Connecting the shutdown to your business strategy (Part III – COST)
The estimation, reporting and control of expenditure on a shutdown are typically one of the weakest elements of most companies’ approach to shutdowns. In order to control costs, we must first be able to define what we mean by "costs". Then we identify cost attractors so that they can be closely monitored. There is much debate about what should be included in the cost of a shutdown. There are those who advocate that only the direct cost of planning and executing the event should be included. I consider this to be a short-sighted and hazardous approach and would advocate the inclusion of all consequent costs. For instance, the cost of a lost production opportunity may be much larger than the direct costs and if it is ignored, the true business impact of doing the shutdown is ignored.
– Financing strategy
The question of financing the shutdown must be considered. Financial drivers (e.g. cost cutting), business drivers (e.g. depressed markets) and technical drivers (e.g. problems with major equipment) will influence and be influenced by the amount of funding available for the shutdown. Whatever the dynamics, a budget allocation is calculated (or estimated) that specifies the amount of money the management is prepared to spend on the event.
– Ballpark estimate
The budget is tested against reality as early as possible. This is accomplished by creating a "ballpark" estimate which, at this stage, need be no more accurate than plus or minus 20 percent. The purpose of the ballpark estimate is to give early warning to the steering group on the match between the budget allocation and the estimate. If they are not even in the same ballpark then steps are taken to bring them in line.
– Total-costing exercise
The total business impact of the shutdown is calculated. These include direct costs, and the indirect costs such as lost production and downtime salaries. Added to this is an estimate of consequential costs if the shutdown overruns and/ or overspends. Finally, the costs to the business are estimated. This gives a "worst case scenario" for costs so that the full costs and consequences are known beforehand and, if necessary, strategies are formulated to cope with theses scenarios.
– Estimate refinement
As planning and preparation proceed and more hard information becomes available, the estimate is refined and interim reports are made to the steering group on the current estimate of final anticipated cost. This affords the steering group the opportunity to react to any upward or downward movement in the estimate.
– Contingency strategy
The question of how to fund potential emergent work and other unforeseen circumstances is addressed at this stage. Do we build contingency into the pricing structure of the execution phase? Do we create a separate contingency fund to be used if and when required but refunded if not used? Do we eschew the whole concept of contingency and take the hit if it events force us to spend more money than we estimated?
– Control estimate
The time comes when we have the vast majority of the costing information we require and at this point, a control estimate can be produced. The estimate nails down all of the key cost issues such as where the sensitive cost areas are. It is normally within plus or minus five percent at this stage. The estimate is presented to the steering group and they either approve it or amend it. Once approval has been given, it becomes the control estimate against which expenditure during the event will be measured and tracked.
– Cost-reporting system
If expenditure is to be measured and tracked, it requires a system. A routine is developed for the regular updating of cost data, which in turn will generate an "anticipated final cost" at any time during the event. The routine also exposes cost generators — those areas in the schedule that are exceeding the estimated cost — and allows time for action to be taken to rectify this.
– Closing out accounts
A four-week rule is set — this is embodied in all contracts. This means that contractors must submit final invoices for payment within four weeks of the last day of the shutdown unless prior arrangement has been made to relax this rule. Settling of accounts normally requires settling of claims for extra work and delays. A system to handle this is developed and agreed before the event starts.
Site logistics on a shutdown means the procurement, reception onsite, storage and protection, and final demobilization of all materials, equipment, services, utilities, facilities and infrastructure required to perform the shutdown. The logistic plan is every bit as critical as the schedule but it is often overlooked or at best carried out in a fragmented manner. More shutdowns fail because of logistic faults than technical faults.
– Logistics approach
The decision is taken as to how logistics will be handled. Will a fragmented approach be sufficient, with various responsibilities being spread all around the organization, or does the event require an integrated approach with a central responsibility for logistics? To focus logistics, a plot plan is created that will define and display the site requirements during the shutdown.
– Element identification
The various elements of the logistic requirements are identified from the work packages and transmitted to the people responsible for procuring them. Again it is much simpler to control if there is a centralized function.
– Site control
Arrangements are made to receive all of the logistics elements onsite, and where necessary, organize their storage and protection.
– Siting of elements
This is where the plot plan comes into play. A location is arranged to house each element of logistics, whether it be lay down areas for scaffolding or fabrications, or the siting of decontamination bays for foul items. A place is designated for every item, large or small.
– Bulkwork control
Bulkwork, the many valves, small pumps, motors, etc., that need to be removed from the plant, sent for overhaul and then returned to the plant are identified and recorded on a movement plan that is focused on getting the items refurbished and back on the plant in time for their scheduled replacement.
Safe routes for moving this type of heavy plant are selected along with safe locations to site them. Where required, arrangements are made to have heavy equipment serviced onsite.
The issue of materials and equipments and the mobilization of heavy plant and infrastructure elements is organized to ensure that the right thing is in the right place at the right time.
– Offsite services
Where items have to leave site to be overhauled, they are organized into an offsite plan that defines the timing of any item to go offsite and the time required once it’s back onsite to fit in with the schedule.
– Final requirements
Site clearance is planned so that it will be carried out expeditiously. This includes the demobilization of plant and equipment, the return to stores of any unused materials and consumables and the physical removal of all traces of the shutdown.
The day finally arrives when the planning and preparation have been completed, as far as is possible in the time allowed. It is time to test them against reality.
A shutdown is an unforgiving project. The work that has taken many months to plan and prepare now must be completed within a few short weeks. That means that there is very little time available to react to the unexpected. It is said that, once the event has begun, there are only two types of work to be concerned about — the routine (planned and scheduled work) and the unexpected (late or emergent work). The rule is: "If you have nailed down your routine, you have time to deal with the unexpected, but if your routine becomes unexpected the truely unexpected may become catastrophic."
– Management control
It is important that, from day one of the event, everyone is clear on the chain of command. The question of who controls what is of the utmost importance, especially when there are a number of different departments and external agencies involved. This is the reason for appointing the shutdown manager to be in total control of the event with the full backing of the steering group.
The steering group still has a role to play during the event. They may be required to make hard decisions if a particular piece of emergent work is going to generate high costs or extend the duration of the event. Where contractors are being used, it is made clear from day one where the cuoff points are, that is, what decisions can be taken independently by the contractor as opposed to those that can only be made by the client.
– Briefing program
Everyone, both client and contractors, who will be working on the shutdown is briefed before commencing work, on the progress, performance, safety and quality requirements of the event. In some cases, experienced contractor companies will brief their people before bringing them to site. The purpose of the briefing is to raise everyone’s awareness of the situation in which they will be working in the coming weeks.
– Manager’s routine
To retain control of the event, the manager has a number of daily routines to help give form and rhythm to the event.
- First routine — the manager visits or contacts key people daily to establish a one-on-one relationship and discuss progress, performance, safety and quality. Examples of key people and agencies are: planning office, cost controller, safety team, quality team, workshops, stores, permit office, etc.
- Second routine — the daily work program — a document defining daily requirements on the shutdown – meeting times, hand over times, etc. Again the objective is to establish a working rhythm on the event,
- Third routine — a daily control meeting. Those directly responsible to the manager attend his meeting and report on progress and problems. It is a short sharp meeting involving the minimum number of people and no extraneous discussion.
– Plant shutdown
The first phase of the event. The plant is taken offline and pacified. Key dates and times for completion of steps in the shutdown are agreed and resources are provided to carry out the work required to shut the plant down. A hand over procedure controlling the hand over of plant from operations to the shutdown team ensures the transition is performed safely. This is one of the critical points of the shutdown. If time is lost during this period, it increases the time pressure on the remainder of the event.
– Scheduled work
Once the plant is handed over, the maintenance and project work begins. Major jobs, some of which will last for the duration of the event, are started. There is a heavy inspection program at this time and the results of these are processed and decisions made as to what action, if any, is required.
– Bulkwork marshalling
During the same period, hundreds, and sometimes thousands of individual items of bulkwork are marshalled. Valves, pumps, motors, orifice plates, bursting discs, etc. are removed, from the plant, sent for overhaul or repair, returned to site and then refitted in the plant. This is a logistic exercise and is carefully planned and executed by dedicated marshals.
– Emergent work
Emergent work is mainly generated by the inspection program, but it can also be uncovered by workers. Whatever the case, new tasks are identified to ensure they are understood. Also remedies are specified to ensure the problems are addressed. Finally, all work is justified to ensure time and money are not being needlessly expended. It is then up to the management team to approve or reject the emergent work request. If it is approved, it is planned and executed. The overriding requirement with emergent work is to minimize its impact on the scheduled work.
– Plant start-up
The time comes when most of the scheduled work, bulkwork and emergent work is complete and the emphasis now switches to starting the plant up. Systems are boxed up, tested and brought back online.
– Plant hand over
Hand over activities are synchronized to ensure that every piece of work is completed and every activity is performed at the correct time. All documentation is completed and registered so that there is written proof that the plant is safe to start production. All traces of the shutdown are removed from the plant which is returned to a condition that is at the very least as good as it was before the shutdown commenced. The plant is run up though its production routine and once it is up to full rates, the shutdown is complete.
What remains after the event is to debrief all of the key people to learn from the event. The performance of the event is dissected to discover the things that went well so that they can be reinforced and the things that went wrong so that root causes can be found and the faults eliminated.
The final act in the shutdown process is performed by the shutdown manager when he writes the shutdown report. This document will provide important information for the team who are appointed to manage the next shutdown.
Tom Lenahan is an acknowledged expert in the field of plant shutdowns and turnarounds. Based out of the UK, Tom has worked and consulted internationally. His 1999 book, Turnaround Management, published by Butterworth Heinemann shows the maintenance manager or project leader how to get the job done correctly. He can be reached at www.T-T-L.co.uk/.