corporate human resources can provide a role profile template that can be used to assist in the development of project role descriptions. Key project resource role descriptions examples are available in PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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Toolbox 9.4.4B People and Teams Guideline. In addition, skills and experience profiles provide additional information in relation to core role competencies. Reference and requirements for skills and experience profiles for project roles are discussed in Section 4.4.4 Skills and experience profiles.

Global job grades Once project roles and responsibilities have been defined, corporate human resources can assist in formulating global job grades. The Organisation Levels Framework (see GLD.xxx Organisation Levels Procedure) applies to all roles at BHP Billiton and must be allocated to all senior roles. It classifies roles of similar size and scope into different levels. Corporate human resources will assist in grading senior project roles that have not already been graded. Job grading provides a more accurate methodology to the benchmarking of remunerations and rewards by reference to external market data and internal comparisons.

Site conditions Prior to initiating recruitment activities, site conditions and hours of work are clarified for each phase of the project. This assists in the formulation of the recruitment strategy in terms of resourcing from different locations and travel implications. Whether the project is brownfields or greenfields will determine the degree of emphasis on site conditions, as in some cases operational conditions may already be present. Key areas to consider include: 



Accommodation - Where the site is close to a major city or town, local accommodation may be available and some of the workforce may already reside in these locations. For remote locations accommodation solutions needs to be addressed. It is necessary to perform accommodation surveys to confirm that a local accommodation strategy can be adopted. FIFO/DIDO arrangements - Where employees are working on a remote site, fly in fly out rosters need to be developed. Other considerations include Drive in Drive Out (DIDO) or a mix of FIFO employees from a major city and labour sourced locally. It is important to address transport solutions, allowances and rosters prior to recruitment.

Recruitment strategy Sourcing and recruiting appropriately skilled and competent employees is a critical activity for all projects. Contractors are required to demonstrate in their project human resources management plan that they have identified and addressed this critical risk and advise their strategy to deliver a skilled and competent workforce. It is just as important that the same issues are addressed at an Owner’s team level. Consideration is given to the availability of, or competition for, scarce or limited resources at any given time. The project leader works in collaboration with human resources to ensure the most appropriate recruitment approach to meet the project needs is in place. The time taken for recruitment is often underestimated. Elapsed times of three to four months are not uncommon. In alignment with the organisational design and role definitions the recruitment strategy includes the following: 





Sourcing approach – depending on location and type of project it may be applicable to source key roles internationally. An understanding of the current employment market and critical skill requirements is required. Issues of diversity and local labour availability are also addressed in the sourcing approach. Sourcing strategy – the sourcing approach provides the basis for the strategy in relation to attracting and employing project people. This might include reference to specialised recruitment agencies, media advertising and/or internal networks. Type of contracts – the mix of fixed term contracts or permanent employment contracts is dependent on the current market and critical skill requirements in the project location.

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









Mobilisation requirements – a mobilisation plan is essential in recruitment planning and outlines the timelines and allocation of people resources. An example project mobilisation plan is provided in Toolbox 9.4.4A. Recruitment resources – additional internal recruitment teams may be required to meet recruitment objectives and timelines. In some cases current Hub, CSG and/or asset resources can be utilised. Brownfields projects may utilise the current operational resources whereas greenfields will need to employ whole new teams. Recruitment workflow – a clear workflow of the recruitment process is necessary to ensure the right authorisations and BHP Billiton approaches are applied. The process includes important activities such as interviews, reference checking, medicals and psychological assessments (where applicable). An example project recruitment workflow is available in Toolbox 9.4.4A. Remuneration and benefits – benchmarking of project roles can be conducted utilising external survey data such as McDonald reports and internal benchmarks which can be obtained from the CSG. Salaries and contract rates are to remain competitive but are aligned with human resources GLDs on reward and recognition. Different strategies apply in greenfields as opposed to a brownfields project environment. Existing operations employment conditions may restrict the remuneration and benefits able to be paid in brownfields projects. Retention strategies – ensuring personnel remain for the duration of the project can impact on the progress of the project. Work environment, project completion bonuses and good leadership skills are examples of contributing factors to ongoing retention.

It is essential that the recruitment strategy complies with the relevant BHP Billiton requirements outlined in this section.

Onboarding Another consideration, especially for greenfields projects is the onboarding process. Induction processes, IT support, contracts and procurement, work medicals etc are all essential in ensuring the smooth transition of personnel onto the project. Onboarding aligns with the overall human resources management plan organisational capability and design in terms of a responsibility matrix for all functional areas. Different phases of the project may draw on additional support from the CSG and/or asset which are clearly articulated in this section. Key considerations are provided in the example onboarding checklist in Toolbox 9.4.4A New Starter Induction Onboarding Checklist.

Performance management The objectives of conducting performance discussions on regular basis includes clarification of roles and responsibilities, constructive feedback to team members, discovery of unknown or unresolved issues, establishing individual development programs and establishing specific goals/KPIs for future time frames. The Performance Enhancement Process is well established in BHP Billiton with a requirement to undertake the sessions on a six monthly basis, however regular informal discussions are beneficial in maintaining motivation and management of performance. On a project the need for formal or informal performance discussion sessions depends on the type of contract, length, complexity of project, and team and individual performance. The BHP Billiton performance review process provides for business, team and individual KPIs to be developed, allowing for specific project KPIs to be constructed in alignment with overall project goals for the year i.e. safety, schedule and cost. Different phases and associated deliverables of the project are reflected in individual and team KPIs. A performance review template is available in Toolbox 9.4.4E Performance Review KPI Template. For further guidance see GLD.xxx Performance Enhancement. PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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Training & developing The Owner’s team actively participates in and contributes to BHP Billiton’s training initiatives and develops and implements specific training and development programs as required to support the project delivery. One such essential activity is to conduct inductions to ensure all project personnel are informed and understand the health and safety and human resource management objectives for the project. Key areas for development of project people include:           

leadership skills communication skills dispute resolution team development/coaching health & safety leadership project management organisation skills equal opportunity harassment prevention cultural awareness fair treatment process.

It is essential that training initiatives ensure that the project management and supervisory personnel have the appropriate leadership skills to support the project objectives. BHP Billiton provides a project management training curriculum which is supported by the capability development program. The courses range from; foundation courses aimed at people new to projects through to specific functional disciplines e.g. estimation. For further information contact Project Management Services (PMS) or refer to Toolbox 9.2.5B Project Management Training Curriculum.

Organisation development program The project human resources management plan outlines how the organisation will be developed to fulfil its full potential. Specific emphasis is required on ensuring;          

the team is clearly aligned with the project objectives the team understands the roles, responsibilities and accountabilities of all team members there is provision for regular cultural surveys, alignment workshops a communications program is in place to keep the team informed of project communications there is a project culture of respect and commitment toward all team members, consistent with the BHP Billiton values reward and recognition programs are embedded project management and supervision coach and mentor other project people changes in leadership or structure is accompanied by a change management plan opportunities for career development are present fostering a corporation culture where all leaders behave in a manner that models the BHP Billiton Charter and the BHP Billiton Leadership Model.

Project teams are often made up of new team members who may not have necessarily worked together previously. Additionally, any operational people, implementation contractor teams and other service providers to the project bring different organisational cultures and values to the project organisation. Poor team integration can have a negative impact on project progress whilst new team dynamics are formed and the organisational development program is essential to ensure a speedy integration. Section 4.4.7 Organisational development provides further background and suggestions on how to integrate project teams quickly and successfully.

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Turnover It is essential as part of the project human resources management plan that provision is included to enable measurement of turnover for the project team including the implementation contractor. Turnover is monitored and used as a control point for the project. High turnover can be a symptom of many factors including;    

poor working environment lower than market remuneration uncertainty in future prospects lack of a sense of belonging to the parent organisation.

The plan includes provision for programs to combat high turnover using tools such as retention payments and overall organisation development principals. In particular for implementation contractors staff is frequently transient and do not have long standing loyalties to the contractor and this can contribute to high turnover. The human resources management plan includes a program to combat specific turnover issues associated with the implementation contractor i.e. working closer with implementation contractor to ensure they have developed and have a monitoring process for retention. Reward systems can also be set up to help embed their approach.

Employee/industrial relations strategy The employee relations strategy is an essential component of the plan and is often compiled as a separate document. The strategy describes the criteria for establishing the policies and practices applicable to a specific project, in order to ensure that sound employee/labour relations are maintained during the execution phase of the project. A strategy is developed during the definition phase. This strategy requires input from a variety of stakeholders prior to finalisation including;    

CSG vice president for human resources Asset general manager and employee relations manager other BHP Billiton projects operating regionally input from an industrial manager e.g. Chamber of Commerce, industry or Australian Industry Group (AIG).

The strategy for industrial relations varies depending on numerous factors including;        

the CSG or business industrial relations strategy current and proposed industrial legislation the local culture the availability of the workforce the impact of the development on any existing operation (brownfields versus greenfields) the potential for establishing variations in site conditions between project construction labour and any existing site workforce the strength of regional and local unions whether the project will be resourced locally or fly in-fly out.

Established BHP Billiton practice is that the Owner’s team establishes the broad general policies with regard to industrial relations that cover operations and projects. Consideration should be given to National Employment Standards (NES), awards, local agreements and strategy. The Owner’s team, in conjunction with the implementation contractor, establishes policies and practices where no such policy has been established or in the absence of appropriate legislation. This ensures that sound labour relations and labour harmony are implemented and maintained. Where an implementation contractor has been engaged for the project, the implementation contractor is responsible for developing and implementing the industrial relations plan in accordance with the Owner’s policies. For some projects, the Owner will engage an industrial manager to assist the Owner and implementation contractor to develop, implement and manage the industrial relations plan. PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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It is important that the strategy is consistent with GLD.xxx Employee Relations. Toolbox items to assist with the preparation of the strategy include:  

Toolbox 9.4.4A Human Resources Management Plan (PP-16) Checklist in Toolbox 9.4.4B People and Teams Guideline.

Further details on employee/industrial relations are also included in Toolbox 9.4.4B People and Teams Guideline.

Communication Communication is a fundamental part of project planning to ensure employees are informed and involved in the achievements of the project and construction activities as well as provided with the opportunity to positively contribute. Some considerations for this section of the plan include:     

method of communication to employees (including contractors) how concerns are addressed by employees and contractors ensuring that open and frequent communication is provided to all personnel on the status of the project and achievement of milestones how to recognise individual and team accomplishments contractor involvement and obligations to the communication process.

Risk Assessment Although the risk associated with people is addressed in a separate more comprehensive risk analysis for the project, the potential pitfalls are outlined in the human resources management plan. These include labour shortage problems in the project location, industrial relations issues, accommodation issues, problems related to travel to the site etc. Risks are identified as part of a structured risk assessment process as outlined in Section 4.2 Risk Management.

4.4.3 Operations human resources management plan During the definition phase and as per the Major Capital Projects GLDs, the Owner’s team is responsible for developing a preliminary detailed project operations resource plan for the execution phase through to project completion. In the case of brownfields projects, the resource plan is likely to be an extension of the current operational human resources management strategy. For greenfields sites, the operations human resources management plan will look different to that of the project human resources management plan but reflects the same information including:          

organisational capability operations organisational design site conditions recruitment strategy performance management training & development employee/industrial relations strategy team integration communication risk assessment.

Other key considerations in an operational environment include:  

Gain clarity around accommodation and FIFO arrangements to ensure adequate housing is provided either onsite, within the local town/city or a mixture of both. Some members of the project team may transition across to operations where employment conditions are likely to differ.

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 



 

Alignment with the project activities and project human resources management plan is essential in driving the mobilisation plan which is reviewed on a regular basis. For greenfields projects, the placement of an operational human resources manager prior to the definition phase is paramount in developing and implementing the operations human resources management plan. A common risk for remote sites and sourcing new operational teams is attracting people to live in the area and the local services available. In some cases FIFO may be the viable option but can be the most costly. Training and competency objectives for the operations staff and support contractors is to safely and efficiently operate and maintain new facilities, equipment and Assets. Detailed plan for training program in place prior to commissioning is critical for successful transition from commissioning to operations.

4.4.4 Skills and experience profiles Project teams including operations resources are staffed with appropriately skilled staff with sufficient experience to take on their nominated role. The challenge for project teams is in determining what the minimum requirements are for a particular role within a particular project. The skills and experience for an engineering manager on a $5 billion project are different to those required on a $250 million project. The skills and experience profiles are available from PMS and are included in Toolbox 9.4.4F Skills and Experience Profiles.

4.4.5 Endorsement of key resources Key project resources Key project resources are sourced (where possible) internally where they may be rolled over from a previous project or study as part of the objective to grow internal project capability. Supplementary resources may also be required for the Owner’s team from outside of BHP Billiton. Regardless of the source, there is a requirement for key project resources to meet minimum competency and experience standards as discussed in Section 4.4.4 Skills and experience profiles. It is the project leader’s responsibility to ensure the resource capability aligns with the skills and experience criteria. This is based on the size and nature of the project. When in a resourced constrained environment, where people may be employed who don’t meet the criteria, suitable strategies are implemented to mitigate the risk. These key project resources are identified in and refer to the following roles:      

project director/project manager/project leader project services manager/project controls manager engineering manager (or equivalent) construction manager (or equivalent) contracts and/or procurement manager risk manager.

In addition, there is a requirement to formally endorse and approve the nominated candidates for the key project resources and again this requirement is identified in Appendix 1 of the Major Capital Projects GLDs. The process for obtaining approval for key project resources is outlined in Table 4.4.5. There is a need to obtain approval for the selection phase, the definition phase and the execution phase. The submissions for endorsement are required at commencement of selection, and prior to the IPR for Gate 2 and Gate 3.

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Table 4.4.5 Key project resources endorsement Activity

Documentation required

Project leader to compare nominated key project resources with skills and experience profiles.

Skills and experience profiles available from PMS per Section 4.4.4 Skills and experience profiles.

Project leader to submit nominations to Head of PMS highlighting deficiencies in skills and experience and how these will mitigated (start of selection phase, prior to Gate 2 and prior to Gate 3).

Submit memo or email to Head of PMS with resumes and an organisation chart (MS Visio) attached. Notification is then drafted to the Investment Committee (IC) using the template in Toolbox 9.4.4C Key Resources and Hub Strategy Endorsement - Memo.

Endorsement memo issued to CSG President and IC by Head of PMS.

Key operations resources Key operations resources must also meet minimum competency and experience standards as prescribed in Appendix 1 of the Major Capital Projects GLDs. Key operations resources include:   

general manager operations maintenance manager finance/services manager.

The CSG president is required to approve these roles following Asset leader endorsement. The approval is prior to the IPR for the selection and definition phase of the project.

4.4.6 Capability development program The project management capability development program was developed to support project leaders and their teams by establishing a process for identifying their development opportunities, including educational (training), exposure and experiential i.e. on-the-job. Ultimately this enhances capability by having skilled and competent people available to implement the project pipeline. The capability development program is designed to enable the:      

establishment of desired baseline competency levels for project management within the organisation assessment of the current level of project management competency within the organisation development and implementation of career development opportunities for individuals development and implementation of a training strategy for project management within the organisation support for recruitment and selection of project managers assignment of project managers to projects based on matching of an individual competency profile to a project profile.

Figure 4.4.2 provides an overview of the project management competency framework which underpins the capability development program.

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Figure 4.4.2 Project management competency framework

The BHP Billiton leadership model has been integrated into the framework with clear behavioural guidelines for employees and it identifies what it takes to be a leader within BHP Billiton. There is a project management training curriculum which supports the Capability Development Program. The courses range from foundation courses aimed at people new to projects through to specific functional disciplines e.g. estimating. For further information contact PMS or refer to Toolbox 9.2.5B Project Management Training Curriculum. Where it is difficult to find project personnel with the required skills and experience to engage on BHP Billiton major projects, there is an opportunity to include project personnel with lower experience levels and develop them by placing them into the project in a coached and/or mentored role. It is noted that experience has shown that coaching/mentoring programs have been problematic and have inherent risks, which need to be understood before embarking on this type of program such as:   

the requirement to get people that meet/exceed the experience criteria appears contrary to this message, especially for the more senior roles where the biggest shortfall tends to be budgeting to effectively “carry” someone while they learn is sometimes a challenge managers can under-estimate how much time mentoring and training will require of them, resulting in this activity falling away when the pressure is on.

This way BHP Billiton can accelerate the development of project personnel to meet the ongoing demands of the project pipeline. BHP Billiton spends billions of dollars in sustaining capital projects at the Assets each year and most of them are managed by project practitioners with low levels of experience. However they are project managers of the future and there is a need to recognise the development of this talent pool.

4.4.7 Organisational development “Organization Development is the attempt to influence the members of an organization to expand their candidness with each other about their views of the organization and their experience in it, and to take greater responsibility for their own actions as organization members. The assumption behind OD is that when people pursue both of these PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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objectives simultaneously, they are likely to discover new ways of working together that they experience as more effective for achieving their own and their shared (organizational) goals. And that when this does not happen, such activity helps them to understand why and to make meaningful choices about what to do in light of this understanding.” -- Neilsen, “Becoming an OD Practitioner”, Englewood Cliffs, CA: Prentice-Hall, 1984, pp. 2-3. As discussed Section 4.4.2 Project human resources management plan, organisational development consists of a range of activities with the ultimate goal of a strong positive organisational culture and high performing teams. These activities include amongst others, change management techniques, coaching and mentoring, reward programs, leadership development, team building etc. Perhaps the most important activity for new project teams is team development which not only aligns individuals with group values but also helps embed future behaviours. Coaching and mentoring are important organisational development initiatives on a project to assist less experienced project people. It is essential that the project adopts a consistent and planned approach to coaching and mentoring programs. For more information on BHP Billiton programs contact PMS or the CSG human resources department. Perhaps the most important activity for new project teams is team development which not only aligns individuals with group values but also helps embed future behaviours.

Team Development Teams do not function effectively from ‘day one’. They need time to adjust to the interpersonal reaction of the team members, and to the style of the project leader. Project teams typically include the Owner’s team, asset owner’s or operations teams (present with brownfields projects) implementation contractor and other contract service providers. It is critical that team development initiatives are implemented to encourage strong team integration and quick development of a positive project culture. Tuckman’s four stage development model illustrated in Figure 4.4.3 suggests that there has to be a significant breakthrough in levels of communication, trust and empowerment if a team is going to prosper and grow. It is also clear that no matter how efficient the team’s procedural processes might be, if the environment does not promote the interpersonal debate and the raising of issues, the team will be unlikely to achieve its potential. Figure 4.4.3 Tuckman’s Four Stages of Team Development

Once the team has reached the “Perform” level in Tuckman’s model, the challenge then becomes how to maintain performance over significant periods of time. What separates a high performance team from any other teams is its ability to perform at the highest level for an extended period of time and to accomplish its work in the most efficient and effective manner possible. Although purposes, objectives and roles can change from one team to the next, high performance teams do the following on a consistent basis: PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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         

develop goals and plans enhance communication among members develop and maintain positive relationships among members solve problems and make decisions on a timely basis successfully manage conflict facilitate productive meetings clarify roles for team members operate in a productive manner exhibit effective team leadership provide development opportunities for team members.

One method for uniting the team and setting expectations is to undertake an ‘alignment’ workshop with the group. This session, if structured and facilitated well can set a successful platform for open communication, establishing trust and empowering the team to prosper and grow. This type of session, if undertaken early in the project will shorten the journey in achieving a high performing project team. Further details are provided in Toolbox 9.4.4B People and Teams Guideline. Besides having the ‘initial’ kick-off session, there are benefits if these types of sessions can be run throughout the projects life, particularly when moving to a new phase, or there has been significant change in team members, or a new project leader has come on board.

4.4.8 Demobilisation Redeployment requires the same level of planning and commitment that occurs at the recruitment phase with a release program schedule and development of exit support strategies. These include: 



Actively canvassing the projects within the growth pipeline with the details of the Owner’s team people and their expected release dates is a proactive approach. PMS can assist with disseminating this information. Working with an outsourcing agency to assist in transition into other projects.

Historically, the approach has been to recruit and release project teams for each individual project. In times of tight labour markets this has created difficulty in locating and recruiting quality people when a project commenced and of course the cost of labour reflected in this type of market. The loss of quality people and high performing teams creates extensive discussion within BHP Billiton and the probability of reassembling the team for the next project is remote. BHP Billiton with its large project pipeline is in a unique position to leverage off this. One of the key benefits of moving to a portfolio/program approach (i.e. the Hubs) for developing projects is that it increases the probability of maintaining continuity not only across the phases, but also from project to project as shown in Figure 4.4.4. The continuity of teams and the rollover of teams from one project to another can be highly effective for the business. It also allows individuals to advance their career by gaining exposure to different projects and this is a key objective of the human resources function. In doing this, there is also the need to balance the benefits against the potential for complacency and lack or loss of innovation.

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Figure 4.4.4 Resource continuity via Hub resource management

Pre-Hub Resource Management Resource usage Project 1

Project 2

Time

Resources roll-out to next project

Resource usage Project 1

Optimised Hub Resource Management

Project 2

Time

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4.5

STAKEHOLDER MANAGEMENT Stakeholders are persons or organisations who are affected in some way by the development of a project, either positively or negatively. Stakeholders’ interests and involvement vary widely. Their stake may not be financial and they may not be interested in a positive outcome from BHP Billiton’s perspective. Some stakeholders also play an important role in defining project scope (refer Section 6.3 Scope Definition). The requirements set out in the following GLDs are mandated and therefore integral to all aspects of stakeholder management: 

GLD.xxx Communications, Media and Investor Relations.

The key objectives of stakeholder management are:    

to gain a better understanding of issues from stakeholders’ points of view to understand stakeholders’ needs and expectations to respond to the above appropriately and promptly so that they do not become a roadblock at a later stage to unify the expectations, aims and objectives of major BHP Billiton groups within the project, to assist in facilitating a smooth transition to the next phase of work.

From a project development perspective, stakeholder management begins at the commencement of the identification phase and is a continuous process through all phases of the project. Activities within stakeholder management are conducted at regular and frequent intervals with key issues revisited as various milestones are achieved. The key stakeholder management requirements through the investment phases are shown in Table 4.5.1. Table 4.5.1 Key stakeholder management requirements Identification

Selection

Definition

Execution

 Identify the key stakeholders associated with the investment opportunity and prepare an initial stakeholder register.

 Prepare a preliminary stakeholder management plan.

 Review, update, implement and maintain the project stakeholder management plan.

 Review, update and implement the project stakeholder management and communications plan(s).  Update and maintain the project ownership register and associated documentation.

 Develop an initial stakeholder management plan if deemed necessary.

 Update and maintain the project legal and regulatory approvals register and plan.

Stakeholders are treated with respect and fairness at all times. Stakeholder management is a powerful tool to increase the probability that the development of the project through each of its phases proceeds smoothly, by facilitating the completion of sign-offs, approvals, authorisations and permits without delay or re-work. Stakeholder management also serves to counter negative perceptions and avoid escalation of third party objections that could delay the project. Initial perceptions are very difficult to change, so all those representing BHP Billiton at the outset of a project actively demonstrate a strong understanding of the principles of The BHP Billiton Way. There is often a need to incorporate and embrace the community, non-government organisations (NGOs) or government departments in any negotiations, to maximise possible buy-in to the project. Ignoring such issues in the early stages of project development can lead to intractable problems later.

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4.5.1 Types of stakeholders For the purpose of this manual, stakeholders can be either internal to or external to BHP Billiton. Internal stakeholders include various CSG and corporate groups, individuals, employees, shareholders and joint venture partners. External stakeholders include national, state, regional and local governments, statutory authorities, local communities, NGOs, traditional owners, native title claimants, suppliers and contractors, customers, investor groups and analysts, media and special interest groups. External stakeholders can be grouped into two categories for management purposes, namely:  

statutory authorities and other legal entities from which licences, permits and other formal approvals or agreements are required other groups, organisations or individuals that have no legal standing in relation to the project but with whom it is important to have satisfactory relationships.

The Owner’s team identifies internal and external stakeholders and then understands their needs, requirements, concerns and expectations. Stakeholders have differing ideas about what is important. It is the responsibility of the Owner’s team to manage stakeholder expectations, in order to contribute to the successful outcome of the project. Relationships with external stakeholders are managed by appropriately qualified and experienced personnel. This may require relevant Asset or CSG personnel to be seconded onto the Owner’s team on a part time basis and/or to engage suitably experienced service providers. In particular, it is necessary to pay special attention to communications with traditional owners and native title claimants and ensure that their views are fully understood. Investor groups, analysts and media groups also require special attention. These stakeholder relationships are managed by the appropriate corporate or CSG functions. An example of a stakeholder list is provided in Toolbox 9.4.5A Stakeholder Identification List. Involving the right stakeholders at the right time enhances successful project outcomes. Whilst all members of the Owner’s team have a role to play in the management of stakeholders, it is good practice for one member of the team to be appointed to have overall responsibility and accountability for stakeholder management and coordination. The coordinator’s responsibilities include drafting an initial stakeholder management plan and then ensuring that the individual activities within that plan occur in a timely and relevant manner. These activities include updating registers and reports, ensuring that there are timely communications with stakeholders and incorporating feedback as appropriate. Identifying and communicating with stakeholders is described further in Section 4.5.3 Stakeholder register. The documents and activities within the sphere of stakeholder management are planned and undertaken to satisfy the relevant mandated matters of the Major Capital Projects GLDs. The key documents to be developed are:      

stakeholder management plan stakeholder register communications plan ownership, legal and regulatory approvals plan key contracts list joint venture interface plan (when appropriate).

These documents are all subsets of the stakeholder management plan (as shown in Figure 4.5.1) and are discussed in more detail in the following sub-sections.

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Figure 4.5.1 Contents of the stakeholder management plan

4.5.2 Stakeholder management plan The objective of a stakeholder management plan is to document how the Owner’s team will work to move stakeholders towards support and, where appropriate, endorsement of the project. The core steps (refer Figure 4.5.2) are to identify the stakeholders and then document the communication activities to be undertaken for those stakeholders. These steps are in alignment with the overall project strategy, where applicable. Figure 4.5.2 Core steps for stakeholder management

 Identify all affected by project

Stakeholder Register

 Allocate relationship manager for each stakeholder

 Define key messages & themes

Communication Plan

 What, when, how & with whom

The initial stakeholder management plan is prepared at the start of the identification phase and is updated and maintained through to project completion. The stakeholder management plan describes how stakeholder related activities are undertaken, actioned and reported. It includes a description of how to obtain feedback from stakeholders, address the issues as they occur, analyse stakeholder concerns and prepare mitigation plans. Table 4.5.2 outlines the six key elements of the stakeholder management plan. Table 4.5.2 Stakeholder management plan key elements Subdocument Stakeholder register

Contains  List of stakeholders, their interests, involvement, concerns, requirements and potential impact on the project.

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Subdocument Communications plan

Contains  What, when, where, how and with whom, any stakeholder communication occurs.  Description of key messages to be conveyed.  Description of how feedback and any changes in stakeholder interests are documented.  Description of how communications with internal and external stakeholders is implemented.

Statement of roles & responsibilities

 Reference to and summary of.

Ownership, legal and regulatory approvals plan

 Reference to and summary of.

Key contracts list

 Reference to and summary of.

Joint venture interface plan

 Reference to and summary of.

These elements are described further in the following section.

4.5.3 Stakeholder register A stakeholder register is a list or database, describing each stakeholder, including their name and title/position. The stakeholders are then grouped according to their organisations e.g. government departments. An example of a stakeholder register can be found in Toolbox 9.4.5A Stakeholder Register. A relationship manager is allocated to each stakeholder. A list of relationship managers is prepared, (refer Toolbox 9.4.5A Stakeholder Relationship Manager List) and each manager’s name is included in the stakeholder register. The relationship manager’s ongoing responsibility and accountability is to communicate with and manage the relationship with the stakeholder, by communication, obtaining feedback and following up to see that appropriate action by the Owner’s team is or is not taken. That action then provides the basis for the relationship manager to give feedback to the stakeholder. Generally, the stakeholder’s relationship manager is a member of the Owner’s team. However, there will be exceptions, such as where stakeholders are senior CSG and BHP Billiton corporate managers, or particular persons external to BHP Billiton, or individuals or groups with whom the operating entity already has established channels of communication. Identifying all the stakeholders for a project is an important step. To do this, the Owner’s team consults with as many sources as possible. A team workshop is recommended to brainstorm an initial list of stakeholders and their estimated interest in the project. A first pass assessment is done to identify the level of stakeholder support/interest and their potential influence on the project. Workshop attendees include the project manager and senior Owner’s team members, as well as managers from the Asset and/or CSG, as considered appropriate. An example of documentation of outputs from a workshop is included in Toolbox 9.4.5A Workshop Outputs. Stakeholders may be at different levels within an organisation and possess different levels of authority. Both the impact of the project on the stakeholder and the potential impact of the stakeholder on the project are evaluated. A method of documenting this could be by drawing a support and influence chart. An example of this is given in Toolbox 9.4.5A Stakeholder Support Interest versus Influence Status. The chart is populated with stakeholder names, placed in appropriate quadrants (high or low support and influence) and is colour coded (using “traffic lights”), to indicate the current opinion of the stakeholder toward the project. The chart assists in identifying who are the most important stakeholders, their level of influence on the project and hence the level of effort that needs to be expended in communicating with them. It is good practice to rank stakeholders according to their influence levels, such as: 

patrons – parties that retain power of veto through all phases of the project

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 

controllers – parties that have a major influence and power of veto at key stages of the project influencers – parties that influence the controllers and/or patrons but rarely, if ever, have power of veto e.g. suppliers and NGOs.

A strategy is then developed for each stakeholder, including the frequency and level of contact to maximise positive outcomes with that stakeholder. This is documented in the communications plan, which is then used to facilitate the most efficient application of resources to each stakeholder, according to the ranking of each stakeholder’s needs. The list of stakeholders is likely to change as the project matures as new stakeholders become involved and the interests and influences of established stakeholders change. Ideally, the stakeholder relationship manager is the same person throughout the development of the project but changes may be required to suit altered circumstances.

4.5.4 Communications plan The stakeholder management plan includes a communications plan that is designed to provide the basis for timely interaction and information sharing with stakeholders. The objectives of the communications plan are to get the right information to and from the right project stakeholders at the right time. Each stakeholder has different requirements for information, given that they participate in the project in different ways. The communications plan includes the following items:     

strategy, plan and purpose for communication with stakeholders description of key themes and messages to be conveyed to stakeholders stakeholder survey plan description of the form and frequency of communication with stakeholders, such as via meetings and written reports media programme, if applicable.

Initial communication by the designated stakeholder relationship manager is via face-to-face contact, since this provides a good opportunity and basis to develop relationships over the longer term. Face-to-face communication is often effective but it is good practice to follow up with a range of other forms of communication at appropriate times. The first meeting is supported by the use of a stakeholder survey, to record the initial views of the stakeholder. Refer to Toolbox 9.4.5A Stakeholder Survey Template Example. The results from this survey are then used to plan further actions. Follow-up surveys are conducted at appropriate frequency to exchange information, record feedback, plan action to redress any negative opinions and to feed into strategies to move the stakeholder to a positive view. The objectives of stakeholder surveys and ongoing communications are to:     

initiate and establish two-way communications with all stakeholders inform stakeholders of developments within the project receive comments and feedback for action maintain stakeholder engagement, to maximise the probability that stakeholders will support the project gain input to establish the project statement of requirements (SoR) (refer Section 6.3 Scope Definition).

The frequency of communication varies according to subject matter and changes thereto, as well as the relative status of the stakeholder and their level of influence and authority. To develop a communications plan, consideration is made of the following items:   

Who are the project community members? Who needs the information, why, how and when? What type of information will they need and in what level of detail?

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       

What is my goal as the project manager when my Owner’s team communicates within and outside the project? What medium will be most effective? Whose sign-off do I need before releasing the communication material? What kind of feedback mechanism do I need? What are the drivers for any communication? What requirements are there for change management? How will conflict be managed? How will status reporting be handled e.g. daily, weekly, monthly, quarterly, half yearly, annually, close-out and post investment review report?

An example communications plan is included at Toolbox 9.4.5A RGP5-Rail-PCP-001 - ADP Comms Plan.

4.5.5 Statement of roles and responsibilities   

A summary of all proposed stakeholder related activities. The organisational structure, resources, roles and responsibilities required for stakeholder management activities. A plan to review and update all the documents related to stakeholder management.

4.5.6 Ownership, legal and regulatory approvals plan The ownership, legal and regulatory approvals plan addresses at a minimum:      

sovereign risk legal risk ownership risk project structure/entities all material regulatory approvals other legal actions required for the project.

The ownership, legal and regulatory approvals plan includes the following:      

 



the organisation structure, resources required, roles and responsibilities for all key project resources how the approvals processes will be managed a list of all applicable regulations an ownership register, stating all mineral resources or reservoirs, lands and surface rights, marketing rights and intellectual property required for or relevant to the project a plan and time schedule to acquire the resources or reservoirs, other lands or rights required a register of all permits, licences and approvals required for the project (the register includes the issuing authority for each permit, licence or approval and who in the project is accountable for obtaining them) a plan and time schedule for the application and approval process for each permit, licence or approval, including the timing, required resources, data and costs to obtain a risk assessment of the expected conditions to be imposed with the permit, licence or approval, including the risks of not obtaining approval (for inclusion in the overall project risk management plan - refer Section 4.2 Risk Management) documentation of the permitted environmental emission levels for the project’s facilities.

In addition to the above, when choosing joint venture partners, third parties or agents ensure that all relevant business conduct and governance considerations have been incorporated and that counterparty risks (including reputation risks) have been fully assessed and are carefully managed. The ownership, legal and regulatory approvals plan describes how this will be done.

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4.5.7 Key contracts list Key contracts (e.g. power, water, third party port access) are those that have the potential to materially impact upon the investment opportunity. A list of key contracts is prepared during the study phases. As the nature and scope of the project is developed and defined, the key contracts list is updated. Contracts to consider for inclusion in the key contracts list include:   

those contracts for which long term commitments (e.g. into the operations phase) must be made contracts for services of significant scope during study phases (e.g. for use of hubs, implementation contractors and specialist service providers) pre-commitments required prior to commencing the execution phase.

A senior member of the Owner’s team, usually the contracts and procurement manager, is given responsibility for management of all activities related to key contracts. The management of key contracts and commitments is included in the contracts and procurement plan (refer Section 5.2 Contracts and Procurement Management).

4.5.8 Joint venture interface plan Joint venture partners for a BHP Billiton capital project form a special category of internal stakeholders. The purpose of a joint venture interface plan is to describe the form of the communications required between BHP Billiton and its joint venture partners and any special management processes to be implemented as the project develops through the study and execution phases. The actions to be taken will be significantly different depending on the terms and conditions of the joint venture agreement and whether BHP Billiton or a joint venture partner is the designated operator for the project. The joint venture interface plan is prepared specifically for the development of the project and includes the following:      

a statement of percentage ownership by all joint venture partners and a definition of who is the designated project operator under the joint venture agreement a plan to ensure that counterparty risks (including reputation risks) are carefully managed the roles, rights and responsibilities of the joint venture partners in the development of the project the methods and frequency to communicate and report project development a list of key milestones and timeframes for approvals by joint venture partners procedures for joint venture partner review and approval.

Each of the parties in the joint venture is listed as stakeholders in the stakeholder register and the communications plan. Note that on a project with joint venture partners, the management of risk differs depending on whether BHP Billiton is or is not the operator. Refer Section 4.2 Risk Management. It is good practice for the project manager to review any joint venture agreement and check that the following are included: 



provision for access by BHP Billiton to relevant information produced by third parties and any other requirements to meet BHP Billiton governance and approval requirements, including the BHP Billiton Code of Business Conduct acceptable timeframe in order to complete BHP Billiton review, endorsement and approval requirements between completion of the definition phase study report or acceptance by the joint venture operating or Owner’s committee and the date that the joint venture parties are required to provide their share of funding for an investment.

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When acting as non-operator, the project manager ensures that the operator is aware of BHP Billiton requirements (including the BHP Billiton Charter and the BHP Billiton Code of Business Conduct). The project manager evaluates the operator’s processes, systems and capabilities for the definition and development of the investment. If a process similar to the BHP Billiton investment process is established, duplication can be minimised by conducting joint reviews. Where this is not practical, BHP Billiton clearly establishes what BHP Billiton’s minimum requirements are, whether and where these conflict with BHP Billiton established or available rights and what actions or decisions will be taken prior to proceeding with any investment.

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4.6

OPPORTUNITY REALISATION

4.6.1 Introduction Background As discussed in Section 2.6 Maximising Value, the identification and selection phases of any capital project are the most important with respect to FEL and maximising value from the investment opportunity. In particular the selection phase, where the study teams evaluate all reasonable investment alternatives and then narrow these down and select the optimum investment alternative (taking into account net present value (NPV), risk, uncertainty and embedded option value) has been shown to be critical in BHP Billiton to ensuring that investment return to shareholders is maximised. It is also important to evaluate and select the preferred alternative in the context of the full resource potential of the province (minerals) or basin (petroleum) being developed and future project optionality. During the recent commodity boom, most BHP Billiton project teams were asked to focus on getting their projects completed in record time (faster to market). Unfortunately, in several instances this resulted in teams not completing the full scope of the selection phase study but instead jumping to predetermined solutions. As a result, development and engineering work was performed out of sequence or prematurely and significant time and resources were wasted on incorrect alternatives or on defining scopes that contained unresolved fatal flaws which subsequently required re-work. This can still occasionally be seen today when projects start the identification phase with the name of the project being the pre-conceived outcome of the selection phase work. It is critical that all project teams appreciate that one of the best ways to accelerate a capital project is to carry out a high quality selection phase (go slow to go fast) and that FEL has been consistently shown to lead to better project outcomes including schedule performance that is shorter than industry average. Conversely, trying to cut corners early in the development phases of a project often leads to re-work or even the requirement to go back into the selection phase when the inevitable happens and the issues that should have been addressed early in the project surface in the definition or execution phases.

Benchmarking Based on these internal lessons learnt, the corporation conducted an external benchmarking survey to establish how others had addressed these issues. The feedback provided by IPA was that: 

Several of BHP Billiton’s major competitors used a mid selection phase check point (to confirm the preferred investment alternative before progressing further) and IPA believed that this practice added significant value and would be adopted by more and more of the industry over time. Some of the companies that use this practice are amongst the best performers in IPA’s Industry Benchmarking.



A mid selection phase check point was common amongst the upstream petroleum companies. Woodside were identified as a good example of a company that was disciplined in its use of a mid selection phase check point.



Some companies tried to achieve similar outcomes without the mid selection phase check point by developing much more comprehensive project evaluation and selection criteria during their identification phase.



None of the better performing companies advanced into the definition phase immediately after the selecting the preferred investment alternative – they all spent some time de-risking and further defining the project. The aim of this last part of the selection phase was to better define the scope,

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to de-risk the project, to obtain a more accurate cost and schedule, to further develop the execution strategy and to prepare for the definition phase.

Recommendation Based on both internal lessons learnt and the external industry benchmarking, a recommendation was made to the Group Management Committee (GMC) in July 2009 to introduce a more consistent methodology to BHP Billiton’s selection phase studies via the use of a four step process (the opportunity realisation process) and to introduce a mid selection phase check point (Gate 2A), where the project obtains internal CSG president approval of the preferred investment alternative before going on to finalise the selection phase work.

Objectives The objectives of introducing these changes are to:     

provide clear guidance to project teams on the corporation’s expectations for the selection phase work ensure that the selection phase is more structured and focused and that a full range of alternatives is genuinely evaluated obtain alignment between the business and the project team on the business objectives and confirm that the selected alternative meets these business needs ensure that all “show stopper” risks are identified and resolved (or mitigations identified) prior to the definition phase prevent project teams from commencing definition phase activities prematurely.

4.6.2 Opportunity realisation process overview The investment phase objectives of the selection phase are to:    

assess all reasonable value-creating alternatives select the optimal investment alternative taking into account NPV, risk, uncertainty and embedded option value select the optimal investment alternative taking into account the full resource potential of the province (minerals) or basin (petroleum) and potential future projects ensure the technical and commercial viability of the selected investment prior to further study and optimisation in the definition phase.

In order to meet these objectives, project teams carry out the following:  





Step i: Opportunity Framing - Identify and assess all reasonable value-creating alternatives (opportunity framing). Step ii: Opportunity Selection - Select the optimal investment alternative, taking into account NPV, risk, uncertainty embedded option value and the province or basin resource potential (opportunity selection). Step iii: Gate 2A - Produce a summary of the investment alternatives considered, the criteria used and the reasoning behind the decision to select the preferred investment alternative for formal internal CSG approval (Gate 2A). Step iv: Opportunity Realisation - Complete sufficient work (opportunity realisation) on the preferred investment alternative in order to meet the requirements of the Major Capital Projects GLDs prior to gating into the definition phase.

These four steps, which make up opportunity realisation process, are shown in Figure 4.6.1 and explained in more detail in the subsequent sections.

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Figure 4.6.1 Overall selection phase opportunity realisation process

i

ii

iii

iv

Step i - Opportunity framing The aim of opportunity framing is to identify and assess all reasonable value-creating alternatives available to an investment opportunity. It is a structured approach to understanding and evaluating the key issues associated with the project and provides a logical approach to arriving at a consensus view as to the exact nature of the opportunity being investigated and enables the full range of possible approaches or solutions to be characterised by a few distinct strategic level alternatives, which can then be evaluated during the subsequent opportunity selection process. Opportunity framing within BHP Billiton is normally achieved via one or more team based facilitated workshops which are designed to achieve the following:       

identify what the investment opportunity is and is not identify the major value drivers behind the opportunity identify the major issues, barriers, uncertainties surrounding the opportunity define the opportunity scope (ring fencing the boundaries for the team/group) define success/critical success factors/measures of success develop a roadmap (decision driven) work plan identify robust alternatives to consider as part of the opportunity selection process.

Note that opportunity framing is very similar to the “problem framing” process used previously by project teams to assist with the early part of the selection phase. An introduction to the opportunity framing process is available in Toolbox 9.4.6B Opportunity Framing Presentation which can be used when conducting an opportunity framing workshop. A detailed explanation of the opportunity framing process and methodology is included in Section 4.6.3 Opportunity framing process. This is recommended reading for all project teams involved in selection phase studies.

Step ii - Opportunity selection The aim of opportunity selection is to select the optimal investment alternative, taking into account NPV, risk, uncertainty and embedded option value. Included is an understanding of the resource potential of the relevant province or basin so that the optimal investment alternative can be presented in the context of overall future growth optionality. It assists the project team in making the right business decisions about the investment opportunity in a consistent, efficient and effective manner. The key objectives are:    

determine the optimum investment alternative for a particular investment opportunity develop alignment and clarity amongst team members, stakeholders and decision makers on the optimum investment alternative detail the reasoning behind the decision make transparent the value and risks associated with the preferred investment alternative.

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Value analysis 6 is a structured and robust economic based evaluation practice that enables the objective comparison of investment alternatives including the quantification of key uncertainties and risks in order to arrive at the optimum investment alternative. It also has the benefit of highlighting areas to add value or mitigate risk. Section 4.8.9 Investment evaluation provides further information on valuation techniques, including full value recognition, which is increasingly important for greenfields developments. A detailed explanation of the opportunity selection process and methodology is included in Section 4.6.4 Opportunity selection process. This is recommended reading for all project teams involved in selection phase studies.

Step iii - Gate 2A The aim of Gate 2A is to produce a summary of the investment alternatives considered, the criteria used and the reasoning behind the decision to select the preferred investment alternative for formal internal CSG approval by the CSG president. It is expected the project team completes Step i (opportunity framing) and Step ii (opportunity selection) and then schedule a session with the CSG president to present their findings, discuss key issues and obtain the CSG senior management endorsement of the preferred investment alternative. The key elements of Gate 2A are: 

   

It is the point in the selection phase study at which sufficient work has been done to clearly select the preferred investment alternative and project configuration from the alternatives under study. The Investment Process GLD and the Major Capital Project GLDs collectively require that this selection be formally approved and verified by the CSG president. The CSG presidents may at their discretion consider getting an independent view of the work done by the project team in arriving at the preferred investment alternative. No formal report is required from the CSG to the IC on the outcomes of Gate 2A review. The CSG president is required to obtain endorsement of their decision on the outcome of the Gate 2A review with their respective Group & Chief Executive.

A template for use by project teams in obtaining CSG president approval of the Gate 2A decision is available in Toolbox 9.4.6C Gate 2A Template. This format is not mandated. Examples of recent project Gate 2A endorsements are available in Toolbox 9.4.6A.

Step iv - Opportunity realisation The aim of the opportunity realisation process following Gate 2A is to complete sufficient work on the preferred investment alternative in order to:    

have the main areas of the project scope clearly understood and frozen ensure technical and commercial viability of the investment assess all material risk issues and prepare a risk management plan for the next phase plan for the next phase (see Major Capital Projects GLDs Appendix 3 Section 1.4).

Therefore the process typically involves the following key steps:    

close-out of all non critical trade-off studies continued development of the preferred investment alternative including any identified precommitments de-risk the preferred investment alternative carry out sufficient development to meet the Gate 2 standards for capex, opex and schedule

6

There are other almost identical techniques available e.g. decision risk tree analysis (typically used by Oil and Gas operators) or the decision systems approach. The important thing with all of these techniques is that they all aim at incorporating risk and uncertainty into economic evaluation to improve the investment decision making process. PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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   

preparation of the IAR write up of the selection phase study report undertake the selection phase IPR review completion of all planning required for the definition phase.

This planning for the definition phase normally includes:         

ensuring that the definition phase Owner’s team project manager and key project team resources are available identification of key definition phase support contractor(s) and contracts developed to stage of conditional agreements development of the definition phase SWP and cost estimate including details of any outstanding optimisation studies required on the preferred investment alternative understanding of all business and project material risk issues planning for tenure and acquisition preparation of the zero harm HSEC management plan for the definition phase development of the action plan to progress all required statutory and third party approvals planning for the location and geotechnical studies development of the definition phase exploration, geometallurgy and appraisal programs.

The time needed between Gate 2A and the end of the selection phase will vary between projects and is project specific.

4.6.3 Opportunity framing process Why is it important? In a study or project team, each team member has their own perspective and understanding of the investment opportunity which the project will address. Opportunity framing assists in clearly stating the investment opportunity (or question) to be addressed as well as outlining different potential pathways to maximise value. This approach enables teams to clearly lay out strategic alternatives for further analysis and decision making during the subsequent evaluation process. It encourages creative thinking to ensure that all opportunities to maximise value are captured and reduces the likelihood of costly, time-consuming rework at a later stage. It assists in focussing efforts of each individual team member towards the strategic alternatives identified and also maintains the relative detail of the work to the same degree. Opportunity framing is most important during the early part of selection phase study. It can also be employed during the identification phase, and if key circumstances change (e.g. commercial terms) project teams may find it valuable to revisit the analysis in the definition phase to confirm that the alternative chosen is still the preferred one that maximises the investment return. All major projects in the selection phase need to verify that all possible investment alternatives have been identified, assessed and that the selected configuration is the value maximising one. Opportunity framing and opportunity selection (refer Section 4.6.4 Opportunity selection) are the two processes that clearly demonstrate this. Examples of opportunity framing workshop reports are available in Toolbox 9.4.6A.

Conducting an opportunity framing workshop Organisation The workshop is normally organised by the Owner’s team study manager. It typically takes one full working day to complete and there is an experienced facilitator who is independent from the project team. An assistant, to support the facilitator in collating information and scribing, is also recommended.

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Refer to Toolbox 9.4.6B Opportunity Framing Presentation which can be used when conducting an opportunity framing workshop. Who should attend? The study or project team is the primary source of participants for the opportunity framing workshop. There are representatives from each of the following major work areas: geology, mining, processing, transportation (if material), marketing and investment evaluation. This is the case even though the project may be focussed on only one of these (e.g. plant expansion or new product development). The Owner’s team study manager is definitely a participant. Study or project managers or functional leaders/subject matter experts from other similar major projects are also invited. Inviting members of the IPR team is also a good idea as it facilitates early sign off on the selection process. It is essential that the workshop be facilitated by an independent facilitator who does not have any prior or ongoing involvement with the project. This assists in having an unbiased environment in which all potential solutions are raised. The total number of participants is limited to no more than twenty people to ensure efficient time and issues management. Opportunity framing is greatly enhanced by having experienced personnel from other parts of the business and outside of study teams including consultants. Preparing information The key team members are asked to prepare brief information overviews of their fields of expertise. It is important that these overviews are focussed on the underlying information rather than on potential solutions that they may foresee or the analysis they may have conducted so far. When preparing these overviews, the team members are asked to consider the state of knowledge for each piece of information. i.e. is the information factual, an interpretation, an assumption or an unknown? It is recommended that the opportunity faming workshop commence with the Owner’s team study manager presenting the background of the project and the key team members presenting brief overviews of their fields of expertise to all the workshop participants. Sometimes due to time constraints these presentations may be offered as pre-reading for the workshop. The opportunity statement The opportunity statement is a brief, written statement by the study team which fully describes the purpose of the study. While such a statement may seem obvious to each member of the team, it is important to go through the consensus building exercise and to document the result. Frequently the opportunity framing workshop reveals that team members have differing understanding or viewpoints of the purpose of the project The opportunity statement is brief, yet sufficiently clear to avoid misunderstanding. It is important to reach agreement about the opportunity statement within the study team prior to moving on to the next steps in the process. Given the diversity of backgrounds and views of members, it is not uncommon for wellprepared teams to take two or more hours to reach consensus on an opportunity statement. The following are examples of potential opportunity statements: “During the XYZ Expansion selection phase study, the project team will define and evaluate various strategic alternatives for expanding production of products PQR at the XYZ iron ore mine. For those alternatives which meet BHP Billiton’s HSEC requirements, the key metric used for final ranking of the alternatives will be NPV. What is the value maximising alternative to transport ore from the greenfields ABC mine site to the existing smelter at PQR?” Project team members individually draft their own proposed opportunity statements for discussion within the group. Questions for individual and group consideration are:  

What question(s) are we trying to answer? What decisions will we have to make in order to answer the questions?

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   

What alternative solutions might we want to consider? What risks and uncertainties are associated with the solutions? What important background (contextual) information is associated with question we are trying to answer? What questions are we not trying to answer?

Issue raising Once the opportunity statement has been agreed, the team is ready to move forward with issue raising. This is a type of ‘brain-storming’ process in which team members capture and categorise all items of concern. This is first done on an individual basis, with each team member recording thoughts and concerns in brief form e.g. “Probability of weather interruptions during construction” or “Price for key inputs has increased 20% in the last year”. The full team or subgroups of the team then reassemble to exchange ideas about the issues and to ensure that all ideas are captured. The issues are then categorised and sorted as:    

Facts – known pieces of data or background information. Risks – chance events that may or may not occur. Uncertainties – quantities with a range of possible outcomes. Decisions – choices which may be controlled.

Table 4.6.1 provides a number of examples of issues and their categorisation into a fact, risk, uncertainty or decision. Table 4.6.1 Issue categorisation Issues

Facts/Risks/Uncertainty/Decisions

What stripping method should be adopted?

Decision

Where should we primarily market the products from?

Decision

Chance of weather interruptions during construction?

Risk

What size processing facility should be installed?

Decision

Price for key inputs has increased 20% in the last year

Fact

How should the product be transported to the port?

Decision

What should be the ramp up schedule?

Decision

Should we operate in this country?

Decision

What is the recovery factor for the processing plant? Which port are we going to use to export the product?

Uncertainty Decision

When conducting the issue raising exercise, it is important that the team be asked again to consider their state of knowledge regarding each piece of information i.e. is the information factual, an interpretation, an assumption or an unknown? Decision hierarchy Having grouped the issues into Facts, Risks, Uncertainties and Decisions, the focus is then to concentrate on the decisions. Decisions can be grouped into three main categories as follows:   

Policy – those overarching decisions or policies which cannot be changed by the study team. Strategic – key decisions which impact the scope, direction and value of an opportunity. Tactical – later decisions which influence strategy execution.

Figure 4.6.2 shows the decision hierarchy and provides some examples.

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Figure 4.6.2 Sample decision hierarchy

The major focus at this stage is on strategic decisions. These are the ones where the study team will have its greatest impact. Policy decisions are important for setting context and constraints, but are not included for consideration. Sometimes team members may assume a decision to be a policy when in fact it is within the teams remit to change and therefore artificially constrain themselves. Therefore it is worthwhile to probe and question if unsure about a decision being a policy or not. Tactical decisions are also important, but are not considered until later. Table 4.6.2 takes the issues which were listed in Table 4.6.1 and then categorises the decisions as either policy, strategic or tactical. Table 4.6.2 Sample decision grouping table Facts/Risks/ Uncertainty/Decisions

Policy/Strategic/ Tactical Decision

What stripping method should be adopted?

Decision

Strategic

Where should we primarily market the products from?

Decision

Tactical

Issues

Chance of weather interruptions during construction? What size processing facility should be installed?

Risk Decision

Price for key inputs has increased 20% in the last year

Strategic Fact

How should the product be transported to the port?

Decision

Strategic

What should be the ramp up schedule?

Decision

Tactical

Should we operate in this country?

Decision

Policy

What is the recovery factor for the processing plant? Which port are we going to use to export the product?

Uncertainty Decision

Strategic

Strategic themes After all the strategic decisions have been identified, the team then records these in a strategy table. A sample is provided in Table 4.6.3, which shows all categories of strategic decisions in individual columns and the potential actual decisions themselves as separate line items within each column.

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Table 4.6.3 Sample strategy table Strategic Themes

Stripping

Processing Facility Size

Product Transport to Port

Port Options

Draglines

5Mtpa

Conveyor

Port A

Truck and Shovel

10Mtpa

Rail

Port B

Bucket Wheel

20Mtpa

Trucks (New Road)

Port A&B

2 X 10Mtpa

Trucks (Existing Road)

Build new Port

All potential strategic decisions are included, while tactical decisions are excluded. The next step in the process is to develop the strategic themes. A strategic theme is a set of individual strategic decisions which together form an internally consistent approach to the investment. The idea is to develop a few alternative themes, each of which is individually plausible as well as substantially different from the other themes. It is important for the team to be creative in developing the different themes. One potential method for defining the themes is to use colour coding and/or unique (even humorous) names for each as shown in Table 4.6.4. Table 4.6.4 Sample strategic themes Strategic Themes

Stripping

Processing Facility Size

Product Transport to Port

Port Options

Scrooge

Draglines

5Mtpa

Conveyor

Port A

Big and Bold

Truck and shovel

10Mtpa

Rail

Port B

Bucket wheel

20Mpta

Trucks (new road)

Port A&B

2 X 10Mtpa

Trucks (existing road)

Build new port

For each strategic theme, the team develops a brief written statement which describes the rationale of the theme. Written statements for the alternative themes in Table 4.6.4 might read as follows:  

Scrooge: The ABC mine will employ truck and shovel, develop a 5Mtpa processing facility, use trucks on existing road for transportation and export from Port A. Big and Bold: The ABC mine will employ draglines, develop 20Mtpa without phasing, put a conveyor in to transport product and build a new port to export product.

Note that the above represent two distinctly different strategies to capture value from the deposit. Variations on the above themes are obviously also conceivable e.g. 10Mtpa with rail transport. In fact the best alternative may ultimately prove to be a combination of some of the initially identified themes. However, care is taken that the themes are substantially different from each other. Otherwise the team may be unwittingly dealing with tactical decisions too early. The appropriate number of strategic themes at this stage depends on unique attributes of the investment. As broad guidance, eight to twelve themes may be appropriate. After the strategic themes have been identified, the team then more formally documents each one. This consists of a brief write up which expands the rationale discussion, notes opportunities and risks associated with the strategic theme, and briefly identify next steps for further evaluating the strategic theme. This process is covered in more detail in the opportunity selection process in Section 4.6.4 Opportunity selection.

Opportunity framing pitfalls The following pitfalls are considered by study teams when conducting an opportunity framing workshop:

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Imposed solution A member of senior management or the Owner’s team study manager dictates the preferred go forward investment alternative. This is often seen on projects that tollgate into the selection phase with the name of the project as the selection phase outcome. Clearly the risk here is that overly strong direction from a single person stifles the team’s ability to maximise value from the investment opportunity. Lack of engagement The Owner’s team study manager (or other key team member) does not participate and the task is delegated. The risk is both that the team see the workshop as less important and that there is a subsequent risk that there is little or no buy into to the teams output by the project leadership. ‘Tick-the-Box’ exercise The opportunity framing exercise is viewed as a ‘necessary evil’ for advancing the project through the selection phase. As a result, the team is not sufficiently open to the idea that innovative, new approaches may be generated in the process. Going into too much detail Exploring decisions that are best left for later stages in the project (e.g. tactical decisions that are best considered during the definition or execution phases). With too many potential choices to ponder, some of the bigger picture strategic possibilities are not adequately considered. Using a mechanistic approach The team rigidly applies the structure of the strategy table to dictate the number of alternatives to analyse. For instance, a simple 3 x 3 matrix (three [decision categories] times three decisions for each category) would yield 27 different alternatives to evaluate. A 3 x 4 matrix would yield 81 combinations. While the strategy table can be a powerful tool for identifying alternatives, it is not to be followed blindly. For instance some combinations of decisions might be internally inconsistent and therefore readily eliminated.

4.6.4 Opportunity selection process Why is it important? In a study or project team, each team member has their own perspective and understanding of the investment opportunity which the project will address. Project teams may even start working in detail towards this preferred solution even at the start of the selection phase. The opportunity selection process encourages convergent thinking to ensure that a team achieves a robust consensus on the preferred go forward alternative and reduces the likelihood of costly, time-consuming rework at a later stage. All major projects in the selection phase are required by the Major Capital Projects GLDs to demonstrate that they have selected the optimal investment alternative. The use of an opportunity selection process satisfies this requirement. It can also be employed if key circumstances change (e.g. commercial terms) during the definition phase to confirm that the alternative chosen is still the preferred one that maximises the investment return.

Overview Any investment opportunity, whatever its size or scope, benefits from the opportunity framing and opportunity selection processes, which together attempt to answer three fundamental questions as outlined in Figure 4.6.3.

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Figure 4.6.3 Opportunity selection - fundamental questions

In preparing for the opportunity selection process, the elements as outlined in Table 4.6.5 are the key inputs that are required. Table 4.6.5 Key inputs into the opportunity selection process Element

Details

Opportunity statement

Defines what the investment opportunity is and is not. This is an output from the opportunity framing workshop.

Decision categorisation

Details the givens (facts, assumptions, policies and decisions already made and taken as a given for the opportunity), the strategic decisions (those issues requiring especial attention by the project team) and the tactical decisions that can be decided later. Again this is normally an output from the opportunity framing workshop.

Investment alternatives

A list of potential investment alternatives is a key output from the opportunity framing workshop and each of these are credible alternatives for creating value from the investment opportunity.

Strategic fit

Establishes a common understanding of how the opportunity fits within the CSG’s and BHP Billiton’s current strategic direction and why the investment opportunity should be progressed. This is normally detailed in the investment opportunity business objectives.

Value driver and critical success factor analysis

Identifies the key value creation areas, the value drivers in each of these areas and the issues that must be managed successfully if the full potential value of the opportunity is to be realised.

Definition of success

Answers the question as to how success will be measured and provides the vision for the team. Again this should be available from the investment opportunity business objectives.  Identifies the major risks to the business and project, including country risk where this is appropriate. It forms the basis for the subsequent risk analysis for each investment alternative.

Risk Register

 At a high level, the risk register also captures the “project challenge” which maps the maturity of the project location (existing area or new location) together with the complexity and size of the project.  These parameters are important in determining the size of the project challenge faced by the team and establishes the basis for thinking on things like contracting strategy, project organisation and support requirements for each of the investment alternatives.

The location of the project and its size, complexity and level of innovation, will determine what type of project it is. Figure 4.6.4 provides examples of projects depending on these factors.

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Figure 4.6.4 Project type

High Low

Project Size/Complexity Innovation

New World: Frontier Project: changes in size and complexity for existing corporation

complex project in new location

Repeat Project:

New Venture:

extrapolate current performance and practice

standard project of familiar scope in a new location

Mature

Immature Project Location

Opportunity selection methodology Detailing the investment alternatives After the strategic themes have been identified, normally via the opportunity framing workshop, the study team more formally documents each one. This consists of a brief write up which expands the rationale, notes the opportunities, risks and unknowns associated with the strategic theme, and briefly identifies any next steps to further define or evaluate the theme (see Value of information). These themes then effectively become the “investment alternatives” for further evaluation as part of the opportunity selection process. It is important to note that, since the themes from the opportunity framing workshop are relatively coarse, in fact the optimum investment alternative may ultimately prove to be a combination of some of the initially identified themes. However, care is taken that at the start of the opportunity selection process, the themes are substantially different from each other otherwise the team may inadvertently be tackling tactical decisions too early. Decision making approach Study teams tailor their decision making approach to the investment opportunity under consideration. For example optimisation of a brownfields expansion of an existing Asset would not have the complexity of a new technology greenfields project in a remote location that has no pre-existing infrastructure or BHP Billiton experience. Typically a greenfields project with multiple technical processing options requires a multi stage decision making approach. An example is as follows:   

Stage 1 (“Resource and Mining”) is focused on identifying options for optimisation and extraction of the resource. Stage 2 (“Process Selection”) is focused on short-listing potential processing technologies that could be subjected to more detailed analysis. Stage 3 (“Configuration Selection”) is focused on things like plant location, production rate, development sequence etc which are analysed in conjunction with more detailed assessment of processing technology, mining, infrastructure etc.

Although the decision making process appears simple, in reality it is often a complex series of iterations in order to arrive at the optimum investment alternative.

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For example, even the simple brownfields expansion mentioned above may involve multiple choices around mine capacity, mining type (underground vs. surface), mining technology (sub level caving vs. block caving), processing, infrastructure, transport, port etc. The key with trade off studies is that the value analysis methodology maintains a constant focus on value (NPV) which incorporates risk/uncertainty in order to provide a level playing field for the selection process and assist the team in identifying the optimum investment alternative. Factors in decision making Selection phase study teams consider the following factors (critical screening criteria) when trying to decide on the optimum investment alternative:        

capex, opex, NPV. IRR and cash flow range analysis (uncertainty around result) sensitivity analysis (effect of key drivers) residual risk, including technology HSEC/sustainability stakeholder benefits (in joint ventures) expansion potential/full value recognition strategic fit.

It is important that the critical screening factors have a demonstrable link back to the business and project objectives. Consideration is also given to value driver/critical success factor analysis (see below) and the definition of success when developing the screening criteria. Value driver/critical success factors The majority of investment opportunities have both value levers/drivers (those things that if changed make a fundamental step change to the value of the project) and critical success factors (those things that the business absolutely need to get right in order to be successful). It is important as part of the opportunity selection exercise to identify these as early as possible, document them as part of the screening process and then try and maximise the former and ensure delivery of the latter during the alternative screening and selection process. Value of information One of the outputs from the opportunity framing workshop is a brief write up of each of the strategic themes. These form the basis for a “value of information” exercise where the cost of obtaining additional information e.g. more resource definition through drilling or modelling is able to be balanced against its value in improving the quality of the selection process. This is particularly important where additional information may significantly change the risk profile (or even clarify a perceived fatal flaw) or is associated with one of the key value drivers or critical success factors. This value of information approach is applied to the complete suite of information that is deemed important in order to arrive at the preferred go forward investment alternative. This might include:   

field work e.g. evaluation drilling, baseline surveys, plant site geotechnical etc investigative programs e.g. metallurgical test work, pilot plants, etc issues like political, local content, joint venture partner stability and tax aspects.

Workflow Once the critical screening criteria have been identified it is important to prepare a diagram which identifies how the alternative selection decision will be integrated and work-flowed. A typical example is included at Figure 4.6.5.

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Figure 4.6.5 Project workflow example High level mine schedule

Economic Evaluation

Alternative Ranking

Alternative Selection

Capital and operating cost

Risk Evaluation

Sensitivity Analysis

Benchmarking

Production Profiles

HSEC Evaluation

Go Forward Alternative

Marketing Assumptions Configuration Assumptions Financial Assumptions

Value analysis This value analysis methodology relies on the following key inputs: 



Economic: Valuation modelling is the foundation of the value analysis approach. A discounted cash flow model is developed to BHP Billiton investment evaluation standards. The model is kept simple and with sufficient detail to enable easy comparative analysis of the investment alternatives. It is important to note that the model is initially prepared for comparative purposes only and is not intended to provide definitive NPV valuations. Its purpose is to compare alternatives on a like for like basis. Risk/Uncertainty: Risk assessment of the investment alternatives is the other cornerstone of the value analysis approach. The objective of the risk assessment is to:    



identify the major specific risks in each alternative, giving special consideration to those risks that differentiate the alternatives under study determine additional control action required to achieve a tolerable level of residual risk for each alternative provide a comparative assessment of the risks associated with each alternative, by defining their RRR and MFL provide sufficient information in the form of a initial risk register for the preferred go forward alternative that could then be developed further in the second half of the selection phase.

HSEC/Sustainability: Capital projects typically have the following sustainability objectives:     

eliminating fatal risks occupational and community health greenhouse gas emissions access to and management of resources sustainable community development and closure.

These five key sustainability objectives are normally grouped under the HSEC banner. If the degree of difficulty in achieving any of these objectives is judged to be key differentiator in the selection of the preferred go forward investment alternative then specific evaluation criteria are developed and included in the alternative selection process.

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Alternative ranking The initial alternatives ranking is normally done in a multiple table and/or spreadsheet format. Weighting factors are used to emphasise certain critical selection criteria. The individual economic, risk and HSEC/sustainability evaluation rankings are normally captured in separate tables and then integrated. Examples of the individual tables are shown in Table 4.6.6, Table 4.6.7 and Table 4.6.8. Table 4.6.6 Economic evaluation summary Investment Alternative

Capex US$

Revenue US$

Opex US$

Cash Margin US$

NPV US$

NPV Ranking

Alternative 1 Alternative 2 Alternative 3

Table 4.6.7 Risk evaluation summary 7 Investment Alternative

NPV RRR/MFL

Economic RRR/MFL

HSEC RRR/MFL

Overall

Risk

RRR/MFL

Ranking

Alternative 1 Alternative 2 Alternative 3

Table 4.6.8 HSEC/sustainability evaluation summary Investment Alternative

Environmental Health

Safety

(including greenhouse gases)

Community

Overall HSEC Ranking

Alternative 1 Alternative 2 Alternative 3

Once the individual evaluations are available they are integrated into an overall alternatives ranking table. Again weighting factors can be used to emphasise certain critical selection criteria. The important thing is to be really clear with the reasoning behind why certain selection criteria were used and any weighting factors applied.

Sensitivity analysis Typically this is done in a similar way to a normal investment evaluation range analysis exercise where key value drives for the investment, like capex, opex or recovery, are varied for the different investment alternatives to see how this might effect the selection of the preferred go forward alternative. The output from the sensitivity analysis is normally represented in a table and/or graphical format. Note: If the preferred go forward alternative is very dependent on commodity price and Forex in order to generate value be aware that in the past these have not always proven to be sound investment choices.

Benchmarking Following selection of a potential preferred go forward alternative, the team does one last sense check to make sure that the optimum investment alternative is as robust as possible. This includes:

7

Note these are consolidated from the individual alternatives key risk analysis.

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  

Benchmarking: How does the option compare against industry benchmarking? What are the rest of the world doing in this area? Lessons Learnt: Have previous BHP Billiton applicable investment and project lessons learnt been built into the selection criteria? Innovation and creative thinking: Has the team really challenged themselves with respect to what is possible?

Selection criteria Normally value (NPV) incorporating risk/uncertainty is used as the key selection criteria (taking into account the sensitivity analysis) when selecting the preferred investment alternative. It is also possible to include the HSEC/sustainability ranking (for example as a colour code) and capex (in the form of bubble size, similar to the BHP Billiton growth pipeline) where these are also critical selection criteria. An example is shown in Figure 4.6.6. Figure 4.6.6 Example of alternative selection summary

It is best practice to factor the risk directly with the value (NPV) to produce a “risked NPV” for each alternative. This information is normally presented in the form of a decision tree analysis. An example is shown in Figure 4.6.7. Figure 4.6.7 Example of alternative selection summary table

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The key issue is that during the evaluation, the study team take into account a structured and transparent way the value, risk, uncertainty, complexity, HSEC, and any dependency associated with each investment alternative. Whatever evaluation method is used, it is important that the selection process meets the following criteria:  





It is a value driven judgement by the study team and endorsed by the Owner’s team study manager, based on experience and analysis rather than a simple mechanistic approach. It is a balanced recommendation, e.g. a study team might present two alternatives for a new greenfields development to senior management, one a major project with both high NPV and high risk and an alternative which is a smaller staged development with lower initial capex and NPV but also lower risk profile. The risk profile of the preferred investment alternative is clearly articulated along with the value in order to enable the senior management team to make an informed decision on supporting the decision to go with a particular investment alternative as the preferred one. The rationale behind the recommendation to proceed with a particular investment alternative is fully documented. The write up also notes opportunities and risks associated with the preferred go forward alternative and identifies the next steps for further evaluating and derisking the alternative.

Refer Figure 4.6.8 for a second example of a selection phase decision tree. Figure 4.6.8 Typical selection phase decision tree

Opportunity selection pitfalls The pitfalls for opportunity selection are similar for those described for opportunity framing in Opportunity framing pitfalls, except for the following: Using an overly mechanistic approach The team rigidly applies the outcome of the decision ranking tables. As discussed, these form the basis for a balanced and judged recommendation on the preferred go forward alternative taking into account all relevant critical selection criteria including the experience and expertise of the team.

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4.7

VALUE IMPROVEMENT Value improvement aims at maximising the value of an opportunity by identifying the value creation areas within the opportunity and examining the ways in which increased value can be obtained from those areas. Value improvement can be achieved through a number of means as follows:  

  

following the value improvement process steps in the way that the project is planned and managed (refer to Section 4.7.2 Value improvement process) carrying out a series of VIPs, addressing various issues such as technology, constructability, waste minimisation etc, across a number of phases of the project (refer to Section 4.7.3 Value improving practices) technology planning of new and existing technologies (refer to Section 4.7.4 Technology planning) benchmarking the project against other successful projects or operations (refer to Section 4.7.5 Benchmarking) a lessons learnt process which captures key learnings from historical projects to with the intention of applying those lessons to future projects to improve value (refer to Section 4.7.6 Lesson learnt).

The key value improvement requirements through the investment phases are shown in Table 4.7.1. Table 4.7.1 Key value improvement requirements Identification  Prepare a value improvement plan for the selection phase.

Selection

Definition

Execution

 Execute the study in line with the value improvement process.

 Execute the study in line with the value improvement process.

 Carry out the following mandatory VIPs:

 Carry out the following mandatory VIPs:

 Carry out the following mandatory VIPs:

o problem framing.

o value engineering

o maintenance development

o constructability review.

o lessons learnt and best practice.

 Consider all non mandatory VIPs.  Prepare a value improvement plan for the definition phase.  Ensure technology planning is considered in the process development.

o constructability review

 Consider all non mandatory VIPs.  Prepare a value improvement plan for the execution phase.

 Ensure benchmarking is conducted on opex, capex and performance.

4.7.1 Value improvement plan A value improvement plan is prepared by the Owner’s team project leader to specifically identify and plan the value improvement activities that will be undertaken during the selection, definition and execution phases of the project. A typical value improvement plan includes coverage of topics as summarised in Table 4.7.2.

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Table 4.7.2 Structure and content of the value improvement plan Section

Content

Value improvement process

An outline of the process to be followed to obtain maximum value improvement over the life of the project.

Value improving practices

 A review of the VIPs to determine which ones are applicable to the project (note that some VIPs are mandatory).  The proposed timing for each of the VIPs. This is driven by the development of the key input deliverables required to perform the VIP and the appropriate timing within the project phases to support timely decisions and to prevent unnecessary re-work.  Identify the proposed timing for each of the VIPs. This must be driven by the development of the key input deliverables required to perform the VIP and the appropriate timing within the project phases to support timely decisions and prevent unnecessary re-work.  A designated Owner’s team VIP champion who has the responsibility for driving the use of VIPs  The provision to repeat a VIP as more information becomes available during the project development phase  A check step to review the VIP list as some become relevant or irrelevant throughout the project life

Technology Planning

An outline of the proposed technology planning to be undertaken over the life of the project

Benchmarking

An outline of the proposed benchmarking to be undertaken over the life of the project

Lessons learnt

An outline of the lessons learnt process to be undertaken.

4.7.2 Value improvement process The generic value improvement process has seven steps as outlined in Toolbox 9.4.7H Value Improvement Process. Also included in the toolbox is a worked example.

4.7.3 Value improving practices VIPs are practices used to improve cost, schedule and/or reliability of capital projects. The objective of using VIPs is to drive superior project value by focussing resources on high impact activities. VIPs have been statistically shown by IPA to improve the performance of a project if applied correctly. The list of VIPs is provided in Table 4.7.3 and includes the VIP objectives, when to use the VIP, documentation required and resources to be involved. There are sixteen VIPs available for use on BHP Billiton projects of which five are mandatory. Those VIPs annotated with an * indicate those that IPA has found to correlate with improved project outcomes and that are recommended for consideration during development of the project. It is not intended that all twelve IPA VIPs be used and best practice is to undertake 40% to 60% of them by selecting those most applicable. For example, projects that do not use high temperature processes, or are not subject to high energy prices, are unlikely to benefit from the use of the energy optimisation VIP. It should be noted that IPA assesses VIP use as part of its prospective evaluation at the end of the definition phase. Further detail on each of the VIPs can be found on the IPA website: http://www.ipaglobal.com/VIPS.aspx. The website includes information on how to implement the VIPs, a list of external service providers who can support VIPs and other useful VIP links. Access to the VIPs section within the website requires the following log-on credentials:  

Username: vipsroundtable Password: generalinfo

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Some important points to note are as follows:  

 

The optimum use of VIPs is 25% to 40% by the end of selection phase and 40% to 60% by the end of definition phase. It is not appropriate to focus on VIPs until the project has in place an integrated project team and has achieved the benchmark level of front end loading (refer to Section 2.6 Maximising Value). Late design changes have the potential to undermine good VIP work done. Doing a late, rushed, emergency “VIP” when an unexpectedly poor capex/opex/value surprise from the estimate or economic model arises is seldom successful and is not truly VIP. The project needs to allow in the schedule to do the VIPs as part of the build up toward a scope and budget and also allow a separate time slot in the schedule to review the outputs of the capex, opex and NPV, including some analysis time.

Further to the information available on the IPA web site, the following VIP toolboxes are available:    

Toolbox 9.4.7B Value Engineering Guideline Toolbox 9.4.7C Benchmarking Guideline Toolbox 9.4.7D Constructability Review Guideline Toolbox 9.4.7E Project Value Analysis Guideline

Toolbox 9.4.7F VIP Database (an MS Access database) can be used to assist with the capture of and reporting of ideas generated as part of the value engineering and/or the project value analysis VIPs.

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Table 4.7.3 Value improving practices VIP Project/decision framing (mandatory) Lessons learnt and best practice (mandatory) (See Section 4.7.6 Lesson learnt for more details) Value engineering* (mandatory)

Objective of VIP To identify the objectives of the project, the associated scope and the project boundaries.

Guidelines on when to use  Project objectives are nebulous.  There is conflict amongst stakeholders with regard to project objectives.

Documentation required  Details of relevant current business measures.  Any available documents detailing the idea project/opportunity.  Project scope.

Participants (in addition to key project team personnel)  Key stakeholders.  Facilitator trained in Decision Framing.  Relevant technology specialists.

To capture both positive and negative learning’s from previous projects for inclusion in PEP and Risk Management Plans. The review should not be limited to projects that have been completed within the organisation.

 Have similar aspects to previous completed projects, e.g. same process, remote location, construction difficulties, outage restrictions, similar outcome required.

Is to meet the business objective(s) of the project at the optimal cost by eliminating and ensuring tight alignment between the project scope and objectives.

 Capital investment is a key driver.

 P&I diagrams.

 Equipment cost is significant.

 PF diagrams.

 Technical and operational representatives.

 Large number of equipment and process components.

 Plot plans.

 Independent facilitator.

 Equipment technology is unfamiliar.

 Cost estimates.

 PEP Outline.  Previous projects PIR/PCOR.  Peer Reviews.

 Key personnel from review project (previous project). Key personnel include Project Manager, Eng Manager, asset owner’s representative.

 Equipment arrangement drawings.

 Process technology is flexible without any technology or licensing issues. Maintenance development (mandatory)

Constructability reviews* 8 (mandatory)

8

An ongoing process of maintenance development activities during the selection and definition phases to ensure successful transition of design and construction activities into commissioning and speedy optimisation of plant operations and maintenance.

 Has an estimated value >$200k.

Is to systematically evaluate the design to improve construction efficiency and safety during construction and to ensure that all construction issues and

 During all phases of development and into execution.

 Plot plans.

 Construction specialists.

 Equipment drawings.

 Congested plant layout.

 Detailed equipment drawings.

 Heavy lift contractors (if applicable).

 Documents produced:

 Has a high impact on plant production.

o operating, maintenance and training manuals

 Is a complex process with a number of process steps.

o commissioning reports/procedures o as built documentation.

 Key stakeholders.  Relevant technology specialists.  Relevant operations and maintenance personnel.  Global maintenance network specialists.

 Relevant operations and

Further details on constructability reviews are included in Section 5.3 Construction Management

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VIP

Objective of VIP methodologies are captured in the project estimate.

Process simplification*

Technology selection*

Design to capacity*

Process reliability analysis*

Guidelines on when to use

Documentation required

Participants (in addition to key project team personnel) maintenance personnel.

 Require special lifting arrangements.

 Safety manager.

 Complex plant for construction or constructed during a plant turnaround.

 Construction contractors.

Is to focus on eliminating unnecessary (or combining) operating process steps or equipment to improve cost, schedule and operational flexibility. Process simplification may be applied to new or existing facilities to improve capital, operations and maintenance cost and end-product quality.

 Involves a large number of process steps.

 P&I diagrams.

 Technology specialists.

 PF diagrams.

 Equipment cost is significant compared to the total installed cost.

 Plot plans.

 Technical and operational representatives.

 Equipment drawings.

 HSEC representative.

 Life cycle cost is a key project driver.

 Cost Estimates.

 Independent facilitator.

Is to ensure that all alternative technologies for accomplishing particular tasks are rationally considered in a structured manner. This strategic approach to selecting the most appropriate technology also needs to include a key focus on balancing risk and reward.

 Alternative technologies are available.

 P&I diagrams.

 Process licensors.

 PF diagrams.

 Technology specialists.

 Significant benefits in new technology.

 Plot plans.

 Technical and operational representatives.

Is to systematically review the maximum operating capability of each major item of equipment within the context of the operation of the entire facility. This sets the lowest practical design factors and minimises excessive redundancy with due consideration given to the impact of the project on existing infrastructure and scope and likelihood of future expansion.

 Complex process with a number of process steps.

 P&I diagrams.

 Business sponsor.

 PF diagrams.

 Technology specialists.

 Equipment costs represent a major portion of the total project cost.

 Plot plans.

 Further expandability is critical.

 Equipment drawings.

 Technical and operational representatives.

 Cost estimates.

 Equipment specialists.

Is to enable identification of the bottlenecks in the process and to understand the assets sparing philosophy that meets operability goals

 Process involves solid processing and/or material handling.

 P&I diagrams.

 Maintenance and reliability specialists.

 Strict turnaround frequency is a criteria.

 Plot plans.

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 Quality improvement and asset owner’s satisfaction is a key driver.

 Future position in market can be enhanced.

 Cost estimates.

 Independent reviewer.  Independent facilitator.

 Risk and rewards for new technology are high.

 Significant re-investment options exist.  Significant cost increase of major equipment at specific capacity points.

 PF diagrams.

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VIP

Objective of VIP and minimises the capital costs.

Customised standards and specifications*

Classes of facility quality (fit for purpose)*

Predictive maintenance*

Guidelines on when to use  On-stream factor is a criteria.

 Failure and repair data.

 Solid processing facilities.

 Sparing philosophy.

Is to ensure that the facility costs are not increased by applying codes and standards that exceed the actual needs of the plant. This may include corporation standards and specifications that are onerous and outdated.

 Life cycle cost is the key driver.

 P&I diagrams.

 Owners codes and standards not mandatory.

 Plot plans.

Is to establish what quality of plant is needed to meet project objectives in terms of expandability, reliability, product quality, process flexibility, maintainability, life of plant and equipment and redundancy. Is to improve plant maintainability to reduce unnecessary maintenance requirements and to improve plant operability.

3D CAD*

Participants (in addition to key project team personnel)

 Maintenance and reliability specialists.

 Cost estimates.

 Technical and operational representatives.

 Plant capacity, product quality and raw material quality is flexible.

 P&I diagrams.

 Business sponsor.

 PF diagrams.

 Technology specialists.

 Plant future expansion is a criteria.

 Plot plans.

 Plant reliability and maintainability is an issue.

 Equipment drawings.

 Technical and operational representatives.

 Cost estimates.

 Independent facilitator.

 Involves large rotating equipment or machinery.

 P&I diagrams.

 Maintenance and reliability specialists (GMN).

 Equipment cost is a significant cost of the total installed cost.

 Equipment drawings.

 New standards and codes apply.

 Lifetime of facility is a criteria.

 Life cycle cost is a key project driver. Energy optimisation*

Documentation required

 Plot Plans.  Reliability strategy and knowledge.

 Technical and operational representatives.

Is to examine the types of energy used, energy consumption and optimising the trade off between capital and energy costs.

 Is a significant energy consumer.

 Block diagrams.

 Technology specialists.

 Alternate design exists that can reduce energy consumption.

 PF diagrams.  H&MB data.

 Technical and operational representatives.

 Options to exchange heat are available.

 Plot plans.

 Process engineers.

Is to reduce the frequency of dimensional errors and spatial clashes to minimise construction errors and rework. Also to aid visualisation in operation and maintenance training.

 Existing drawings are available in 3D CAD.

 P&I diagrams.

 Process licensors.

 PF diagrams.

 Technology specialists.

 3D model required for operation and maintenance personnel training.

 Plot plans.

 Technical and operational representatives.

 Project located in a stand alone plot.

 Detailed equipment arrangements.

 Visualisation required to ensure operator acceptance.

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 Equipment drawings.

 Equipment drawings.

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VIP Waste minimisation*

Objective of VIP Is a stream by stream analysis of the process to reduce or eliminate nonuseful streams and by-products. The emphasis should be on source reduction or waste product re-use.

Guidelines on when to use

Documentation required

Participants (in addition to key project team personnel)

 Is an environmental driven project.

 P&I diagrams.

 Process licensors.

 Has significant waste stream generation.

 PF diagrams.

 Technology specialists.

 Plot plans.

 Technical and operational representatives.

 Reduction in process waste is a criteria.  Located in environmentally sensitive areas.  Low yield process.

Statement of requirements (SoR)

Provides a clear and unambiguous statement of the project requirements in measurable terms. Is designed to align to business needs with project deliverables.

 To clearly establish performance targets for the project.

 Asset owner.  Operational representatives.

 To clearly establish acceptance criteria for the Asset owner.

* IPA consider these core VIPs which are reviewed as part of the IPA Prospective Evaluation

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Time for VIP application The timeline for VIP application, by project phase is shown in Figure 4.7.1 and Table 4.7.4. It is pertinent to note that some VIPs are likely to be carried out more than once during the project life cycle. Figure 4.7.1 Proposed timeline for VIPs application 9

Table 4.7.4 VIP use by phase VIP Project/decision framing

Identification 

Selection

Definition

Execution



Lessons learnt and best practice





Value engineering







Maintenance development







Constructability reviews





Process simplification



Technology selection





Design to capacity





Process reliability analysis



 

Customised standards and specifications Classes of facility quality (fit for purpose)



 

Predictive maintenance Energy optimisation





3D CAD





Waste minimisation





Statement of requirements (SoR)







To assist with planning VIP use, refer to Toolbox 9.4.7G VIP Plan.

9

Source: Independent Project Analysis Inc.

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Measuring VIP use The successful application of VIPs requires a formal, disciplined approach with measurable results and ensures that: 







VIP activities are scheduled and resourced early in the project’s life cycle in order for the practices to achieve the maximum effect. Adequate resources are made available to ensure that the VIP is satisfactorily employed. Where applicable resources external to the project and independent, trained facilitators are used. VIP activities are completed to ensure that the project realises the full benefits. Limiting alternative selection to those alternatives only known within the project team (or the corporation) can potentially destroy value through the failure to consider all available options. The VIP application covers the full scope of the project when the initial plan is developed. Limiting the scope to some specific portion of the project unnecessarily limits the potential effect of the practice. Documentation is produced to ensure the consistent application of the VIP such as:  



what costs to utilise when performing the evaluation e.g. total life cycle costs what economic and financial assumptions to use.

Most importantly, the results are documented to:   

ensure all improvement ideas are captured and accountability assigned a basis is provided for evaluating the value improvements delivered by the use of the practice lessons learnt are captured for future project teams.

4.7.4 Technology planning Technology planning is an adjunct of opportunity framing (refer Section 4.6.3 Opportunity framing) in so far that it will identify the technical challenges that the opportunity faces. Technology planning establishes the key technologies needed for project realisation and identifies whether those technologies already exist or whether they need development and, if so, how they would be developed in order to realise the opportunity. Identification of the technology requirements is carried out from the outset of the project life cycle even if only at a very high level during the identification phase. As concepts mature as the opportunity is progressed, the team re-visits the technology needs during subsequent phases of the project. The most common mistake made in handling innovative technologies in a capital project is where the technological uncertainties and opportunities are not identified. It is not possible to manage what has not been identified as a risk area. Upon identification of the innovative technologies (which in some circumstances may arise from a compounding of incremental technologies) it becomes possible to assess potential impacts and develop mitigation strategies sufficient to enable endorsement of the project during the IPR process. Project teams in the identification and selection phases are afforded an opportunity to consider technologies that are not step-change technologies but incremental innovations. These may include incremental improvements to standard processing, minerals handling alternatives and autonomous mining options to mention a few. Consideration of new mine operating “paradigms” by the project teams, and the underpinning relevant technologies, can offer a significantly improved competitive position for BHP Billiton.

Novelty or innovative technologies Experience indicates that the identification of novelty or innovative technologies can be subtle and needs special attention. It is usually easy to identify novelty or innovative technologies when the technology under consideration is the result of some deliberate invention or development program or is marketed as pioneering in some way. Figure 4.7.2 provides a common scenario encountered in mining projects. While a technology may be defined as being the same as employed elsewhere, closer attention will often reveal that when the duty, application or requirements of the technology are considered, there are significant differences. PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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Sometimes, the term same is used when considering technology options when the term similar is a better description of the scenario. Such an oversight can mask the presence of inherent novelty or innovative technology in a project. Note from the categories listed in Figure 4.7.2, any one occurrence of an attribute in the similar or dissimilar columns indicates the presence of novelty. Figure 4.7.2 Identification of novelty or innovative technology Comparison with prior Sam

Process/Product Type Application/feed Configuration/integration Scal Specification/performance Materials/equipmen Conditions Location Other

Simila

Dissimila

Novelty Increases

Left to Right

Each item of new technology introduced into the project is captured in the risk register and the controls to manage the risk addressed in that document. It is important that new technologies are not considered in isolation but are considered with an adequate understanding of the total risk picture for the project. Materiality is often, but not always, judged from the estimated impact on NPV. An initial judgement of the materiality of technological risks may be qualitative and guided by experience. Where materiality is in question, the sensitivity economic models can be used to help resolve the magnitude of potential NPV impacts. Sensitivity studies are often produced as part of the investment evaluation in order to gauge the NPV sensitivity to generic variables such as recovery, throughput etc.

Technology planning user’s tool Sources of novelty are identified and considered for each component part of the project. However, novelty is only of interest if the potential consequences are of material impact. Figure 4.7.3 illustrates the potential components of the project that are considered for sources of novelty. The routes through which materiality may arise for the technical innovation are also shown in Figure 4.7.3.

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Figure 4.7.3 Thinking aid for formal technical risk analysis Area of Focus: A Minerals Process Sequence • exploration

Consequence/Impact on

• resource characterisation/ & metallurgical performance • engineering design & procurement • construction • commissioning • mining • ore preparation • concentration/beneficiation • transportation & materials handling • extraction of metals • refining, alloying • casting/rolling/working • manufacture of products • waste minimisation/treatment • distribution • end use • recycle

• recovery • throughput • product quality • start-up & ramp up of production • variability & control • plant maintenance/downtime • upstream/downstream effects • process/product lifetime performance • intellectual property • health • safety • environment compliance, rehabilitation, sustainability • community/reputation

Each technology within the capital project under development is measured for its degree of novelty or innovation. This can be efficiently done by firstly conducting a review of the number of precedents for the technology in the world, within the industry and finally within BHP Billiton. If the number of precedents for the technology or product in these domains is low, technical novelty is judged significant. Figure 4.7.4 provides a matrix by which each technology within the project can be assessed and ranked. Figure 4.7.4 Technology novelty matrix Number of successful precedents = NIL

FEW

MANY

In WORLD

H

M

L

In INDUSTRY

H

M

L

H/M

L

L

In BHP BILLITON

Note: Frequency and maturity can be used interchangeably as appropriate

H = high novelty,

M = medium novelty,

L = low novelty

Real options valuation can be deployed very successfully as a means of improving the decision making associated with innovative technology selection for projects. The decision-tree framework is well suited to performing real options valuation for technological alternatives.

4.7.5 Benchmarking Benchmarking of the project against other successfully implemented projects is considered by the Owner’s team early on in the project life cycle.

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Benchmarking is applied to the key value driving parameters of the investment such as:         

capital cost (including key metrics in the build-up like EPCM costs as % of directs) schedule operating cost manning levels health and safety yield energy usage emissions waste generation.

Refer to Toolbox 9.4.7C Benchmarking Guideline.

4.7.6 Lesson learnt The purpose of the project learnings and best practices VIP is to:  

prevent loss of project value by ensuring mistakes made on similar projects in the past are not repeated contribute to the value of the project by ensuring good practices that have been used successfully on similar projects are considered and appropriately applied to the project.

Where ever possible, key learnings and good practices are made available through their incorporation into existing standards, guidelines and templates. It is therefore important to ensure such standards and guidelines are rigorously followed and available templates and tools are appropriately used.

Timing The timing for the use of this VIP is important. The identification and implementation steps need to be done early in the project. This is because a number of the learnings and good practices that will be identified will need to be implemented during this phase to gain the associated value. It is seen as assisting in setting the project up for success. The process can be repeated at the start of each new phase of the project, particularly if there are new people on the project team.

Scope The scope includes:  

the identification of relevant learnings and good practices from similar projects for inclusion in the project’s development, execution and hand over to operations and close-out documenting the agreed process for implementing the specific learnings and good practices identified into the project.

This process is applied to all projects and sufficient resources need to be made available. It is understood, however, that the project team needs to exercise its discretion with regard to the amount of effort directed to this process, which is in proportion to the size and complexity of the specific project involved.

The identification process The first step is to decide, with the agreement of the project team and sponsor, the process or processes to be followed in identifying the specific learnings and good practices that will be applied to the new project. Relevant project learnings and good practices can be identified from the project learnings and good practices database, which is accessible on the Project Management eRoom on the BHP Billiton portal. This is a formal process that requires basic and advanced searches of the database for relevant, high impact learnings and good practices.

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Other sources where learnings and good practices can be identified include: 





Other project teams or people with appropriate experience - a facilitated meeting or workshop that includes the project team and key members of a project team that has or is working on a similar project. This will only be possible based on the timing and accessibility to suitable projects and the people concerned. Project close-out and review documents - this requires a formal review of project review documents from similar projects such as PCORs, IPRs, etc. These can be difficult to access and time consuming. The documents may also need further explanation to fully understand the corrective behaviours needed to be applied. Global best practices - access to global benchmarking conferences and workshops where best practices are shared and/or papers presented on relevant topics.

In each case, the output of this identification process will be a documented list of both learnings and good practices. Section 2.5 Project Management also provides a useful list of lessons learnt from past projects.

Where to find previous lessons learnt Historical project close-out material can be found at the following locations:   

PCORs and PIRs https://eroom.bhpbilliton.com/eRoom/Facility36/InvestmentLearnings/0_1feb IPA Reports https://eroom.bhpbilliton.com/eRoom/Facility01/PMServices/0_317f9 Old PMS lessons learnt database http://forms.bhpbilliton.net/pm/learning.

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4.8

INVESTMENT PROCESS The BHP Billiton investment process describes how projects are authorised and obtain funding to proceed to the next phase. The process also describes the governance processes in place to ensure projects are developed in accordance with the Major Capital Projects GLDs and the other GLDs. The process commences with identifying a clear business objective and investment opportunity in the identification phase and concludes with the operation phase. The process illustrated in Figure 4.8.1, has five distinct phases designed to optimise investments, as follows:     

identification (study) selection (study) definition (study) execution operation. Figure 4.8.1 Investment Phases Gate 1

Gate 2A

CSG President

Gate 2

CEO

Gate 3

Board

Each phase has a list of objectives which must be addressed before seeking approval to proceed to the next phase, ensuring that the investments:      

are aligned with corporation values, ethics, priorities, strategies and policies achieve optimal shareholder value with an acceptable degree of risk have acceptable probability of success have a rigorous IPR undertaken are based on a consistent decision framework and correctly presented performance is assessed, learnings captured and improvements incorporated.

BHP Billiton mandates that projects which are classified as major investments in accordance with the criteria in Appendix 2 of the Investment Process GLD, are advanced in accordance with the requirements of the Investment Process GLD. This GLD defines the approval framework and governance requirements for the definition and analysis of investment opportunities. This section provides an overview of the investment approval process for major investments. For non major investments, the CSG specific investment process manual is used.

4.8.1 Investment phases The requirements for advancement of each phase are summarised in Figure 4.8.2. The key elements of the process include:        

key endorsement requirements key approval requirements independent peer reviews a prospective evaluation by IPA execute phase reviews a project close-out evaluation by IPA a PCOR a PIR.

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Each phase is only considered complete when the review and approval processes have been carried out and a decision has been made to proceed (or not to proceed) to the next phase. The project team allows enough time and cost necessary to cover the requirements of the investment process. Figure 4.8.2 Investment process map

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4.8.2 Approving authority This phased investment process has been shown to significantly reduce the risk of making non-value adding investment decisions and ensure that the value from each investment is maximised. The approval limits are governed by the Investment Process GLD and the Contracts and Commitments GLD. Authorisation for advancement to a new investment phase within the Group investment process is the higher of:  

the authority for the relevant phase authorisation the authority required for the commitments in the next investment phase.

For example it is not appropriate for a CSG president to approve selection study phase funding in excess of the CSG president limit (currently US$20 million) even though the process allows the decision to gate into selection to be made by the CSG president. The investment amount is the sum of the following (over the life of the investment):    

capitalised operating and study costs capital commitments (including pre-commitments) capital equivalents of leveraging (the capital amounts equivalent to any committed financial leverage) contingent obligations (commitments that are realised as a result of the investment decision).

4.8.3 Engagement with IPR team The investment process dictates the need for IPRs prior to advancing between gates. The IPRs will be either sponsored at Group level or at CSG level depending on the value and investment phase. The IPR leader works with the project leader to prepare an agreed Terms of Reference (ToR) for the independent review. The IPR leader coordinates an independent review of the investment opportunity, provides guidance and advice to the project leader and prepares the IPR summary report which accompanies the IAR for endorsement and approval. The IPR process is independent, though is iterative where possible to ensure major issues are identified and addressed prior to submission of the investment for approval to gate to the next phase. Refer to the Investment Process GLD for details on when IPRs are required and the sponsoring entity, to enable advancement of an investment.

4.8.4 IPA engagement A prospective evaluation report by IPA is a mandated requirement at the end of the definition phase and a close out evaluation report by IPA is mandated at the end of the execution phase. In addition, an IPA pacesetter evaluation at the end of the selection phase is considered. Whilst this is not a mandated requirement, it is considered good practice. As with the IPR, an open and constructive approach with IPA will yield the best results. The IPA evaluation process has the potential for significant benefit not only to the project but also to the project team members for good learning on a personal development level. Further details are provided in Section 6.1 Study Management

4.8.5 Execution phase review An execution phase review (EPR) is a mandatory review undertaken during the execution phase. It is carried out by PMS and others as necessary and is carried out approximately every six months.

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An EPR is done to assess the health of the project at various stages as follows:   

a baseline review within three months of start of the execution phase to check that the project has been properly set up and the approved PEP is being implemented intermediate reviews, usually every six months, to check on the health of the project according to its budget, schedule, key milestones and KPIs a pre-operations review of commissioning and transition to operations no later than three months prior to start up.

Other reviews could include a financial management and control review by Group Audit Services (GAS) or other external reviews at the request of other stakeholders such as bankers, financiers or joint venture participants. The purpose of the EPR is to establish the current status of the project in accordance with the requirements of the Investment Process GLD. That is, to assess how the project is progressing against the Board approved KPIs. The status is assessed against the following ratings:   

Healthy – KPIs will not breach the threshold limit Observation – KPIs may breach the threshold limit due to either controllable or uncontrollable factors Critical – KPIs will breach the threshold limit.

The objective is to independently verify the reported status of the project and to support the project team to maintain the controls necessary to achieve the project objectives. Where appropriate, peer assist and expert advice opportunities are actively discussed and pursued with the project team. In the event the project status is changed from Healthy to Observation, the project leader will develop a recovery plan (refer to Toolbox 9.4.8B Recovery Plan Template and Guideline) within one month of the change in status. The status will remain on Observation when performance meets the relevant targets detailed in the recovery plan for three consecutive months.

4.8.6 Supplementary approval requests Where the performance of a project is going to fall outside the approved KPIs for any phase, there is a need change the status to Critical and prepare a notification of a supplementary approval request (SAR) and then the actual SAR and a recovery plan in accordance with the Investment Process GLD. The SAR and a recovery plan are to be submitted to the IC within the timeframe stipulated in the notification. If the SAR is approved, the project status will revert from Critical to Observation until project completion is achieved.

4.8.7 Project close-out review The purpose of the close-out review is to capture the key project learnings (positive & negative) that had a significant impact on the final outcome of the project and to collect benchmark data related to the project. The project close-out review, which includes an IPA close-out evaluation, is to be completed no later than three months after project completion. It is preferred that the close-out evaluation is conducted and PCOR is produced prior to the completion of execution phase, before key project team members disband. On completion of the reviews, a copy of the IPA close-out evaluation report and PCOR are loaded into ITS and used for the subsequent PIR. Refer to Toolbox 9.5.6C Project Close-out Report Template for a copy of the PCOR template. Historical project close-out material can be found at the following location: 

https://eroom.bhpbilliton.com/eRoom/Facility36/InvestmentLearnings/0_1feb.

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4.8.8 Post investment review A PIR is designed to capture key learnings from the investment and communicate a retrospective analysis of the investment decision. The PIR is to be completed and submitted to the IC no later than 18 months after project completion. Key points to note include:       

The CSG president and the IC jointly approve the selection of the PIR leader. The PIRs are independently led and the PIR leader does not come from the CSG concerned. The PIR leader, in consultation with the CSG president, develops the ToR for the PIR. The IC approves the PIR ToR. The PIR summary report is endorsed by the CSG president and approved by the IC. The GMC is informed on an annual basis, the outcomes of PIRs undertaken during the year, with the intention of disseminating and sharing the learnings. The PIR is outside the scope of the Major Capital Projects GLDs and this PDM. It is part of the operations phase and is mandated in Investment Process GLD.

More information on the PIR process including templates is available in the Investment Process GLD. Historical project close-out material can be found at the following locations: 

https://eroom.bhpbilliton.com/eRoom/Facility36/InvestmentLearnings/0_1feb.

4.8.9 Investment evaluation Prior to any investment decision with commitments exceeding the group approval threshold, the supporting valuation model must be conducted. The valuation methodology is governed by the Investment Evaluation GLD. When carrying out an investment evaluation on opportunities and alternatives, project business analysts make reference to relevant I&VM processes, protocols and evaluation templates and should contact I&VM and CSG valuation practice leaders (VPLs) regarding valuations. Further details on the investment evaluation process other toolboxes to assist in evaluating investment opportunities and alternatives are located in:  

Toolbox 9.4.8C Investment Evaluation Guideline Toolbox 9.4.8D Acorn Valuation Methodology.

VPLs are resident in each CSG to guide project development teams implement appropriate processes for investment evaluation.

Full value recognition (FVR) The Major Capital Projects GLDs include a provision for the situation where BHP Billiton are developing, for example, a “Tier 1” or “Giant” mineral resource and wish to do a staged development with the initial entry project being NPV neutral (or negative) and the subsequent expansions delivering significant value to the business. The Major Capital Projects GLDs, in the introduction to the selection phase appendix (Appendix 3 Section 1.2) and in the investment evaluation section (Appendix 3 section 11.3), make a clear reference to the need to select the optimum investment alternative "taking into account net present value, risk, uncertainty and embedded option value". Again, in the selection phase, under the value enhancement section, (Appendix 2 Section 11.4), a reference is made to the project teams needing to take into consideration "future options" and the two examples quoted in the GLD are future expansions and future development. The new I&VM methodology of "full value recognition" is the recommended financial modelling process project teams should use in the case where they are looking at a staged development scenario and more details are available on this process in Toolbox 9.4.8E Full Value Recognition Methodology.

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PROJECT DEVELOPMENT MANUAL CHAPTER 5.0 CORE WORK PROCESSES Document No: PDM-001 Revision 0 (uncontrolled when printed)

Table of Contents 5.0

CORE WORK PROCESSES ................................................................................................1

5.1

ENGINEERING MANAGEMENT ...................................................................................................................2 5.1.1 Engineering strategy ........................................................................................................................4 5.1.2 Engineering team..............................................................................................................................5 5.1.3 Basis of design ..................................................................................................................................6 5.1.4 Value engineering centres..............................................................................................................7 5.1.5 Value improving practices..............................................................................................................7 5.1.6 Engineering management plan.......................................................................................................7 5.1.7 Study phase engineering .............................................................................................................. 19

5.2

CONTRACTS AND PROCUREMENT MANAGEMENT...................................................................... 23 5.2.1 Procurement strategy.................................................................................................................. 24 5.2.2 Contracting strategy .................................................................................................................... 25 5.2.3 Contracts and procurement plan.............................................................................................. 28 5.2.4 Global sourcing ............................................................................................................................. 29 5.2.5 China procurement...................................................................................................................... 30 5.2.6 Strategic supply agreements....................................................................................................... 31 5.2.7 The procurement process.......................................................................................................... 31 5.2.8 Engagement of implementation contractor ............................................................................ 32 5.2.9 Expediting and delivery................................................................................................................ 33 5.2.10 Logistics .......................................................................................................................................... 34 5.2.11 Insurance ........................................................................................................................................ 35 5.2.12 Contract management and administration.............................................................................. 35 5.2.13 Organisation .................................................................................................................................. 36 5.2.14 Procedures..................................................................................................................................... 36

5.3

CONSTRUCTION MANAGEMENT.......................................................................................................... 38 5.3.1 Introduction................................................................................................................................... 38 5.3.2 Construction strategy.................................................................................................................. 38 5.3.3 Constructability review............................................................................................................... 39 5.3.4 Construction management plan ................................................................................................ 40 5.3.5 Lessons learnt................................................................................................................................ 46 5.3.6 Guidance information .................................................................................................................. 46 5.3.7 Defects rectification..................................................................................................................... 49

5.4

COMMISSIONING MANAGEMENT.......................................................................................................... 51 5.4.1 Commissioning strategy .............................................................................................................. 51 5.4.2 Stages of commissioning.............................................................................................................. 51 5.4.3 Commissioning management plan............................................................................................. 55 5.4.4 Commissioning safety plan ......................................................................................................... 56 5.4.5 Operations input in commissioning.......................................................................................... 57 5.4.6 Asset register ................................................................................................................................ 57

5.5

TRANSITION TO OPERATIONS............................................................................................................... 59 5.5.1 Operations strategy ..................................................................................................................... 60 5.5.2 Operations plan ............................................................................................................................ 60 5.5.3 Operational readiness & handover plan .................................................................................. 61 5.5.4 Operations readiness................................................................................................................... 61 5.5.5 Operations resources plan ......................................................................................................... 62 5.5.6 Operations and maintenance procedures............................................................................... 63

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5.5.7 5.6

Operations and maintenance IM systems................................................................................ 63

PROJECT CLOSE-OUT ................................................................................................................................. 64 5.6.1 The close-out process ................................................................................................................. 64 5.6.2 The project close-out report..................................................................................................... 65 5.6.3 The project close-out review .................................................................................................... 66 5.6.4 Deliverables, timing and accountabilities................................................................................. 67

Tables Table 5.1 Chapter contents.................................................................................................................................................1 Table 5.1.1 Key engineering requirements.......................................................................................................................2 Table 5.1.2 Section 5.1 contents ........................................................................................................................................3 Table 5.1.3 Basis of design contents ..................................................................................................................................6 Table 5.1.4 Structure and content of the engineering management plan ..................................................................7 Table 5.2.1 Key contracts and procurement management requirements .............................................................. 23 Table 5.2.2 Primary/major drivers................................................................................................................................... 27 Table 5.2.3 Structure and content of the contracts and procurement plan .......................................................... 28 Table 5.2.4 Timing, responsibilities and accountabilities for contracts and procurement plan ......................... 29 Table 5.3.1 Key construction management requirements ......................................................................................... 38 Table 5.3.2 Structure and content of the construction management plan............................................................. 41 Table 5.4.1 Key commissioning management requirements ..................................................................................... 51 Table 5.4.2 Commissioning framework ......................................................................................................................... 54 Table 5.4.3 Structure and content of the commissioning management plan ......................................................... 55 Table 5.5.1 Key transition to operations requirements ............................................................................................. 59 Table 5.6.1 Deliverables of project close-out............................................................................................................... 67

Figures Figure 5.1.1 Typical quantity curves................................................................................................................................ 13 Figure 5.1.2 Typical family of curves ............................................................................................................................... 13 Figure 5.1.3 Constructability review: ability to influence project............................................................................. 18 Figure 5.2.1 Contracting strategy activity matrix......................................................................................................... 27 Figure 5.2.2 China procurement – engagement model .............................................................................................. 31 Figure 5.4.1 Staged handover of separable portions ................................................................................................... 55

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5.0

CORE WORK PROCESSES The core work processes are those processes that will ultimately deliver physical plant and/or assets on the ground. They result in the traditional engineering, procurement and construction activities and form the basic building blocks of project execution. The contents of the chapter are summarised in Table 5.1. Table 5.1 Chapter contents #

Title

Details  Outlines the key engineering management processes such as development of

strategy, engineering teams and basis of design. Engineering management

5.1

 Provides details on the development of the engineering management plan.  Outlines engineering activities during the study phases.  Commences in the study phases and extends throughout the whole project life

cycle.  Outlines the major contracts and procurement management processes.

Contracts and Procurement Management

5.2

 Provides details on appointment of an implementation contractor.  Outlines planning and reporting processes.  Commences in the study phases and extends throughout the whole project life

cycle.  Covers construction management issues such as strategy, constructability

Construction Management

5.3

reviews, development of the construction management plan and lessons learnt.  The processes generally apply to the execution phase.  Depending on the extent of early execution works that have been approved,

construction management may apply in the latter parts of the definition phase. Commissioning Management

5.4

5.5

Transition to operations

5.6

Project close-out

 Outlines the commissioning stages, development of the commissioning

management plan and operations input into commissioning.  The processes generally apply to the execution phase.  Outline considerations in preparing to handover constructed assets to

operations.  Provides detail on the close-out process and in particular details the project

close-out review and report.

The PDM currently excludes the following work processes which are covered by other CSG specific processes and procedures:   

geological and mineral resource investigation and analysis metallurgical processing mine design.

Other processes such as risk management, strategy development, market analysis and investment evaluation are either discussed in other parts of the PDM (e.g. Chapter 4.0 Strategic Processes) or are outside of the PDM and form part of the CSG specific processes and procedures. The work processes included in this chapter both form part of and are driven by the project execution planning process. An overview of this process is outlined in Section 6.2 Project Management. Further detail on the project execution planning as well as the processes for development of and the frameworks for both the study work plan (SWP) and the project execution plan (PEP) are included in Section 6.1 Study Management and Section 6.2 Project Management respectively.

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5.1

ENGINEERING MANAGEMENT Engineering management processes apply throughout the project life cycle. The effectiveness of the engineering management processes undertaken impacts the quality, schedule, cost and operability of the installed asset. Successful implementation of the engineering management process is therefore a key value driver for the project and a structured approach to management of this process is essential. The level of engineering definition for a particular project scope increases through the selection and definition phases to support the quality of capital estimate and schedule required by the Major Capital Projects GLDs (see Section 6.4 Schedule Development and Section 6.5 Cost Estimating for further details). The key engineering requirements through the investment phases are shown in Table 5.1.1. Table 5.1.1 Key engineering requirements Identification  Develop engineering to

sufficient detail to enable a Class 4 or 5 capital estimate to be prepared for the alternative.  Use benchmarking,

information and order of magnitude estimating.  Leverage off existing

information to support the capital estimate.  Prepare Class 2

estimate for selection phase engineering activities.  Develop an engineering

work plan for inclusion in the overall selection phase SWP.

Selection

Definition

 Advance engineering in

 Advance engineering in

accordance with the SWP covering all scope aspects (mine, infrastructure, and processing facilities).

accordance with the SWP covering all scope aspects (mine, infrastructure, and processing facilities).

 Develop engineering for

 Develop engineering for

the alternatives to sufficient detail to enable Class 4 or 5 estimate to be prepared prior to Gate 2A (opportunity selection).

the selected alternative to sufficient detail to enable a Class 2 capital estimate to be prepared prior to Gate 3.

 Develop engineering for

the selected alternative to sufficient detail to enable a Class 3 capital estimate to be prepared prior to Gate 2.  Develop the engineering

strategy to be adopted for the definition and execution phases of the project, ensuring this is consistent with the overall execution strategy.  Ensure major areas of

the processing scope are clearly understood and key uncertainties are resolved prior to Gate 2.  Develop the basis of

design (BoD) for the selected alternative.

Execution  Implement the

engineering management plan.  Complete detail

engineering in accordance with the approved scope of work, BoD and project technical specifications.

 Finalise the BoD for the

selected alternative.  Advance development

of engineering technical deliverables to enable procurement of precommitment items (e.g. technical specifications and data sheets).  Continue to apply VIPs

to further optimise the selected alternative.  Develop the engineering

management plan for the execution phase.  Prepare a Class 2

estimate for the execution phase engineering activities.  Establish the basis for

the engineering controls system.

 Commence application

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Identification

Selection

Definition

Execution

selected alternative prior to Gate 2.  Prepare tender

documentation to enable selection and award of the implementation contractor for the definition/execution phases of the project.  Prepare Class 2

estimate for definition phase engineering activities.  Develop an engineering

work plan for inclusion in the overall definition phase SWP including provision for detail engineering of any precommitments.

Further information on engineering management can be found in Toolbox 9.5.1F Engineering Management. During the identification and selection phases of a project a number of project alternatives are tabled, investigated and have preliminary engineering carried out to a varying degree in order to assess their financial viability. Alternatives could range from a brownfields expansion of an existing process plant to a remote greenfields mine and integrated process plant development. In planning for the engineering function, consideration is made of the opportunity framing and selection processes which drive the demand for engineering resources in the early phases of the project development. Engineering teams are flexible, dynamic, responsive to change and have skills across a range of potential project outcomes so as to maximise the contribution of engineering to the opportunity selection process and to support the identification of a selected alternative. Further details on the opportunity framing and opportunity selection processes are included in Section 4.6 Opportunity Realisation, while more specific details of the engineering requirements during the study phases are included in Section 5.1.7 Study phase engineering. The engineering processes for definition and execution phases are focused on advancing engineering progressively and optimising the selected alternative. To gain efficiency in engineering through these phases uncertainty in the scope is eliminated during the selection phase enabling the engineering to progress on the selected alternative only. The contents of this section are summarised in Table 5.1.2. Table 5.1.2 Section 5.1 contents Section

Contents

Engineering strategy

Overview of the items to consider in developing the strategy for delivery of engineering.

Engineering team

Overview requirements for the engineering team including Owner’s team and implementation contractor.

Basis of design

Outline of the content for this critical document associated with engineering design.

Value engineering centres

Overview of benefits and issues associated with using value engineering centres.

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Section

Contents

Value improving practices (VIPs)

Outline the importance of using VIPs during the study phase engineering.

Engineering management plan

Guides the control of the engineering process, particularly during the execution phase. May also be applicable to the definition phase where there is significant early engineering/ execution works being carried out.

Study phase engineering

Overview of the engineering requirements to support development of identification, selection and definition phase studies.

5.1.1 Engineering strategy The engineering strategy for a project is defined prior to completion of the selection phase. It outlines the overall delivery methodology for the forward phases. Significant effort is expended to ensure key project stakeholders such as the asset or business owner support the selected strategy. Identifying the strategy for engineering is a component part of developing the strategy for delivery of the project through all phases. The overall delivery methodology for the project is defined during the selection phase. For further details refer to Section 2.5 Project Management, Section 6.1 Study Management and Section 6.2 Project Management. For the majority of projects, BHP Billiton assets do not have the capacity to undertake the engineering tasks directly. Therefore, one of the main objectives of engineering strategy is to optimise the value-add through effective and efficient use of BHP Billiton in-house engineering expertise. To develop the engineering strategy, the following is considered:  







 

The most appropriate engineering execution strategy depends upon what investment phase the project is in, the complexity of the project and the scale of the project. For the majority of projects, the engineering execution strategy during the identification and selection phases is different to that implemented during the definition and execution phases. During the identification and selection phases the Owner’s team takes the lead management role in the engineering development. Following endorsement of the selected alternative (Gate 2A), engineering management during the definition and execution phases is out-sourced to an implementation contractor (e.g. through an EPCM or PCM contract) with the Owner’s team undertaking a management, governance and approval role 1. In the event that consultants/contractors with specialist expertise are required in the later phases of the project, the implementation contractor has responsibility for coordinating and managing their work to minimise interfaces. Continuity of engineering input through project phases is important and subject to satisfactory performance against pre-determined acceptance criteria, the implementation contractor appointed for the definition phase continues to the end of the execution phase. For larger projects, it is preferable to appoint an implementation contractor with the requisite experience and capability to undertake the procurement and construction management activities. If the above is not feasible then special attention is given to relationships and responsibilities of the parties so that engineering resources within the Owner’s team and other functional leads do not divert undue time to coordination and management. Value engineering centres are effective in cost reduction, provided that interface management, battery limit complexity and communication are properly addressed. The use of “China Procurement” and procurement from other value centres is increasingly being examined by project teams to improve project value. The decision to utilise this on any

1

Other contractors/consultants may be engaged in the identification and selection phases, depending on the size and complexity of the project under investigation. For the purposes of this document, implementation contractor refers either to a study contractor or an implementation contractor, where the implementation contractor takes the project through to detailed engineering and construction. PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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meaningful scale is strategic and is made early in the selection 2 phase so opportunities are captured. It is important to select an implementation contractor with the ability to manage the functions of engineering, procurement, construction and commissioning. They can then coordinate and integrate engineering service providers and provide specialist expertise. The use of a large team from an implementation contractor prior to determining the selected alternative at Gate 2A in the selection phase (refer Section 2.2 Project Development Process for further details) can lead to inefficiencies in engineering and is to be avoided. Once a strategy is established, rigorous change management is applied to any departures in delivery strategy ensuring both opportunities and risks are fully understood and evaluated.

5.1.2 Engineering team The engineering team consists of personnel from the Owner’s team, the implementation contractor and also from third party consultants. The team is responsible for delivering all aspects of engineering required to achieve the study phase or execution phase objectives. The Owner’s engineering team establishes a project office wherever possible with the study or implementation contractor to ensure effective communication and foster close working relationships. Working in a physically integrated environment enhances the efficiency of engineering delivery. Establishing a single project office is done as early as practically possible in the project life cycle. It is also noted that the size and composition of the project engineering team varies throughout the different phases so growth of the team is a consideration in selecting the project office. The engineering manager leads the Owner’s engineering team. The engineering manager’s responsibilities include monitoring engineering performance, engineering quality, safety in design and overall accountability to sign-off the engineering design either directly or through delegates. Under the direction of the engineering manager, the Owner’s engineering team review, audit and monitor all engineering functions. The Owner’s engineering team ensures that the implementation contractor complies with its own workflows and procedure as specified in their approved work plan. The Owner’s engineering manager is supported by the asset owner’s representatives, who are duly authorised to act on behalf of operations. Support personnel are engaged from appropriate disciplines and corporate engineering consultants e.g. project, process, mechanical, electrical, maintenance and mining engineers. Operations representatives participate in the engineering phase to provide inputs regarding:       

health and safety impacts environmental impact practicality quality maintainability supply/procurement operability.

Operations representatives report into the Owner’s team project organisation. The operations representatives ensure the operating requirements are incorporated in the designs and that sign off on appropriate project documentation is being carried out in line with the requirements of the project budget and schedule. They have a further role to co-ordinate field interfaces such as tie-ins during the execution phase. For further information on organisational structure and project team development refer to Section 4.4 People and Teams. 2

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5.1.3 Basis of design The BoD is a critical document that details the design intent, design criteria, engineering standards, specifications and design codes. The new or modified facilities are designed and engineered to meet these. Key elements in the BoD include, though are not limited to, those items as shown in Table 5.1.3. Table 5.1.3 Basis of design contents Section

Content

Scope of work

Describes the scope of the final installed facilities.

Business case

Outlines the key value drivers for the project to set context.

Site location

Defines the site location.

Site conditions

Provides relevant site conditions such as topographical, geotechnical, seismological and climatic data.

Battery limits

Defines the battery limits for the scope of work.

Design life

Design life for the facility and key components.

Design criteria

Design criteria for disciplines such as process, mechanical, civil, structural, piping, electrical and instrumentation. The design criteria reference appropriate regulatory standards to adopt for the design.

Feed, product and wastes

Defines process inputs and outputs, including feed specifications, product quality constraints and waste stream quality requirements. Includes specifications for all inputs and outputs including reagents, fuels, exhaust, tailings, residues and effluent.

Operability and maintainability

Requirements for availability, operability, reliability and maintainability of the processing facility.

Existing facilities

Defines constraints imposed by existing facilities that impact development of the new scope.

Control philosophy

Any constraints on the design with respect to process control facilities.

Utilities

Outlines the requirements and constraints associated with provision of process utilities e.g. water, air, power, fire water, etc.

Transport considerations

Off site conditions that are likely to impact supply or product transportation logistic constraints including transport corridor limitations for construction purposes.

Regulations

Outlines any regulatory requirements not referenced in the design criteria that impact the design development.

Technology and supply

Outlines any specific technology constraints that are imposed on the design e.g. if technology or equipment selection is constrained to that currently adopted at the facility.

Safety in design

Safety parameters to be provided for in the design e.g. requirements and results from preliminary HAZOP and HAZAN.

Health

Occupational health and safety issues identified to be considered in the design.

Environment

Environmental constraints that impact the design of the processing facility.

References

References to any relevant reports that will guide the design such as pilot plant or laboratory reports, hazard study or others.

The BoD is a dynamic document, progressively updated to ensure it is compliant with the level of project definition. Development of the BoD commences in the selection phase and is progressively updated to ensure a high level of definition is documented early in the definition phase. Where appropriate, the BoD references any key documents that support the content. Where appropriate, the BoD quotes ranges (tolerance) for particular parameters instead of exact values.

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The BoD is approved by the Owner’s team project director and the latest approved version is made readily available to all project team members.

5.1.4 Value engineering centres Internal note: BHP Billiton is currently in the process of collating the feedback from the Tier 1 EPCM service providers on the current status of their low cost engineering centres. The information will be inserted in this section as soon as it is available together with recent lessons learnt from BHP Billiton project teams on the use of distributed engineering on major projects.

5.1.5 Value improving practices VIPs are incorporated into the engineering work plan during the study phases in accordance with the value improvement plan documented during the selection phase. Some VIPs can appropriately be applied during the execution phase (e.g. constructability, 3Di delivery) though the opportunity to yield significant value is generally limited. Details associated with application of VIPs can be found in Section 4.7 Value Improvement.

5.1.6 Engineering management plan  Successful implementation of a high quality engineering management plan results in a well controlled, predictable engineering delivery that supports field construction activities, commissioning, ramp-up and the ongoing operation. The engineering delivery strategy is defined prior to completion of the selection phase and sets the framework for engineering delivery in both the definition and execution phases. It is consistent with the overall project execution strategy. The detailed engineering management plan is developed and costed during the definition phase and outlines the key elements that are considered to enable the engineering function to be established and integrated with other functions. Where there is significant early engineering/execution work (pre-commitments) in the definition phase, the engineering management plan is completed prior to commencement of these significant engineering activities. Many projects fail to fully implement the engineering management plan once it has been developed in the definition phase. There is a tendency for key resources to be diverted to production of engineering deliverables rather than establishment of the engineering function, particularly early in the execution phase. Project teams track the progress of the engineering management plan implementation to ensure the function is fully established early in the execution phase. Implementation of a high quality engineering management plan enables engineering deliverables to be developed efficiently. It also enables effective integration of engineering with other project functions. The engineering management plan describes how the key elements of the engineering function are established. A typical engineering management plan includes coverage of topics as summarised in Table 5.1.4. Table 5.1.4 Structure and content of the engineering management plan Section

Content

Scope of work

Describes the scope of the final installed facilities.

KPIs

Engineering KPIs supporting the overall project KPIs – measures engineering performance.

Organisation structure

Describes the engineering structure for Owner’s and implementation contractor teams – shows relationship to overall project organisation.

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Section

Content

Roles and responsibilities for engineering team

Relative roles of the Owner, implementation contractor and the individual key roles within these teams.

Engineering schedule

Shows outputs of a fully resource loaded engineering schedule.

Resourcing

Shows the resource requirements by month for the engineering team.

Engineering control

Outlines requirements to enable control of the function throughout the study phases and execution phase.

Basis of design

Documents how the BoD is developed and maintained – includes an overview referencing the BoD.

Engineering meetings

Outlines the meeting diary to be established for the project.

Quantity control

Outlines how bulk quantities are tracked throughout the design development.

Consultants

Outlines use of any consultants and method of engaging and managing.

Engineering deliverables

Outlines the list of engineering deliverables – is consistent with the contractual requirements for the implementation contractor.

Engineering procedures

Identifies full list of required procedures for both Owner’s and implementation contractor teams – ensure the development of these is completed early in the phase and that resources are allocated for this.

Field engineering

Outline requirements for field engineering and the work processes to be adopted.

Computer aided engineering

Outlines the processes to be adopted and ensures the lead time and resources required to develop and implement the system is considered.

Engineering lists

Outlines the methodology for developing and maintaining discipline lists across the project.

Systems and tools

Defines systems and tools to be adopted for the various project phases.

Vendor design, data and documentation

Outlines how vendor data requirements are defined, managed and expedited.

Safety in design

Specifically outlines the methodology for ensuring safety is considered during the design.

Review of contractor plans

Clearly outlines how construction contractor(s)/consultant(s) plans are integrated to support the overall delivery plan for engineering.

Document control

Outlines requirements for document control and the work processes to be adopted.

Constructability & preassembly reviews

Identifies how constructability is built into the engineering processes.

Quality assurance & quality control

Outlines requirements for QA/QC of the engineering processes.

Change management

Overview of the change management process to be implemented.

Training

Outlines the programmes to be established for ensuring engineering personnel are trained in use of systems and processes.

Team development

Outlines specific processes to be adopted to develop a high performance team in engineering.

Depending on the size of the project, the engineering management plan is prepared by the Owner’s team. For large projects, it is appropriate that sections of the engineering management plan are prepared by the implementation contractor with input, review and approval by the Owner’s engineering team. This ensures the plan is tailored to the specific processes for the implementation contractor whilst overall accountability remains with the Owner’s team.

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Scope of work A brief project scope of work is included to establish context for the application of the engineering management plan. It describes the scope of the final installed facilities and not the scope of services for the engineering delivery.

Key performance indicators The engineering management plan documents the critical KPIs that are used to define the success or otherwise of the engineering function. The KPIs are measurable and support the objectives and KPIs for the overall project. The KPIs are visible to the engineering team and are reviewed at least monthly.

Organisation structure The organisation structure is defined in the engineering management plan. The structure includes both the Owner’s engineering team and that of the key study or implementation contractor personnel. The structure is consistent with the overall project structure and is drafted as a matrix or functional structure to show the intended delivery methodology. Project efficiency is enhanced considerably through alignment of the organisation breakdown structure, the cost breakdown structure and the work breakdown structure. These structures are supported through the breakdown in the engineering control system so that accountability is clearly assigned. See Section 4.4 People and Teams for further information on organisation structure and organisation development.

Roles and responsibilities for engineering team The engineering management plan clearly identifies, using a responsibility matrix, the relative role of the implementation contractor, the Owner’s team and the asset owner 3 for each component of the engineering delivery. A RACI 4 matrix is developed identifying at high level the responsibilities for generating, endorsing, approving and informing particular deliverables. Responsibility and accountability is clearly articulated to the team and enforced through the team development processes. The Owner’s engineering team balances the tendency for asset owners to enhance project scope with the need to control the project scope and delivery against the scope and KPIs for engineering. A strict change management process is implemented to ensure this occurs (see Section 6.6 Project Controls). The Owner’s engineering team is responsible for the following activities. The list is not considered exhaustive, nor does it imply that the implementation contractor does not have a part to play in these activities.   

 



Approve the engineering management plan for the study or implementation contractor. The plan incorporates the Owner and implementation contractor requirements. Manage the implementation contractor to achieve the engineering objectives. Review on an ongoing basis the performance metrics for engineering (e.g. cost, schedule, productivity) and drive the implementation contractor to recover if adverse deviations from the plan become apparent. Recovery plans can include engagement of third party engineering organisations, streamlining of review processes, use of value engineering centres, improving the team dynamic and structural changes to the organisation. Monitor the trend register and ensure trade-off studies are undertaken to maximise value for the project in consideration of cost, schedule, safety and technical performance. Deliver the agreed scope of work and ensure that “scope creep” is prevented from occurring as a result of the design review interactions between the implementation contractor and the asset owner’s representatives. Review and approve conceptual designs and layouts.

3

For a brownfields project the asset owner is generally a manager from the existing operation. For a greenfields project, a business manager may be appointed as a “sponsor” of the project, until the facilities are handed over to the business. 4 The RACI acronym is short for Responsible, Accountable, Consulted and Informed. PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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         

 



Review and approve deliverables per the document review matrix. Define and/or approve process design factors. Define and/or approve process availability, utilisation and run-time parameters. Review and approve equipment selections. Participate in design reviews as necessary. Coordinate document reviews with the asset owner’s representative. Approve standards and changes thereto. Support commissioning. Ensure the implementation contractor is performing the engineering services using appropriate levels of quality control. Monitor the implementation contractor to ensure risk processes are adequately applied across engineering (risk register, HAZOPs, HAZIDs) in accordance with the engineering management plan. Ensure the designs incorporate appropriate “safety in design” principles. Review and approve the as-built drawings and operating and maintenance manuals, as per the document review matrix. Initiate as-built audits to ensure the as-built drawings reflect the installed state prior to handover. Ensure statutory approvals associated with certified equipment are in place.

To achieve these objectives, the Owner’s engineering team collocates with the implementation contractor team. Regular, joint meetings are held between the Owner’s engineering team and the implementation contractor to discuss issues, solutions and opportunities associated with the delivery. For organisational structure and project team development refer to Section 4.4 People and Teams.

Engineering schedule The engineering management plan includes the engineering schedule. The schedule is developed to Class 2 and is able to be displayed at Level 3/4. It ensures the design review methodology is logic linked. The schedule development enables key milestones to be extracted and published. Key milestones include timing for completion (i.e. approved status) of:       

design review milestones by facility PFDs and P&IDs technical specifications and data sheets (feed to procurement) bulk quantity bill of materials (feed to procurement) construction package specific scopes of work (feed to contracting) issued for construction (IFC) drawings for fabrication (feed to construction) IFC drawings for erection (feed to construction).

See Section 6.4 Schedule Development for further information regarding classes of schedules and requirements for development.

Resourcing The engineering schedule is resource loaded and a resourcing plan developed to highlight resource requirements. The human resources team in conjunction with functional management are responsible for engaging appropriate resources in a timely manner to support the schedule. The engineering plan contemplates mitigation steps in tight resource markets including identification of 3rd party consultants that can take on some of the engineering development in addition to the direct involvement of the implementation contractor. The human resources function ensures systems are in place to monitor turnover of personnel and also ensure organisational development of the engineering team is integrated with the project organisational development program. Regular reporting is implemented to ensure any deficiency in resource requirements is clear and that active programs are in place to rectify these deficiencies. PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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Further detail on engineering performance management can be found in Toolbox 9.5.1B Engineering Performance Management Guideline, while design office management details are provided in Toolbox 9.5.1H Design Office Management.

Engineering control The engineering management plan includes a methodology to ensure the engineering activities are budgeted, progressed and forecast, to give a true representation of the performance of engineering on an ongoing basis. Critical considerations for engineering control include the following:    



 



A critical path method schedule is established and progress is evaluated on a regular basis (no less frequent than monthly). A list of engineering deliverables is developed. Budgets are developed on the basis of deliverable counts for direct engineering activities and durations for indirect engineering tasks, such as project engineering and engineering control. Some form of time recording system is required to track engineering hours allocated toward deliverable development. The system ensures sufficient levels of detail to meet engineering requirements. A control system is established to ensure visibility of the performance of engineering at discipline e.g. mechanical, piping, electrical, instrument, etc and facility level. This allows progress and productivity (earned value versus spent hours 5) to be tracked, providing management data required to decide whether initiatives need to be undertaken to improve performance. Physical progress of a deliverable is assigned based on deliverable milestones. Current productivity is understood and considered whenever forecasting engineering performance. For example, if a project has engineering productivity of 0.85 6, it is unlikely that performance will improve going forward unless an intervention occurs in the engineering function to initiate productivity improvement. When forecasting, future effort is also at a productivity of 0.85 instead of 1.0. The need to ensure linkages into the change management or trend control and forecasting systems for the project.

Further information associated with engineering control can be found in Toolbox 9.5.1B Engineering Performance Management Guideline and Section 6.6 Project Controls.

Basis of design The BoD document is referenced in the engineering management plan. A methodology is outlined to ensure the BoD is updated, approved and communicated to the engineering team on an ongoing basis. See Section 5.1.3 Basis of design for further information on the BoD content.

Engineering meetings The engineering management plan outlines the key meetings that are implemented as part of the project, including agenda, typical attendees, the frequency and objectives. The meeting schedule acts to reinforce the delivery structure and accountabilities. The meeting diary and participants are developed to ensure the meetings add value, are decision making bodies and are composed of decision makers who are authorised as such within the delivery structure. Management by committee is to be avoided. Key meetings include: 5

Note that some implementation contractors do this in reverse, meaning cost performance index less than 1.0 indicates better performance. 6 Note that some implementation contractors do this in reverse, meaning cost performance index less than 1.0 indicates better performance. PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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Engineering Management Meeting: Monthly meetings are held to discuss items such as engineering plan implementation, overall progress, engineering productivity (by discipline), resource issues, system issues, management procedures, scope changes and team functionality. Discipline Meetings: These are aimed at reviewing progress and issues associated with discipline engineering and discussing items such as productivity, progress, quantity tracking, discipline list, resources and standards. Area Kick-off Meetings: These are essential meetings with the area or facility team (asset owner’s representatives, designers, discipline and project engineers), to outline the scope of development for a facility. The meeting addresses BoD, layout, quantities, change management, cost and schedule to ensure the area team is fully aligned with the project and area objectives. Area Meetings: These are essential meetings with the area, facility or external package team (asset owner’s representatives, designers and discipline engineers) to evaluate and drive progress, technical issues, interface issues between disciplines.

Quantity control The engineering management plan outlines methods for measurement of bulk quantities through the course of detailed design and ensures this links to the project trend control program. Projects often see growth in bulk quantities during detail design as a result of scope creep. With adequate visibility and accountability, bulk quantities can be used as a control point for the project during the detailed engineering. Best practice is to use bulk quantity tracking, coupled with clear accountability, to drive modification of raw designs to ensure quantities fall within the budget. Quantities that are monitored on an ongoing basis during the detailed engineering phase include the following:        

instrument count electrical count mechanical equipment count piping concrete cable steelwork bulk earthworks.

The quantity count is measured against approved baselines and includes 3rd party engineered sources as well as those engineered directly by the project team. Quantity curves (refer Figure 5.1.1 and Figure 5.1.2) are used to track the progress of material through engineering into fabrication and the field to ensure there is sufficient quantity to support the field activities. Fundamental to this is the ability to measure earned value of quantities through the design process. This is greatly facilitated with the increasing use of 3Di design platforms.

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Figure 5.1.1 Typical quantity curves

Figure 5.1.2 Typical family of curves

  Consultants Specialist engineering consultants add significant value to engineering delivery. The proposed use of external consultants is considered during plan development. In all cases, the plan identifies clear accountability between the Owner and implementation contractor for engagement, management and output from the engineering consultants.

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Engineering deliverables Compiling a comprehensive list of engineering deliverables is essential prior to commencing any investment phase 7. This forms the basis of the engineering budget and the engineering control for the phase. Prior to commencing the execution phase, the list of key deliverables below is completed in support of the estimate class and schedule class required. See the relevant tables in Section 6.5 Cost Estimating and Section 6.4 Schedule Development for further information on the level of detail required. The key deliverables include:                       

BoD detailed description of project facilities test work reports project automation plan process flow sheets heat and mass balance (H&MB) calculations, models and simulations discipline design criteria specifications and process data sheets detailed mechanical and electrical equipment lists project site plan and plot plan facility general arrangement drawings basic process and utility P&IDs electrical single line diagrams initial project constructability reviews completed long lead equipment procurement cycle carried at least to letter of recommendation engineering progress measurement plan prepared and issued including the detailed drawing control, design criteria and specification registers engineering work packages and construction contract plan completed including interface tables risk review reports and registers HAZOP minutes and HAZOP close-out reports project summary schedule including major milestone listing project control capital cost estimate and budget operability and maintenance requirements established by operations.

Further information can be found in Toolbox 9.5.1G Engineering Deliverables.

Engineering procedures The engineering management plan documents the requirements for development and use of critical engineering procedures in support of the engineering function. It is important that allowance is included in the budget and resource profile for the effort required to develop key procedures, including but not limited to the following;         

review and approval of engineering deliverables engineering QA and QC engineering change management engineering control and progress measurement information management development of calculations design office management design reviews document control.

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This may prove more difficult at the commencement of the selection phase as the phase itself will generate multiple alternatives that will require varying levels of engineering investigation, depending on their potential to be a go forward alternative. PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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It is critical that the engineering team is trained in the use of the engineering procedures.

Field engineering Engineering support for the construction, commissioning and handover phase of a project is essential to ensure the design intent is maintained through the execution phase. A detailed field engineering plan is developed early in the execution phase covering key elements such as:     

processes for logging, tracking and closing out field technical queries processes for tracking and approving buried services field QA and QC processes as-built drawings and documentation requirements for project close-out (see Section 5.6 Project Close-out).

The project team ensures key engineering resources (discipline and project engineers) transition from the project office to the field to maintain continuity e.g. technical knowledge and design development history.

Computer aided engineering The engineering management plan identifies the level and type of computer aided engineering (CAE) to be applied. The CAE methodology is identified early in the definition phase with due consideration for a number of key factors including:   

the current software used at the asset in the case of a brownfields project the package preferred by the implementation contractor the nature of the project e.g. a material handling project might use 2D CAE whereas a complex refinery would be better suited to a 3Di delivery.

All projects are delivered using CAE in some form. Traditional delivery using hand drafted drawings has been replaced by either 2D systems such as AutocadTM or MicrostationTM or 3Di systems such as PDS, PDMS or PlantspaceTM. Key engineering lists for instrument, equipment, electrical, mechanical, line and cable schedules are developed to interface directly from source documents such as P&IDs and the 3Di model. CAE can include the use of “intelligent” systems (e.g. PDS, PDMS are examples of 3Di systems) to improve integration and minimise inconsistencies. An important point to consider in selecting CAE is that development of 3Di models requires an alternative approach when compared with 2D delivery. The review processes adopted considers the differences. In particular, it is typical that the workflows associated with 3Di delivery result in delays to issue of fabrication drawings. Refer to Toolbox 9.5.1C Guide to Use of 3Di CAE for a detailed discussion on the use of 3Di CAE in projects and in particular the implications associated with late delivery of design documentation.

Engineering lists The engineering management plan includes provision for update of key lists (e.g. line, mechanical and electrical), for the project. A method is in place to ensure the lists are consistent and represent the latest information available to the project. List management is critical to enable collaboration across the engineering team and it is essential there is clear single point accountability for ensuring lists remain accurate across all disciplines. There is a regular formal distribution of all lists to the engineering team so that the latest version is visible to all team members. For reference, typical equipment codes can be found in Toolbox 9.5.1I Typical Equipment Codes.

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Systems & tools The plan outlines the processes, systems and tools to be adopted for the delivery of the engineering including but not limited to:          

the standard MS Office suite engineering control CAE tools structural analysis pipe stress analysis surge analysis hydraulic analysis electrical load modelling relief system sizing document control and document management.

Consideration is given to availability of trained resources, synergies with existing facilities, cost, functionality and preferences of the selected implementation contractor, to select the systems and tools to be used to support engineering. Use of tools outside of those specified in the plan is discouraged wherever possible to ensure consistency across the project.

Vendor design data & documentation Vendor data is critical to completion of the detail engineering and it is essential that there is a plan defined that ensures the project is in control of the timing for delivery of vendor data and documentation. Key considerations include:    

Vendor data delivery requirements are considered in the detailed engineering schedule. Vendor data requirements are outlined in the technical specification for equipment to ensure a contractual mechanism is in place supporting timely delivery. The status of vendor data is tracked. Dedicated expeditors are in place to improve the probability that data is delivered in a timely manner.

Safety in design It is best practice to ensure that a safety in design philosophy is embedded in a project and it is important that the engineering management plan describes how this is achieved. Safety in design includes elements such as the following:      

establishment of a safety culture in the team application of processes such as HAZID and HAZAN application of risk assessment to design away key risks establishment of design reviews to ensure experienced personnel have an opportunity to comment on designs establishment of design criteria that consider safety issues associated with operability, maintainability and ergonomics use of lessons learnt and training for the engineering team.

An example of how to apply safety in design is shown in Toolbox 9.5.1A ODX Safety in Design. Further detail on hazard studies is included in Toolbox 9.5.1E Project Hazard Studies.

Review of contractor plans As part of the engineering management plan, consideration is given to review and approval of engineering plans for 3rd parties not operating directly within the project framework.

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Responsibility for appointment, control and management of work carried out by 3rd parties is clearly identified in the engineering management plan i.e. does the responsibility fall on the Owner or the implementation contractor.

Document control The document control function typically fits with the engineering delivery, though in some projects it is part of the project control function. The engineering management plan outlines the requirements and references the document control plan. The document control plan ensures a system is implemented to:      

  

ensure a document review matrix is developed, published and maintained for the project track and store all relevant documents, drawings, reports and correspondence from the implementation contractor or 3rd party providers ensure a document numbering system is established for the project deliverables track the review status of all project deliverables including vendor data ensure exception reporting is in place to highlight inefficiencies associated with review and approval cycles of the project deliverables, including vendor data ensure streamlined workflows are established to ensure sequential reviews are avoided (this commonly includes the establishment of “review rooms” in the project office where collaboration can take place during specified review periods for deliverables) ensure documents are transmitted into the field and that as-built documentation is returned from the field ensure all commercial documentation is transmitted to 3rd parties contractors or suppliers ensure hard copy deliverables are adequately stored for handover to the asset owner.

Further details associated with document control and document management are included in Toolbox 9.5.1D Document Control.

Constructability & pre-assembly reviews Constructability and the associated pre-assembly reviews form part of the overall design process. The engineering and construction management teams identify deliverables for constructability reviews before those deliverables are IFC. The ability to influence cost and schedule is greatest early in the design process as shown in Figure 5.1.3.

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Figure 5.1.3 Constructability review: ability to influence project 8

Where possible, representatives from the construction management team, including those of the field contractor (where they have already been awarded contract works 9) are included in the constructability reviews during both the definition phase and execution phase engineering. See Section 5.3 Construction and Toolbox 9.5.3B Planning for Constructability for further information associated with the importance and methodology for constructability reviews.

Quality control & quality assurance It is essential that once established the engineering processes are conducted with appropriate levels of quality control. Typically engineering consultants and the implementation contractor selected operate under suitable international standards e.g. ISO9001. The engineering management plan includes appropriate checking for all critical deliverables. A quality assurance program is implemented across the embedded processes to ensure a high probability that quality is maintained across the function.

Change management Changes in scope and scope creep are often linked to poor engineering performance. They have large impacts on engineering productivity, which can lead to schedule delays and cost increases. It is essential that engineering be performed to deliver the scope specified and to the standards required and that any deviations to this are carefully considered through appropriate change management processes. Tight control is also required where project stakeholders may attempt to initiate changes at the engineering level in order to satisfy their own priorities or demands, such as:   

asset owner teams who may try to increase or change size, functionality and specification Owner’s team individuals who may be advocating a particular design or concept 3rd parties such as local authorities, government agencies, communities who may attempt to extract more from the project than what had already been agreed prior

8

Graphic taken from Hatch Associates Where tenders have been issued for the works, but not yet awarded, it may be possible to include contracting companies that have tendered for the work in constructability reviews. Any tender protocol issues are investigated prior to proceeding down this path. 9

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 

3rd party consultants who may attempt to change technology selection or the like to fit in with their areas of expertise implementation contractor team who may be working outside of the limits of the project scope.

The temptation to modify layouts, increase equipment count and improve designs is significant. A plan is required to ensure this only occurs in the event that there is a valid reason for the change. A change management process is applied to ensure scope creep and scope changes are approved at an appropriately senior level in the organisation. The change management process is clear to all participants. Fundamental to management of change is the need to ensure the culture on the project is set early to prevent changes. This culture is developed for both the project team and the operations representatives for it to be most effective. Further information about change management can be found in Section 6.6 Project Controls.

Training The engineering management plan identifies the methodology for how team members are trained in the workings of the engineering and interface functions. Whilst it is important that procedures are in place defining detailed work processes, it is equally important to ensure that the team understands the workings of those processes. This is achieved by implementing an appropriate training program. The training program is dynamic and reacts to weaknesses in the engineering processes and functional interfaces.

Team development The engineering management plan includes scope for organisational development activities for the engineering team. This drives the engineering to operate as a high performing team with aligned goals and values. The engineering team also aligns with other teams across the project, so the engineering team development is a subset of the overall project team alignment. Team development is an activity that continues for the life of the project and appropriate organisational development resources are provided to coordinate these activities.

5.1.7 Study phase engineering The engineering management plan, described in Section 5.1.6 Engineering management plan, focuses on the management of the engineering effort in the execution phase (and definition phase where there is significant early engineering/execution works). However, the Owner’s team also focuses on the engineering effort required to achieve the objectives of the identification, selection and definition phase studies. The SWP for each study phase includes a plan for delivery of the engineering components of the work. The requirements for delivering the study phase engineering are consistent with the engineering and overall delivery strategy and are discussed in Section 6.1 Study Management. The SWP for each study phase includes provision for 3rd party reviews (not just independent peer reviews (IPRs)) to the project team that appropriate study standards are being achieved. See Section 2.2 Project Development Process and Section 6.1 Study Management for further information on project reviews.

Identification phase study The SWP for the identification phase engineering, which is prepared at the commencement of the identification phase, includes both engineering activities for the identification phase and engineering planning activities for the selection phase. The objective of the identification phase is to demonstrate that an investment opportunity is sufficiently attractive to justify expenditure on a more detailed selection phase study. It is not necessary during the

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identification phase to determine the scope, capacity, location or process associated with an investment, though these are defined as part of the scope definition supporting the business case. Identification phase activities include:      

identify a value-creating investment identify major alternatives for evaluation in the selection phase identify all potential material issues or major risks confirm alignment with agreed CSG business strategy define what work needs to be done to further assess the investment opportunity plan for the next phase i.e. the SWP for the selection phase.

Engineering is likely to be required to support these objectives with key considerations as follows:      

develop engineering to enable an order of magnitude estimate to be completed use highly experienced personnel use benchmark information to streamline the delivery of engineering use previous study material where available leverage off recent project data for similar facilities or infrastructure developments engage specialist engineering consultants with specific knowledge and leverage off this where possible.

Selection phase study The SWP for the selection phase engineering, which is prepared at the end of the identification phase, includes both engineering activities for the selection phase and engineering planning activities for the definition phase. The engineering activities for the selection phase include: 





   

Complete preliminary engineering to support Class 4/5 estimates (refer Section 6.5 Cost Estimating) on alternatives identified and short listed during the selection phase. This information is critical to the opportunity framing and opportunity selection process (See Section 4.6 Opportunity Realisation). Following determination of the most appropriate alternative (Gate 2A) the selected alternative is engineered to sufficient detail to enable a Class 3 estimate to be developed by the end of the selection phase. Develop the overall engineering strategy, consistent with the overall project execution strategy (refer Section 6.2 Project Management). This includes the strategy to be adopted for both the definition and execution phases. Develop the BoD for the selected alternative. Finalise the location study for the project. Complete any VIPs that are planned to be carried out prior to the definition phase. Develop expression of interest and tendering documentation for the selection of the implementation contractor that will carry out the definition study. It is best practice to select an implementation contractor to deliver both the definition phase and the execution phase and sufficient documentation must be developed to enable this. Information from the implementation contractor proposal, that is available at the end of the selection phase, includes items such as:       

Owner’s team engineering organisation, responsibilities and key personnel implementation contractor’s mobilisation plan and location of engineering office implementation contractor’s organisation, management and key personnel estimated engineering labour hours for the definition phase and execution phase allocation of engineering labour hours on a discipline basis list of deliverables such as studies, reports, drawings and specifications field studies, testing and surveys to be done during the selection phase

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 



list and timing of VIPs to be completed by the implementation contractor during the definition phase list of sub-contractors and consultants to be engaged.

Prepare a preliminary plan for carrying out detailed engineering in the execution phase.

Definition phase study The SWP for the definition phase engineering, which is prepared at the end of the selection phase, includes both engineering activities for the definition phase and engineering planning activities for the execution phase: The engineering activities for the definition phase include: 





Progress the design and develop the deliverables in a timely manner to enable development of a Class 2 10 capital estimate and Class 2 11 schedule, appropriate for a definition phase study and sufficient for project control purposes during the execution phase. Commence detailed design for any long lead items identified. This may include both items as part of approved pre-commitments in definition phase and items to be procured early in the execution phase. The schedule is critical to identify these items. Enhance the BoD to ensure it considers:         





Create or enhance value of the project by utilising, where appropriate, a range of relevant VIPs as outlined in Section 4.7 Value Improvement, including but not limited to:       



10 11

relevant site conditions, e.g. topographical, seismological and climatic data operability, reliability and maintainability of the processing facility design life for the facility and key components safety parameters identified and provided for in the design e.g. preliminary HAZOP and HAZAN occupational health issues identified and provided for in the design basis environmental constraints to be placed on the processing facility identified and provided for in the design basis design criteria for each discipline i.e. process, mechanical, civil, structural, piping, electrical and instrumentation off-site conditions that are likely to be reflected in supply or product transportation logistics constraints provided for in the design basis identification of the parties proposed to be responsible for providing and performing engineering, the standards to be adopted, the engineering role of the project team, quality assurance, HAZOPs and technical/expertise issues the inclusion in the engineering plan of CAE tools and associated workflows, data acquisition - in particular vendor and brownfields site data, quality assurance and control methods, document control/approvals, design office/site office interaction and detailing.

design capacity process simplification process reliability modelling predictive maintenance value engineering constructability maintainability.

Outline the approach to the preparation of manuals and training and the identification of spares.

Refer Section 6.5 Cost Estimating for details on estimate class. Refer Section 6.4 Schedule Development for details on schedule class.

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 

Develop the engineering management plan for the execution phase consistent with the requirements outlined in Section 5.1.6 Engineering management plan. Prepare a cost estimate and schedule for the execution phase engineering activities as part of the overall Class 2 cost estimate and Class 2 schedule development for the project.

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5.2

CONTRACTS AND PROCUREMENT MANAGEMENT Contracts and procurement comprises all forms and methods of commercial arrangements for contracting out the supply of goods (generally materials and equipment) and services associated with capital projects. Whilst the terms are used interchangeably to describe both activities, procurement in the context of a project also implies the placing of contracts. The key contracts and procurement management requirements through the investment phases are shown in Table 5.2.1. Table 5.2.1 Key contracts and procurement management requirements Identification  Identification of key

selection phase study support contractors and consultants.

Selection  Develop the

procurement strategy for the key investment alternative, ensuring this is consistent with the overall execution strategy.  In cases where it is

planned to appoint implementation contractor or other key contractors at start of definition phase, develop contract(s) to stage of conditional agreement.  Develop a contracts and

procurement work plan for inclusion in the overall definition phase SWP including provision for procurement activities for any precommitments.

Definition  Appoint implementation

contractor, where applicable.  Finalise procurement

strategy and develop contracting strategy.

Execution  Execute contracts and

procurement function in accordance with the contracts and procurement plan in the PEP.

 Develop contracts and

procurement plan for the execution phase.  Develop contract(s) for

critical path activities to stage of conditional agreement.  Develop framework for

the development and approval of contract documentation.

 Preliminary contracts

and procurement plan for the execution phase.

For the purposes of this manual the term:  

contracts is used to describe commercial agreements for the supply of services and/or construction activities on site purchase orders are used to describe commercial agreements for the supply of equipment and materials with limited or no on site activities, unless otherwise noted.

The difference fundamentally lies in the nature of the contracts and the terms there of. For all projects where BHP Billiton’s share of the project exceeds the Group threshold, it is a requirement that the PEP provides a high level summary of the contracts and procurement plan with reference to the detailed plan. The plan defines how the project intends to develop, implement, manage and control all contract and procurement activities needed to deliver the required services, materials and equipment to meet the approved scope of work and in accordance with the approved budget and schedule. All contractual agreements for the project are also executed in accordance with the agreed project authorities

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as outlined in Section 6.2 Project Management and/or the relevant CSG specific project development and delivery processes and procedures. Whilst most contracts and purchase orders are raised during the execution phase, the planning thereof takes place during the definition phase, with the exception of:  

contracts for service providers for the study phases (including the implementation contractor who is usually mobilised at the end of the selection phase) purchase orders for long lead items and/or contracts for early works required on site.

The key strategic decision driving the contracts and procurement plan is the execution strategy, as it addresses:  

the overall allocation of scope between the Owner and the implementation contractor the contracting strategy for the implementation contractor e.g. Hub program, EPCM, EPC, etc.

This decision is made at the end of the selection phase so that responsibility for defining and planning the delivery of the project scope is clearly stated and the implementation contractor can be mobilised on the basis thereof. Although it is best practice to mobilise the implementation contractor at the beginning of the definition phase, the contract for the execution phase only needs to be finalised prior to seeking approval to proceed so that it can be executed on approval. In developing the contracts and procurement plan, the project team proceeds through a number of process steps. Here the project team refers to both the Owner’s team and the implementation contractor’s project team who are jointly responsible for the contracts and procurement plan, although the implementation contractor is primarily responsible for the implementation for their scope of the work. The process steps include the:          

development of a clearly documented procurement strategy identification of appropriate contracting strategies for all key work packages documenting of a detailed procurement process and the associated workflows development of an expediting plan and the associated workflows development of a complete logistics plan determination of the insurance requirements for the project documenting of the process for contract management and administration design of an appropriate organisation to manage and control all procurement activities development of the relevant procedures for all procurement activities documenting of the contracts and procurement plan.

5.2.1 Procurement strategy The provision of goods and services makes up the majority of the cost of a project. Selecting an appropriate procurement strategy for the project in terms of the agreed execution strategy (refer Section 6.2 Project Management) is one of the most important strategic management decisions of a project. The procurement strategy provides a project with a clear direction for all procurement activities to ensure quality assurance, risk management and the achievement of scope, schedule, cost and quality/specification objectives. The objective of a good strategy is to obtain, on the best possible commercial terms, specific works, materials, services and expertise as per the scope of work, appropriate to the project locations and the execution risks to meet the project schedule within budget that cannot be supplied by BHP Billiton for reasons such as:  



The work to be performed is not deemed to be part of the BHP Billiton’s core business. The contractor can supply the works, services or goods, procedures, systems, people and expertise that cannot or cannot sufficiently be made available from BHP Billiton’s own resources. The contractor can perform the work at lower cost than BHP Billiton could otherwise perform the work.

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 

Using a contractor to perform the work reduces the overall risk to BHP Billiton of the work. The type, quality, enhancements and fluctuation of required works, services or goods are specific or unique to the contractor’s speciality and not BHP Billiton.

The procurement strategy is the over-arching framework for all the major contracts, purchases and associated support activities within a project, defining:   

   

  

fundamental philosophy for external engagement of services and/or goods for the project the packaging of work to be contracted the contracting strategies for all work packages, the contract delivery model (e.g. EPCM, Turnkey, design and construct, etc.) and the commercial arrangements thereto (e.g. lump sum, schedule of rates, reimbursable, cost plus, etc) method of contractor selection, prequalification and the vetting thereof the basis for contract award e.g. to the technically acceptable tender yielding the lowest “life time” cost to BHP Billiton and any sole sourcing arrangements the commercial form of the contract to be used - general conditions of contract for all types of contracts i.e. implementation contracts, service contracts, purchase orders, etc the allocation of risk and other risk mitigating actions e.g. the number and nature of contracts, terms of contract, insurance, performance bonds, guarantees, quality management, etc the interfacing activities and issues between contracts the relationship between work packages, contracts and subcontracts including responsibilities between prime and subcontractors management and administration of the contracts and purchase orders.

In preparing the procurement strategy, the project team considers the following:           

BHP Billiton Code of Business Conduct the business and project objectives scope of work and the WBS the project execution risk register global sourcing strategic supply agreements Including BHP Billiton Global Supply contracts sole sourcing location specific issues, such as legislative, socio-economic conditions, local content requirements, indigenous employment, industrial relations, taxes and custom duties capacity and capabilities of local contractors and suppliers market analysis for the supply of services and goods, such as international contractors, fabrication shops, equipment suppliers, etc logistics and the importation requirements.

The procurement strategy is clearly stated as part of the contracts and procurement plan.

5.2.2 Contracting strategy A key component of the procurement strategy is the contracting strategy as to how the contracting-out of specific works, materials, services and expertise that BHP Billiton cannot provide for itself, is affected. The contracting strategy addresses both the provision of services (e.g. engineering, construction, logistics, etc.) and the provision of materials and equipment. At the latest, the development of the contracting strategy is undertaken early in the definition phase. The contracting strategy is completed and approved as required by project schedule requirements but no later than project authorisation i.e. at the end of the definition phase prior to the authorisation tollgate. The range of contracting options in a project is wide and the option chosen for a particular package depends on the size and nature of the package and its specific challenges, such as location, risks, complexity, criticality, etc. PROJECT DEVELOPMENT MANUAL CHAPTER 5.0 CORE WORK PROCESSES Revision 0 (uncontrolled when printed) Section 5.2 - Contracts and Procurement Management

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The overall contracting strategy selected for the implementation contractor depends to a large extent on the scope of work and the project risks and challenges, especially the contracting skills base and maturity of the project location. The contracting strategy addresses:          

what is to be contracted out and when the preferred packages and size and complexity of each package maturity of scope detail and specificity i.e. engineering progress at time of award the competitive situation, and the capacity and capability of identified vendors the use of horizontal and vertical packages the preferred types of contracts for the given circumstances a risk analysis of the contracting alternatives for each major package allocation of risk between BHP Billiton and contractors contract schedules including, if appropriate, critical milestones the commercial strategy including:  

         

how contractors are remunerated by BHP Billiton how payment and cost control is established

the proposed use of incentives to encourage and reward contractors, versus guarantees and penalties to prevent under-performance how negotiations are handled the type of contracting e.g. tendered or negotiated contract after preliminary proposal(s) or (design) competition the form of contract to be used i.e. the general conditions of contract whether special conditions of contract are required in addition to the general conditions of contract insurance program the facilities and services which may be provided by BHP Billiton to contractors the materials or goods which are provided by BHP Billiton to contractors i.e. long lead items supplied by BHP Billiton the minimum requirements for contract monitoring/control administrative effort and supervision required and availability.

Before finalising the contracting strategy, consideration is given to the risk register (in particular project execution risks) including but not limited to the following:            

major risks (uncertainties and constraints) to the project arising from the scope and objectives, external environment, market considerations, local content and industrial relations consequence of delay consequence of failure to meet specifications/performance criticality of price, danger of cost over-run major commercial risks associated with particular WBS elements potential risks from scope packaging and contract interface management internal and external influences e.g. political, economic considerations HSEC issues resources & expertise required and availability – internal and external predicted state of the market the local commercial and political regulatory environment and local content issues, tax and duties logistical issues including importation.

In preparing the contracting strategy, consideration is made of each major element of the project WBS and its related engineering, procurement, fabrication, construction, installation, commissioning and operating element. Contract types are assigned to each WBS item. The identification of primary/major drivers (e.g.

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cost, schedule, interfaces (technical or commercial), risks, criticality, technical complexity, foreign content, industrial relations issues, etc.) are also carried out. An example is shown in Table 5.2.2. Table 5.2.2 Primary/major drivers

Quality

Schedule

Cost

Major Drivers WBS Item Pipeline

Issues/Drivers



Front End Engineering 

Detailed Design



Contract Type

Cost + reimbursable Lack of in-country experience

Lump sum

Pipeline Supply



Overseas sourcing inspection and expediting

Lump sum or schedule of rates

Pipeline Installation



High mobilisation

Lump sum with variations

Keep installation window as large as possible

Based on the allocation included in Table 5.2.2, the opportunities to group elements of the WBS into logical packages for each work discipline are explored taking into account the location of work, where the contract type and commercial terms are the same. The end result of packaging elements of the WBS into packages is a breakdown of the project scope in terms of technical service agreements, construction contracts, service contracts, purchase orders and internal work orders. The contracting strategy seeks a balance between the conflicting desire for a minimum number of contracts and hence interfaces to manage, with the contractor’s competence for performing all the activities or subactivities. A useful tool to promote discussion and resolution of this balance is a contracting strategy activity matrix (see Figure 5.2.1 for an example from an upstream petroleum project) showing recommended packaging of WBS elements, interfaces and values of each WBS element or groups of elements. Figure 5.2.1 Contracting strategy activity matrix

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In developing the matrix, the following critical success factors are considered:   

retention of single point responsibility for managing each contract (and contractor or partner) the availability of suitably qualified contractors and suppliers, with acceptable quality and HSE management systems the ability to integrate contractors effectively into the project.

As part of the development of a comprehensive contracting strategy understanding the risk profile of the different contract types considered is also important. Based on the approved contracting strategy, the project team then puts together a contract/procurement register and schedule for all key packages reflecting:     

the contract package the scope thereof the contracting method and type of contract responsibilities schedule of dates for all key milestones i.e. completion of tender documents, issue of tenders, tender closing, award, mobilisation on site and practical completion.

This register and schedule form part of the contracts and procurement plan.

5.2.3 Contracts and procurement plan The Owner’s team develops the contracts and procurement plan under the guidance and management of the Owner’s team contracts and procurement manager by undertaking the following steps:       

Review the project SoW, the SoR, the schedule and estimate, the outputs from the project risk assessment and the project execution strategy to deliver the project. Review any lessons learnt and assemble resource material from similar recent projects. Use this information to identify any requirements, risks and/or other constraints that would apply to the management of contracts and procurement. Define the procurement strategy for the project team taking into account the above. Define the scope of activities for procurement which includes the Owner’s team and implementation contractor scope. Define the resources (people, organisations and systems) necessary to implement, manage and control all contracts and procurement activities. Document the contracts and procurement plan.

A typical contracts and procurement plan includes coverage of topics as summarised in Table 5.2.3. Table 5.2.3 Structure and content of the contracts and procurement plan Section

Content

Project objectives

Project objectives as applicable to procurement.

Procurement strategy

The procurement strategy to supply all equipment, materials and services for the project and the relevant contracting strategy to contract-out the supply thereof.

Procurement scope of work

The procurement requirements and the scope of activities.

Specific requirements

Any specific requirements for contracts and procurement that need to be met or managed during the execution phase including laws, regulations, statutes, and contract terms of conditions.

Procurement register

A detailed procurement register and schedule for all major packages.

Progress methodology

The methodology for measuring and reporting of progress of all procurement activities.

Control methodologies

The management and control methodology for:

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Section

Content  selection and approval of contractors and vendors  tendering, evaluation of bids and the award of contracts and purchase orders  quality assurance and quality control including third party inspections and factory

acceptance tests  expediting and delivery  vendor design data and documentation including equipment maintenance and

operating manuals  materials management  contract management and administration  vendor assistance  close-out.

Procurement organisation structure

The overall procurement organisation structure including the Owner’s team organisation, position descriptions, roles and responsibilities for all key procurement management positions and the responsibility matrix for procurement activities and deliverables.

Procedures

Identification of all procurement procedures and the development thereof.

It is the responsibility of the Owner’s team project manager to initiate and provide overall management of the development and execution of the project contracts and procurement plan. Timing, responsibilities and accountabilities are included in Table 5.2.4. Table 5.2.4 Timing, responsibilities and accountabilities for contracts and procurement plan Timing In selection phase:  outline at start of selection phase  preliminary for inclusion in the study

report. In definition phase:

Produced by  Owner’s team

contracts and procurement manager.

Reviewed by  Owner’s team

functional leads.  Owner’s team

project manager.

Approved by  Owner’s team

project manager.  IPR Team

(endorse).

 IPR Team.

 final to be completed for inclusion in the

PEP & study report. In execution phase:  update and maintain approved plan as

required.

5.2.4 Global sourcing Global sourcing refers to sourcing the supply of equipment and materials (including fabricated items) from best value countries (largely driven by low cost base and/or a competitive advantage). Whilst the project team looks at all potential sources globally to ensure a balance between cost, quality and schedule, and the effort required to manage these key drivers, there can a be a significant cost advantage associated with countries with a structurally low cost base e.g. China, India and Eastern Europe. However sourcing from any of these locations does present unique challenges and business risks that must be planned for and mitigated e.g. cultural challenges, technical issues around standards and material, quality control and schedule performance issues. In assessing the sourcing from suppliers, the full cost of the supply chain (including quality management, expediting, logistics and oversight) are assessed before making a decision on price. These costs can be offset by ensuring the scale of the procurement activities and by using parties that are familiar with the challenges and/or have the necessary resources in-country to manage the supply chain from engineering, sourcing of materials to shipment.

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Note that BHP Billiton does have a procurement office in China who can advise project teams of the opportunities available and the necessary resources to facilitate the engagement with potential suppliers. However, the implementation contractor would need the capability and capacity to manage the procurement activities.

5.2.5 China procurement BHP Billiton Global Supply Group Function has a permanent presence in China to assist CSGs and projects with China procurement. The BHP Billiton China Procurement Hub currently consists of four people based in Shanghai. China Procurement Hub’s accountabilities have been defined by Group Supply as follows: 

  

Define focused categories which derive most value to BHP Billiton from China sourcing based on supplier readiness (track record with BHP Billiton or industry peers) and impact on BHP Billiton. Recommend and promote focused categories (see below) to CSGs and projects. Manage supplier relationships on behalf of BHP Billiton. Assist CSG/Asset supply teams with procurement in China.

The 10 focused categories (i. to viii. have been identified as high priority) for FY11 are: i. ii. iii. iv. v. vi. vii. viii. ix. x.

transformers steel fabrication including pipes, pressure vessels, rail and modularisation modular camps/accommodation power plants rolling stock bulk materials handling equipment mills & crushers conveyor systems valves & pumps minerals processing equipment (selective).

A CSG capital project team’s accountabilities are typically as follows:      

responsible for all procurement consult with China Procurement Hub when developing sourcing plans for categories identified as high priority categories, best endeavours to obtain at least one bid from China when tendering for purchases greater than US$1 million inform China Procurement Hub of project updates inform China Procurement Hub of any visits to suppliers in China advise China Procurement Hub on sourcing activities within China for either direct and indirect engagement with Chinese suppliers through relevant service providers.

The engagement model for major capital projects is outlined in Figure 5.2.2. For more information, contact can be made with William Fu, Regional Engagement Manager, Group Supply at [email protected].

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Figure 5.2.2 China procurement – engagement model

5.2.6 Strategic supply agreements Besides a number of global supply agreements the project teams can tap into, the opportunity to establish strategic supply agreements or framework agreements are explored by the project teams to assess whether there is the scale for the supply of key equipment, materials and services for a project or program of projects to ensure competitive pricing and/or eliminate pricing risk with commodities subject to market variability. Project teams consult with their local CSG supply manager and Global Supply who can provide advice on what agreements are in place and applicable to the project team. The project team needs to be very clear as to BHP Billiton commitments in regard to the global supply of strategic equipment (e.g. mining equipment) and the suitability and appropriateness of any CSG supply contracts (e.g. volumes and lead times) in terms of the project budget and schedule.

5.2.7 The procurement process The process for the tendering, award, management and close-out of contracts and purchase orders are fundamentally the same except where noted below. The key steps and the associated critical issues in this process are as follows: 



STEP 1 - Identification of work/contract packages. The identification of a work package for a contract or a requisition for equipment or materials to be tendered in accordance with the package breakdown structure (PBS). In both cases it is critical that the tender document is prepared to ensure that the contract scope of work (equipment or material data sheets), relevant specifications, applicable conditions of contract, etc are correctly and fully defined. As the tender documents form the basis of any subsequent contract and/or purchase order and the management thereof, they need to be complete upfront. For high value and/or risk packages it is critical that tender documents are reviewed by the project team for any key issues that could lead to major variations and/or claims later, in particular external approvals (e.g. permits), timing of drawing issues, vendor documentation, site access dates, completion dates, etc. STEP 2 - Prequalification of tenderers/tender short list. The next step is the selection of contractors and/or suppliers to be approached for bids. Normally they are pre-qualified or existing vendors who have been assessed to have the necessary capacity and capability to supply the services and/or goods; in other words the project would not ask a vendor to bid if there is any doubt as to their ability to deliver.

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









STEP 3 - Tender issue, receipt and review. On receipt of the bids, submitted in accordance with an approved tender procedure, the project team evaluates these both commercially and technically in accordance with a preagreed tender evaluation plan. Based on this evaluation, a recommendation is made to award the contract or purchase order and submitted for approval in accordance with the project approval authorities. During the course of the evaluation it is normally necessary to ask the bidder to clarify their bid either technically and/or commercially. STEP 4 - Preparation of contract. A contract document is prepared to reflect the tender outcome and any negotiations that might have taken place to resolve any differences between the project team’s expectations and the vendor’s proposal i.e. exclusions, alternative proposals and/or changes to comply with the project scope, cost and schedule requirements. Prior to award of high risk and/or value contracts the project team reviews the documentation to ensure the veracity and completeness of key issues listed above (Step 1) including the competence of contractor, key people, etc. and recommend whether to proceed with the award or delay pending the completion of identified tasks to address outstanding issues. STEP 5 - Contract execution. Once the contract or purchase order is signed, the contractor proceeds with the execution of the contract in accordance with the agreed scope, specifications, terms and conditions, and schedule. In the case of contracts, the contract is administered and managed as set out in Section 5.2.12 Contract management and administration. Purchase orders are normally tracked by the inspectors and expeditors to ensure compliance with specifications, the quality management plan and the delivery schedule. STEP 6 - Change management. Changes to the scope of work and/or pricing is handled with contract variations 12 (as provided for in the contract or purchase order) if both parties are in agreement. In the event that the parties do not agree, a claim might arise which needs to be dealt promptly using an agreed procedure. Early identification and accurate recording of events and/or relevant factors are critical to ensuring that a claim can be evaluated and decision made whether to settle or reject the claim, in accordance with the project approval framework. Legal advice might be necessary before proceeding. All potential or actual claims are tracked to ensure effective management thereof. STEP 7 - Contract close-out. On completion of the contract and/or purchase order, it needs to be closed out to ensure the vendor has complied fully with their obligations including acceptance of works, vendor assistance for commissioning and start-up, all vendor documentation, all payments have been finalised, relevant bonds are released, guarantees are in place, transfer of insurable risk identified, etc.

For more detailed guidance on the processes, refer to Toolbox 9.5.2B Contracts and Procurement Guideline.

5.2.8 Engagement of implementation contractor A key activity by the Owner’s team is the engagement of the implementation contractor. Whilst the same steps as outlined in the previous section need to be followed, the selection of an appropriate implementation contractor is critical to the successful delivery of the project. The processes followed by the Owner are also important in establishing the expectations of the Owner as to the procurement processes carried out by the implementation contractor on behalf of the owner.

12

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The key issues are: 

 







Preparation of the tender documentation which clearly states the scope of work of the project, the scope of services to be provided, the duties of the Owner, the form of contract and the terms and conditions (in particular but not limited to performance, payment, intellectual property, warranties, insurance and limits of liability). Selection and pre-qualification of bidders. The selection criteria, the evaluation techniques to be used and the identification of the evaluation team for both the technical and commercial issues. The evaluation includes a formal presentation by the bidder’s nominated project team to assess their understanding of their scope and the capabilities of the proposed team. The methodology for receiving and clarifying submissions and the processes for negotiating terms and/or resolving any issues arising between the Owner’s expectations and the bidder’s proposal. The basis of any recommendation to award to be clearly motivated by both objective and subjective assessments of the bids. The recommendation is approved in accordance with the agreed framework. The formation of the contract and award thereof reflects the final agreed scope of services and the terms and conditions to ensure a sound basis to execute the agreement.

As it is critical that the implementation contractor is in place at the beginning of the definition phase to ensure ownership of the scope, PEP, schedule and budget for the execution phase, the selection of the implementation contractor needs to take place late in the selection phase (generally after Gate 2A). Due to the nature and criticality of this contract, the Owner’s team needs to ensure that they have the necessary project, commercial and legal personnel with the necessary skills and experience in negotiating this type of contract. The Owner’s team needs to take in to account the effort and time required for this activity and plan accordingly. The Owner’s team needs to ensure that prior to the IPR at Gate 2, that they have at least a heads of agreement in place or preferably a final agreement conditional on approval to proceed with the next phase. For more detailed guidance on the engagement of an implementation contractor, refer to Toolbox 9.5.2B Contracts and Procurement Guideline, Toolbox 9.5.2C RFP EPCM P500 Outline Example and Toolbox 9.5.2D EPCM Selection Spreadsheet.

5.2.9 Expediting and delivery The process of expediting focuses on the supply of equipment and materials (including offsite fabrication) and starts with award of the contract and/or purchase order until all equipment and materials are onsite in accordance with required onsite (ROS) dates and all vendor documentation has been received and approved. Expediting continues until all repairs and/or replacements and spares required in terms of the contract or purchase order are received at site and the suppliers invoice is certified as correct. The expediting plan is developed as part of the procurement plan and takes into consideration:     

market economic conditions shop loading geographical influences shipping impact criticality of equipment and materials:  

lead times ROS dates for the construction schedule.

To facilitate the preparation of the plan, the following is considered:   

likely location and multi source potential shop inspections and tests to be carried out inspections or tests are to be witnessed

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 

awareness of the importation laws into the host country and the investigation of the best means to reduce or recover taxes and duties appointment of an experienced traffic and logistics group to handle all transport and importation of equipment and material.

The project team undertakes the task to plan, schedule and administer all land, sea, freight, insurance and transport from ex-works to the site. The procurement plan documents the approach to expediting, the resources required and the methodology for the management and control thereof, taking into account the above. For more detailed guidance on the processes refer to the expediting checklist included in Toolbox 9.5.2B Contracts and Procurement Guideline.

5.2.10 Logistics Logistics cover the movement of equipment and materials from one location to another, including their packaging, handling and storage. The timely delivery of equipment and materials in line with required onsite dates and its potential influence on timely project completion is critical to the successful outcome of the project. The total logistic cost is very often unknown as the processes involving the transport of equipment and materials can be very fragmented, involving many different parties, with no single point of accountability. A logistics coordination role within the project team from an early stage in the project (latest in the definition phase) to manage the full logistics chain is recognised as best practice, especially where there is more than one project site and/or a very remote project site. Hence the need for a logistics plan and the extent thereof varies considerably dependent on the nature and scope of the project, and contracting strategy adopted in the PEP. It is recommended that at the PEP development stage, a project specific logistics strategy is developed and included. Key elements which are considered in developing this strategy are:   

  

the location, the local conditions, infrastructure and its impact on logistics support for the project identifying supply sources and their impact on the supply chain understanding and identifying what has to be moved, how and when in terms of weight, volume and any special storage and materials handling requirements including the need and availability of special needs like heavy lift ships the consequences of the disposal of surplus material, scrap, waste etc suitable benchmarks for the performance of the logistics operations in terms of delivery times, cycle times, costs and safety the identification of all options available and consideration of the most effective and efficient ways and means.

Once a logistics strategy has been agreed, a logistics plan is prepared taking into account the above aspects for inclusion in the procurement plan. The plan considers the above strategic issues and the issues below:    

the responsibility of the Owner, the supplier and/or the contractor for freight movements how the logistics aspects are taken into account at the design and engineering stage planning and timing of more detailed project activities at a later stage and their impact on logistics the resourcing of the plan to execute and manage the logistics including mobilisation of specialist contractors.

Note that for large and/or remote sites, consideration is also given to the people logistics e.g. accommodation for non-local labour, crew changes, visits to site, bussing of local labour, etc. For more detailed guidance on the processes refer to the checklist for logistics and importation issues included in Toolbox 9.5.2B Contracts and Procurement Guideline. PROJECT DEVELOPMENT MANUAL CHAPTER 5.0 CORE WORK PROCESSES Revision 0 (uncontrolled when printed) Section 5.2 - Contracts and Procurement Management

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5.2.11 Insurance The type and level of insurance coverage required for the project needs to reflect the scope, value and risk profile, the location of work and the jurisdiction of the contract. This cover is generally taken out by BHP Billiton within each asset having access to a BHP Billiton insurance broker/underwriter. All project insurance issues are referred to this broker. The project team needs to, in consultation with the BHP Billiton broker, agree the insurance requirements for the full scope of the project, in particular what risks the Owner will carry (e.g. professional indemnity), the Owner will insure and what it will pass on to the contractor. It is critical that the contract terms and conditions for all agreements are aligned with this strategy. Insurance coverage includes, but is not limited to:   

contract works (for onsite and some offsite locations as required by the project) third party legal liability transit or marine transit insurance, if applicable.

Each contract and purchase order includes conditions of insurance and level of cover required, including but not limited to:          

worker's compensation insurance (where required under the local laws) professional indemnity insurance comprehensive and third party insurance covering all mechanically propelled vehicles required to be licensed in the state or territory where the work is performed contractors constructional plant including for all property for which the contractor is responsible marine hull and machinery, protection and indemnity insurance for over the water contracts third party liability for off-site exposure including property of Owner in the contractor's care, custody or control any other insurances which is required by local laws contractors’ obligations for insurance, liability for excesses for any claim and the limits to any liability any insurance provided by the Owner and the obligations of the contractor in regard to this cover nomination of the Owner as the principal and the waiver of subrogation as required for both the Owner and the contractor/supplier.

The procurement plan documents how the project team gives effect to the above.

5.2.12 Contract management and administration For effective contract control it is essential that:  

all formal communication with the contractor be through a dedicated representative of the project team the following mechanisms are built into the contract documentation from the tender stage and that these mechanisms are not compromised during contract negotiations:    

mechanisms for reporting progress mechanisms for all payments and retentions and the requirements for performance bonds, guarantees, etc. mechanisms for agreeing the cost/time consequences of changes mechanisms for handling claims.

The detailed method of control and the requirements for progress reporting vary according to the size and type of contract. All control procedures, however, include the following within the final contract document: 

agreed milestone points, including such deliverables (in the form of physical product) as may be appropriate

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             

methodology for monitoring and reporting progress coordination and administration procedures with the appropriate rights of access and audit resource schedules (manpower, equipment, services) format and frequency of reports any additional data requirements industrial relations management plans access control mobilisation plan (including any pre conditions) quality management plans safety in design safety management plan including transportation, vetting of equipment brought onto site, etc. change control payment and claims procedure close-out procedures.

Contractors are required to impose similar control procedures on their subcontractors and vendors. The project team reserves the right to approve selection of subcontractors or vendors. In administering the contract, it is important to ensure that weaknesses and/or risks of the contractor, recognised at the tender stage, are taken into account and that the project team’s efforts are directed appropriately. The size and composition of the team managing the contractor is appropriate to the type of contract, capability of the selected contractor and the complexity and importance of the work involved. The authority of the project team representative is established in writing to the contractor. Whilst it is expected that the team managing the contract has the necessary skills to manage claims, in the event of major claims a specialist team is often formed focussing on the resolution of claims and closing out of the contracts. It is good practice to conduct an analysis of causal factors and to identify any lessons learnt, in particular the training and development of project personnel and/or the adjustment of any contract terms and conditions. For more detailed guidance on the processes refer to the relevant checklist for contract management and administration included in Toolbox 9.5.2B Contracts and Procurement Guideline. The procurement plan documents how the project team, including the implementation contractor, gives effect to the above.

5.2.13 Organisation For organisational structure and project team development refer to Section 4.4 People and Teams.

5.2.14 Procedures The procurement plan identifies all the key procedures and the development of these procedures for the tender, evaluation, award, administration and close-out of contracts and purchase orders. The procurement procedures address as a minimum, for the Owner’s team and implementation contractor:          

process and workflows roles and responsibilities project authorities and procurement responsibility matrix strategy for selection of tenderers tender and contract numbering role of BHP Billiton Global Supply and other BHP Billiton supply departments formal process for communication between the project and contractors or suppliers tender period management management of qualifications and exceptions to the standard commercial conditions method of award of commitments

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 

expediting and receipt of commercial deliverables, e.g. securities, insurance certificates expediting and receipt of technical deliverables (see checklist in Toolbox 9.5.2B Contracts and Procurement Guideline).

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5.3

CONSTRUCTION MANAGEMENT

5.3.1 Introduction The involvement of construction expertise in the selection and definition phases of capital projects is accepted as best practice in achieving a successful project. Effective application of a constructability review and construction planning in the early phases of the project produce improvements in safety, schedule, cost, quality and risk management. The major challenges during construction planning are as follows: 



Early involvement from the commissioning team and consideration of how the plant systems will be commissioned are critical. This directs the order in which parts of the plant need to be completed and produces a well thought through plan of how a number of parts from a number of construction contracts are completed in a way that matches the logical commissioning and start-up sequence. To achieve this, the project schedule needs to reflect the commissioning sequence early, which then drives the various completion dates for the construction of portions of the plant. Early alignment between operations, construction and commissioning is essential to determine what type, detail and timing of turnover documentation will be at the transitions from construction to pre-commissioning to commissioning to ramp-up and operations (including training requirements, as-built drawings, etc).

Traditionally, if a project’s fundamentals of safety, cost, time and quality are going to be compromised, it is likely to be in the construction stage of the execution phase. This is not only due to the nature of the work (i.e. higher risk activities), but because it is one of the last phases in the project’s evolution and any earlier shortcomings need to be remedied during this phase. The construction management requirements through the investment phases are shown in Table 5.3.1. Table 5.3.1 Key construction management requirements Identification  No requirements.

Selection  Carry out preliminary

constructability review on investment alternatives.  Outline construction

strategy.

Definition  Finalise construction

strategy.  Carry out a

Execution  Manage the

construction of the project.

constructability review on the preferred alternative.  Develop a construction

management plan for the execution phase.

5.3.2 Construction strategy Delivering the construction phase of a major project requires specialist systems, people and processes that are not generally available internally within BHP Billiton. It is therefore typical for project teams to engage a specialist implementation contractor to provide this capability. In developing the construction strategy, it is remembered that strategic decisions are typically difficult to reverse so significant effort is undertaken to ensure key project stakeholders, including the project management and functional leads, support the selected strategy. In developing the construction strategy, it is important to first understand the approach to delivery of the overall project. Matters to be considered in developing the construction strategy include:

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





  

It is best practice to appoint one implementation contractor to be responsible for undertaking and managing all the construction. The implementation contractor typically has the requisite experience and capability to undertake the engineering and procurement management activities. In cases where scope and performance requirements for new facilities are well understood, it may be prudent to consider turnkey or EPC contracts (as opposed to EPCM) operating under the direction of the Owner’s team. In cases where construction is an extension of specific ongoing operational activities, such as underground mine development, it is generally prudent to manage these activities directly through the Owner’s team. In the event that field contractors with specialist expertise are required, the implementation contractor has responsibility for coordinating and managing their work. It is best practice to involve both the implementation contractor and field contractors in the design process as early as practical so that optimum constructability can be built into designs. It is typical to select an implementation contractor with ability to manage the functions of engineering, procurement and construction and thereby coordinate and integrate all key activities.

The key starting point of developing a construction strategy is to implement a constructability review, with involvement of the construction team within the selection phase of a project. The level of effort and amount of detail within the selection phase varies depending on the type of project. The effort is different if the project is a reproduction of an existing facility/plant or if it is a turnkey or a heavy brownfields development. To facilitate an effective constructability review, it is important to ensure the construction manager for the Owner’s team is appointed and mobilised during the selection phase, even if in a part-time capacity. An important deliverable of the constructability review is the construction management plan. It influences the execution of engineering, procurement and the contracting strategy. An allowance for a constructability review is included in the estimate for the selection and definition phases of a project. As mentioned above, the amount of detail is determined by the type of project. The construction management approach treats the project design and construction phases as integrated tasks. As such, the construction management team provides leadership on all matters relating to health and safety, construction, constructability, and participates in design improvements, schedule management, contracting strategies and industrial relations. To support the execution phase, the construction management team produces a comprehensive construction management plan during the definition phase which forms part of the PEP. It is critical to the success of the project that the definition phase construction management plan is reviewed upon project capital approval and regular reviews are completed throughout the execution phase of the project. This is critical to ensure the intention and content of the plan still applies to the current project scope and forecast activities. If the plan is not aligned, or there has been some change in the project’s direction or scope, it is revised and re-issued to ensure the Owner’s team and implementation contractor’s team clearly understand the path forward, as all components of the PEP are influenced by the construction management plan.

5.3.3 Constructability review Components of the PEP are influenced by the construction approach and construction strategy selected for the project. The cost estimate and project execution schedule is developed to reflect the construction management plan and other parts of the PEP. The construction manager establishes the extent of constructability review required within the selection phase. This is defined by holding a constructability value improving practice workshop (see Section 4.7

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Value Improvement) which includes participation of key Owner’s representatives from production, engineering, procurement, HSE and construction. The constructability review is undertaken following the selection of the selected alternative (Gate 2A) and considers the following as a minimum:    

 

Complete a high level construction methodology review (onsite assembly or preassembly/modularisation) and identify initial transport corridor limitations. Identify access issues to the job site with emphasis on interfaces with operations. Understand the high level construction sequence. Understand any initial commissioning sequence requirements e.g. are their particular facilities that deliver early value and therefore are completed and commissioned in advance of the project bulk. Understand the environment for competing projects that may draw on contracting capability and labour. Identify any other constraints such as labour availability, remote location, extreme weather, security and culture which can affect the strategy.

During the constructability review, it is important the team understands which items are strategic and are fixed as part of the construction strategy and which are tactical and can be optimised during the definition and execution phases. It may be decided that the some or all of the decisions can be deferred until the definition phase as historical information (a similar project completed previously) can be used for the selection phase. This means the construction team’s input during the selection phase is minimal. To realise the full benefits of a constructability review requires a pro-active approach across the whole project team. Numerous decisions are made during the early phases of a project which have significant impact during the project execution phase and through to start up of the facility. To minimise the impact to the cost and schedule and to ensure that the facility functions as intended, the constructability review is considered in these early decisions. Competent, experienced construction professionals work with the project team to plan the project execution and select the best alternatives for design and construction of the project. Further detail associated with constructability reviews can be found in Toolbox 9.5.3B Planning for Constructability.

5.3.4 Construction management plan The construction management plan outlines the approach to construction, sets boundary limits and details key activities that need to be completed by the construction management team to successfully establish the construction function and complete the construction scope. The construction management plan aims to complete a project in the safest, most efficient and timely manner. Ensuring cooperative efforts of designers and construction contractors during the definition phase reduces problems encountered during construction. It includes any reporting requirements associated with safety, schedule, contractor interface, operations planning and cost management. The construction management plan is a key deliverable of the definition phase as part of the overall PEP. It forms the contract between the project manager and the construction management team as they are ultimately a service provider to the project and commissioning managers. Critical to the success of the project is the construction manager’s ability to maintain clear communication channels at all levels within the project and to ensure that the escalation path is well understood by not only the construction team, but all other project functions. The intent of the construction management plan is to provide guidance for a standard approach to manage a construction site and set the expectations of how the execution phase of a project is delivered. It covers

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the agreed scope, responsibilities and procedures for all the construction functions, including the construction services and site administration. It details the how, what and when, as follows: 

How will the construction be executed (site facilities, construction method, material and equipment management, etc)? What procedures will apply (HSE requirements, controls, etc)? When escalation, communication and reporting occur (incident, schedule and cost reporting)?

 

A typical issue in many projects is that they fail to fully implement the construction management plan documented during the definition phase. There is a tendency for key resources to be diverted to delivery of construction scope rather than establishment of the construction function particularly early in the execution phase. Project teams track the progress of implementing the construction management plan to ensure team focus is maintained early in the execution phase. Only once the construction management plan has been implemented will the construction function operate efficiently. A typical construction management plan includes coverage of topics as summarised in Table 5.3.2. This is used as a guide as the extent of information required within a plan is determined by the scope and complexity of the project. Table 5.3.2 Structure and content of the construction management plan Section

Content

Introduction

This section states the purpose, objectives, foundation and an overview of the project.

Battery Limits

The construction management plan identifies any project scope items managed outside the construction management plan. In some cases, there may be activities being performed by the asset capital projects group that are integral with the project and clarity in ownership is essential. Management of the interfaces are subject to intensive control and risk review, particular in the area of safety. Robust management processes and regular interface at all organisational levels are ultimately required to ensure effective delivery at interfaces.

Construction execution methodology

The construction methodology sets the strategy that the construction management plan is based on, covering construction approach, planning and scheduling, contracting strategy for subcontractor management, etc. It considers if modularisation or pre-assembly methods are utilised on the project. This is normally determined in the selection phase, but can be completed in the definition phase and further refined in the very early stages of the execution phase (during detailed engineering).

Construction team & organisation

The capacity and capability of the construction team engaged on the project plays a significant role in determining the extent to which the project objectives are met or exceeded. Role accountabilities and responsibilities for each member of the construction team are clearly defined and understood. This also applies to the roles of the implementation contractor and construction contractor(s). Each construction management plan includes a construction team organisation chart. Ideally it contains names of actual personnel who execute the project, but this is not always practical. The organisation chart considers any interface projects being managed by others so that clear interface points are shown such as projects being implemented as part of the asset capital projects group that may interface with the project scope. For organisational structure and project team development refer to Section 4.4 People and Teams.

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Section

Content

Contractor pre-qualification

The construction management plan clearly outlines the requirements that need to be met prior to selection and mobilisation of site contractors. Having a proven contractor(s) of high calibre improves the predictability of the construction delivery. Using a lower tier contractor(s) can introduce risk and can cause a drain on Owner’s team and implementation contractor resources to manage deficiencies in delivery. Considerations include:  familiarity with the size and scope of work and preferably with the type of facility

being constructed  HSE policy and performance history  quality of the contractor management team proposed with a particular

requirement to have people with previous experience erecting similar facilities  availability of the contractor management team proposed and likelihood of delays

in their mobilisation  level of sponsorship from the contracting company to the site team  access to fabrication facilities  use of offshore facilities for fabrication  contractor current work load and access to labour both onshore and offshore  industrial relations performance.

Construction temporary facilities

This section details what facilities are required on site for the execution phase (e.g. security office, construction office facilities) for BHP Billiton, the implementation contractor and construction contractor teams. It includes the requirements for the construction village accommodation. This scope may be allocated to the implementation contractor to define and manage on behalf of BHP Billiton. To assist in communicating the requirements, a plot plan or general arrangement drawing could be used as additional information for this section. Further detail can be found Toolbox 9.5.3D Temporary Construction Facilities.

HSEC

The information contained within this section complies with BHP Billiton’s corporate procedures and policies, relevant legislation and fully details how all site construction activities are managed. It is in line with the project HSEC management plan and clearly states what the leading and lagging indicators are for the execution phase of the project. Almost always, a separate HSEC management plan is in place for the project. If this is the case, the HSEC section of a construction management plan references the parts that are applicable to the construction execution phase.

Contractor mobilisation and de-mobilisation

The section includes all details as to how and who is responsible for mobilisation and demobilisation of the construction team and it also considers how the construction contractor(s) are managed during these phases.

Employee and industrial relations

Often this information is guided by corporate policies, but each project may introduce a different philosophy or strategy for how it is managed. In some instances, this aspect of the plan is not published to the full project team in any detail due to sensitivity issues.

Field engineering requirements

This is an area that is normally overlooked or not given the level of effort it deserves. If a project is well-defined and the definition phase has been carried out with sufficient detail, the site engineering support may be reduced. Historically some site presence is required to address site-specific enquiries from construction contractors. See Section 5.1.6 Engineering management plan for more discussion on field engineering.

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Section Quality management

Content The objective is to establish an effective quality management system for the project and define how quality is implemented and maintained for the entire construction execution phase and handover to the commissioning team. It is monitored throughout the construction execution phase and is included in regular audits to ensure the system is robust and being followed. See Section 6.7 Quality Management for further information on quality management during the construction stage of the execution phase.

Preservation of equipment

The construction management plan considers the requirement to preserve materials and equipment prior to handover. The construction management plan outlines the process by which this occurs through consideration of the need;  to ensure preservation processes are robust and auditable  to ensure vendor specifications with respect to preservation are implemented  for anti-condensation heaters on large motors  to lubricate and rotate bearings for motors, gearboxes and other mechanical

devices  for weather protection for instruments, actuated valves, refractories and other

hydroscopic materials, etc  for air conditioning requirements for complex electronic equipment.

Where there is a requirement for construction contractors to preserve equipment, it is important to ensure the need is clearly identified in the performance requirements for the construction contractors. Tie-ins & inter-connections

Tie-ins management is a critical part of many projects, particularly brownfields projects. As tie-ins typically involve interference with a current operation, they require particular attention in terms of systems, processes and communication to ensure minimal interruption to plant operation. Construction planning allows for the need for tie-ins and the management of the execution of these works. Key considerations include:  It is best practice to ensure there is a tie-in coordinator responsible for establishing

the processes and systems to be adopted.  Milestone reports are used to track progress of tie-in preparation.  It is essential an asset owner representative (operations) is deployed to interface

with operations and the tie-in team.  Tie-ins are identified in the definition phase as part of the engineering processes

and include all disciplines.  Poor productivity is typical for tie-ins due to the operations interface and this is

allowed for in both cost and schedule forecasts. Refer Toolbox 9.5.3E Tie-ins & Interconnections and Toolbox 9.5.3F Shut Review Prompt Sheet. Procedures

This section identifies the procedures that are used on the project during the construction stage of the execution phase. Existing BHP Billiton and/or CSG specific procedures may be identified and used or referenced. Some projects may decide to reference these procedures, but may decide to create their own project-specific procedures or adopt an implementation contractor’s procedures, as usually, by necessity, these companies are more advanced in this area of construction execution.

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Section Site administration and contracts management

Content This section covers how the construction site is managed. It covers roster cycles, security, construction facilities and how they are managed. This in most cases includes the construction village accommodation. In some circumstances it is defined in the construction management plan, but the responsibility and accountability is delegated to the implementation contractor to implement and manage. Regarding contracts management, this details how the implementation contractor coordinates, controls and reports all site contract activities to ensure control over commercial aspects and overall site contract performance. A key vehicle for management of the contracts is the periodic site meeting between the respective managers of the Owner’s, implementation contractor’s and contractors’ teams.

Field project control

The construction management plan outlines the requirements for field cost and schedule control including the need to ensure:  field project controls are integrated with the overall project  requirements for progress measurement and reporting are clearly defined in all

field contracts to enable easy roll-up into the overall reporting  data is gathered at a level which enables key metrics to be monitored and

controlled e.g. field productivity, wet weather, industrial relations, earned value, absenteeism, etc  the trend and contracts administration processes are integrated and are used as

the basis for regular forecasting of cost and schedule. For further information of field cost control and forecasting, refer to Section 6.6 Project Controls. Procurement

This is a critical part of the execution methodology that needs to clearly state if BHP Billiton’s procurement system is used for order placement (equipment, materials, contracts), contract payment etc, or whether the implementation contractor assumes the responsibility using their own procurement system. In part this may dictate the contracting strategy for the execution phase. It can also be a combination of both of the above options. See Section 5.2 Contracts and Procurement Management for further information on field procurement.

Materials management

This section lines up with the procurement strategy as how equipment and materials are managed impacts on whether they are free issued or are purchased by the implementation contractor or construction contractor(s). With either option above, a system for equipment and materials is established as this impacts the size of the construction team. This is because there is a need for additional expediting resources to review quality and track and issue equipment and materials. See Section 5.2 Contracts and Procurement Management for further information on materials management.

Construction verification

Construction verification is the process by which the construction team certifies that the facilities have been installed in accordance with the detail design. The construction management plan identifies an overview of the processes that are used to achieve this and preferably the timing of ensuring the detail organisation, procedures and test sheets are in place. The construction verification process includes a methodology for capturing red line mark-up drawings to ensure field changes are captured and drawings updated. It is important the requirements of construction verification are outlined in the field contracts. A system is required to track the status of construction verification and of capturing the status of deficiency list activities.

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Section Construction handover (testing and precommissioning)

Content Construction handover to pre-commissioning and commissioning is clearly detailed, as this part of the project is often where quality tends to slip as schedule pressures to commission the plant are transferred onto the construction contractor(s). The intent of this section is to ensure a facility and equipment is pre-commissioned, ready for commissioning under load or with feed on. The actions required to deliver it are:  Construction Verification – Ensure that construction is verified, documented and

punch lists have clear actions, priorities and action owners.  Pre-commissioning Stage 1 - Complete inspection, testing and operation of each

piece of equipment individually, ensuring there has been cleaning and flushing of lines and/or equipment.  Pre-commissioning Stage 2 – Testing and operating equipment grouped together

into separable portions, modules or systems, but without product. It is important the accountabilities and responsibilities associated with construction, pre-commissioning, commissioning and handover to operations are clearly outlined. It is typical to separate the role of construction manager and pre-commissioning manager organisationally and ensure there is a clear handover and acceptance process between the two functions. Handover to owner

As a prelude to start-up, sections of the facility are released to BHP Billiton as soon as complete so that commissioning work is carried out (and sometimes finished) at the same time as the overall construction. To signify the completion of Stage 2 pre-commissioning, the construction contractor(s), implementation contractor construction manager and Owner's representative sign a hand-over certificate (accompanied by a deficiency list). The signing of this document hands-over the facilities, area or system from the implementation contractor to the operations personnel. The basic hand-over document package for the release of facilities, area or system from the implementation contractor to BHP Billiton comprises the:  hand-over certificate  operations acceptance sign-off  deficiency list (sometimes referred to as the “defects” list)  red line drawing mark-ups.

Construction close-out

This section is the final deliverable for the construction stage of the execution phase. The construction management plan describes the required content of the construction close-out report. For accuracy purposes, this information may need to be captured during the execution phase. Such information may require input from the Owner’s team, implementation contractor and construction contractor(s). Therefore, it is incumbent on the team to close-out the project and archive all documentation in a structured way so that it is relatively simple to retrieve and use the information for another project. The construction manager is responsible for the completion of the close-out report. A suggested list of deliverables to be addressed within the close-out report is as follows:  formal handover documentation for the construction, pre commissioning and

acceptance phases of the project to BHP Billiton operations  review and documentation of progress reports  close-out and archived project construction files  BHP Billiton operations feedback sought and documented  contract payments completed and cost control/accounting system closed out for

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Section

Content contractor(s) involved during the construction stage of the execution phase that will not be utilised during commissioning  recognition for the project team.

5.3.5 Lessons learnt The lessons learnt section of the project close-out report is completed as soon as practicable after the construction stage of the execution phase has ceased or the handover to commissioning has been accepted. The lessons learnt process includes all departments or disciplines (including Owner’s team, operations, implementation contractor and construction contractor(s) personnel) who were involved in the construction stage of the execution phase of the project, as there may have been opportunities to execute activities more efficiently. The lessons learnt process is part of any capital project’s continuous improvement process and has the potential to improve the work methods and standards on future projects significantly if sufficient information is provided by the personnel closest to the discipline or function process. This section of the report is regarded as critical in subsequent project construction execution development and planning phases.

5.3.6 Guidance information Not all execution phases of a project are the same and a copy and paste methodology will not deliver a successful project. The following topics are considered during the selection, definition and execution phases of the project to help the constructability review, construction planning and execution phases of all projects, as they provide information in addition to that referred to above.

Implementation The involvement of construction professionals in the planning, engineering and design process facilitates the consideration of critical issues such as: 





constructability input, which is critical during the early design phases of the project where the opportunities for cost savings are the highest (as the project progresses, the ability to influence outcomes diminishes rapidly) responsibility for the successful execution of the constructability review which lies predominantly with the implementation contractor (consequently this issue becomes an important construction contractor selection criterion) the incorporation of the constructability review plan in the PEP (these plans are prepared by the implementation contractor at an early phase of the project as the constructability review enhances effective project execution in many ways).

Project planning involves construction knowledge and experience Cost and schedule benefits are gained through the inclusion of construction personnel in the early project execution planning teams. These teams are responsible for determining how best to satisfy a business need, for example, the manufacturing of a new product, increasing existing capacity, reducing costs or improving quality.

Construction input in developing the contracting strategy The contracting strategy has a major influence on the availability of construction professionals to serve on constructability teams. For example, if separate contracts for the design and installation contractor are envisaged, the Owner has to source construction expertise at the early planning stage from constructability consultants. PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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Project team participants responsible for constructability Participants identified for the constructability review process are mobilised as early as the contracting strategy permits and continue from the initial planning phase through to the construction execution phase.

Project schedules are construction sensitive Planned project completion dates and the requirements of the construction phase are prime considerations in optimising the project cost and schedule. A construction driven approach to project scheduling which allocates and balances durations of major project activities maximises the benefits to the Owner. The construction schedule is developed in support of the planned commissioning sequence for separable portions of the facilities, wherever possible.

Design approach considers major construction methods Equipment, labour and work sequencing are major drivers in the design process techniques. All members of the project planning team agree on the methodologies to select the construction methods that bring most benefit to the project.

Site layouts to promote efficient construction Construction efficiency is a key consideration in the layout of both permanent and temporary facilities. The site layout allows for:     

adequate space for lay down and fabrication yards access for construction equipment, materials and personnel, in particular, large cranes and oversize equipment/loads a traffic management plan including provisions for avoidance of underground and elevated work where viable alternatives exist temporary construction use of existing facilities adequate drainage of site during all phases of construction.

Construction sequence to facilitate system turnover The project schedule for complex projects integrates commissioning, turnover and start-up with design and construction sequencing. Start-up planning commences early in the facility delivery process. In integrated project planning, it is critical to identify start-up requirements that have a direct impact on design.

Pre-commissioning Stage 1 - Checking and testing of individual equipment This stage of commissioning consists of the complete inspection, testing and operation of each piece of equipment individually, checking that electrical control and power wiring has been connected to the equipment correctly and checking the configuration and calibration of each instrumentation loop. All motors are direction-tested before the shaft couplings are installed. After installing a shaft coupling, the drive is aligned and an alignment certificate issued. Checklists of specific inspection and testing checks to be made for the purpose of confirming the completeness and quality of the construction contractors’ installation are available for a range of mechanical, electrical, instrumentation and piping equipment. Many different checklists may be required for a system to make up a complete record of the individual equipment inspection and testing. The cleaning and flushing of lines and/or equipment forms part of this stage of commissioning which has to be done prior to the completion of construction. It is the construction contractors’ responsibility to direct and carry out this stage of pre-commissioning completely. The construction manager provides technical assistance where necessary and approves the inspections and witnesses the tests.

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Pre-commissioning Stage 2 - Testing of systems This stage of commissioning consists of testing and operating the equipment grouped together into modules or systems, but without product. Stage 2 is directed by the construction manager, while any related work is done by the construction contractors. At the end of Stage 2 pre-commissioning, the construction contractors have corrected any deficiencies that the construction manager deems necessary to proceed with commissioning. The construction manager then prepares a list of the construction contractors’ remaining work deficiencies, which the construction contractors agree in writing to remedy.

Construction impact on design and procurement schedules Construction cost is one of the largest components of overall project cost and consequently driving the design and procurement plans to meet construction requirements brings most benefit to the project. Both design and procurement have components that limit schedule flexibility and these critical areas are identified early. Owners and project managers also need to be sensitive to cost and schedule trade-offs over the life of the project.

Designs configured for construction efficiency Simplicity is a desirable element for a design of high constructability. The opportunity for alternative construction methods and innovative approaches is also highly desirable. Sequencing of installation is addressed in design and procurement as well as construction. Designs that require specialist skills or are highly labour intensive are minimised.

Standardisation of design elements Standardisation of project elements and use of designs common to the industry usually give cost and schedule savings. Specific advantages of standardisation include:      

increased productivity from repetitive field operations volume purchase discounts simplified material procurement simplified material management reduced design time greater interchangeability of spares for operations and maintenance.

Specifications tailored to construction efficiency Construction expertise is used to help generate construction friendly specifications. Specification development for a project is a distinct project activity with appropriate construction input. Clarity is a prime objective with sufficient time allowed to produce complete, consistent and error-free specifications. Each specification covers all aspects of a single subject or component. The cost saving potential of specifications is balanced against the risk of alternatives. Specifications are maintained to include current cost-effective/state-of-the-art techniques and materials.

Module/pre-assembly designs to facilitate fabrication, transport and installation Modularisation, pre-assembly and pre-fabrication may offer the project significant cost and schedule savings by way of man-hour reduction, use of offshore facilities etc. Shop fabricators usually work to tighter tolerances than field fabricators and this may also bring project benefits. Module/pre-assembly designs add requirements for transporting and handling of equipment. Furthermore, the installation method is considered as it affects module design, plot layout, and design of underground services and foundations.

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Constructability enhancement through innovation Innovations in construction are continuously being developed and where benefits can be demonstrated these are considered. However, the greatest benefit is achieved at the early planning stages and changes once procurement and construction are underway carry cost and schedule risks.

5.3.7 Defects rectification Prior to the implementation contractor being awarded mechanical completion (or equivalent) a thorough inspection of the new plant is made to record incomplete, defective or damaged work. This information is recorded and formally issued to the implementation contractor before mechanical completion is achieved, in the form of a defects list or punch list. Note that the defects list or punch list provided at mechanical completion does not provide a limit on the liability of the implementation contractor. Defects can be raised by the Owner throughout the duration of the defects liability period. As part of the construction management process, defects lists are prepared for all the work completed by suppliers, vendors and construction contractors (refer to Toolbox 9.5.3C Defects Rectification). This process identifies where the suppliers and contractors have not met their contractual responsibilities to deliver a finished product to the standard nominated in the contract documentation i.e. standards, specifications, drawings, scope of work etc. The responsibilities of the suppliers and contractors regarding defects management are clearly defined in the construction contract. Prior to mechanical completion, the Owner’s team and contractors conduct inspections to record incomplete, defective or damaged work that is evident, prior to mechanical completion. Items of incomplete, defective or damaged work are written down on a standard format, referred to as a defects list or punch list, which records the following minimum information:       

date reference number details of the incomplete, defective or damaged work location time frame for rectification details of the non-compliance by referring back to standards, drawings or specifications etc. date completed with provision for signature.

It may be appropriate in some cases to photograph the item(s) of concern for future reference or evidence. It is imperative that the defects list items are issued with sequentially numbered notices and recorded on a register, to record when notices were issued and items of work were re-inspected and signed off. Some items may continue to re-appear indicating a more serious or ongoing problem exists. Contractors and suppliers are also required to rectify all latent defects identified during the defects liability period. It is therefore recommended that, during this period, regular inspection of the new facilities be undertaken and all issues documented and transmitted to the appropriate contractors/suppliers. Significant failures during the defects liability period may warrant an extension to the period of warranty. If the incomplete, defective or damaged work poses a serious safety risk then the Owner’s team is justified in requesting immediate action. The time frame nominated by the Owner’s team for the rectification of incomplete, defective or damaged work reflects the seriousness of the situation, the impact on production, or the commissioning program and the contractors/suppliers ability to respond. Once incomplete, defective or damaged work is rectified, the contractor/supplier requests an inspection by the Owner’s team to witness the work done. In some instances this may involve the Owner’s team and operations. If the completed work is satisfactory then a sign-off occurs acknowledging the work is satisfactorily complete. PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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When all items have been completed a copy of all the notices is retained by operations for their information and the originals archived.

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5.4

COMMISSIONING MANAGEMENT Commissioning is a series of project activities planned and executed to bring the newly constructed facilities, equipment and/or systems into operation through the introduction of ore, feedstock or system users. The commissioning activities of any project mark the transition from the execution phase to the operation phase. It is critical that these activities are logical, structured and executed based on plans preagreed between the project and (asset owner’s) operations teams. Commissioning typically consists of a number of process steps including:   

development of the commissioning strategy preparation of the commissioning management plan start-up and testing of systems with inert and then production process fluids and/or materials.

The operating facilities are then handed over to the operations team for the ramp-up to steady state production. The key commissioning management requirements through the investment phases are shown in Table 5.4.1. Table 5.4.1 Key commissioning management requirements Identification  No requirements.

Selection  Prepare an outline

operations plan for the preferred investment alternative.  No other requirements.

Definition  Develop a detailed

project operations resource plan. The plan must cover all operations resourcing from the start of the execution phase through to project completion and handover to operations.  Develop the preliminary

commissioning strategy.  Develop the preliminary

pre commissioning management plan.

Execution  Finalise the

commissioning strategy, pre-commissioning management plan and commissioning management plan.  Implement, manage and

control the commissioning resources and activities in accordance with the pre-commissioning and commissioning management plans.

 Develop the preliminary

commissioning management plan.

5.4.1 Commissioning strategy As the project moves through the approval process, a commissioning strategy is developed as an input to the PEP. The strategy defines the commissioning scope and describes the management structure required to meet the overall project objectives. It identifies the key technical expertise required to execute the commissioning activities, how they are sourced and it defines the quality control process. In developing the strategy, alignment of the construction milestones with the commissioning milestones is required in order to assure completion of the overall project plan. Early involvement of experienced commissioning personnel in the preparation of commissioning plans is essential. The strategy recognises the value of operations staff on the commissioning team and provides for their participation.

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term performance. The BHP Billiton process highlights the following four stages, each with its own deliverables, contractual requirements and stated completion milestone:    

Stage 1 - construction verification – notice of energisation (NOE) Stage 2 - pre-commissioning – mechanical completion Stage 3 - commissioning – physical handover (facility design capable) Stage 4 - ramp-up – performance verification.

Stage 1 - Construction verification Construction verification includes the collection of all information and preparation of necessary documentation, including as-built drawings, for each project facility, structure and operating system required to establish conformance with contract requirements and industry standards. Upon completion of this activity, the project team issues a NOE authorising the start of pre-commissioning.

Stage 2 - Pre-commissioning Pre-Commissioning includes the various work activities and specific testing necessary to ensure individual systems or subsystems required for the ultimate operation installed equipment are operable, safe to operate and ready for process commissioning. This step includes verification of all system interlocks. Precommissioning activities demonstrate that a system can perform all required operational sequences including normal starts, normal stops, emergency stops and normal starts after emergency stops. At completion of pre-commissioning, a certificate of mechanical completion is issued. The two stages within the pre-commissioning step are detailed further in Section 5.3.6 Guidance information.

Stage 3 - Commissioning Commissioning is a period of testing following completion of construction and pre-commissioning aimed at ensuring that all constructed facilities operate as planned or are modified as necessary to achieve designed operation. This phase of work involves the planned and coordinated effort of the implementation contractor’s and Owner’s teams. The key activities are the trial run of each completed system from the introduction of raw materials to the production of finished products under all operating conditions. The intent is to demonstrate a level of capability and reliability consistent with project design and process specifications and meet agreed operational criteria suitable for final handover and acceptance.

Stage 4 - Ramp-up Ramp up is the process of gradually increasing production or throughput (of a processing facility) to project design. Achieving steady state design production throughput marks the end of the execution phase of the project and the full transfer to operations. In many instances, the operations team requires a series of predetermined performance tests be completed to verify that the facilities or systems are performing as specified at steady state operating conditions. The performance criteria, method of assessment and the manner in which the facilities/equipment or systems are to be fully handed over to operations are agreed prior to commencement of final testing.

Commissioning and ramp teams The unique field conditions for commissioning require that it be managed as a separate project within the structure of the overall project. These well planned activities require significant input, coordination and cooperation from both the implementation contractor’s personnel and the operations team in the field. To assure a collaborative effort, the project creates an executive committee comprised of key management personnel from the operations team and implementation contractor’s team. This group is then responsible for directing commissioning activities. Typically, the implementation contractor’s responsibilities end with successful completion of precommissioning, when all facilities and systems are fully tested but have yet to receive product. The

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operations team then becomes responsible for and leads the commissioning and ramp-up to steady state operations.

Commissioning framework Included in Table 5.4.2 is a commissioning framework which outlines the various commissioning steps, stages and key activities along with responsibility for control and/or delivery of these various components of the commissioning process. As large projects are often broken up into separable portions, which are progressively handed over to operations, it is not uncommon for some parts of an asset to be controlled by the construction manager, some by the commissioning manager and others by the operations manager, depending on the maturity of commissioning and handover. This overlap of asset control, which occurs once commissioning has commenced, is depicted in Figure 5.4.1.

Commissioning checklist For assistance in preparation of pre commissioning and commissioning procedures, refer to Toolbox 9.5.4B Pre-commissioning Procedure Checklist.

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Table 5.4.2 Commissioning framework Commissioning steps Item

Basis

Bulk construction

System completion

Pre-commissioning

Commissioning

Process commissioning (start-up)

SYSTEM

AREA/DISCIPLINE

Subsystem

Performance testing

Operation

PLANT

Operable system

Stage 1 - CONSTRUCTION VERIFICATION Stage 2 - PRE-COMMISSIONING Pre-commissioning Stage 1

Commissioning Stages

Pre-commissioning Stage 2 Stage 3 - COMMISSIONING Stage 4 - RAMP-UP (3-6 month window) Performance testing

7 day test

Owner’s team project director

(Project director/operations GM supported by project director)

(Operations general manager supported by project director)

Responsibility for delivery

Implementation contractor’s construction manager

Commissioning manager

Operations manager

Supported by

Owner’s team and implementation contractor’s construction team

Commissioning team made up of operations and implementation contractor personnel as required

Operations personnel

Sub-system construction completion. NOE certificate

Sub-system mechanical completion

Notice of completion, acceptance and TCCC of operable systems

As built construction drawings,

Pre-commissioning manual,

vendor data, test packs

system work packs

Commissioning manual, commissioning work packs, as commissioned P&IDs

Ownership

Milestone

Documents Key activities

Construction contractors complete Commissioning team works with quality checks as per construction construction to ensure timely QC manual including: completion of quality subsystems and preparation of as built  equipment alignment documentation:  vessel closures  all components of systems  crane testing complete  piping hydro tests  all required QA/QC checks  motor, switchgear and completed transformer inspection  system punch list generated and  instrument calibration safety and operability punch list  continuity checks items cleared  megger & hi-pot tests  system mechanical completion  static conveyor alignment  notice of energisation.

walk downs.

Pre-commissioning of subsystems while punch list items are cleared:

Commissioning of operable systems while punch list items are cleared:

 motor bump/run-ins

 functional checkout locally and

 final couplings and alignments

through the control system

Ready for performance test

Practical completion 1 YEAR DEFECTS LIABILITY STARTS Operating and maintenance manuals

Initial plant start-up using production Execute performance test runs materials:  collect performance data  first fills of production materials  meet performance criteria.

100 % of design capacity for 7 days:  collect performance data

 introduction of feed stock

 meet performance criteria

 loop checking via DCS/PLC

 systems run on air and water

 tuning of control loops

 notice of acceptance to be

 power and control systems

 tuning of control loops

 calibration of field elements.

 calibration of field elements

equipment is tested and energised

 air/steam blows & line flushing

 field instrument calibrations and

adjustments  verification of interlocks, safety

devices and alarms  no load running conveyor

alignments  first fills of lubricants.

 verification of emergency systems  collect initial performance data  operable system walk down and

punch list accepted  TCCC of operable systems

issued by principal after receipt of notice of completion - the date of this notice of acceptance is the date of practical completion  defects liability period of 1

year from this date of practical completion.

 operable system equipment tagged

and contractor’s locks removed and asset owner’s locks applied  handover packages including as-built

drawings and vendor reports completed and turned over  notice of acceptance to be issued by

principal within 30 days of receiving the notice of completion for the operable system from commissioning manager.

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Figure 5.4.1 Staged handover of separable portions SP1*

Under the control of the operations manager

SP2 Under the control of the commissioning manager

SP3 SP4 SP5

Under the control of the construction manager

SP6 At any particular time during commissioning, parts of the asset may be handed over to the control of the operations manager, while others are still in pre commissioning or commissioning under the control of either the construction or commissioning manager.

* SP = separable portion

5.4.3 Commissioning management plan A preliminary commissioning management plan is outlined during the definition phase of the project then fully developed into the plan at the end of detailed design and early execution phase. The Owner’s team with the support of the implementation contractor and operations team develop a comprehensive commissioning management plan appropriate to the size and complexity of the project. The plan contains both pre-commissioning and commissioning activities even though they are delivered by a different team. A typical commissioning management plan includes coverage of topics as summarised in Table 5.4.3. Table 5.4.3 Structure and content of the commissioning management plan Section

Content

Strategies

The pre-commissioning, commissioning and handover strategies agreed and adopted by the teams responsible for completion.

Scope

Detailed descriptions of the major equipment packages, systems and sub-systems, and their respective operational areas. Particular care is taken in brownfields projects to describe all additions to existing facilities and tie-in points, identifying isolation requirements and any required shutdowns. Include a high level logic path.

Test requirements

An outline of:  the various tests required to ensure adequate operation of the facilities/equipment

or systems with documented test procedures and minimum performance expectations  the persons qualified and responsible for each test  details of any special tools, equipment or resources required for specific systems

tests  testing milestones.

HSEC plan

A HSEC plan addressing key risk areas related to pre-commissioning and commissioning activities. This includes a commissioning safety plan (refer Section 5.4.4 Commissioning safety plan) identifying key risks associated with commissioning with specific risk reduction strategies.

Risk management plan

Identify all commissioning activity risks and appropriate controls.

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Section

Content

Success factors

A list of measurable key success factors for the commissioning activities.

Organisational structures

The pre-commissioning and commissioning organisational structure, with position descriptions, roles and responsibilities for each key position in the organisational structure.

Schedule

The sequence of pre-commissioning and commissioning, including a detailed precommissioning and commissioning schedule.

Documentation

The identification of key documentation, including a checklist of documentation packages/certificates that are available at handover and a defined document control system.

Specialist contractor plan

A list of and schedule for required outside expertise with a contracting strategy and contractor management plan. This includes any site visits by vendor representatives for pre-commissioning of equipment packages.

Punch list process

A defined punch list process with identified methods and responsibilities for close-out of these items.

Procedures

Written procedures for equipment isolations, equipment tagging, and work permits.

Training program

An integrated training program coordinated with the operations team to assure key skills are addressed.

QA/QC process

A defined process to provide QA and QC.

Change management plan

A change management plan suitable for the commissioning activity.

Key success factors The commissioning management plan includes a list of key success factors. These include but are not limited to:      

the timing of the appointment of the pre-commissioning and commissioning managers focused and measurable KPIs for pre-commissioning and commissioning participation and involvement of operations defining the involvement of the owner’s team through to the conclusion of commissioning and handover to operations clear handover plan which defines the accountabilities (transfer of care, custody and control (TCCC)) at the various stages through to steady state operations sufficient budget and resources for the development and implementation of the various handover packages.

Additional key success factors are selected to suit the specific commissioning requirements of the designed project.

5.4.4 Commissioning safety plan The commissioning and start up of newly completed facilities and equipment introduces increased risk to the work area. Some factors contributing to this risk include:       

commissioning proceeds concurrently with construction and production activities operational personnel are unfamiliar with the new facilities and/or equipment the plant is often constructed on a geographical basis, by discipline crews (mechanical, civil, electrical) making coordination difficult the plant is commissioned in stages with varying levels of connection with existing facilities temporary commissioning utility feeds are introduced there is often time pressure to get the facility operating by a predefined date responsibility for the plant transfers from one group of individuals to another.

Each commissioning team completes a risk assessment workshop specific to the commissioning management plan to identify and address the key risk items associated with the commissioning activities. PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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Upon completion of the workshop, the commissioning team prepares a commissioning safety plan which includes:  

 



a summary of the identified risks with a mitigation plan for each (a commissioning team member is assigned responsibility for each risk area and mitigation plan) a commissioning work plan, with appropriate roles and responsibilities defined, developed to provide appropriate safety training, reduce unsafe conditions and minimise work interferences a summary of safety protocols for controlling plant and equipment a plan to commission and accept safety systems (such as fire and gas detection, firewater, communication) prior to the introduction of any dangerous materials like flammables and corrosives a contractor safety strategy specific to managing short-term commissioning participants such as vendor’s representatives (this includes a documented safety training program required prior to their work on site).

5.4.5 Operations input in commissioning A key responsibility of the asset owner is to establish an operations team at the appropriate stage of a project’s development. This team is responsible for taking the project through commissioning and in to operation. The establishment of the operating workforce as a separate work group within the overall project is important. When possible, the inclusion of operations personnel on the team that contributed to the various project development phases is beneficial, as they have accepted and understand the basic project assumptions and operating parameters. Operations managers are appointed for each facility early on in the execution phase, so they can recruit, train and lead their operating teams and support groups in preparing for operations. It is important to fully align the operations personnel with the rest of the project teams and particularly with the technology providers. The commissioning process provides a unique training opportunity for the operations team. The operations team has a number of key responsibilities as the project moves towards completion and handover. These include: 







Development and roll-out of the operational HSEC system and procedures based on BHP Billiton standards. This occurs early in the execution phase. At handover of the facilities and equipment to the operations team, all persons on site, including remaining project team members, are required to use the operations HSE program. Where possible, the operations team participates in the preparation of commercial agreements for long term operating supplies, utilities etc. The operations team also provides input in specifying capital spares, operating spares and commissioning spares. The operations team helps with the identification and development of required training resources. These are planned and created in conjunction with the preparation of the operating and maintenance materials. This includes the use of training specialists to develop training programs and conduct training as appropriate. The development of the supporting systems – IT, communications, enterprise resource planning, maintenance management, management reporting, cost accounting and engineering (based on the project as-built design deliverables) – required for the ongoing business, in place at the time of project transition to operations.

5.4.6 Asset register To ensure that adequate asset management occurs on a project, an asset register is established during the execution phase of a project in accordance with the Owner’s requirements. It would be unusual for the asset register to form an adequate project WBS for project control purposes.

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An asset register enables all assets to be recorded and managed in accordance with the appropriate accounting standards and also assist with determining the Owner’s insurance requirements.

Coding system Each item of equipment on a project that has a capital cost is identified in a unique manner. Adoption of project coding system during the engineering phase benefits procurement tracking, construction and installation, commissioning and form the basis of the asset register. The level of detail used in the project coding system is appropriate to the project and the asset register and is agreed with asset owner’s team.

Register The asset register is a computer generated document which defines as a minimum the following information:      

asset code description of asset location of asset purchase price (direct cost) indirect costs (freight, import duties, installation, engineering, procurement and management cost etc) expected lifespan.

Data collection and input Data for the asset register is provided by the implementation contractor in a format agreed with the Owner’s team. Particular attention is paid to accurately determining the indirect and direct costs as these may affect taxation and depreciation allowances. Data input into the register is done either by the Owner’s team or the implementation contractor, as nominated in the contract or agreed between the parties. Where appropriate, details on items supplied by the Owner are provided by the Owner’s team to the implementation contractor for completeness of the asset register.

Taxation and depreciation Since taxation and depreciation laws vary between countries and projects, the Owner’s team seeks clarification regarding the format of the asset register and the level of detail required from the Owner’s asset management or accounting personnel. This will enable different depreciation rates, timing of purchases, recovery of duties and taxes (if applicable) and so forth to be addressed.

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5.5

TRANSITION TO OPERATIONS The transition to operations, sometimes referred to as the handover of project ownership, is marked by a formal transfer of the responsibility for the facilities and equipment from the project team to the operations team. A detailed procedure is prepared and agreed prior to commencement of commissioning. Each handover activity is fully documented and signed-off at the appropriate authority levels. The commissioning team verifies that all required and agreed documentation has been progressively handed over prior to operations accepting transfer of ownership. Items typically required include:         

design information, related engineering reports and applicable design codes as-built drawings of all project facilities and equipment fabrication documentation and quality certification vendor drawings and manuals contract and warranty documentation operations and other platform manuals system commissioning documentation start-up maintenance histories and handover certificates the punch list.

At final handover, an agreement is reached for the execution of any outstanding punch list items on the facility, including the necessary budget provision. Facilities are normally handed over from the commissioning team to the operations team as and when they are commissioned. It is recommended that ownership handover be completed in two steps:  

system handover, upon completion of commissioning of a system final handover upon completion of commissioning of all systems.

If a system could not be performance tested due to initial lack of throughput, handover might take place at an appropriate and agreed commissioning milestone. Prior to the transition to operations a transition readiness plan is completed, providing a clear guideline for effective transfer. This document includes:      

the operations strategy the operations plan the operational readiness and handover plan the operations resource plan operations and maintenance procedures operations and maintenance IM systems.

Final handover is completed when the commissioning team and operations team agree that the equipment and facilities are design capable. The key transition to operations requirements are included in Table 5.5.1. Table 5.5.1 Key transition to operations requirements Identification  No requirements.

Selection  Ensure that the

requirements of the operations strategy and plan are built into the SoW for the preferred investment alternative.  No other requirements.

Definition

Execution

 Update and optimise the

 Finalise and handover to

operations strategy.  Develop the operations

plan required for startup and subsequent safe and reliable commercial operation.  Develop the preliminary

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operations the agreed operations strategy and plan.  Develop the detailed

operational readiness and handover plan.  Implement, update and

maintain the execution Page 59

Identification

Selection

Definition and handover plan.  Identify and list the key

operations and maintenance procedures required during commissioning, start up and steady state operations.

Execution phase project operations resource plan.  Develop, implement and

handover to operations the complete suite of procedures.  Update the preliminary

closure and rehabilitation plan with as-built information and handover to operations including IM systems.

5.5.1 Operations strategy Prior to handover, the commissioning team finalises and works with operations to ensure that the agreed operations strategy has been achieved. This is accomplished by the early engagement in the project life cycle of the operations general manager and inputs from the appropriate business units. This document restates the critical operational assumptions agreed as part of the project development, including:      

operational value drivers operational philosophy operational requirements key operational issues ie. union versus non-union, contract versus owner operated, two shift versus three shift etc operations organisational structure operations management systems.

The completed strategy document is a key foundation document for the preparation of the operations plan. Commissioning is the final link between the planning step and the realisation of the operations strategy.

5.5.2 Operations plan The commissioning team finalises with the support of operations and then hands over to them the agreed operations plan, as outlined in prior phases of the project. The operations plan describes how the project equipment and facilities are operated and maintained during the life of operation. The plan provides the necessary framework for ensuring that the operations organisation has the tools required and is sufficiently prepared, skilled and resourced to support and maintain the asset on an ongoing basis. It includes the documentation of the following items:         

the operations organisation structure (including maintenance and support functions) position descriptions with roles and responsibilities for each key position in the organisation structure details for the recruitment, training and competency assessment of the operations organisation the HSEC plan for ongoing operations the operational risk management plan the change management process the operations management plan the maintenance management plan, including supply functions the financial management plan.

The operations and maintenance management plans provide the strategy for supporting and maintaining the outputs or deliverables of the asset upon the departure of the project team. Training plans within these PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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management plans outline what training is required in order to fully operate and maintain the facilities or systems, who is trained and when training takes place. In addition to the operations plan, a number of controlling procedures are prepared to cover such areas as:      

change management engineering query procedure drawing revision control, including mark-ups DCS software and database security permit-to-work procedure simultaneous operations procedure.

It is important for continuity to execute all operational activities required during pre commissioning, commissioning and start-up in accordance with the agreed operations plan e.g. permit to work.

5.5.3 Operational readiness & handover plan The commissioning team supports the operations in their development of a detailed operational readiness and handover plan. The operational readiness and handover plan provides the description of how the project plans to safely and successfully transition to long term operation. It includes both the preparation work required and the actual handover of all project assets, both equipment and facilities. It includes the relevant requirements from the operations strategy and operations plan. Key elements of the operations readiness and handover plan to be completed prior to the actual transition include: 

appointment of owner’s asset leader, key operations and maintenance resources that are assigned to develop the plan



operations management plan in place, including permit to work, HSEC and risk management plans



clear process is in place and milestones agreed for project handover by package and system for each equipment piece and facility, including agreement on handover of any outstanding work (punch list items) and associated budget



clear responsibilities and accountabilities during handover period i.e. safety management



handover of all legal and statutory requirements, assets, insurance, documentation and as-built drawings, key contracts, warranty documentation, spares and consumables, systems, software and data



all required operations statutory permits and approvals



establish the priority system for punch list items and how they will be completed.

5.5.4 Operations readiness Operations readiness describes the process by which an operational team prepares for full time and sustained operation of an asset or processing facility following handover from a project team. For this to occur, a number of systems need to be in place. These systems can be broadly categorised into the following areas:      

organisation HSEC human resources risk/change management financial management facilities.

The operations readiness process is utilised for both brownfields expansions on existing sites and greenfields projects. The process is different between the two in that an existing site is likely to already have many of the required management and operational systems in place. The greenfields site is likely to PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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have none. For brownfields projects, the process is more one of integrating into existing systems rather than developing new ones. For brownfields projects involving relatively low value assets that have minimal impact on the site operations, the operations readiness process may not add significant value. Some organisations impose a project value hurdle that activates the readiness survey. It is suggested project teams review their project for site impact to determine whether the operations readiness survey would be value adding. Where site impact resulting from the project is low, a simple internal survey may be sufficient. Operations readiness surveys are undertaken during the definition and execution phases of a project as follows: 



 

In the definition phase – in sufficient detail to ensure that an adequate allowance is included in the estimate and that the execution phase schedule includes time provision for the work to be undertaken. Early in project execution – the readiness checks can be utilised to gain an understanding of the systems that need to be in place prior to start up and operation. This is completed internally by the operations members of the project team. The outcomes are built into a project schedule so that accountabilities and timing can be assigned and tracked during the execution phase. During project execution – the operations members of the project team complete internal readiness surveys to assess progress and identify any gaps that need to be addressed. Prior to commissioning – a formal readiness survey is completed before commissioning commences. This survey is undertaken by an external cross functional team and is completed such that there is sufficient time to address any gaps without impacting on the start-up schedule.

Informal readiness surveys can be undertaken internally by the operations members of the project team. The formal audit that is undertaken prior to commissioning is completed by a cross functional team external to the project. This team has a working knowledge of the readiness process combined with a range of project start up experience. Toolboxes to support the process are as follows:  

Toolbox 9.5.5B Operational Readiness Checklist - Greenfields Projects Toolbox 9.5.5C Operational Readiness Checklist - Brownfields Projects.

5.5.5 Operations resources plan Prior to transition, the commissioning team, with the support of operations, documents for operations any updates and maintains the execution phase project operations resource plan. The intent is to ensure that the appropriate number of qualified operations, maintenance and support personnel are in place at the right time and are provided the appropriate responsibility in order to meet the operational readiness and handover requirements. This plan normally transitions directly into operations for their implementation of the long term plan for operations. Typically, key operations supervision personnel must meet minimum experience and performance standards and the core operations and maintenance workforce must meet minimum experience and appropriate trade competency standards. The overall training and competency objective for the operations staff and support contractors is to be able to safely and efficiently operate and maintain the new facilities and equipment. The operations resources plan includes a training element that defines what training is required in order to fully operate and maintain the facilities or systems, who are trained and when training takes place. The operations general manager and the future operations team are responsible and accountable for the development and implementing of these plans. The project supports and provides input and assistance as required. The project director, in this last phase, works in support of the operations as responsible for delivering the business case with the operations general manager leading the effort.

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5.5.6 Operations and maintenance procedures The project team works in consultation with the operations representatives while they develop, implement a complete suite of operations and maintenance procedures with the associated manuals required for commissioning, start up and steady state operations. These documents include a defined plan for support and maintenance of the project outputs or deliverables, equipment and facilities, upon the departure of the project team. The plan provides the basic framework to ensure that the operations organisation is sufficiently resourced, skilled and prepared to operate and maintain the project on an ongoing basis. The development and subsequent implementation of an appropriate training plan is important to ensure that operations understand the fundamentals of the operation and are prepared to accept the completed system or facilities. The project team, having the design knowledge and responsibility for pre-commissioning, supports in developing the above procedures. As the effort is often significantly under-estimated, the project needs to allow time to support training as required.

5.5.7 Operations and maintenance IM systems As part of the handover package, the project team develops and provides the operations team a number of critical information management (IM) systems. At a minimum these include:    

the key operations and maintenance IM systems required during commissioning, start up phase and steady state operations the production reporting, performance measurements, communication protocols, operational budgets, etc. in accordance with the operations development plan information systems, spare selection process, equipment maintenance plans, condition monitoring, etc. in accordance with the maintenance plan appropriate business systems, document management, plant control, production reporting, communication systems, etc. in accordance with the information systems development plan.

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5.6

PROJECT CLOSE-OUT As all projects have an end, the process of closing out a project is recognised as one of the main process groups associated with the life cycle of the project. Whilst close-out in the context of this manual is primarily referring to the overall completion of the project, these processes also apply to each phase, work process (e.g. engineering) and/or contracts that encompass parts of the scope of work. The key objectives of the close-out process are to ensure that: 

 

all project activities are completed and documentation demonstrating this is prepared and that the project outcomes are documented by comparing the outcomes against the plan and objectives lessons learnt are identified and documented all relevant project documentation is handed over and/or archived.

5.6.1 The close-out process The key success factor for ensuring that a project is successfully completed is ensuring that all closeactivities are identified and addressed. These activities encompass all key work processes and control processes covered in the PDM. The close-out process is important no matter at what stage the project is completed, whether it is during the study phase or after the facility is operational. In planning for each phase, the project team identifies what needs to be done should BHP Billiton exit the project or place the project on hold. For projects that may result in divestment following a study, it is prudent to consider the corporate entity that is commissioning documentation. It is important that non relevant or BHP Billiton sensitive documentation is not commissioned under potential sale companies to avoid these being transferred as part of any sale process.

Execution phase close-out Ideally the close-out process takes place at the time that the functional phases (for engineering, procurement, construction and pre-commissioning) are nearing completion. It is typical for close-out activities to be handed over to remaining team members to complete. For example, as-built drawings and documents can be updated by field engineering on site. Some of the critical activities to be addressed are summarised below:   

 

Engineering: approval of vendor drawings, completion of agreed as-built drawings, redlining of P&IDs and handover of 3D models. Procurement: closure of all contracts, reconciliation of quantities, receipt of all agreed vendor documentation and release of retentions and bank guarantees. Construction: completion of punch lists, demobilisation of contractors, final measurement, disposal of surplus materials, dismantling of temporary facilities and site clean-up and disposal of waste. Commissioning and handover: redlining of P&IDs, completion and sign off for all turnover packages. Project Management: closure of project offices at all work locations, preparation of closeout report and demobilisation of staff. Where required input may also be required into a corporate post investment review (PIR).

It is good practice for the Owner’s team to arrange a workshop before the end of each functional phase of the project (engineering or procurement). The purpose of the workshop is to provide a vehicle for the key participants from all parties, such as the Owner’s team, implementation contractor, construction contractors and other service providers, who have been involved in the relevant phase and follow-on activities so that they can contribute their views on the outcomes and lessons learnt. A workshop PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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facilitator is enlisted to assist with provision of a structured approach to the workshop and increases the probability that all parties get an opportunity to raise issues. The PEP outlines a close-out plan to describe the processes for closing the project on completion. The detailed close-out plan clearly documents the items listed below:   

What needs to be done? Document all close-out activities and the requirements for a project close-out report (PCOR). When does it need to be done? Describe the timing of the close-out activities including the final PCOR. Who completes the tasks? List who is responsible for each activity and who completes sections of the PCOR. How are the activities completed? How is each activity completed, verified and signed off?

Note that whilst some activities are specific to a function, there are activities that always occur during each phase of the project e.g. quality assurance and control. These are considered during the close-out of each phase e.g. engineering QA/QC. Refer to Toolbox 9.5.6B Execution Phase Close-out Checklist, for a checklist to assist in the preparation of a close-out plan.

Study phase close-out Whilst the process outlined above refers primarily to the execution phase, the process applies equally to all the study phases of the project. The preparation of a study phase report is effectively a means of closing out that phase. That is, all phase activities are completed, all the deliverables are documented, a recommendation is made regarding how to progress the project and a report is prepared to demonstrate that the objectives of the phase have been met. Minimum requirements for project close-out are outlined in the Major Capital Projects GLDs, Appendix 5 Execution Phase. In the event that a project is cancelled or put on hold during the study phase, the close-out process includes a lessons learnt review and a formal close-out report is prepared. The PCOR focuses only on those activities completed. It is critical if a decision be made to close the project that a close-out workshop is scheduled before the demobilisation of key players and that resources are made available to document the outcomes and lessons learnt. Also, all project documentation is archived for future reference.

5.6.2 The project close-out report The BHP Billiton Owner’s team project manager or their delegate prepares a PCOR. All major projects are required to submit a PCOR that highlights the outcomes against approved targets and key lessons learnt. Refer to Toolbox 9.5.6C Project Close-out Report Template. Whilst the PCOR documents the project outcomes, it also documents the original scope, capital cost, schedule and plans, so that any changes and the context for those changes can be clearly understood. The PCOR covers at least the following:       

introduction – project name, ownership, description, location and capacity key outcomes against approved targets project history scope of work – Owner’s and that of the implementation contractor process & facility descriptions – including PFDs, P&IDs and plot plans organisation and management – including organisation charts, roles & responsibilities for key positions functional reports  

HSEC engineering

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            

  

procurement & contracts, including implementation contractor off-site fabrication & manufacturing construction/installation pre-commissioning commissioning, hand-over and start-up operational readiness – production, maintenance, HR and IT project management – strategy, leadership, organisation, people and communication project controls – planning/scheduling, cost control, progress measurement/reporting and change management final cost to complete and variance analysis against approved budgets actual schedule to completion and key milestones against plan project accounting risk management quality management – QA/QC

cost, quantity and labour data key lessons learnt appendices – including photographs, final cost reports and as-built schedules.

The PCOR encompasses the entire project scope i.e. both the Owner’s scope and implementation contractor’s scope of work. It is recommended that the report be structured in a way that any close-out report by the implementation contractor can be rolled up into the Owner’s report without repetition of content. Note that any contractor involved in the implementation of any part of the scope e.g. EPCM or LSTK completes a close-out report for their respective scope. Where applicable, reference is made to the implementation contractor’s project close-out report and the Independent Project Analysis Inc. (IPA) Close-out Evaluation report. The PCOR is signed-off by all the relevant stakeholders, including the Owner’s team project manager or their delegate and a copy submitted to BHP Billiton’s Project Management Services (PMS) Group Function for review and filing. For major projects, a summary of the PCOR, complete with key lessons learnt (refer Section 5.6.3 The project close-out review), is filed in the Investment Tracking System (ITS) by the Owner’s team project manager.

5.6.3 The project close-out review Project close-out reviews are undertaken as a way of maximising knowledge about projects by identifying, documenting and communicating the key lessons emerging from a project. Identifying and sharing the lessons learnt assists future project participants to optimise investment outcomes, by providing the opportunity to utilise the documented successful and unsuccessful strategies and practices. The ownership for the project close-out review rests with the Owner’s team project manager. The project close-out review involves all the key project stakeholders, including:    

key Owner’s team project personnel key representatives from operations key implementation contractor’s personnel associated with the project designated representative(s) from PMS.

The project close-out review is completed before the key project participants are demobilised and may need to be phased to match the release of personnel from the project e.g. undertake a close-out review of the engineering phase before the engineering manager and key engineering team members have been demobilised. Best practice ensures that a draft version of the PCOR and IPA’s Close-out Evaluation report is available to the review participants to allow them to become familiar with the history of the project and the draft findings.

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The Owner’s team is responsible for engaging IPA to conduct a Close-out Evaluation for major capital projects after the project is substantially complete i.e. key project targets have been met. The team needs to plan for this activity and ensure that IPA workbooks are completed and reviewed well before actual review by IPA. Note that as with the PCOR, this is likely to be before the final project activities are completed to maximise the probability that relevant participants are available. The IPA report can be updated with the final costs on final completion. Further details on IPA reviews are included in Section 6.1 Study Management and Section 6.8 Audit and Review. When reviewing the project, consideration is made of both what was done well and worth emulating (“positive learning” or “good practice”) and what was not done well and can either be improved upon or avoided (“negative learning”). Rate the impact of both positive and negative learnings on the project as below:   

High Medium Low.

The key learnings (positive and negative) are captured and documented as per the toolbox template in Toolbox 9.5.6D Project Close-out Review – Key Learning Template. A summary of these learnings is included in the summary PCOR for filing in ITS.

5.6.4 Deliverables, timing and accountabilities It is the responsibility of the Owner’s team project manager to initiate and provide overall management of the project close-out activities. Table 5.6.1 Deliverables of project close-out Deliverable Project closeout plan

Timing

Produced by

 Outline in PEP – end

definition phase.

functional leads.

 Complete three

 Implementation

months prior to the planned completion of execution phase functional activities. PCOR

 Owner’s team

 Complete within three

months of completing execution phase.

contractor and other relevant Stakeholders.  Owner’s team

functional leads.  Implementation

contractor and other relevant Stakeholders. Project historical report

 Complete within three

months of completing execution phase.

 Designated

Owner’s team functional team members.

Reviewed by  Owner’s team

project manager.

Approved by  Owner’s team

project manager.

 Owner’s team

functional leads.

 Owner’s team

project manager.

 Owner’s team

project manager.

 Owner’s team

functional leads.  PMS

representative.  Owner’s team

project manager.

 Owner’s team

project manager.

 Owner’s team

functional leads.

 Implementation

contractor. IPA close-out evaluation report

 Complete within three

months of completing execution phase.

 IPA.

 Owner’s team (for

 IPA.

factual correctness only).  PMS

representative.

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PROJECT DEVELOPMENT MANUAL CHAPTER 6.0 CONTROL PROCESSES Document No: PDM-001 Revision 0 (uncontrolled when printed)

Table of Contents 6.0

CONTROL PROCESSES.....................................................................................................1

6.1

STUDY MANAGEMENT ..................................................................................................................................2 6.1.1 Study work plan development ......................................................................................................3 6.1.2 Study work plan ...............................................................................................................................5 6.1.3 Conducting the study .....................................................................................................................9

6.2

PROJECT MANAGEMENT ........................................................................................................................... 14 6.2.1 Project execution plan development........................................................................................ 14 6.2.2 Project execution plan................................................................................................................. 20 6.2.3 Executing the project................................................................................................................... 28

6.3

SCOPE DEFINITION...................................................................................................................................... 32 6.3.1 Statement of requirements......................................................................................................... 32 6.3.2 Scope of work ............................................................................................................................... 36 6.3.3 Work breakdown structure....................................................................................................... 38

6.4

SCHEDULE DEVELOPMENT ....................................................................................................................... 42 6.4.1 Planning vs. scheduling................................................................................................................. 43 6.4.2 Project master schedule.............................................................................................................. 43 6.4.3 Basis of schedule ........................................................................................................................... 48 6.4.4 Study schedule............................................................................................................................... 49 6.4.5 Execution schedule....................................................................................................................... 49 6.4.6 Classes of schedules..................................................................................................................... 50 6.4.7 Schedule independent peer review........................................................................................... 55 6.4.8 Schedule range analysis................................................................................................................ 55 6.4.9 Schedule contingency................................................................................................................... 56 6.4.10 Schedule control........................................................................................................................... 57

6.5

COST ESTIMATING....................................................................................................................................... 58 6.5.1 Capital cost estimating ................................................................................................................ 59 6.5.2 Study cost estimating ................................................................................................................... 70 6.5.3 Operating cost estimating........................................................................................................... 71 6.5.4 Asset closure cost estimating .................................................................................................... 73

6.6

PROJECT CONTROLS.................................................................................................................................. 75 6.6.1 Project controls plan ................................................................................................................... 76 6.6.2 Cost control .................................................................................................................................. 78 6.6.3 Schedule control........................................................................................................................... 82 6.6.4 Change management.................................................................................................................... 88 6.6.5 Fixed asset register ...................................................................................................................... 90

6.7

QUALITY MANAGEMENT .......................................................................................................................... 92 6.7.1 Quality management process..................................................................................................... 93 6.7.2 The development of the quality management plan ............................................................... 94 6.7.3 Structure and content of the quality management plan ....................................................... 95 6.7.4 Quality assurance ......................................................................................................................... 96 6.7.5 Quality control.............................................................................................................................. 99

6.8

AUDIT AND REVIEW ................................................................................................................................. 100 6.8.1 Introduction................................................................................................................................. 100 6.8.2 Types and timing of independent reviews............................................................................. 101 6.8.3 Development of audit and review plan.................................................................................. 102

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6.8.4 6.8.5 6.8.6

Planning an audit or review ...................................................................................................... 102 Carrying out an audit or review.............................................................................................. 103 Review reports............................................................................................................................ 104

Tables Table 6.1 Chapter contents.................................................................................................................................................1 Table 6.1.1 Key study management requirements .........................................................................................................2 Table 6.1.2 Structure and content of the SWP ...............................................................................................................5 Table 6.2.1 Key project management requirements ................................................................................................... 14 Table 6.2.2 Structure and content of PEP ..................................................................................................................... 20 Table 6.3.1 Key scope definition requirements............................................................................................................ 32 Table 6.3.2 SoR accountabilities ...................................................................................................................................... 33 Table 6.3.3 Objective statements.................................................................................................................................... 34 Table 6.3.4 Example of benefit measurements............................................................................................................. 35 Table 6.3.5 SoR timing and accountabilities .................................................................................................................. 36 Table 6.3.6 SoW timing and accountabilities ................................................................................................................ 38 Table 6.3.7 WBS process steps ....................................................................................................................................... 39 Table 6.3.8 WBS hierarchy ............................................................................................................................................... 39 Table 6.3.9 Differences between WBS and PBS .......................................................................................................... 40 Table 6.3.10 Project cost report example..................................................................................................................... 40 Table 6.3.11 WBS timing and accountabilities.............................................................................................................. 41 Table 6.4.1 Key schedule development requirements................................................................................................ 42 Table 6.4.2 Planning vs. scheduling.................................................................................................................................. 43 Table 6.4.3 Schedule classification table......................................................................................................................... 52 Table 6.4.4 Peer review timeline ..................................................................................................................................... 55 Table 6.4.5 Schedule range analysis requirements....................................................................................................... 56 Table 6.5.1 Key cost estimating requirements ............................................................................................................. 58 Table 6.5.2 Capital cost estimate – classification guide .............................................................................................. 60 Table 6.5.3 Operating cost estimate classes ................................................................................................................. 71 Table 6.5.4 Operating cost estimate requirements..................................................................................................... 72 Table 6.5.5 Operating cost estimate reporting format............................................................................................... 73 Table 6.6.1 Key project controls requirements........................................................................................................... 75 Table 6.6.2 Structure and content of the project controls plan............................................................................... 77 Table 6.6.3 Other typical project schedules ................................................................................................................. 86 Table 6.7.1 Key quality management requirements .................................................................................................... 92 Table 6.7.2 Structure and content of the quality management plan ........................................................................ 95 Table 6.7.3 Project quality management plan timing................................................................................................... 96 Table 6.8.1 Audit or review, what’s the difference?.................................................................................................. 101

Figures Figure 6.1.1 IPA reviews by phase................................................................................................................................... 12 Figure 6.2.1 Definition phase project execution planning steps ............................................................................... 16 Figure 6.3.1 Relationship between PEP, SoW and SoR .............................................................................................. 32 Figure 6.4.1 Schedule development process ................................................................................................................. 42 Figure 6.4.2 Schedule classes & schedule levels............................................................................................................ 50 Figure 6.4.3 Determination of schedule contingency.................................................................................................. 56 Figure 6.5.1 Capital and operating cost estimate steps and responsibilities .......................................................... 59 Figure 6.5.2 Capital cost estimating process................................................................................................................. 70 Figure 6.6.1 Process for preparing a revised, recovery or re-baseline schedule .................................................. 85 Figure 6.7.1 Quality management process..................................................................................................................... 94 PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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6.0

CONTROL PROCESSES The control processes are those processes that support the planning, managing, controlling and reporting on the delivery of the physical plant and/or assets on the ground on time, on budget and in accordance with the required quality and technical specifications. The contents of the chapter are summarised in Table 6.1. Table 6.1 Chapter contents #

Title

Details  Focuses on study planning process as well as the processes for development of

6.1

Study management

and the framework for the study work plan (SWP).  Defines the overall management processes for studies.  Applies only to the study phases.  Focuses on project execution planning process as well as the processes for

6.2

Project management

development of and the framework for the project execution plan (PEP).  Defines various management processes for the execution phase.  Provides process for the development of the statement of requirements (SoR),

6.3

Scope definition

scope of work (SoW) and work breakdown structure (WBS).  Applies only to the study phases.  Summarises the planning and scheduling processes and theory.

6.4

Schedule development

 Outlines the process for development of a project master schedule.  It is an intensive activity of the selection and definition phases with final outputs

generated early in the execution phase.  Summarises the estimating processes and theory.  Outlines the processes for the development of study, capital and operating

6.5

Cost estimating

cost estimates.  It is an intensive activity of the selection and definition phases with final outputs

generated early in the execution phase.  Provides outline for the development of a project controls plan.  Outlines the cost and schedule control and change management processes.

6.6

Project controls

 Project controls activities start at the study phases and continue through the

execution phase. Given that most time and money is spent during the execution phase, project controls activities are intense during this phase. 6.7

Quality management

6.8

Audit and review

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 Outlines the quality management process.  The process does not generally commence until the end of the selection phase.  Outlines the audit and review process.  The process does not generally commence until the end of the selection phase.

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6.1

STUDY MANAGEMENT Studies have the ultimate objective of demonstrating the technical and economic viability of an intended project against predetermined or agreed parameters. If a study demonstrates that the intended project is not viable, this is considered a positive outcome, not a failure. Not all potential projects are viable. The purpose of any study is to make a rational determination of viability. As mandated in the Major Capital Projects GLDs, the SWP for the selection and definition phases are prepared in the preceding study phase and reviewed prior to approval to proceed to the next phase. The complexity and depth of a SWP is a reflection of the size, complexity and risks associated with the proposed project being studied. All studies are executed on the basis of an agreed SWP and the deliverables of the study are developed and documented accordingly. The study report contents follows the requirements described in the Major Capital Projects GLDs and demonstrates that the requirements therein and the objectives of the study have been met. During the execution of the study, progress reports are compiled and distributed to the relevant stakeholders. On completion of any particular study phase, the study deliverables are documented and reviewed in accordance with the Investment Process GLDs in cases where the project team recommend that the project proceed to the next phase. The key study management requirements through the investment phases are shown in Table 6.1.1. Table 6.1.1 Key study management requirements Identification Demonstrate that an investment opportunity is sufficiently attractive to justify the expense on a more detailed selection phase study to identify potentially value-creating investment alternatives to be assessed further. Activities include:  identify a value-creating

investment  identify major alternatives for

evaluation in the selection phase  identify all potential material issues

or major risks  confirm alignment with agreed

CSG business strategy  define what work needs to be

done to further assess the investment opportunity  plan for the next phase i.e. the

SWP for the selection phase.

Selection Assess all reasonable value-creating alternatives and select the single most valuable investment alternative (configuration) to be studied further and optimised in the definition phase. Activities include:  evaluate all reasonable value-

creating alternatives and select the highest value alternative, accounting for risk, uncertainty and embedded option value  produce a summary of the

investment alternatives considered, the criteria used and the reasoning behind the decision to select the preferred investment alternative for formal internal CSG approval  complete sufficient work

(opportunity realisation) on the preferred investment alternative to:

Definition Define the selected investment alternative. Activities include:  optimise total life cycle costing and

NPV for the investment  complete any outstanding

optimisation work  complete a full evaluation of the

investment including the risk profile  finalise project scope, cost,

schedule, commercial terms and statutory approvals  include any upside alternatives that

may accrue outside the project scope  plan for the next phase i.e.

develop the PEP for the execution phase.

 have the main areas of the

project scope clearly understood and frozen  ensure technical and commercial

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Identification

Selection

Definition

 have an outline of the PEP  plan for the next phase i.e. the

SWP for the definition phase.

6.1.1 Study work plan development Study objectives In developing the SWP, consideration is given to the following:  

     

the study objectives for the respective phase to meet the requirements as documented in the Major Capital Projects GLDs the overall business objectives for the capital investment opportunity, ensuring that the investment opportunity is consistent with the corporate objective, the overall CSG strategy and the approved 5 year plan the general features of the opportunity, in particular whether it is a greenfields or brownfields opportunity the key business drivers, any major risks and/or uncertainties the minimum requirements and level of definition for each study phase as documented in the Major Capital Projects GLDs any commercial and/or technical issues that need further investigation to improve the level of definition to support any decision to proceed to the next stage of development any lessons learnt from previous projects any value improving practices (VIPs) appropriate to the relevant phase of the project.

Due to the phasing and toll-gating approach to the development of any investment opportunity, the actual stage of development also impacts on the objectives and scope of the project. In particular:  



For the identification phase, the study clearly demonstrates that the investment is potentially value-creating and identifies all major alternatives for evaluation in the selection phase. For the selection phase, the study evaluates all reasonable value-creating alternatives and selects the most value creating alternative adjusting for risk, uncertainty and embedded optionally. The selection of the preferred alternative is clearly demonstrated and developed to ensure the realisation of the opportunity is fully understood. For the definition phase, the opportunity is fully optimised and the plan for the execution of the opportunity is fully developed.

The SWP for each phase of a study is prepared and fully documented prior to the start of the respective phase so that when the proposal to proceed is submitted for approval a clear understanding of the objectives, the study scope to be carried out, the deliverables of the study, the methodology for conducting the study, the resources required, the time and cost required, are fully documented and clearly understood. When seeking approval to proceed to the definition phase, the study plan is made available to the independent peer review (IPR) team for their review thereof. The SWP forms the basis for managing the study and a baseline for reporting progress.

Study scope of work Aligned with the structure outlined in the Major Capital Projects GLDs, the project team develops a study SoW, ensuring that all activities and tasks that make up the study scope are fully defined. In particular, the core work processes to be followed (including the close-out of the study); the key deliverables to be generated from these processes and the review of key identified deliverables are addressed. Note that the selection phase methodology includes both the opportunity framing and the opportunity selection processes (refer Section 4.6 Opportunity Realisation).

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Study execution methodology Once the key objectives and the study scope have been fully documented, the project team gives consideration to strategy and approach to executing the study. Particular attention is paid to:     

the breakdown or collation of the study SoW into work packages the identification of resources, required both internally and externally, to deliver these work packages allocation of work packages between the internal and external parties namely Owner’s team lead functions, consultants, contractors and other service providers the contracting methodology to be adopted for all outside parties the identification of any critical interfaces between work packages.

In considering the approach above, the Owner’s team takes into consideration whether the study is conducted a part of a program of projects that are managed in a Hub (refer Section 2.4 Program Management Hubs). Other considerations are: 

where to locate the Owner’s team, based on consideration of factors such as:       

  

   

location of project site whether the project is greenfields or brownfields availability of relevant expertise, services and facilities quality of existing communications systems HSEC considerations current project phase (i.e. the maturity of development) cost of mobilisation

capacity to resource the Owner’s team from within CSG and the assets and the use of contractors/consultants to complement the team engagement of an implementation contractor to provide project management services extent to which specialist technical activities such as geology, mining, testwork, technology and engineering can be resourced in-house and how best to fill the gaps by use of consultants and service providers co-location of the Owner’s team, implementation contractor and other service providers use of a value engineering centre (refer Section 5.1 Engineering Management) the scope and nature of any pre-commitments and the need to manage manufacturing, fabrication and construction activities in study phases the application of innovative strategies and designs with acceptable risk profile.

Resourcing and organisation structures The next step in preparing the SWP is to identify the resources to manage the full scope of the study (as identified above) and in particular the interfaces between the various disciplines and/or organisations involved. An appropriate organisation structure to ensure an integrated approach to direct and manage the study is also required. In the process, the team identifies:   

key individuals or resources with the appropriate skills and experience the Owner’s team requires to complete the study a plan to mobilise all key personnel and service providers and the duration of their assignment roles and responsibilities for all key personnel and service providers.

Study deliverables The project team clearly defines all the main study deliverables (including the preparation of a study report) and develops a fully documented matrix to ensure the allocation of responsibility for the development, review and approval of all of these deliverables. PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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Study schedule The study schedule includes all the key activities representing the deliverables and milestones required for completing the relevant phase in the required sequence. The study schedule also includes activities for:   

the completion of all the study documentation, including a study report summarising the outcome of work completed the preparation of all submissions required for approval to proceed to the next phase the review thereof by the IPR team.

The study schedule for the particular study phase is developed in accordance with the requirements of Section 6.4.4 Study schedule.

Discipline specific work plans and project procedures The project team then develops the relevant plans for all key technical functions i.e. geology, processing, engineering, etc. and control and management functions to ensure the establishment of effective monitoring and control (including quality assurance and change control) of all work processes, reporting of progress, completion and close-out of all study phase activities. These plans also identify any procedures and systems required to execute the study and produce all the required deliverables and the format, frequency and circulation of progress reports. The SWP also identifies any governance requirements i.e. a steering committee (refer Toolbox 9.6.2F Steering Committee Guideline) and an approval framework (refer Toolbox 9.6.2D Approvals framework) for the Owner’s team to follow. If there is a requirement for a steering committee, the specific functions and activities of the committee are included for in the SWP.

Study budget The team then prepares a detailed estimate with appropriate level of contingency and any other provisions to complete the full study scope. This estimate is prepared prior to gating i.e. in the previous phase. The estimate for the next phase includes, in addition to the cost for the completion of study and IPR activities, the cost to cover the transition to the next phase (pending approval thereof) including retaining the core project team during the approval process. The estimate also identifies pre-commitments, such as long lead items and/or critical services such as early engineering design, early works etc when requesting funding approval. The budget or estimate for the particular study phase is developed in accordance with the requirements of Section 6.5.2 Study cost estimating, while Toolbox 9.6.1C Study Budget is available to assist project teams in preparation of study budgets/estimates.

6.1.2 Study work plan The SWP for a particular phase is prepared towards the end of the preceding phase. It addresses the study issues identified, what investigations are needed and how the issues will be resolved, to ensure that the study achieves the phase objectives. Each study phase encompasses all work from receiving approval to commence the phase up to and including the completion of tollgate activities and approval to proceed to the next phase. The recommended structure and content for the SWP is as outlined in Table 6.1.2. Table 6.1.2 Structure and content of the SWP Section

Study Objectives

Contents As mentioned in Section 6.1.1 Study work plan, studies have the ultimate objective of demonstrating the technical and economic viability of an intended project against predetermined or agreed parameters. The objectives of a study address the minimum requirements as set out in Table 6.1.1 for each respective phase of the project.

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Section

Business Objectives

Contents The business objectives are identified and documented in the identification phase and are aligned to the BHP Billiton Group, CSG and Asset business criteria as appropriate. Subsequent reviews and updating is undertaken at the start of each study phase to incorporate any changes that may have arisen through the toll gating process and a final review is carried out again on completion of each study phase. Any key business drivers are clearly identified.

Study Scope of Work

The study scope is developed and documented in the SWP by aligning the study scope with the minimum requirements as documented in the Major Capital Projects GLDs and broken down to at least an activity level or task. The identification of any VIPs to be carried out during the study are also clearly highlighted along with the reasons for both the use of the VIP and the timing thereof. Further details of VIPs are in Section 4.7 Value Improvement. Of critical importance for the selection phase is to clearly define the various alternatives or trade-offs to be studied. If during the study, these alternatives are varied, this can then be clearly identified as a change in the study scope. The SWP clearly documents the study scope of work as defined at the end of previous phase of study and flags any key risks and uncertainties that drive or constrain activities to be undertaken during the study.

Study Standards

The standards to be achieved for the study are clearly stated in the SWP by reference to the applicable BHP Billiton GLDs, which define the minimum standards acceptable. Any variations (either increases or decreases) in the standard to be achieved are specifically stated in the SWP. The SWP sets out the execution methodology for the study phase, which addresses issues such as:  the packaging of work into BHP Billiton (Owner’s team) and non-BHP Billiton

performed tasks  major restraints to be overcome before any dependent study tasks are to be

Study Execution Methodology

committed  the location of the work.

It is the responsibility of the Owner’s team project manager to initiate and manage development of the strategic plan prior to initiating a study phase. This is achieved through facilitated workshops attended by relevant stakeholders. The SWP also addresses the governance requirements for the study phase and in particular the use of a steering committee, the purpose and make-up thereof and the frequency of any meetings (refer Toolbox 9.6.2F Steering Committee Guideline) The organisation structure to be utilised is presented in the SWP. All BHP Billiton and non-BHP Billiton roles and reporting lines and the interfaces between the Owner’s team and the service providers i.e. implementation contractor, consultants, contractors, etc. are shown.

Study Phase Organisation Structure

The key role of the Owner’s team in the study phases is to set and direct policies. Other contractors and consultants are engaged to deliver their part of the study within their expertise envelope, that the Owner does not have the capacity or capability to conduct. However the Owner’s team needs to have the expertise to review and audit selected critical aspects or activities of the study phases to ensure there is compliance with the minimum requirements, corporate policies and statutory regulations. The organisation also reflects the reporting lines back in the Asset and/or CSG and any governance frameworks i.e. steering committee.

Personnel

The SWP nominates the key BHP Billiton personnel assigned or to be assigned to the study team and indicate any functional or specialist personnel required participating in the study along with their availability and a plan to mobilise them. The role of each study team member and their responsibility is stated.

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Section

Contents Cost estimates and their management during a study are at two levels:  estimated costs to perform the study

Study estimating

 estimated costs of the potential project.

The SWP includes the budget for the study to at least a Class 4 (refer section 6.5.2 Study cost estimating) standard of detail, plus provides a forecast on a monthly basis of both commitments and expenditure. Currencies used in the study costs are indicated. The SWP:  defines the processes to be followed when controlling and reporting the study status

Study cost control

 presents the previous (if available) project capital and operating cost estimates from

other similar projects and any targeted values  defines the procedures to be followed when trending and reporting changes in capital

and operating costs, identified throughout the study phase. The study schedule includes all the activities representing the deliverables relating to the study phase and the tollgate activities to the start of the next phase. Refer to 6.4.4 Study schedule. In addition to all the work activities of the study, best practice is achieved by including the following:  Provide milestone dates for reviews and interim reviews during the course of the study.

Include provision of discrete time periods within the schedule for key study team members to confer with their IPR counterparts.  Resource loaded activities are required. While drafting of sections can commence

Study schedule

during the course of the study, the nature of the study report means that it cannot be completed until all other study work has been finalised. Only then, can the report be reviewed in its full context and the executive summary drafted. It is good practice to incorporate additional activities to reflect the preparation of the study report with line items for each section of the report showing time periods for drafting, review, consolidation, final review and formal issue.  The tollgate activities that follow study report completion through to approval to

commence the next phase. The SWP includes:  study schedule (Class 2 and Level 3 or lower)  project master schedule - refer to 6.4.2 Project master schedule  control and reporting procedures for the project master schedule.

The SWP documents the deliverables of the study, in particular the following:  table of contents of the study report (which conforms with the structure of the Major

Capital Projects GLDs – either petroleum or minerals, depending on the project)  schedule of all separate specialist study reports to support and be incorporated into the

study  all key stand alone deliverables of the study i.e. resource/reserve statements,

Deliverables

engineering deliverables (e.g. PFDs, plot plans, etc.), project SoW, capital cost estimate, project master schedule, SWP or PEP, etc.) These deliverables are nominated to be:  control level documents  allocated to persons or groups to prepare and manage.

A responsibility matrix documenting the allocation of responsibility for the development, review and approval of all these deliverables is included – refer Toolbox 9.6.2E Deliverables Responsibility Matrix.

Management Plans

Management plans are used to define the approach that is used to manage the various functional processes during the execution phase of the project. Each function required to manage the various core work packages, on behalf of the Owner as defined in the project SoW, defines how they plan to execute and manage their respective work packages.

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Section

Contents These include engineering, procurement and construction management. Whilst the extent of this work depends on the execution strategy adopted (e.g. use of an implementation contractor) and the role of the Owner, the Owner’s team defines how the Owner’s requirements are met. Any party engaged by the Owner to execute work packages on behalf on the Owner develop more detailed plans as to how they intend to deliver these packages in accordance with the Owner’s requirements. Other functions required to manage the risks associated with meeting the project objectives, for example HSEC, define specific plans as to how these objectives are met in accordance with BHP Billiton requirements i.e. the principles of Zero Harm, FRCS etc. Likewise, the Owner’s team defines how the project is project managed and what governance structures are put in place i.e. steering committee. If so, a clear mandate is prepared.

Approvals Framework

An approvals framework is required for the study phase (refer Toolbox 9.6.2D Approvals Framework). The SWP references and authorises the development, approval and use of specific procedures. The project procedures document how all parties involved in the execution of the project, including the Owner’s team and the implementation contractor’s and other consultants’/contractors’ project teams, carry out key functional processes in accordance with the SWP. The project procedures clearly state what needs to be done, how it is done, who does it and the responsibility for review and approving the deliverables of these work processes.

Procedures

The Owner’s team and the implementation contractor ensure that:  required key project procedures are identified and responsibility assigned to develop

them, whether Owner’s team or others  all key standard project procedures of the implementation contractor are reviewed and

adapted where necessary to meet the Owner’s team requirements  all project procedures are developed and approved as required by the project approval

procedures, to meet the requirements of the SWP  changes to these project procedures after approval are managed in accordance with a

change management procedure. The SWP includes the method of managing the information derived during the study and outlines plans for:  the capture and sharing of data, information and knowledge developed during the study  the ownership and protection of intellectual property  the licensing of software used by the project team.

The information management processes and support requirements include: Information Management

 office systems and equipment  document management i.e. tracking and numbering, control and distribution and

storage and retrieval systems.  data back-up and security  remote communications and transfer of electronic data  access and interface with systems provided by service providers for the development of

project data and deliverables.

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Section

Contents The SWP sets the processes for reporting on issues and progress during the study.

Reporting and Communications

Administration

The SWP includes the means by which BHP Billiton communicates internally and externally in regards to the study. During the selection and definition phases, better outcomes can be obtained through regular communication between the Owner’s team and the IPR team during the course of the study. This ensures input from a wider field of expertise and results in “no surprises” when the formal IPR is undertaken at the end of the respective study phase. The SWP includes the provisions and procedures put in place to administer activities and costs incurred. In particular, BHP Billiton policies regarding insurance, payments, travel and accommodation are standard inclusions.

6.1.3 Conducting the study Once a study phase for a project has been authorised, the project team conducts the study in accordance with the approved SWP, namely executes the study scope in accordance with:   

the approved strategy, schedule and budget any requirements identified to meet the mandated objectives for the respective phase of the study the needs and expectations of the stakeholders.

Based on the outcome of the study, the team recommends whether the project proceeds to the next phase of development or not. Where it is recommended that the project does proceed to the next phase, the project team ensures the necessary toll-gating requirements are completed. Each function, as identified in the Owner’s team organisation structure, required to manage the various core work packages e.g. geology, processing, engineering etc, ensures that their respective work packages are managed in accordance with the core work processes defined elsewhere in the PDM. Likewise, the project team ensures compliance to strategic processes. In general, management of the scope, schedule and budget of a particular study phase follows the same project management and controls processes as identified in Section 6.2 Project Management and Section 6.6 Project Controls.

Study kick-off meeting One of the contributing factors to the demise in plant design is that the Owner has not been successful in first of all identifying what are the desired outcomes and then effectively communicating this to the project or study team, including both the Owner’s team and the implementation contractor’s team. Conducting a project study kick-off meeting i.e. a "face to face" meeting with all levels of the project team is an essential component of setting the study up for success. Kick-off meetings are highlighted as part of the SWP. A kick-off meeting is conducted with the project team as early as possible in each phase. In some instances numerous meetings are required and tailored for the specifics of the audience. Particular aspects that are covered in some detail at this kick-off meeting include the following:       

overview of the business case and key value drivers study organisation study scope study and overall project schedule including critical milestones study and overall project cost basis of design design criteria and standards

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 

study controls and reporting requirements study deliverables.

Study progress reporting The reporting of project progress and related data is undertaken at two levels:  

project specific reporting data and reports for inclusion in Investment Tracking System (ITS) and CSG/Asset reports.

The monthly reporting requirements apply to all study phases of the project. A project monthly report is produced based on CSG specific project development and delivery processes and procedures as a recommended minimum standard. However, it is structured to be fit-for-purpose considering the nature and scope of the project. The Owner’s team project manager appoints a functional lead (usually the project services or controls manager) to manage the preparation of the monthly report. Responsibilities for drafting the sections are assigned to relevant functional leads and, if appropriate, to the implementation contractor and/or other key service providers. A cut-off date for data is designated so that the report can be completed and issued according to the required timetable. It is good practice to have a calendar prepared with dates nominated for close-off of data, report drafting, compilation and delivery. A project status summary report is prepared on a monthly basis and submitted to the Project Management Services (PMS) representative in a standard format and captured in ITS. The report contains on one sheet the following investment information:     

budget and costs schedule and progress S curves of cost and schedule HSEC information key issues and risks.

As each CSG collects summarised HSEC data from all Assets and reports them monthly for inclusion in the Zero Harm section of the CSG and Asset monthly performance report, the Owner’s team project manager is responsible for the timely submission of the project HSEC data. In general, reporting of the progress of a particular study phase follows the same requirements as identified in Section 6.2 Project Management and Section 6.6 Project Controls. Refer Toolbox 9.6.1H Study Monthly Report Template for preparation of study phase monthly reports.

Site investigation Site investigations are carried out during the study phases of the project, with level of investigation being commensurate with the level of study. To assist in carrying out a site investigation, refer to Toolbox 9.6.1G Site Investigation Checklist.

Study deliverables The results of the study are documented and published in a fit for purpose way. Specifically, this ensures that the recommendation to proceed (or not) to the next phase is logically supported by the data, documentation and analysis. Study deliverables are in the form of an organised collection of documents that:    

includes key deliverables such as a study report, GeoMet model, mine plans, risk register, engineering deliverables, project SoW, schedule and estimate, investment models, etc address the minimum requirements for each applicable investment element in the respective appendices of Major Capital Projects GLDs is version controlled and securely stored in an approved document management system separates BHP Billiton confidential sections or data such that eventual joint venture partners or other third parties are restricted from accessing confidential information e.g. investment evaluation, marketing and strategic plans (refer to anti-trust protocols)

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 

is readily accessible in a format that can be assessed by IPR teams is a reliable source of information and data to be used to complete the investment approval request (IAR) and any other necessary approval submission documents (for example Board presentations and press releases).

Note that the study report is presented by the Owner’s team as a final draft. The report is then finalised after the IPR review to ensure that comments from the IPR team are incorporated. The following toolboxes are available to support preparation of the study and associated reports:   

Toolbox 9.6.1D Study Report Template – this is an automated MS Word *.dot file, which has a document specific menu to assist with document preparation Toolbox 9.6.1E Miscellaneous Report Template - this is an automated MS Word *.dot file, which has a document specific menu to assist with document preparation Toolbox 9.6.1F Study Report Structure and Style Guidelines – this is a document which supports Toolbox 9.6.1D Study Report Template and can be modified to suit CSG specific requirements. Instructions on the use of a *.dot file also apply to Toolbox 9.6.1E Miscellaneous Report Template.

The typical study report contents (for a minerals project) are summarised in Toolbox 9.6.1B Study Content Guide by Phase.

Steering committee The role of the project steering committee is to oversee the successful delivery of the project and provide strategic guidance to the project team and is usually established during the study phase to:  

  

ensure that the project is being properly managed and delivered within the approved KPIs and in accordance with policies specified by the Owner regularly review study progress and costs and to advise the project director/project manager of any areas of concern - if required, advise the upper management and the approving body of the status of the project and/or any concerns provide strategic direction to the project director/project manager and project team and ensure alignment with the business objectives review any issues arising out of IPRs and monitor actions taken by the project manager ensure project is ready to proceed to the next phase.

Refer Toolbox 9.6.2F Steering Committee Guideline for further details.

Tollgating This period needs careful planning and scheduling and allocation of resources. The schedule for this is part of the study schedule. It is the responsibility of the Owner’s team project manager and study team to: 

identify the scope of the tollgate activities appropriate to the study phase and requirements of the Asset, CSG and BHP Billiton corporate, including:     

  

Independent Projects Analysis (IPA) benchmarking and reporting (see subsection IPA evaluations) completion of the study report to incorporate any comments from the IPR and IPA evaluation drafting of the IAR formal reviews by the Asset and CSG formal BHP Billiton IPR, including schedule and cost reviews as well as schedule and cost range analysis, and reporting

take ownership of planning, managing, facilitating and coordinating all the tollgate activities prepare the draft of the IAR documents respond to questions and comments by the tollgate parties

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

ensure that the study schedule includes sufficient detail that takes account of the sequencing and interdependencies of events (note that some key committees only convene at set monthly intervals and the schedule is aligned to the corporate calendar to meet milestones).

IPA evaluations An IPA Prospective Evaluation is mandated for the tollgate from the definition phase to the execution phase. The aim of the Prospective Evaluation is to assess the readiness of the project to move into the execution phase, from a FEL, project controls and team development perspective. This is done through an evaluation of the project’s drivers and planned outcomes. In addition to the Prospective Evaluation, it is good practice to engage IPA to conduct a Pacesetter Evaluation at the end of the selection phase. The objective of the Pacesetter Evaluation is to give the study team an early interpretation of the drivers and expected outcomes of the project and to provide specific recommendations for the successful completion of the critical project definition phase. The Owner’s team communicates with IPA at an early stage to identify the information that IPA requires and to agree on the timing of the various activities associated with the evaluation process. Note that preparation of documents for the IPA evaluations is a time consuming task that is carried out in the busy time period when key study team members are engaged in reviewing and finalising the study report. This is factored into the study schedule. It is good practice to make an Owner’s team member responsible for the planning, managing and coordinating of the IPA related activities. Further details of the IPA reviews are included in Figure 6.1.1, while example reports are included in Toolbox 9.6.1I Examples of IPA Reports. It should be noted that a positive IPA report by itself does not guarantee a successful project. Figure 6.1.1 IPA reviews by phase

Pacesetter Evaluation review

Prospective Evaluation review

Close-Out Evaluation Report

 







Recommended (but not mandated). Aimed at the project teams and CSGs. Gives a good indication of the extent and quality of the front end loading that has taken place on the project during the selection phase and how ready the project is to gate into the definition phase.

 



Mandated in investment and projects GLDs Aimed at the CSGs, and Investment Committee. Gives a good indication of the extent and quality of the definition phase work and the readiness of the project to gate into the execution phase. Includes benchmarking of key areas (like cost and schedule) against industry norms.

 



Mandated in investment and projects GLDs. Aimed at the CSGs, Investment Committee and PMS. Quantification of the outcome of the project. More structured and detailed than the project teams’ PCOR. Captures independent view of lessons learnt and information required for BHP Billiton’s internal benchmarking database on cost and schedule.

Preparing for the next phase In addition to the work directly associated with tollgating, the tollgate period is a valuable time for project teams to make preparation for commencing the next phase. Maintaining continuity of resources and tempo of work ensures that the next phase begins in the most efficient and cost effective manner. A key success factor is ensuring the continuity of key personnel, not only in the Owner’s team but also of consultants and contractors. PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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Activities considered during this period include:    

a review of the work plan for the next phase and confirmation/identification of critical activities fine tuning and completion of draft plans and other documents for the next phase e.g. for engineering, procurement, completing manuals, etc recruiting/establishing additional personnel preparation of critical orders and contracts ready for award on or soon after receiving approval to commit to the next phase.

The opportunity exists to commence mobilisation of the additional personnel and facilities that are required for the next phase, with cognisance of the opportunity cost that is not recovered if the next phase is not approved.

Close-out of study phase Completion of a study phase follows completion of all the study deliverables and then the project proceeds through the IPR, endorsement and approval activities that are described in investment process GLD. The Owner’s team project manager is responsible for documenting and publishing the study phase deliverables in a fit for purpose way that meets the requirements of both the Major Capital Projects GLDs and the CSG specific project development and delivery processes and procedures. In the event that a project is cancelled or put on hold, the close-out process includes a lessons learnt review and a project close-out report is prepared as described in Section 5.6 Project Close-out.

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6.2

PROJECT MANAGEMENT This section, while covering some of the general project management processes, such as project set-up, project communications and project close-out, focuses mainly on execution planning, resulting in the production of the PEP. For information and reference, generic project management frameworks and processes are referenced in Section 2.5 Project Management, while study specific management processes are detailed in Section 6.1 Study Management. The key project management requirements through the investment phases are shown in Table 6.2.1. Table 6.2.1 Key project management requirements Identification  Prepare initial high level

project execution strategy.

Selection  Develop project

execution strategy for each investment alternative being assessed.

Definition  Develop, outline and

finalise the PEP.

Execution  Implement the project

in accordance with the PEP.

 Document the project

execution strategy for the preferred investment alternative.  Prepare an outline of

the PEP.

6.2.1 Project execution plan development Introduction Project delivery is a key element of the selection and definition phase study reports that are referred to in the Major Capital Projects GLDs. As mandated in the GLDs for both minerals and petroleum projects, the PEP is a key deliverable of the definition phase and is reviewed prior to approval to proceed to the execution phase. The PEP is a “live” document that describes how a project is executed and represents the project team’s current thinking on strategy and tactics to be used to progress the project and mitigate project risks. The formal documentation of the PEP provides significant value in detailing and formalising the planned approach, enabling effective communication between stakeholders and is a tool to minimise the effect of project team member turnover. In addition, the PEP documents the deliverables of the execution planning process. A key input into developing the PEP is the project execution strategy which is a critical part of the project planning process. The project planning process identifies the drivers of project success and the risks to project execution and then using this as a basis for decision making selects an appropriate execution strategy. The project execution strategy is clearly articulated by the end of the selection phase as it defines how the project proceeds through the definition phase through to execution. This is to ensure that the parties engaged in the execution phase are actively involved in the definition phase to ensure ownership of the project scope and the execution plan (in particular the project outcomes). Although the project team reviews the strategy during the definition phase, it is only to confirm and align the strategy as the level of definition of the project is advanced. The strategy clearly dictates all the key planning requirements for the execution of the project.

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The execution strategy defines exactly how the Owner executes the full scope of the project and in particular:  

the Owner’s role the contracting strategy to be used to engage other parties to assist the Owner to deliver the project, be it:     

the supply of technology the engineering required procurement of equipment, materials and services construction management the actual construction of facilities, etc.

The strategy defines exactly how each main component of the project is executed e.g. the development of mining operations, the construction and commissioning of processing plant and associated infrastructure. The PEP then provides the detailed tactics and practices that are used by the project to deliver the project and business outcomes in accordance with the chosen execution strategy. The content of the PEP is project specific and aligned to the business drivers, project scope and execution risks. The complexity and depth of the PEP is a reflection of the size, complexity and risks associated with the proposed project being studied. However, the development thereof and the structure and content meet the minimum requirements as laid out in this PDM. There is only a single PEP for the project which recognises the roles and activities of the Owner’s team, the implementation contractor, consultants, contractors, sub-contractors and external parties. It is critical that it covers the full scope of the project and is the basis of executing all tasks and activities required to meet the full project scope. An outline of the PEP is required at the end of the selection phase which forms the basis for the development of a full PEP by the end of the definition phase. Whilst the PEP is a living document that is maintained right through the execution phase, it is a final standalone document. Whilst the definition phase study document highlights the reasoning for the approaches adopted for the execution of the project, the PEP clearly defines how the project is executed. The PEP clearly states the project team’s plans to execute and manage the full scope of the project. Whilst the key activities associated with the project i.e. the engineering, procurement, construction, commissioning and start-up of the facilities, are the core of this plan, the plan also addresses how the integration of these activities are managed and how other key project processes are managed i.e. the management of scope, cost, schedule, quality, human resources, communication and risk. The plan demonstrates the application of appropriate project management practices to ensure the business and project objectives are met. The process in Figure 6.2.1 outlines a step by step approach for execution planning, ensuring the development of key components of the PEP and then leading to the final compilation of the PEP. Although this process is only completed during the definition phase, a number of steps are addressed during the selection phase in order to define the project execution strategy. During the definition phase, the planning steps completed during the selection phase are reviewed and finalised. Note that the process outlined in Figure 6.2.1 is also iterative in nature in that as the key study deliverables are developed, they feed back into the PEP development thereof. Although the final PEP is compiled towards the end of the study, the outline thereof is developed early in the definition phase to ensure that all the key elements are identified and actioned. The document itself is a work in progress as the key deliverables become available. It is incumbent on the project team to ensure the integration thereof to ensure the final plan is internally consistent and the key deliverables are aligned.

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Figure 6.2.1 Definition phase project execution planning steps Finalise business objectives Identify key stakeholders Finalise stakeholder requirements Finalise scope of works

Finalise basis of engineering design

Finalise project objectives

Prepare Class 2 engineering deliverables

Finalise execution strategy

Finalise project execution risks

Finalise VIPs

Finalise contracting strategy

Prepare Class 2 Project Master Schedule

Detail project plans

Prepare Class 2 capital cost estimate

Project execution plan

The basic process for developing the execution strategy and the PEP is as outlined in the following subsections.

Business outcomes BHP Billiton invests in major capital projects in the pursuit of improved business outcomes. In some instances the opportunity will be to increase production rates, while in others it will be to reduce operating costs or to comply with regulatory requirements. Whatever the required outcome, it is imperative that a clear set of business objectives are articulated. It is not possible for a project to deliver a successful business outcome unless the business and the project team have an unambiguous and consistent understanding of “why are we doing this project”. The business objectives are articulated towards the end of the identification phase of project development and refined as the project moves from the selection phase into the definition phase. PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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Project stakeholders Projects have many important stakeholders. While some are internal to the project team, many of the stakeholders are external. Each of the stakeholders may have different expectations of what defines the successful completion of the project. To ensure that all stakeholders are identified and their expectations understood the project team develops a SoR (refer Section 6.3.1 Statement of requirements). The SoR is used to validate the business objectives statement provided by the business and ensures all the stakeholder expectations have been formally articulated. This then provides the project team with a complete picture of their project boundaries and success criteria before they develop their project objectives.

Project scope The business and the project objectives provide the context for why BHP Billiton wants to develop the project but it does not usually specify what the scope of the project is. The project team documents the scope of the project to meet these objectives. Although one does not require the scope of the project to be completely detailed to develop the execution strategy, it is necessary for the team to clarify certain key elements that define the project execution risks that the strategy must address. Furthermore, it is important to think of the scope as more than just the physical asset to be built. It also includes the range of services required to support the project implementation. The SoW (refer Section 6.3.2 Scope of work) fully documents the work required to deliver the project scope in accordance with the agreed execution strategy. The execution strategy determines how the work is packaged to ensure the mitigation strategies identified to deal with the identified risks can be implemented.

Project risks Capital projects, like all other parts of BHP Billiton’s business, are subject to uncertainty and risk. To effectively achieve the project objectives it is essential to identify the project execution risks and put in place mitigation plans. Risk assessments are conducted during the development phases of the project. Risk registers are kept updated as new risks are identified for the project execution phase and mitigation strategies documented together with single point accountability for management of each risk. Refer to Section 4.2 Risk Management for further details on the risk management process. Typical project implementation risks include: 

Market factors:      



Commercial factors:       



Is it a hot project market? Is BHP Billiton able to secure the right project resources? What is the quality of engineering and construction labour? How will productivity be managed? What is on the critical path? What are the materials and equipment logistics issues? value of changing the execution priorities (cost/schedule) financial stability of contractors and vendors ability to secure the right people from contractors contractors’ experience with similar projects long term employees versus contractors BHP Billiton’s degree of influence on contractors significance of project to contractors

Team experience: 

Owner’s team experience level

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   



Industrial relations:      



   

   

   

local work environment conditions underlying health of the sources of labour local construction industry attitude to health and safety specific trade discipline or contractor attitude to health and safety contractor and labour experience with good safety practices, behaviours and BHP Billiton health and safety requirements

Quality:    



the selection of technology availability of skilled resources to operate the facilities availability of local contractors to support operations the supply chain for operating consumables and spares process complexity and the ability to ramp-up production

Health and safety: 



degree of support for the project degree of militancy of the local community stability of the community expectations influence of key influential individuals community impacts – positive and negative

Operational risks: 



unionised labour degree of militancy of unions and labour certainty of employment terms, conditions and costs stability of the industrial relations environment contractors’ positions on industrial relations employer groups available to support the project on industrial relations

Local community: 



gaps in the Owner’s team capability ability to recruit key positions clear roles and responsibilities clear accountability

capability of selected vendors skills of construction trade labour capability of supervision understanding of expected standards and requirements

Sovereign risks:    

corruption security legal system including protections under the contract law import and export constraints.

While the technology and market for capital projects changes over time, most of the risks faced by a project are not new. Across the BHP Billiton portfolio of projects the corporation has been exposed to most, if not all, of these risks and has learnt some valuable lessons about how to manage them and also the consequences of the failure to manage them. It is essential that BHP Billiton project teams in particular access learnings from similar projects to ensure that mistakes are not repeated. The key for project teams is to build these mitigation strategies into their PEP.

Execution strategy Based on the project scope and the key risks identified to the delivering the project, the team defines the strategy for executing the project scope in order to meet the project objectives. PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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When developing a project execution strategy, it is essential to consider who can most effectively manage and bear the project risks. This is critical to project success and effectiveness because an inappropriate allocation of risk almost always results in poor project outcomes. In defining the execution strategy, the project team documents the contracting strategy that underpins it, in particular the contractual allocation of risk.

Project outcomes/objectives The project team translates the business objectives and the stakeholder requirements into a set of equally clear project objectives in order to communicate to all the stakeholders what project outcomes the project team will deliver to the business. The project objectives are live and are kept up to date. They may change as the project progresses through the selection and definition phases as the team develops additional knowledge about the project. Although these project objectives are developed by the project team early in the selection phase they are relatively high level. However, towards the end of the selection phase when the preferred project scope is known (i.e. the preferred alternative) the project objectives become more detailed. During the definition phase they become very specific as to what the project will deliver to the business including KPIs for health, safety, environment & community, capital cost, schedule and operational performance.

Contracts and procurement plan The contracts and procurement plan documents contractual strategies, commercial structures, activities and schedule used to deliver the project to completion and plays a critical role in the execution of the project and covers both project management and construction contracts. Details on development of the contracts and procurement plan can be found in Section 5.2 Contracts and Procurement Management. A draft of the contracts and procurement plan is developed by key project team members and circulated for review and approval. The review covers the contract structures recommended by the project team, including agreement on the project scope of work, implementation contractor, vendors, construction contractors and the contractual and commercial interrelationships between each participant. Prior to developing a contracts and procurement plan, the following aspects of a project are reviewed and evaluated:            

the project scope of work the level of detail of existing engineering information the degree to which the Owner needs to influence engineering development areas where specific technical expertise is required the overall risk profile of the project key commercial terms that are important to the Owner the time frame for the project the skills and experience of the Owner’s team the capacity, capabilities and experience of the local, regional, national or international contractors the local labour market and skills base the capability and availability of local suppliers and fabrication shops other support services.

Functional processes Each function required to manage the various core work packages (as defined in the project scope of work i.e. engineering, procurement and construction management) on behalf of the Owner defines how they plan to execute and manage their respective work packages. Whilst the extent of this work depends on the execution strategy adopted (e.g. use of an implementation contractor) and the role of the Owner, the Owner’s team still defines how the Owner’s requirements are met. Any party engaged by the Owner to

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execute work packages on behalf of the Owner develops more detailed plans as to how they intend to deliver these packages in accordance with the Owner’s requirements. Other functions required to manage the risks associated with meeting the project objectives e.g. health and safety, define specific plans as to how these objectives are met in accordance with BHP Billiton requirements i.e. the principles of Zero Harm, FRCS etc. Likewise, the Owner’s team defines how the project is project managed overall. Refer Section 2.5 Project Management and Section 6.2.3 Executing the project for further details.

Project execution plan compilation The project team ensures that the overall PEP pulls together the elements identified above so that by the completion of the definition phase the scope of the project is fully defined and planned in order to execute the project on approval to proceed. Note that the process is iterative as the project scope becomes more defined and the risks and potential effect of mitigation strategies becomes well understood with an improvement in the level of definition. This might necessitate some changes to execution strategy which needs to roll through to the PEP. On completion of the definition phase, the PEP is signed off by the Owner’s team project director. Although the PEP is effectively a live document, any changes made after approval by the Owner’s team are in accordance with the change management process (like any other deliverable of the definition phase i.e. schedule and estimate).

6.2.2 Project execution plan The PEP structure and content is as detailed in Table 6.2.2. It may be acceptable, where appropriate because of the project objectives, project scope or risk profile, to provide minimal commentary for a particular PEP element, but this decision is made on a case by case basis and explained in the PEP. The PEP can be a summary of the key management plans or a standalone document which rolls up all the respective plans. As long as the PEP and its supporting documents fully address the requirements outlined in the Major Capital Projects GLDs and here, this is largely a matter of preference or practicality in the case of a major project. Table 6.2.2 Structure and content of PEP Section

Contents Provide a clear statement of the objectives of the project including the business drivers, capacity, timing, product quality, operating philosophy and the relative priority between cost, schedule and operability. Business Objectives:  The PEP documents the Business Objectives which reflects a fundamental

understanding of the business’ current status, the opportunity to be captured and a vision for a state of the business after the project has been successfully completed.  A statement of the Business Objectives provides a comprehensive framework for

Business & Project Objectives

project planning. It provides guidance on:  the key success drivers of the business  production rates required  product quality specifications required  the operating capacity of the project based on the nameplate capacity

(instantaneous), turndown rates and availability (uptime) targets  extent of operating flexibility required (e.g. production rate range, product

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Section

Contents  possible future expansion requirements  the sensitivity of the business to capital and operating costs  the project’s influence on the rest of the business (e.g. shutdown requirements,

resource demands and availability)  the business’ appetite for new technology  any other business risks such as regulatory, partner or market uncertainty.

Project Objectives:  Once the business has provided the project team with a clear set of business objectives

it is possible for the team to translate them into a set of equally clear project objectives. The project objectives are documented so that they can be used to communicate with all stakeholders what project outcomes the project team delivers to the business.  The project objectives consider the following items when being developed:  the Business Objectives requirements  the BHP Billiton HSEC policies and standards  stakeholder requirements  any special requirements for working within an existing operation  any special environmental considerations and requirements  any local content requirements  the use of safety factors in equipment sizing to mitigate production risks  the sparing philosophy for the project  the target capital cost of the project  the target hand over to operations date or any intermediate milestones  the target operating capacity at hand over (may not be at full nameplate capacity)  the target ramp up schedule for production  the target cost of operating the completed project.

The project team also identifies the key objectives for which KPIs can be defined: usually related to safety, capital cost, schedule (project completion and/or first production) and capacity. The PEP outlines the overall project scope fully so that it is clear to all stakeholders what is included in the project (irrespective of who might be responsible for particular components) and the battery limits to the overall project scope and between key components of this scope. Statement of Requirements:  Refer to Section 6.3.1 Statement of requirements. The PEP summarises the key

requirements identified by the stakeholders as part of the SoR. This includes product specifications, production rates, availability, quality standards and the relative priority of the cost, schedule and operability outcomes. Scope of Work: Project Scope

 Refer to Section 6.3.2 Scope of work. The PEP provides a high level overview of the

project scope of work identifying all main packages of work associated with any plant, infrastructure and site facilities: including any scope to be executed by the Owner or managed by others on behalf of the Owner and clearly indicating the battery limits and any exclusions. Work Breakdown Structure:  Refer to Section 6.3.3 Work breakdown structure. The PEP provides the basis for the

project WBS and a high level overview of the WBS to clearly communicate the overall structure and the grouping of deliverables. Deliverables and responsibility for delivery of them is documented in a deliverables responsibility matrix – refer to Toolbox 9.6.2E Deliverables Responsibility Matrix.

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Section

Contents The PEP clearly communicates the execution strategy for the project namely how the Owner plans to execute the project scope and the contracting strategies proposed. Note that this might entail a mix of contracting strategies depending on the project scope e.g. mine development by Owner, plant design by the Owner or through a third party technology supply arrangement, EPCM for plant and infrastructure facilities and LSTK for a power plant. The execution strategy clearly articulates the role of the Owner’s team, the make-up thereof and any oversight mechanisms (e.g. steering committee, finance committee, etc.) by which the Owner exercises control over the project. The strategy identifies the key challenges facing the project, the key drivers for the success of the project, the allocation of scope between the various parties (e.g. Owner’s team, lead contractors, JV partners, third parties, etc.) covering the construction of all facilities, development and/or establishment of operations, etc.

Execution and Contracting Strategy

The PEP:  Includes a diagram to describe the reporting relationships between the Owner,

including joint venture partners, the Owner’s team and implementation contractor and any oversight mechanisms described above.  Describes how the project scope has been broken down into discreet components.

This maybe by geographic area, type of facility (e.g. mine, plant and infrastructure for a minerals project), process area, discipline or any combination as required. It includes the management and engineering of the project scope.  Describes the contracting approach to be used for each component and why this

selection was made. This includes any consultants and contractors that might provide engineering, procurement, construction management, project control, commissioning and general project management services. The contracting approach also includes the vendors of key procured equipment and the construction contractors that execute the work on site.  Outlines the risk allocation between the interested parties in the project through the

execution and contracting approaches selected. Provide an organisation chart for the project team that includes the Owner and implementation contractor teams. Include the names of all individuals on the team. The team structure is consistent with the selected contracting strategy and project risk profile. Document the team position roles and responsibilities. This is not generic role descriptions and includes project specific responsibilities such as the management of special risks and authority levels. Further details on preparation of organisation structures and roles and responsibilities can be found in Section 4.4 People and Teams. The PEP includes:  a RACI chart or a responsibility matrix to document the interrelationship between

Project Team Organisation

functions for the key project activities  a comprehensive approvals framework - refer Toolbox 9.6.2D Approvals Framework

reflecting the respective authority levels for the project teams and what needs approval by the Owner  the locations of work for the respective teams and components thereof  the approach to the recruitment/assignment of personnel to the project, procedures

for engagement, any special terms and conditions of employment, mobilisation and accommodation issues  a mobilisation schedule for the any outstanding members of the Owner’s team and the

implementation contractor’s team  processes to be used to align the project team with their roles and the project

objectives  special measures to ensure retention of key personnel.

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Section

Contents Refer to Section 4.3 HSEC Management for the specific H&S management requirements. The PEP provides a high level summary of the H&S management plan. In the PEP, specifically outline the following:

Health and Safety Management

 the policies that will be used to achieve the project’s health and safety objectives  the resources required to support the health and safety policies and programs  the project security and access management plan  the “fitness for work” policy for the project  any project specific health risks and the planned mitigation strategy.

Refer to Section 4.3 HSEC Management for the specific E&C management requirements. The PEP provides a high level summary of the E&C management process and refers to specific plans for E&C management for the execution phase in accordance with the overall E&C requirements as documented in the definition phase study report. Environment and Community Management

In the PEP, specifically outline the following:  the policies that will be used to achieve the project’s environment and community

objectives  the resources required to support the environment and community policies and

programs  any project specific environment or community risks and the planned mitigation

strategy.  Provides a register of all permits and licenses required for the project, including the

issuing authority and the single point of accountability in the project team. Licences, Permits and Statutory Approvals

 Documents the application and approval processes including the timing, resources, data

and costs required to gain the permits.  Provides an assessment of the expected conditions to be imposed with the permits and

the likelihood of approval. The PEP provides a high level summary of the risk management plan. These plans detail how the responsibility for risk passes from the project to operations on completion in accordance with the overall risk management plans. Further details on preparation of a risk management plan can be found in Section 4.2 Risk Management. In the PEP, specifically outline the following: Project Risk Management

 provide a comprehensive execution phase project risk register with risk exposure,

control measures and mitigation measures and responsible person for each item  describe the risk review and management procedure that will be used during the

project execution including the frequency of meetings, how new and existing risks will be assessed and how the management of risk will interface with the broader project team  document how the changing risk profile of the project over time will affect the forecast

contingency requirement  document the insurances to be used by the project and extent of cover.

The PEP provides a high level summary of the engineering management plan. Further details on preparation of an engineering management plan can be found in Section 5.1 Engineering Management. In the PEP, specifically outline the following: Engineering Management

 The basis of design including site conditions i.e. topographical, geotechnical, hydrology,

climatic conditions, etc. In the case of petroleum project also addresses the design safety case.  Technology management, in particular the management of any third party technology

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Contents project team with them. This includes the modelling tools, CAD packages and shared engineering data repositories.  Nominate the applicable engineering standards that will be used on the project and the

process for verification of existing as-built drawings and location of buried services for brownfields installations.  Describe the process for managing the receipt and verification of vendor data, approval

of shop detailing and other information from vendors – suppliers and fabricators.  The use of third party consultants and how they will be managed and the interface with

the implementation contractor.  Outline where engineering will be performed by contractor, location and office. If the

location is other than the project team’s home office describe how the communication and supervision of the remote location will be managed.  Define the process for engineering progress assessment and reporting. Define the

progress weighting for intermediate milestones. Define the engineering productivity assessment and reporting process.  Define the engineering deliverable review and approval process including reviews by

operational and other functional disciplines covering safety in design, operability, maintainability, reliability and constructability.  Define any new or proprietary technology including scale ups and how the risks

associated with these will be managed.  Include the provision of field engineering to support construction and the process for

completion of as-built drawings.  Define how technical expertise in the project team will be transferred to

commissioning, operations and maintenance. This includes manuals, training, shared resources and the early involvement of operations and maintenance personnel in the project execution, commissioning and start-up. The PEP provides a high level summary of the contracts and procurement plan. Further details on preparation of a contracts and procurement plan can be found in Section 5.2 Contracts and Procurement Management. In the PEP, specifically outline the following:  the procurement plan and schedule for contracts for offsite fabrication, onsite

construction, supply of bulk materials and equipment purchases  define the procurement process including the specific role of the Owner and

implementation contractor personnel and systems  define if any third parties will be given the ability to make commitments on behalf of

BHP Billiton and to what authority levels Contracts and Procurement

 define the procurement policy and the approval process for pre-qualifying, tendering,

contracts, purchase orders, progress claims and invoices  define any procurement targets from local or international markets  define any project specific contract terms and conditions  define the procurement quality and expediting services to be employed and how they

will interface with the project team  define the logistics for delivery of all equipment, including construction equipment and

materials to site, including freight forwarding and any customs clearance issues  define the contract administration process for all contracts and purchase orders  define the formal process for communication between the Owner’s team, any

contractors and sub-contractors, vendors and suppliers  define the process for procurement progress assessment and reporting. Define the

progress weighting for intermediate milestones. Construction Management

The PEP provides a high level summary of the construction management plan. Further details on preparation of a construction management plan can be found in Section 5.3 Construction Management.

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Contents In the PEP, specifically outline the following:  the construction sequence and outcomes of the constructability reviews including

extent of preassembly planned, site access, lay down areas and heavy crane locations  how brownfields construction coordination will be managed, specifically, shutdowns,

tie-ins, operating unit access, existing plant inspections and as-built verification  the construction resource requirements for each discipline and major construction

equipment type  the construction supervision structure and numbers  a construction resource availability assessment addressing where the resources will

come from, can they be obtained and at what cost  how construction progress monitoring will be implemented  any construction camp requirements  site establishment and facilities required including ablutions, offices, lunch rooms,

temporary power, communications and other supporting services  the industrial relations policy for the project for construction workers  the process for construction contractor meetings and reporting.

The PEP provide a high level summary of the control process and refers to the specific plans for project control which cover project cost control, progress measurement, schedule management, change management and reporting. Refer to Section 6.6 Project Controls for further details. In the PEP, specifically outline the following:  Project cost control in particular the budget allocation and control, commitments,

expenditure, treatment of escalation and foreign exchange, trending and forecasting, contingency management and cost reporting.  Progress measurement in particular the methodology for measuring progress of key

project functions and deliverables, the roll-up into the overall progress and earned value analysis.  Schedule management, in particular the establishment of a baseline, the roll up of

detailed schedules from the contractors, critical path and variance analysis and forecasting and overall control and reporting. Project Control & Reporting

 Change management.  Nominate the project control systems to be used for cost and schedule. The tools to

be used are proven and capable of providing budget, current status, forecast to complete and variance analysis data.  Nominate the content, format and frequency (at least monthly) of external progress

reporting are published.  Nominate the content, format and frequency of internal progress monitoring and

reporting. The PEP refers to the following documents and highlights key issues to be managed:  the project master schedule and in particular:  the basis of schedule (BoS)  the critical and near critical (total float ≤20 working days) activities  the resource histograms for the main and critical resources  the summary of the cost estimate:  the basis of estimate (BoE)  the provisions for known risks, escalation and contingency.

The PEP provides a high level summary of the quality management plan. Quality Management

Further details on preparation of a quality management plan can be found in Section 6.7 Quality Management. In the PEP, specifically outline the following:

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Contents  a summary description of the quality management processes to be employed  the resources, internal and external, that will provide the QA service.

The PEP provides a high level summary of the stakeholder management plan, in particular:  document the interfaces and relationships with third parties  describe the procedure for external stakeholder communications such as the

Communication & Stakeholder Management

contractors, local community, local government, central government, regulatory authorities, non-government organisations, the media and visitors  describe the procedure for internal stakeholder communication including corporate

reporting, reviews, mine planning, mine development, HSEC, engineering, procurement, construction commissioning, operations, project team members and other employees  describe the document management system and procedures to be used including

sharing, archiving and transferring of information to operations. Further details on stakeholder management can be found in Section 4.5 Stakeholder Management. The PEP outlines the information management & technology plan and in particular the following:  compliance with BHP Billiton IT policies and standards, in particular the Information

Management Policy the ownership of project intellectual property, software licences and hardware  compliance with local and statutory legal requirements  the technology and systems for managing, processing and disseminating data and

Information Management

information including computers, communications facilities and networks, software, specifications, and procedures for their operation, use, and maintenance  the information management specific roles and responsibilities of the Owner’s team,

contractors and project participants for both the execution and operation phases  the transfer of project information & data from the project systems to the operations

systems  the information management specific induction and training requirements for the

execution and operation phases. The PEP defines the methodology for establishing the start-up operational capacity necessary for management, monitoring and reporting of activities against control baselines. Refer to Section 5.5 Transition to Operations for the specific operational readiness requirements. The Owner’s operations group addresses the following key activities namely the development and implementation of plans, policies and/or procedures where appropriate to address the following:  Occupational Health & Safety in particular standards to be adopted; development of

procedures: emergency response plans etc. Operational Readiness

 Recruitment and training requirements.  Environmental management - in particular operational environmental permits,

environmental monitoring and compliance reporting; etc  Public and Community Relations in particular ensure that policies, procedures and

systems implemented during the execution phase are appropriate for the operations phase. It is imperative that there is continuity in these activities as the operations become established.  Plan for the mobilisation and training of operational staff during the execution phase.  Operations and maintenance development activities in particular policies and

procedures for all operational activities and maintenance planning i.e. appropriate information systems, spare selection process, equipment maintenance plans, condition monitoring, etc.

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Contents  The roles, approach and responsibilities of operations management in completing supply

activities during the construction and start-up in particular the supply of raw materials, consumables and spares, transport and logistics, services agreements, local content, establishment of materials management systems i.e. procurement, receipt, warehousing and issue of raw materials, tools, consumables, spares etc.  The development and implementation of production reporting, performance

measurements, communication protocols, operational budgets, etc.  The development and implementation of appropriate business systems, document

management, plant control, production reporting, communication systems, etc.  The development of an operations risk management plan, including a detailed risk

register, which is derived from the work concluded during the development phases of the project. In the case of a brownfields project, the Owner’s team, in consultation with the existing operations management, reviews, amends (if necessary) and adopts existing plans, policies and procedures. These are finalised and implemented prior to start-up. The PEP provides a high level summary of the commissioning management plan. Further details on preparation of a commissioning management plan can be found in Section 5.4 Commissioning Management. In the PEP specifically outline the following:  define the responsibility and implementation strategy for the various phases of

commissioning (construction verification, pre-commissioning, commissioning and rampup)  define the handover points to be adopted for transitioning from construction to pre-

Commissioning Management

commissioning, from pre-commissioning to commissioning and from commissioning to operation  define the plant hierarchy of systems to be handed over, their interrelationship and the

sequence  define the requirements for handover in particular the turnover packages e.g.

engineering documentation including vendor data, transfer of warranties/guarantees, etc  document the roles and responsibilities for the pre-commissioning and commissioning

team including the role of equipment vendors and the interface with the construction and operations teams  provide a detailed plan outlining how the plant is to be ramped up to achieve full

production under steady state conditions and quality and any requirements for acceptance and/or performance testing.

Project Reviews and Audits

The PEP outlines the plan for regular reviews and audits of the project in order to ensure compliance with the PEP and/or BHP Billiton corporate policies and standards and to ensure an independent review of project progress against approved targets. The PEP specifically identifies the requirements for such reviews and the frequency thereof.

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Contents The PEP outlines the project close-out plan to describe the processes for closing the project on completion. In particular:  the close-out of all purchase orders and contracts

Project Close-out

 the clean-up of site, including removal of temporary facilities  the disposal of surplus materials, etc.

The PEP clearly documents the requirements for a close-out report and the responsibility for the preparation for this report and the components therefore from both the contractors involved and the Owner’s team. The PEP outlines any governance requirements and structures to ensure compliance with the PEP, GLDs, etc. The PEP clearly documents:  role of any steering committees or subsets thereof i.e. procurement committee

Governance

 the make-up and membership  any approval levels applicable to theses committee(s)  the frequency of meetings  the reporting requirements.

Documents how the project is administered in terms of:  office facilities – required office location and facilities, information technology and

communications infrastructure Project Administration and Finance

 administration policies – correspondence protocols, record keeping (minutes of

meeting), meeting outlines, travel policy, financial control and reporting, payments, accounting methods to be adopted, treasury functions and asset management. The PEP clearly documents how the project procedures manual is compiled and the responsibility thereof. In particular, the vetting of procedures developed by other parties e.g. implementation contractor, is outlined.

6.2.3 Executing the project Once the project has been approved to proceed to the execution phase, the project team executes the project in accordance with the approved PEP in order to deliver the business objectives for the investment. In the process of delivering the business objectives, the project team executes the agreed project scope in accordance with the agreed project objectives and KPIs, transitions the project into the operations phase and closes-out the project on completion. There are a number of distinct stages in the execution of a project including:    

set-up and mobilisation of project teams, contractors, systems and procedures, project offices and construction sites the execution, management and controlling of and reporting on core work processes i.e. engineering, procurement, construction and commissioning the handover to operations the closure of the project.

In each of these stages there are a number of key activities as outlined in the following subsections. Refer also to Section 2.5 Project Management for further information.

Set-up and mobilisation The key activities are:  

the establishment of the project and site offices at all work locations including the set-up of all project systems e.g. document control, scheduling, cost control etc the full mobilisation of the Owner’s team and implementation contractor’s team in accordance with the agreed organisation structures

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   



alignment of all key project participants to ensure a clear understanding of the PEP, their roles and responsibilities, interfaces, project battery limits and integration of all functions establishment of the project baselines, in particular the control budget and schedule the documentation and roll-out of the project procedures (as and when required) the roll-out of the approvals framework (refer Toolbox 9.6.2D Approvals Framework) clearly outlining the authorities for both the Owner’s team and the implementation contractor for the execution phase establishment of all governance structures and their terms of reference for the execution phase (the steering committee. refer Toolbox 9.6.2F Steering Committee Guideline, and subcommittees thereof as required i.e. procurement committee).

Execution of work processes Execute and manage all core work and control processes in accordance with the PEP and agreed procedures. Further details on these processes are provided in:   

Chapter 4.0 Strategic Processes Chapter 5.0 Core Work Processes (engineering, procurement, construction & commissioning functions) Chapter 6.0 Control Processes.

Notwithstanding the requirements detailed in theses chapters it is critical that the project team manage the key areas as defined in PMBoK (refer Section 2.5 Project Management for further details).

Progress reporting The reporting of project progress and related data is undertaken at two levels:  

project specific reporting data and reports for inclusion in ITS and CSG/Asset reports.

The monthly reporting requirements also apply to all study phases of the project. A project monthly report is produced based on the template (refer Toolbox 9.6.2B Project Monthly Report Template) as a recommended minimum standard. However, it is structured to be fit-for-purpose considering the nature and scope of the project. The Owner’s team project manager appoints a functional lead (usually the project services or controls manager) to manage the preparation of the monthly report. Responsibilities for drafting the sections are assigned to relevant functional leads and, if appropriate, to the implementation contractor and/or key service providers. A cut-off date for data is designated so that the report is completed and issued according to the required timetable. It is good practice to have a calendar prepared with dates nominated for close-off of data, report drafting, compilation and delivery. A project status summary report is prepared on a monthly basis and submitted to the PMS representative in a standard format and captured in ITS. The report contains on one sheet the following investment information:     

budget and costs schedule and progress S curves of cost and schedule HSEC information key issues and risks.

As each CSG collects summarised HSEC data from all Assets and reports them monthly for inclusion in the Zero Harm section of the CSG and Asset monthly performance report, the Owner’s team project manager is responsible for the timely submission of the project HSEC data.

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Governance The role of any steering committee or other governance body i.e. procurement committee is clearly documented either as a charter or terms of reference to ensure their role is clearly communicated to both members of the steering committee and the project team itself. Toolbox 9.6.2F Steering Committee Guideline is available to provide guidance to ensure effective functioning of a steering committee.

Information Management The project team ensures that: 

an effective system is in place for the preservation and management of all project documentation, including that all correspondence is in place with version control



the ownership of all intellectual property associated with the project is clearly defined



there is compliance to all local and statutory requirements



the systems and procedures are in place for managing, processing and disseminating project data and information, including appropriate back-up, retrieval and training of all project personnel



the information is ultimately in a suitable format for the transfer and use thereof by operations.

Meetings Project meetings include: 

external ad hoc meetings, such as:  



internal recurring meetings, such as:    



with government and/or statutory bodies, or with community bodies study/project management design progress procurement and contract approvals, etc

internal ad hoc meetings, initiated as required.

The project team ensures that for recurring meetings, a meeting plan is established as part of the communications plan, which: 

identifies all the planned project meetings along with the following information:       



discipline title purpose agenda attendees frequency distribution of minutes

includes a meeting calendar established to communicate to the wider project team meeting timing and participation.

Transition to operations The key activities are:  

operational interfaces in design, supply, constructions, tie-ins and commissioning preparation and turnover of handover documentation

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



operational readiness, in particular mobilisation and training of operations team, maintenance planning, preparation and sign-off of operational and maintenance procedures, identification and supply of spares, etc. establishment and management of new operations.

Further details can be found in Section 5.5 Transition to Operations.

Close-out The key activities (as documented in the close-out plan) are:       

confirmation of completion of the approved project scope of work against the approved completion milestones documentation and close-out of all project activities, including all key contracts and purchase orders clean-up of site including the removal of temporary facilities and disposal of surplus materials demobilisation of the site contractors, the implementation contractor and any other service providers completion of the project close-out report completion of the close-out evaluation by IPA demobilisation of the Owner’s team and the re-assignment of key resources in accordance with their development plans.

Further details can be found in Section 5.6 Project Close-out.

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6.3

SCOPE DEFINITION Scope definition is the process of defining the scope of the project in terms that can be used to plan and manage the delivery of the scope to ensure that all the work required, and only the work required, to complete the project successfully is identified. The major processes and key deliverables of scope definition are:   

collect stakeholder requirements and prepare a SoR document develop a detailed description of the project scope and prepare a SoW document create a WBS by subdividing the project deliverables and project work into smaller, more manageable components.

It is a mandatory requirement at BHP Billiton, that all projects develop a project specific SoR, SoW and a WBS. The process of scope definition is iterative and the level of definition increases during the development of the project. The key scope definition requirements through the investment phases are shown in Table 6.3.1. Table 6.3.1 Key scope definition requirements Identification  Develop a preliminary SoR based

on an outline of stakeholder requirements.

Selection  Finalise SoR for the investment

opportunity. to level that supports decision making process.

major alternatives. the identified investment opportunity.

 Update and maintain SoR.  Finalise SoW for the project for

 Develop scope for each alternative

 Develop outline scope for the  Develop a preliminary SoW for

Definition

the execution phase.  Finalise project WBS.

 Document SoW for preferred

investment alternative.  Develop preliminary WBS.

There is also clear relationship between the SoR, SoW and the PEP. Figure 6.3.1 shows their relationship and purpose. Figure 6.3.1 Relationship between PEP, SoW and SoR

Execution Phase

Project Execution Plan How scope will be successfully be achieved.

Project Scope of Work Deliverables required to achieve SoR.

Statement of Requirements Business objectives, stakeholder KPIs, constraints.

Study Phase

6.3.1 Statement of requirements It is common on a project to hear customers (or asset owners) or other key stakeholders say, “This is not what we thought we were getting”. The SoR assists in avoiding this and the resultant rework that is associated with the asset owner’s requirements not being met. A SoR is a complete, clear and unambiguous statement of the project requirements, stated in the language of the key stakeholders in measurable terms. When agreement on the content of the SoR is reached, all the project stakeholders sign off and the SoR is formally issued. The SoR is a key input to the SoW.

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Purpose The benefits of a comprehensive SoR include:      

aligning the needs of the stakeholders and the business with the project deliverables aligning the ideas, objectives and needs of the end user closely with the deliverers of the project reducing changes due to possible misunderstandings by clearly detailing the project requirements improving the quality of the project deliverables reducing cost and time by significantly lowering the risk of rework providing a baseline from which the completed project can be compared for compliance.

Preparation of the SoR The business objectives are identified and documented towards the end of the identification phase and reviewed and finalised prior to the project moving from the selection phase into the definition phase. The SoR is completed by the key stakeholders (in particular the asset owner) and the project team. Better results are achieved when it is undertaken collaboratively with both groups working together. The SoR is developed using the following steps: 

    

Identify all relevant project stakeholders. Consider stakeholders that are both internal e.g. operations, maintenance, marketing and external e.g. government, NGOs, community and joint venture partners. Evaluate the impact of the project on these stakeholders. Clearly define the business objectives and create an outline of alternatives for the project scope which could meet these business objectives. Obtain and document the requirements from the key project stakeholders identified. Comprehensively state the key project stakeholder requirements in measurable and quantifiable terms. Specify the qualitative and quantitative characteristics of the final product or service the project has undertaken to deliver, such as:   

 



physical characteristics and chemical composition (a qualitative product statement) nameplate capacity and production levels (a quantitative product statement) operability, reliability, maintainability and technical support (a service statement).

Identify and document all the known project issues, including criteria and constraints. Identify and document the key risks that have the potential to adversely impact the project and business benefits. This may include HSEC, industrial relations, technological, market, operational and statutory risks. Ensure the SoR is reviewed and approved in accordance with the accountabilities in Table 6.3.2. Table 6.3.2 SoR accountabilities

Party accountable for specific requirements BHP Billiton business i.e. either the asset owner for a brownfields development or the Owner’s team in the case of a greenfields development

Requirement  Production rate.

 Expansion.

 Product mix.

 Milestones.

 Product quality.

 Life of asset.

 Operating cost availability.

 Joint venture requirements.

 Reliability.

Government

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 Local content.

 Approvals and permits.

 HSEC.

 Tenure.

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Party accountable for specific requirements

Requirement

Local communities/indigenous

 Employment.

 Cultural heritage protection.

 Security.

 Development opportunities:

facilities, business and people.

 Environment protection.  BHP Billiton charter and other

Employees

 Development opportunities.

charters (if applicable).  Conditions of employment.

Objective statements All SoRs commence with an introductory statement that describes the existing situation and conditions or requirements that have led to the initiation of the project proposal. This introductory statement includes a section on the objectives of the proposal in brief form. Project requirements are phrased at the most fundamental and factual level in as concise a manner as possible. Using the SMART method of defining the project requirements provides a sound structure as follows:     

Specific - state exactly what the needs to be accomplished. Measurable - include a measurement. When the requirement is measurable, the team knows exactly when the goal has been achieved and what has been achieved. Achievable - the requirement is achievable and within the resources and goals of the project. Relevant - is relevant to achieving the overall objectives of the project. Time limited - include a time frame in which the requirement is met.

It is critical that the requirements do not direct the project team to a preconceived solution as in the example included in Table 6.3.3. Table 6.3.3 Objective statements Example

Suitability

Comply with EPA directive to limit stack emissions to less than 50ppm by 2 June 2011.

Correctly stated

Up-rate existing fume collection system bag house to reduce pollution to acceptable levels as soon as possible.

Poorly stated

Comment This example states (in this instance) who has issued the directive, what must be achieved to satisfy the directive, and by when. Possible solutions such as water sprays, electrostatics, cyclones or simply changes in operator practices are left open for investigation and will be specified in the SoW. This example directs the team to adopt a solution which may not be the optimum, uses vague terms such as pollution, does not state what is an acceptable level, or to whom it must be acceptable and omits time targets. The objective statement also includes a section indicating how the proposal supports the initiating departments approved business plan.

Documentation The SoR contains detailed explanation and description of the stakeholders and particularly the asset owner’s requirements. The need for factual measurable information is vital and care is exercised not to rely on opinion or personal judgement. The body of the SoR includes such issues as:     

existing and additional process and equipment constraints project performance requirements maintenance, manning and support facilities occupational health and safety issues environmental and aesthetic considerations

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   

community considerations project cost, timing and commercial considerations explicit project exclusions operational security considerations.

To support development of a SoR refer:  

Toolbox 9.6.3B Statement of Requirements Form and Checklist Toolbox 9.6.3C SoR Template and Guideline.

Business benefits The business benefits section accurately defines the benefits to BHP Billiton that are a basis of the justification for the project. The format of this section is in a “before and after” style, to describe the situation prior to project implementation and the planned reduction or improvement after the project is implemented. Timing for achievement of each of these business benefits is also included, as is a method of measuring the benefit. Topics covered may include areas such as reduction in labour force, reduction in operating materials, lowering of maintenance costs, improvement in yield, reduction of lost time, increased availability, increased product quality, etc. For each predicted business benefit, a full description or explanation of the existing situation is provided and a measure for the benefit. An example is provided in Table 6.3.4. Table 6.3.4 Example of benefit measurements Parameter Yield improvement

Measure of Benefit Existing yield 87% calculated by the following formula...... Increased to 90% by 30th July 20XX.

Labour reduction

Existing organisation - 4 Boilermakers and 4 Trade Assistants. Proposed labour - 3 Boilermakers and 3 Trade Assistants. Reduction - 1 Boilermaker and 1 Trade Assistant. The labour reduction to be achieved by 30th May 20XX.

Consumable saving

Existing consumption of ferromanganese 12 kg/tonne liquid metal, reduced to 10 kg/tonne by 31 Dec 20XX (measurement of ferromanganese consumption to be by average daily usage divided by average daily tonnes over 1 week period).

In unusual instances the benefit may be intangible, such as site beautification, so a statement that the benefit cannot be measured is included. This section of the SoR is prepared from information compiled by or from the key stakeholders and asset owners as it is used to determine if the business benefits promised by the project have been achieved.

Project risks The project risks section specifies the possible risks (hindrances) to achieving the business benefits and the foreseeable impact on the viability of the project if any project risk is realised. Further details on the risk management process for projects are included in Section 4.2 Risk Management.

Formal agreement to the SoR As a record of agreement and understanding of the project requirements and objectives, each key stakeholder representative and the Owner’s team project manager signs the SoR.

Change management and document control Changes to the approved SoR are made in accordance with the change management process (refer Section 6.6 Project Controls) and include: 

an assessment of the direct and indirect impacts of the changes

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

a review and approval of the changes in accordance with the project accountabilities matrix.

The Owner’s team project manager ensures that the development of the SoR is managed and the deliverables are stored in a project document control system.

Review of the SoR When the project is complete, the SoR is reviewed by each key stakeholder representative and the project manager to confirm the stated requirements and business benefits have been achieved (or are no longer relevant). In the event of non-compliance, an action plan is prepared to achieve compliance, or an explanation provided of the reason compliance is no longer relevant. In the event that compliance cannot be achieved, the reason for the non-compliance is stated.

SoR timing and accountabilities SoR timing and accountabilities are included in Table 6.3.5. Table 6.3.5 SoR timing and accountabilities Timing

Produced by  Designated

Identification Phase Outline completed for inclusion in study report Selection Phase Preliminary completed prior to selecting most valuable alternative. Final completed for inclusion in the study report for the basis of the definition phase & prior to the IPR review.

functional lead with input from:  Owner’s

team functional leads.

Reviewed by

Approved by

 Owner’s team

 Owner’s team

project manager.  Owners Team

functional leads.

project manager.  IPR Team

(endorsement only).

 IPR Team.

Definition Phase Update and maintain approved SoR as required.

6.3.2 Scope of work The SoW is a complete, clear and unambiguous statement of project deliverables in measurable terms and a detailed description of the work required to be performed to achieve those deliverables. It is a critical deliverable to ensure a basis to verify the completion of the scope and the control of that scope during the execution phase. The SoW identifies what the project deliverables are and outlines all relevant issues and criteria with respect to project scope. It allows project stakeholders e.g. asset owner, operator, maintainer, designer, engineer and project deliverer specify exactly what BHP Billiton is getting. 1

Purpose From a project control perspective, the purpose of the SoW document is to:     

provide a quantified baseline of the project scope to enable capital cost estimating enable decomposition of the project scope by WBS, organisational structure and cost structure provide a quantified baseline of the project scope to enable the development of the project schedule provide a baseline for change control act as a briefing/reference document for project team members.

1

Note that this document is also known as the Project Scope Statement as articulated by the Project Management Institute (PMI) and PMBoK. Irrespective of the terminology used, SoW and Project Scope Statement mean one and the same and are synonymous. PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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The SoW is a key output from the scope definition process and is intended to cover the entire project content. At a certain point in time, typically in the latter part of the definition phase, the SoW becomes a formal document or set of documents, that is maintained throughout the project life cycle. In compliance with the Major Capital Projects GLDs, the SoW is one of the key deliverables of the selection and definition phases. As a project transitions from identification phase through to the selection phase and definition phase, the SoW develops greater definition and clarity. Ultimately, the project SoW is a key deliverable of the definition phase and covers the scope of the entire project.

Development The following steps are followed to develop the SoW:  



 

Identify and document the project deliverables. Describe the facilities required to be engineered, designed, procured, constructed and commissioned to support the delivery of the project objectives. The level of detail depends on the project phase. Describe all the services required to support the delivery of project outcomes, such as engineering, procurement, construction, commissioning and operational readiness. The level of detail required depends on the project phase. Identify and delineate the project battery limits in terms of the SoW by stating explicitly the inclusions and exclusions. Finalise and baseline all the following elements that form part of the project SoW document at the end of the definition phase:   

project deliverables project facilities services required for the project.

Documentation The SoW document:     

details the entire scope of the project details how the SoR is met enables decomposition of the project scope by WBS provides a quantified baseline of the project scope to enable the development of the project schedule and capital cost estimate. facilitates a better understanding of a project scope.

A SoW template and guideline is included at Toolbox 9.6.3D SoW Template and Guideline, while an example of a minerals project SoW is included at Toolbox 9.6.3A Minerals Project Scope of Works.

Formal agreement When agreement on the content of the SoW is reached all of the project stakeholders sign off on the SoW and it is then formally issued. The project SoW document is produced as part of the definition phase study report at the end of the definition phase. It is the base document that becomes, in effect, the embodiment of a contract between the authorising body i.e. BHP Billiton Board (in the case of major projects) and the project team.

Change management and document control Changes to the approved SoW are made in accordance with the change management process (refer Section 6.6 Project Controls) and include:  

assessment of direct and indirect impacts of the changes review and approval of changes in accordance with the project accountabilities matrix.

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The Owner’s team project manager ensures that the development of the SoW is managed and the deliverables are stored in a project document control system.

SoW timing and accountabilities SoW timing and accountabilities are included in Table 6.3.6. Table 6.3.6 SoW timing and accountabilities Timing

Produced by  Project

Identification Phase Outline to provide basis for WBS Selection Phase Outline SoW for each alternative to be completed prior to finalising the single most valuable alterative. Preliminary SoW for the single most valuable alternative to be completed for inclusion in the study report & prior to the IPR review.

services & controls manager with input from:  Owner’s

team functional leads

Reviewed by

Approved by

 Owner’s team

 Owner’s team

project manager.  Owner’s team

functional leads.

project manager.  IPR team

(endorse).

 IPR team.

 Implement-

Definition Phase Final SoW to be completed for inclusion in the study report & prior to the IPR review Execution Phase Update and maintain approved SoW as required

ation contractor and relevant service providers.

6.3.3 Work breakdown structure A WBS is a top-down hierarchical breakdown of the project scope into deliverables and logically structured by areas and sub-areas, facilities and sub-facilities, systems and sub-systems, or assets. It describes the ‘what’ of the project. It is not a description of a process or schedule that defines the how or when the deliverables are produced but is specifically limited to describing and detailing the project outcome or scope.

Purpose The purpose of WBS is to provide a clear, consistent, logical and deliverable oriented roadmap of the project scope through the phases which enables the project to be scoped and effectively controlled. The WBS is a key input for the development of the schedule and the capital cost estimate.

Attributes The WBS:          

reflects the project scope to be delivered in a structured, graphical or textual outline defines the hierarchy of deliverables provides a framework for defining, planning, executing, controlling and reporting of project work through all project phases provides a basis for estimation of capital costs enables comparison of actual vs. forecast vs. budget in relation to both cost and time parameters facilitates assignment of resources provides a basis for delineation of battery limits provides a vehicle for integrating and assessing cost and schedule performance and establishing an effective monitoring and control process for the project enables progress and productivity measurements provides a means for the capitalisation and depreciation of fixed assets.

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WBS preparation Irrespective of the industry, the steps, as identified in Table 6.3.7, underpin the development of the project WBS. Table 6.3.7 WBS process steps Step

Tasks

1

Identify the final products or outcomes of the project and review in the context of the SoW to ensure consistency and completeness. Base the WBS on the SoW to be delivered (the what) and not the execution strategy (the how).

2

Structure the project scope in accordance with the major deliverables, both tangible i.e. physical assets and intangible i.e. engineering, procurement, construction, management, and temporary facilities, etc.

3

Decompose the major deliverables to a level of detail appropriate for the project.

4

Review and refine the WBS and get the formal buy-in of all the relevant stakeholders.

Developing the WBS to excessive levels of detail results in significant efforts in managing the cost elements and contract pay items. WBS is not to be confused with commodity coding. Commodity coding combines WBS and the code of accounts to reflect the scope of work at the commodity level, such as civil works, structural steel, mechanical bulks, piping, etc. The code of accounts indicates the breakdown of commodities into the lower level of detail e.g. concrete works is broken down to formwork, rebar, concrete, etc. Concrete is then further broken down to slab-on-grade, structural foundation, elevated slab, etc. Estimates are typically prepared at this level of detail and rolled up to appropriate levels to use in cost control and schedule resource loading.

Typical WBS structures There are some clear though minor differences in the underlying principles between minerals and petroleum projects which are taken into consideration in the development of the WBS. Table 6.3.8 describes the WBS hierarchy of levels for minerals and petroleum projects. Table 6.3.8 WBS hierarchy WBS Level

Description

Minerals Projects 1

Area (geographical location or business unit delineated by battery limits).

2

Facility (unit operation).

3

Sub-facility (division of facility into manageable sub-facilities).

Petroleum Projects 1

Includes drilling, production facilities, sub-sea facilities, export pipelines, infield flow lines, onshore facilities, land crossing and export loading facilities.

2

Includes substructure, topsides, hull, foundations, flow lines and risers, umbilicals, manifolds and jumpers, pipe line end manifolds (PLEMS) and pipe line end terminations (PLETS), gas export line, oil export line, land crossing, liquefied natural gas (LNG) plant, LNG loading facilities, drill rig and Christmas trees.

3

Includes detail engineering design, HSEC and regulatory approvals, procurement, fabrication, pre-commissioning, transport and installation, drilling design, drilling campaign, hook-up and commissioning.

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What is the difference between a WBS and PBS? A package breakdown structure (PBS) represents the execution i.e. the how of the project scope in line with the execution strategy and relates to procurement and contracting strategies. The PBS is a breakdown of the project scope in terms of the following:     

internal work orders purchase orders service orders contracts technical service agreements.

The main differences between WBS and PBS are summarised in Table 6.3.9. Table 6.3.9 Differences between WBS and PBS WBS

PBS

Breakdown of project scope by areas, facilities or assets.

Breakdown by internal work orders, purchase orders and contracts.

Represents the what.

Represents the how.

Based on the SoW and represents clearly defined battery limits.

Generally comes into effect during execution phase following approval of the project (pre-commitments for long lead items are an exception).

Fixed at the end of the definition phase.

Developed during the definition phase as preliminary packaging plan and finalised during early stages of execution. PBS can be modified during execution based on project and performance needs/drivers.

Provides the basis for cost estimating.

Provides the basis for scheduling the scope.

Provides the means for fixed assets register.

Not applicable for fixed assets register.

Both the WBS and PBS are essential for planning, executing, controlling and reporting, it is not a question of one or the other. For example, a project cost report can be sliced and diced to report by WBS and also by PBS (refer to Table 6.3.10). Table 6.3.10 Project cost report example Facility

Commodity A B C D E

10000 Contract #1

20000 Contract #1

Facility 10000 sub-total

30000 Contract #1

40000 Contract #1

50000 Contract #2

Contract #3

Contract #3

Contract #2

Commodity B sub-total

Contract #3

Contract #3

Contract #2

Commodity C sub-total

Contract #3

Contract #3

Contract #2

Commodity C sub-total

Contract #3

Contract #3

Facility 20000 subtotal

Facility 30000 subtotal

Commodity A sub-total

Commodity E sub-total Facility 40000 subtotal

Total

Table 6.3.10 reflects the following scenarios:   

Horizontal packaging with Contract #1 for commodity A spanning across multiple facilities i.e. 10000, 20000, 30000 and 40000 Vertical packaging with Contract #2 for facility 50000 spanning across multiple commodities i.e. A, B, C and D Combination of horizontal and vertical packaging with Contract #3 spanning across multiple facilities i.e. 30000 and 40000 and commodities B, C, D and E.

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WBS timing and accountabilities WBS timing and accountabilities are included in Table 6.3.11. Table 6.3.11 WBS timing and accountabilities Timing

Produced by  Project

Identification Phase Outline to provide basis for estimate and schedule Selection Phase Outline WBS for each alternative to be completed prior to finalising the single most valuable alternative. Preliminary WBS for the single most valuable alternative to be completed prior to the IPR review Definition Phase Final WBS to be completed for inclusion in the study report & prior to the IPR review Execution Phase Update and maintain approved WBS as required

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services & controls manager with input from:  Owner’s

team functional leads

Reviewed by

Approved by

 Owner’s team

 Owner’s team

project manager.  Owner’s team

functional leads.

project manager.  IPR team

(endorse).

 IPR team.

 implement-

ation contractor and relevant service providers.

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6.4

SCHEDULE DEVELOPMENT The project schedule is the plan for completion of a project based on a logical arrangement of activities, resources available, imposed dates and/or funding budgets. In the context of this section, “resources” refers to items such as human resources and equipment that are utilised to complete tasks. Schedule development is the identification, definition and sequencing of activities that are required to be performed for successful execution of the project scope. This is in line with the project budget and overall execution timeframe. Schedule development requires the allocation of resources to the project activities and incorporation into project management software to develop a schedule network diagram. Figure 6.4.1 outlines the stages of the schedule development process. Figure 6.4.1 Schedule development process

Schedule Development Planning Input

Development Process

Schedule Output

Terms of Reference

Purpose

Baseline Schedule

Project Scope

Collection of Input Data

Resourcing Curves

Stakeholder Requirements

Accountability and Ownership

Commodity Curves

Work Breakdown Structure Basis of Schedule

Software Identification and Utilisation Description of Schedules

Control Processes Layouts

Delivery Methodology Sequencing

Scope Definition Level of Detail Activity Code Definition

Study Phase Activities Approvals

Resources

The key schedule development requirements through the investment phases are shown in Table 6.4.1. Table 6.4.1 Key schedule development requirements Identification  Develop Class 2

schedule for selection phase.  Develop Class 4/5

preliminary project master schedule - can be based on benchmark data.

Selection  Develop Class 2 schedule

for definition phase, including activities for any pre commitments requested that is >US$50M.  Develop Class 4/5

execution phase schedule for all major investment alternatives.

Definition

Execution

 Develop Class 2

 Develop Class 1

schedule for execution phase.  Develop associated

BoS  Perform probabilistic

range analysis.  Update project master

schedule.

schedule for execution phase in the event that the project performs a definitive estimate.  Update BoS developed

during the definition phase.  Perform probabilistic

range analysis.

 Develop Class 3

execution phase schedule and associated BoS for the preferred investment alternative.  Integrate study and

execution schedules into updated project master schedule.  Perform deterministic or

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Identification

Selection

Definition

Execution

on the schedule for the preferred alternate.

6.4.1 Planning vs. scheduling Planning is defined as the breakdown of work into its component events, to deliver the business objectives of the project as per the stakeholders’ requirements. Scheduling is the detailed sequencing of activities, assignment of logical relationships between activities, development of activity durations and the assignment of resources. Resource assignment may require reevaluation of the activity duration, possibly changing the critical path and the completion dates. The planning process commences at the identification phase. It is the starting point to develop the project master schedule. Whilst planning and scheduling are closely related and often used synonymously, there are some clear differences that are noted. Table 6.4.2 summarises some of the major differences between planning and scheduling, as per the Major Capital Projects GLDs. Table 6.4.2 Planning vs. scheduling Planning

Scheduling

Deals with “what” and “how”, through the PEP and the contracting strategy.

Deals with “when” and “who”.

Carried out with a “top-down” approach.

Validates the plan with a “bottom-up” approach.

Involves the sequencing of goals & objectives of the project.

Involves the mechanics of converting the objectives into a detailed sequence of activities, with an associated timeline.

Defines the strategies to be undertaken to accomplish the goals and objectives.

Involves the estimation of activities, durations and allocation of resources.

Reviews the safety, constructability, operational readiness, maintainability and operability of the plant.

Involves use of the critical path method (CPM)(1); and includes analysis of direct resources, development of resource histograms, commodity curves, camp requirements, etc.

The Critical Path method is recognised as a best practice approach and is the scheduling technique used in all BHP Billiton capital projects. (1)

6.4.2 Project master schedule The project master schedule is the document that shows the timeline of the overall project, from identification to operation phase. It includes the activities associated with:     

the approval process between each phase (gates) environmental approvals, mining leases granted, board approval pre-commitments for the various phases (if applicable) start and completion of the various stages i.e. engineering, procurement, fabrication, construction, commissioning and ramp-up key milestones.

The project master schedule evolves in detail, degree of definition, accuracy and completeness, as the project progresses through the project phases. Further details on levels of schedule are included in this section, while classes of schedule are included in Section 6.4.6 Classes of schedules. The study phase schedules and the execution phase schedule together form the project master schedule. The method of approach and steps to develop these schedules are detailed in Section 6.4.4 Study schedule and 6.4.5 Execution schedule. PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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The subsections below describe the tasks and inputs required to develop a project master schedule.

Purpose The purpose of the project master schedule is to guide the development and execution of the project in accordance with the project execution strategy. The scheduler develops an understanding of the project execution strategy. The project master schedule is developed in line with the specific project needs in order to facilitate, amongst other aspects:     

the provision of the various levels of reporting that are required resource control work coordination time control and forecasting extraction of milestones for status reporting, such as procurement or contract reports.

Collection of input data It is necessary to collect the project source documentation prior to commencing the development of the schedule. Data gathering includes the gathering and understanding of the following documents and information, when available, but not in any particular order of importance:               

contracts plans and specifications statutory and corporation approval requirements SoW WBS/WBS dictionary contracting strategy procurement strategy (including critical equipment and deliveries) any high level overall schedule that has been produced area designation plan lay-down area plan industrial relations laws and regulations sequences planned by major trades or access availability resource availability bills of materials as-built schedules from previous projects of similar nature.

This information is not to be confused with the BoS, which is explained under Section 6.4.3 Basis of schedule.

Accountability and ownership The team members that are accountable, responsible and have ownership of the project master schedule are identified. Identifying who is involved with the schedule development is also required. Participation of those team members whose roles impact how the schedule is used is essential. On the implementation contractor side, gaining an understanding as to who provides the update to progress data is required. It is important to recognise this person’s availability, knowledge of the project, experience and skills. If particular stakeholders are going to have input into the project or the schedule, the individuals and their roles are identified. Continuous engagement of the stakeholders ensures their needs are properly addressed. To increase ownership of the project master schedule:   

involve as many project team members as possible during the development of the schedule ensure that a full review process is carried out deal openly with all comments, questions and objections

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

ensure that all stakeholders i.e. project management, engineering, procurement, construction, commissioning, operations, etc sign off on the schedule.

Software BHP Billiton mandates in the Major Capital Projects GLDs the use of the CPM as a programming methodology. Previous experience has shown that the use of Oracle Primavera software provides a platform widely recognised amongst all of the contractors engaged by BHP Billiton. The appropriate time to decide on the specific software and platform for use, how it is to be used and the specific version required, is required prior to developing the schedule. This selection includes identifying users, what schedules are imported or used as a data source, what levels of access that individuals require and how imported schedules are validated.

Level of detail The level of detail for the project master schedule depends on the nature, duration, size and complexity of the project. The schedule requires enough activities to reflect intricacies and interdependencies. Too few activities require greater use of Start-to-Start and Finish-to-Start lagged activities and create difficulties for analysis. A higher level of detail makes updates more time consuming but makes analysis easier and more accurate. The typical number of activities for the various Levels of schedule is shown Table 6.4.3. On the other hand, too much detail in the schedule results in the scheduler spending most time in managing the data and little time in understanding the progress, constraints, challenges to manage and opportunities to exploit. To decide what level of detail to use for a schedule, first identify whether the method of schedule development is a bottom-up or a top-down approach, or a combination of both. Using a bottom-up approach is generally easier for contractors but carries the risk of overdeveloping portions of the project and taking longer than planned to develop the schedule. Using a top-down approach is generally faster and simpler but is more difficult to get to the accuracy of the details that are developed in a bottom-up approach. Using a combination approach often allows the top-down portion (planning phase) to be used to guide the efforts during the bottom-up (scheduling) phase of the development. The combined approach is recognised as best practice. The level of detail in the project master schedule refers to the hierarchical display of the activities. The standardisation of this approach leads to consistency across all major capital projects in BHP Billiton and understanding between project teams. The various levels of detail for the schedule are a function of the phase, audience and report structure. Therefore, a tiered approach is followed. There are 4 clearly defined levels as follows:  Level 1 – management level schedule  Level 2 – project level schedule  Level 3 – control level schedule  Level 4 – contractors’ schedule. Initially projects develop a Level 1 schedule which is then expanded to lower levels of schedule. Once the lowest level of schedule is developed and approved by the stakeholders, then the higher level schedules are developed by coding that schedule and summarising. For example, once a Level 3 schedule is developed and approved, the activities are coded such that the Level 3 schedule can be summarised to a Level 2 or a Level 1 schedule. Level 1 – management level schedule The purpose of the Level 1 schedule is to show the overall timing of all aspects of the project. It displays all of the key phases/stages of the project. This may include phases/stages such as identification, selection, definition, detail design, procurement, fabrication and delivery, construction, commissioning and ramp-up. Quite often, the Level 1 schedule is used during the initiation of a project and may be used as part of an overall business plan. It provides a high level of information that assists in the decision making process, PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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(go/no-go, prioritisation and criticality of projects). The Level 1 schedule may also assist in defining the necessity of implementing mitigating actions. It may be necessary for high level management to intercede in the execution of the project, if warranted. This is the highest level schedule against which the overall timing of the project is set out and communicated. Often, it is presented not only as a bar-chart, but also with a set of key milestone dates against which the project is monitored. Best practice shows that this schedule is no more than a single sheet, containing perhaps 20 to 50 activities (dependent upon the complexity, duration and size of the project). This schedule may illustrate the critical path of the project. Level 2 – project level schedule Best practice shows that not more than 1,500 activities are included in the project Level 2 schedule. It includes pre-commissioning, commissioning, start-up and operational readiness activities and interfaces. The number of activities shown in the Level 2 schedule is dependent on the complexity, duration and size of the project. The Level 2 schedule is prepared in conjunction between the BHP Billiton planner and the implementation contractor’s scheduler and includes all of the project scope. With the use of different layouts and filters (features of the scheduling software), the Level 2 schedule is summarised for inclusion in various reports, such as monthly reports. The main purpose of the Level 2 schedule is to set out when each of the key project activities takes place. The Level 2 schedule typically shows the key activities, engineering by discipline, procurement, key deliveries, construction installation by commodities, pre-commissioning and commissioning activities by facilities. The Level 2 schedule clearly shows the critical path for the project and is typically created by the use of activity codes and summarising the higher detailed schedules. The Level 2 schedule includes the work activities of all key elements of the project. It communicates the integration of work throughout the phases. The Level 2 schedule may reflect, at a high level, the interfaces between key deliverables and the project participants (contractors) required to complete the project deliverables. Ideally, the various components are produced and/or coordinated by a single party, although this is dependent upon the contractual arrangements for the project. This is a key element to ensure ownership and compliance once in the execution phase. The Level 2 schedule contains sufficient detail to enable:  



all involved in that element to fully understand what needs to be done when and by whom those involved in a particular element to fully understand how their own work interfaces with the work in another element, or within the same element e.g. procurement, installation or construction the status of the project completion milestones to be monitored and reported at this summary level.

In those cases where there is a program manager in place and various interconnected projects running concurrently, it is essential for each of the Level 2 component schedules to have a clear definition of the inter-project relationships. This detail is reflected in the BoS. This facilitates the understanding of the implications of time changes and its knock on effects on the rest of the project master schedule. Level 3 – control level schedule Considered the detailed schedule, the Level 3 schedule covers all engineering, procurement, construction, commissioning and ramp-up activities. Generally, it is prepared to communicate the execution of the deliverables for each of the contracting parties. The use of activity codes in the Level 3 schedule allows the data to be filtered and arranged, to provide different views and information. It shows all access and

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interfaces between key groups (discipline and/or trade) throughout the execution of the project. It may also include activities which are under the responsibility of the Owner’s team. The purpose of the Level 3 schedule is to show the detailed timing of all of the activities on the project. It shows the critical path and includes details of the resources needed to undertake that element of work. The Level 3 schedule assists in identifying activities that could potentially affect the outcome of the phase and/or the project completion, which allows for better visualisation of what-if scenarios, if required, as mitigating alternatives for recovery. Depending on the contractual arrangements for the project, one contractor may be responsible for collating and coordinating the various elements of the Level 3 schedule. In other instances, the various components (e.g. engineering and construction) of the Level 3 schedule might be produced by different organisations. A Level 3 schedule could include detailed activities that show:     

every engineering discipline deliverable at appropriate levels of detail to sufficiently describe the logic between various engineering disciplines the authorities’ approvals and statutory processes the timing of sub-contract tenders to be obtained, placing orders, fabrication times, lead times, delivery dates construction, installation or assembly activities of all physical works on site, for each part of the project pre-commissioning and commissioning activities.

Often, the Level 3 schedule is produced in advance of appointing the various specialists (e.g. designers and sub-contractors) in order to set out the overall detailed timing of activities and interfaces on the project. This is often difficult to achieve, as the input from those specialists is required to fully test the detail. When the schedules from the various schedules are received, some of the original detail needs to be replaced. This process occurs once the key packages/contracts have been awarded. It is essential to emphasise the importance of a solid project execution strategy which assists in determining the correct sequence and resources for the activities in the Level 3 and consequently in the project master schedule. Setting a clear framework, it facilitates the management of the schedule (progress monitoring, controlling and reporting). The project manager or controls manager is responsible for identifying and implementing the necessary reports prior to the execution phase. For further details refer to Section 6.6 Project Controls. Level 4 contractor’s schedule The Level 4 schedules are prepared to communicate the “production” of the work packages at the deliverable level. They reflect the interfaces between the key elements that drive the completion of activities. These are a group of schedules often produced by construction contractors performing the work. Level 4 schedules cover a wide range of uses, typically:   

to describe specific areas, packages or aspects of the project short and medium term look-ahead schedules, covering the detailed activities for the next few days, weeks or months key major equipment for erection.

The Level 4 schedules usually provide enough detail to plan and coordinate contractor or multi-discipline activities. Activities in level 4 schedules are typically of 2-4 weeks duration. Other schedules can be developed to focus on particular stages or portions of the scope e.g. commissioning schedule (Level 3), operational readiness schedule (Level 3) and tie-in & shutdown schedule (Level 4). In this example, tie-in and shutdown schedule is developed at a lower level due to the short

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window for execution and the criticality of activities to successfully complete the scope in the short window.

Activity code definition An activity coding structure that is used during the schedule development is developed. During development of activity codes consideration is made of the requirements of the project through to commissioning and ramp up. The structure is flexible, yet has a sound framework where the intent is not lost. The activity codes allow fast and effective reports and printouts. Amongst the various codes, the use of the WBS promotes the alignment between the activities in the schedule and the capital cost estimate.

Resources A key element of schedule development is the resource loading and levelling. Best practice shows that schedules developed considering resources result in a better representation of the execution sequencing and the critical path. During schedule development, in particular for the execution phase, information such as detailed crew size, labour count, production rates and equipment, if available, are considered when developing the relevant activities durations. Precise and clear descriptions regarding the requirements for resource, labour and equipment loading are incorporated into the BoS. In summary, the structure and layout of the project master schedule is designed before the schedule commences. However, it allows enough flexibility to accommodate future changes.

6.4.3 Basis of schedule The BoS details the assumptions, known risks and structure that support the development of the execution phase schedule (refer to Section 6.4.5 Execution schedule). The BoS acts as the bridge between the planning and scheduling processes and serves as the mechanism to translate the underlying planning principles and assumptions into the execution phase schedule. It is the foundation on which the schedule is built. The elements included in the BoS are as follows:                 

a brief description of the project objectives, execution plan and scope assumptions upon which the schedule is based pre-commitments (scope which otherwise is carried out during the execution phase) long lead and critical items key drivers critical path description (including activity durations and logic analysis) activity durations (method of calculation, allowances) terminology and glossary activity coding structure (WBS, work packages, other coding definition) definition of key milestones and schedule KPI calendars, holidays and other non-work period usage of constraints labour and non-labour resources (sourcing and availability) accommodation/travel (if applicable) brief description of the contracting/procurement strategy internal and external interfaces project risks, uncertainties and opportunities (i.e. extreme weather conditions, remote site).

The BoS is not the same as the schedule specification which outlines the various measures for the implementation, maintenance and control of the study and/or execution phase schedule. In effect, it is the PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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"how to" of developing the relevant schedule. Timely review and sign-off of the BoS by all relevant stakeholders is critical.

6.4.4 Study schedule The study schedule is part of the SWP, as defined under Section 6.1 Study Management. It is also a component of the project master schedule. The study schedule is a generic name given to a schedule that includes all of the activities to be carried out during the identification, selection or definition phase. For example, during the identification phase, a study schedule for the selection phase is prepared. It complies with the requirements of a Class 2 schedule (refer to Section 6.4.6 Classes of schedules), whereas activities beyond the next phase are at Class 3 or 4. Equally, during the selection phase, a study schedule for the definition phase is prepared that meets the Class 2 schedule requirements. Where a study phase includes pre-commitments, it is essential to ensure that these activities are scheduled to meet the requirement of a Class 2 schedule. Typical key inputs to develop a study schedule are:        

statutory approval processes including environmental agencies and local, state and federal governments approval processes including schedule and cost estimate sign offs, risk analysis, investment evaluation, IPA review, IPR, Investment Committee (IC) and Board approvals activities associated with VIPs pre-commitments underpinning the project completion milestones, if any engineering deliverables to be completed during the phase trade off studies engineering labour requirements Gate 2A tollgate definition (for a selection phase study schedule).

For other phases, the inputs to the study schedule may be different. It is a function of the available information and its degree of completeness.

6.4.5 Execution schedule The development of the execution phase schedule starts during the selection phase for what is believed to be the scope of work for the preferred alternative. The amount of detail continues to expand as the project progresses towards the execution phase. At all times, the execution phase schedule aligns with the PEP. The execution phase schedule includes all activities originated after the project has been given funding approval. The execution phase schedule includes all the necessary activities to deliver all the elements of the project in accordance with the schedule KPIs. Typical inputs to develop an execution phase schedule are:        

remaining statutory approval process, including environmental agencies and local, state and federal governments detail engineering activities for engineering deliverables procurement processes, including fabrication and delivery vendor information required to support the completion of detail engineering project major milestones key labour resources and key commodities construction/erection activities commissioning process and sequence.

Once the execution phase schedule is signed off by the project team, it is saved as the baseline schedule for the execution phase. Unless the schedule KPIs are under threat or the timing and/or sequencing of work has deviated from what has been approved, it remains in place as the approved plan. PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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Before the execution phase schedule is signed off and prior to the schedule range analysis, the resources in the schedule are levelled. It is necessary to carry out an optimisation designed to smooth the peaks produced during high resource requirements. This exercise is relatively simple, and is achieved by extending the duration of some resource loaded activities which, may or may not pertain to the critical path. This is carefully addressed as it could potentially impact the completion dates.

6.4.6 Classes of schedules There is some degree of confusion and lack of consistency in what constitutes the appropriate amount of schedule detail necessary for controlling, monitoring, communicating and reporting project information. The most common practice has defaulted to defining schedule appropriateness by assigning levels to the schedule. The schedule class designations are labelled Class 1, 2, 3, 4, and 5. A Class 5 schedule is based upon the lowest level of project definition, and a Class 1 schedule is closest to full project definition and maturity. The schedule classification is consistent with that of the SoW, the design development and the cost estimate. The schedule classification system maps the phases and stages of scheduling against a generic maturity and quality matrix that can be applied across a wide variety of projects. Numerous contractors have characterised schedules using only “levels”. This simplistic characterisation does not communicate the desired degree of completeness and accuracy. The combined use of schedule classes and levels assists in defining the schedule requirements of project information, its suitability and usage. Therefore, it is preferable to characterise a schedule by both a level and class. This assists to improve project team communication, collaboration and effectiveness, whilst achieving excellence in managing projects and resources. Figure 6.4.2 illustrates the two discrete ways that schedules are developed and/or presented. Figure 6.4.2 Schedule classes & schedule levels

One of the most important aspects of developing the schedule is to ensure that the right level of detail is provided so that the project team can execute the project with efficiency and effectiveness whilst applying sound judgment and decision making. The level of detail required to achieve a particular class of schedule is included in the schedule classification table (refer Table 6.4.3). The table:

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

 

provides a common understanding and guideline for classifying project schedules for the purpose of developing the study schedule or execution phase schedule to the appropriate degree of completeness ensures that the relationship between the schedule and estimate classes are consistent and aligned provides the necessary details to recognise the characteristics of each of the schedule classes, where each schedule class is defined by the following key attributes:      

expected schedule accuracy range characteristics critical path definition and logic number of activities methodology expected schedule contingency range.

The effort required to prepare the various classes of schedule is dependent on the amount of project information available, the technological complexity of the project, the level of external and internal integration and the amount and definition of the scope. A brief description of each class is as follows:  







Class 5 schedules are generally prepared based on very limited information and subsequently have wide accuracy ranges. Class 4 schedules are generally prepared based on limited information and subsequently have fairly wide accuracy ranges. They are typically used for project screening, determination of "do-ability", concept evaluation and to support preliminary budget approval. In BHP Billiton, both classes 4 and 5 are combined opting for the best information available at the time of developing the schedule. Class 3 schedules are generally prepared to form the basis of execution for budget approval and/or funding. As such, they typically form the initial control schedule against which all actual dates and resources are monitored. Class 2 schedules are generally prepared to form a detailed control baseline, against which all project work is monitored in terms of task starts and completions and progress control. For contractors, this class of schedule is often used as the "bid" schedule to establish contract duration. Class 1 schedules are generally prepared at definitive schedule stage (in concert with the definitive estimate). The parts of the project scheduled at this degree of completeness are typically by subcontractors for bids or by owners for check "schedules".

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Table 6.4.3 Schedule classification table Requirement

Class 5 or Class 4 Order of magnitude or factored

Class 3 Semi-detailed Schedule

Class 2 Detailed Schedule

Class 1 Definitive Schedule

±15% to ±25%.

±10% to ±15%.

±5% to ±10%

Basis of Schedule Expected schedule accuracy range (typical)

±25% to ±100%.

(Note 1) Characteristics

High level, single summary bar per phase with major milestones identified, deliverables for each specific phase including statutory and approval processes.

Detailed logic driven, resource loaded, levelled and key commodities loaded. Includes the required deliverables per contract per construction work package

Owner and contractor developed for controlling, monitoring and reporting progress.

Defined

Defined

Defined

 Most activities scheduled FS

 Most activities scheduled FS

 Most activities scheduled FS

 Limited use of lags

 Limited use of lags with

 Limited use of lags with

justification provided

justification provided

Logic driven, resource loaded including:  construction work packages

necessary to reflect the execution path  statutory and approval

processes. Critical Path Definition & Logic

High level, indicative only

SS: Start-to-Start relationship FF: Finish-to-Finish relationship FS: Finish-to-Start relationship Lags: time interval imposed between tasks Number of activities

Between 20 and 150 activities.

Between 150 and 1000 activities.

Between 1000 and 3000 activities.

Over 3000 activities.

Gantt or bar chart – top down planning showing major milestones and overall durations.

Gantt or bar chart – top down planning showing key milestones and overall durations.

Critical path method – bottom up scheduling.

Critical path method – bottom up scheduling.

As defined hereunder

As defined hereunder

As defined hereunder

As defined hereunder

25% to 40%.

15% to 25%.

10% to 15%.

5% to 10%

(Note 4) Methodology: Typical scheduling method used

Level of design definition (Note 2) Expected schedule contingency range (Note 3)

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Class 5 or Class 4 Order of magnitude or factored

Class 3 Semi-detailed Schedule

Class 2 Detailed Schedule

Class 1 Definitive Schedule

Project scope definition

Outlined

Defined

Optimised

Finalised

Plant location

Assumed

Finalised

Finalised

Finalised

Facility capacity or plant production

Assumed

Finalised

Finalised

Finalised

Soils and Hydrology Report

Assumed

Assumed

Defined

Finalised

Integrated Project Plan

General

Preliminary

Defined

Finalised

Class 4 or 5

Class 3

Class 2

Class 1

Outline

Preliminary

Defined

Finalised

Activity Coding

None

Outlined

Defined

Finalised

Contracting strategy: implementation

None

Preliminary

Defined

Finalised

Assumed

Preliminary

Defined

Finalised

Assessed or factorised

Deterministic or probabilistic

Probabilistic

Probabilistic

Accommodation Plan (temporary)

None

Preliminary

Defined

Finalised

Accommodation Plan (permanent)

None

Preliminary

Defined

Finalised

Logistics Plan

None

Preliminary

Defined

Finalised

Plot Plans

None

Preliminary

Complete

Finalised

Outlined

Preliminary

Finalised

Finalised

Piping and instrumentation diagrams

None

Outlined

Finalised

Finalised

Civil or structural or discipline drawings

None

Preliminary

Complete

Complete/Finalised

Equipment list (process and utility)

None

Preliminary

Defined

Finalised

Single line diagrams

None

Preliminary

Preliminary/Defined

Defined/Finalised

Specifications and datasheets

None

Preliminary

Preliminary/Defined

Finalised

General arrangements drawings

None

Preliminary

Approved for design

Complete

Requirement General Project Data

Cost Estimate

Work Breakdown Structure (WBS)

Procurement strategy Contingency

Process flow diagrams

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Class 5 or Class 4 Order of magnitude or factored

Class 3 Semi-detailed Schedule

Class 2 Detailed Schedule

Class 1 Definitive Schedule

Chutework and platework

None

Preliminary MTOs

Preliminary/Defined

Complete

Electrical drawings

None

None

Preliminary/Defined

Complete

Instrumentation or control system drawings

None

None

Preliminary/Defined

Complete

Design criteria

Outlined

Preliminary

Optimised

Finalised

Statutory Requirements

Outlined

Preliminary

Defined

Finalised

Requirement

Note 1: For Petroleum, the level of project definition is generally significantly higher for Class 2 schedule. Note 2: Traditionally expressed as a percentage of total engineering requirement for the project. Note 3: For projects involving significant integration activities, the expected schedule contingency ranges can be generally higher. The schedule contingency is calculated as the difference between the Target (Mean) date and the Deterministic (base) date. Note 4: Depending on size, complexity, information available, skills and knowledge of the team and tools available, number of activities could vary beyond these ranges. Term

Definition

Assessed

Based on judgment of benchmarks.

Assumed

Based on experience from projects of similar characteristics.

Budget Quote

Written quote and technical data from vendor based on specifications or data sheets.

Calculated

Utilising inputs derive sizes or features on an auditable basis.

Complete

Based on defined scope and quantities to allow auditable MTOs to be prepared.

Defined

Detailed and project specific. Usually obtained from a specific engineering or other deliverable.

Factorised

Proportioned from previous cost data.

Finalised

Deliverable has been completed, reviewed, signed off and unlikely to change.

Firm Quote

Commercially evaluated price and technical data from vendor based on specific engineering requirements.

None

Work on development of deliverable has not begun.

Outlined

Primary features or dimensions shown.

Optimised

Work is detailed, best option or configuration has been thoroughly reviewed and SoW is unlikely to change.

Preliminary

Work on deliverable is advanced sufficiently to define scope and major sizes and locations. Preliminary material take-offs (MTOs) can be prepared.

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6.4.7 Schedule independent peer review As part of the investment process, it is mandated that the project master schedule (including the relevant BoS, study schedule and execution phase schedule) is reviewed as part of the IPR review. Establishing the timing as early as possible for such a review has demonstrated to be helpful to the Owner’s team, as well as to the IPR team. This assists in determining the appropriate amount of time allocated for the review and its timeliness with the governance process. Table 6.4.4 shows the suggested engagement timing for the project team with the IPR functional reviewer. Table 6.4.4 Peer review timeline Event IPR reviewer engagement

Weeks before IPR 10

Conduct Interim IPR review (documentation to be sent 1 week before)

6

Outcome (Reviewer – R, Team –T)

Documentation

 Formalise the timing and content

of the review.  Provide feedback to the team (R).

 Basis of schedule.

 Implement any recommendations

 Electronic files for all schedules.

from the review (T).

 Layout files.  Schedule specification (if available).  Schedule model for range analysis.

Submit final proposed baseline project master schedule

2

6.4.8 Schedule range analysis Schedule range analysis is the systematic evaluation of risks and uncertainties associated with the activities included in the schedule. These uncertainties are the result of the outcomes (consequences) of threats and opportunities that a project could encounter during the course of its development. They can also be in the form of unknown opportunities for improving the schedule prospects for a project. In accordance with the Major Capital Projects GLDs, it is a requirement to undertake a schedule range analysis as part of the approval process. The objectives of the schedule range analysis are to:  

derive the Stretch (P90), Target (mean) and Threshold (P10) dates for use as the schedule KPIs determine the schedule contingency.

Once the schedule contingency is calculated, its impact is considered in the capital cost range analysis. The risks that the schedule is exposed to include: 



specific activity risks, which are those associated with the nature and characteristics of an activity or group of activities i.e. fabrication shop availability, equipment delivery, adverse geotechnical data, etc general project wide risks, which are those which tend to affect the project as a whole i.e. H&S event, labour availability, labour productivity, extreme weather conditions, adverse IR environment, etc.

The schedule range analysis is fit for purpose and depending on what phase the project has reached, the requirement for the schedule range analysis varies. This is explained in Table 6.4.5. Several best practice examples are included in Toolbox 9.6.4A.

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Table 6.4.5 Schedule range analysis requirements Tollgate

Method

Schedule

Identification to selection

N/A

N/A

Selection to definition

Deterministic or probabilistic

Remaining activities in the project master schedule

Definition to execution

Probabilistic

Execution Schedule

The steps to conduct a schedule range analysis are included in Toolbox 9.6.4B Schedule Range Analysis Methodology.

6.4.9 Schedule contingency The schedule contingency is calculated as the amount of time between the deterministic (mid) project completion date and the target (mean) project completion date (refer to Figure 6.4.3). The amount of schedule contingency is a function of several factors, including:   

duration ranges probabilistic distribution function use of correlation.

The project team reviews the calculated schedule contingency and makes an assessment of its validity based on previous experience as to how achievable is the deterministic completion date and overall project duration. Once the schedule contingency is calculated, the baseline project master schedule is established by adding this time (schedule contingency) to the deterministic schedule. Best practice suggests adding the calculated schedule contingency at the end of the deterministic completion date, as shown in Figure 6.4.3. Figure 6.4.3 Determination of schedule contingency

If the project team has defined more than one schedule KPI, the criteria for allocating schedule contingency to each KPI is based on the associated risks to deliver each one of the schedule KPIs. It is also clearly defined in the BoS. PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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6.4.10 Schedule control Once the baseline project master schedule is established it is used as the basis for control of the project timeline and completion date. Further information on schedule control can be found in Section 6.6 Project Controls.

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6.5

COST ESTIMATING Essential to decision making associated with any investment opportunity is an understanding of costs associated with developing, operating, maintaining and closing the asset. The decision on whether to proceed with an investment opportunity is driven by the potential value the investment displays and its strategic fit. Business decisions rely on the outcomes of cost estimates and it is important that structured processes are followed to develop the estimates in support of those decisions. This section provides an overview on the estimating of the following costs:    

capital cost study cost operating cost closure cost.

The key cost estimating requirements through the investment phases are shown in Table 6.5.1. Table 6.5.1 Key cost estimating requirements Identification  Develop a preliminary

estimate of the total investment amount (expected expenditure for all study phases and execution phase).  Prepare a detailed

(Class 2) study cost estimate for the selection phase.  Develop Class 4/5 cost

estimate for the execution phase.  Develop Class 4/5 cost

estimate for the operations phase.

Selection  Update and maintain

overall investment cost estimate for the preferred alternative.  Prepare a detailed

(Class 2) study cost estimate for the definition phase.  Develop outline (Class

4/5) cost estimates for the execution and operations phases for each of the major investment alternatives to support selection of preferred investment alternative.

Definition  Update and maintain

overall investment cost estimates for the selected investment alternative.  Develop a detailed

(Class 2) cost estimate and the associated BoE for the execution and operations phases.

Execution  Consider developing a

Class 1 estimate for execution phase, when appropriate, to improve the accuracy of forecast final cost.  Develop associated BoE.

 Perform probabilistic

range analysis on execution and operation phase estimates.

 Develop Class 3 cost

estimate for the execution and operations phases and associated BoE for the preferred investment alternative. Note: Class 4/5 cost estimates can be developed based on benchmarking data from similar projects.

 Perform deterministic

(or probabilistic) range analysis on the preferred execution and operations phase estimates.

Capital and operating cost estimate steps and the typical responsibilities for development of the estimates is included in Figure 6.5.1.

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Figure 6.5.1 Capital and operating cost estimate steps and responsibilities

Capital Cost

Construction STEPS

Pre-commissioning Energisation Testing

No Load or Dry Testing

Operating Cost

Commissioning Plant Ramp-up

Performance Verification

Load or Wet Testing

Recruitment & Training of Operation & Maintenance Staff

Handover Asset to Operation

RESPONSIBILITY

Implementation Contractor

Implementation Contractor

Owner with the Assistance of IC

Operation

Operation

Further detail and best practice examples can be found in Toolbox 9.6.5A.

6.5.1 Capital cost estimating The capital cost estimate is a forecast of the cost for a defined SoW and is required at every phase during the development of a project. As the study/project progresses, with increased levels of project definition, the level of accuracy of the cost estimate improves. The estimate provides the basis for economic analysis of a project (including alternatives considered), management decisions, budgeting and cost control. The purpose of the capital cost estimate is to: 

provide input to a project cost model against which:   

  

optimisation of design, execution and operation can be studied changes, risks and alternative courses of actions can be measured different cash phasing can be considered

provide the basis against which funds are made available provide the basis for project control during project execution provide the basis for forecasting the final cost of the project at any point in time.

Key elements to consider in developing a capital cost estimate are summarised below. Further detail associated with development of capital cost estimates is included in Toolbox 9.6.5B Capital Cost Estimating Guideline.

Classes (types) of Estimates The different classes of estimates prepared during various phases of the investment process, including the level of scope definition and the corresponding level of estimate accuracy generally expected to be achieved by the conclusion of each project phase, are contained in Table 6.5.2.

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Table 6.5.2 Capital cost estimate – classification guide Estimate class

Class 5 – capacity factor estimate

Class 4 – equipment factor estimate

Class 3 – semidetailed estimate

Class 2 – detailed estimate

Class 1 – definitive estimate

±35% to ±100%

±25% to ±35%

±15% to ±25%

±10% to ±15%

±5% to ±10%

Capacity factored using historical data, judgment or analogy.

Equipment factored, parametric models, judgment or analogy.

Mix of material take-offs (MTOs) & factored quantities, semi-detailed unit costs.

Detailed unit costs with forced detail take offs.

Detailed unit costs with detailed take-off.

None - benchmark data.

Budget equipment quotes - benchmark data.

Budget quotes for major equipment and major bulk materials and other costs based on factored or in-house data.

Multiple budget/firm quotes for equipment. Multiple quotes for bulk material supply.

Equipment on order, tendered or firm quotes available. Tenders for bulk material supply and construction. Some contracts awarded.

30%-40%

25%-35%

15%-25%

10%-15%

5%-10%

As defined hereunder

As defined hereunder

As defined hereunder

As defined hereunder

As defined hereunder

Project scope description

Outlined

Outlined

Defined

Optimised

Finalised

Plant location

Assumed

Assumed

Finalised

Finalised

Finalised

Facility capacity or plant production

Assumed

Optimised

Finalised

Finalised

Finalised

Soils and Hydrology Report

Assumed

Assumed

Preliminary

Defined

Finalised

Integrated Project Plan

General

General

Preliminary

Defined

Finalised

Work breakdown structure

Outlined

Outlined

Preliminary

Defined

Finalised

None

Outlined

Preliminary

Defined

Finalised

Basis of estimate Expected estimate accuracy range (typical): (Note 1) Methodology: typical estimating method

Quotations/tenders: supporting the estimates

Expected estimate contingency range (Notes 2 & 3) Level of design definition General project data

Project code of accounts

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Estimate class

Class 5 – capacity factor estimate

Class 4 – equipment factor estimate

Class 3 – semidetailed estimate

Class 2 – detailed estimate

Class 1 – definitive estimate

Contracting strategy: implementation

None

None

Preliminary

Defined

Finalised

Procurement strategy

None

Assumed

Preliminary

Defined

Finalised

Accommodation Plan (temporary)

None

None

Preliminary

Defined

Finalised

Accommodation Plan (permanent)

None

None

Preliminary

Defined

Finalised

Logistics Plan

None

None

Preliminary

Defined

Finalised

Vendor selection

None

None

Identified for major equipment

Identified/Selected for major equipment

Finalised/Defined

Class 5 Schedule

Class 4 Schedule

Class 3 Schedule

Class 2 Schedule

Class 1 Schedule

Factored

Factored

Factored / Preliminary

Defined

Actual to date & detailed to go

Inflation or escalation strategy

None

Factored

Preliminary

Defined

Defined

Foreign exchange strategy

None

None

Preliminary

Defined

Defined

Assessed or factorised

Assessed or factorised

Deterministic or Probabilistic

Probabilistic

Probabilistic

Bench scale testing of typical material

Bench scale testing of typical material

Pilot plant testing of typical material

Pilot plant testing to confirm detailed design

Finalised

Testwork (petroleum)

Sample analysis or core analysis

Sample analysis or core analysis

Sample analysis or core analysis

Finalised

Finalised

Technology selection

Industry typical option

Industry typical option

Selected project specific options

Finalised

Finalised

None

None

Preliminary

Finalised

Finalised

Block flow diagrams

Outlined

Preliminary

Defined

Finalised

Finalised

Process flow diagrams

Outlined

Outlined

Preliminary

Finalised

Finalised

Utility flow diagrams

Outlined

Outlined

Preliminary

Finalised

Finalised

None

None

Outlined

Finalised

Finalised

Project master schedule: implementation Indirect costs

Contingency (Note 4) Engineering deliverables Testwork

Technology or process risk analysis

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Estimate class

Class 5 – capacity factor estimate

Class 4 – equipment factor estimate

Class 3 – semidetailed estimate

Class 2 – detailed estimate

Class 1 – definitive estimate

Operating and control philosophy

None

None

Outlined

Defined

Finalised

Heat and material balances

None

None

Preliminary

Finalised

Finalised

Outlined

Outlined

Preliminary

Optimised

Finalised

Industry typical data or best estimate

Industry typical data or best estimate

Preliminary data from test work

Final data from test work

Defined

Production and maintenance schedule

None

None

Conceptual

Detailed, including production build-up

Defined

Production and maintenance schedule (petroleum)

None

None

Conceptual

Conceptual: production ramp up not finalised until wells drilled

Conceptual: production ramp up not finalised until wells drilled

Surge capacity and stockpiles (N/A Petroleum)

None

None

Preliminary

Defined

Finalised

Industry typical data or best estimate

Industry typical data or best estimate

Preliminary

Optimised

Defined

Identification

Identification

Quantity and quality schedule

Detailed marketing plan

Finalised

Process inventory (N/A Petroleum)

None

None

Preliminary

Defined

Defined

Consumable inventory

None

None

Preliminary

Defined

Defined

Product inventory (N/A Petroleum)

None

None

None

Preliminary allowance

Defined

Dispatch logistics

None

Conceptual

Preliminary

Defined

Defined

Assumed

Sketched

Defined

Complete

Finalised

Plot plans

None

None

Defined

Complete

Finalised

Ground contours

None

None

Preliminary

Complete

Finalised

Discipline drawings

None

None

Preliminary

Complete

Complete/Finalised

Specifications

None

None

Preliminary

Defined

Complete

Bulk pricing

None

None

Budget quotes

Budget quotes

Firm quotes/POs/Tenders

Design criteria Processing parameters

Reagent and consumable consumption By-products (N/A Petroleum)

Earthworks/Civil/Structural (Onshore facilities only) Overall site plan

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Estimate class

Class 5 – capacity factor estimate

Class 4 – equipment factor estimate

Class 3 – semidetailed estimate

Class 2 – detailed estimate

Class 1 – definitive estimate

Concept type (FPSO, TLP)

Assumed

Conceptual

Preliminary

Defined

Complete

Export solution

Assumed

Sketched

Preliminary

Defined

Defined

Subsea layout

Assumed

Sketched

Preliminary

Defined

Complete

Discipline drawings

None

None

Preliminary

Defined

Complete

Facilities installation

Assumed

Conceptual

Preliminary

Defined

Defined

Subsea installation

Assumed

Conceptual

Preliminary

Defined

Defined

Well plan and field layout

Assumed

Conceptual

Preliminary

Defined

Defined

Basis of well design

Assumed

Conceptual

Preliminary

Defined

Defined

Drill rig rates

Assumed

Assumed

Defined

Defined

Defined

Specifications

None

None

Preliminary

Defined

Complete

Bulk pricing

None

None

Preliminary

Firm quotes

Firm quotes/POs/Tenders

Discipline drawings

None

None

Preliminary

Preliminary/Defined

Complete

Specifications and datasheets

None

Assumed

Preliminary

Defined

Complete

Pricing

None

None

Factored

Budget quotes

Firm quotes

Equipment list (process and utility)

None

Preliminary (major items)

Preliminary

Defined

Finalised

Equipment datasheets and specifications

None

Preliminary (major items)

Preliminary

Preliminary / Defined

Finalised

Equipment pricing

None

Single budget quote

Budget quotes

Budget / Firm quotes

Purchase orders for major equipment; Firm quotes for unawarded components

Equipment spares philosophy

None

Preliminary

Preliminary

Preliminary / Defined

Complete

Equipment spare parts listing

None

None

Preliminary

Preliminary / Defined

Complete

Installation (Petroleum)

Drilling

Buildings (Onshore facilities only)

Mechanical

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Estimate class

Class 5 – capacity factor estimate

Class 4 – equipment factor estimate

Class 3 – semidetailed estimate

Class 2 – detailed estimate

Class 1 – definitive estimate

General arrangement drawings

None

None

Preliminary

Approved for Design

Complete

Chutework and platework

None

None

Preliminary MTOs

Preliminary / Defined

Complete

Bulks pricing

None

None

Budget quotes

Budget / Firm quotes

Firm quotes/POs/Tenders

Piping discipline drawings

None

None

Outlined

Preliminary (large bore)

Complete

Piping specifications

None

None

Outlined

Defined

Finalised

Piping pricing

None

None

In house data

Budget quotes

Firm quotes/POs/Tenders

Electrical equipment list / motor list

None

None

Preliminary

Defined

Complete

Electrical: equip. datasheets and specifications

None

None

Preliminary

Defined

Defined/Finalised

Electrical single line diagrams

None

None

Preliminary

Preliminary / Defined

Defined/Finalised

Electrical discipline drawings

None

None

None

Preliminary / Defined

Complete

Equipment and bulks pricing

None

None

In house data/Budget quotes

Budget quotes

Firm quotes/POs/Tenders

Spares lists

None

None

Factored

Factored / Preliminary

Complete

Instrumentation and controls discipline drawings

None

None

None

Preliminary / Defined

Complete

DCS/Controls philosophy

None

None

Preliminary

Preliminary / Defined

Complete

Information systems definitions per ITSP

None

None

Preliminary

Preliminary/Defined

Defined

Information Systems Plan, as per Project Execution Plan

None

None

Preliminary

Preliminary/Defined

Defined

Spares lists

None

None

Factored

Factored/Preliminary

Complete

Piping

Electrical

Instrumentation

Others

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Estimate class

Class 5 – capacity factor estimate

Class 4 – equipment factor estimate

Class 3 – semidetailed estimate

Class 2 – detailed estimate

Class 1 – definitive estimate

Organisational structure and complements

None

None

Conceptual

Defined

Finalised

Recruitment and training

None

None

None

Conceptual

Defined

Identification of air, water, solid, noise, visual impacts

None

None

Preliminary

Defined

Finalised

Statutory requirements

None

Outlined

Preliminary

Defined

Finalised

Permitting

None

Outlined

Preliminary

Defined

Finalised

HAZOP

None

None

Fatal flaw analysis

Preliminary, Defined by area

Finalised

Human Resources

Health Safety & Environmental

Note 1: For Petroleum, the level of project definition is generally significantly higher for Class 2 capital cost estimate. Note 2: For projects involving significant integration activities, the expected estimate of contingency ranges can be generally higher. Note 3: For Class 1 estimates applied to un-expended component only. Note 4: Refer to Contingency evaluation and range analysis. Term

Estimating Definitions

Assessed

Based on judgment of benchmarks.

Assumed

Based on experience from projects of similar characteristics.

Budget quote

Written quote and technical data from vendor based on specifications or data sheets.

Calculated

Utilising inputs derive sizes or features on an auditable basis.

Complete

Based on defined scope and quantities to allow auditable MTOs to be prepared.

Defined

Detailed and project specific. Usually obtained from a specific engineering or other deliverable.

Factorised

Proportioned from previous cost data.

Finalised

Deliverable has been completed, reviewed, signed off and unlikely to change.

Firm quote

Commercially evaluated price and technical data from vendor based on specific engineering requirements.

None

Work on development of deliverable has not begun.

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Term

Estimating Definitions

Outlined

Primary features or dimensions shown.

Optimised

Work is detailed, best option or configuration has been thoroughly reviewed and SoW is unlikely to change.

Preliminary

Work on deliverable is advanced sufficiently to define scope and major sizes and locations. Preliminary MTOs can be prepared.

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Estimate plan Shortly after commencement of a study, an estimate plan is prepared by the project team. The estimate plan provides project specific guidelines for preparing a capital cost estimate and consists of the following items:           

project scope description class of estimate with expected estimate accuracy estimate base date and currency foreign currency exchange rate table as per BHP Billiton Exchange Rate Protocol clear definition on demarcation between the scope of capital and operating cost estimates the capital cost estimate deliverables and delivery schedule a project WBS (refer to Toolbox 9.6.5E Work Breakdown Structure) a discipline/commodity code structure (refer to Toolbox 9.6.5F Standard Discipline Codes) the estimating software to be used the estimating schedule, which is a bar chart listing all significant activities, resources and milestones and exhibiting them on a time scale a quantity and pricing development basis consisting of guidelines for:        

         

quantity measurement methodology estimating design development, quantity take off and cost growth allowances (refer to Toolbox 9.6.5B Capital Cost Estimating Guideline) developing installation costs including site work cycle, labour rate development, crew mix, productivity and contractors’ distributables pricing plant equipment and bulk materials estimating vendor representative costs for installation, pre-commissioning, commissioning and training of the operation and maintenance staff estimating freight costs estimating construction facilities and support costs developing implementation contractors’ service costs

guidelines for capturing third party consultant estimates construction input required during estimate preparation estimating escalation from the estimate base date to project completion (refer to Toolbox 9.6.5B Capital Cost Estimating Guideline) assessing schedule contingency and capital cost contingency documenting estimate qualifications and exclusions Owner’s cost estimate responsibility matrix stating which group is responsible for providing quantities, pricing and job hours for each discipline and WBS element which internal and independent estimate reviews are required before estimate sign-off guidelines for the preparation of final estimate presentation package, including benchmarking and reconciliation with previous estimates a matrix for estimate sign-offs by the required project and Owner’s team personnel.

Estimate plan examples for selection phase and definition phase are presented in the Toolbox 9.6.5A.

Structure and build up of capital cost estimates The capital cost estimate is structured in accordance with the project WBS and comprises of the following components:    

direct costs indirect costs escalation contingency.

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The direct costs include the cost of supply and installation of all permanent facilities. Contractors’ indirects or distributables are considered a direct project cost. The indirect costs include for common distributables, implementation contractors’ service costs and Owner’s costs. Each area, sub-area and facility of the estimate are further broken down and summarised by the main trade disciplines including earthworks, civils, concrete, structural steel, buildings/architectural, mechanical, piping, electrical, instrumentation, painting and indirects. Each estimate line item is further broken down into direct labour costs, plant equipment, bulk materials, freight, contractors’ distributables, construction equipment and subcontract costs. The freight costs may also be included in the indirect costs such as when freight is managed separately as a work package. Detailed description of structure and build-up of capital cost estimate is provided in Toolbox 9.6.5B Capital Cost Estimating Guidelines.

Contingency evaluation and range analysis The contingency allowance covers any potential unforeseen items of work, that must be completed, or elements of cost that are incurred, within the defined SoW but that cannot be explicitly foreseen or described at the time the estimate is being prepared. The contingency allowance is different from growth allowances which comprise of allowances for design development, quantity take off and cost growth. The growth allowances are estimated separately and added to the base cost estimate before contingency evaluation. A detailed description of growth allowances and how they differ from contingency allowances can be found in Toolbox 9.6.5B Capital Cost Estimating Guideline. The contingency allowance generally consists of two components:  

project contingency Owner’s contingency.

The project contingency is confined to the SoW for which the implementation contractor is responsible and excludes scope changes. It covers general uncertainty, such as estimate errors and omissions, variations in labour productivity, pricing and quantity variations within the defined scope and delivery delays. After assessment of the project contingency, the Owner assesses the overall level of contingency required for the project. This assessment is of a broader nature than for project contingency and considers the Owner’s scope as well as all uncertainties and risks outside of the mandate of the implementation contractor. The Owner’s contingency is therefore the difference between the overall contingency assessed by the Owner’s team and the project contingency assessed by the implementation contractor. For a selection phase estimate the contingency allowance is modelled by either deterministic or probabilistic (range analysis) methods. For the definition and execution phases, contingency is modelled by probabilistic methods with a deterministic assessment used for comparisons only. The deterministic approach is the traditional approach for calculation of contingency. Within the deterministic approach, there are several methods of calculating contingency. The contingency can be evaluated against each work package, facility or major commodity, or at the project level, or a combination of the two. Any of the methods is acceptable, provided the approach selected is adequately documented and there is no double counting of the risk being considered. The probabilistic approach, also known as probabilistic range analysis, entails the use of quantitative techniques such as Monte Carlo simulation for translating assessed risk and uncertainty into contingency. The description of the process can be found in Toolbox 9.6.5B Capital Cost Estimating Guideline. The contingency provision represents the difference between the mean estimate (derived from either the deterministic methods or the Monte Carlo simulation) and the base estimate. There is a separate provision under Owner’s costs for project risks and scope uncertainties not captured in the range analysis/contingency evaluation. PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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The total project cost estimate comprises of the direct costs including growth allowances, indirect costs, escalation and contingency provisions.

Basis of estimate (capital cost) It is important to prepare a documented BoE to clearly communicate to stakeholders the varying approximations, assumptions and interpretations affecting the estimate, thereby avoiding misunderstandings and misuse. The BoE is prepared in detail on completion of the estimate and issued along with the estimate for the various reviews and approvals. The BoE structure and depth of content varies with the complexity and detail of the work to be performed. The BoE generally includes a description of the following items:               

project SoW class and accuracy of the estimate estimate base date defining a reference date for pricing and other information used in the estimate summary of estimated costs estimate base currency estimate currency table indicating conversion rates used and the total amounts included in the estimate per each currency estimating tools used i.e. programs/software execution strategies such as material sourcing, subcontracting, direct hire, off site fabrication, major construction plant and equipment schedule milestone dates summary list of key documents and revisions used i.e. organisation charts, project schedule, labour awards/agreements direct labour work cycles, productivity direct labour rates and crew rates calculations contractors’ distributables including construction plant and equipment plant equipment/bulk materials quantification basis quantification matrix broken into the following categories:    

 

bulk material and plant equipment pricing basis pricing matrix broken into the following categories:      

        

based on design drawing based on conceptual drawing extrapolated from historical data allowances

awarded based on bids received budget quotes estimated extrapolated from data bank allowances

subcontracts indirect costs estimate basis including common distributables, implementation contractor’s services costs and Owner’s costs free issue items basis of design development, quantity take off and cost growth allowances escalation estimate basis risk assessment and Owner’s provisions contingency evaluation and range analysis output qualifications exclusions

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  

check against minimum requirement for the estimate class reconciliation with previous estimates benchmarking.

Estimate presentation formats and preparation flow diagram Typical examples of estimate reports which are required for all semi-detailed, detailed and definitive estimates are included in Toolbox 9.6.5D Capital Cost Estimate Report Template. The compilation of the estimate reports in such a manner provides a sound basis for estimate reviews and the investment decisions. Various estimating programs used within the project industry have different formats and headings. The minimum requirement is the itemisation of the estimate in to individual cost components as well as coding into WBS and trade disciplines. A typical estimate preparation flow diagram and the IPR process for the selection and definition phase estimates are presented in Figure 6.5.2. Figure 6.5.2 Capital cost estimating process Step 1 Prepare estimating plan

Step 2 - Structure & prepare base capex estimate and basis of estimate

Step 3* – Evaluate project contingency

Step 4 – Review and approve capex estimate (implementation contractor scope)

Transfer Base Estimate only

Step 1A – Prepare Owner's cost estimate and basis of estimate

Step 5 – Evaluate project cost escalation in nominal dollars

Step 6* - Evaluate Owner's contingency # and project KPI

Step 7 – Review & approve capex estimate (total scope)

* Deterministic/probabilistic approach for selection phase; probabilistic approach for definition phase # Owner's Contingency is the delta between contingency evaluated at Step 6 and Step 3

Implementation contractor

Owner

PMS

6.5.2 Study cost estimating An identification phase study deliverable includes a Class 2 estimate for the selection phase study activities and a Class 4/5 estimate for definition phase study. A selection phase study deliverable includes a Class 2 estimate for the definition phase study activities. The study cost estimate normally consists of the following components: 

Owner’s costs including:      



implementation contractor’s costs including:    



Owner’s team specialist consultants environmental approvals (if not funded separately) travel 3rd party reviews other expenses labour charges subconsultants travel other expenses

other costs including:

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   

exploration drilling laboratory testing pilot plant studies.

Generally, the environmental impact statement (EIS) cost is budgeted separately and not considered as part of the study costs. The Owner’s team costs are estimated from a manning schedule and organisational chart specifying team structure and planned project duration. The implementation contractor’s costs are derived from their labour costs and expenses prepared from manning schedules, deliverables and commercial conditions. Other costs such as exploration, drilling, and laboratory testing are prepared from first principles meeting the minimum requirement of the relevant estimate class.

6.5.3 Operating cost estimating The operation phase cost estimate includes all costs that are incurred following hand-over of the asset from the execution phase to operations. It covers operating costs, sustaining capital and closure and rehabilitation costs. The operating cost estimate is described below whereas the closure and rehabilitation costs are described in Section 6.5.4 Asset closure cost estimating. The sustaining capital estimating guidelines are presented in Toolbox 9.6.5B Capital Cost Estimating Guideline.

Classes of estimate The different classes of operating cost estimate that are prepared during the various phases of the investment process and the level of scope definition that is generally expected to be achieved by the conclusion of each phase are presented in Table 6.5.3. Table 6.5.3 Operating cost estimate classes Estimate class

Class 4 – capacity or equipment factor estimate

Class 3 – semi-detailed estimate

Class 2 – detailed estimate

Project Phase

Identification

Selection

Definition

Expected estimate accuracy range (typical)

±25% to ±50%

±15% to ±25%

±10% to ±15%

Factored from similar plants, parametric models, judgement or analogy for a typical operating year

Factored/bottom-up estimates for each year. Mix of factors, semi-detailed unit costs.

Bottom-up for each year. Detailed unit costs with extensive benchmarking.

Broad assessment based on operating philosophy.

Based on operating philosophy and outline operations plan.

Based on operating philosophy and operations plan.

Fixed Consumables

Factorised from similar projects.

Based on operating philosophy and outline operations plan.

Based on operating philosophy and operations plan.

Fixed Overheads

Factorised from similar projects.

Based on operating philosophy and outline operations plan.

Based on operating philosophy and operations plan.

Likely rates or industry norms.

Rates derived from current operations or budget quotes.

Rates derived from current operations and multiple budget quotes.

Typical Methodology

Fixed cost data Labour Costs

Variable cost data Chemicals & Reagents

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Estimate class

Class 4 – capacity or equipment factor estimate

Class 3 – semi-detailed estimate

Class 2 – detailed estimate

Identification

Selection

Definition

Utilities

Industry norms, factored costs.

Rates derived from current operations or budget quotes

Rates derived from current operations and multiple budget quotes

Fuel & Petroleum Products

Industry norms, factored costs.

Rates derived from current operations or budget quotes based on proposed plant performance data.

Derived from plant equipment and process flows. Rates derived from current operations or budget quotes

Operating Consumables

Industry norms.

Current operations or budget quotes.

Unit usage rates and budget quotes.

Product transport & Insurance

Factored costs.

Derived from preliminary export/transportation study.

Derived from detailed export/transportation study.

Maintenance, Consumables & Spares

Factored costs.

Based on preliminary equipment selection, information of similar plant.

Based on equipment selection, information of similar plant.

Project Phase

Structure and build-up of operating cost estimates The operating cost estimate meets the minimum requirements as shown in Table 6.5.4. Table 6.5.4 Operating cost estimate requirements Element Structure

Requirements The estimate is structured as follows:  WBS  fixed operating costs  labour costs: staffing and labour split by category, operating area or department, local or

expatriate numbers and costs  fixed consumables  fixed overheads: administrative, marketing or sale, JV costs  variable costs  chemicals and reagents  utilities e.g. power and water  fuel and petroleum products  operating consumables  product transport and insurance  maintenance, consumables and spares.

Contingency

Included for items that can not be explicitly defined at the time the estimate is prepared.

Benchmarking

Benchmark the operating cost estimate for the project scope against normalised historical data. This data may relate to both BHP Billiton and external operations.

A detailed description of each of the above component with associated estimating methodology is presented in the Toolbox 9.6.5C Operating Cost Estimating Guideline.

Contingency evaluation and range analysis The contingency is evaluated either by deterministic or probabilistic range analysis methods for a selection phase study and only by probabilistic range method for a definition phase study.

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Operating cost estimate reporting format A standard format is adopted to present the estimate data. This facilitates consistency of presentation for operating cost estimates and allows like-for-like comparison between estimates. The operating cost estimates are generally presented by facility, cost element and currency as detailed in Table 6.5.5. Table 6.5.5 Operating cost estimate reporting format Facility

Year 1

Year 2

Year 3-5

Years 6-10

Year 11

Year 12

Totals

Mine Beneficiation Smelting Refining Infrastructure Other Sub-total Contingency Total All costs in US$ = 1,000 Exchange rate to local currency at x = US$1.00

Basis of estimate (operating cost) The BoE for the operating cost estimate includes consideration of the following elements:                   

estimate base date estimate currency BHP Billiton forecast foreign exchange rates estimate class assumptions estimate exclusions and qualifications defined point of transfer from capital cost to operating cost project SoW and WBS operating philosophy identification of fixed or variable costs product realisation charges e.g. marketing, product transport, insurance allowances for undefined elements within the defined scope consumption rates per unit production (on a unit process basis) time based e.g. rates per hour sources of data e.g. vendor process data, equipment manufacturers’ records, records from similar projects benchmarking data key cost drivers and potential impact production ramp-up rate and production schedule.

6.5.4 Asset closure cost estimating All study deliverables include estimates for the closure of the operation or asset. An identification phase Class 4 or 5 closure cost estimate is prepared during the definition phase study. More comprehensive definition phase level closure cost estimates are generally prepared prior to decommissioning of the asset.

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Closure cost estimates include:   

costs prior to closure, comprising test work, development of the detailed closure estimate and preparation for closure the costs for physical closure the costs of post physical closure, comprising monitoring, and final relinquishment.

The closure costs are captured under the following structure:          

costs prior to closure demolition and removal of permanent facilities rehabilitation and re-vegetation collection, treatment & disposal of hazardous wastes human resources community post closure monitoring and on-going obligations indirect costs escalation contingency.

Further breakdown of the above high level cost elements to lower level items is made to better define, understand and develop the closure quantities and costs. Refer to Toolbox 9.6.5H Asset Closure Estimating Guideline for more details on closure cost estimating.

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6.6

PROJECT CONTROLS Project controls is the management and control of scope, cost and schedule. It is essential for the project team to have up to date and reliable information of these critical elements in order to effectively and efficiently manage each phase of the project life cycle. BHP Billiton invests large sums of money during the study phases for engineering definition and precommitments of major and long lead equipment. Therefore, project controls is important not only during the execution phase of the project but also during the study phases. The systems and processes for project controls are capable of providing baseline plan, current status, forecast at completion, variance analysis and management visibility through regular accurate reporting. Project controls can be subdivided into three major subsections:   

cost control, which includes all relevant activities to manage, control and report on costs schedule control, which includes all relevant activities to manage, control and report on schedule change management, which includes all relevant activities to manage, control and report on changes to the scope.

Another subsection of interest to the Owner’s team, though it is not directly related to project controls, but is critical to BHP Billiton, is: 

fixed asset register, which distributes the capital cost to various facilities to allow for depreciation.

The key project controls requirements through the investment phases are shown in Table 6.6.1. Table 6.6.1 Key project controls requirements Identification

Selection

Definition

 Develop control budget

 Develop control budget

 Develop control budget

from the approved study budget. Manage and control, identification study phase costs. Issue monthly cost reports reflecting the budget, actual costs todate, and forecast final cost for the identification phase. Develop schedule baseline for identification phase activities. Manage and control identification phase schedule. Issue monthly schedule report reflecting current status, remaining durations for activities, and forecast completion date. Develop study historical report and include as-

from the approved study budget. Manage and control, selection study phase costs. Issue monthly cost reports reflecting the budget, actual costs todate, and forecast final cost for the selection phase. Develop schedule baseline for selection phase from schedule prepared during the identification phase. Manage and control selection phase schedule. Issue monthly schedule report reflecting current status, remaining durations for activities, and forecast completion date. Update and maintain

from the approved study budget. Manage and control, definition study phase costs. Issue monthly cost reports reflecting the budget, actual costs todate, and forecast final cost for the definition phase. Develop schedule baseline for definition phase from schedule prepared during the selection phase. Manage and control definition phase schedule. Issue monthly schedule report reflecting current status, remaining durations for activities, and forecast completion date. Update and maintain

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Implement project controls systems required to manage and control scope, cost and schedule these must be capable of providing baseline information, current status, forecast to complete and variance analysis. Develop baseline project controls budget from the approved budget at appropriate WBS levels. Include approved budget including the provisions for identified risks, contingency, and escalation in the PEP and clearly identify any exclusions. Manage and control execution phase costs. Page 75

Identification

Selection

Definition

built identification costs, as-built identification phase schedule, actual engineering and consultant job hours.  Develop selection phase schedule.

overall project master schedule for the preferred investment alternative.  Implement and manage change control.  Develop study historical report and include, at a minimum, as-built selection phase costs, as-built selection phase schedule, actual engineering and consultant job hours.  Develop definition phase schedule.

project master schedule for the preferred investment alternative.  Implement and manage change control.  Develop study historical report and include, at a minimum, as-built definition phase costs, as-built definition phase schedule, actual engineering and consultant job hours.  Develop execution schedule.

Execution 







 

Issue monthly cost reports reflecting the budget, commitments, actual costs to-date, forecast final cost, contingency drawdown, etc. Develop schedule baseline for execution phase from schedule prepared during the definition phase. Manage and control execution phase activities schedule. Issue monthly schedule report reflecting current status, remaining durations for activities, and forecast completion date. Implement and manage change control. Develop historical report and include, at a minimum, as-built execution phase costs, as-built execution phase schedule, actual engineering and construction job hours.

6.6.1 Project controls plan A project controls plan is made up of three components as follows:   

cost control plan schedule control plan change management plan.

Cost control plan A typical cost control plan identifies and briefly describes the key cost control activities that are carried out during the life of the project. Supporting cost control procedures e.g. cost reporting, contingency drawdown, etc are developed during the definition phase. Depending on the size and complexity of the project, these procedures may have to be in place during the selection phase to effectively control the study phases. The procedures can be the implementation contractor procedures, as long as they meet the minimum BHP Billiton requirements set out in the Major Capital Projects GLDs. In addition, the cost control plan also defines the cost control software to be used on the project. Minimum requirements for the cost control systems are defined in Toolbox 9.6.6I Cost Control System Requirements. SAP is not considered a good cost control system as it lacks some of the forecasting and trending capabilities. Some of the key elements of the cost control plan are outlined in Table 6.6.2.

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Schedule control plan The schedule control plan is developed during the selection phase of a project to improve the delivery predictability. The plan is revisited and revised in the subsequent phases as required. The schedule control plan may be revisited when the implementation contractor is selected to ensure alignment between the Owner’s and implementation contractor’s plan. Where the project team uses the implementation contractor’s schedule control plan, the Owner’s team project services manager ensures that the implementation contractor’s plan meets the minimum requirements set forth in the Major Capital Projects GLDs. A typical schedule control plan identifies and briefly describes the key schedule control activities that are carried out during the life of the project phase. Supporting schedule control procedures are developed during the definition phase. The procedures can be the implementation contractor’s procedures as long as they meet the minimum requirements set forth in the Major Capital Projects GLDs. In addition, the schedule control plan also defines the schedule control system to be used on the project 2. Some of the key elements of the schedule control plan are outlined in Table 6.6.2.

Change management plan The Owner’s team, with the assistance of the implementation contractor, adopts a fit for purpose change management plan. The Owner’s team establishes the approval authority matrix for the review, endorsement and approval of the change requests. The change control plan defines the types of changes and the dollar limits that can be approved by the implementation contractor project manager.

Structure and contents of the project controls plan The recommended structure and contents for the project controls plan is as detailed in Table 6.6.2. Table 6.6.2 Structure and content of the project controls plan Section

Contents

Cost control plan Cost control procedures

Defines the required cost control procedures.

Baselining of original budget

Describes the process by which the approved project phase estimate is converted into the project baseline budget or project control budget.

Allocation of budget

Describes the budget (and forecast) allocation process to procurement and contracts packages.

Changes to the budget

Defines when and how the changes to the budgets (original and current) can be affected. Approval authority for changes to the budget is also identified.

Commitments and commitment curve

Describes how and when commitments are recognised in the cost control system.

Expenditure and expenditure curve

Describes expenditure tracking (actual and accrued expenditures) and the recording processes.

Contingency

Defines the process for managing contingency and contingency drawdown.

Escalation

Defines the process for managing escalation and escalation drawdown.

Progress measurement and earned value

Defines the process for measuring progress and earned value.

Cost forecasting

Defines the process for determining the forecast final cost.

Cost reporting

Defines cost reporting requirements.

2

On most projects the use of Oracle Primavera software provides a platform widely recognised amongst all of the contractors engaged by BHP Billiton.

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Section Historical reports

Contents Identifies the information that is captured during the project phases and the format in which these reports are captured.

Schedule control plan Schedule control procedures

Defines the required schedule control procedures.

Baselining of the project master schedule

Describes the process by which the approved project master schedule is converted into the baseline project master schedule.

Schedule curves

Defines the schedule curves to be prepared for the project.

Schedule re-baselining

Defines the process for re-baselining of the project master schedule.

Other project schedules

Defines the various project schedules that are used during the project.

Schedule contingency

Describes the treatment and usage of schedule contingency. It also identifies the approval requirements and any freeze thresholds to protect the project from using up the contingency early on in the project.

Progress measurement and earned value

Defines the process for measuring progress and earned value.

Schedule forecasting

Defines the process for updating and forecasting of the project completion date.

Schedule reporting

Defines schedule reporting requirements.

Historical reports

Identifies the information that is captured and recorded during the project phases.

Change management plan Change control procedures

Defines the required change control procedures.

Change types

Defines the types of changes.

Change management process

Defines the change management process.

Change reporting

Defines change reporting requirements.

6.6.2 Cost control Cost control, in coordination with schedule control, is the process of monitoring the status of the project or phase by measuring performance and comparing against plan and taking corrective and/or preventive actions to affect a desired project outcome. Cost control is one of the key elements of successful project management. A well developed and implemented cost control plan increases the probability of achieving the cost KPIs. Key activities of cost control are:    

development and implementation of the cost control plan progress measurement and earned value cost forecasting cost reporting.

Cost control needs to meet the requirements of various stakeholders in identifying and capturing project costs. Therefore it is essential to develop a cost control plan at the initial phase of the project to maintain consistency throughout the project phases. It is recognised that the cost control plan requires modifications as the project progresses. The Owner’s team functional manager, typically project services manager or project controls manager, develops the cost control plan. Once an implementation contractor has been selected the cost control plan may have to be revisited to align Owner/implementation contractor plans. The Owner’s team project services manager ensures that the BHP Billiton minimum requirements outlined in the Major Capital Projects GLDs are met. PROJECT DEVELOPMENT MANUAL Revision 0 (uncontrolled when printed)

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Baselining of original budget Estimates are normally at the lowest level of detail and are rolled up for budgeting purposes. The budget is loaded at a level of detail required for effective tracking of the project performance. This normally includes job hours, labour costs, material costs, indirect costs and subcontractor costs, to name a few, at a commodity or lower level as identified by the project team. The project control budget is approved by the Owner’s team project director before it is used for project monitoring and controlling. Project control budget foreign exchange rates are also included in the cost control plan.

Allocation of budget When the budget is initially loaded up into the cost control system, the line items are assigned to preliminary procurement and contracts packages and are initially shown as “unawarded”. As the packages are awarded, the status is changed to “allocated”. Allocation includes both cost and job hours. A cost statement showing the budget and forecast by WBS and by packages is issued within the first 30 days of project sanction, ideally at the beginning of the execution phase. Typical reports from the cost control systems are shown in Toolbox 9.6.6A.

Changes to the budget Defines when and how the changes to the current budgets can be affected (refer to Section 6.6.4 Change management). Approval authority for changes to the budget is also identified. Note that the current budget never changes unless a material change to the project occurs. Changes to the current budget are preceded by an approved scope change request and issuance of a change order (refer to Section 6.6.4 Change management). The current budget and forecast are calculated as follows:  

current budget = original budget + approved change orders (scope changes) current forecast = current budget + approved trends (non-scope changes).

Refer to Section 6.6.4 Change management for definitions of scope changes and non-scope changes.

Commitments and commitment curve Note that some commitments are made when the cost are incurred and are “committed as paid” (typically Owner’s team costs) whereas some other commitments are committed upon award. A planned commitment curve is developed based on the commitment plan and the project master schedule. Actual commitments are tracked against this plan as the project progresses.

Expenditure and expenditure curve When expenditure is incurred in multiple currencies, the plan describes how the variances in foreign exchange are treated. An expenditure plan is generated at the initial stages of the project, upon finalisation of the project cost baseline. The expenditure plan is the time-phased budget 3 and is typically displayed in the form of an S-curve. This is also referred to as performance measurement baseline and can be used to support funding requests. Actual expenditures are tracked against this plan as the project phase progresses. Refer to Toolbox 9.6.6A for sample commitment and expenditure curves. Three different types of expenditure are generally used on projects as follows:   

invoices paid invoices received and approved for payment (but not paid) invoices received but not approved.

There is also another type of expenditure which is the value of work progressed but not invoiced. It is general practice to include invoices paid to-date and “invoices received and approved and not paid” costs in the actual expenditure curve in the project cost reporting. For BHP Billiton financial reporting, it is required to report the accrued cost. This requires including the “invoices received but not approved” costs 3

The time-phased budget is a key input into BHP Billiton financial processes e.g. the 5 year plan and budgets.

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and the “value of work progressed but not invoiced” costs to the actual cost (invoices paid to date + invoices received and approved but not paid). Calculations are as follows:  

actual costs = invoices paid to date + invoices received and approved but not yet paid accrual costs = actual costs + invoices received but not yet approved + value of work progressed but not invoiced costs.

Contingency Drawdown of contingency is strictly controlled on the project through appropriate procedures. The authority levels to access contingency are clearly identified in the project financial authority limits. The Owner’s team and its supporting committees (e.g. procurement committee, steering committee) endorse all contingency allocations. For further guidance on the management of contingency, refer to Toolbox 9.6.6B Contingency Management Guideline. It is recommended that the remaining risks and the associated contingency requirements are evaluated by the project team on an agreed upon intervals, based on project overall duration, but not exceeding 6 month intervals.

Escalation Treatment of escalation in the derivation of the forecast final cost is critical and the process of utilising escalation is clearly established in the cost control plan. Escalation is maintained as a single line item and reviewed during the award/commitment of various packages. Escalation is funds expressly allocated to mitigate the escalation risk only and is treated as such. Maintaining escalation as a separate WBS cost element enables the monitoring and control of escalation funding. Note that it is also acceptable to distribute the escalation to the WBS elements when the project control budget is established. The escalation is held as a single line item in each of the WBS elements and drawn down during the package awards. An alternate approach (which is suitable for projects of shorter duration, say up to 3 to 4 years, from approval to completion), is to distribute the escalation to the WBS line items in accordance with the escalation calculation at the time of developing the project budget. This considers that the escalation indices considered during estimate development do not vary significantly during project execution. It is recommended that current escalation indices are reviewed against the budgeted escalation indices from the approved estimate every six months or when another estimate is undertaken, such as definitive estimate. The analysis also considers current commitment and cash flow forecast (and/or actual) to identify any variances from the original escalation calculations.

Progress measurement and earned value Progress measurement is a key activity in the monitoring and controlling of a project. It provides for a clear understanding of the status of the project in terms of cost and schedule, identifying any variance to the plan and determining if a mitigation or exploitation (in the case of a new opportunity) plan is needed. The output from this process also supports the development of the forecast schedule completion and is considered in elements of the forecast final cost for the project. Earned value methodology provides for developing an overall project progress using budget unit rates for each of the measured items/commodities. Refer to Toolbox 9.6.6A for progress measurement criteria and examples for measuring engineering, procurement, construction, pre-commissioning, and commissioning progress. Overall project progress is measured at least on a monthly basis and is included in the project monthly report. The progress measurement process typically involves the following process: 

STEP 1 - Measurement of physical progress of key deliverables: This is based on the quantity of work performed against the total quantity for a given task/commodity. In certain instances earning milestones are established and when these

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



milestones are achieved, the activity is considered to have achieved the corresponding progress. STEP 2 - Measurement of progress of project function: The physical progress determined as shown above is converted to earned value by applying the current budget unit rates for each item and rolling up at the project function level (E, P and C). Budget unit hours are normally used for measuring the earned value. Budget unit cost may be used during study phases. STEP 3 - Measurement of overall project phase progress: The overall project phase progress is derived by applying relative weights of each of the project functions. Relative weights are determined, generally, based on the level of effort i.e. job hours. Cost can be used during the study phases or when job hours are not available.

Note that for:  

progress measurement, current forecast quantities are used as the basis (% progress = quantity installed/forecast final quantity) earned value, current budget unit rates are used as basis (earned value = quantity installed X current budget unit rate).

Further details can be found in Toolbox 9.6.6C Progress Measurement and Earned Value Guideline.

Cost forecasting The Owner’s team and the implementation contractor provide monthly updates to the forecast project cost at completion to calculate the forecast final cost. Cost forecasting takes into account the actual cost incurred and the earned value, measured as above. The cost performance index is the measurement of project cost performance to-date and is one of the critical items of information in developing the forecast final cost. The cost performance index is calculated by dividing earned value by actual cost and is typically performed at the budget line item level. Therefore, a cost performance index greater than 1.0 indicates cost performance better than planned and vice versa 4. The Owner’s team, with the assistance of the implementation contractor, reviews the current work performance information such as the cost performance index, current project progress status and develops a forecast final cost (also known as estimate at completion) for the project. A forecast to-go cost performance index is developed based on specific project data available and expert judgment and is used as one of the elements in the forecast final cost development. Any approved and unapproved change notices are also considered in the development of the forecast final cost. The forecast final cost is developed at the commodity or contract package level and rolled up to the project level. Note that while developing the forecast final cost, consideration is given to the type of contract. If the contract is a lump sum type, unless there is a change in scope and any pending claims, the forecast final cost generally does not vary significantly from one period to the next. If the contract is of the cost-reimbursable type, any productivity issues/improvements are considered in developing the forecast final cost.

Cost reporting Each project has various reporting requirements. Reporting requirements and the content also depend on the contract type i.e. lump sum type contract versus a cost reimbursable type contract. Irrespective of the type of contract, there are some minimum reporting requirements that each project meets, such as: 

Cost reports are generated at a minimum on a monthly basis.

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 

  

   

All data originates from a single source e.g. a project cost control system. Cost reports have multiple reporting levels, depending on the needs of the user, starting from the summary level. The summary level is generally at the first level of the WBS. A typical summary level report is included in Toolbox 9.6.6A. Detailed reports include cost reports at the facility level, commodity level, and package level. The system generated reports are complemented by an analysis that discusses the variances, critical items and any other relevant information. Project budget foreign exchange rates are used for converting local currencies to the reporting currency. The impact of foreign exchange rate is identified separately to enable review of project performance on the basis it was sanctioned. The impact of variances to the foreign exchange rates is also reported as a separate line item. Contingency and escalation (where managed as a separate line item) utilisation is identified separately. Contingency and escalation draw down curves are also reported. Monthly cost reports include relevant and sufficient details and are focused towards the project area and functional management team as the audience. A summarised version with enough details and analysis of critical elements is included in the project monthly progress report.

It is critical that the reporting requirements are specified in the contract terms and conditions to eliminate any ambiguity of reporting requirements for contractors and suppliers. A best practice cost report is included in the Toolbox 9.6.6A. The difference between the project reporting and the financial reporting typically carried out by the finance group 5 is well understood by the project team. Project cost reports indicate the budgets, commitments, expenditure and cost forecast for the entire project irrespective of the fiscal years the project spans. Financial reporting contains that part of the project cost that falls within the fiscal year that is of interest.

Historical reports Since historical reports become one of the inputs while initiating new projects/phases, it is critical that this is addressed early on during the project to ensure no important information or lessons learnt are lost. It includes the project baseline cost report and the final cost report at a minimum. It also includes the trend logs and any changes that impacted the budgets and/or forecast final cost. Unit installation job hours by commodity are also gathered as part of the historical report (note that contracts need to be structured such that it becomes part of the contractual requirement for contractors to provide this information). The cost control plan identifies the progress measurement and earned value calculations, cost forecasting and cost reporting requirements. These are discussed later in this section. In addition, the cost control plan also identifies the level of accuracy for cost tracking and reporting, the WBS, approval authority levels, variation thresholds and any other information deemed critical by the Owner’s team.

6.6.3 Schedule control Schedule control is the process of monitoring, measuring, forecasting and reporting the status of the project and managing the changes to the schedule baseline. It follows the schedule development, as discussed in Section 6.4 Schedule Development, and is focused on the current project phase. A well developed and implemented schedule control plan increases the probability of achieving the schedule KPIs, adding value to the BHP Billiton portfolio. The key activities of schedule control are:   5

development and implementation of the schedule control plan progress measurement and earned value

In some projects, the finance group reports to the project services manager.

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 

schedule forecasting schedule reporting.

Schedule control is primarily concerned with monitoring and controlling of the performance of work to assure completion of the project requirements as planned. The schedule control plan establishes the requirements to be undertaken by the Owner’s team and the implementation contractor to implement the schedule monitoring and controlling process.

Baselining of the project master schedule Once the approval is received to proceed to the next phase, the Owner’s team, with the assistance of the implementation contractor, baselines the project master schedule that was developed as a deliverable from the previous phase. Prior to the baselining, it is ensured that the schedule:     

reflects the complete scope as per the approved SoW reflects the PEP aligns with the control budget (job hours, quantities, etc) is resource loaded and optimised is updated with current status since the Board approval.

Once the above checks have been made, approval and formal sign-offs are obtained from relevant stakeholders. Then the schedule is saved as the baseline project master schedule. Baselining and issuing of the schedule to the project team for use is within the first 30 days of project phase approval. All future schedules updates are compared to the baseline project master schedule.

Schedule curves Once the schedule has been baselined, the project team develops:    

project progress curves (e.g. engineering, procurement, construction, overall project, etc) manpower requirements (e.g. engineering and construction) accommodation requirements (e.g. camp beds if part of the PEP) key commodities installation curves.

These are part of the initial schedule distribution of the baseline schedule. Early and late curves are included for each of the schedule curves.

Update Schedule Updated schedule is a schedule that reflects the status of the project after each reporting period. At time zero, the updated schedule will coincide with the baseline schedule.

Revised Schedule If it is determined that the progress is significantly behind the baseline, then a revised schedule is developed to reflect the new target completion date for the project or the contract. The project schedule progress or contract schedule progress is compared against both the baseline and revised schedules. However, the revised schedule and the new target completion date will not replace the baseline schedule and/or the approved schedule KPIs. Refer to Figure 6.6.1 for outline of preparation process.

Recovery Schedule On reviewing the project or contract status, if it is determined that whilst the progress is not on track but the baseline can be recovered, then a recovery schedule can be developed as part of the recovery plan. It clearly articulates the ways and means for recovering the baseline (e.g. additional resources, night shifts, etc,). It is important to note that in such instances while updating the status of the project or contract, progress is compared with both the baseline schedule and recovery schedule. Note that when the project ITS status is changed from Healthy to Observation, a recovery plan is required. Refer to investment process GLD. Refer to Figure 6.6.1 for outline of preparation process.

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Re-baseline Schedule The project master schedule can be re-baselined only as part of the submission process. The re-baselined project master schedule can take effect only when the supplementary approval request (SAR) is approved as part of the response plan submittal. Re-baselining includes detailed analysis of remaining durations, remaining quantities and forecasted job hours, commissioning sequence, etc. Refer to Figure 6.6.1 for outline of preparation process. Note that the terms updated schedule, recovery schedule and revised schedule are generic terms and their use is restricted to avoid confusion and misunderstanding. Instead, it is recommended that more specific terminology be used e.g. baseline project master schedule, re-baselined project master schedule or revised project master schedule etc.

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Figure 6.6.1 Process for preparing a revised, recovery or re-baseline schedule

Other project schedules While the project master schedule may be at a level of detail to support the management of the project, the level of detail in the schedule may not be sufficient to plan and execute the project on a daily/weekly basis. In addition to the Primavera schedules at various levels (Levels 1, 2, 3, etc) as required for the monitoring and controlling of the project, other schedules are also typically used on a major capital projects. Examples of these are included in Table 6.6.3.

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Table 6.6.3 Other typical project schedules Project schedule type

Engineering milestone schedule

Details

References

During the engineering phases, engineering schedules are decomposed to an engineering deliverables level. This data is updated on a monthly basis to update engineering progress. By comparing the actual hours against the earned hours, the productivity of the engineering team is derived. This data is monitored as this indicates the potential additional engineering hours required to complete the deliverables. This type of schedule is normally performed using a database, typically included in the implementation contractor suite of systems. Typically there are no direct links between engineering progress databases and the scheduling software. Therefore, the planning and scheduling team pays close attention to the database updates and reflects the changes in the project master schedule.

Procurement milestone schedule

The project master schedule typically contains the procurement component of the schedule as a few critical lines (e.g. bid/award, vendor data, fabricate/deliver) where as a procurement milestone schedule tracks all activities required for successful bid, award, and delivery of the equipment and material and close out. The status is reviewed on a weekly basis in a forum that includes relevant functional leads.

Typical activities tracked are shown in the Toolbox 9.6.6A.

Detailed construction schedules

In addition to the project master schedule, more detailed schedules are required for effective planning and controlling of the construction performance and progress. Some of the construction schedules that are used are the 90-day look ahead schedule and 4-week look ahead schedules.

Further description of these schedules is included in Toolbox 9.6.6A.

Schedule contingency Schedule contingency is maintained as a separate activity in the schedule, typically added to the last critical path activity and is not distributed to particular activities. Schedule contingency is a function of the schedule risks and uncertainties. The amount of schedule contingency increases or decreases, depending on the remaining risks in the schedule.

Progress measurement and earned value For progress measurement refer to Section 6.6.1 Project controls plan. Using the S-curve developed at the time of the baseline project master schedule, the planned value can be derived. Planned value indicates the planned percent complete for the project. The difference between earned value and planned value indicates the schedule variance. The schedule performance index is measured by dividing the earned value by the planned value. Note that typically an early and a late curve are generated from the project master schedule. A target schedule is derived from the early and late, either at the mid-point (50% early – 50% late) or at a point closer to the early curve (60% early – 40% late) and used for comparison with actual progress. As in the cost performance index, a value greater than 1.0 indicates a better than planned performance and a value less than 1.0 indicates worse than planned performance 6. Unlike the cost performance index, a schedule performance index less than 1.0 does not necessarily mean the project misses the target completion date. If the variance is due to delays in non-critical path activities, the project may still finish as per the baseline schedule.

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While the project focuses on critical path activities to assess project schedule performance and progress status, schedule analysis is performed to ensure any delay to the non-critical path activities does not compress the schedule by creating a bow wave that could result in the need for more than the planned manpower and/or an increase in the manning density with its corresponding decrease in productivity and performance.

Schedule forecasting Project schedules are updated on a regular and frequent basis, at least once a month. A copy of the schedule that has been baselined is used for updates. Schedule updates are in line with monthly (or periodic) cut-off dates for the schedule updates as established at the outset of the project. The schedule is updated as per the following steps:          

derive actual/forecast dates (start and finish) and remaining duration (in consultation with the package/activity owner) utilise the work performance information, developed in the progress measurement and earned value calculation, to evaluate and validate the remaining durations recalculate the logic network by moving the previous data date (namely cut-off date) to the current/actual data date revise and register changes to the logic associated with the critical and near-critical activities review, analyse and highlight the critical and near critical activities (based on total float) and monitor and register the corrective actions update overall schedule and variance report (e.g. slippage report, float variance, duration variance, and lag variance) along with project progress (S-curves) monitor schedule trends and variances review and compare the updated schedule from previous period updated schedule as well as the baseline schedule and provide comments for any significant changes log and maintain causes of delay and logic changes that are needed to maintain the schedule completion date and to deal with out-of-sequence activities review the updated schedule with the relevant project team members to ensure the team understanding of the schedule is established and aligned.

The Owner’s team is engaged in the schedule review processes to ensure the BHP Billiton minimum scheduling requirements and project delivery requirements are met or exceeded. The implementation contractor is required to submit the updated schedules in the native format to facilitate detailed review of the logic ties and the confirmation of the critical path(s).

Schedule reporting At the end of each reporting period, a schedule report is produced as part of the monthly project report. Amongst other things, it includes a written analysis of the current schedule and any recommendations and concerns regarding deviations from the baseline schedule. The report also provides an analysis of resources and productivity and forecast completion dates. Irrespective of the contract type, the contract with the implementation contractor needs to stipulate that along with the schedule reporting, the monthly updated schedule is submitted in the native format e.g. for Oracle Primavera software a *.XER file. This requirement flows down to the subcontractors. Upon updating and analysing the schedule, a schedule report is produced and issued to the project team. The report highlights the status against the baseline schedule. The reports includes as a minimum:    

layout showing all activities (soft copy in *.PDF format) critical and near critical paths and analysis schedule contingency status analysis narrative of the changes introduced in the updated schedule and the reasons for those changes, which includes the opportunities, concerns and corrective actions arising from the update process

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    

forecast completion dates (table of key milestones) project progress curves (planned vs. actual) including engineering, procurement, construction curves commodity installation curves, with plan and actual installation data manpower curve (planned vs. actual) schedule performance index.

Most of this information is also included in the project monthly progress report. A best practice schedule report is included in Toolbox 9.6.6A.

Historical reports Since this information is valuable when setting up new projects, it is critical that a comprehensive data set is captured. As a minimum the following is captured:      

the baseline schedule monthly schedule updates as-built schedule at the completion of the project critical equipment lead times work performance information changes to the schedule baseline.

6.6.4 Change management Changes can occur in any phase of a project due to a number of reasons, including:      

safety in design considerations changes to scope and/or configuration (scope change) changes to quantities (trends) optimisation of design and/or operations requirements changes in business and economic climate changes in time to market decisions.

While not all changes impact a project negatively, not managing a change can impact a project by increasing the cost to the project and/or schedule duration. Similarly, not exploiting an opportunity deprives the project team of completing the project under budget and/or on or before schedule. For these reasons, project teams identify changes at the earliest. Early identification of changes allows the project team to manage and/or exploit the effects of changes to the project. This requires the project to establish and implement a change management plan. The Owner’s team project manager ensures that processes are implemented to:   

promote a balanced change culture recognise, evaluate and implement change foster a culture of continuous improvement.

The key to success is to manage a proposed change in a controlled manner. There are typically two types of changes as follows:

Scope change A change is considered a scope change for the Owner’s team only when there is material change to the project configuration (e.g. change in throughput, changes to the performance criteria, addition of new facilities that were not part of the definition phase) or when change to the project completion date (deferral or acceleration) is directed by BHP Billiton. When the change is determined to be a scope change, in addition to evaluating the cost and schedule impact to the project, a risk analysis is also performed and an associated contingency value included to the cost and schedule impact. It may be required that the project go through the relevant approval process as

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stipulated in the project approval document. Once approved, this modifies the Owner’s team current budget and forecast final cost and possibly the project master schedule baseline. In considering scope changes (either additions or deletions 7), project teams need bear in mind that they have been charged by the business to deliver the agreed scope of works within the approved KPIs (HSEC, cost, schedule, ramp up etc).

In-scope change In-scope changes, sometimes known as non-scope changes, occur when there are modifications to the packages, quantity changes, estimate errors, engineering design development, engineering and labour productivity, etc. There are two types of in-scope changes as follows:  

budget transfers trends.

Each of these changes impacts the budgets and schedule differently. The Owner’s team and the implementation contractor clearly identify each change as one of these types. It is important to note that what may be considered to be an in-scope change for an Owner’s team, may be considered a scope change for the implementation contractor. Budget transfers Budget transfers are a result of reallocation of budget from one WBS element to another and this could include facility, commodity or both. When there are changes to the contracts and procurement plan after the award of the package, for non-performance or any other reasons, a budget transfer also occurs to realign the packages. As an example, supply of steel that was part of a contractor’s supply and install scope (typically a contract package) may be modified to remove the supply component of the works and have that assigned to a procurement package. The monies from the contract package, for the supply portion, is removed and assigned to the procurement package. Another example is when engineering originally planned to be performed by the implementation contractor is subcontracted to a specialised contractor. Budget transfers modify the current budget and the forecast final cost at the package and/or WBS levels, but have zero impact to the project current budget and forecast final cost. There are generally no modifications to the contingency. Trends A trend is any deviation from the approved cost and/or schedule baseline within the existing approved scope of work. In documenting a trend, a detailed description of the change and the estimated cost and/or schedule impact is provided. Trends are generally generated due to one of the following reasons:       

engineering productivity implementation contractor staffing plan changes (due to higher than planned cost/hr, etc) estimate errors and omissions engineering design development bulk material quantity variation actual supplier pricing vs. estimated price labour productivity, etc.

A trend is not a scope change (though at times a trend may change to a scope change as trends are the early warning mechanism of a potential deviation) and does not change the current budget. Trends modify the forecast final cost. Trends are funded by the contingency managed by the project team with appropriate Owner’s team approval as outlined in the approval and authority matrix.

7

Deletion of scope is accompanied with the scope change trend and reflects the reduction in budget associated with that scope.

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Change management process As a minimum, the change management process includes the following steps: 



    





Identify the potential deviation and raise a potential deviation notice (PDN) – refer Toolbox 9.6.6E Potential Deviation Notice. Anyone on the project team can identify and generate a PDN. Develop a numbering system to identify each PDN and track the status on a PDN log. A change coordinator assigned to the project (often times this role is performed by the implementation contractor) maintains this log and ensures the status of each PDN is tracked. Assess and quantify the impact of the PDN in terms of project HSEC, scope, quality, cost and schedule. Ensure the Owner’s team project manager or delegate reviews and approves the PDN after obtaining input from the relevant team members. Ensure that the PDN is dispensed with effectively, quickly and decisively to avoid confusion and uncertainty, typically within one meeting cycle. The PDN is approved either as scope change, budget transfer (or budget shift) or trend. Where a change is within the implementation contractor’s approval limits, the Owner’s team is still notified of the change as it is required in the approval authority matrix. Circumventing this requirement by dividing the changes into multiple smaller value changes is discouraged strongly. In case of disagreement on the trend type, if the trend is proven to improve the value of the project, the deviation is approved as a trend and resolution reached between the project managers of the Owner’s team and implementation contractor at a later date, ideally prior to the next meeting. In case the trend is rejected, this is noted on the PDN log and the request is cancelled.

Once approved, changes are clearly communicated to all relevant Owner’s team members, the implementation contractor and other service providers and stakeholders. Further details on the change management process can be found in Toolbox 9.6.6D Change Management Guideline.

Change reporting The PDN log that reflects the status of all PDNs, including the closed, deleted, and actioned, is included in the project report. The log also includes currently open PDNs. Change monitoring and reporting are critical functions and important tools in cost and schedule forecasting and the importance is communicated to the project team by the project leader. The completed/finalised change log is part of the project close-out report. The change log illustrates and justifies the changes from the original budget to the approved current budget and the forecast final cost. The change log also reflects the approved changes to the project master schedule.

6.6.5 Fixed asset register The project accountant or equivalent from the Owner’s team prepares the fixed asset register. Best practice is to develop the requirements and to prepare the template for the register at the commencement of the execution phase. Requirements are developed in coordination with the operations, finance/accounts, and project controls. The asset register is populated progressively as data becomes available. The implementation contractor is fully engaged in the collection of the data to be incorporated into the register. To prepare a fixed asset register:    

Identify the permanent facilities to be included in the register with a description. Identify equipment numbers or tag numbers and associate them with the relevant facilities. Assign the actual direct cost of each permanent facility to the respective permanent facility. Assign specific actual indirect cost to the respective permanent facility.

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 

Distribute general actual indirect costs on a pro rata basis on weighted average cost to each and every permanent facility. Review and approve the fixed asset register.

More details on the asset register are included in Section 5.4 Commissioning Management.

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6.7

QUALITY MANAGEMENT Quality can be defined as all the features and characteristics of a product or service that relate to its ability to satisfy a defined or implied requirement such as:    

fitness for purpose fitness for use asset owner’s needs conformance to specifications.

The concept of quality as applied to projects covers: 



the functional integrity of the physical facilities and systems handed-over to operations at the end of execution phase i.e. the asset can be started-up and operated in full accordance with project requirements and objectives the quality of the project business processes and the way in which they are applied to achieve the project’s HSE, cost and schedule objectives.

The fundamental principle of quality management is to ensure that quality is built in through the planning, design, fabrication and construction work, rather than relying on inspection and remedial work to achieve quality requirements. As a result, a focus on quality management is introduced early on in the project given that:   

The cost of quality assurance (QA) and quality control (QC) is generally much less than rectification after inspection. There is a direct link between the quality of front end loading, QA and cost. The practice of quality management applies to all phases and activities through the development of a project and it is the responsibility of the project team to manage quality appropriate to their areas of work.

For all projects where BHP Billiton’s share of the project exceeds the Group threshold, it is a requirement that the PEP provides a high level summary of the quality management activities required, with reference to a detailed quality management plan. The plans define how the project assures the quality for all physical facilities and the relevant services. The extent and detail of the quality management plan and activities are fit for purpose and appropriate to the size and nature of the project and the complexity of the respective activities. Although these plans are finalised during the definition phase, the project team ensures appropriate plans are in place to manage the quality of critical project processes and activities during the study phases of the project. During the execution phase, the project team implements, manages and controls these activities using the resources of the Owner’s team, the implementation contractor and third parties in accordance with the quality management plan. The key quality management requirements through the investment phases are shown in Table 6.7.1. Table 6.7.1 Key quality management requirements Identification  Develop a quality

management plan as part of the SWP for the selection phase for management of study activities.

Selection  Develop a quality

management plan as part of the SWP for the definition phase for management of study activities.

Definition  Finalise the quality

management plan for execution of the project for inclusion in the PEP.

Execution  Update & maintain

approved quality management plan.

 Develop a preliminary

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Identification

Selection

Definition

Execution

project.  Where pre-

commitments are to be delivered in the definition phase, develop detailed quality requirements for delivery of these items.

It is best practice for the implementation contractor to appoint an appropriately qualified and experienced person as quality assurance manager to be responsible for the management and coordination of quality related activities for the project and to undertake quality audits (refer Section 6.8 Audit and Review for further details). There is also a single point responsibility in the Owner’s team to direct all quality management activities.

6.7.1 Quality management process Project Quality Management (as defined by PMBOK) covers the processes and activities of the project organisation that determine the quality policies, objectives and responsibilities so that the project satisfies the needs for which the project was undertaken. These processes include: 





Planning – the process of identifying quality requirements and/or standards for the project including processes and documenting how the project demonstrates compliance. Note that quality is determined by the project in consultation with the intended users of the physical facilities or the processes. QA – the process of auditing the quality requirements, the processes and the results from QC mechanisms to assess performance and recommend necessary changes as required to meet the planned standards. QC – the process of monitoring and recording outcomes of all quality activities to assess performance and compliance to the appropriate standards.

Two key principles characterise QA as follows:  

"fit for purpose" (the product/service is suitable for the intended purpose) "right first time" (mistakes are eliminated).

QA attempts to improve and stabilise production, and associated processes, to avoid or at least minimise issues that led to the defects in the first place. On the other hand, QC emphasises testing of products to uncover defects and then reporting these defects to management who make the decision to allow or deny the release of the product. The quality management process is depicted in Figure 6.7.1. Details of the individual process steps are included in this document or in the referenced quality management toolboxes.

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Figure 6.7.1 Quality management process

6.7.2 The development of the quality management plan Quality can only be established by properly understanding the users need and the processes through which these needs are addressed. The process of managing quality are summarised as follows:    

establishing the needs of the asset owner planning how to achieve them assessing what activities are critical allocating responsibilities and defining appropriate controls

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  

keeping records to document the above monitoring and evaluating the effectiveness of these activities continuous improvement.

The Owner’s team develops the quality management plan under the guidance and management of the QA manager by undertaking the following steps: 

STEP 1 - Identify any requirements and/or applicable constraints that apply to project quality effort by reviewing the following:       



business and project objectives the project execution strategy SoR project SoW and WBS project master schedule capital cost estimate project risk assessment.

STEP 2 - Review and document any lessons learnt from similar and recent projects and assemble resource material from other projects. STEP 3 - Define the activities associated with project quality. STEP 4 - Identify and assess the quality related risk issues and develop appropriate quality management strategies to meet the requirements for project execution, taking into account the project execution strategy and the contracting plan. STEP 5 - Define the applicable quality requirements and the necessary QA and QC activities to meet these quality requirements. STEP 6 - Document the quality management plan.

 

 

6.7.3 Structure and content of the quality management plan The quality management plan structure and content are detailed in Table 6.7.2. Table 6.7.2 Structure and content of the quality management plan Section

Contents

Objectives

Project objectives for quality such as life cycle reliability, operability and maintainability and the end user satisfaction criteria (which may have been defined by the VIP process or documented in the SoR, respectively).

Strategy

The strategy to be adopted to ensure all equipment, materials and services meet the project quality requirements. Any specific requirements for quality management that need to be met or managed during the execution phase including applicable standards and specifications, laws, regulations, rules, codes, statutes, certification of third parties. The activities to meet these requirements include:  QA and QC requirements for engineering, taking into account the engineering

undertaken in the selection phase, definition phase, and execution phase  QA and QC requirements for procurement activities including, but not limited to:

Scope

 inspections  hold points  factory acceptance testing  witness testing of the various contracts  purchase orders  QA and QC requirements for construction activities  integration with the various contractor and supplier quality systems including (but not

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Section

Contents  critical equipment items  deliveries  contracts  identification of contractors that need to be certified (ISO) or pre-qualified  interfaces between contractors and certifying authorities.

The organisation and resources required and the roles and responsibilities for all key quality management positions.

Organisation

Include:  the required controls (procedures, reviews, audits) to ensure the quality management

activities are undertaken

Controls

 the QA and QC procedures to be applied  the process for handling non-conformances and corrective actions  the schedule for quality related audits and/or reviews.

As each quality management plan is project specific and aligned to the business specific drivers, scope and execution risks, it includes the content in a fit for purpose manner. The timing and the responsibilities for the development of the quality management plan are included in Table 6.7.3. Table 6.7.3 Project quality management plan timing Timing

Produced by

 Preliminary for inclusion in selection

phase study report.  Final version for inclusion in

definition phase study report.  Update & maintain approved plan in

execution phase.

 Owner’s team

functional lead (with input from implementation contractor & service providers).

Reviewed by  Owner’s team

project manager.  Functional leads.  IPR team.

Approved by  Owner’s team

project manager.  IPR team leader

(endorse).

6.7.4 Quality assurance Overall approach The Owner has overall responsibility for ensuring that the implementation contractor establishes a QA program for the engineering, procurement, construction and commissioning phases of a project. The Owner’s team PEP and budget incorporates a quality management plan that describes the activities to be included, to achieve the required quality standards. During the definition phase study the Owner’s team determines the standard of the QA program to be achieved. The implementation contractor has current QA certification. This certification determines the approach to QA that the implementation contractor is to adopt for use on the project and is supported by a project specific quality management plan. All QA activities that are the responsibility of the implementation contractor are co-ordinated by the implementation contractor. In some instances, vendors have their own certified QA systems that is recognised and incorporated into the quality management plan. Owner’s teams are actively involved in the QA process e.g. inspections and approvals, with the implementation contractor. It is incumbent of the Owner’s team to nominate those personnel responsible for the supervision of, and input into, QA programs. These people are responsible for ensuring QA documentation is maintained and the approved procedures enforced.

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On brownfields projects, the safe and efficient operation of existing plant and equipment and the maintenance of product quality levels throughout the execution of a project are reflected within the QA program.

Quality assurance In order to ensure appropriate QA, which forms the basis of the quality management plan, the following assurance activities require consideration: 

Quality management framework and processes:    



Design and engineering: 

  



Set out quality objectives in measurable terms. Identify critical systems and activities. Map interfaces between project functions on quality issues. Avoid excessive controls. Define key objectives and criteria upfront including, but not limited to, the following: performance requirements availability statutory, permitting or corporate requirements reliability, operability and maintainability sparing of equipment plant life expectancy expandability standardisation. Refer stakeholder requirements under scope definition (Section 6.3.1 Statement of requirements). Identify all relevant specifications (e.g. functional, regulatory, etc.) and verify completeness, applicability, compatibility and quality requirements. Identify and document all interfaces (e.g. disciplines, areas, consultants etc.) and ensure clearly defined work scopes, clear responsibilities and common design specifications. Identify QA requirements for engineering contractor/consultant appraisals and evaluation, use of engineering software, design reviews and engineering change controls, as built drawings etc.

Procurement: 





 

 

For pre-qualification of suppliers, ensure appropriate and audited quality management systems, technical know-how, production capacity and capabilities, track record, financial status, etc. Refer Toolbox 9.6.7E QA – Prequalification Questionnaire. For tenders and contracts, ensure inclusion of quality management plan with specific requirements for QA and QC in line with criticality of items or services to be provided. For QC, ensure independent surveillance, hold points, witnessing of key inspections and tests, review of QC documents, audits of procedures and periodic and systematic evaluation of systems. For third party inspections, ensure review of competence and capacity and audit of QA/QC activities conducted, document control and change management. For material control, ensure identification, verification and documentation of all sources of materials and components and actual products and packaging, preservation and storage of input materials, components and products. For release, ensure factory acceptance testing, data books and document control. For transportation and delivery, ensure protection and security of goods in transit, verification of quantities and condition on delivery to site.

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

Construction: 









Commissioning and handover: 





For construction contractors, ensure: they are vetted contractors with appropriate quality management systems and track record (refer Toolbox 9.6.7D Client QA Requirements of Contractor and Toolbox 9.6.7F QA Bid Evaluation Sheet) review and approval of quality management plans clearly defined QA/QC requirements exist capability of onsite QA/QC resources and facilities capability of offsite support (including service providers). For material control, ensure all materials received onsite are correctly identified, documented, stored and preserved, that the right material is released in the right quantities in good condition and release documented and that there is inventory control and stocktaking. For QC, ensure that there is key inspections and tests, compilation of data books, review of QC documentation, document control, third party inspection, review of QA/QC procedures and audits. For construction verification and handover, ensure that there is identification and alignment between construction packages and systems, test procedures, checklists, verification against design, documentation, punch listing, classification of defect, compilation of data books and document control. For commissioning, ensure identification of systems and subsystems, mapping engineering, procurement and construction packages, procedures, checklists, performance testing (equipment, control loops and interlocks), commissioning documentation and document control. For handover, ensure that there are handover certificates, running trials, performance test results, data-books, agreed punch lists of items for completion post start-up, as built drawings, operating and maintenance procedures.

Other project processes (strategic and control processes):     

Ensure verification of appropriateness and quality of processes performed. Carry out audits and project reviews. Review project outcomes and effectiveness of controls. Document lessons learnt. Prepare project close-out report.

Most of the QA activities on a project are carried out by contracted parties. QA begins with the identification of contractors, the pre-qualification thereof, the tendering process and the award thereof. It then continues through execution of the contract till final close-out thereof. For further information, refer to:   

Toolbox 9.6.7B Quality Management Through Contracts Guideline Toolbox 9.6.7C Quality Management Risk Assessment Toolbox 9.6.7G Standard Agenda for a Contract Kick-off Meeting.

Reviews and audits The implementation contractor is audited by their certifying organisation as required to ensure they are complying with their QA program. The implementation contractor also conducts internal audits to ensure compliance within their own organisation. Construction contractors and vendors are audited by the implementation contractor to ensure they are complying with their own QA programs. The QA program for the project includes a schedule of all the audits to be undertaken.

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The findings of a QA audit are reported through non conformance notices and corrective action requests which are completed where deviations away from the stipulated procedures have been identified. They address the following issues:      

identification of deviations away from the approved quality plan and the recording of non conformances investigation to determine whether the observed deficiency is an isolated case or typical of a more generic problem an assessment of the impact of the non conformance the corrective action which is needed to rectify the non conformance the time frame, resources and approach required by the corrective action to rectify the non conformance inspection of the completed corrective action once the non conformance has been rectified.

Periodic, follow-up audits may be scheduled throughout the duration of the project to ensure that standards do not fall below the audited level of conformance.

6.7.5 Quality control QC is largely carried out by the implementation contractor, service providers, suppliers and contractors at an activity level i.e. preparation of engineering deliverables (drawings, specifications, data-sheets, etc.), supply of equipment and materials, and the fabrication, construction and erection of physical facilities onsite in accordance with contractually agreed quality management plans. However, there are also obligations for the Owner’s team to carry out checks and reviews of work done at both an activity and a functional level where the responsibility to perform these tasks lie with the Owner’s team i.e. outside the scope of the implementation contractor. It is therefore critical that the Owner’s team develop a detailed quality management plan to the same standards as applied to the implementation contractor, service providers, suppliers and contractors, and ensure that appropriate QC checks are carried out on critical activities and processes. These checks are established to ensure compliance with agreed standards, specifications and procedures for critical activities to ensure any defects are identified and corrected in line with the same processes applied to other contracted parties.

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6.8

AUDIT AND REVIEW During the development and execution of a project, the project is at some stage subjected to audits and/or reviews to ensure that the:   

project’s processes and procedures are being well managed optimal value for the project is being extracted project team is complying with all the relevant governance requirements as mandated in the Major Capital Projects GLDs.

A number of independent reviews are mandated for all projects where BHP Billiton’s share of the project exceeds the Group threshold. In accordance with the investment process GLD, the following independent reviews are required:  

an IPR at the key tollgates at the completion of the development phases namely identification, selection and definition, before the project proceeds to the next phase execution phase reviews (EPRs) during the execution phase to track adherence to the board KPIs.

Likewise, Group Audit Services (GAS) are mandated to carry out independent and objective assessments to determine whether risk management, control and governance processes designed and represented by management, are adequate and functioning in a manner that ensures that risks are appropriately identified and managed and internal controls are effective both from a design and operational perspective. These audits are generally carried out in accordance with the group audit plan. As these are largely planned or scheduled reviews and/or audits, the project team incorporates into the SWP or PEP, a plan for conducting and scheduling these reviews and/or audits during the relevant phase of the project. Furthermore, the project teams establish the necessary controls to ensure that any corrective actions arising from these reviews and/or audits are captured, actioned and closed out. To ensure an effective review, a project review plan is prepared for each and every review, in advance thereof and the outcomes of the review are clearly communicated to the project team and documented. Refer to Toolbox 9.6.8C Execution Phase Review Plan. As a knowledge sharing process, reviews identify and collect good practices and learnings for dissemination across the wider corporation so that BHP Billiton continually improves project management performance.

6.8.1 Introduction The prime objective of any audit is to provide management at both a CSG and corporate level systematic and independent assessment of the effectiveness of the business control framework and is seen as part of normal management control processes. Likewise reviews are part of the control process to ensure:   

investment proposals are fit for purpose (e.g. through an IPR) project processes are been followed and procedures are been adhered to (e.g. through an internal review and/or GAS audit) through an independent verification that the status of the project and the controls are in place to ensure project objectives can be met (e.g. through an EPR).

Notwithstanding the above, the project team and/or CSG management may require additional reviews to assess key deliverables independently of the team i.e. ore resource and reserve statements, option analysis, capital estimates, project schedules, etc. or work carried out by third parties. The differences between an audit and a review are included in Table 6.8.1.

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Table 6.8.1 Audit or review, what’s the difference? Audit Focus

Review Focus

 Compliance with stated GLDs and procedures

 Compliance with stated objectives and GLDs

 Examination of historical records

 Assessment of planning adequacy

 Either in compliance or not

 Assessment of risk non-compliance

 Focuses mainly on business processes i.e. finance &

 Projects & technical disciplines and processes

administration, HSE etc

 Usually milestone operated

 Routinely scheduled health check

Audits and reviews use many common tools such as document reviews, interviews, spot sampling, presentations and project reports. Whilst they both deal with compliance, they do have a different focus e.g. an audit generally focuses on past procedural performance, whilst a review will be looking at the achievement of future objectives. The review therefore, encourages open debate on the potential issues involved and be less concerned with detailed procedural compliance.

6.8.2 Types and timing of independent reviews Although there are a number of independent reviews mandated throughout the investment process, the key reviews relevant to the scope of this PDM are the IPRs on completion of the development phases of the project (in particular selection and definition phases) and the EPRs during the execution phase. IPRs are primarily focused on assessing the project against key objectives, compliance to minimum requirements for each study phase and their readiness to proceed to the next phase of the project (refer to Section 2.2 Project Development Process and Section 6.1 Study Management). The IPRs are timed in order to meet the schedule for progressing the project through to the next phase, although it is good practice to review key deliverables prior to the completion of each phase. EPRs are primarily focused on verifying the status of the project, compliance to the agreed scope, plans, cost and schedule and in particular board agreed KPIs. The status of the project is then assessed against the following ratings for the project watch list in ITS:   

“Healthy” – will achieve targets* “Observation” – may not achieve targets* “Critical” – will not achieve targets*

*Note - as compared to either the schedule or capex KPIs in the KPI matrix. For the watch list, the status is assessed against the agreed threshold targets for the board approved KPIs. In the event the project status is changed to “critical”, a detailed recovery plan is developed by the project team. The project status is recommended by VP PMS in consultation with the IC. Refer to Toolbox 9.4.8B Recovery Plan Template and Guideline. As there are distinct stages during the execution phase of a project, the focus of any EPR as the project proceeds is different. These are referred to as:    

a baseline review (project set up) interim reviews (during the implementation stage) a pre operations review (pre-commissioning and operational readiness) a project close-out review.

There are no clear milestones or trigger points to distinguish between these stages of the project and the review leader, in consultation with the project team, uses discretion in developing the particular review focus and topics and the timing thereof. The following is used as a guide to timing of EPRs: 

Baseline review - within 3 months of approval and no later than 6 months depending on initial execution ramp up.

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

 

Interim reviews – frequency of the interim reviews are agreed upon with the project team during the baseline review. Interim reviews are typically held between 3 and 6 month intervals, aligning as far as practical with key milestones such as mobilisation of key contractors to site, completion of the definitive estimate and schedule, significant construction milestones, etc. Some discretion on the timing is required depending on location, availability of people and status of the project and whether there are any issues of concern being highlighted in the project monthly reports or through other information sources. Pre-operations review - no later than 3 months prior to start-up. Project close-out reviews - no later than 3 months after start-up of main systems and prior to the project execution team demobilising.

Guidance for the first three reviews types noted above can be found in Toolbox 9.6.8B Conducting Execution Phase Reviews. For guidance on IPRs and close-out reviews refer Section 4.8 Investment Process and Section 5.6 Project Close-out respectively.

6.8.3 Development of audit and review plan The PEP outlines the plan for regular reviews and audits of the project during the execution phase in order to ensure compliance with BHP Billiton corporate policies and standards as defined by the GLDs and the PEP and to ensure an independent review of project progress against approved targets. Likewise, the SWP for the respective study phases also outlines the plan for any reviews (in particular the IPR) and audits during the study. The PEP specifically identifies the requirements for such reviews and/or audits, their timing and/or their frequency. Following project approval, the Owner’s team project manager liaises with the nominated PMS representative to establish a review schedule for the project up to completion of the project. Likewise, the Owner’s team project manager, together with the responsible CFO, liaises with GAS on an annual basis to agree the timing of any audit in accordance with the group audit plan.

6.8.4 Planning an audit or review The process highlighted here, whilst specific to an EPR, can be modified to suit any other audit or review. Note that specific requirements for IPRs and GAS audits are established with I&VM and GAS. The review leader establishes the purpose, scope, timing and review team composition and liaises with the project team well in advance of the proposed review. Documentation is requested from the project team sufficiently in advance of the review to enable the review team to make an assessment of the status of the project and to identify key issues to be covered as part of the review. The documentation includes current monthly reports from the Owner’s team and the implementation contractor, current cost and schedule reports, the PEP with any amendments and any previous reports, such as an IPR report or GAS or HSE audit report. Documentation is to be available to the reviewers in sufficient time to allow analysis and consideration of the main issues prior to the review. Given that there are other Group functions and CSG functions who have a requirement to review projects from time to time, the review leader liaises and coordinates with those other Group functions (e.g. Mineral Resource Development (MRD), HSE, GAS) to ensure their input and participation as required and consult with the appropriate levels within the CSG who have an influence and/or a stake in the project. These include the:  

VP project development or the appropriate person responsible for the CSG capital projects oversight CSG or business president.

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The Owner’s team project director and project manager are solicited for any key issues that may be relevant to the review. Based on the above the review leader clearly defines the purpose of the review. In consultation with the above, the review leader ensures the timing is appropriate, does not clash with other events and that the key project team members are available for the review. Once the overall review timing has been agreed, an advice note setting out the purpose of the review, with a proposed agenda, key participants, documentation requirements and a timetable is developed and issued to the project team. It is critical that the purpose of the review is clearly stated and whilst the key focus and scope of the review are clearly documented, it is not too prescriptive. Consistency of reviewers is a key feature of EPRs, so that there is continuity (and a clear understanding and knowledge of the project) from both IPRs undertaken prior to project approval and from earlier EPRs. The lead reviewer is normally the PMS representative nominated for the project. Reviews contain at least two participants, the PMS representative and a nominated alternate. Depending on the stage of execution, the specific make-up of the review team varies as follows:  

For a baseline review consider including members on the team from PMS support function specialists. For a pre-operations review consider including appropriate expertise from areas such as mining, metallurgy, processing, commissioning, operations, maintenance and HSE.

The review team is small, focused and multi-disciplinary. The team works full time on the review and allows sufficient time to discuss the main findings and recommendations and to prepare the review report in an expeditious manner. Whilst the prime responsibility for planning and conducting the review lies with the review team, the project team also has a responsibility to ensure that the focus of the review is clearly understood and that the team ensures that the reviewers have all the necessary information on which to base their review.

6.8.5 Carrying out an audit or review Prior to the review, the review team obtains and analyses information to confirm the current status of the project and where necessary “drills down” to a level where the information and process is assured. Use of other specialist groups such as scheduling, cost control and estimating, etc may be required to “drill down” to the next level of detail. In addition, by reviewing the interaction between project functions, assurance can be obtained that the project is receiving the necessary priority, resources and skills. In order for the review program to be successful, the reviewers require the complete support from all levels of the Owner’s team and implementation contractor’s management. The purpose and scope of any reviews are communicated to all parties involved. The reviewers interview key project team members, make sites visits as appropriate and reconvene on a daily basis if possible to review progress and issues identified as part of the review. The reviewers also cover all project activities since the last review and determine whether recommendations from the previous reviews have been actioned (if applicable). However, the key focus is on identifying the major or material issues facing the Owner’s team and the implementation contractor and determining whether any wider aspects that are likely to impact on project development e.g. other ongoing or potential developments or increased government regulatory control are being addressed. A non-confrontational but “challenging” style is adopted for the review, working with the project team to identify risks and the mitigation action. The reviewers treat all information obtained in the course of the EPRs as confidential, as this information can be commercially sensitive. This is particularly important for joint venture projects, to ensure compliance with the BHP Billiton anti-trust protocols.

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The project is reviewed against baseline information contained in such documentation as the IAR submission, definition phase study report and the key study deliverables and this PDM. Presentations from the project teams are only used as an overview or introduction of the project and as a basis to start the review. The “health” of the project is assessed against the board approved KPIs. Prior to leaving site, or the location of the review, the review team provides concise feedback to the project team. In particular:       

Provide commentary in regard to the status of the recommendations from previous reviews and whether these are still relevant. Provide feedback only on what has been observed, giving specific examples. Provide specific observations and recommendations. Provide discussion on “challenging” issues. Report on supportable facts - where it is an opinion, clearly state it as such. Confirm that the observations are correct and the recommendations are relevant as this is the basis of the written report. Provide a rating on the “health” of the project.

For each recommendation from the review, the review team together with the project team, develops and agrees an action plan, allocates a responsible person to address the actions and agrees a completion date to close out the action. Any rejection of a recommendation is supported by an alternative recommendation made to the review team. After the review, the agreed “deliverables” are detailed in the action plan (refer to Toolbox 9.6.8D Action Tracker). Any alteration to their contents is effected by means of a formal change procedure, in order to highlight the consequences of any alteration. The reviewers also capture any good practices or project learnings from the project team and include these in the learnings template (refer to Toolbox 9.6.8E Learnings Capture Template).

6.8.6 Review reports A draft report is prepared within two working weeks of the review, based on the findings of the review. It contains:       

executive summary background key findings, observations and recommendations identification of good practices and any project lessons learnt reference documents and/or illustrations for context conclusion agreed action list and action tracker table.

The report is brief, consistent, balanced and complete and the body thereof follows the format of the feedback presentation to the project team. The report is distributed to the Owner’s team project director and project manager in draft form for comment on any inaccuracies prior to finalisation and issue. Following finalisation, the report is to be distributed to:        

Owner’s team project director Owner’s team project manager business president or the “project owner” in the business unit the appropriate person responsible for over viewing CSG capital projects (one up from the Owner’s team project director) VP PMS a PMS senior manager a Metallurgical Engineering senior manager a MRD senior manager

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 

GAS review team.

Any change in the status of the project is addressed in accordance with the relevant GLD.

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PROJECT DEVELOPMENT MANUAL CHAPTER 7.0 GLOSSARY & ABBREVIATIONS Document No: PDM-001 Revision 0 (uncontrolled when printed)

Table of Contents 7.0

GLOSSARY & ABBREVIATIONS ......................................................................................1

7.1

ABBREVIATIONS...............................................................................................................................................1

7.2

GLOSSARY ..........................................................................................................................................................3

7.3

REFERENCES.......................................................................................................................................................4

7.4

SUBJECT INDEX ................................................................................................................................................5

Tables Table 7.1.1 BHP Billiton PDM abbreviations ...................................................................................................1

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7.0

GLOSSARY & ABBREVIATIONS

7.1

ABBREVIATIONS Abbreviations for the PDM are included in Table 7.1.1, while common project management abbreviations can be found in the relevant Project Management Institute standards (see Section 7.3). Table 7.1.1 BHP Billiton PDM abbreviations Short Form

Long Form

BoD

basis of design

BoE

basis of estimate

BoS

basis of schedule

CAE

computer aided engineering

CAPEX

capital expenditure

CSG

Customer Sector Group

EPC

engineering, procurement and construction

EPCM

engineering procurement and construction management

FEL

front end loading

FIFO

fly in fly out

FOREX

foreign exchange

FRCS

fatal risk control standards

GAS

Group Audit Services

GLD

group level document

HAZAN

hazard analysis

HAZID

hazard identification

HAZOP

hazard and operability

HR

human resources

HSEC

health, safety, environment and community

HSMP

health and safety management plan

I&VM

Investments & Value Management

IAR

investment approval request

IC

Investment Committee

IFC

issued for construction

IPA

Independent Project Analysis, Inc

IPR

independent peer review

IRR

internal rate of return

ITS

investment tracking system

KPI

key performance indicator

LS

lump sum

LSTK

lump sum turn key

MFL

maximum foreseeable loss

MRD

Mineral Resource Development

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Short Form

Long Form

NPV

net present value

OBS

organisational breakdown structure

OPEX

operating expenditure

P&ID

piping & instrumentation diagram

PBS

package breakdown structure

PCOR

project close-out report

PDM

project development manual

PDMS

plant design management system

PDN

potential deviation notice

PDS

plant design system (or Project Development Services)

PEP

project execution plan

PFD

process flow diagram

PMC

program management contractor

PMS

Project Management Services

PPE

personal protective equipment

QA

quality assurance

QC

quality control

RACI

responsible, accountable, consulted and informed

RFP

request for proposal

ROS

required on site

RRR

residual risk rating

SIA

social impact assessment

SoR

statement of requirements

SoW

scope of work

SWP

study work plan

TCCC

transfer of care, custody and control

VIP

value improving practice

VP

Vice President

WBS

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CHAPTER 7.0 GLOSSARY & ABBREVIATIONS Section 7.1 - Abbreviations

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7.2

GLOSSARY The glossary of terms relevant to this PDM are as documented in GLD.003 Glossary of BHP Billiton Terms, while common project management terms can be found in the relevant Project Management Institute standards (see Section 7.3).

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7.3

REFERENCES Key reference documents used to assist with the development of the PDM are as follows:    

Project Management Institute (2008), A Guide to the Project Management Body of Knowledge (PMBOK® Guide), Fourth Edition, (PMI Publications, Newtown Square, Pennsylvania). Project Management Institute (2008), Organizational Project Management Maturity Model (OPM3®), Second Edition, (PMI Publications, Newtown Square, Pennsylvania). Project Management Institute (2008), The standard for Portfolio Management, Second Edition, (PMI Publications, Newtown Square, Pennsylvania). Project Management Institute (2008), The standard for Programme Management, Second Edition, (PMI Publications, Newtown Square, Pennsylvania).

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7.4

SUBJECT INDEX A detailed subject index has not been included in this PDM as the document is generally available in electronic format in *.pdf format, which lends itself to full electronic searching of terms. To obtain an electronic copy of the PDM go to the BHP Billiton Project Management eRoom, located at: https://eroom.bhpbilliton.com/eRoom/Facility53/ProjectManagement/0_9f17.

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PROJECT DEVELOPMENT MANUAL CHAPTER 8.0 INVESTMENT PHASE CHECKLISTS Document No: PDM-001 Revision 0 (uncontrolled when printed)

Table of Contents 8.0

INVESTMENT PHASE CHECKLISTS ...............................................................................1

Tables Table 8.1 Investment phase checklist register.................................................................................................1

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8.0

INVESTMENT PHASE CHECKLISTS The investment phase checklists included in this PDM are used by project teams to ensure compliance with the minimum requirements, for any particular project phase, as stipulated in the Major Capital Projects GLDs. Table 8.1 is a register of all investment phase checklists, while the checklists can be found in the Project Management eRoom at https://eroom.bhpbilliton.com/eRoom/Facility53/ProjectManagement/0_bc2c. Table 8.1 Investment phase checklist register Title

Ref #

Minerals

Petroleum

IDENTIFICATION PHASE 8.1.1

Identification phase – Study overview

8.1.2

Identification phase – Geology and mineral resources

Identification phase - Subsurface

8.1.3

Identification phase – Mining

Identification phase - Wells

8.1.4

Identification phase – Processing

Identification phase - Facilities

8.1.5

Identification phase – Infrastructure, transport and logistics

Identification phase - Infrastructure, pipelines and logistics

8.1.6

Identification phase – Market analysis

8.1.7

Identification phase – Scope

8.1.8

Identification phase – Schedule

8.1.9

Identification phase – Cost

8.1.10

Identification phase – Risk management

8.1.11

Identification phase – Investment evaluation

8.1.12

Identification phase – Health, safety, environment and community

8.1.13

Identification phase – Stakeholder management

8.1.14

Identification phase – Study/project delivery

8.1.15

Identification phase – Transition to operations

SELECTION PHASE 8.2.1

Selection phase – Study overview

8.2.2

Selection phase – Geology and mineral resources

Selection phase - Subsurface

8.2.3

Selection phase – Mining

Selection phase - Wells

8.2.4

Selection phase – Processing

Selection phase - Facilities

8.2.5

Selection phase – Infrastructure, transport and logistics

Selection phase - Infrastructure, pipelines and logistics

8.2.6

Selection phase – Market analysis

8.2.7

Selection phase – Scope

8.2.8

Selection phase – Schedule

8.2.9

Selection phase – Cost

8.2.10

Selection phase – Risk management

8.2.11

Selection phase – Investment evaluation

8.2.12

Selection phase – Health, safety, environment and community

8.2.13

Selection phase – Stakeholder management

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Title

Ref #

Minerals

8.2.14

Selection phase – Study/project delivery

8.2.15

Selection phase – Transition to operations

Petroleum

DEFINITION PHASE 8.3.1

Definition phase – Study overview

8.3.2

Definition phase – Geology and mineral resources

Definition phase - Subsurface

8.3.3

Definition phase – Mining

Definition phase - Wells

8.3.4

Definition phase – Processing

Definition phase - Facilities

8.3.5

Definition phase – Infrastructure, transport and logistics

Definition phase - Infrastructure, pipelines and logistics

8.3.6

Definition phase – Market analysis

8.3.7

Definition phase – Scope

8.3.8

Definition phase – Schedule

8.3.9

Definition phase – Cost

8.3.10

Definition phase – Risk management

8.3.11

Definition phase – Investment evaluation

8.3.12

Definition phase – Health, safety, environment and community

8.3.13

Definition phase – Stakeholder management

8.3.14

Definition phase – Study/project delivery

8.3.15

Definition phase – Transition to operations

EXECUTION PHASE 8.4.1

Execution phase – Project overview

8.4.2

Execution phase – Project delivery

8.4.3

Execution phase – Transition to operations

8.4.4

Execution phase – Project close-out

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PROJECT DEVELOPMENT MANUAL CHAPTER 9.0 TOOLBOX Document No: PDM-001 Revision 0 (uncontrolled when printed)

Table of Contents 9.0

TOOLBOX ............................................................................................................................1

Tables Table 9.1 Toolbox document types...................................................................................................................1 Table 9.2 Toolbox item register.........................................................................................................................1

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TOOLBOX The PDM toolbox contains a number of different document types as outlined in Table 9.1. Table 9.1 Toolbox document types Type

Description

Examples

E

Guidelines

G

These documents have been selected from a number of internal projects, to demonstrate best or good practice examples within the organisation. These documents either provide:  further detailed “how to” guidance on specific activities or tasks covered in the PDM, or  provide guidance on filling out various parts of a form or report template.

Templates

Checklists

T

C

These documents are either forms or report templates that can be used by the project team as a starting point when preparing project documentation. These documents are task/activity specific templated checklists for reviewing compliance with a specific task or activity. These are not related to the investment phase checklists covered by Chapter 8.0.

Information

I

These documents are provided for information and include processes, frameworks or reference materials from third party organisations or miscellaneous BHP Billiton documentation e.g. lists.

Slideshows

S

These documents are MS Powerpoint presentations.

Table 9.2 is a register of all PDM toolbox items (except for examples which are not specifically controlled). Note that for the examples (denoted with the suffix ‘A’ e.g. 9.6.4A), there may be more than one for any discipline or topic so users need to refer directly to the Toolbox folders in the PDM eRoom. The examples folder is located at https://eroom.bhpbilliton.com/eRoom/Facility53/ProjectManagement/0_b8d8. All other toolbox items are unique electronic files, named as identified in Table 9.2, and are also located within the PDM eRoom (https://eroom.bhpbilliton.com/eRoom/Facility53/ProjectManagement/0_b8de). Also included in Table 9.2, is the applicable phase for which the toolbox item generally applies. This is a guide only.

Toolbox item Ref #

Title

Applicability to project phase Type

Section

Table 9.2 Toolbox item register Chapter

9.0

IPS

SPS

DPS

Execution









Operation

1.0 Introduction 1.4 Change Control 9.1.4B

PDM Feedback Form

T

9.1.4C

PMS PDM Contacts

I

9.1.4D

PDM Change Log

I

2.0 The BHP Billiton Approach to Projects 2.3 Portfolio Management 9.2.3A

Example(s) – refer eRoom folder  for individual files

E

9.2.3B

Current Portfolio Status

I

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Title

Applicability to project phase Type

Section

Chapter

Toolbox item

IPS

SPS

DPS

Execution











Operation

2.4 Program Management Hubs 9.2.4A

Example(s) – refer eRoom folder  for individual files

E

9.2.4B

Current Hub Status

I

9.2.4C

Program Reporting Guideline

G

2.5 Project Management 9.2.5A

No examples

E

9.2.5B

Project Management Training Curriculum

I

9.2.5C

Project Management Processes Guideline

G







3.0 GROUP LEVEL DOCUMENTS 3.2 Major Capital Projects GLDs 9.3.2B

Study Phase GLD Requirements (Minerals)

I







9.3.2C

Study Phase GLD Requirements (Petroleum)

I



























4.0 STRATEGIC PROCESSES 4.1 Business Objectives and Strategic Fit 9.4.1A

No examples

E

9.4.1B

IPA Institute Gatekeeper - Mod 4 Business Objectives

S

4.2 Risk Management 9.4.2A

Example(s) – refer eRoom folder  for individual files

E

9.4.2B

Risk Register Template

T

9.4.2C

Control Action Plan Template

T

9.4.2D

Risk and Audit Committee Report Template

T





9.4.2E

Risk Register Bow Tie Template

T





9.4.2F

Control Self Assessment Template

T





9.4.2G

PRiME III Template

T





4.3 HSEC Management 9.4.3A

Example(s) – refer eRoom folder  for individual files

E

9.4.3B

HSE Management Plan - Template and Guideline

TG





9.4.3C

HSE Specification - Template and Guideline

TG





9.4.3D

Industrial Theatres

I





9.4.3E

The frank Process

I





9.4.3F

CEMP - Template and Guideline

TG

9.4.3G

Environmental Design Guideline

G

9.4.3H

HSEC Guideline

G

9.4.3I

HOC Slides

S

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Ref #

Title

Applicability to project phase Type

Section

Chapter

Toolbox item

IPS

SPS

DPS

Execution

Operation

















4.4 People and Teams 9.4.4A

Example(s) – refer eRoom folder  for individual files

E

9.4.4B

People and Teams Guideline

G

9.4.4C

Key Resources and Hub Strategy Endorsement - Memo

I

9.4.4D

Project Organisation Design Template

T

9.4.4E

Performance Review KPI Template

T









9.4.4F

Skills and Experience Profiles

G









4.5 Stakeholder Management 9.4.5A

Example(s) – refer eRoom folder  for individual files

E

4.6 Opportunity Realisation 9.4.6A

Example(s) – refer eRoom folder  for individual files

E

9.4.6B

Opportunity Framing Presentation

S



9.4.6C

Gate 2A Template

T



4.7 Value Improvement 9.4.7A

Example(s) – refer eRoom folder  for individual files

E

9.4.7B

Value Engineering Guideline

G





9.4.7C

Benchmarking Guideline

G





9.4.7D

Constructability Review Guideline

G





9.4.7E

Project Value Analysis Guideline

G





9.4.7F

VIP Database

T





9.4.7G

VIP Plan

T







9.4.7H

VIP Process

G









4.8 Investment Process 9.4.8A

Example(s) – refer eRoom folder  for individual files

E

9.4.8B

Recovery Plan Template and Guideline

G

9.4.8C

Investment Evaluation Guideline

G





9.4.8D

Acorn Valuation Methodology

S





9.4.8E

Full Value Recognition Methodology

S





 

5.0 CORE WORK PROCESSES 5.1 Engineering Management 9.5.1A

Example(s) – refer eRoom folder  for individual files

E

9.5.1B

Engineering Performance Management Guideline

G

9.5.1C

Guide to use of 3Di CAE

G

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Ref #

Title

Applicability to project phase Type

Section

Chapter

Toolbox item

IPS

SPS

DPS

Execution











9.5.1D

Document Control

G

9.5.1E

Project Hazard Studies

G

9.5.1F

Engineering Management

G







9.5.1G

Engineering Deliverables

G







9.5.1H

Design Office Management

G







9.5.1I

Typical Equipment Codes

G







9.5.1J

BFD, PFD, P&ID, SLD Generation

G









Operation

5.2 Contracts & Procurement Management 9.5.2A

Example(s) – refer eRoom folder  for individual files

E

9.5.2B

Contracts and Procurement Guideline

G





9.5.2C

RFP EPCM P500 Outline Example

G





9.5.2D

EPCM Selection Spreadsheet

T





5.3 Construction Management 9.5.3A

Example(s) – refer eRoom folder  for individual files

E

9.5.3B

Planning for Constructability

G

9.5.3C

Defects Rectification

G



9.5.3D

Temporary Construction Facilities

C



9.5.3E

Tie-ins & Interconnections

C



9.5.3F

Shut Review Prompt Sheet

C







5.4 Commissioning Management 9.5.4A

Example(s) – refer eRoom folder  for individual files

E

9.5.4B

Pre-commissioning Procedure Checklist

C



5.5 Transition to Operations 9.5.5A

Example(s) – refer eRoom folder  for individual files

E

9.5.5B

Operational Readiness Checklist Greenfields Project

C





9.5.5C

Operational Readiness Checklist Brownfields Project

C





5.6 Project Close-out 9.5.6A

Example(s) – refer eRoom folder  for individual files

E

9.5.6B

Execution Phase Close-out Checklist

C





9.5.6C

Project Close-out Report Template

TG





9.5.6D

Project Close-out Review – Key Learnings Template

T





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Title

Applicability to project phase Type

Section

Chapter

Toolbox item

IPS

SPS

DPS

Execution

Operation

6.0 CONTROL PROCESSES 6.1 Study Management 9.6.1A

Example(s) – refer eRoom folder  for individual files

E

9.6.1B

Study Content Guide by Phase

G







9.6.1C

Study Budget

T







9.6.1D

Study Report Template

T







9.6.1E

Miscellaneous Report Template

T







9.6.1F

Study Report Structure and Style Guidelines

G







9.6.1G

Site Investigation Checklist

C







9.6.1H

Study Monthly Report Template

TG







9.6.1I

Examples of IPA Reports





I





6.2 Project Management 9.6.2A

Example(s) – refer eRoom folder  for individual files

9.6.2B

Project Monthly Report Template

9.6.2C

I&VM Monthly Report Template

T

9.6.2D

Approvals Framework

9.6.2E 9.6.2F

E TG

 







T







Deliverables Responsibility Matrix

T







Steering Committee Guideline

G







6.3 Scope Definition 9.6.3A

Example(s) – refer eRoom folder  for individual files

E

9.6.3B

Statement of Requirements Form and Checklist

T







9.6.3C

SoR Template and Guideline

TG







9.6.3D

SoW Template and Guideline

TG













6.4 Schedule Development 9.6.4A

Example(s) – refer eRoom folder  for individual files

E

9.6.4B

Schedule Range Analysis Methodology

G

6.5 Cost Estimating 9.6.5A

Example(s) – refer eRoom folder  for individual files

E

9.6.5B

Capital Cost Estimating Guideline

G







9.6.5C

Operating Cost Estimating Guideline

G







9.6.5D

Capital Cost Estimate Report Template

T







9.6.5E

Work Breakdown Structure

G







9.6.5F

Standard Discipline Codes

G







9.6.5G

Project Escalation

G







9.6.5H

Asset Closure Estimating Guideline

G







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Ref #

Title

Applicability to project phase Type

Section

Chapter

Toolbox item

IPS

SPS

DPS

Execution

Operation

6.6 Project Controls 9.6.6A

Example(s) – refer eRoom folder  for individual files

E

9.6.6B

Contingency Management Guideline

G



9.6.6C

Progress Measurement and Earned Value Guideline

G



9.6.6D

Change Management Guideline

G





9.6.6E

Potential Deviation Notice

T





9.6.6F

Project Change Management Log

T





9.6.6G

Project Change Management Report

T





9.6.6H

Forex Variance Calculation

T





9.6.6I

Cost Control System Requirements

G









6.7 Quality Management 9.6.7A

Example(s) – refer eRoom folder  for individual files

E

9.6.7B

Quality Management Through Contracts Guideline

G







9.6.7C

Quality Management Risk Assessment

T







9.6.7D

Client QA Requirements of Contractor

T







9.6.7E

QA - Pre qualification Questionnaire

T







9.6.7F

QA Bid Evaluation Sheet

T







9.6.7G

Standard Agenda for a Contract Kick-off Meeting

G







6.8 Audit and Review 9.6.8A

Example(s) – refer eRoom folder  for individual files

E

9.6.8B

Conducting Execution Phase Reviews

G



9.6.8C

Execution Phase Review Plan

T



9.6.8D

Action Tracker

T



9.6.8E

Learnings Capture Template

T



9.6.8F

IPA Evaluations Users Guide

G

9.6.8G

Execution Phase Reviews

S

9.6.8H

PM Services workshop Brisbane GAS Review

S

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