March 6th, 2010 by kkmolly
Below is a quick video that tests your ability to see clearly when in a competitive situation. Click on it first before reading the remainder of this blog. perception test
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I like this video because it illustrates the value of having a third party perspective. Project managers and attorneys are frequently focused on the “ball” during a project and/or during a project dispute. Third parties, such as experienced construction experts, look at the ball within the situation, such as the [deleted] in the clip. The value added includes the following:
- Bringing in an expert into the project development team or early phase of a dispute to identify potential risks to project success and alternate strategies.
- In addition to being an expert in the field, having the ability to see the big picture as well as the details so that action plans can be re-baselined if needed and the self-audit process to ensure the dual perspective is being met.
- Bringing reality and stability to a situation by having an independent separate fact from emotion or perception, which promotes effective resolution of issue.
Tags: independent expert, project strategies, risk mitigation, third party
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January 6th, 2010 by kkmolly
Today the Wall Street Journal featured an article on Big Oil’s expensive gamble in deep water drilling through up to five miles of rock under over 4,000 feet of water. As a result of limited access to world reserves (Middle East, Venezuela, Russia) and aging current fields, companies such as Chevron and BP are investing billions of dollars in new oil-exploration fields. The investment is paying off as these big companies discover large quantities of oil, which only they have the technological and financial backing to pursue.
It is easier to appreciate the technological difficulties of hitting the reservoir payload when the article compared the successful drilling of the Chevron well named Tahiti to a dartboard, “That well needed to hit a 200-foot-long target from five miles away — akin to hitting a dart board from a city block away.”
These fields are located in the Gulf of Mexico but also off the coasts of Brazil and Ghana. Even more significant, experts speculate of a massive oil reservoir spanning across the Atlantic Ocean from Africa to South America, which could be good news for the rest of us. As the demand is projected to increase with the surge of second and third world population needs, the world will need additional fuel to maintain the energy supply. At least until alternative energy sources make a significant contribution to the supply volume and energy demand becomes more controlled.
In the meantime, while we wait for additional large oil findings, we applaud the efforts of companies investing in the advanced technology and taking the financial risks in these billion dollar capital projects.
Tags: capital project, oil, risk
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September 22nd, 2009 by admin
In the current financial market turmoil, capital project investments have moved into the spotlight. And the need for capital projects to meet or exceed their expected return on investment has never been more critical. As the tightness in the financial sector plays out, the re-emergence of inflation risks related to labor, equipment, material and the cost of money will increase. These risks make project completion and cost control a critical necessity. Any extension of the project duration or growth in cost can have a devastating effect on a business’ financial position.
The method of construction contracting and risk mitigation must change based on this new market reality. The concept of shifting construction risk to construction firms may seem a prudent risk management approach. This approach has been used for many years through the process of lump sum biding, requiring insurance bonds, and imposing liquidated damage contract clauses.
In this new market reality construction companies are less likely to except these approaches as they present an unacceptable risk to the construction company. As a business, construction companies simply are not capitalized to the level required to cover large monetary awards, nor do they have the ability to obtain large enough insurance or performance bonds to support the end users business risks.
It is also highly possible that the age of lump sum bidding will continue to decline to become the exception verses the norm. Mixtures of contracting methods will be used in the future. The lump sum contracting method will be used with well-defined project scopes of work or with specialized subcontractors. Less defined project scopes of work will lend themselves to cost-plus, time and material, unit pricing or alternatives such as earned value contracting may see broader acceptance. As the project scope becomes better defined it is possible to convert these contract strategies to lump sum.
Fostering an environment that facilitates a clear dialogue between the business owners and the construction companies will be the best strategy in this difficult market. Proper due diligence related to business strategies and establishing clear expectations as to the final outcome of a capital project will be critical. An inclusive rather than adversarial project development approach, where contractors are invited to provide input for the overall success of the capital project, will be the order of the day.
Tags: banks, investors, operators, owners
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