Evaluation Of The 5 Operations Management Objectives Information Technology Essay

Ranhill Worley Parsons Sdn Bhd (RWP) is an Oil and Gas engineering consultant servicing the major operators both local and internationally and specializes in EDC(Engineering Design Contracts) and EPCM(Engineering, Procurement, Construction Management Contracts).The services rendered include a full range of Process, Mechanical, Instrumentation, Electrical, Civil, Structural, Pipeline Dynamics, Safety and Environmental, Subsea and Marine engineering. Their Operations are service orientated which revolve mainly around the various Offshore and Onshore engineering projects that they are awarded. Their total workforce in Malaysia is about 1200 personnel.

2.0 – Operations

In RWP corporate structure, the business development team together with the proposal department are responsible to bring in projects and while the main operations management function are carried out by PMT (Project Management Team, refer Appendix 2 for Org Chart) consist of engineering personnel that are high skilled and trained and has capability to deliver their respective deliverables to the client satisfaction. The Operations support team are the Project Services, Information Technology, Engineering, Prime Contracts, Procurement and Cost Estimation Departments. The core Operation manager is the Project Manager who has the final say on all project related matters from technical to commercial. The PM reports to the MOP and MOP reports to SOM in the corporate organization chart (Appendix 1).This paper will discuss operations for the EDC as 95% of customers both local and overseas go for this type of contract,

2.1- Operation characteristic and Process Management

In the RWP operations, the input process begins with the project contract reward. Table 1.0 below shows the summary of processes (Operation Management) from contract award to project close out.

2.2- Charting RWP processes using the four Vs

Typology of RWP current operations

Figure 1.0

Using the 4V’s in figure 1.0, RWP operations are considered all Low Volume, High Variety and High Visibility with the exception of Variation (Medium) and RWP are in a niche market with only 4 other competitors in the local market. RWP are awarded on average about 30 nos to 40 nos of EDC per year (from which about 2-5 nos are EPCM type contract) and each contract duration is between 2 to 8 months depending on work scope. The contract value for each project varies from RM 5.0 million to RM 10.0 million.

2.3- Operations and Process Management General

Model for RWP in Fig 2.0 below:

2.4- Implementation and Improving the five main operations

management performance objectives

In RWP, the 5 main operation management performance objective’s (quality, speed, dependability, flexibility and cost) are implemented as discussed below:

2.4.1 Quality:

The quality scale is measured by four (4) items that are:

Conformance to specification

Client retention

Service recovery

Company image

(Prajago & McDermot, 2008)

The Project Execution Plan (PEP) is the driver for the entire service quality of the project and one of the elements in the document is the project quality plan in which there are procedures and quality assurance procedures which has to be adhered to and subject to internal and external audits. The reviews listed below are intended to confirm that estimates, engineering designs and constructability comply with the project design basis and performance requirements. Typical activities in the Assurance Schedule are:

HAZIDs( Hazardous Identification study), HAZOPs( Hazard and Operabality study).

Design and model reviews- See process in Appendix 6

Value improvement workshops.

Maintainability and operability reviews.

Constructability reviews.

Operational Assessments

Quality assessments (audits)

HSE assessments (audits)

Peer reviews of process, estimates, procurement strategy.

Technical Peer Reviews

Quality controller and checker in all the reviews stated above are Lead Engineers (for all disciplines except Process where it’s the Principal Engineer) as to check the design integrity and conformance to customer expectation. There are 3 levels of check for each engineering document or drawings that are the – Initiator, Checker, and Approver before final review by customer. For Model review 3D, which is the foundation of the engineering design concept is done by Principal and Lead Engineers and Project Manager together with Customer representative. Technical integrity of documents and drawings are checked and verified by lead engineers whereas the document integrity is executed and approved by the Project Manager.

Figure 3.0) below showing the quality benefits in RWP operations:

2.4.2 Speed:

Speed in terms of Engineering Deliverables at the planned date are achievable by utilizing world class engineering software that are able to reduce the human error and faster calculations, thus faster information processed between inter discipline (with conformance to specifications) and faster delivery of engineering deliverables. The information technology department supports the PMT on this function in operations.

**The main engineering software (eventhough the license fees are high, but it is an industry standard and worldwide acceptance) are as follows:

PDS-Piping Design Software- (www.intergraph.com)- For Piping Modeling(2D & 3D)

PDMS(www.aveva.com)- For Piping ,Structural, Electrical & Instrumentation Modeling(2D & 3D)

Aspen Hyss(www.aspentech.com)- Process equipments Modeling and calculation

Primavera (www.oracle.com)- Planning software – Project Progress Measurement(Plan vs Actual)

AutoCAD(usa.autodesk.com)- Drafting software

PV Elite – (www.chempute.com)-Pressure Vessel software

**All the software cost above are usually accounted in the respective man-hour rate of the operations team that are charged to the customer.

Figure 4.0) below showing the speed benefits in RWP operations:

2.4.3 Dependability:

Dependability is another advantage of RWP engineering service. Its worldwide corporate policy encourages staff retention especially those highly skilled engineering staff which is crucial and essential to the success of the project operations. Staff retention is achieved by consistently rewarding them for their exceptional work quality by giving a) bonus, stock options and salary raise and b) providing continuous learning & development in new technology and soft skills. This equates to consistently high quality of engineering design deliverables at scheduled dates that benefits customers like Petronas when the design is constructed and put into operations at sea(Offshore structure or Processing Platform).If the design is viable, that means revenue for the satisfied customer and repeat orders for the consultant.

Figure 5.0) below showing the dependability benefits in RWP operations:

2.4.4 Flexibility:

There are four dimension in operation management flexibility that is:

Volume- Externally driven by customer

Variety- Externally driven by customer

Process- Internally driven due to a) and b)

Material handling- Internally driven due to a) and b)

(D’Souza and Williams,2000)

For RWP operations , all except item (d) is not applicable. In Project operations flexibility do occur when there are changes in design concept due to a) customizing existing operation conditions at offshore site and b) catering to additional work scoping from customer. This will lead to designers and drafters modifying their engineering drawings- re-routing piping, electrical and instrument cables, re-locating equipments, etc. Usually this flexibility will equate to additional cost incurrence on the customer. This flexibility is not a common occurrence in EDC.

Increase in Volume and variety is not an issue for the PMT operations as it only requires increase in manning and engineering software license.

Figure 6.0) below showing the flexibility benefits in RWP operations:

2.4.5 Cost:

Cost are closely related to service quality and as all the RWP contracts (whether Lump Sum or Reimbursable)with customer are derived from total man-hours required for the engineering scope. It is essential that the Operation Manager(Project Manager) has to work/control within the approved man hours allocated to ensure profitability and quality. The crucial factor here is the productivity factor which is monitored by the Operation Manager on a weekly basis by utilizing the project planner software called Primavera. The monthly progress report (Appendix 3) will show engineering activities that are lagging and advanced and the percentage what was planned against actual.With consistent high quality and repeated works from customer, the cost can be lowered providing RWP a competitive advantage in the outside market. Cost and quality are influential factors in the goods/service industry as customers expect high quality at competitive cost.(Tiwari, Turner and Sackett, 2007).Operation Cost are high(and accounted for in the Final awarded value) due to high salary rates and software licensing cost compare to other consulting engineering servicing firms(non -Oil & Gas).

Figure 7.0) below showing the cost benefits in RWP operations:

2.4.6 Key Performance Indicator:

The most crucial element for RWP current operations are quality, speed, dependability, and cost as shown table 3.0 below:

The KPI’s measurement for each of the five objectives are shown in table 3.0 above The Customer KPI and Internal operation KPI are shown in Appendix 4 and Appendix 5.Below are summary of the not meeting the minimum KPI :

Quality- Design Failure

Speed, Dependability, Flexibility and Cost -Project loss

Reputation in Local and overseas market affected leading loss of revenue and confidence from customers.

2.5- Improvement and Challenges

Based on the Track record of Engineering contracts that has been won both locally and globally by local design contractors from 2000-2010, the ranking are as below:

Technip Geoproduction Sdn Bhd ( they have the EPCC capability)

RWP

Aker Kvaerner(AK) & MMC O & G

R & Z

RWP are on par with Technip in terms of Offshore & Onshore Engineering capabilities for both local and global markets but in some countries the strategy of the operators are to award EPCC type contracts which RWP do not have the capability yet, hence its no 2 position in the past decade. As can be seen the cost competitiveness of the AK, MMC and R&Z are slightly better than both RWP and Technip as their specialized personnel (Lead and Principal Engineer) are mostly local and the ratio of local/expatriates are lesser compared to RWP and Technip.

2.5 (a) Improvement

The main areas of Improvement required for RWP operations shall be in the areas of Cost and Flexibility as shown in the Polar diagram in Fig 8.0 in the following pages:

2.5.1 Cost:

a) Localization of the Senior Specialist Category (Lead and Principal Engineer)

The evolution of a graduate engineer to the principal engineer are as follows :

The Principal and Lead Engineer in RWP are 70% foreigners and 30% local Malaysian.

Even with local staff retention policies in place due to the volatile market condition of the Oil and Gas Industry at certain period of time (year), the demand for skilled engineers will outdo the Supply.

Most of the local senior specialist category are based in the Middle East market due to the higher salaries and tax free benefits.

Localization of the senior specialist category will provide a lower cost rate for engineers in the category and this will lead to more price competitiveness in the local and global market. Challenges for RWP is to convince the local that their remuneration is justified for the Local market .To overcome this management can provide this category of specialist an employment contract based on hourly rates. That means the rate is an all inclusive rate that covers the workers medical, overheads, EPF, etc. It has been proven to be effective method of attracting locals from overseas markets.

b) Transfer of Knowledge

The localization concept will also help in knowledge transfer in engineering from the experienced to the non-experienced. It is common practice in this industry is that the foreigners will only teach and guide their respective professionals and not others (local or other foreigner).

2.5.2 Flexibility

a) The market segment for RWP is solely on the Oil & Gas Sector. As more experienced competitors enter the market either through JV or acquisitions, RWP should expand further into the Mineral and Pharmaceutical segments as the demand in this market are forecasted to increase globally for the next 5 years.

b) At present the RWP contract award types are EDC only but for the long term strategy in terms of growth and sustainability is to go for EPCC or what is called Turnkey contract.

RWP has the Engineering & Procurement & Construction Management running in its Operation, and to add the Construction (Separate PMT) and Commissioning (Separate PMT) to their operations shall be either by Joint venture or buying into an EPCC company. Challenge is that fund is required to do Joint venture acquisitions but for the long term goal and plan it will be profitable as studies has shown worldwide client are going into EPCC type contracts to reduce their risk and transfer to the successful EPCC contractor. The value for an EPCC contract for Offshore structure can vary from USD 100 million to USD 2.0 billion .High income revenue and another niche market.

2.5 (b) Challenges

The challenges in implementing the cost and flexibility change are tabulated in the table 5.0 below:

3.0 Conclusion

To move forward in the ever competitive markets of engineering consulting services especially Oil and Gas sector both locally and globally, RWP must make the changes internally and externally with regards to Cost and Flexibility in its Operation Strategy in order to be the preferred engineering contractor of the major Oil & gas operators both local and globally.

4.0 Salient Point

Operation Management is crucial for business organizations like RWP as they are in the niche market, its operation strategy and function has to be synchronized with current and future market trends to maintain it edge as one of the industry leader.