Volume 5
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Key Points
- Productivity trend graphs are often used to track progress (or lack thereof) for labor productivity improvement in various industries over a span of several decades.
- This article offers a broader perspective on the magnitude of the productivity problem in the ‘construction industry’ that has existed for over a hundred years ago by analyzing industry trends. By compiling the pre-1960 productivity trends along with more recent research, we are able to complete the picture of lack of improvement in construction labor productivity since the 1900’s.
- There are two obvious trends observed – one is that manufacturing and all non-farm industries are increasing in productivity, measured as output by labor hour, and the second is that construction over the same period, as a whole industry, is generally flat. Although further research needs to be performed to better understand what factors are contributing to these discrepancies, it is very clear that there is a large opportunity to capitalize on, even for projects that are being completed under budget and ahead of schedule.
Introduction
Productivity trend graphs are often used to track progress (or lack thereof) for labor productivity improvement in the various industries over a span of several decades. Numerous sources representing Canada, the U.K. and the U.S. have compiled data to create such graphs. The most widely used graph to date was prepared by Professor Paul Teicholz of Stanford University in 2013. However, most of these graphs (including Teicholz’s) only focus on a timeframe of about fifty years, from the 1960’s through 2010’s.
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Executive Summary
Few topics evoke such controversy among project leaders, both owners and contractors alike, as much as contracting strategy. Deeply held beliefs reinforced by structural foundations drive decisions on contracting strategy regardless of what actual performance data suggest.
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The stage gate project development approach1, as adopted by the engineering and construction industry, was designed as a business process both to meter spending prior to the investment decision and yield predictable outcomes. It has been widely implemented across industrial capital project sectors such as energy, mining, infrastructure, chemicals and pharma. While it can deliver on its intent, if applied too rigidly, it also drives deleterious, unintended consequences that increase cost, lengthen schedules and erode returns on capital employed.
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Key Points
- Based on reported success using Agile for software development in their IT Departments, executives are looking at more widespread application of Agile in their companies.
- One such application is the design and construction of capital assets. However, software development projects and capital projects are fundamentally different for a myriad of reasons.
- Capital project owners should determine if Agile is suitable for capital project delivery efforts and use the options that achieve best possible project delivery outcomes.
Introduction
In recent years, the implementation of Agile mindsets or methodologies has become an increasingly common trend within organizational management. In a 2017 McKinsey Quarterly survey of 2,500 business leaders, 75% of respondents said organizational agility was a top or top-three priority, and nearly 40% were in the process of conducting an organizational-agility transformation [1]. In a 2018 Forbes article [2], Agile was described in adulatory terms:
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Key Points
- The COVID-19 global pandemic has highlighted shortcomings and risk of supply chain decisions made with the aim to reduce cost. Specifically, how the adoption of “Just in time” by manufacturers has driven reduction of intermediate storage and “global sourcing” has driven supply from distant low-cost sources.
- The current upheaval in supply chains has raised several questions: how “resilient” are the supply chains for capital projects? Some sectors rely heavily on supply from one country, is that wise? What can and should project leaders do to minimize the impact of supply chain disruption on their projects or provide agility to handle unforeseen circumstances?
- Project Production Management (the application of Operations Science to the delivery of capital projects) provides the framework for effectively controlling supply chains.
Introduction
Everything from toilet paper to medical equipment has been in short supply for a myriad of reasons including manufacturing capacities, lead times to manufacture, source country priority and unpredictable demand, or in many cases lack of accurate demand forecasts.
Volume 4
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As this Edition of the Journal goes to press, several events since the last Journal signal the increasing growth of the Project Production Institute. Our December 2018 Annual Symposium was the most successful yet, with a full capacity audience attending sessions ranging from an Introduction to PPM, accompanied by case examples presented by industry practitioners, to Production Systems Optimization.
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Westwood Global Energy Group (Westwood) and PPI White Paper
This white paper advocates cycle time analysis for assessing the efficiency of unconventional field development program by operators.Higher returns and increased cash flow can be achieved by decreasing the cycle time and optimizing the amount of work-in-process (WIP)in onshore field development programs. The Delaware basin was selected as an example to illustrate the potential opportunity to reduce capital tied up and decrease the time before first revenue is realized.The study found a wide range of average cycle times between different operators in the Delaware basin ranging from 110 days to over 200 days. Optimizing operations to minimize cycle time across the basin will make a significant impact to the economics of unconventional development programs.
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Abstract
One of the primary underlying tenets of Project Production Management (PPM) is that operators can and should be calculating the appropriate level of inventory required within and between each task in their project. While almost all operators track inventory, or WIP, few to none know what that inventory should be. In addition, there is a lack of clarity around the financial impacts of controlling inventory and how this relates to equity performance. This article aims to explain the three main areas of financial impact once PPM is implemented. These are: 1) a reduction in cash tied-up / working capital, 2) a reduction in capex to deliver the same number of wells, and 3) an increase in project net present value. These impacts, in turn, will lead to higher free cash flow and stronger return on cash invested – two very important financial metrics used to judge the health of the US oil and gas industry. While PPM can be applied to any capital project, this article will focus on onshore unconventional developments.
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Abstract
During the past few years, oil and gas executives have begun to profess they use a “factory” or “manufacturing” approach to field development. Terminology such as “factory” or “manufacturing” is intended to connote a sense of improved operational efficiency, compared with what was achieved with previous approaches to field development.
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Abstract
Over the period 2014 to 2018, US unconventional operators reduced well breakeven costs in response to oil prices falling from a median price of $76/barrel in 2014 to just under $50/barrel in 2018. As oil prices begin increasing again, investors question whether these cost reductions are genuinely sustainable, achieved by long term structural changes or whether they are cyclical in nature, and therefore temporary. An analysis of publicly available data indicates that operators do not have the tight control on operational performance and costs suggested in earnings calls. We show that substantial improvements are possible with a thoughtful application of Project Production Management principles to unconventional onshore field development. Our estimates suggest that unconventional operators could unlock up to $10 billion of cash in their operations, which could be reinvested to $65 billion of potential revenue.
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Abstract
Supplier production and on-time delivery of material is a vital element of any major capital project’s success. Project management teams are often ignorant of supplier operations management practices and thereby suffer loss of major opportunities to improve project performance.
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Abstract
Autonomous vehicles—on the road, in the air, or over the water—are expected to disrupt business processes, operating costs, and economic models. Logistics and supply chain operations will be deeply affected, as will the relationship between service providers and customers.
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Abstract
Ongoing analysis of efficiency in construction compared to other industries indicates construction continues to fall further behind. There are several reasons for this, but one that is most prevalent is the difference in approach to design and engineering between advanced industries such as aerospace, automotive, etc. and the construction industry.
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Abstract
The 2018 PPI Symposium incorporated significant discussion about the role of digital technology including artificial intelligence, machine learning, IoT sensor and autonomous in support of Project Production Management (PPM) as the means to achieve better project outcomes. Though the relationship is obvious for many, the connection is not apparent to others. This situation is compounded by the fact that there exists confusion about the difference between innovation and technology, and the resulting implications for business and project performance.
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Abstract
The effective implementation of Project Production Management (PPM) requires a clear understanding of production processes within a given project production system – how they transform information and materials into outputs using capacity contributors (labor, equipment, space) and based on specific objectives, policies and requirements. This brings not only a necessary process perspective to production, but also forms the basis for production system optimization, control and ongoing performance improvement.
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Abstract
The delivery of a project is most often planned and controlled using a schedule. Though common, this approach focuses on the demand side only. By this, we mean that the customer (owner, program manager, construction manager, etc.) sets forth what is needed from the network of service providers (designers, engineers, fabricators, contractors, etc.) to execute the scope of the project. However, this approach does not provide an effective means for understanding the supply side. To understand the supply side, the use of process flow diagrams is necessary.
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Abstract
Herein we describe a refinement of the well-known Cycle Time Formula, introducing two new components into the formula. One component describes the “wait-to-match” time of different routings in a production system converging at a single point, such as in an assembly operation. The second component accounts for “planned time buffers” – the time that parts or tasks are waiting, whether or not they can be worked on because of policies governing whether work can be done or not. Including these new components leads to a deeper understanding of the key contributors to cycle time, allowing us to make better decisions to optimize production system performance for considerations such as time-to-market or minimizing cash tied-up in Work in Process (WIP).
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Abstract
The basic relationship, WIP = CT x TH known as Little’s Law has wide application in both production systems as well as projects [1]. However, when some parts/tasks are never completed because they are either scrapped (yield loss) or have become obsolete (as in a project), the application becomes a bit more complex. This study presents an analysis of these situations and concludes with a more general set of Little’s Law equations, as referenced in Factory Physics [2].
Volume 3
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Abstract
One of the most significant differences between conventional project management and Project Production Management is the view of inventory. In large capital projects, a usual practice is to amass as much inventory as possible, because “schedule will be met if everything needed is already onsite”. Almost no consideration is given to the potential implications of such a decision, with respect to execution or financial risk. The position of the Institute described here is that the timing of ordering and receiving inventory and authorizing work in process is one of the most strategic decisions in project execution and delivery. Project Production Management provides the technical framework to work out the right decisions to make on ordering and receiving inventory.
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Abstract
This paper describes a new pull-based production system called CONWIP. Practical advantages of CONWIP over push and other pull systems are given. Theoretical arguments in favour of the system are outlined and simulation studies are included to give insight into the system’s performance.
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Systems Engineering and the Project Delivery Process in the Design and Construction of Built Infrastructure
Abstract
How can a systems engineering approach be applied to the project delivery process in the design and construction of built infrastructure? First, this paper articulates how infrastructure can be seen as a system of interest, a complex production system that is operated and delivered through enabling production and work systems. Second, it considers systems operation, where research in the systems engineering discipline shifts attention from ‘operator error’ (and root causes) to the systemic accident factors. Third, it considers systems development and how a formal model of the development process, the classic V diagram, differs from the standard representations of production used in the design and construction of built infrastructure, emphasizing systems architecture and systems integration. Fourth, it considers production systems in terms of the locus, organization and activities involved in fabrication and assembly. Fifth, it considers infrastructure systems from the broader perspectives of long-term ownership and operation of assets, critical infrastructure and a shift from a linear to circular economy. The paper concludes by discussing where further research is needed. This is both in relation to the emergent properties, flows of physical material, information and costs associated with infrastructure as a complex product system and in relation to the enabling work systems for production (design and construction) and for operation, maintenance and disassembly.
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Abstract
An article in a previous edition of this Journal outlined the evolution of project management over three distinct Eras. Eras 1 & 2 encapsulate conventional project management thinking, while Era 3 describes a Project Production Management framework that views projects as temporary production systems and applies Operations Science to optimize project delivery.
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Abstract
Over the last thirty years, the practice of benchmarking capital projects and performing statistical analyses to infer trends and best practices, has become a standard for the evaluation of capital project performance. Over that period, despite the emergence of many recommended best practices to improve project performance derived from benchmarking, major capital project outcomes remain stubbornly poor.
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Abstract
The Product-Process Matrix, first proposed by Hayes and Wheelwright, is a fundamental concept in Operations Science. Products made in production systems vary in complexity, ranging from highly customized low volume products to commodity, standard high-volume products. The Product-Process Matrix describes how certain types of production processes are more naturally matched for some product-volume mixes compared with other types of processes. Hayes and Wheelwright used this idea to describe the variation with product volume of strategic options for companies, ranging from low volume, highly customized products to high volume commoditized products.
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Abstract
The first volume of the PPI Journal included a tutorial article on Little’s Law, explaining the fundamental relationship between throughput, cycle time and work-in-process (WIP) for all production systems, including those that are contained within capital projects. For those new to Operations Sciences, a more naïve interpretation of Little’s Law leads novices to infer that one need only increase WIP arbitrarily high to increase throughput to whatever target level is desired. While Little’s Law is generally true under very broad assumptions, it cannot always be treated as if any pair of variables selected from throughput, WIP and cycle time can be independently altered to set the third variable to a desired target. Real production systems always have other physical constraints that place upper limits on throughput and lower limits on cycle time.
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Abstract
For years now, project managers have been applying a methodology called Project Production Control (PPC) to assist them in delivering projects on time and under budget. While there have been several papers on how PPC is different from traditional project management methods, none have described these from a probabilistic/statistical viewpoint. This paper seeks to fill that gap.
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ABSTRACT
Value Stream Mapping (VSM) is a term that describes a family of popular techniques used to analyze production systems. Popularized in the 1980s by Womack and Jones [1] and the Lean movement, VSM is a staple tool associated with lean practitioners. Modern day practice of VSM, heavily influenced by the book by Rother and Shook [2], is to map a current and future state of the flow of production, and to identify ways to eliminate waste or non-value adding activities, leaving only value-adding activities.
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Abstract
A significant gap exists around how to manage work at the frontline, or the point of installation. The inability to effectively manage execution of work is a key reason projects continue to suffer from cost and schedule overruns along with the associated claims. The Institute’s principals have come to this conclusion through conversations with numerous experts over three decades about improving the outcomes of capital projects.
Volume 2
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PPI Position Paper: My Project is a “One-Off” – How Do I Leverage Project Production Management to Improve Project Delivery?
Abstract
Project Production Management (PPM) is sometimes described as “applying manufacturing techniques to projects,” implying that PPM only applies to scenarios with highly repeatable and predictable conditions. Consequently, many experienced project professionals mistakenly believe that PPM denotes a “manufacturing approach” to capital projects. To the contrary, evidence shows that PPM applies to the execution and delivery of all projects, large or small, customized or standardized, and improves upon prior conventional project management practices. We further demonstrate that, depending upon the complexity of scope, implementation of PPM on “one-off” projects is even more critical to achieving stated objectives.
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Abstract
The ever-increasing lead time for products (including materials and permanent equipment) required to deliver a capital project results in increased project delivery costs and operating costs for owners, not to mention the associated loss of revenue and related lost opportunity cost.
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Abstract
Project Management aims to address the myriad technical, human, organizational and managerial issues encountered during project execution [1]. Over the past two decades, different variants have emerged, including Lean Project Management, Agile Project Management, Scrum, Theory of Constraints and Extreme Project Management, to name a few. Lean Construction [2,36,54] utilizes concepts originally from Lean manufacturing and applies them specifically to the delivery of projects in the construction sector.
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MANUFACTURING & SERVICE OPERATIONS MANAGEMENT
Vol. 6, No. 2, Spring 2004, pp. 133–148
ISSN 1523-4614 EISSN 1526-5498 04 0602 0133
DOI 10.1287/MSOM.1030.0028
© 2004 INFORMS® -
Abstract
In the previous edition of the Journal, we featured a tutorial article on Little’s Law, which is a fundamental relationship between Throughput (TH), Cycle Time (CT) and Work-In-Process (WIP). These core variables are found in all production systems, including those that are contained within capital projects. A naïve interpretation of Little’s Law frequently leads those new to operations science to infer that one need only increase WIP to arbitrarily high levels in order to increase throughput to whatever target level is desired. While Little’s Law is generally true under very broad assumptions, it cannot automatically be treated as if independently selecting and altering any two of the variables (Throughput, WIP and Cycle Time) will set the third variable at a desired target. Real production systems always have other physical constraints that place upper limits on Throughput and lower limits on Cycle Time. Using some simple examples, we will explain how physical constraints manifest themselves in limiting the range of feasible values that Throughput, Cycle Time and WIP can achieve. We will also discuss the important concept of Critical WIP, the minimum WIP level necessary to achieve the maximum Throughput in a production system, wherein there is no variability. We then conclude with a qualitative discussion about how variability affects system performance, as well as its effect on the optimum level of WIP needed to achieve desirable Throughput and Cycle Time performance.
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PPI Position Paper: Defining “Production System” from an Operations Science and Project Production Management Perspective
Abstract
What is a Production System? Different disciplines, ranging from manufacturing to civil engineering and construction to project management and Lean, refer to the term, but few define it. One can only assume its meaning is generally taken to be self-evident from the constituent words. However, for purposes of Project Production Management, as with other scientific fields, a more precise definition, distinct from colloquial usage or usage in other subjects, is an essential part of a theoretical framework for making predictions about project execution performance and to identify how to control project execution. Starting from the etymology of terms and key requirements drawn from operations science [1 – 2], we provide a precise definition of Production System. We explain the contrast between our definition taken from operations science literature and terminology used elsewhere, such as by the Toyota Production System [3 – 4], Era 2 Project Scheduling [5] e.g., Critical Path Method and the Last Planner System© [6]. The most important distinction is that the precise definition of Production System provided here enables Project Production Management to be a quantitative theoretical framework, capable of modeling and predicting limits on project execution for a given Production System, and of identifying precisely where buffers can be allocated to optimize key parameters of a Production System: system throughput, system cycle time and system WIP.
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Abstract
In the previous edition of this Journal, we outlined a three-phase research program to explore ordering and scheduling practices that lead to earliness and delays in materials and equipment delivery in capital projects. Usually, owner-operators and their EPC’s look to minimize the risk of schedule delays due to late materials and parts delivery by mandating that parts and materials be delivered far in advance of when they are needed. In contrast, many other industries, including automotive, retail and technology, coordinate orders and deliveries more closely with actual needs to better optimize overall system performance.
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Abstract
In the United States, one of the few areas of political confluence appears to be around the need to address the country’s crumbling infrastructure. As priorities in governmental spending have shifted toward social objectives, investment in infrastructure over the past several decades has been woefully inadequate, not only in terms of expansion to keep pace with the needs of society, but also in terms of basic asset maintenance. While the construction industry should welcome this new focus on infrastructure investment, it must also deliver value for that investment as a clear priority, given the sheer scale of funding contemplated. Their recent track record for meeting project objectives is unacceptable.
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Abstract
In the first three months of 2017, three important reports were published on the future of the construction industry and the delivery of new infrastructure [1 – 3]. These reports highlight the distinct challenges we face in developing our economic and social infrastructure, and the woeful performance of the global construction industry over the past twenty years. They go on to make similar recommendations for reform.
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Abstract
Supply process flows are critical to the successful delivery of infrastructure projects and associated key business drivers (growth, reduced costs or lead times, reliability, etc.). Implementing a Project Production Management (PPM) structured approach with suppliers is essential to capture value within the supply network, extending beyond conventional procurement practices. We illustrate this by examining three examples of infrastructure projects.
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Abstract
Since 2010, Hess has led the oil & gas industry in the application of Project Production Control to the execution of oil & gas operations. Using methods and techniques originally developed for optimizing manufacturing and production processes to work execution in oil & gas operations, the company has achieved both significant cost reductions and increased reliability for the completion of work. Navigating the journey to adopt production control methodology presents several challenges for organizations as they learn how to collaboratively plan and control their work execution at a level of granularity typically unprecedented for them. Experts in operations management and production control can certainly teach companies what needs to be implemented at a detailed level. However, true organizational change and implementation is accomplished by employees who may not be experts in production control, but who nevertheless are sufficiently committed to delivering the ultimate potential of production control by leading their teams to successful adoption.
Volume 1
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The Project Production Institute increases industry awareness and facilitates a shift in thinking to support the application of Project Production Management theory and methodologies to major capital projects. PPI funds research and disseminates knowledge about the application of operations management and systems theory for the delivery of complex and critical projects. Specifically, PPI:
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The Institute has established a number of steering committees to guide its agenda.
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Abstract
Project management can be viewed as having developed over 3 distinct time frames, or Eras, in response to the evolving nature and needs of projects over time. Viewing project management through the framework of the 3 Eras provides a number of useful insights described in this article. Conventional project management, as codified by the Project Management Institute, spans the first two Eras. It has two fundamental gaps, preventing the satisfactory management and execution of today’s complex and dynamic capital projects. Understanding these gaps explains why some traditional responses to recover from cost and schedule overruns in projects do not work. We describe how Project Production Management (PPM) provides the two missing elements of conventional project management. We conclude with the perspective that PPM ushers in a new third era of project management to address today’s complex major projects operating in dynamic environments.
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Abstract
Project managers want projects delivered on time and under budget. Unfortunately, most project managers are handicapped by flawed, or plain wrong, decision-making models for controlling the complexity and variability inherent in project management. The history of project management has been a progression of focus on cost and schedule using ever-newer concepts and computer software. However, the concepts and software have generally been applied in a theoretical vacuum absent the natural realworld relationships between variability, capacity, response time and inventory. Projects are undeniably a special case of production systems and all production systems are governed by operations science. Project managers should apply the concepts of operations science to get predictable and profitable results, rather than ignoring the science because “projects are special.” In this first of a series of articles, we describe a relatively new framework for operations science, initially developed through the award-winning book Factory Physics®, and how it can help completely transform project management from chronically late and over-budget performance into predictable, profitable and career-enhancing work.
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OPERATIONS RESEARCH
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Abstract
Since it was first published over 50 years ago, Little’s Law has been applied, with great success, to numerous fields such as telecommunications networks, retail supply chain management, logistics and manufacturing. But is it applicable to project delivery? If so, how can we benefit from its use? In the first of what is intended to be a series of short tutorials in the Journal, we explain the application of Little’s Law to the delivery of capital projects. Little’s Law provides insight into how increasing work-in-process (WIP) has a detrimental impact on cycle time. This is counterintuitive to common practice in conventional project management, where the belief is that increasing WIP will increase throughput and ‘get more things going.’
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Abstract
The primary purpose of this paper is to first define and then differentiate Project Controls and Project Production Control. The paper also provides a brief historical perspective and examples of the application of each discipline. The paper concludes that although the two disciplines are distinct, each plays a different and important role in Project Delivery.
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The United Kingdom is in a new era of infrastructure development. Our infrastructure is mature and in need of renewal. Most investment is in existing networks and facilities, where it competes for space with the delivery of services to customers. And infrastructure is becoming more integrated and more reliant on digital technologies to provide new capacity and ensure its smooth operation.
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Introduction
Advanced Work Packaging (AWP) refers to an approach for planning the delivery of capital projects that aims to maximize productivity at the work face by aligning the deliverables of engineering design with what is needed in construction. The term Advanced Work Packaging was coined only a few years ago, and industry implementation to date appears to vary significantly. This article explores questions such as: What does the AWP approach entail? What success may be expected? Is there room for improvement?
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A Method to Optimize Onshore Drilling Rig Fleet Size and Schedule Considering Both Reservoir Management and Operational Objectives
Abstract
Some of the most important and expensive activities in onshore oil and gas field development involve the use of drilling rigs. Using a production systems perspective, this paper presents a method to optimize onshore drilling rig fleet size and schedule considering reservoir management and operational objectives, namely maximizing production volume, meeting production targets and/or minimizing rig costs. An example of industry application is presented involving a field with 237 wells located in the northern United States. Results demonstrate that given a fixed fleet size, optimizing for rig utilization or cost does not best satisfy production objectives. Furthermore, significant variations in production rates (30%) and costs (19%) are possible depending on fleet size and schedule. The results suggest that providing decision support and optimization to assist with determining rig fleet size and schedule is not only likely to reduce planning and response time, but also bring the overall development operation better in line with key performance objectives.
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Conceptual Frameworks Underpinning Project Delivery and Implications for Optimizing Project Outcomes
Abstract
Optimizing project outcomes requires that current conceptual thinking and frameworks associated with project delivery are understood. This research proposes that delivery of projects can be best understood through three primary historic eras: Era 1 – Productivity, Era 2 – Predictability and Era 3 – Profitability. These eras, which directly correlate to the development of modern operations management thinking, have had significant influence on how projects are delivered today, and form the basis of current trends in thinking about how to improve performance.
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Abstract
The aim of this project is to explore, in a qualitative sense, the practice of earliness and delays in materials and parts delivery during the delivery of a capital project.