DRAFT 3
FIATECH SBPP E1-FA1 Work Process Mapping:
Decision Sequence and Influence Diagram Major Capital Projects SBPP Team June 21, 2005
FIATECH
Scenario-based Project Planning Vision statement
The future project planning system will provide interactive evaluation of project alternatives, enabling creation of conceptual designs and project plans that best meet the needs of all stakeholders. This collaborative planning environment will provide full awareness of the impacts of decisions on costs, schedules, and lifecycle performance. The system will provide the initial input to a comprehensive project plan and specifications, ultimately captured in an Asset Lifecycle Information System, to guide subsequent project designs and support downstream project functions. The Asset Lifecycle Information System is a foundation of the future state vision, serving as the repository for all design and planning information and the interface for all systems and applications. Element 1, Focus Area 1: Work Process Mapping Objective
Identify and document the SBPP process by which project planning decisions are made and the broad information inputs and outputs required to support those decisions. 12-Jul-05 – 2–
Variables to be considered in Project Analysis Variable descriptions were expanded to summarize input from Charles Wood. Numbering scheme revised to the index approach used in original SBPP documentation. Blue text indicates further content changes not yet presented to SBPP team.
A. Site selection 1. Market location 2. Raw material sources (location, quality, quantity, long-term reliability, cost) 3. Logistics availability - incoming and outbound (transportation choices, monopolies, public or dedicated systems) 4. Political and social climate 5. Environmental impact - water effluent, air emissions, social factors (impacts from construction and from operation, regulations, regulatory changes) 6. Personnel hazards - explosion potential, toxic releases 7. Tax incentives 8. Governmental permitting - national and local, building, sewers, highways, railroads, navigation, navigable waters, aircraft, environmental 9. Staffing - labor pool, skill level (competition for qualified resources, availability of alliance contractor personnel) 10. Site soils, groundwater, and geology (any show-stopper issues, risk mitigation) 11. Infrastructure - available services - electrical power, telephone, water, railroad, highways (quality, quantity, adequacy for lifetime of asset, maintenance, stability, public versus dedicated, contract risks) 12. Cost of services – energy costs, construction and operating labor (risk mitigation) 12-Jul-05 – 3–
Variables to be considered in Project Analysis - continued B. Facility Technology 1. Is the technology state-of-the-art? What degree of automation is needed? (process uncertainties or risks, own versus license, who has control of technology) 2. Is it competitive - world class manufacturing (functional life of process, new developments that would impact it) 3. Alternatives - waste treatment and disposal requirements, energy consumption (own versus contract, reliability of providers) 4. IT Infrastructure (operating systems, links to other systems)
C. Project Execution Strategy 1. Front end loading (level of uncertainty or risk in specification/execution, timing and cost to resolve risks, project management) 2. Production design (most economic source, qualifications, training needs) 3. Construction - stick built versus modular construction (capability of local contractors, existing site conditions, key components of modular construction) 4. Contracting - lump-sum, cost-plus-percentage-of-cost, incentive? (what risks involved, who can best manage risks) 5. Project information strategy (collaboration, work flow, document management)
12-Jul-05 – 4–
Variables to be considered in Project Analysis - continued D. Sourcing/Procurement 1. Engineered equipment (vendor capacity to meet schedule, possibility for acceleration, owner standards that may limit procurement options) 2. Field material 3. Field labor (sufficient qualified labor locally, non-local alternatives, training needs, labor union issues, competition from other projects in region) 4. Raw materials (see also A2) 5. Domestic versus import requirements (local content requirements for design, construction, equipment, and/or materials) 6. Contract services (what services needed, local availability)
E. Schedule 1. Start up timing (product sales contracts, commercial penalties/costs for late start-up) 2. Rate of capacity attainment
F. Project Budget 1. Capital and non-cap 2. Cash flow requirements/limits (restrictions on project funding or cash flow)
12-Jul-05 – 5–
Variables to be considered in Project Analysis - continued G. Risk assessment and Contingency Planning/Exit Strategy (details covered also in planning section above. Key element for all factors is cost and timing to mitigate; exit strategy should include cost and other impact of exit prior to each stage.) 1. Process / Structure technology 2. Logistics – how to transport product? 3. Economic risk (project economics, market assumptions still true, macroeconomic issues such as trade balance) 4. Environmental risk 5. Contractual risk 6. Political / Cultural risk
H. Information Asset 1. Content requirements for information handoff 2. Format requirements for information handoff (documents, databases, paper, etc.) 3. Timing and availability of the information deliverable (during, after)
I. Business Requirements (clear philosophy and priorities, controllable by owner or uncontrolled / externally controlled) 1. Capacity flexibility 2. Product and process flexibility 3. Quality flexibility 4. Raw materials flexibility and Product delivery response
12-Jul-05 – 6–
Decision Process and Sequence There are a number of decisions (or families of decisions)
necessary in the scenario planning phase of a capital project. The Decision Sequence encourages the project team to think about the order in which these decisions need to be made at the start of the project to ensure appropriate consideration is made and interrelationships are identified up front. The sequence may vary depending on the nature of the project
and the strategic objectives of the company or business launching the project. Many of these decisions will be iterative. As the team learns
more during the planning phase, earlier decisions may be reviewed or revised or the next, more detailed level of the decision will need to be addressed. This can also take place during project implementation. The Decision Sequence is read from left to right. 12-Jul-05 – 7–
FIATECH SBPP Example Capital Decision - Business Level SBPP assumes all marketing studies and inputs have already been done.
Business Issue: What is the best way to increase production capacity? Build a new plant using current technology Build a new plant using new technology
Make technical improvements to our current production line to increase yield / throughput Other (e.g. additional shift)
Legend Decision Alternative choices 12-Jul-05 – 8–
FIATECH SBPP Example Decision Sequence - Project Level SBPP assumes all marketing studies and inputs have already been done.
Sourcing / Procurement
Site Selection
Project Budget
Facility Technology
Project Execution Strategy
Schedule Information Asset
Business Requirements. / Flexibility
Risk Assessment / Contingency / Risk Legend Decision Alternative choices
Time
12-Jul-05 – 9–
Influence Diagram - A map of how variables affect value An Influence Diagram is a graphical representation of how decisions and uncertainties affect value. It provides a map between the variables (inputs) to be considered and the resulting output to facilitate creation of an economic model. Beginning with the end in mind, the Influence Diagram starts on the far right with the
Decision Criterion. z z
In the diagram that follows, the Decision Criterion is Net Present Value (NPV). There are often multiple Decision Criteria for a particular set of business decisions, but one (e.g., NPV) is used to represents the overriding financial objective for model creation.
The Influence Diagram is then constructed from right to left to identify the variables or
uncertainties needed to calculate each level of information to reach that Decision Criterion. Influence Diagrams also show Dependent and Independent Uncertainties. A Dependent
Uncertainty is one whose range of possible outcomes depends on some predecessor uncertainty. z
For example, both Price and Volume are dependent upon “Market Conditions and Changes” in the top level of the Influence Diagram that follows.
12-Jul-05 – 10–
Influence Diagram - A map of how variables affect value The influence diagram is an aid to modeling in that it shows the logic and dependency of
the uncertainties or variables. z
z
z
z
The model first reflects the alternatives identified to assist in the decision regarding which solution will best meet business needs. Subsequently, the chosen alternative will turn into a specific model of the project and the facility or enterprise being created. Uncertainties that cannot be calculated will need to be assessed, usually using a multi-point approach, such as a 10-50-90 range. The uncertainties that can be calculated from other data are shown with a diagonal line drawn through them. The influence diagram and the value assessments they generate will be revised as needed to reflect changes throughout the dynamic decision and modeling process.
The influence diagrams on the following pages reflect the variables to be considered as listed on pages 3-6. Alpha-numeric references map to the individual variables in the list. The first page represents the high-level complete map to develop cash flows and NPV for
a typical capital project. Subsequent pages provide additional details of the Capital Expenditure (Capex) aspects of
the project and cover most of the SBPP focus. 12-Jul-05 – 11–
FIATECH Influence Diagram - Major Capital Projects - Top Level KEY
Market Conditions & Changes
Price
Revenues
Product Logistics
Var Costs
PTOI
Calculated Uncertainty Constant
Delta Wkg Cap
Discount Rate
Tax Rate NPV ATOI
Plant Fixed
Cash Flow
Dep Rate
Fixed Costs
SARM
xxx
DSO, IDS, DPO Tax Incentives
Existing Oper Costs
Uncertainty
Text
Volume
New Oper Costs
xxx
Depreciation F1. Non-Cap Project Costs
All Other F1. Capex
SARM = Selling, Administrative, Research, & Management Expenses DSO = Days Sales Outstanding (accounts Receivable metric) IDS = Inventory Days Supply, DPO = Days Payables Outstanding
(Details on next page) 12-Jul-05 – 12–
FIATECH Influence Diagram - Major Capital Projects - Detail (Details on next pages)
KEY xxx
Uncertainty
xxx
Calculated Uncertainty
Text
C3. Construction Strategy
A. Site Selection
G. Risk Assess
C4. Contracting C2. Prod. Design
Constant F2. Cash Flow Constraints
C5. Proj Info Strategy
C1. FEL Capital Planning & Design Costs (A,C,G)
D3. Labor Construction Costs (D) (Procurement)
D2, D4. Materials D6. Services D1. Eng. Equipment
D5. Import Costs
B2. Technology Competitiveness
F1. Capex
B1. Degree of Automation
I2. Production Flexibility Technology Deployed (Equip, Bldg)
I3. Quality
E1. Timing, Start-up
E1.Sched. Penalties I1. Capacity
E2. Timing, Ramp-up I4. Raw Mtl & Product Delivery
B4. IT Infrastructure B3. Waste Handling, disposal
B3. Energy Consumption
H. Information Handoffs & Delivery (Details on next pages) 12-Jul-05 – 13–
FIATECH Influence Diagram - Major Capital Projects - Detail A4. Political / Social Climate
A2. Raw Material Sources
A1. Market Location
A3. Logistics
A11. Infrastructure A. Site Selection
A9. Staffing
A12. Cost of Services
A5. Environmental Impact
A10. Site Soils, Groundwater, Geology
A7. Tax Incentives
A6. Personnel Hazards A8. Govt Permitting
12-Jul-05 – 14–
FIATECH Influence Diagram - Major Capital Projects - Detail
G2. Logistics
G1. Process / Structure Technology
G3. Economic Risks G. Risk Assessment, Contingency Planning, Exit Strategy G5.Contractual Risks
G4.Environmental Risks G6. Political / Cultural Risks
12-Jul-05 – 15–
FIATECH Influence Diagram - Major Capital Projects - Detail
H1. Content Requirements H. Information Asset
H2. Format Requirements
H3. Timing & Availability of Information
12-Jul-05 – 16–