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Case #3:  Solent Refinery Isom Project (Construction Labor Productivity Analysis)   The following project is a real project

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Case #3:  Solent Refinery Isom Project (Construction Labor Productivity Analysis)

 

 

Project Background

 

Location of Solent Refinery

                                     

Figure 1:  Map of the Solent

 

 

History of Solent Refinery

Tiger Petroleum’s Solent Refinery is located on the western shore of the Southampton

Water.  The Solent is the body of water surrounded by Southampton Water, Portsmouth, New Forest and Isle of Wight in southern England. The Solent was the location of the inaugural America’s Cup races in 1851 as part of the London Exposition of the same year.  The Solent remains a hotbed for yachtsmen from around the world, especially during Cowes Week regatta held every August at the Isle of Wight.

The Solent Refinery was established in 1921 by the Atlantic, Gulf and West Indies Oil

Company on 270 hectares (670 acres) of land. The site was chosen because a large amount of land was available for development, and the area was not heavily populated, and because of the position on Southampton Water. This provided access to the large amount of water used in the refining process, and also made it possible for crude oil to be brought to the site in ocean tankers by sea. Proximity to Southampton was also a factor, as at the outset much of the plant's output was used to supply liners using Southampton Docks. Atlantic, Gulf and West Indies were bought out by British?Mexican Petroleum in 1923, and they, in turn, were taken over by the Anglo?American Oil Company in 1926, which was the British affiliate of Tiger Petroleum.

In 1939 capacity was around 600,000 tonnes of crude oil per annum (approximately 12,000 barrels [1,900 m3] per day) which met just 6.7% of UK demand. Refining ceased during World War II, when most refined oil for the UK was imported, and Fawley was used as a storage depot.

In 1949, Tiger Petroleum embarked on the construction of a new refinery, and a further 1,200 hectares (3,000 acres) of land were acquired. The first stage of this expansion, which came on?stream in 1951, consisted of primary distillation units, a catalytic cracker and numerous treating units. The refinery was opened by British prime minister Clement Attlee on 14 September 1951. It had an initial estimated capacity of 157,000 barrels (25,000 m3) per day, or around one third of UK demand at that time.

The adjacent chemical plant was created in 1958. Additional refining capacity was added, and Solent Refinery's capacity reached around 19,500,000 tonnes of crude oil per annum in 1973 (approximately 400,000 barrels [64,000 m3] per day), and has since decreased over the recent decades, partly because of reduced demand for oil.

 

 

 

Figure 2:  Aerial View of Solent Refinery

 

Currently, Solent Refinery processes around 270,000 barrels (43,000 m3) of crude oil a day and provides 20 per cent of the UK's refinery capacity. Crude oil is transported by sea in tankers to the refinery's one?mile?long (1,600 m) marine terminal, which handles around 2,000 ship movements and 22 million tonnes of crude oil and other products every year. The crude oil is pumped into storage tanks before being processed.

The crude oil is distilled into different fractions, with other complex processes being performed to produce a full range of products, that includes propane and butane (LPG), petrol, jet fuel, diesel, marine fuels, heating oil, lubricant base stocks and fuel oil.

Major process units include three atmospheric and three vacuum distillation units (also known as crude units as these are the units that first distill crude oil or as some say “boil oil”), a fluid catalytic cracking unit (also known as a cat cracker), a residfiner, polymerization plant, two powerformers, six hydrofiners, two sulphur extraction units, a lubricating oil manufacturing complex, an isomerization unit and a bitumen plant. In addition to this, the refinery is also home to the largest refrigerated LPG storage facility in Northern Europe.^[1]

 

About 5% of Solent Refinery’s production is distributed by rail or road, 25% by sea and 70% by pipelines. The refinery also supplies feedstock to the adjacent chemical plant.

Oil and product movement facilities at the Solent Refinery comprise of LPG rail loading, chlorine facilities, crude offloading, a chemicals facility building, caustic facilities, butyl rubber, bitumen, gas oil and a coal road. The 10?mile?long (16 km) Solent Refinery branch line is connected to the South Western main line via an east?facing connection to the west of Totton station.

Adjacent to the refinery at the 1,250?acre site, Tiger Petroleum also operates a chemical manufacturing complex.  The chemical plant obtains feedstock from the refinery to produce an ever?evolving range of petroleum?based chemicals including ethylene, butylenes, butadiene, solvents, butyl and halo?butyl rubber, lubricating oil and fuel oil additives and higher olefins with carbon numbers in the range of C₆ to C₁₂ as precursors for intermediates for the vinyl and plastics industries.  Tiger Petroleum also produces specialty chemicals for oil exploration, extraction and refining industries.

 

Isom Project Description

Phase 2 of Tiger Petroleum’s Gasoline Upgrade Project increases the production of light virgin naphtha at the Solent Refinery.  Tiger Petroleum is a major supplier of petroleum products in the United Kingdom and needs to complete this project in 1986 to comply with low?lead gasoline legislation.^[2]

Phase 2 of Gasoline Upgrade, also termed the Isom Project, consists of the following

facilities:

• Light Virgin Naptha (LVN) Hydrofiner producing 53 cubic meters per hour (m3/hour) of LVN from other refinery process areas or from storage tanks.  Major equipment include reactors, stripper tower, heat exchangers and pumps, all of which are to be integrated in a new process block with the Total Isomerization Plant.
• Total Isomerization Plant (TIP) produces high purity isomerate product from LVN feed.  The technology for TIP is licensed from Battery Chemical.  The TIP is designed to process a total of 126 cubic meters per hour of LVN from various sources within the Solent Refinery.  The TIP will be co?located with the LVN Hydrofiner in a new process block.  Major equipment in the TIP include reactors, adsorbers, towers,

 

vertical?cylindrical furnaces, centrifugal compressor, shell & tube heat exchangers, air?fin coolers and pumps.^[3]

• Various off?block modifications at the refinery to integrate the new facility. 

Modifications include: o new 1,250 cubic meter per hour cooling water tower; o new electrical substation at the new process block, o new high?voltage electrical power feeders to the new substation; o expansion of the north electrical substation by the local power company; o new process control instrumentation in an existing process control room;

o interconnecting piping for process and utility streams to the new process block; and o revamp of existing Naphtha Splitter.

 

Project Cost & Schedule

Tiger Petroleum had estimated that the project would cost nearly £45 million^[4], excluding platinum catalyst, licensee royalties and other special allowances.  Tiger Petroleum budgeted just over £16,850,000 for construction costs, representing an expectation that around 905,000 workhours of direct construction, both direct hire and subcontract labor, was necessary.

 

 

Tiger Petroleum wanted the Isom Project to be in full operation at end 1986.  To achieve this goal, construction was to start in late spring 1985, after a major refinery shutdown was completed, and be complete eighteen (18) months later.  Figure 2 provides a summary barchart to show the target schedule for the project.  The project team agreed to work toward a stretch target of 24 months for overall project duration in an attempt to demonstrate world?class project management.^[5]

								Months from Contract Award
1	2	3	4	5	6	7	8	9	10	11	12	13	14	15	16	17	18	19	20	21	22	23	24	25	26	27
1984								1985									1986
A	S	O	N	D	J	F	M	A	M	J	J	A	S	O	N	D	J	F	M	A	M	J	J	A	S	O
Detailed Engineering
														Mechanical Completion
Procurement								Construction

 

Figure 2:  Overall Target Schedule

 

Northampton Engineering and Construction Company (NECCo)

Tiger Petroleum awarded a cost?reimbursable engineering, procurement and construction (E/P/C) contract to Northampton Engineering Company in July 1984.  Since NECCo offered very competitive financial terms, Tiger Petroleum intended to utilize a bonus/penalty incentive program to supplement NECCo’s ability to make profit from the project.

Although a subsidiary of Lemon Industries, a world?wide design and engineering conglomerate, NECCo was struggling to maintain its “full?service” capability in Northampton in 1984.  NECCo had moved offices from central London to Northampton in 1982 in order to capture cheaper costs for office space as well as tax concessions from the Northampton City Council.  However, two years later, key staff members were leaving NECCo to join other E/P/C companies in the Greater London area and surrounding counties such as Berkshire.

At the time of award, NECCo was elated at the news as it had hoped this would be the project that would attract similar awards from other clients, who were worried that NECCo could survive in Northampton.

 

Kick?off for the Solent Refinery Gasoline Upgrade Project – Phase 2 occurred August 1, 1984 at NECCo’s offices in Northampton, England, which is 75 miles north of London along the M1 motorway.

 

Tiger Petroleum Project Team

The Tiger Petroleum project team contained a blend of experienced and junior staff members.

• Peter Leonard was the project manager for Tiger Petroleum and reported to Peter Harrison, the project executive who was located at Solent Refinery.  Peter Leonard had 30 years of engineering experience is refineries all over the world.  He had recently been project manager of a revamp project for a fluid catalytic cracking unit in southern Italy.
• Jim Chambers was the Tiger Petroleum construction manager.  Jim had previously completed the new steam generation power station project at the Solent Refinery.
• Nigel Wolfhall?Smith was the project cost/schedule engineer assigned full?time to the project.  Nigel served a similar role during the construction phase of the fluid catalytic cracker unit revamp project, which was completed in 1981.
• Gordon Brown and Greg Stall were the project engineers.  Gordon was responsible for mechanical and piping systems as well as coordination of those aspects of the project outside of the new process block.  Gordon had worked as project engineer on several small projects at Solent Refinery over the past 5 years.  Greg, a recent hire by Tiger Petroleum in the U.S., had no previous experience at Solent Refinery.  Greg was responsible for civil/structural and process equipment items.
• Ralph Gooding was the project accountant and was responsible for approving invoices and other accounting/financial matters for the project.
• Brian Eagle was the Tiger Petroleum procurement advisor, on loan from the London headquarters.  Brian had recently completed a similar role on the new steam generation power station project at the Solent Refinery.
• Mike Paul was the process engineer and initial start?up liaison for the project.  Mike had served a similar role on the new vacuum pipestill project completed two years earlier.

Figure 3 provides an organization chart for the Tiger Petroleum team for the Isom Project.

 

Project Engineers

Greg Stall

Gordon Brown

C/S Engr.

Project

fhall-Smith

Nigel Wol

Process Engr.

Mike Paul

Construction Mgr.

Jim Chambers

Proj. Ac

countant

Ralph

Gooding

Procurement

Advisor

Brian Eagle

Peter

Leonard

ct Mgr.

Proje

Peter Harrison

Project Executive

Solent Refinery

 

 

Figure 3:  Tiger Petroleum Isom Project Team

 

NECCo Construction Team (March 1986)

NECCo assembled a construction management team with their best available talent that resided in the UK.  Many of the supervisors had recently completed assignments on another Tiger Petroleum joint venture project in Scotland, which was a gas plant in Fife.

The key members of the NECCo construction management team were:

• Frank Harris was NECCo’s construction manager. Frank had twenty (20) years of construction experience and most recently finished a revamp of refinery unit in northern England.  Frank reported to Jim Chambers in the Tiger Petroleum organization.
• Arun Chopra was NECCo’s project controls manager and was responsible for reporting of engineering, procurement and construction performance. Arun split his time between Northampton and Solent Refinery, with more emphasis in the field after October 1985.
• Tom McCue was NECCo’s lead field cost control engineer.  He was responsible for analyzing all construction costs and working with Arun to prepare monthly cost forecasts.
• Ian Robinson was NECCo’s lead field planner/scheduler.  Ian prepared the detailed project schedule and was responsible for updating the schedule and calculating progress on a weekly basis.
• John Harley?Davis was NECCo’s construction superintendent. John had five craft supervisors reporting to him and had day?to?day responsibility for all construction activities for the project.
• Trevor Wilson was NECCo’s piping/mechanical supervisor. Trevor had worked with

John for past five years and was, in essence, John’s “right?hand man”.

• Jim Gillian was NECCo’s senior industrial relations officer and worked with Frank on matters with the local unions.^[6]

An abbreviated organization chart of NECCo’s site team is presented in Figure 4.

 

 

Figure 4: NECCo’s Construction Organization

 

Project Status (March 1986)

The following excerpts from the Tiger Petroleum monthly report summarizes the key status at end March 1986:

 

• Overall construction progress was 56% complete against a plan of 50%. NECCo’s construction progress continues to be at a rate that can lead to an October 1986 mechanical completion.
• Piping erection progress at end March is 45% complete against a plan of 49%. Tiger Petroleum team is working with NECCo to review performance to date and take any corrective actions to ensure a September 1986 completion of the piping effort.^[7]
• During late March, pipe welding activities were restrained while the workforce disputed the use of fiberglass sheets to protect surfaces from fires caused by welding sparks.  After extensive investigation, these sheets were proved to be safe and workforce finally agreed, and work resumed to normal as April has started.
• Pipe welding quality continued to be good throughout March with repair rates significantly reduced. Repair rates for alloy pipes was 0% while rate for carbon steel pipes was 5%.  The improvement against prior months was attributed to more attention by NECCo supervisors and better selection of which welders were assigned to specific tasks.
• Tiger Petroleum and NECCo procurement resources have spent significant effort in past 5 months to finalize fabrication of all large bore spools for the project – both alloy and carbon steel pipe spools. All large bore pipe spools are now at site.⁸

 

Project Challenges (March 1986)

The Solent Refinery Isom Project had several remaining project challenges:

• Tiger Petroleum desired to improve construction labor productivity to ensure future projects at Solent Refinery were competitive for internal capital investment. Thus, piping labor was targeted as an area of significant interest and improvement, since it was around 40% of the construction effort.
• The layout arrangement for the isomerization unit adsorbers was different than a similar unit in the United States for a subsidiary of Tiger Petroleum.  The layout arrangement at Solent Refinery was linear, while the layout arrangement at the US plant was circular.  Battery Chemical indicated to Tiger Petroleum process engineers that the circular layout arrangement was thought to be harder to

 

construct but easier to design from a stress analysis perspective – the efficiency in construction was a key factor in the final layout decision.  In March 1986, all of the adsorbers were in place and pipe work around them was active.

• Tiger Petroleum recognized the selection of NECCo as E/P/C contractor was risky as they did not have the backlog of future work as compared to other bidders. However, NECCo management reassured Tiger Petroleum the project would be completed as planned. For the past year, NECCo had been losing key staff members who feared there was no other work once the Tiger Petroleum Isom Project was over.
• NECCo had not used their 3?D CAD system to model piping systems for a project of this size and complexity in the Northampton office.  Other subsidiaries of Lemon Industries had demonstrated successful use of the system at other offices.  Tiger Petroleum gave NECCo a project change during the engineering effort to confirm the design had no major clashes to it.  The model was assembled and no major flaws in the piping layout was detected.

 

Plan for Piping Program (March 1985)

In March 1985, NECCo’s Arun Chopra presented the following plan for piping labor to Tiger Petroleum. This plan was a collaboration of NECCo’s home office construction experts, Isom project construction management and project controls and some guidance from the Tiger Petroleum team.

Table 5:  NECCo’s Piping Labor Program

Timing		Progress	Workweek (Hours/Week)	Weeks Per Month	Absenteeism	Planned Resources (Headcount)	Planned Monthly Workhours	Cumulative Workhours
		A	B	C	D	E	F = E x B x C x (1?D)	Cum(F)
1985	J		39	4.6	5%
	A		39	4.2	5%	0	0	0
	S	0.0%	39	4.4	5%	25	4,076	4,076
	O	2.0%	39	4.6	5%	80	13,634	17,710
	N	7.0%	39	4.2	5%	120	18,673	36,383
	D	14.0%	39	3.0	5%	165	18,340	54,723
1986	J	22.0%	39	4.0	5%	200	29,640	84,363
	F	35.0%	43	4.0	5%	230	37,582	121,945
	M	49.0%	43	3.8	5%	260	40,360	162,305
	A	63.0%	43	4.4	5%	260	46,732	209,037
	M	76.0%	43	4.0	5%	260	42,484	251,521
	J	85.0%	43	4.2	5%	240	41,177	292,698
	J	92.0%	43	4.8	5%	200	39,216	331,914
	A	97.0%	43	4.0	5%	150	24,510	356,424
	S	100.0%	43	4.4	5%	60	10,784	367,208
	O		39	4.6	5%	20	3,409	370,617
	N		39	4.2	5%			370,617
	D		39	3.0	5%			370,617

The plan had several key assumptions:

• The workweek would be 39 hours through January 1986 and increase to 43 hours thereafter until mechanical completion is achieved at end September 1986.
• Absenteeism will be 5% throughout the project.

The quantity?adjusted budget for piping labor was 400,000 hours, including the effect of changes and small quantity growth from the final piping design. This plan had a total of 370,617 hours, which was around a 7% planned improvement against the budget, which was good news for both project teams.

 

Piping Program Performance (March 1986)

Under the watchful eye of Tiger Petroleum’s Nigel Wolfhall?Smith, NECCo’s Tom McCue and Ian Robinson prepared the following table of information regarding the actual performance of the project’s piping work:

Table 6:  NECCo’s March 1986 Status Report of Piping Program Performance

Timing		Progress	Workweek (Hours/Week)	Weeks Per Month	Absenteeism	Actual Resources (Headcount)	Actual Monthly Workhours	Cumulative Workhours
		A	B	C	D	E	F	Cum(F)
1985	J		39	4.6	12%
	A		40	4.2	12%	13	1,922	1,922
	S		40	4.4	8%	27	4,372	6,294
	O	1.0%	43	4.6	8%	46	8,371	14,665
	N	6.0%	43	4.2	8%	80	13,458	28,123
	D	10.0%	40	3.0	10%	136	14,796	42,919
1986	J	16.0%	40	4.0	10%	173	25,200	68,119
	F	32.0%	40	4.0	8%	237	35,181	103,300
	M	45.0%	40	3.8	8%	265	37,337	140,637
	A			4.4
	M			4.0
	J			4.2
	J			4.8
	A			4.0
	S			4.4
	O			4.6
	N			4.2
	D			3.0

At the end of March 1986, NECCo had used 140,637 piping labor hours to gain 45% complete.

At the request of Tiger Petroleum’s Peter Leonard, NECCo was asked to convert the information in Tables 5 and 6 to show the planned and actual progress and resource use. As a result of this request, Arun Chopra prepared the following charts for Peter’s use.

 

Figure 7a: Isom Project Piping Program Progress

 

Figure 7b: Isom Project Piping Program Resource Information

 

Case Report Questions

As a labor productivity analysis expert for NECCo, you have been asked to perform the following analysis:

1. Workhour Per % Complete Analysis: Based on the data presented, prepare a graph to show the planned productivity rate for this work and add the actual data through March 1986.  Show both the cumulative and incremental (each month) productivity trend data.  What is the actual productivity performance (n terms of workhours per % complete) at end March 1986 and how does it compare with the plan?
2. Calibration Curve:  Based on the work in Question 1, copy the graph and add to it a calibration curve based on a budget of 400,000 hours using the following parameters (which has the same parameters as class lecture notes):

Table 8:  Calibration Curve Data

Progress	Calibration Curve
0%
5%	1.095
10%	1.060
15%	1.030
20%	1.000
25%	0.985
30%	0.970
35%	0.958
40%	0.944
45%	0.937
50%	0.930
55%	0.925
60%	0.920
65%	0.925
70%	0.930
75%	0.937
80%	0.944
85%	0.958
90%	0.970
95%	0.985
100%	1.000

At the 45% complete level, how does the actual productivity performance compare with a value determined by the calibration curve?

3. Forecast Based on Calibration Curve:  Based on the application of the calibration curve, what would be the forecast of total piping program workhours if the remainder of the project would follow the profile of the calibration curve, but re?calibrated to the data point of current performance (45% complete, 140,637 hours spent)?
4. Forecast Based on Planned Productivity Profile:  Based on the shape of the planned productivity trend curve from Question 1, what would be the forecast of total piping program workhours if the remainder of the project would follow the profile of the planned productivity trend curve (cumulative), but recalibrated to the data point of current performance (45% complete, 140,637 hours spent)?
5. Forecast Based on Earned Value Approach: Based on the data provided through March 1986, what would be a forecast using the following Earned Value formula:  EAC = BAC ÷ CPI, where CPI is calculates as EV ÷ AC (earned hours ÷ actual hours)?  Develop this forecast based on BAC = 400,000 hours.

6. Forecast Based on Remaining Level of Effort and Progress Gained:  Frank Harris,

John Harley?Davis, Jim Chambers, Trevor Wilson, Nigel Wolfhall?Smith, Tom McCue, Ian Robinson and Arun Chopra met and created a “path?forward” level of effort plan for the piping program.  The summary of this plan is presented in the following table, with new values in red. Note the differences in absenteeism and workweek values in future months.

Table 9: “Path?Forward” Plan for Piping Program

Timing		Progress	Workweek (Hours/Week)	Weeks Per Month	Absenteeism	Actual Resources (Headcount)	Actual Monthly Workhours	Cumulative Workhours
		A	B	C	D	E	F	Cum(F)
1985	J		39	4.6	12%
	A		40	4.2	12%	13	1,922	1,922
	S		40	4.4	8%	27	4,372	6,294
	O	1.0%	43	4.6	8%	46	8,371	14,665
	N	6.0%	43	4.2	8%	80	13,458	28,123
	D	10.0%	40	3.0	10%	136	14,796	42,919
1986	J	16.0%	40	4.0	10%	173	25,200	68,119
	F	32.0%	40	4.0	8%	237	35,181	103,300
	M	45.0%	40	3.8	8%	265	37,337	140,637
	A	59.0%	45	4.4	10%	270
	M	71.0%	45	4.0	10%	270
	J	82.5%	45	4.2	10%	270
	J	92.0%	45	4.8	12%	220
	A	97.5%	45	4.0	12%	170
	S	100.0%	45	4.4	10%	100
	O			4.6
	N			4.2
	D			3.0

What is the forecast for overall piping labor hours based on this plan? Plot the forecasted productivity trend (workhours per % complete) on a new graph that is a copy of the graph from Question 1 and expanded to show both the forecastbased cumulative and incremental productivity values.

7. Recommendation:  In terms of the various forecasts that have been prepared for the piping program in earlier Questions, which one would you recommend to the NECCo and Tiger Petroleum teams to use for future performance tracking purposes?  Explain your recommendation.

 

*** End of Case Study Narrative ***