Energy Construction in the 22nd Century

Stephen P. Mulva, Ph.D.DirectorConstruction Industry Institute

Sacred Cows Should Be Barbequed

Stephen P. Mulva, Ph.D.DirectorConstruction Industry Institute

Point of Departure• Praying for higher oil prices isn’t a strategy• $9 Oil in 1986

Point of Departure• Construction Industry Productivity (1964‐2011)

Productivity Index (1964-1999)(Constant $ of contracts / workhours of hourly workers)Sources: U.S. Bureau of Labor Statistics, U.S. Dept of Commerce

Industry Advancement?• Pace of change is very slow• Benchmarks are improper (A+ versus C)• Today’s projects are (becoming) unsustainable

10 Strategies for the 22nd Century

Strategy 1Focus on the Business Imperative• Projects should be a strategic weapon in the pursuit of (shareholder) value creation• Example:  Program management is the coordinated management of a portfolio of 

projects to achieve a set of business objectives (CCTA 1995)

Strategy 2Embrace Continuous (Portfolio) Planning• Destroy the project stage gate process• Example:  the Program Continuum (after Pellegrinelli, 1997)

Initiation Dissolution

Delivery Renewal

Planning

DeliveryRenewal

Planning

Delivery Renewal

Planning

Initiation Dissolution

Delivery Renewal

Planning

DeliveryRenewal

Planning

Delivery Renewal

Planning

Strategy 3Match the Project to its Asset Class• The 7‐Year Facility (after Tucker 1997)• Example:  Pharmaceutical and Biotechnology Single‐Use Manufacturing

Strategy 4Invest in Research and Development• Coopetition Around New Process Chemistry (Avoid Commoditization)• Example:  Modern Air Separations Plants

Strategy 5Get Super Serious About Modularization• The Six‐Tenths Factor is only half the story• Example:  the Tabletop Refinery (no STO)

Strategy 6Investigate Robotics and Automation• Don’t Lament that Skilled Craft are Retiring• Example:  Clark Construction’s SAM Bricklaying Robot, Honda’s Asimo

Strategy 7Redefine the Project Business Ecosystem• Project Finance, Risk Insurance, Percentage of Completion Accounting = Caveman• It’s Both CAPEX and OPEX• Example:  North West Redwater (NWR) Partnership in Alberta, Hyperloop

Strategy 8Blow Up Earned Value and Project Controls• Limit Theorem / Self‐fulfilling Prophesy (remember A+, not C)• Example:  Stanford / ePM’s SimVision

Strategy 9Don’t Dismiss Relational Contracting• Design‐Build, EPC, and Integrated Project Delivery (IPD) were just the beginning• Importance of Supply Chain and Logistics• Example:  Microsoft Office Suite, GM (vehicle, finance, Onstar, Visa Card)

Number of Enterprise Component Enterprise Enterprise Component

Components Price Seller's Price Market Share Profit Seller's Profit2 1.45 1.72 0.63 0.91 0.64 3 2.09 2.64 0.70 1.47 0.78 4 2.84 3.68 0.76 2.15 0.88 5 3.63 4.70 0.79 2.88 0.95 6 4.48 5.76 0.82 3.69 1.02

“If you have the right team members and they have the right kind of contract, that makes, I think, the biggest difference”

Dr. Paul Teicholz (Stanford University)

Strategy 10Be Frank About Safety• There is an Optima (Actuarial Safety)• 2016 Automaker Safety Accord (18 Manufacturers)• Example:  Fortune 500 Owner Study of Imperfect Reporting

Percentage of Imperfect Safety Reporting by Region

Closing Thoughts• CII exists to innovate the capital projects business• Ultimately, it’s about people

“Coming together is a beginning; keeping together is progress; working together is success”

Henry Ford

Questions?

Stephen Mulva, Ph.D.Director, CIIsmulva@cii.utexas.edu(512) 232‐3013