Critical Chain and Portfolio Management in Pipeline Projects

The Application of Critical Chain and Portfolio
Project Management at the Gas Pipeline
Costruction of Urucu/Manaus (Petrobras)

Russell D. Archibald
Peter Berndt de Souza Mello
Jefferson Guimarães
Vladimir Liberzon

quot;PMIquot; is a registered trade and service mark of the Project Management Institute, Inc.
© 2008 Permission is granted to PMI for Congress attendee use only

Presentation Outline


Introduction
• Description of the Project
– 670 km (402 mi) along the Amazon river
– Capacity 4.7 million cubic meters of gas/day
– Replace diesel and fuel oil for electric power
production in the region
– Enormous economic & environmental gains
– 24 river crossings, torrential rains, remote
location, difficult access, challenging schedule


Geographic Overview (Amazon, Brazil)

http://maps.google.com/maps?hl=en&lr=&q=urucu+manaus+petrobras&ie=UTF8&ll=-
3.683373,-62.259521&spn=83.82272,221.132813&t=h&z=3&om=1 quot;PMIquot; is a registered trade and service mark of the Project Management Institute, Inc.

Introduction
• Situation in 2006:
– Many independent contractors
– Heavy rains, difficult access, unforeseen
problems caused serious schedule delays
– Decision to apply advanced project
management methods to recover to schedule as
much as possible


Introduction
• Advanced PM Methods Applied
– Success Driven Project Management/SDPM
• Proven Russian methods
• Includes approaches that remind Critical Chain
principles
– Project Portfolio Management
• Pipeline viewed as a portfolio of smaller projects for
optimum resource allocation


SDPM Methodology


Success Driven Project Management
(SDPM)
• Planning Stage:
– Simulate risks and calculate finish dates & costs with the
required probabilities of their successful achievement

– Set target dates, costs & other restrictions

– Calculate success probabilities

– Determine contingency reserves


Success Driven Project Management
(SDPM)
• Execution and Control:
– Calculate current probabilities of achieving goals

– Track success probability trends

– Manage contingency reserves


Project Scheduling
• Project planning is based on the project resource
constrained scheduling and determining feasible
activity total floats.
• To calculate these floats all constraints (logic,
resources, supplies, financing) must be
considered in both forward & backward passes.


Resource Critical Path
• Activities with zero floats are called critical
and their sequence in the project schedule is
defined by ALL schedule constraints: logic,
resource, finance, supply, calendar, & imposed
dates.
• This sequence is called Resource Critical
Path.


Resource Critical Path
• When financing and supplies are not restricting
factors then Resource Critical Path is the same
as Critical Chain.


Two steps of setting targets
1. System forecasts resulting required
contingency reserves based on user defined
acceptable probability of success to meet
specific scope, schedule & cost targets.
2. System calculates the probability of meeting
imposed targets (success probabilities).


Eight Processes of SDPM
1. Systematic scope definition (indentured
structures)
2. Network planning
3. Resource Definition and Assignment:
• Consumable, renewable, utilized & produced
• Units, teams/crews, interchangeable units or crews
• Resource productivities
• Assigned to project activities


4. Activity durations calculated: scope or
volume (quantity) of work ÷ assigned
resource productivities
5. True (resource) critical path calculated:
• Logical & schedule constraints
• Resource, financial & supply limitations in both
the forward and backward passes


6. Risk & uncertainties simulated: probability
distribution for main project results (project
& its main phases finish dates, costs,
resource requirements).
7. Actuals reported & compared, contingency
reserves tracked.


8. Current probabilities of success calculated
and trends determined for:
• Schedules
• Costs
• Resources


Methods Unique to SDPM
• Multiple project breakdown structures
• Resource information & analysis
• Activity duration calculation or estimation
• Resource critical path, assignment floats, &
resource contingency reserves
• Risk simulation & success probability analysis
• Success probability trends


Multiple project breakdown structures
• We use multiple Work breakdown structures,
Resource breakdown Structures, Cost breakdown
structures.
• Multiple WBS create very useful opportunity to get
project reports that aggregate project data different
ways.
• Usually we use at least three Work Breakdown
Structures in our projects: based on project
deliverables, project processes and responsibilities.


Multiple project breakdown structures
• The use of multiple breakdown structures allows not
only to obtain different project reports as seen from
the different standpoints, but also to provide that the
project model is truly comprehensive.
• The use of Resource breakdown structures is
especially important in multi-project management.
• In this case the matrix organizational structure
determines the necessity of obtaining the reports on
both Project and Functional Resource Breakdown
Structures.

Resource Definition and Assignment
• Resources are divided into two classes:
– renewable (human resources and mechanisms) and
– consumable (materials).
• Besides the individual resources one may set
resource crews (we call them multi-resources)
and resource skills (roles).


Resource Definition and Assignment
• Multi-resources are the settled groups of resources
working together (e.g. a team, a crew, a car with a
driver, etc.).
• Resources sharing the same skills comprise Resource
Assignment Skills.
• Resources belonging to the same Skill are
interchangeable though individuals in a Skill may have
different productivities performing the same activities.


Assignments
• Assigning resources to activities implies the notion of a
team - a group of resources working on an activity
together. The team can include individual resources,
multi-resources and skills.
• If the activity‟s initial information is work volume
(quantity of work to be done), one should set the
productivity of at least one of assigned resources, to
enable the calculation of the work duration.

23

Assignments
• If more than one team is assigned then resources
belonging with the different teams work on an activity
independently of each other.
• Such approach allows to simulate the shift work
efficiently.
• In some projects it is necessary to simulate not only
material consumption but also production of resources
and materials on activities and assignments.

24

Activities
• In the majority of well-known PM software packages
project activities are characterized by their duration.
• Besides duration, it is frequently necessary to set the
activity‟s physical volume (or quantity) of work.
• Activity volume can be measured in meters, tons,
planned work hours, percents or any other units.

25

Activities
• Activity volume is often used as an initial activity
information instead of duration. If assigned resource
productivity is defined in volume units per hour then
activity duration may be calculated during project
scheduling.
• Unlike activity duration activity volume does not
depend on assigned resources.

26

Risk Simulation
• Our experience of project planning shows that the
probability of successful implementation of
deterministic project schedules and budgets is very low.
• Therefore project planning technology should always
include risk simulation to produce reliable results.
• Risk simulation may be based on Monte Carlo
simulation or use three scenarios approach that will be
described further.

27

Risk Simulation
• Monte Carlo simulation is very time consuming and not
practical for the large projects.
• Current practice of its implementation mostly do not
consider correlation between activity duration and cost
estimates that exists if activities are performed by the
same resources, do not consider risk events that may
change a set of project activities.

28

Risk Simulation
• Even if everything is properly simulated the number of
necessary iterations is too high for receiving reliable
results in the reasonable time.
• A project planner may be happy with the probability
estimates that has low accuracy but only if the error will
be stable (high precision). If it may change from one
calculation to another then these estimates can not be
used as performance management tool.

29

Risk Simulation –
three scenarios approach
• A project planner obtains three estimates (optimistic,
most probable and pessimistic) for all initial project data
(duration, volumes, productivity, calendars, costs, etc.).
• Risk events are selected and ranked using the usual
approach to risk qualitative analysis.
• Usually we recommend to include risk events with the
probability exceeding 90% in the optimistic scenario,
exceeding 50% in the most probable scenario, and all
selected risks in the pessimistic scenario.

30

Risk Simulation –
• These data are used to calculate optimistic, most
probable and pessimistic project schedules and budgets.
• The most probable and pessimistic project scenarios
may contain additional activities and costs due to
corresponding risk events and may employ additional
resources and different calendars than the optimistic
project scenario.

31

Risk Simulation –
• As the result project planner obtains three expected
finish dates, costs and material consumptions for all
major milestone.
• They are used to rebuild probability curves for the dates,
costs and material requirements.
• Defining desired probabilities of meeting project targets
a project planner obtains desired finish dates, costs and
material requirements for any project deliverable.

32

Success Probabilities
• Negotiations may lead to setting other project targets.
• If they are reasonable then they may be accepted.
• Probabilities to meet approved project targets we call
Success Probabilities.
• Target dates do not belong to any schedule. Usually
they are between most probable and pessimistic dates.

33

Baseline
• A set of target dates and costs (analogue of milestone
schedule) is the real project baseline. But baseline
schedule does not exist!
• A schedule that should be used for setting tasks for
project implementers is optimistic.

34

Critical Schedule
• Project planner obtains not only the set of target dates
but also a critical schedule – a project schedule
calculated backward from target dates.
• Usually this schedule is based on most probable
estimates of activity durations and the difference
between current and critical dates shows current
schedule contingency reserves (buffers).
• At the next slide critical schedule is shown in light blue.

35

36

Buffers
• There are time, cost and material buffers that show
contingency reserves not only for a project as a whole
(analogue of Critical Chain project buffer) but also for
any activity in the optimistic project schedule.
• During project execution it is necessary to estimate if
these buffers are properly utilized.

37

Success Probability Trends
• The best way to measure project performance is to
estimate what is going on with the project success
probabilities.
• If they rise it means that contingency reserves are spent
slower than expected, if they drop it means that project
performance is not as good as it was planned and
corrective actions are needed.

38

39

• Success probabilities may change due to:
– Performance results
– Scope changes
– Cost changes
– Risk changes
– Resource changes
• Thus success probability trends reflect not only project
performance results but also what is going on around
the project.

40

• We consider success probability trends as the really
integrated project performance measurement tool.
• Success probability trends may be used as the only
information about project performance at the top
management level – this information is sufficient for
performance estimation and decision making.
• We call the described methodology Success Driven
Project Management.

41

Common Features:
SDPM & Critical Chain
• Resource critical path is the same as Critical
Chain if to add financial and supply constraints.
• CC “project buffer” is analogous to SDPM project
“contingency time reserve”.
• Both approaches recommend to use tight duration
estimates to set targets for work performers and
collect all reserves in one project buffer.


Differences between SDPM and CCPM
CCPM SDPM

Critical Chain never changes, it is Resource Critical Path can change many
protected by feeding buffers that may times during project execution. Project
postpone planned dates of CC activities can have many Resource Critical Paths.
but will keep its stability.
One should always avoid multi-tasking In most cases it is right but sometimes
switching from one task to another and
then returning back may be useful. The
software optimizes resource usage.
There is single project drum resource Critical resources may be different at
each project life cycle phase.


Differences between SDPM and CCPM
CCPM SDPM

Critical Chain Methodology suggests SDPM suggests certain quantitative
only qualitative methods. methods for finding RCP, calculation of
project buffers, etc.
Critical Chain Methodology does not SDPM includes not only schedule but
consider costs. also cost management.
Buffer penetration is estimated SDPM includes buffer penetration
qualitatively (red, yellow, green zones). analysis and performance measurement
technique (success probability trends).


A New Project Management
Information System

• Initial planning started in 2004 with a
segmented view of the project, with several
separated set of schedules for different
regions (geographic division) and different
areas (scope, costs, logistics and supplies).


A New Project Management
Information System

• A new Project Management Information
System was put in production from October
2006 to February of 2007.
A common repository and new WBS
integrated over ten separated schedules


Setting New Project Goals
• Initial estimates created for the project were based on
productivity achieved in other pipeline construction
projects in many parts of Brazil. This forecast was too
high due to the reduced ability of the teams to work
under continuous tropical rain.

– As an example, some drained areas of the construction in the first
semester of any given year would simply be found to be under 12
meters of water in the following semester.


• The lack of a model that would take into account
risks and uncertainties had produced a schedule
that soon proved to be completely unrealistic.
– By the time the SDPM team was set to create a new integrated schedule, the
construction had reached 50% of the original planned time with a Schedule
Performance Index (SPI) under 15%


• Through the simulation of work performance,
schedule and resource constraints, the SDPM team
has helped Petrobras to set new goals with the
contractors.

– For some critical phases, resources were increased by 50% and
now the project has surpassed 7,000 workers, against an
original mobilization of 5,000 people.


WBS – Project Details
• For the true adoption of SDPM project schedules shall
be resource loaded.
• As original planning was not detailed to the resource
level, the SDPM Team put together several weekly plans
into a larger schedule, creating a bottom-up WBS.


WBS – Project Details

• The resulting integration of several weekly plans
made it possible to measure trends and to create
new resource-loaded schedules with incremented
level of details.


Typical Fragnets Library
• By adjusting the necessary resources in the
lowest level of the WBS SDPM Team then
created a library of typical fragnets that was
used to build a model for the larger project.


A Bit of History
• Although the first stages of the project are
dated in 2004, real project activities started
only in July 2006, after the military
engineering brigade had opened the first
roads through the jungle and established
camping sites for storing many tons of pipe.


Resource Usage Optimization
• Success Driven Project Management helped
to identify what phases of the project should
be delayed to make critical resources
available to more critical phases.


• Example: Transferring resources from the
opening of new construction road to the
transportation of the pipes will delay the first
phase of the project, but will speed up the second
phase. The challenge is to optimize resource
assignments for increasing global results.


• When such logistics are carefully planned
we have an increase in general productivity,
as we can see in the following figures.


• In the example, while the “green team” kept
working 720 hours, the “red team” had an
increase in 25% in its productivity and the
“blue team” reached 65%.


800 m
per • Before SDPM
day Implementation

• After SDPM
1150 m
per day Implementation


References


A Few Useful Links
• http://www2.petrobras.com.br/ingles/index.asp
• http://x25.com.br/
• http://www.spiderproject.ru/aboutus_e.php
• Vladimir Liberzon and Russell D. Archibald, “From Russia with
Love: Truly Integrated Project Scope, Schedule, Resource and Risk
Information,” PMI World Congress- The Hague, May 24-26, 2003;
download at http://www.russarchibald.com/ [go to „author>recent
papers‟]


Contact Information
Russell Archibald
Principal - Archibald Associates, USA
russell_archibald@yahoo.com
Peter Berndt de Souza Mello
Director - X25 Treinamento e Consultoria, Brazil
peter.mello@x25.com.br
Jefferson Guimarães
Senior Project Engineer - Concremat/Petrobras, Brazil
jefferson.guimaraes@correntecritica.com
Vladimir Liberzon
General Director – Spider Project Team, Russia
spider@mail.cnt.ru


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