Project Management case study_Final ppt 1st Prize winner at IIM Kozikode

1. L&T Case Study
Team Optimus – KJ SIMSR
Amit Divekar, Pravin Bokil, Jitendarkumar Panda

2. Case – Hydropower Project
Up-gradation of existing system of the plant
• Hydro-electric plant with surface Penstock system
• Capacity : 4*72 MW power station
• Contract to replace current surface penstock system
with combination of surface penstock and steel lined
tunnel
• Contract value- Rs. 44.88 Cr. For a period- 42 months
• Estimated Project Timeline 15-02-02 to 14-08-2005
• Contract Type- Item rate contract
• Carry out the work without interrupting the power
generation
• Activities : Tunneling, Fabrication and Erection
of penstocks

3. Factors that forced up-gradation
• Increasing age of the existing system resulting in
higher Maintenance Cost & Cleaning Cost
• Reduction in operating efficiency
• Surface penstock vulnerable to damage
• Cost of security and inspection
• Threat of miscreants
• Resultant damage to society
• Damage cost > Project Cost
(refer - Cost calculation for client)

4. Calculation of Cost for Client
• . Production Capacity 288 MW
Min loss (1 unit shutdown) 72 MW
Max loss (station shutdown) 288 MW
Plant operation
per day(if base load)
24 hrs
Plant operation per day (if peaking load) 6 hrs
Worst case loss of sale per day 6912 MW-hrs
Least loss of sale per day 432 MW-hrs
Unit cost of electricity in year 2002 1.42
Rs per unit
(KW-Hr)
Assumption- 50% revenue for power
producer considering share of discoms
0.71
Total loss of sale per day(worst case) 4907520 Rs
Total loss of sale per day(least loss) 306720 Rs
project cost 448800000 Rs

5. Risk Evaluation

6. Risks For Contractor
• Delay due to blasting & drilling
• Extra cost for blasting work – Hard strata
• Delay in removal of muck
• Quality control work resulting in time delay &
cost overrun
• Inventory control- wastage & reconciliation
• Delay due to erection difficulties
• Concreting issues- Quality & cost implications

7. Delay due to Blasting & Drilling
• 6 months advancement achieved with revised
charge calculation
• Time Risk associated – 1.33 Cr
• % of contract value – 2.97
• Customer taken into confidence while
implementation of new idea
Tunneling Fabrication Erection
time in months 15 21 14
total mandays
Utilised 59805 79125 70650
cost 40981749 54220899 48413352

8. Risk in Fabrication
• Purchase of material in client’s scope
• Limited material quantity available with contractor
• Improper inventory or material management has
potential risk of material shortage
• Ordering after shortage has risk of high lead time
• Risk of incurring high cost of raw material
• Cost of risk > 1% of contract value
• Probability is moderate as it can only be result of
inefficient management

9. Force Majeure
• Common clause in contracts that essentially
frees both parties from liability or obligation
• When – In case of an extraordinary event
• Circumstance beyond the control of the parties,
such as a war, strike, riot, crime, act of God
• Does not excuse a party's non-performance
entirely, but only suspends it for the duration of
the force majeure

10. Risk Evaluation Framework
Catastrophic
S>2
Major
1<S<2
Significant
0.5<S<1
Minor
0.25<S<0.5
Insignificant
S<0.25
Certain
P>0.9
Likely
0.5<P<0.9
Delay due to
Blasting &
Drilling
Moderate
0.1<P<0.5
Cost overrun
in fabrication
Unlikely
0.03<P<0.1
Rare
P<0.03
Force Majeure
Identification
Force
Majeure
Identification
Severity (S) Probability –P
% of total contract value Probability of occurring identified risk event

11. Best Practices Mitigating Risks
• Menamite instrument to control sound and vibration
limits
• Changes in drilling pattern and charge factor as per
existing ground conditions
• Headgear System to improve efficiency of mucking
operations
• Dedicated fabrication workshops
• Use of rubber closures during testing process
• Turntable for erection of penstocks
• Implementing value stream mapping for waste
reduction

12. Productivity Rate and
Associated Cost Savings
• Total man days planned- 3.45 Lac
• Total Man days required- 2.09 Lac
• Saved man days- 39.12%
Microsoft Office
Excel Worksheet

13. Strategy
• De-risking at the Bid Stage – Scope clarification
• During execution – Close follow up
• De-risking via Communicating Contractual Issues
• De-risking Issues at Project Completion Stage
• Knowledge Management- To capture the
innovative practices adopted in project to be
replicated in other projects
• Organizational policies to foster the culture of
innovation
• Preparation of standardized WBS with schedule

14. Competitive Price Bid
• Total Contract Value: 44.88 Crores
• Total Cost (20% margin): 35.90 Crores
• Total Labor Cost (40% of total Cost): 14.36 Crores
• Total Labor cost saved: 40%
• Assuming that the total cost saved is proportional to the labor cost of the
particular activity
• Work Breakdown Structure
New Bid
•Cost Saving incorporated in the bidding
stage: Muck Removing, Testing and
alignment
•New Labor Cost: 11.76 Crores
•Total Cost: 33.30 Crores
•Total Bid Price: 39.96 Crores
(20% margin)

15. References:
1.http://www.larsentoubro.com/lntcorporate/pmiv/pdf/conference_paper_
4
2. http://www.larsentoubro.com
3. Dr. Hiren M Maniar /Risk Analysis of Infrastructure Projects
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