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									               Northwest Mining Association, 1999 Annual Meeting
               Technical Session: Developing Profitable Projects: The Owner’s Critical Role
               Chaired by MTB Project Management Professionals, Inc.



                   The Project Owner: Hero… or Heel?
By E. Dale Buob, President, MTB Project Management Professionals, Inc.


                                       INTRODUCTION

      N.M. Rothchild & Sons, one of North America’s largest investment banking companies,
pointed out at last December’s Northwest Mining Association annual meeting that the mining
industry, in general, has performed poorly in developing capital projects. In their presentation,
Capital Cost Overruns: Increasing a Lender’s Exposure, Rothschild gave examples of this poor
record and discussed the impacts on the banking industry. There are obvious and not-so-
obvious consequences for our performance. In addition to bank and loan related consequences,
there are adverse impacts to share value, loss of shareholder and market confidence, and
company profits are reduced, or perhaps even lost altogether.
      The Chairman of Newmont put it into proper perspective some years ago at a regularly
scheduled production meeting when, referring to a recent project overrun in excess of $100
million, he pointed out that the overrun had just wiped out an entire year’s profit. Poof! Gone
for good! It takes a lot of production improvements and operating cost reductions to replace that
kind of money! And that statement acknowledged only the direct capital cost overrun – not any
peripheral impacts caused by delayed completion.
      Before I get into ways in which we can hopefully avoid such unpleasantries, I would like to
share a couple of personal anecdotes to demonstrate how I learned some professional
performance altering lessons – the hard way.

                                      Learning Experiences

Lesson One

      In 1985, Newmont Gold Corporation sent me to Australia to triple the throughput of the
Telfer mill and to change the process from CCD/Merrill Crowe to CIL/Electrowinning. At a
management committee meeting several months before scheduled completion, I gave the
Newmont and BHP Management Committee members what I was convinced would be the first
and final bad news regarding cost and schedule. To my surprise, they accepted it well.
      Two months later I gave them worse cost and schedule information, which they did not
appear to believe. And I had to do the same thing again two months later. Any of you who have
had this unpleasant experience know that trying to forecast an out-of-control project is like trying
to stop a large snowball rolling down a hill – it just gets bigger as it rolls. I had lost my
credibility. I was a heel.
      To add insult to injury, when the project was finally over, Newmont’s vice president of
operations asked me, “where did we go wrong?” Of course, what was abundantly clear to me
was that he was really asking, “where did YOU go wrong?” And just to drive that point home,
he had me analyze the project for the next three months to find an answer to that question.
               Northwest Mining Association, 1999 Annual Meeting
               Technical Session: Developing Profitable Projects: The Owner’s Critical Role
               Chaired by MTB Project Management Professionals, Inc.



Believe me when I tell you that I know the answer. Any of you who have ever had to do this can
appreciate the lengths I will go to in order to avoid doing this ever again.
      Thus, Lesson One is: Unless you are able to blame someone else (engineering firms,
consultants, and contractors have been the most frequent and successful targets over the years) it
is you who will most likely shoulder the blame if you are responsible for a project and you
overrun the budget or do not complete it on time. You will be a heel. You may be an
unemployed heel.




Lesson Two

      My second lesson was delivered by my boss, a very wise man who served as Vice
President of Engineering at Newmont until 1988. I do not recall the incident that precipitated his
question, but he asked me: “Did you do absolutely everything in your power to prevent this
<something bad> from happening?”
      I immediately replied, “Yes I did.” he didn’t respond for probably 15-20 seconds and then
asked me exactly the same question again. Again I replied, “Yes.” And I began to wonder if he
was hard of hearing or becoming senile. (I was in my early thirties at the time, thought I knew a
lot more than I did, and was frequently impatient regarding my predominantly older, more senior
colleagues’ reluctance to make what I considered to be obvious decisions.)
      This time it was probably more like 30 seconds before he looked at me and again asked the
same exact question. Uh Oh! Alarm bells were going off in my head as I began to suspect he
wasn’t hard of hearing or senile and started fearing for my job. Then, bingo, I got it and
               Northwest Mining Association, 1999 Annual Meeting
               Technical Session: Developing Profitable Projects: The Owner’s Critical Role
               Chaired by MTB Project Management Professionals, Inc.



answered, “No. I guess I wasn’t smart enough to think of the actions that would have prevented
this from happening.”
       Thus, Lesson Two is: The Owner’s Project Manager (and by extension the Owner’s
management organization) is ultimately responsible for every aspect of a completed capital
project. It is a daunting responsibility. If results do not match or exceed expectations, the Owner
has no place else to look but in the mirror. Failed projects mean the Owner failed to fulfill one
or more of its critical responsibilities.

Wheel of Misfortune

      Lesson Two, above, brings us to a key observation: Many Owners are incredibly adept at
finding someone to blame. I jokingly refer to it as the “Wheel of Misfortune.”
      Frequently, a particular consultant, vendor, or contractor receives the blame for a
disappointing project. This consultant, vendor, or contractor is then barred from participation on
future projects. This is a repetitive process that moves along in a kind of circle until all of the
prospective providers have been blamed. Finally, the circle moves far enough along to a point
where the sins of the initial “villain” have been forgiven or forgotten and that company or
individual is again selected to provide services.
      Enough reminiscing. What do you need to do to develop a profitable project?


                         DEVELOPING PROFITABLE PROJECTS

We will determine how to develop a profitable project by examining the following topics:
  1. Understanding Project Failure
  2. Appreciating the Importance of the Project Development Cycle
  3. Confirming the Owner’s Critical Role: Organization and Responsibilities
  4. Summary: Suggestions

                                 Understanding Project Failure

       First, let’s define what is meant by failure. The title of our session does not mention
failure; instead it refers to “profitable projects,” which implies success. Perhaps we more
correctly should have used the term “successful projects.” Ending up with a profitable project is
a lot less arduous than avoiding a project failure.
       Failure stems from a perceived or real variance between results and expectations. While a
project might still be profitable (albeit not as profitable as desired), Owner’s upper management,
the lender(s), shareholders, regulators, the public, or the investment community may judge the
project a failure because it: a) cost more than promised; b) was not completed on time, thereby
delaying cash flow for debt repayment or dividend payment; c) was not completed as promised
regarding environmental, safety, or community issues; d) was perceived to have been out of
control at any time; or e) does not perform or produce as planned.
               Northwest Mining Association, 1999 Annual Meeting
               Technical Session: Developing Profitable Projects: The Owner’s Critical Role
               Chaired by MTB Project Management Professionals, Inc.



      Project failure occurs for many reasons. In analyzing any one failed project, a number of
factors will likely be present in varying degrees, and any two analysts would likely disagree
about the relative extent of each factor’s contribution to the end result.
      Nonetheless, some factors occur so frequently and have such huge impacts that they are
easily identified. They are:
      1. Inadequate planning
      2. Excessive changes
      3. Inadequate resources
      4. Funding shortfalls
      5. Poor Owner management practices

      You will see from the following discussion of each of these that they are actually
interwoven and interdependent.

Inadequate Planning

     Planning is the foundation upon which the entire project, and the relationships within the
project, are built. The measure of planning success is how well it anticipates problems and
provides for them. In the planning phase, project management looks ahead at all times to the
long-range consequences of current decisions.
     In general, planning is not applied rigorously enough, consistently enough, or early enough
in many projects. Frequent pitfalls of inadequate planning are:
     1. Being forced into unrealistic deadlines.
     2. Not defining the scope of the project clearly at the beginning of the project.
     3. Not establishing an adequate control mechanism to track and monitor the project.
     4. Deserting control mechanisms and managing the project by crisis.
     5. Committing to arbitrary dates with no real basis for setting those dates.
     6. Developing information out of sequence or executing the project without adequate
          information.

     The two pyramids on the next page represent two styles and levels of developing project
information. The pyramid on the left results from developing complete information in a logical
sequence: each information block is dependent on the information developed during the
preceding step. The predictable result of action in accordance with plan and projections is the
product of a firm foundation.

      The inverted pyramid on the right (or perhaps it should be more correctly identified as a
golf tee) is the product of taking shortcuts to save time, choosing not to develop the required
amount of information, or not recognizing the information required. As there is no stable
foundation, there can be no predictable result, and problems are inevitable.
                   Northwest Mining Association, 1999 Annual Meeting
                   Technical Session: Developing Profitable Projects: The Owner’s Critical Role
                   Chaired by MTB Project Management Professionals, Inc.



                                          Project
Trouble-free/profitable              Development
operation in accordance
                                         Building           Out of Sequence Development, or
with plans and projections
                                           Blocks            Activities Omitted to Save Time



                      Construction




                      Procurement




                   Engineering/Design




                Mine Design/Mine Planning




                     Environmental




                       Metallurgy


                                                        Operation built on
                 Geology and Mineralogy                 inadequate foundation -
                                                        problems are inevitable.




Excessive Changes

   Change is a major cause of project failure. In addition to the obvious cost and schedule
impacts, large or numerous changes can result in a project losing its direction or its participants’
morale. Unnecessary and harmful change can occur because:
   1. Initial project planning was not complete or thorough enough.
   2. The Owner’s management fails to involve other areas of the Owner’s organization (i.e.
       operations and maintenance) during scope definition, and then fails to contain these
       “Owner’s preference or wish list” changes later in the project.

    Changes can be constructive by reducing the cost or schedule; or by improving the
performance of a process facility. However, the timing of these changes is critical as shown in
the chart on the following page. This chart points out that opportunities for constructive, value-
added change occur early in the project life cycle, and that the cost to change is relatively low.
The opportunity to add value drops sharply during the execution stage, however, as the cost to
make changes rises sharply. Clearly, it is best to minimize the need to make changes later in any
project.
              Northwest Mining Association, 1999 Annual Meeting
              Technical Session: Developing Profitable Projects: The Owner’s Critical Role
              Chaired by MTB Project Management Professionals, Inc.




                                      Impact of Change
                                   Total Project Life Cycle
                   Planning Phases                             Execution Phase
             Conceptual, Prefeasibility & Feasibility    Engineering     Construction
 O
 P
 P                                                                                        C
 O                                                                                        O
                                       Opportunity                         Intervention   S
 R                                                                                        T
 T                                    (Constructive)                      (Destructive)
 U
 N                                                                                        I
 I                                                                                        N
 TD                                                                                       C
   E                                                                                      R
 YC                                                            HIGH                       E
   R                  Opportunity to Add Value
                                                               RISK                       A
   E                                                                                      S
   A                                                                                      I
   S                                                                                      N
   I                                                                                      G
   N
   G                                    Cost to Change


                              ADDING VALUE vs COST TO CHANGE
                                         TIME




Inadequate Resources

     Although the need for proper project management is generally recognized to some extent
during engineering and construction, it is frequently underutilized during the most important
periods of a project: the planning and scoping phases. Generally speaking, experienced
resources are often not applied early enough or consistently enough throughout the project
development cycle.
               Northwest Mining Association, 1999 Annual Meeting
               Technical Session: Developing Profitable Projects: The Owner’s Critical Role
               Chaired by MTB Project Management Professionals, Inc.



Funding Shortfalls

     Overly optimistic funding projections can be deadly. Frequently, the original funding
projections might have been adequate had cost and schedule been managed properly by the
Owner from initial planning through project completion.
     Funding shortfalls result in:
     1. Uncompleted projects.
     2. Projects that are “cheapened up” at the back end and look and perform accordingly.
     3. Accounting “slights-of-hand” that shift money between capital and expense budgets.
     4. Surprise equity contributions required from shareholders.
     5. Additional funding on highly unfavorable terms.

Poor Owner Management Practices

      The Owner’s management and project management team are the most critical components
of a project. The project management team is responsible for controlling the project, maintaining
discipline and focus, and providing sound and inspiring leadership at all times. Some of the
major ways Owners fail to do this are:
      1. Assigning a project manager or project team lacking the relevant experience.
      2. Failing to have a person in charge of the project who has the required responsibility,
          accountability, and authority.
      3. Assigning project team members who are not dedicated to the project, or borrowing
          team members to complete other company tasks.
      4. Lack of constructive support and involvement by upper management.
      5. Over control or involvement of upper management that undermines the role of the
          project manager, his authority and effectiveness; trying to be the project manager
          instead of the sponsor or facilitator.
      6. Allowing changes of scope to occur without first determining their impact to the
          schedule, budget, and resources of the project.
      7. Establishment by upper-level management of arbitrary schedules or budgets that have
          no real basis.

      It is not a coincidence that I ended the discussion of “Understanding Project Failure” with
“Poor Owner Management Practices.” At the start of the discussion about major reasons for
project failure, I stated that you would likely see that these factors are interwoven and
interdependent.
    I will go one step further from that now: I strongly believe that each and every one of these
factors is well within the Owner’s control. From my experience, particularly my “professional
performance altering lesson number two” that I offered earlier, I have come to see clearly that
this responsibility rests squarely with the project Owner.
    What can an Owner do to execute this awesome responsibility in a manner likely to ensure
success?
                         Northwest Mining Association, 1999 Annual Meeting
                         Technical Session: Developing Profitable Projects: The Owner’s Critical Role
                         Chaired by MTB Project Management Professionals, Inc.



                                     APPRECIATING THE IMPORTANCE OF
                                     THE PROJECT DEVELOPMENT CYCLE

           As an Owner, when you find yourself with encouraging results from a number of
     coreholes, getting from where you are to a financed, constructed, and profitably operated facility
     can seem overwhelming. For many Owners who rarely develop new properties, it could easily
     be compared to driving from one location to another, distant location without a roadmap,
     directions, or any helpful signs.
           Whenever I become involved in a new project, whether at the beginning or at some later
     date, I have always found it helpful to determine where the project is in the Project Development
     Cycle. Doing so helps me rationalize what has been done to date, as well as determine what
     needs to be done to advance the project.
           A typical Project Development Cycle consists of the four development phases, interrupted
     by requisite decision points regarding whether or not to proceed to the next phase.The four
     development phases are:
           1. Conceptual
           2. Prefeasibility
           3. Feasibility
           4. Project Execution


                         Project Development Cycle for a Medium-Sized Mining Project
                                                                      (Months)
Development Phase            1   2   3   4    5   6   7    8   9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Conceptual

Prefeasibility

Feasibility

                                                                      Project Financing



Execution



Notes:
1.    = Decision Point
2. Duration of each phase is largely dependent on the amount of drilling to be conducted during that phase and
   environmental permitting activities.
3. Durations of phases can also be impacted by location and size of the project.
               Northwest Mining Association, 1999 Annual Meeting
               Technical Session: Developing Profitable Projects: The Owner’s Critical Role
               Chaired by MTB Project Management Professionals, Inc.



      Anything as challenging as developing a new project is best handled by approaching it
systematically. This isn't to say that all four development phases must be completed as shown;
in some cases, it is perfectly acceptable to combine, for instance, the prefeasibility and feasibility
phases. In doing so, an Owner must be extremely careful to still satisfy the objectives of each
phase.
      To help understand the phased progression of development activities, each phase of the
cycle will be described below in terms of who completes the work, relative cost, duration, and
purpose.

                                            Conceptual

      The Conceptual Phase of a project is almost exclusively handled by the Owner's in-house
staff. Cost is minimal, and the work could last from several days to several weeks. The
purposes of this phase are generally to:
      1. Evaluate whether or not it is beneficial to conduct additional drilling;
      2. Develop a program and budget to complete additional drilling; and
      3. Obtain management approval/funding to conduct the drilling program.


                                           Prefeasibility

      The Prefeasibility Phase is often executed by the Owner's in-house staff, but the Owner's
efforts are frequently supplemented by specialty consultants for ore-reserve estimates,
metallurgical testing, or environmental studies. Occasionally, depending on an Owner's
resources, the Prefeasibility Phase is executed entirely by one or more third parties with the
Owner's input and coordination.
      The cost to complete this phase of development ranges from tens of thousands of dollars to
several hundred thousand dollars, depending on the extent of drilling required.
      Three to four months to complete this phase of evaluation is often all that is needed, but as
with the cost, the duration is dependent on the amount of drilling required.
      The purposes of this development phase generally include:
      1. Identify site-specific issues;
      2. Examine the project for fatal flaws, including, in part, whether the ore body is likely to
          contain enough tonnage and grade to support economic development and whether it is
          metallurgically recoverable;
      3. Provide the basis for initiating long-lead activities, such as environmental baseline
          studies, permitting, land acquisition, community relations, financing, and agreements
          with host governments;
      4. Determine the scope and estimated cost to complete a feasibility study;
      5. Obtain management approval and funding to proceed with the next phase of
          development, a Feasibility Study.
                Northwest Mining Association, 1999 Annual Meeting
                Technical Session: Developing Profitable Projects: The Owner’s Critical Role
                Chaired by MTB Project Management Professionals, Inc.



                                               Feasibility

       The Feasibility Study is almost always completed by third-party consulting firms with
input from the Owner. If the Owner will be seeking project financing, lenders prefer this "arms-
length" independent evaluation of the project.
       Of course, exceptions do occur. Some large Owners have extensive in-house capability
and choose to complete a Feasibility Study entirely with their own staffs. Lenders submit a
document prepared exclusively by an Owner to a higher level of review. The other exception is
if the Owner intends to finance the project from equity and has the resources to evaluate the
project's feasibility internally.
       Feasibility Studies can range in cost from several hundred thousand to several million
dollars. Durations to complete this phase can typically range from four to eight months. Cost
and duration are significantly impacted by the amount of drilling required, project location, size,
and complexity.
       The objectives of the feasibility development phase are to:
       1. Define the scope of the project;
       2. Estimate the project cost, typically to an accuracy level of plus or minus 15 percent;
       3. Develop the execution plan and project schedule;
       4. Complete a risk assessment;
       5. Project the revenue stream;
       6. Determine the overall economic viability of the project;
       7. Provide final details for permitting;
       8. Provide information for obtaining project financing;
       9. Develop the organization and staffing requirements for the operating company;
       10. Provide information for government and community relations;
       11. Obtain management and shareholder approval to proceed with execution.


                                           Project Execution

      After all of the hard work and cautious evaluation, this is the phase we have all been
waiting for. Designing, constructing, and commissioning a project requires tremendous effort and
teamwork by the selected engineering firm, suppliers, construction contractors, specialty consultants, and
the Owner. Depending on the size, location, and complexity of the project, cost can range from a few
million to hundreds of millions of dollars and take from 12 to 24 months to complete.
     While the objectives of this phase would appear to be obvious, they are listed below
nevertheless:
     1. Ready the mine for production;
     2. Establish and prepare the Owner's operating organization to operate the mine and
         process facilities;
     3. Construct and commission the mine, process and ancillary facilities; complete all
         necessary infrastructure;
     4. Obtain all permits and approvals required for operation;
     5. Satisfy the lender's reporting requirements and completion criteria.
                          Northwest Mining Association, 1999 Annual Meeting
                          Technical Session: Developing Profitable Projects: The Owner’s Critical Role
                          Chaired by MTB Project Management Professionals, Inc.




                                        Why the Project Development Cycle is Critical

            I have spent so much time discussing The Project Development Cycle because it truly is
       extremely important. I believe that recognizing and properly working within this cycle
       framework is the number-one key to project success. Why is it so crucial to systematically
       advance a prospective project through several distinct phases, to use all of the discipline you can
       muster to faithfully satisfy the objectives associated with each phase, and to honor the decision
       points separating each phase from the next?


       Risk Reduction
             Simply put, we advance a prospective project through a risk-reduction exercise. At any
       particular decision point, an Owner can conclude that the risk level either justifies the
       expenditure required to complete the next phase or it does not. The following chart illustrates
       this point.

                  Project Risk Reduction as a Function of Project Development Activities
                                                            Project Development Phases
              Start              Prefeasibility Study (3 Mos.) Feasibility Study (5 mos.)   Engineering/Procurement   Construction
100%                                                                                                                                 100%



90%                                                                                                                                  90%



80%                                                                                                                                  80%



70%                                                                                                                                  70%



60%                                                                                                                                  60%



50%                                                                                                                                  50%



40%                                                                                                                                  40%



30%                                              30%                                                    30%                          30%

             Risk Level
20%          Expenditure Level                                                                                                       20%

                                                                             15%
10%                                                                                                     10%                          10%
                                                                             7%
                                                 2%
 0%                                                                                                                                  0%
               Northwest Mining Association, 1999 Annual Meeting
               Technical Session: Developing Profitable Projects: The Owner’s Critical Role
               Chaired by MTB Project Management Professionals, Inc.



      The risk is greatest at the beginning of a project when very little is known. The only way
to reduce risk and uncertainty is by developing information. Fortunately, as you can see from
this graph, the largest amount of risk reduction occurs early in the project, during the planning
and evaluation phases, for relatively low levels of expenditure.
      Several absolutely critical points must be made here:
      1. Opportunities for cost savings and reducing risk are greatest during the planning and
          evaluation steps of a project; the opportunities decrease as the project advances to
          completion. The Owner should involve planning and project management personnel
          who have extensive experience in the type of project proposed (technical and location-
          related experience) during this early, critical period.
      2. The Owner must be disciplined and force itself to honestly and completely evaluate the
          project at each decision point. The Owner must avoid the tendency to rush to
          conclusions; the evaluation/investigation process must be allowed to generate the
          answers.
      3. The Owner must not become emotionally attached to a project and lose its objectivity.
          In other words, the Owner must not need or want a particular project too much.
      4. The Owner must recognize and honor the need to develop information in the proper
          sequence and to the proper level to form valid conclusions.

      This last point about information is so important that we will refer again to the stable
pyramid that we discussed earlier. You cannot put a roof on a house until you first have walls,
which require a floor, which must be set on a stable foundation, etc.
      In our business, this means that first we have to do the geology, then the mineralogy, then
the metallurgy, then the mine design, and finally the plant design. Shortcuts or omissions result
in an unstable foundation, false conclusions, and disappointing results.

                                                                         Project
                               Trouble-free/profitable              Development
                               operation in accordance
                               with plans and projections
                                                                        Building
                                                                          Blocks



                                                     Construction




                                                     Procurement




                                                  Engineering/Design




                                               Mine Design/Mine Planning




                                                    Environmental




                                                      Metallurgy




                                                Geology and Mineralogy
              Northwest Mining Association, 1999 Annual Meeting
              Technical Session: Developing Profitable Projects: The Owner’s Critical Role
              Chaired by MTB Project Management Professionals, Inc.



                    CONFIRMING THE OWNER'S CRITICAL ROLE

     I have stated before that the Owner's management and project management team are the
most critical components of a project. My reasons for this are:
     1. The Owner is usually the only project participant that is involved from the early
          evaluation phases through project completion.
     2. The Owner selects and oversees the remaining project participants.
     3. The Owner determines the project scope and has final approval responsibility for the
          budget and schedule.
     4. The Owner often has established relationships and knowledge of local conditions in the
          project area.
     5. The Owner has responsibility for the complete scope of the project, often retaining sole
          responsibility for items under "Owner's Costs."
     6. The Owner has a vested interest in completing the project successfully and, as such, is
          more purely motivated than other project participants.


                                        Responsibilities

Having stated the above, just what are the Owner's responsibilities? They are:
     1. Providing sound and inspiring leadership.
     2. Scoping the project and maintaining control of scope.
     3. Making timely decisions.
     4. Showing discipline and focusing on the original project plan.
     5. Organizing and staffing the project with personnel who have extensive experience in
         the type of project proposed. Specifically, the Owner's project manager should have a
         broad knowledge of design and construction and a comprehensive perspective. The
         project manager will receive input from diverse sources, will be involved with large
         numbers of people, and will need to make a multitude of decisions.
     6. Ensuring that decisions are based on adequate, correct information and that
         consequences of actions/decisions are understood beforehand. This frequently means
         questioning information or recommendations that are presented by engineers or
         consultants to ensure options have been identified and a sound decision can be made.
                  Northwest Mining Association, 1999 Annual Meeting
                  Technical Session: Developing Profitable Projects: The Owner’s Critical Role
                  Chaired by MTB Project Management Professionals, Inc.



Project Development Team

   A representative project development team is shown below:


                     Representative Project Development Team
                                                        Owner's
                                                       Corporate
                                                      Management



                                                        Owner's
                                                  Project Management
                                                          Team



                                                                     Specialty Consultants           Vendors, Contractors
                                    Engineering, Procurement
        Feasibility Study                                            • Environmental                  and Consultants for
                                        and Construction
          Contractor                                                 • Training                         Owner's Direct
                                     Management Contractor
                                                                     • Other                         Scope-of-Work Items




                             Equipment and            Construction
                            Materials Vendors         Contractors




A Representative Owner's project management organization is shown below:


    Representative Owner's Project Management Organization
                                                        Owner's
                                                       Management




           Corporate                                       Project
                                  Procurement                                       Operations and              Engineering
          Finance and
          Accounting
                                  and Logistics            Manager                   Maintenance              Support Services




                                     Project              Construction                Project
                                   Accountant               Manager                  Engineer
               Northwest Mining Association, 1999 Annual Meeting
               Technical Session: Developing Profitable Projects: The Owner’s Critical Role
               Chaired by MTB Project Management Professionals, Inc.



       Although the Owner’s project management team only consists of several dedicated
individuals, the entire Owner's organization contributes specialized expertise and support at
appropriate times throughout the project.
       Some Owners believe that the Owner's project management responsibilities can be
fulfilled by:
       A. A project manager seconded from an engineering firm;
       B. Someone from the Owner's operation who does not have substantive, prior, relevant
           project management experience;
       C. One person, rather than a team.

      In reality, however, the correct answer is “D. None of the above," because project
management is a unique profession requiring particular expertise and experience, as well as an
understanding for and ability to apply specific management methodologies and techniques.
      If an Owner truly wants to take its responsibilities seriously and control the outcome of its
project, it requires hard work and the efforts of more than a single individual. Successful
projects result from knowledge and use of details. In order to make the correct decisions and get
the best results from other project participants, you often must know as much as, or more than,
they do. This takes time on a day-in, day-out basis.

Cost

      Proper project management by the Owner usually costs from .75 percent to 2 percent of the
total constructed cost of the project, depending on the size and complexity of the project. For
example, Owner project management on a $200 million project might cost $1.5 million. The
same management on a $20 million project might cost $400,000. The relationship between cost
and size of the project is not linear because all projects, however small, require a certain level of
management that is not dependent on the size of the project.

Benefits

      In addition to properly planning and controlling the project, and increasing the chances of
avoiding the unpleasantness associated with a project failure, cost savings ranging from 5 to 15
percent of the total project cost are possible through aggressive, competent management by the
Owner. This is especially true when the proper level of management and planning are
introduced early in the planning and evaluation phases and then continued consistently
throughout the project's development.
              Northwest Mining Association, 1999 Annual Meeting
              Technical Session: Developing Profitable Projects: The Owner’s Critical Role
              Chaired by MTB Project Management Professionals, Inc.



                                         SUMMARY

                                    Suggestions for Success

     Some suggestions to help the Owner in this role are:
     1. Approach project development systematically. Recognize the objectives of each phase,
        develop information completely and in the order required to permit valid decisions
        before proceeding to the next phase.
     2. Apply qualified and adequate resources during the planning and evaluation phases of
        the project. Remember that the greatest opportunity for cost savings and positive
        project impacts occurs here.
     3. Involve staff from other areas of the company, such as operations and maintenance,
        during early project scoping activities. Once the scope has been defined in detail, do
        not change the scope.
     4. Understand and view the project as a whole; do not get mired in the parts. The Owner
        must be able to anticipate problems and identify the long-term consequences of its
        current actions or decisions. Developing a project is like driving on an unfamiliar,
        winding road in the Andes at night and in a driving rainstorm. If you want to arrive at
        your destination safely and at the appropriate time, it will help to have driven the road
        before, preferably multiple times. There is no substitute for knowing what is around
        the next bend.
     5. Upper management must fulfill its role as a project sponsor or facilitator, not a project
        manager. Select a project manager and project management team that have extensive
        experience in developing the type of project considered. Give the project manager the
        responsibility, authority, and accountability required to complete the job, and provide
        whatever support is needed.
     6. Allow the information development process to generate the proper answers. Do not
        rush to conclusions or arbitrarily dictate criteria or conditions.
     7. Be objective. Do not become so attached to a project that you want it at any cost. Be
        prepared to walk away from it if it does not pass the test.
     8. Assign the project manager at the beginning of the planning and evaluation phase.
        Doing so allows at least one person to understand what has already been done and why
        decisions have been made. Consistency, clarity, and steadiness of purpose, so essential
        to success, will be enhanced by the project manager’s familiarity with the project.
     9. Details can make the difference between success and failure. Pay attention to details at
        all times. Unfortunately, a lot of information and/or recommendations provided by
        third parties are superficial. Treat information provided by others like an onion:
        question what you are given by peeling away a few layers to see if it is any good.

             The Bottom Line – Ultimate Responsibility Rests with the Owner

     Responsibility for every aspect of a completed project rests ultimately with the Owner.
The Owner must understand its responsibilities and be accountable for its performance. The
bottom line is that there is no one else to blame for project failure.

								
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