Irreverent, Outrageous and Hopefully Humerous Blogs to Help Your Projects Make a Profit
Author: James McAllister
I work in the oil and gas sector. I'm ancient. I write. I paint. I read. I love movies and I play the blow-up plastic guitar like a professional.
I don't do sport. I tried golf once but the clubs were too much of a handicap.
Probabilistic Risk Management is the use of Stochastic Probability Theory to gauge the probable cost and duration of a project versus traditionally derived estimates.
To do this the Scope of Work, Schedule and Cost is examined and each element of the scope/ schedule/ cost is given a range of outcomes that reflect the risks associated with each event.
Still with me? Don’t worry, we don’t actually do that, we just say we do.
The actual methodology is to dance around a fire under the full moon chanting, shaking the femur bones of ungulates and throwing psyclobin dust into the flames. The answers are then handed down from the spirits via convulsions in dream-time.
For all the notice Project Managers take of the results? Either of those methods work.
Some company activities may look innocuous and many seem like a good idea. But there is one thing you can do to kill your company and bury it in a very deep hole. One action that is as good as buying a burial plot and signing the deeds.
When a Client establishes a Project it will have been approved against a Budget. A budget for Engineering, Procurement, Construction or a Total Budget for a Main Contractor.
Knowledge of that budget for anyone other than a select group of Client personnel is a very dangerous thing indeed.
But to many Contractors it might seem like something they could put to good use.
You may be able to obtain such a budget through various means but a better idea would be to buy an elephant gun and shoot your bid in the back of the neck with it.
Clients. They prepare a budget with the information they have available using their best cost practices. The relationship of that budget to reality may be tenuous.
The relationship of that budget to how much it will cost a Contractor to execute the job could not even be described as tenuous. It’s a guesstimate.
Because? They’re not the Contractor. They have no insight into how much it will cost a Contractor to do the work. No idea of how comfortable or desperate a Contractor is to get the work.
Plus. The project may have been priced to ensure a thumbs-up by the Client’s review committee.
Main Contractors. Knowledge of a Client’s Budget will deep-six their company in a variety of ways.
They can shave $10 off the budget price and ensure their bid is ‘under budget’. Or they can take all of the money out of their bank account and distribute it on the street to passers-by to achieve the same end result.
Because 1. The budget minus $10 bears no relation to what it will actually cost that particular company to do the job + overheads + profit + taxes +++
Because 2. What is the budget you’re looking at? Does it contain contingency? Was it produced at FEL 1 stage or FEL 3? The content and context of a budget is as important as the price. It is unlikely that you know the details.
Because 3. The provenance of the information is uncertain. Who exactly stole that information? I could have used a different description there but theft is the right terminology. Did a clerk find it on the wrong photocopier? Who knows?
Because 4. If the Client finds out? You’re off their bid-list, maybe forever.
Because 5. If the law finds out you could end up in a situation where all your statements end with the words ‘your honour’.
Bid the contract the best you can.
Know your costs, your overheads, your risk.
Understand the scope of work.
Price in location, the job market, the contract details.
The Stockholm Syndrome was spotted after a robbery in Sweden in the 1970 where bank employees were held hostage. It’s a syndrome where hostages bond with their captors. The hostages develop strong emotional ties with the people who intimidate them.
Sound familiar? Well, it’s happening on your construction sites right now. No, no – stop arguing – right now, check it out.
In a work and contractual situation your people are not hostages and your clients are not captors, but your people on site and the client’s people on site form emotional bonds. I first noticed this when I started working offshore. The client, contractors and sub-contractors formed a bond that excluded anyone who did not work on the platform. People up and down the organization who worked onshore (The Beach) were ‘Them’. The people who stopped us offshore tigers from getting on with it.
So, does it matter?
Well in one area of a contractual relationship it matters a great deal and that’s where it comes to changes in the scope of work or in the way the work is done.
Your people on site are doing extra work or working in a non-contractual way and not only are you not going to get paid for it, you’re not going to find out about it.
Here’s some thoughts.
Contractual Changes Not Associated With the Scope of Work
If your guys (this is my unisex description of anybody on a site) work a 10-hour day as proscribed in the contract, and they have an established number of breaks and non-productive activities (gather tools, walk to work, eat lunch, clean site) then the productive time is (say) 6.5 hours a day. That’s what should be in your schedule.
It’s common on site to think that a 30-hour job will be done by one man in 3 days but it’s 5.3 days for 1 man (because the guy only spends 6.5 hours a day digging).
If the client issues the work permits 30 minutes late and collects them 15 minutes early then your productive day is reduced to 5.75 hours per day. But your schedule is still running on a 6.5-hour productive day. That’s approximately an 11.5% reduction in the day.
This means that your remaining duration will be 11.5% longer that your plan shows.
Lesson 1. A change in work practice is a change and should be managed by the Change Control Procedure and after approvals should be translated into Schedule, Cost and Risk. In the above example the job is going to take 11.5% longer, it’s going to cost more and the risk to the Project Completion Date is high.
But that’s not the full problem – the Project Management Team may not know about it because your people and the client’s people are either a) not aware of what’s in the contract or b) not aware of the ‘productive day’ or c) they’re doing a Stockholm. All three may be going on at once.
Contractual Changes to the Scope of Work.
Let’s start with: what’s the difference between extra scope and ‘a favour’? If you’ve ever worked on site you’ll know what a favour is. A small piece of work that would be administratively difficult to get done (let’s say paint a weld on an adjacent line while the scaffolding is up). Favours oil the wheels of co-operation. No big thing.
But extra scope is anything that’s not specified in the contract. And extra scope should be checked by the client’s engineers – because what seems like an insignificant change to the untrained eye can lead to a disaster. Lesson 2. Turning a blind eye isn’t just doing work for ‘free’ it’s enabling illegal modifications to be done.
The Stockholm Syndrome Can Be Very Dangerous.
You’re working away on site and you go to fit a 6-inch valve. But it’s not there, the client has given you an 8-inch valve. The situation should have been spotted a long time ago but the QA and Materials guys in both organisations didn’t want to upset anyone. They’re ‘Stockholm’d’ up to the eyeballs and back.
Normally an event like this would cause a kerfuffle, but not on a Stockholm Syndrome site. Here two extra 8-inch flanges appear along with 2 x 8-inch to 6-inch reducers. The work is done (the night-shift is the usual place to do it) and everybody is happy. No feathers ruffled, all is wonderful.
The puzzling thing is – they can’t get the proper valve but they can get more flanges and reducers?
The next guys into the breach are the QA guys. The extra welds and bigger valve aren’t on the P&IDs or the Isometric drawing. They flag up a non-compliance immediately and cry havoc – not!
No, they show the change on the red-line drawings to have it as-built later.
Lesson 3. All down the line an illegal and potentially disastrous change has been made. No engineering input, no change register note, no nothing. And nobody at HQ knows about it. Guess whose neck will be on the chopping block if something happens?
(Insert your answer to this here)
What can be done? Lots of things but reviews by an independent department who is not in the Stockholm Loop would go a long way to fix it. Corporate QC Department? Project Director overview?
Here’s my favoured ways to spot it.
1) Every project has changes. That’s a fact. On a well organised project changes might be expected to generate 1 x major and 10 x other change requests a month. On a project that is chaotic it could be 10 x major and 100 x minor a month. Start from there, expect changes.
I don’t have any figures for this but an experienced client and/or contractor could produce historical figures that would give the Project Management Team an idea of what volume be expected. Example: a $XXX valued project could expect claims to the value of $YY. Statistics showing the historical value of changes v original contract values would be helpful.
2) The number of change requests from site don’t match up with the volume of Engineering changes going through
3) If no changes emanate from site? Get your boots on and get down there. Something is going wrong.
Risk and Management – two words that induce drowsiness in most people. Put them together and you have the antidote to insomnia.
There’s nothing ‘sexy’ or ‘edgy’ about it. But it can help you sleep by ensuring that you don’t sit up all night out of your mind with worry.
Risk Management is associated with ‘Brainstorming’ and ‘Risk = Probability x Severity’ and ‘Risk Matrices’. But not all risks are equal, some risks are so probable and so severe that your company’s not going to make it no matter how hot your product is or how smart you are. We could catagorise these risks as systemic. The system itself is the risk.
You know? I’m so bored by just writing the above that I’ll stop and have a coffee. Because I’m about to write another word that could induce catatonia in a hyper-active teenager.
OK, Back again. Where was I?
The catatonia word? Procedures.
Yes. Risk and Management and Procedures all in the same sentence. Zzzzzzz.
But don’t drop off just yet. Let’s talk about something else. Let’s talk about a man called Arkad. He was (reputedly) the Richest Man in Babylon. He started as a slave and ended up loaning money to the Kings of Mesopotamia. And he wrote the book on Risk.
People who lend money are always good at risk because they manage a simple and tangible asset. There’s nothing complex or intangible about gold. Any loan of it starts with a Risk Assessment which has two elements a) what is the probability of getting the gold back + interest and b) how do I get the money back if the loan goes bad?
Arkad had a fantastic is somewhat esoteric way of assessing his risks. He had a chest full of artifacts and before he made a loan he looked through them. Each artifact reminded him of a specific failure. One was a jewel recovered from a man with an avaricious wife – a lesson on how to look at why someone wants a loan. For every type of risk he had an artifact. He learned from his mistakes and reminded himself of them frequently. They were his ‘procedures’.
The money used to finance a project is a loan. The company expects the person entrusted with the project to return the money with interest.
Let’s go ‘off-piste’.
How many company managers and how many project managers understand that simple fact? Neither the company not the project is in business to (say) construct a pipeline. They’re in business to make money from the construction of a pipeline.
Understanding the difference is the Genesis of Risk Management.
Fast forward to Procedures. Just like Arkad and his esoteric box of artifacts a company needs procedures because they are the first line of defence against risk.
There is another expert on risk we should all re-read, his name is Sun Tzu. But that’s for another blog.
And I’ll not delve into Procedures because I need to stay awake for the next eight hours, but think about it. How can simple instructions on how to do something protect a company or a project from Risk?
Answers please on the back of a certified cheque made out to CASH (your first lesson on risk right there).
If you want to understand how to make money in a risky environment – read the book
Many projects are managed by skilled PM Teams. They steer their projects through the vicissitudes of the project world and despite all odds come out on top. This blog addresses projects less fortunate. Projects that get gubbed.
Gubbed: Glaswegian for ‘punched in the gub (mouth)’
Delving into the lesser discussed aspects of projects I had a rethink about subcontractors.
It’s a dull and dreich subject matter. An afterthought, a need-to-get-one-on-board, a pain in the back-facing nether regions.
But since clients, contractors and even subcontractors can’t afford to carry the full spread of project capabilities they have to rely on a lower order of contractor to make up the gap.
So, what could possibly go wrong?
Number 1? You often don’t get to pick the subcontractor.
As must be obvious, I work in the Middle East. That’s where clients have a ‘preferred contractors’ list. But even in locations where there isn’t a preferred list there can be pressure to use certain sub-contractors.
As a professional organisation you’ll no doubt do due diligence on the list of subcontractors you’re presented with. You’ll may conclude that none of them could fit a nut on a bolt but you’re stuck with what you’ve got. You could bring the matter up with the client if you feel the need for a pointless gesture at this juncture.
Now you’ve watched that instructive video, here’s step 3.
Revisit the project schedule. Any float you had just went down the plughole. Isolate the activities you intend to subcontract and apply a multiplier to the duration. Start and 2 and work your way up.
For all activities described as ‘start-up’ (eg establish a camp) try a multiplier around 10 – and that’s after you move their ‘start on site date’ a considerable way forward.
I’m not painting a good picture here am I boys and girls? So let’s go through the round window today and we’ll draw up a list of what could be expected.
Establishing the Subcontract
Your pro-forma subcontract contract is of little use to people who own such companies. Their mixture of ‘bamboozle a Philadelphia Lawyer’ and ‘flutter Mother Theresa eyes’ trumps a mere contract that your lawyers have stuffed with ridiculous phrases like ‘start date’, ‘scope of work’, ‘penalties’.
Requesting a Schedule
Well it’s at least worth a try. What else are you doing with your day?
Explaining What a Mobilisation Plan Is
Hire someone who speaks the local lingo and send him to the meeting while you try and find a good coffee shop.
Starting Work On Site
For this you need a comfy chair in an office with a good view of the road leading to your site. Stare up the road, go home at 6 o’clock, awake, go to work. Repeat.
Hauling the MD/ Owner/ PM in for a Bollocking
You need to explain the following to yourself in case they ever turn up. “The subcontractor doesn’t work for you. Their connection is with the client”.
While you’re waiting for them you can practice new skills. Plaiting fog, jelly-to-wall nailing…and so on. I usually curate my collection of rocking-horse bum-holes to keep me out of mischief.
Explaining to the Client Why the Work Hasn’t Started On Site Because the Subcontractor They Coerced You Into Using Hasn’t Turned Up
Explaining it will take as long as you took to read that sentence. The rest of the 1 hour meeting will be taken up by the Client loudly explaining in words of one syllable that the subcontractor works for you and it’s your job to manage them. You big macho person you.
Withholding Payment for Non-Performance of Work
Or, as it’s called in the Middle East, finding out the strength of the connection your subcontractor has with your client. Your mobile phone is about to ring any second now.
A Meaningful Risk Register – the Holy Grail. But more difficult to find
The main problem is, as can be expected, where to start?
Here’s an overview of how to go about it.
Avoid a ‘Risk Brainstorming Session’ like the plague. You’ll end up with a long list of risky events that happened to people on their last projects. The past is no predictor of the future when it comes to risk.
A look at a close-out review and lessons learned of a similar project is always worth while but few projects do them and even fewer file them where they can be found.
Gather Your Sources
Gather the 4 documents that contain the Genesis of All Risks
The Project Plan (if you don’t have a real one then that’s your Number 1 Risk)
The Cost Book
The Project Location Map
Looking for Risk
When a contract is awarded very few people, if anybody, will know what is actually in it. Legal will know the legal parts, Treasury the finance parts and so on. Who has read the document back to front and made notes on the differences between the contract as it was intended v actual contract that will be enforced on the project?
So – you’re looking for 2 things. The risks inherent in the intended contract and the changes made in the contract as negotiated and issued.
Specifically go through the Bid Q & A and check against the final contract – there are usually gaps or differences in interpretation.
Then check key phrases to look for…
Novation of Sub-Contracts
Early Milestone Dates. Specifically, ‘start work on site’ date.
First Deliverables Dates
Client Generated Dates – Access to Site/ AFC Drawings/ Fee-issue Materials/ Project Start and Finish Dates
Insert your key phrase here – what contract clause gave you the greatest grief on your last/ current projects?
The Project Plan
At the start of projects there are 2 + ½ plans
The one used in the bid. It will be optimistic because you want to win the contract. It will be aligned with the client’s milestone dates because you don’t want to put in a non-compliant bid AND you don’t have enough information for a proper plan AND you didn’t have enough resources to build a proper plan. This is probably the one you’re looking at. It’s toilet paper.
The one you’re going to use to run the project. If you’re not planning to use a plan to run the project then you don’t need to read any further. Your project’s finished before it starts. This is also the plan mentioned in the contract where it says, ‘a full project plan will be issued by 28/35/42 (pick a number) days after award of contract’. It’s probably 14 or more days after contract signing right now and you don’t have any more information than what was available at bid stage.
The ½ plan you think you have but you probably do not. The killer risk. The Mobilisation Plan. You don’t have a specific one, I know. Produce one now and hope it’s not a career buster.
Plan 3) is obviously a sub-set of plan 2) but make it a stand-alone plan. Because it is not a work plan (like – install a generator) it’s a business plan that will need the input from HQ, Resourcing, HR, Travel, Legal…and so on. Expert(s) on the location(s) of the project is essential. You need someone who really knows how it works out there. They’re quite easy to find, right after hen’s teeth and rocking-horse poo.
Whether the project is offshore/ inshore/ desert or tundra there is a unique set of circumstances around the mobilisation of personnel, equipment, offices, IT and a hundred other things you need to do a project.
Fact 1: If the project is in Iraq it takes 152 days to get a welder on site. And that’s after you have the in-country infrastructure in place. That number of days is not so different for Saudi or Offshore.
Stock up on Imodium and gather your people.
Now you’ve gathered all the risks, changes, half-truths, maybes and scraps of this and that, the only thing you can do is to update the plan as best you can using the latest dates (Time Now is a great phrase to throw around). Then run the network with no restraints. This is your plan.
Prepare for the Project Kick-Off Meeting with the client. Will you table the new plan? If not, this risk goes to the head of the queue.
The Cost Book
I love cost books. Especially the beginning where it says, ‘Once Upon a Time…’ although fairy stories usually have more substance.
go through the spreadsheet and fix the errors There are always errors.
uncover hidden cells. Ask Google how to do it.
update the book against the Contract as Issued. (Mega Important Point)
update the book against the Plan you just revised. The Cost Book never ever matches up with the contract or the plan. After this exercise it might match for a week then the three documents will start to deviate again.
Identify how much you have for project contingency. Your financial wiggle-room.
Prepare to meet your boss to advise him on what you’ve found.
Phone the pharmacy and double the Imodium order.
Everything you found goes on the risk register – rank them in Cost Impact Order.
The biggest impact should be the fact the project end-date has moved substantially, but it could be anything.
The Project Location Map
This item may have puzzled some readers. Read on.
There is a sentence in your contract that says ‘the contractor will have visited the site and assured themselves that the work can be done’. Or similar.
When did the bid team have time to go to site or have access to it? It could be in the Gobi Desert or 50 Leagues Under the Sea or…
But that’s not the real problem – access to the site now is the issue. If it’s in Saudi you’re 42 days away from visiting the site (if you use a Businessman’s visa) or 70 days away (Work Visa) and they just get you to Khobar.
Time to revisit the Project Mobilisation Plan. Take a big syringe and inject a dose of realism into it.
The rubber, as they say, has met the road.
Now. If your company has never worked in the contract area or does not have someone experienced in the site area? You’ve found another Category 1 Risk.
For light relief Google the area. It will read…
‘UpYoursIstan has the hardest igneous rock known to man. The lower lying areas are subject to flooding for 11.5 months of the year. The judiciary have been executed following the last coup’.