Value Improving Practices.pdf

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CPDEP and VIPs/BPs

Chevron Project Development

and Execution Process

and

Value Improving / Best Practices

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Value Improving Practices

-Value Improving Practices -

Definition

Value Improving Practices / Best Practices are tools

to improve project planning and execution.

In conjunction with a structured process like

CPDEP, they can optimize:

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CPDEP & VIPs

-CPDEP & VIPs -

Impact of VIPS

1.0

1.1

1.2

0.9

R R e e l l a a t t i i v v e e C C a a p p i i t t a a l l C C o o s s t t

Best Practical

G

Go

oo

od

d

F

Fa

aiirr

Poor

Upstream

Downstream

1992 1992 1994 1994 1 1 9 9 9 9 4 4 1 1 9 9 9 9 2 2 1 1 9 9 9 9 3 3 1 1 9 9 9 9 5 5 1 1 9 9 9 9 6 6

Industry Average Cost = 1.0 Industry Average Cost = 1.0

FEL Improvement plus VIPs FEL Improvement plus VIPs FEL Improvement Only

FEL Improvement Only

FEL Rating

RELATIVE CAPITAL COST AS A FUNCTION OF FEL

Original Benchmark Original Benchmark Position 1991 Position 1991 1996 1996

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High

Low

Mid

Random Success

• Good Projects

• Average Execution

Consistent Success

• Good Projects

• Good Execution

Success Unlikely

• Poor Projects

• Poor Execution

Random Success

• Poor Projects

• Good Execution

Ability to

Make Right

Decisions

Ability to Implement Decisions

in Best Way Possible

Mid

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• Value Engineering -Process Simplification • Design to Capacity

-Levels for Equipment • Equipment & Material

Alliances • Project Standards • HES Optimization • Energy Optimization • Constructability Review CPDEP Timeline/ACT- 9/15/97

VALUE IMPROVING / BEST PRACTICES

for

CHEVRON PROJECT DEVELOPMENT AND EXECUTION PROCESS

Phase 1 Identify & Assess

Opportunities

Phase 2 Generate & Select

Alternatives

Phase 3

Develop Preferred Alternative

Phase 4 Execute Phase 5 Operate & Evaluate • Decision Analysis • PEP Workshop • Technology Selection • Project Facility Objectives • Value Engineering -Facility Optimization • Design to Capacity -Implement

• Process Hazard Analysis • Zero Injury Techniques • Predictive Maintenance • Reliability Modeling • IPA Pre-A/R Assessment

• Business Evaluation (GO-36)

Legend: A/R = Appropriation Request GO-36 = A/R Form PEP = Project Execution Planning

D = Decision Point HES = Health, Environment, and Safety PFD = Process Flow Diagram

IPA = Independent Project Analysis, Inc. P&ID = Piping & Instrumentation Diagram • Post Project Assessment (IPA) P&ID $ EST A/R PFD D D D D D $ EST

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Value Improving Practices (VIPs)

• Decision Analysis

• Project Execution Planning

• Technology Selection

• Project Facilities Objectives

• Value Engineering

• Design-to-Capacity

• Equipment & Material Alliances

• Project Standards

• HES Optimization

• Energy Optimization

• Constructability Review

• Process Hazards Analysis

• Zero Injury Techniques

• Predictive Maintenance

• Reliability Modeling

• IPA Pre-A/R Assessment

• Post Project Assessment (IPA)

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CPDEP & VIPs -

VIP Definitions

Decision Analysis -DA and D&RA are processes to compare and decide among various alternatives by quantifying the risks and uncertainties inherent in the financial outcomes (i.e., NPV, ROR) of the alternatives.

Project Execution Planning - A tool for strategic planning whose purpose is to maximize the probability of project success. It facilitates alignment and decision-making, promotes team building, addresses who, what, why, when, where and how, identifies issues and action items, assures communications, consistency, coordination and control, and has a high impact on project outcome.

Technology Selection -Starting with the business driver, this process is used to select and evaluate alternative

technologies. Technologies may range from new processing types to equipment selection. Using a selection panel and evaluation criteria aligned with the business driver, the various technologies are researched, developed and evaluated .

Project Facilities Objectives - This tool is used to determine the type of facility that is to be designed and constructed. There are nine evaluation characteristics. These characteristics range from capacity to expandability, and

maintainability to plant life. Each characteristic is placed into one of four categories ranging from category 1 (low cost) to category 4 (high cost).

Value Engineering -Using a structured creative process, this tool uses functional analysis of the project components to identify potential areas for improvements and suggests recommended improvement options.

Design to Capacity -This tool optimizes the capacity needed to meet the design conditions stated in the business

objectives. Equipment is identified as one of three levels ranging from level one (low cost) to level three (high cost).

Equipment & Material Alliances -Long-term and mutually beneficial relationship between owner and one supplier / contractor based on performanc, trust, respect, and commitment. There is no competitive bidding.

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CPDEP & VIPs -

VIP Definitions

Project Standards -Industry standards are used as the starting point for standards. Then limited Chevron incremental specifications are added as a supplement.

HES Optimization -The HES Risk Management process is used to identify, assess, and develop plans to maximize value by managing significant risks. Four risk areas are included: personnel & public health/safety, environmental, financial (due to HSE incidents), and public concern. Risk reduction measures (prevention or mitigation) are evaluated on a cost benefit basis to ensure efficient resource allocation.

Energy Optimization - A methodology for optimizing capital cost, operating cost and operability of process unit, utility system or manufacturing site by identifying the most economical levels of heat recovery and power generation by integrating thermodynamic analysis, economics data, and conceptual design.

Constructability Review -This tool uses construction knowledge in the planning, design and construction of facilities. Several formal reviews and checklists are used to ensure issues are identified early.

Process Hazards Analysis -Process Hazards Analysis addresses the various design and safety reviews performed by a project team. These include the normal design/safety reviews and the design/safety reviews required by regulation. The process defines a roadmap for performing the various analyses at the appropriate time.

Zero Injury Techniques - Techniques that produce excellent safety performance on construction projects: safety pre-project / pre-task planning, safety training orientation, safety incentives, alcohol / substance abuse program, accident and incident investigation.

Predictive Maintenance -Using advances in instrumentation and sensor technology to monitor machinery performance and make repairs prior to failure. The characteristics monitored include: heat, lubrication, vibration, noise.

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CPDEP & VIPs -

VIP Definitions

Reliability Modeling -This tool uses computer modeling to simulate the reliability of a facility. The model required data for mean failure times and repair times for equipment. Use of model canhelp predict operating factors and is used in the selection of key equipment.

IPA Pre-A/R Assessment - An assessment of project progress and quality, performed in CPDEP Phase 3. Rates project against IPA database of similar projects. The assessment establishes the FEL Index, recommends project contingency based on known information, rates project cost estimates, and recommends schedule. The FEL Index is required for GO-36 on projects over $25MM.

Post Project Assessment (IPA) - A collection of end-of-job data. It is conducted at the end of Phase 4 and i s performed by IPA. The Downstream assessment uses the IBC data collection form while the Upstream assessment uses the new IPA data collection form. Assessments help to improve estimates for future projects, and the cost ratios developed help with Class 0 and 1 cost estimates for future projects.

Business Evaluation (GO-36) - An evaluation of achieved project success, measured against: original project objectives, economic measures, realized economics, plant performance, and product/price forecasts vs. actual. The GO-36 form defines the timing and objectives. Normally the first evaluation is in two years or at full production.

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Decision Analysis

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Decision Analysis -

Definition

DA and D&RA are processes to compare and decide

among various alternatives by quantifying the

risks and uncertainties inherent in the financial

outcomes (i.e., NPV, ROR) of the alternatives.

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Decision Analysis -

Abstract

DESCRIPTION: DA and D&RA are processes to compare and decide among various alternatives by quantifying the risks and uncertainties inherent in the financial outcomes (i.e., NPV, ROR) of the alternatives.

APPLICATION: DA can be applied during any phase of CPDEP when a decision among one or more alternatives is required. DA is often used during Phase 1 to study viability and identify economic drivers of a concept. Also, DA is often used during Phase 2 to quantify the risks and select among the various alternatives.

DETAILS: A DA study involves a multi-discipline work team to analyze the problem and recommend a decision. A decision review board periodically reviews the work team output and provides guidance. The DA process consists of four key steps which include:

• Framing the problem to assess the initial situation.

• Sensitivity analysis to determine ranges of outcome for the alternatives. • Probabilistic analysis to determine ranges of outcome for alternatives.

• Appraisal to evaluate the quality of the decision and the value of gathering additional information. A DA study is typically led by an experienced facilitator.

COST & BENEFITS: Numerous DA studies have been conducted by all of the major Chevron opcos. The scope of the decisions has ranged from small projects costing less than $1 MM, to large capital projects costing several hundred million dollars overall. Typical duration and cost of DA range from less than one day and a few thousand dollars to several months duration and exceeding $1 MM.

CONTACT:

M. T. (Mani) Vannan, (CTN) 842-8306, (e-mail: MTVA) PRODUCTS AND SERVICES:

Decision Analysis Flowchart (SP-14) ON-LINE RESOURCES:

CPDN Decision Analysis/Decision Quality Page CPTC E&S Risk Management Page

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Project Execution Planning

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Project Execution Planning -

Definition

A Project Execution Plan is a tool for strategic

planning whose purpose is to maximize the

probability of project success.

• Facilitates Alignment and Decision-Making

• Promotes Team Building

• Addresses Who, What, Why, When, Where and How

• Identifies Issues and Action Items

• Assures Communications, Consistency, Coordination

and Control

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Project Execution Planning -

Abstract

DESCRIPTION: PEP is a tool for strategic planning - a means to get all project stakeholders to work as a team in order to plan and make decisions that will determine the project's path and success. It facilitates communication and decision-making, defines issues and risks, and defines answers to the classic questions of Who, What, Why, Where, and How.

APPLICATION: The process creates active involvement of the key stakeholders and the project team in project planning and alignment. PEP focuses on developing the project strategies that support the Company's strategic, business, and project execution objectives.

DETAILS: A plan is first produced in the earliest stages of a project and then kept up-to-date, always reflecting the latest developments and business conditions. It is a guide for everyone involved with the project. PEP is done with input from everyone involved in the project. The PEP Workbook makes it easy for a project team to implement a structured process to identify unresolved issues and develop strategies to address these issues. The strategies then form the basis for the plan details.

COST & BENEFITS: For large projects, the process requires a series of three facilitated workshops. Experience confirms that the time spent in strategic planning is well spent. Most of the causes of cost overruns and schedule delays have their roots in issues that can be and should have been addressed early.

This structured planning process enables the project team to capture these issues early in the planning process and develop strategies to mitigate the consequences.

CONTACTS:

R. K. (Bob) Fujimoto, (CTN) 842-9298, (email: BFUJ) N. J. Lavingia, (CTN) 842-9868, (email: NJLA)

PRODUCTS AND SERVICES:

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Project Execution Planning -

Process

Steps in the Process:

1. Frame the Project

2. Planning the Project

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Project Execution Planning -

Process

1. Frame the Project

• Business Objectives

• Project Execution Objectives

• Scope of Work

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Project Execution Planning -

Process

2. Planning the Project

• Risk Management Plan

• Organization Plan

• Milestone Schedule

• Funding Plan

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Project Execution Planning -

Process

3. Define the Plan for Execution & Control

• Safety Management Plan

• Quality Management Plan

• Cost Management Plan

• Schedule Management Plan

• Information Management Plan

• Design Management Plan

• Material Management Plan

• Drilling/Construction Plan

• Start-up Management Plan

• Security Management Plan

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Project Execution Planning -

Process

C7 Materials Management Plan

C8 Drilling/Construction Management Plan C1 Safety Management Plan

C2 Quality Management Plan

C3 Cost Management Plan

C4 Schedule Management Plan

C5 Information Management Plan

C6 Design Management Plan C10 Security Management

Plan

C11 Special Factors Management Plan 3. PLANNING THE EXECUTION PHASE

B1 Risk Management Plan B5 Contracting Plan B4 Funding Plan B3 Milestone Sched B2 Organization Plan 2. PLANNING THE PROJECT

A2 Project Execution Objectives

A3 Scope of Work A4 CPDEP

Implementation Plan 1. FRAME THE PROJECT

A1 Business Objectives

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Project Execution Planning -

Process

A3 Scope of

Work

A4 CPDEP

Implementation

Plan

A1 Business

Objectives

A2 Project

Execution

Objectives

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Project Execution Planning -

Process

B3 Milestone

Schedule

B5 Contracting

Plan

B1 Risk

Mgmt Plan

B2 Organization

Plan

B4 Funding

Plan

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Project Execution Planning -

Process

C2 Quality

Mgmt Plan

C6 Design

Mgmt Plan

C10 Security

Mgmt Plan

C1 Safety

Mgmt Plan

C5 Infomation

_{Mgmt Plan}

C3 Cost

Mgmt Plan

C4 Schedule

Mgmt Plan

C7 Materials

Mgmt Plan

C8 Drilling /

Construction

Mgmt Plan

C11 Special

Factors Plan

C. Planning the Execution Phase

C9 Startup

Mgmt Plan

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Technology Selection

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Technology Selection -

Definition

A formal, systematic process that:

• Searches for New Technology

• Applies to Processes & Major Equipment

• Gives Competitive Advantage

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Technology Selection

-Technology Selection -

Definition

A formal, systematic process by which an Opco or

project searches for and acquires technology which

may be superior to that currently employed in

may be superior to that currently employed in its

its

operations.

Technology is acquired from all sources, including

other divisions within the company and from outside

the company.

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Technology Selection

-Technology Selection -

Abstract

DESCRIPTION:

DESCRIPTION: This is a This is a formal, systematic process by which a project searches for technology whichformal, systematic process by which a project searches for technology which may be superior to that currently employed and improves our competitive advantage.

may be superior to that currently employed and improves our competitive advantage. APPLICATION:

APPLICATION: Ideally, Technology Selection is started very early in Ideally, Technology Selection is started very early in Front-End Loading for processFront-End Loading for process selection.

selection. Technology selectiTechnology selection can also be used for equipmon can also be used for equipment and materialent and materials selection.s selection. DETAILS:

DETAILS: The 1994 Corporate Strategic Plan reinforces the importance of The 1994 Corporate Strategic Plan reinforces the importance of technology by stating that thetechnology by stating that the Corporation needs to "ensure that technology is used to our

Corporation needs to "ensure that technology is used to our competitive advantage".competitive advantage". In Front-End Loading, decisions made can have a

In Front-End Loading, decisions made can have a major impact on the financial success of themajor impact on the financial success of the project. Technology chosen without a well thought-out plan can lead to cost overruns, longer project. Technology chosen without a well thought-out plan can lead to cost overruns, longer schedules (especially start-up), and lost

schedules (especially start-up), and lost opportunities in the marketplace.opportunities in the marketplace.

The basic process involves commissioning a technology selection team which goes through several The basic process involves commissioning a technology selection team which goes through several basic steps of

basic steps of information gathering, speculation, analysis, development, and presentation.information gathering, speculation, analysis, development, and presentation. COST & BENEFITS:

COST & BENEFITS: Technology selection is Technology selection is developed from discussions with benchmark developed from discussions with benchmark companiescompanies and internal teams that have used a technology selection process. Some projects have already used a and internal teams that have used a technology selection process. Some projects have already used a systematic selection process like the El Segundo Acid Plant or incorporated innovative outside systematic selection process like the El Segundo Acid Plant or incorporated innovative outside technology such as

technology such as Tengizchevroil Demercaptanization.Tengizchevroil Demercaptanization. CONTACTS:

CONTACTS: G.W.

G.W. (Gary) (Gary) Fischer, Fischer, (CTN) (CTN) 842-5514, 842-5514, (e-mail: (e-mail: FISC)FISC) P.C. (Peter) Schmidt, (CTN) 242-5161, (e-mail: PECS) P.C. (Peter) Schmidt, (CTN) 242-5161, (e-mail: PECS) PRODUCTS AND SERVICES:

PRODUCTS AND SERVICES: Implementation

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Technology Selection

-Technology Selection -

Ranking Criteria

TECHNOLOGY SELECTION TECHNOLOGY SELECTION POTENTIAL RANKING CRITERIA POTENTIAL RANKING CRITERIA (Determined by Project Objectives) (Determined by Project Objectives)

FINANCIAL FINANCIAL

Rate of Return Rate of Return Net Present Value Net Present Value Life Cycle Cost Life Cycle Cost Capital Constraints Capital Constraints Low Cost Pr Low Cost Produceoducerr

WEIGHTING WEIGHTING FACTOR FACTOR TECHINOLOGY TECHINOLOGY Degree of Commercialization Degree of Commercialization Process Risk Process Risk License Fees License Fees

Cost of Additional Development Cost of Additional Development Time to

Time to ImplemenImplementt Yield Advantage Yield Advantage WEIGHTING WEIGHTING FACTOR FACTOR ENVIRONMENTAL/SAFETY ENVIRONMENTAL/SAFETY Emissions Emissions Incident Rate Incident Rate

Potential Future Liability Potential Future Liability

LICENSOR LICENSOR

Experience with the Technology Experience with the Technology Abili

Ability to do Total ty to do Total Process ScopeProcess Scope Experience with Retrofits

Experience with Retrofits OPERABILITY

OPERABILITY Feedsto

Feedstock/Rate ck/Rate VariabilityVariability Product

Product SpecificatioSpecificationn Ease of Handling Upsets Ease of Handling Upsets

OTHER OTHER MECHANICAL MECHANICAL Reliability Reliability East of

East of MaintenancMaintenancee Utility Requirements Utility Requirements Plot Space Constraints Plot Space Constraints East of Retrofit East of Retrofit

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Technology Selection -

Selection Process

Technology Planning Process

Identification

of Asset Needs

Deliver

Technology

Identification of Technology Opportunities Select Technology Acquisition Alternative(s) Acquire / Develop Technology Plan Evaluation & Scope Opportunity Identification Implementable Technology Recommend Technology Plan Recommend Implementation Plan Develop Technology Plan Operations Review Assess Against Targets Acquire / develop Technology Execute Technology Plan Continue Implementation

Phase 1 Phase 2 Phase 3 Phase 4 Phase 5

Operate & Measure Identification of New Opportunities Identify

Opportunity EvaluationContinue

Select

Alternative(s) Implement Acquire Data

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Technology Selection -

Selection Process

Identification of Technology Opportunities Select Technology Acquisition Alternative(s) Acquire / Develop Technology Plan Evaluation & Scope Opportunity Identification Implementable Technology DECISION MAKERS OPERATIONS AND DELIVERABLES AT MAJOR REVIEWS WORK TEAM Recommend Technology Plan Recommend Implementation Plan Develop Technology Plan Operations Review Assess Against Targets Acquire / develop Technology Execute Technology Plan Continue Implementation

Phase 1 Phase 2 Phase 3 Phase 4 Phase 5

Operate & Measure Identification of New Opportunities Identify Opportunity Continue Evaluation Select Alternative(s) Implement Acquire Data

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Technology Selection -

Benefits

• Identifies new technologies that will increase

value of project

• Identifies technology needs early enough to allow

for developing that technology so it will impact a

project

• Provides additional alternatives for consideration

in CPDEP Phase 2

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Project Facility Objectives

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Project Facility Objectives -

Definition

A practice that establishes what quality facility is

needed to meet business goals.

• Defines nine or more quality characteristics of the

facility

• Sets criteria for those characteristics

• Sets a project philosophy for marginal investment

decision-making, design allowances, redundancy,

sparing philosophy, and room for expansion.

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Project Facility Objectives -

Abstract

DESCRIPTION: PFOs establish the characteristics of the facility needed to meet business goals. It sets criteria for facility reliability, expandability, automation, life, expected s tream factor, likelihood of expansion, production rate changes with time, product quality, and product flexibility. PFO can be used to set a project philosophy for marginal investment decision-making, design allowances, redundancy, sparing philosophy, and room for expansion.

APPLICATION: PFOs should be used on projects of any size and initiated prior to "manning-up" the project.

DETAILS: Overall objectives are set early based on information provided by the SBU funding the work. Included in these can be conceptualized descriptions of the expected stream factor, facility life, likelihood of expansion, projected production rate changes with time, product quality, product demand, feedstock availability, feedstock type, degree of commercialization of the technology, etc. These determine the redundancy/sparing philosophy, allowances for future expansion or changes, etc., of facilities necessary to meet the business goals. This process establishes the Project Facility Objectives. PFOs should be revisited during the latter stages of project development. They should also be used to orient new members of the project team.

COST & BENEFITS: Initial use of this tool requires only a few hours. PFO help bring all members of the project team into alignment through discussion and consensus. This helps keep the cost of the project down by eliminating needless extra conservatism often designed into a project at lower levels. CONTACTS:

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Project Facility Objectives

• Communication tool

• Should be revisited during subsequent quality/viability reviews.

• Include input from all disciplines

• Business, engineering manufacturing, technical, human resources,

transportation, safety, etc.

• Four design categories

• Range from low cost, relatively simple, short-lived plants to high

cost, complex units

The PFO exercise is often done in conjunction with a

Process Simplification Value Engineering Study.

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Project Facility Objectives -

Characteristics

• There are nine or more evaluation characteristics:

• Each characteristic is assigned one of four categories

ranging from Category 1 (low cost) to Category 4 (high

cost).

• Generally, a Category 4 plant costs 30% more than a

Category 1 plant

• likelihood of expansion

• production rate changes with time

• product quality

• product flexibility

• reliability

• expandability

• automation

• life

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Project Facility Objectives -

Table 2

TABLE II

PROJECT FACILITY OBJECTIVES - OFFSHORE FACILITIES PERFORMANCE CHARACTERISTICS OF VARIOUS DESIGN CATEGORIES

Category I Category II Category III Category IV

Maintainability Minimal, if any, maintenance facilities

included in the original facility. For routine maintenance provide limited winch capacity and monorail. No padeye or workshop and minimal layout area. Major maintenance expenditures may be necessary if plant is to continue operation more than 2-5 years. High maintenance costs. Maintenance may be provided by nearby platforms, shorebases, or vessels

Maintenance facilities installed only where experience with specific/critical systems dictates. More hoist capabilit y provided. Major maintenance

expenditures may be necessary if plant is to continue operation more than 8-10 years.

Maintenance facilities and materials handling provided where experience with this type of facility dictates. Maintenance Facilities tend to be permanent with more laydown area, workshops, and cranes. Space also provided for difficult maintenance jobs during normal life of unit.

Need for temporary maintenance facilities minimized and accessibility for wide use of maintenance equipment provided. More cranes (2-3 pedestal, >40 ton) installed. Justifications for facilities based on anticipation of a long facility life. Major maintenance costs not

contemplated over a long facility life.

Life 2 - 5 years; facility needed temporarily. 5 - 10 years 10 - 20 years 0-30+ years; to match predicted

production curves.

Compliance Compliance for retrofitted areas.

Meets corporate (Policy 530) and opco guidelines.

Compliance for retrofitted areas and environmental equipment. Implements API RP 14C.

Compliance for all process equipment. Implements Safety in Designs guidelines in all areas.

Full compliance for entire facility. Implements API RP 14J and API RP 75.

Constructability No formal constructability program. Some concepts used periodically or too

late to be of use. Limited project support.

Selected concepts applied regularly. All concepts consistently

considered, evaluated, and implemented. Lessons learned from previous projects are applied. Full project support from field personnel and design, operations, and maintenance management.

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Value Engineering

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Value Engineering -

Definition

A creative and organized method for optimizing the

cost and performance of a facility.

• Improve decision making in design and

construction

• Obtain lowest life-cycle cost without reducing

quality

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Value Engineering -

Definition

Value Engineering is a disciplined method used

during design aimed at eliminating or modifying

items that do not add value to meeting the

project’s business needs.

or…

A creative, organized method for optimizing the cost

and performance of a facility with the goal of

obtaining the lowest life-cycle cost without

reducing quality

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Value Engineering -

Definition

A multi-discipline, systematic, and proactive process

that is targeted at the design itself. The objective

is to use VE to develop an item or facility which

will yield the least life-cycle cost or provide the

greatest value, while also meeting all functional,

safety, quality, operability, maintainability,

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Value Engineering -

Abstract

DESCRIPTION: VE is a creative, organized approach to optimizing cost and/or performance of a facility or system. A study team identifies items which may not add value or are not aligned with the basic project objectives. VE is conducted during Front-End Loading, CPDEP – Phase 3.

APPLICATION: VE, for maximum benefit, should be conducted during process development as process simplification and later on in FEL for facility optimization. VE studies have been conducted on projects as small as $100,000. VE has been used on refinery, chemical plant, environmental, and upstream projects, both domestically and internationally.

DETAILS: A Value Engineering Study brings together a multi-discipline team in which most of the members are not directly associated with the project at hand. This brings a fresh perspective with no preconceived paradigms. The study team works under the direction of an experienced facilitator. It follows an established set of procedures to completely review the project in an orderly manner, making sure customer requirements are fully understood and reflected in a cost-effective solution. COST & BENEFITS: For very small projects, VE studies can be conducted in as little as four hours; for

medium-sized projects, two to three days; for large projects, one week. Cumulative benefit to cost is on the order of 90:1.

CONTACT:

R. K. (Bob) Fujimoto, (CTN) 242-1252, (email: BFUJ) N.J. (Nick) Lavingia, (CTN) 842-9868, (email: NJLA) J. J. (Jay) MacDonald, (CTN) 842-8197, (email: MJOJ) P. (Paul) Redden, (CTN) 842-5056, (email: PERE) PRODUCTS AND SERVICES:

Implementation Guide G-21: Value Engineering (G-21) Value Engineering Study

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Value Engineering

VE is not…

• Substituting something lower in quality and cost

(Quality often increases)

• Saving money by not meeting all requirements

• Just “doing a good job”

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• Projects often set requirements that exceed real needs

• Traditional cost reduction tries to minimize the cost of meeting

these requirements

• Value Engineering:

-

Questions the project requirements

- Advises the project of the high cost of those requirements

- Proposes cost-saving alternatives

• Value Engineering is a partnership

-

Engineer and customer are partners in creative thinking

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Value Engineering -

Facilities Example

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Value Engineering -

Facilities Example

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Value Engineering

-Value Engineering -

Construction Example

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Value Engineering

-Value Engineering -

Construction Example

     

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(55)

6

6--OOcctt--9977 5544

Value Engineering

-Value Engineering -

Examples of VE Results

PROJECT PROJECT WORK WORK REVIEWED REVIEWED VALUE VALUE OF WORK OF WORK REVIEWED

REVIEWED POTENTIALPOTENTIAL_SAVINGS_SAVINGS _ACCEPTED_ACCEPTEDSAVINGSSAVINGS _COMMENTS_COMMENTS Mobile 863 Offshore Mobile 863 Offshore Facility Facility Platform Platform Topsides Topsides $ $8855MMMM $$55..11MMMM $$11..00MMMM Tengiz Project KTL-3 Tengiz Project KTL-3 Facilities Facilities (CPDEP Phase 1-2) (CPDEP Phase 1-2) On-shore On-shore Facilities Facilities $

$669900MMMM $$116600MMMM ?? PPrroojjeecct t oon n hhoolldd

Minas Phase 3R Minas Phase 3R Waterflood Project Waterflood Project (Caltex) (Caltex) On-shore On-shore Facilities Facilities $

$9922MMMM $$1100MMMM ?? PPrroojjeecct t TTeeaam m ssttuuddyyiinngg recommendations recommendations

A

Allbba a PPhhaasse e IIII FFaacciilliittiieess Expansion Expansion

$

$5500MMMM $$99MMMM ?? RReeccoommmmeennddaattiioonnss Under Review Under Review Saudi Aromax Saudi Aromax (CPDEP Phase 2-3) (CPDEP Phase 2-3) Offplot Offplot Offsite Offsite $

$330000MMMM $$6600MMMM $3$388MMMM PPrroojjeecct t aapppprroovvaall pending

pending G

Grreeeen n CCaannyyoon n 220055 TTooppssiiddeess $$6600MMMM $$66..77MMMM ?? RReeccoommmmeennddaattiioonnss Under Review Under Review

VE performed too late VE performed too late

O

Okkaan n UUppggrraaddee OOffffsshhoorree Platform Platform Expansion Expansion

$

(56)

Value Engineering -

Study Types

• Process Simplification Value Engineering

• Review main processes

• Performed after conceptual

• Facilities Optimization Value Engineering

• Reviews P& ID’s, equipment and layout

• Performed after feasibility

• Construction Value Engineering

• Reviews detailed construction methods and specifications -

aim to

reduce construction time, improve quality, reduce materials cost,

increase productivity

(57)

6-Oct-97 56

Value Engineering -

The 7 Step Process

1. Information

• Understand project

• Determine customer’s needs

• Define basic function

(Functional Analysis)

• Define areas of opportunity

(Cost model)

2. Idea Generation

• Brainstorming (creative thinking)

• Develop all alternatives

3. Narrowing

• Brief elaboration of ideas

(58)

6-Oct-97 57

Value Engineering -

The 7 Step Process

4. Evaluation and Selection

• Review Advantages & Disadvantages

• Choose best ideas

(59)

6-Oct-97 58

Value Engineering -

The 7 Step Process

5. Development

• Prepare detailed design and estimate of best alternative

6. Decision

• Present best alternative to decision-makers

• Help make decision

• Define basic function

(Functional Analysis)

• Define areas of opportunity

(Cost model)

7. Implementation

• Obtain commitment to implement best alternative

(60)

Step 1 Information Step 2 Idea Generation Steps 3 & 4 Narrowing, Evaluation & Selection Step 5 Development Step 6 Decision Step 7 Implementation Questions Questions Questions Questions Techniques

• Align with project plans

• Implementation • What is it?

• What does it do? • What must it do? • What are the basic

and secondary functions?

Techniques • Use good human relations

• Get all the facts • Get information from

the best sources • Obtain complete information

• Define the function(s) • Perform function evaluation

• What else will do the job?(perform the same basic function)?

• Eliminate! • Try everything • Over-simplify • Modify and refine • Use creative techniques

(brainstorm)

•No negatives allowed

• What does each cost? • Will each perform the

basic function(s)? Techniques • Use good human relations

• Put $ on each idea • Evaluate by comparison • Refine ideas • Use services of experts

• Use your own judgment

• Will it work? • Will it meet all the requirements? • What do I do now? • What is needed? • Who has to approve

it?

• What are the imple-mentation problems? • What are the costs? • What are the savings?

• Gather convincing facts

• Work on specifics, not generalities • Translate facts into

meaningful actions • Prepare summary proposal

• Develop alt. plans

• Make presentations - Written proposals - Oral w/ illustrations

(Brief & pertinent) • Explain before and after

• Explain advantages and disadvantages • Present facts quickly,

concisely & convinc- ingly

• Explain impleme-mentation problems • Suggest further

meet-ing follow-up! • Remove road blocks • Use good human relations

Steps of

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6-Oct-97 60

VALUE ENGINEERING PROCESS

SPECULATE

IDEAS

NARROW

DESIGN SUGGESTIONS DROPPED IDEAS COMBINED IDEAS FUTURE IDEAS

More Discussion

EVALUATE

PROS

CONS

IMPLEMENT

STUDY FURTHER

DROP OTHER

&

CHOOSE

“WINNERS”

(62)

Value Engineering -

Paradigms

Paradigms Create Poor Value:

• We’ve always done it that way!

• We don’t have enough time or budget to really study the

problem any further

• Those making decisions are not knowledgeable of all aspects

of a process or life cycle

• Stakeholders/users have not been consulted

• We must satisfy some key executive’s whim

• The scope/objective was never clearly defined

• Decision makers are afraid of legal implications of being

innovative

(63)

Value Engineering -

Terminology

• Function of a component or design:

-

Its purpose or intended use

- Customer requirements

(Needs vs. wants)

• Value

-

What customer gets for their money

- The ratio of cost to worth

• Worth

-

The minimum cost to achieve the customer’s

essential requirements

(64)

Cost

Value

=

Worth

(65)

6-Oct-97 64

Wooden

Pencil

What is the function of the Lead?

What is the function of theWood?

What is the function of the Eraser?

What is the Function of the Pencil?

C H E V R O N

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6-Oct-9796-06-10 6528

FAST Diagram -

Pencil Example

Component

Function

(s)

Cost

Eraser

Band

Body

Paint

Lead

Chalk

Logo

Rp50

Rp30

Rp90

Rp30

Rp20

Rp180

Rp50

C H E V R O N

Pencil

B

S

Rp400

(67)

FAST Diagram -

Definition

DESIGN CONSTRAINTS HOW SCOPE LIMIT SAME TIME PRIOR LATER _SCOPE LIMIT INPUT LOWER FUNCTION CRITICAL PATH WHY

• Identify functions, not equipment.

• Breaks large complex problem down into manageable pieces to facilitate evaluation. • Good basis for brainstorming.

• Look for non-value adding steps; Functions that you Do and then Undo: • Cool off, then heat.

• Solidify, then melt. • Let down, then repressure. • Dissolve, then dry.

• Store, then retrieve.

• Use in conjunction with cost information.

OUTPUT HIGHER FUNCTION CONCURRENT OR SUPPORTING FUNCTION BASIC FUNCTION SEQUENTIAL FUNCTION

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6-Oct-97 67

FAST Diagram -

Definition

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(69)

6-Oct-97 68

FAST Diagram -

Definition

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(70)

Value Engineers Ask

• PRIMARY

• Can it be done differently?

• SECONDARY: ESSENTIAL

• Is it really needed?

• Can it be done differently?

• SECONDARY: NON-ESSENTIAL

• Is is really needed?

• Can we afford it?

• Does it add value?

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6-Oct-97 70

FAST Diagram -

Gravier HVAC Example

F.A.S.T. DIAGRAM

Gravier Street HVAC Project

HOW? WHY?

F.A.S. T. = Functional Analysis System Technique Provide Heat Distibute Air Transport Air Cool

Air Induce_Outside Air Control Temp Tenants Work Return Air Pump Chilled Air Filter Air Provide

Cooling Mix_Air

HVAC Needed Exhaust Air $130M $40M $85M $2,600M $510M $2,000M $1,600M $1,000M $70M $130M $35M $1,600M

(72)

6-Oct-97 71

FAST Diagram -

N. Nemba Example

Cool Well Fluids $1300 Separate Oil/Gas/Water $890 Clean Prod Water $190 Transport Injection Ga s $ Engineering $ Produce North Nemba Reservoir F.A.S.T. Diagram

North Nemba Extension - Alternative 1

July16, 1997

Ship Oil to S. Nemba

Scope of Project Scope of Project

Pressurize Oil $900 Dehydrate Ga s $1880 Project Objectives:

Prod. Capacity = 40,000 BOPD, 145 mmscfd Spare Capacity = about 25%

Injection Capacity = 200 mmscfd @ 5500 psig 10% safety factor on Production Curves Reliability: Oil = >95%, Gas = >90% Life = 10 to 20 years

Complete project in 27 months after AFE - Feb 2000 Economics: 20% ROR, Conserve Ga s Opportunity Generate Power $6590 Provide Utilities $2616 House Workers $4000 Support Topsides $72,000 Compress Ga s HP=$16821 Project Costs:

Major Equipment Cost = $44 MM Project Value Reviewed = $150 MM

Total Project Value = $350 MM

Profit Provide Services $1860 Transport Oil $7000 Company Expense $ Flare Gas Jacket=$ Tips=$260 Import Gas Pipeline=$7000 Scrubber=$87 Compress Ga s IP=$8850 LP=$500 Transport Well Fluids $

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6-Oct-97 72

FAST Diagram -

Big Oil Example

R E M O V E M E R C A P T A N S S T A B A L I Z E C R U D E S E P A R A T E LIQUID/VAPOR C O M P R E S S V A P O R D E S A L T C R U D E T R E A T P R O D U C E D W A T E R S W E E T E N G A S D R Y G A S F R A C T I O N A T E LIQUIDS T R E A T A C I D G A S M E E T C R U D E P I P E L I N E S P E C I F I C A T I O N S C O L L E C T W E L L P R O D U C T I O N

F.A.S.T. DIAGRAM

BIG OIL PROJECT

S C O P E LINE S C O P E LINE DESIGN CRITERIA K.I.S.S. P R O J E C T F A C I L I T Y O B J E C T I V E S 9 ITEMS R E U S E B O U G H T E Q U I P M E N T M E E T N E W P I P E L I N E S C H E D U L E 6 % 1 3 % 1 9 % 3 8 % CLAUS - 22% SCOT - 15% SULFUR HANDLING - 1%

Why

How

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6-Oct-97 73

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6-Oct-97 74

Value Engineering -

Savings Opportunities

Process Opportunities

• Heat

then

Cool

• Pressurize

then

Depressure

• Raise

then

Lower Elevation

• Condense

then

Evaporate

• Freeze

then

Thaw

• Speed up

then

Slow Down

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6-Oct-97 75

Value Engineering -

Software Tools

1. V

alue

E

ngineering

F

acilitation

A

nd

R

eporting

• Assists with idea collection and reporting

• Microsoft Access 7.0

2. MS Excel Spreadsheet

• Simple to use

(77)

Design-to-Capacity

(78)

Design-to-Capacity -

Definition

A systematic process to evaluate the maximum

capacity of each major piece of equipment. Helps

prevent the compounding of “safety factors”.

• Eliminates Excess Capacity (Fat)

• Specifies Design Factor

(79)

6-Oct-97 78

Design-to-Capacity -

Abstract

DESCRIPTION: Often, equipment is specified with a "design factor". These factors can result in oversized equipment or systems and can be compounded as the design passes from engineering discipline to discipline and on to suppliers. These factors add investment cost but may not provide a return if this "extra capacity" is not fully utilized. This Value-Improving Practice (VIP) reduces the "excess fat" that does not meet project objectives.

APPLICATION: Design-to-Capacity can be applied to grass root and retrofit projects, process plants, off plot facilities, and production facilities.

DETAILS: Design-to-Capacity is a two-step process. The first step is to determine the overall facility design factors early. The second step is to choose how much design flexibility is required for each major piece of equipment or system. Different equipment types or parts of the plant may be built to different levels of conservatism. This step is done after the preliminary process flow diagrams are developed.

COST & BENEFITS: Design-to-Capacity can save up to 15% of the capital cost. In the past, this costly over capacity was automatically built in without any discussion or input from the business side. The over capacity adds investment cost but may not provide a return if this "extra capacity" is not fu lly utilized.

CONTACTS:

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6-Oct-97 79

Design-to-Capacity

Often equipment is specified with a “design factor”

• Design factors can result in oversized equipment or

systems.

• Design factors can compound as the design passes from

one engineering discipline to another and then on to

suppliers.

• Design factors add investment cost and may not

provide a return if the “extra capacity” is not fully

utilized.

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6-Oct-9796-06-10 8043

Design-to-Capacity

• Saves capital costs

• Forces an examination of capacity and

expandability

• Reduces excess capacity to cover “sloppy” design

• Facility may not have extra flexibility or

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6-Oct-97 81

Design-to-Capacity

LEVEL OBJECTIVES/CHARACTERISTICS

LEVEL

1 LEVEL

2 LEVEL

3

Build a facility that only needs to operate at well defined,

unchanging conditions over its total life. This tighter, but less capital expensive design might take longer to start-up or could require minor debottlenecking to reach nameplate capacity. This facility could have trouble handling unforeseen operating conditions not considered in the original design.

The incentive to build this type of facility is the lower capital cost. It is ideal for situations where the operating conditions are well defined and not likely to change.

Build a facility with just enough flexibility to operate easily at nameplate capacity for most design cases. It may require minor debottlenecking to handle unforeseen variations in operating conditions or to operate above nameplate.

The incentive to spend the extra capital cost is to provide additional flexibility for future overcapacity or changing conditions.

Build a facility with additional flexibility to operate at the limiting design case, or handle future unknown operating requirements. There is high assurance that the facility with meet and exceed the nameplate requirements. The facility will be easier to start-up, but will have a higher capital cost.

The incentive is that the excess capacity will allow for quickly adapting to changing operating conditions. Excess capacity is planned for.

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6-Oct-97 83

Design-to-Capacity -

Level Objectives for Equip.

(85)

6-Oct-97 84

Equipment & Material Alliances

(86)

6-Oct-97 85

Equipment & Material Alliances

-

Definition

Long-term and mutually beneficial relationship

between owner and one supplier / contractor based

on:

• Performance

• Trust

• Respect

• Commitment

• No Competitive Bidding!

(87)

6-Oct-97 86

Equipment & Material Alliances -

Definition

A long-term business commitment between a supplier and customer

dedicated to lowering total costs and/or increasing revenues. It is

characterized by joint problem solving and process improvement, high

levels of trust, respect, cooperation, and mutual benefit.

An Alliance must also include the following elements:

• Shared Business Objectives

• Strategies to Accomplish the Objectives

• Metrics to Measure Progress

• Ongoing Customer/Supplier Team Work and

(88)

6-Oct-97 87

Equipment & Material Alliances -

Abstract

DESCRIPTION: "Equipment Supplier Alliances" (ESA) is defined as Chevron's project-specific, long-term, mutually beneficial relationship with one qualified supplier of highly engineered equipment. With this process the supplier is involved "up front," developing a long-term association based on performance, trust, respect, and commitment.

APPLICATION: Can be used for highly engineered equipment, larger orders of "like" equipment/materials, and critical path equipment/material.

DETAILS: Most equipment is purchased by traditional methods, i.e., competitive bid. ESA is a relatively new way of acquiring engineered equipment for a specific project. An expert team of Chevron perso nnel, suppliers, and contractors produces a well-designed, well-scoped, and cost-effective specification. Working with suppliers during the project's early planning stages translates into:

a) acquiring better equipment and systems design, b) meeting critical path equipment deliveries, and c) ensuring quality fabrication and installation of equipment.

An innovative approach to the purchase of highly engineered equipment, ESA's roots lie in the common goal of Chevron: continuous improvement.

COST & BENEFITS: There is some up-front effort to identify the equipment or materials where this process is effective and the apply the ESA process. In all cases where this process has been used, there have been significant savings that far outweigh the cost of implementation.

CONTACT:

G.W. (Gary) Fischer, (CTN) 842-5514, (e-mail FISC) D. S. (Doug) Moore, (CTN) 842-9730, (e-mail: DSMO)

K. C. (Ken) Ettinger, Team Leader, CRTC Quality Assurance, (CTN) 242-3731, (email: KCET)

CSQIP Manual For a copy, contact W. L. (Bill) Desmond, CTN 894-1208, (email: BLDE) Implementation Guide G-08: Equipment Supplier Alliances Manual (G-08)

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6-Oct-97 88

Equipment & Material Alliances -

Benefits

• Mutually Beneficial Relationships

• Long-term Commitment

• Best Suppliers

• Lower Total Cost of Ownership

• Cost Savings

• Improved Efficiencies

• Increased Opportunity for Innovation

• Continuous Improvement

(90)

6-Oct-97 89

Total Cost of Ownership -

“Iceberg Model”

More easily

identified

_{Engineering Costs}Delivery

Procurement Costs Construction Costs Inspection and Testing Permitting Costs/Fee

Training Costs Maintenance Costs Lost Sales

Environmental Accidents/Fines Inventory Costs Settlements Poor Plant Layout

Legal Costs Down Time Obsolescence

Switching Customers Performance Problems

Bid prep costs Late drawings Engineering redesign Shop quality Equipment delays Construction delays PSM documentation Change orders Equipment interface Op Ex

(91)

6-Oct-97 90 Assemble

Pre-Kickoff Data And Information

Orient The Team

Evaluate Suppliers Negotiate And Award Agreement Form Alliance Improvement Team Develop Detailed

Business Plans Execute Plans

Measure And Report Progress Perform Internal Business Analysis Perform Industry Analysis Supplier Selection Phase Process Improvement Phase Establish Criteria

(92)

6-Oct-97 91

Project Standards

(93)

  



A process to acquire and use project standards that

minimize project cost and improve

communications between project engineers and

pre-qualified vendors.

(94)

6-Oct-97 93

  



DESCRIPTION: Engineering standards and specifications can affect manufacturing efficiency, product quality, operating costs, and employee safety. The cost of a facility is increased by the application of traditional Chevron specifications that exceed the actual needs of the specific facility to be designed. APPLICATION: These standards are applicable to all projects and locations.

DETAILS: The Minimum Project Standards are comprised of three types of documents: Supplemental Information for API specifications, Chevron Specifications, and Data Sheets.

• Where an industry standard exists, Chevron presents requirements as a supplement, including a recommendation for Chevron's selected owner preference.

• Where no industry standard exists, Chevron creates stand-alone documents.

Minimum Project Standards are different from the "gray" manuals. They were developed for technical personnel who have a working knowledge of the subject to help minimize vendor

inspection and testing requirements. As such, it is assumed that vendors are pre-qualified and that their quality assurance programs have been endorsed by Chevron.

COST & BENEFITS: The development of these standards were to eliminate over- and under- designed equipment and facilities, optimize Life Cycle Costs, and prevent incidents. Equipment purchased using Minimum Project Standards costs 3-5% less than traditional Chevron standards.

CONTACT:

F. M. (Fred) Schleich, (CTN) 242-7230, (email: FMSC) PRODUCTS AND SERVICES:

(95)

6-Oct-97 94

Project Standards

Engineering Standards & Specifications Affect:

• Manufacturing Efficiency

• Product Quality

• Operating Cost

• Employee Safety

Increased cost results from standards that exceed

actual needs.

(96)

6-Oct-97 95

Project Standards

Chevron is taking steps to align company

specifications with industry standards:

• Reduce challenges associated with one-off equipment

• Take advantage of industry experience

The initiatives presently working are:

• Capital Projects Sourcing Team

• Downstream Minimum Project Standards

• CRINE initiative in U.K.

(97)

6-Oct-97 96

HES Optimization

(98)

6-Oct-97 97

HES Optimization -

Definition

The HES Risk Management process is used to identify,

assess, and develop plans to maximize value by managing

significant risks. Four risk areas are included:

• Personnel & public health/safety

• Environmental

• Financial (due to HSE incidents)

• Public concern

Risk reduction measures (prevention or mitigation) are

evaluated on a cost benefit basis to ensure efficient

resource allocation.

(99)

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6-Oct-97 99

HES Optimization -

Definition

A creative organized approach whose objective is to reduce risks and

project costs. This process will:

• Develop project HES objectives

• Identify significant permitablity issues and market based solutions.

• Identify significant (environmental, ecological, health, safety, fire and

accidental releases) risks that need to be mitigated during the design.

• Develop options to reduce emissions and discharges.

• Develop options to reduce fire, safety and accidental releases.

• Identify industry and company standards that will be used

• Identify technologies that can help meet HES objectives

• Develop recommendations to meet project HES objectives cost

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6-Oct-97 100

HES Optimization -

Techniques

• Develop Project HES Objectives

• Options to Reduce Emissions/Discharges

• Identify Industry/Company Standards

• Identify Technologies to Meet Objectives

• Identify Permitability Issues and Solutions

• Identify Significant Risks that Need to be

(102)

6-Oct-97 101