2005 AACE International Transactions

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Understanding Owner Needs

Ms. Ginette B. Basak, P. Eng.

here is increasing dissatisfaction in the ability to con- changes in desired information during the execution phase result

T
mining.
trol capital projects within owner organizations for in owner/contractor confrontation
large-scale complex industrial facilities such as oil
refineries, gas and chemical processing plants, and

Owner companies are increasingly turning to engineering,

Contractor Project Controls
Contractor project controls provide key information to vari-
procurement and construction (EPC) contractors to help them ous stakeholders to help them manage their work and make time-
manage their capital project work by providing planning, design ly decisions.
and construction services to owners, including extensive project It is easy for contractor project controls personnel to become
controls capabilities. engrossed in the intense demands of complex multiple tasks, tight
Often, these contractors must rely on their perception of deadlines and the assessment of inevitable changes on their proj-
which project controls information would be important to the ect. Once a project is approved, there is pressure on project con-
owners. If this does not align then it results in conflict and frus- trols to quickly set up their tracking and reporting systems.
tration for both groups. If owner project controls specifications are minimal or
The objective of this paper is to help the contractor under- unclear at set-up time, then subsequent owner demands for addi-
stand how the EPC project fits into the owner's wider business by tional or different information and time frames are disruptive and
focusing on key areas in the owner's world that impact project frustrating.
controls. This paper will also present suggestions on how contrac-
tor project controls personnel can line up with their owner's needs
and establish an on-going dialogue through the life of the project. What is Success?
It will also address what owners can do to facilitate this process. The perception of the failure or success of a project may dif-
It is important to remember that the owner has a vested inter- fer based on individuals. A project deemed to be successful by a
est in the contractor's success [8]. contractor might still be perceived as less than stellar by the owner
if some of the owner expectations were not well met. There are
excellent resources available that deal with project success factors
OWNER DISSATISFACTION WITH [5, 7, 9].
PROJECT CONTROLS Understanding the owner's business and organizational cul-
ture will make it easier to clarify and meet their project control
A recent survey of owners and operators involved in capital objectives, resulting in reduced frustration levels for the owner
construction projects in the chemical and hydrocarbon process and contractor as well as enhanced opportunities for success.
industries revealed dissatisfaction in the ability to control projects
and to provide good information to owner project teams within
their organizations [3]. The survey attributed the decline in proj- THE OWNER'S WORLD
ect control capability to several factors, including substantial
downsizing and even elimination of owner project controls Understanding an owner's business environment is challeng-
resources. ing when looking in from the outside. However, it is important to
This reduced capability often results in poorly communicat- know how the project fits into the owner's wider business [6].
ed project control expectations to contractors, starting with con- The objective of this section is to focus on some key areas
tract bid documents deficient in what owners are looking for from within the owner's world that have a major impact on project con-
contractors. Contractors must then rely on what they think is trols to enable contractor project controls personnel to understand
important project control information for owners. If this does not the demands and pressures on owner representatives during the
align with what an owner wants or needs then the requested planning, design and construction of capital facilities. The con-

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 2005 AACE International Transactions
tractor will then be better equipped to develop and implement porate strategic plans. This phase may span several years before a
appropriate project controls, processes and deliverables to meet contractor is awarded the design and construction of the facility.
owner needs. In some instances, a contractor will also assist owner in-house per-
sonnel in developing cost estimates and feasibility studies during
early planning exercises.
The Owner's Organization
Owner organizational structures vary from company to com-
pany, based on history, economics and culture. Contractor project Fiscal Versus Project Time Frames
controls need to understand the extent of owner project control Although contractor project controls primarily focus on the
capabilities as well as their decision-making processes in order to project duration, it is important to understand why the owner
better define and meet owner needs. needs project information broken down by the company's fiscal
The following are examples of various types of owner config- reporting units, i.e., calendar months, quarters and years.
urations as related to capital project controls capabilities. Some Owner companies are usually operating companies with
owners have large capital project support groups while others have long-term planning and financial time frames managed on an
none: annual basis, directed by accounting requirements. Capital
expenditures are a subset of annual owner budgets leading to the
• Owner capital project controls group; importance of providing project cost data allocated by fiscal peri-
• Owner capital project management group; no project con- od to the owner.
trols personnel;
• Project engineers only; and
• Accounting group only (usually ERP systems). Owner Costs
Design/build contractor project costs represent a portion of
For some owner companies, this may be a first foray into large the owner's total costs. Additional capital costs may include such
capital projects and, although they have established their own items as land acquisition, infrastructure, owner team members
capital projects groups as well as attracted seasoned project con- and cost of financing.
trols professionals to join them, they lack the overall processes and The owner also needs to consider operating costs, including
established procedures to enable smooth capital operations. The early items such as the purchase of operating spares and catalysts.
rest of their organization is still continuing with an operating com- At all times, the owner has to keep in mind the impact of changes
pany mentality that can severely hamper their capital projects during the capital cost phase on ensuing operating costs.
group's efforts. Sometimes a cost reduction in capital costs that seems viable may
Another owner aspect that may impact capital project plan- lead to an increase in operating costs. Although contractors may
ning and execution is the intensity of corporate politics within an not be responsible for providing operating costs they need to take
owner organization. This is even more pronounced in companies them into consideration during process studies and equipment
that have been recently merged, resulting in on-going struggles in selection, as well as in the assessment of changes.
establishing a single corporate approach from competing vestigial The owner also has a reserve fund in addition to the contrac-
pre-merger processes and procedures. tor project contingency. This is to take into account anticipated
The further the move away from an established owner capital scope growth and evaluated risks for total capital costs, including
project management and project controls group, the more ques- contracted facilities by one or multiple contractors and other
tions contractor project controls will need to ask to ensure mutu- owner costs. In some owner organizations such as Exxon, there is
al understanding and definition of project controls needs and a rigorous process in place that includes periodic review and draw-
deliverables. down of contingency as the project progresses.
If owner personnel lack experience in project management
and project controls, then the contractor will have to spend con-
siderable time educating as well as explaining. This process is Project Funding
time consuming for key contractor controls personnel already When dealing with a major multi-national company it would
heavily engaged in the project [2]. be amiss to assume that funds for a specific capital project are lim-
itless.
It is important to understand how capital projects are funded
Business and Project Life Cycles within owner organizations. In some cases, companies are self-
Although designing and building complex industrial facilities financed, often based on projected annual revenues or bond
may seem all encompassing, these activities only represent the issues. In other cases, owners will share the risk by forming part-
acquisition phase of the business life cycle of this asset. The owner nerships or joint ventures with other companies. Banks or govern-
is responsible for the entire asset life cycle, including the plan- mental agencies may also finance some projects.
ning, acquisition, operation, retirement and disposition of the In large companies with multiple concurrent projects, there
facility. is often fierce competition for capital funds at various stages of
There are usually many components and well-defined project development and execution. Changes to the costs or
approval gates within each major phase. Early capital investment schedule of a capital project during the design/construction phase
planning includes several iterations based on economics and cor- need to be communicated to the owner as early as possible to
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assess the impact on funding resources within the owner's organi- •
zation. For example a two-month project delay that slides into the
next fiscal year or a major increase in costs may lead to owner
reassessment of both timing and sourcing of funds. The econom-
ic viability of the project itself may need to be re-examined result-
ing in shutting down the project.
LINING UP WITH OWNER NEEDS
Armed with an appreciation of the owner's business and orga- •
nizational culture, contractor project controls can better assist the
owner to identify key project decision points as well as define and
clarify realistic and specific cost objectives, common terminology,
desired level of reporting, deadlines, cash flow management, risk
analysis and contingency management.
This may also include imparting knowledge to the owner as
to what constitutes "good practices" with respect to project con- •
trols, leading to further mutual understanding and agreement.
Initial Project Set Up
Defining a project is a process of establishing clear objectives, key
success criteria and evaluated risks. Initial project set up activities
are critical in promoting a dialogue between the owner and the
contractor that will lead to developing a solid project execution
basis.
Results of the recent FMI/CMAA Fifth Annual Survey of
Owners reveal that owners recognize the need to pay attention to
getting the "initial conditions" at project start-up right in order to
meet their targets for a successful project [4].
It is assumed that basic project management practices will be
implemented on the project leading to the definition of such
items as governance, owner organization and rosters, roles and
responsibilities, project execution strategies, reporting and com-
munications. There are many publications available outlining
project initiation activities and checklists.
The intent of this paper is to focus on the project controls
aspects rather than the broader sphere of project management. It
is imperative that project controls personnel be involved in these
early discussions and planning activities as it would be risky to
assume that other project personnel can speak on behalf of proj-
ect controls. Each owner and each project have unique elements
that need to be considered beyond simply repeating what was
done on a past project. If there is not enough time to cover all of
the project controls items at the kick-off meeting, then a separate
meeting focusing on project controls is warranted.
Terminology—There is a multitude of interpretations when
it comes to project controls terminology, even within the contrac-
tor's organization. It is essential to ascertain what people perceive
to be their understanding of the following key project controls
terms by asking the right questions.
If there are different perceptions, then there is an urgent need
to arrive at a mutual agreement for this particular project or these ent meanings for different organizations. There is a need to estab-
issues will come to haunt the project throughout its life, and even lish and clarify what types of forecasts are required, including cost
after project completion:
Budget and forecast (original and current) What constitutes
the baseline budget? What changes to the budget are accept-
able and who can authorize them? What makes up the fore-
cast? Who is ultimately responsible for deciding what to
include in the forecast?
• Schedule hierarchies What is the optimal level of detail for
controlling the work versus reporting? This is an area where
the owner must resist the temptation to go beyond a monitor-
ing role and get into "too much detail". There is a need to
differentiate between control and reporting levels.
Estimate classifications and accuracy ranges The use of
AACE International's cost estimate classification system is an
invaluable tool in arriving at a mutual understanding and
agreement as to the estimate type to be prepared, including its
components, level of detail and range of accuracy [1]. This
will stave off potential owner disappointment by clearly defin-
ing estimating expectations.
Types of costs: Incurred costs, committed costs, expended
costs These cost types need to be clearly defined because
once systems are set up to capture these costs then it will be
time consuming and expensive to change them. The use of
specific examples will help both the owner and contractor
confirm if they are on the same page.
• Contingency and allowances This is an area that seems to be
increasingly misunderstood with owners and contractors
grappling over responsibility and control. The whole process
needs to be well defined and agreed to, from the initial devel-
opment of allowances and contingency to their management
within the project, including who has the ultimate drawdown
authority.
Estimates—A detailed estimate checklist will help determine
if the owner has specific inputs or constraints based on their expe-
rience or the particular project, location, legal, environmental,
permits, economics, community relations and operations, as well
as risk ownership for escalation and currency fluctuations. It is
also important to establish what comes under owner costs for this
particular project.
Time frames—It is important to clarify the timing of reports
to the owner. Contractor systems are often based on bi-weekly
periods and four-week accounting cycles. The owner is fiscally
driven and usually needs cost data by calendar months, quarters
and years. This includes establishing owner deadlines for fore-
casts needed to support owner-funding requests.
Owner codes—Any requirements for owner coding should
be defined early while the contractor is setting up its systems. If
problems arise in mapping to contractor codes, then these must be
resolved quickly before values start populating the database. The
worst-case scenario would be owner changes to their coding after
set up.
Cash flow forecasts—The term "cash flow" can have differ-
types, level of detail, format and timing. Funding and cash man-

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agement are key deliverables to owner organizations to meet their
corporate financial needs.
Reports—Timely, accurate, and meaningful cost and sched-
uling reports are required. Verify the end use for which informa-
tion is required, i.e. the decisions it supports, to determine the
owner's needs. Unless dealing with a project controls counterpart
in the owner organization, don't assume that there is a common
understanding of standard project controls reports—ask, explain,
discuss, show sample reports and agree.
The ultimate aim is to meet owner needs while adhering to
basic project controls principles. Key items to consider are con-
tent and level of detail to be communicated, as well as frequency
and format. It is important to differentiate between control level
details for contractor work and summarized project levels of detail
for presentations to management and owner use.
Communications—Owner feedback systems should be
established to ensure an on-going dialogue with owner represen-
tatives and owner project controls counterparts. The majority, 63
percent, of owners participating in the FMI/CMAA Fifth Annual
Survey of Owners rated more effective communication as the top
change that "will most significantly contribute to improving the
quality of the project delivery process" [4].
When in doubt, the contractor should ask the owner ques-
tions to ensure mutual understanding of requirements and expec-
tations. If there is a difference in perception, the contractor should
work it out with the owner, resisting the temptation to carry on or
produce "standard" reports regardless.
Contractor project controls should not assume what the
owner's priorities are without asking as these may change over
time depending on various factors and upset thresholds.
HELPING THE CONTRACTOR
UNDERSTAND OWNER NEEDS
The owner can help the contractor understand his needs in
various ways. The following are examples of what an owner can do 4.
to facilitate this process:
5.
• Present an overview of the owner organization, with specific
reference to cost and scheduling objectives, project controls
capabilities and financial reporting requirements. 6.
• State explicit and clear project controls objectives.
• Provide prompt responses to contractor inquiries.
• Meet decision point timelines as agreed to [4]. 7.
• Provide early warning of potential new requests.
• Minimize changes in order to minimize extra work and
delays, and avoid "scope creep" [4]. 8.
• If unsure or unclear about any project controls information,
talk to the contractor.
• Maintain an on-going dialogue with contractor project con- 9.
trols.
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he benefits of understanding owner needs far out-
T weigh the efforts involved in trying to understand the
owner's business and in establishing a continuing dia-
logue with the owner through the life of the project.
Some of these benefits are quite concrete such as more
informative project controls reports, suited to the owner's needs.
Other benefits are less tangible but extremely valuable in the long
run as strong business and professional relationships are devel-
oped between owner and contractor.
In essence, project controls personnel are basically "informa-
tion brokers" who are highly dependent on a continuous flow of
quality information from project stakeholders in order to provide
timely and meaningful cost and schedule impacts and recom-
mendations. Understanding owner needs is a vital component of
project controls.
ACKNOWLEDGMENTS
In addition to my colleagues at Cominco and TransCanada
PipeLines, I would like to thank the following owner representa-
tives and colleagues, Greg Sillak (PetroCanada), Duncan
Lancaster (Shell), Dave Squires (Esso Resources), Jim Overall
(Canadian Natural Resources) and Horace Gopeesingh (EnCana
Corporation), for their guidance and comments over the years.
REFERENCES
1. AACE International Recommended Practice No. 18R-97
Cost Estimate Classification System - As Applied in
Engineering, Procurement, and Construction for the Process
Industries. Morgantown, WV: AACE International, Revised
Sept. 12, 2003.
2. Bent, J. Applied Cost and Schedule Control. New York, NY:
Marcel Dekker, 1982.
3. Cabano, S. "Regaining Control of Project Control." 2003
AACE International Transactions, CSC11. Morgantown,
WV: AACE International, 2003.
FMI. "Fifth Annual FMI/CMAA Survey of Owners." FMI,
2004. (www.fiatech.org)
Industry Search. "Building Success: The Owner's Perspective
in Construction Management." 2003 <http://www.searchsub-
mit.com.au/features/building.asp>
Major Projects Association. "Setting the Objectives and
Understanding the Client's Business." MPA 19th Annual
Conference. Buckinghamshire, U.K., Sept 2001.
"Managing the Project as a Whole." Building Projects
Practice Manual, Exposure Draft #2.3, March 2003, Internet
website
Mindconnection. "Project Management: Doing it better."
2003, <http://mindconnection.com/library/business/project-
management.htm>
Rad, P. "Project Success Attributes." Cost Engineering, Vol.
45, No. 4, April 2003.
 2005 AACE International Transactions
Ms. Ginette B. Basak, P. Eng.
Fluor Canada, Ltd.
55 Sunpark Plaza, SE
Calgary, AB T2x 3 R4 Canada

E-mail: ginettebasak@shaw.ca

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