A S S I GN M E N T 2 -

EX A M I N E CO R E PR O J E C T CO N F L I C T S

Background

Liquefied natural gas (LNG) is an energy source (predominantly methane,

CH4) that has been converted to liquid form for ease of storage or transport.
Liquefied natural gas takes up about 1/600th the volume of natural gas in the
gaseous state.
Liquefied Natural Gas provision to market involves gas feed, liquefaction,
transportation through LNG Tankers and final regasification terminals. LNG is
a front-end capital intensive project, with technical complexity and a long
lead payback period.
LNG projects are referred to trains because of the interrelationship from gas
production, liquefaction, transportation, receiving terminals and regasification. Sometimes it may involve a long pipeline network from gas field
to the LNG Plant. For the purpose of financing the major stages of the train
are gas development; liquefaction plant, LNG tankers and receiving terminals.
The diagram below is a simple presentation of LNG Chain. The raw gas point
may come from a dedicated and integrated field or a contract for feed gas
supply.

There is high fixed cost in each of the stages with the liquefaction taking the
bigger share of capital cost. Common risks associated with the construction
stage are cost overrun, schedule delay and defect in design.
In the commercial development of an LNG value chain, LNG suppliers first
confirm sales to the downstream buyers and then sign long-term contracts
(typically 2025 years) with strict terms and structures for gas pricing. Only
when the customers are confirmed and the development of a Greenfield

project deemed economically feasible, could the sponsors of an LNG project

invest in their development and operation. Thus, the LNG liquefaction
business has been limited to players with strong financial and political
resources.
LNG is shipped around the world in specially constructed seagoing vessels.
The trade of LNG is completed by signing an SPA (sale and purchase
agreement) between a supplier and receiving terminal, and by signing a GSA
(gas sale agreement) between a receiving terminal and end-users. Most of
the contract terms used to be DES (Delivered ex ship), holding the seller
responsible for the transport of the gas. However, with low shipbuilding costs,
and the buyers preferring to ensure reliable and stable supply, there is a
preference for LNG supply contracts with FOB (free on board) terms instead.
Under such term, the buyer, who often owns a vessel or has signed a longterm charter agreement with independent carriers, is responsible for the
transport.. [http://en.wikipedia.org/wiki/Liquefied_natural_gas]
The problem
Company A is building a LNG facility as part of its intention to service a
growing demand for LNG in the Asia Pacific region. The construction of the
LNG facility has been progressed via a range of third party contracts related
to the design, supply, fabrication, construct and commissioning of the
proposed LNG facility. These contracts were originally established at a time
where the project critical path was still under development and therefore the
contracts were signed without considering the critical path for the overall
project. The contractors are rewarded (paid) each month based on their
performance against their original contracts.
The contracts have been managed via a sophisticated Earned Value system
whereby contract performance is measured by their performance against
calculated earned value. There is a concern that the contracted parties are
not driven by a concern for the critical path and also that sometimes the
contractors (understandably perhaps) inflate their earned value calculation
by aggregating their overall contract performance by including performance
against project activities that ultimately have no relevance to the critical
path.
The project was approved to proceed and a year after that decision a project
change request has been logged in the Management of Change system to
request additional funds to pay overtime ($1.5m) to complete the footings1
for the gas turbines (GTs). The gas turbines are a vital component of the LNG
1 Footings are concrete foundations that are embedded into the
earth to provide a solid foundation upon which the gas turbines are
positioned

facility as they provide the entire energy requirements for the LNG
liquefaction site. When the Gas Turbines dont operate, there is no LNG
produced. The original schedule had the footings completed by the 30th
November but the proposed change is now targeting the 1 st of November.
This timing is feasible due to the fact that procurement have been able to
bring forward the shipping date and the GT installation team are able to
mobilise earlier. However, it is costly.
The area manager for the GTs scope of work is keen to have the work done
by the 1st of November in order to recover from earlier slippages on other
project tasks. The overall project manager however is less convinced that the
$1.5m extra cost is justified. You have been called in as a consultant to help
facilitate a decision that is logical and defensible. You have been asked to
develop a Current Reality Tree to understand the current issues and to
determine the core conflict. The evaporating cloud (conflict cloud) method
will then be used in order to expose the basic conflict and underlying
rationale for either sides point of view. This cloud will help to decide whether
bringing forward the completion date for the GTs (and therefore spend an
additional $1.5m) is the right approach or not. It will also identify what
alternatives (injections) exist to validate or invalidate the area managers
or project managers assumptions.
An evaporating cloud (aka Conflict Cloud) is a tool developed by Dr. Eliyahu
Goldratt as part of a set of tools described as The Thinking Processes. The
evaporating cloud is used to systematically and diagrammatically describe a
conflict in a form that seeks to expose the underlying cause and effect logic
and assumptions that underpin the opposing viewpoints. When the conflict is
written up in this way, it becomes apparent that the conflict is based on one
or more false assumptions that when exposed effectively evaporate. They
evaporate because if they are false, or can be neutralised through the
introduction of one or more new ideas (or injections).
Assignment deliverable

Your task is to develop a current reality tree and an evaporating cloud

including:

a) A CRT diagram outlining the UDEs and causal logic

b) An evaporating cloud diagram (use www.evaporatingclouds.com)
c) Detailed false assumptions and possible injection/s to address or

evaporate the conflict.