Success Factors in EPC Projects, Case: MAPNA Power Plant

Abstract: In project-based organizations, project success is a key goal and challenge for managers as they plan to complete the projects, noting many factors contribute to success. This research re-examines the subject for EPC projects, where an entire cycle of Engineering-Procurement-Construction has been outsources to a prime contractor who may in turn sub-contract parts of the project to other firms. We have used data from MAPNA Group power plant projects, a major EPC contractor in Iran with a success track record, for empirical analysis. For a limited model, with 5 selected success factors and using a questionnaire, we were able to verify the factors for EPC cases. Final analysis shows project mission and definition, top management support, planning and scheduling, human resources, and technical tasks are all important factors believed to contribute to the EPC project success, while planning having the least relative effect.

Introduction Engineering, Procurement and Construction (EPC) contract means much more than just putting together three different sources of engineering, procurement and construction for project execution. Combination of engineering, procurement, operation, management, administration, on-time delivery, cost control and risk management is done in project management of EPC contracts, with Planning, controlling and simultaneous activities acceleration regarding project scope of quality. EPC contractor commits to execute the parallel sequence of activities according to project schedule. Several studies were done about the projects key success factors for different situations and industries. The most prominent study is done by Pinto and Slevin(1986). This study aims to retest Pinto and Slevin work in EPC power plants project context in Iran. Based on Interviews and statistical analysis of questioners filled by senior managers of MAPNA Group, success factors in strategic perspective are identified. Senior management support, human resource, technical tasks and project mission are mentioned as most important success factors of these projects. Planning is identified as effective factor in interviews but then assessed as a secondary factor due to specialty of these projects.

Literature Review A project is an organization of people dedicated to a specific purpose or objective. Projects generally involve large, expensive, unique, or high risk takings which have to be completed by a certain date, for a certain amount of money, within some expected level of performance. At a minimum, all projects need to have well defined objective and sufficient resources to carry out all the required tasks. (Steiner 1969). Other definition is offered by Cleland and Kerzner( Cleland & Kerzner, 1985): A project is a combination of human and nonhuman resources pulled together in a temporary organization to achieve a specified purpose. In EPC method engineering, procurement and construction are done in one contract, engineering services is under completion, and meanwhile procurement delivery, site mobilization, construction and erection are done in parallel. Management has major role for coordination and successful completion of EPC project. Using applied project management techniques and organizations with project control and management experiences are pivotal basis of these contracts. A company is successful who can manage engineering and procurement to reach standards while reducing costs of procurement.

Ta ble 1 literature summary on project critical success/failure factors Theoretical Studies Avots (1969) Jonason (1971) Archibald (1976) Martin (1976) Markus (1981) Hughes (1986) Schultz, Slevin and Pinto (1987) Empirical Studies Rubin and Seeling (1967) Baker, Murphy and Fisher (1983) Pinto and Slevin (1987) Morris and Hough (1987) Pinto and Prescott (1988) Magal, Carr and Watson (1988) Nutt (1989) Pinto and Slevin (1989) Pinto and Prescott (1990)

Table 2 gives seven different lists of critical factors from the literature. For product development projects, the project life span and its cost are critical factors for the intermediate release of a product to the market. These are critical for the successful completion of projects. (Blessi and Tukel,1996) Project managers wo uld then have a clear understanding of which aspects of projects might be critical for their successful completion. (Blessi and Tukel,1996). Table 3 shows ten factors of success by Pinto Slevin. Ta ble 2 Seven lists of critical success factors developed in the literature (Blessi and Tukel,1996)
Martin(1976) Locke(1984) Cleland and King(1983)
Project summary

Sayles and Chandler(1971)

Project managers competence Scheduling

Baker, Murphy and Fisher(1983)

Clear goals

Pinto and Slevin(1989)

Top management support Client consultation Personnel recruitment Technical tasks

Morris and Hough(1987)

Project objectives Technical Uncertainty innovations Community involvement Schedule duration urgency Financial contract legal problem Implement problem

Define Goals

Select project

Make project commitments known Project authority from the top Appoint competent project manager Set up communications and procedures Set up control mechanisms Progress meetings

Operational concept Top management support Financial support

Organizational philosophy General management support Organize and delegate authority Select project team Allocate sufficient resources Provide for control and information mechanisms Require planning and review

Control systems and responsibilities Monitoring feedback and

Goal commitment of project team On-site project manager Adequate funding to completion Adequate initial cost estimates Minimum startup difficulties Planning and control techniques Task(vs. social orientation) Absence of bureaucracy

Logistic requirements Facility support Market intelligence Project schedule

Continuing involvement in the project

Client acceptance Monitoring and feedback Communication Trouble-shooting Characteristics of the project team leader Power and politics Environment events Urgency

Executive development and training Manpower and organization Acquisition Information and communication channels Project review

Ta ble 3- Factors definition ( Pinto & Slevin,1986)

Project mission Top Management Support Project Schedule Client Consultation Personnel Issues Technical Tasks Client Acceptance Monitoring and Feedback Communication Troubleshooting Initial clearly defined goals and general directions Willingness of top management to provide the necessary resources and authority/ power for project success A detailed specification of the individual actions steps fo r project implementation Communication, consultation, and active listening to all impacted parties Recruitment, selection, and training of the necessary team Availability of the required technology and expertise to accomplish the specific technical action steps The act of Selling the final project to its ultimate intended users Timely provision of comprehensive control information at each stage in the implementation process The provision of an appropriate network and necessary data to all key actors in the project implementation Ability to handle unexpected crises and deviations from plan

General Characteristics of model are: 1. Factors appear to be both time sequenced and interdependent. According to the framework, it is first important to set the goals or define the mission and benefits of the project before seeking top management support. In actual practice, considerable overlap and reversals can occur in the sequencing of events. 2. The factors for a project can be laid out on a critical path. Set of seven factors along the critical path, ranging from project mission to client acceptance, other factors such as communication and monitoring and feedback are hypothesized to necessarily occur simultaneously and in harmony with the other sequential factors. The arrows in the model represent information flows and sequences, not necessarily causal or correlation relationships. 3. The model allows the manager to actively interact with and systematically monitor his project. The sequence of a project implementation is an important consideration for any project manager. Not only are there a prescribed set of steps to be taken in the project implementation process, but because of the order of the steps to be taken, the manager is provided with a checklist for determining the status of the project at any given stage. Monitoring capacity enables the manger to determine where the project is in terms of its life cycle and how rapidly it is moving forward. Further, the manager has the ability to determine the chances for successful implementation given attention has been paid to the proper sequencing of steps and consideration of relevant critical success factors.

Strategy and Tactics As table 3 shows, the first three factors, (Mission, Top Management Support, and Schedule) are related to the early planning phase of the implementation process. The other seven factors (client consultation, personnel, etc.), may be seen as concerned with the actual process, or action of the implementation. Strategy is often viewed as the process of deciding on overall organizational objectives as well as planning on how to achieve those goals. Tactics are seen as the deployment of a wide variety of human, technical, and financial resources to achieve those strategic plans.

Ta ble 4- Strategic and tactical project success factors (Pinto & Slevin ,1988) Strategy Mission Top Management Support Schedules/ Plans Tactics Client Consultation Personnel Client Acceptance Monitoring and Feedback Communication Troubleshooting

As table 4, understanding the difference between tactical and strategic issues by managers is important. They are both essential for successful project implementation, but differently affect project toward its completion. Strategic issues are important at the beginning of the project. Tactical issues become more important towards the end. A successful project manager must be able to consider both strategic and tactical issues during the project. Toward the project completion, tactical and strategic factors would have same importance. It see,s during the project, initial strategies and goals forms tactics. Based on the discussion of strategy and tactics, following items can be regarded: 1. Using a Multiple-Factor Model: Project management is a complex task in which the manager must attend to many variables. The more specific one can be with regard to the definition and monitoring of those variables, the more likely a successful outcome for the project will occur. The ten critical success factors are shown to contain a degree of sequentiality and these factors become critical to project success at different points. It is important for the project manager to make use of a multiple-factor model, first to understand the variety of factors impacting on project success, and then to be aware of their relative importance across stages in the project process. 2. Thinking strategically early in the project life cycle Strategic factors are important early in the project life cycle, during the conceptualization and planning stages. These factors are the most significant predictors of project success. Many managers make the mistake of not involving members of their project teams in early planning and conceptual meetings. It is very important that managers and project team members have common understanding about the schedule and project goals. The more project team members are aware of these goals, the greater the likelihood of their taking active part in the monitoring and troubleshooting of the project. 3. Think more tactically as project moves forward in time By the later work stages of execution and termination, strategy and tactics are of almost equal importance to project implementation success. Project manager shifts the emphasis in the project from "what do we want to do?" to "How do we want to do it?'. Tactical success factors reemphasize the importance of focusing on the "how" instead of the "what". Factors such as personnel, client consultation, communication, monitoring etc are more concerned with attempts to better manage the project implementation process. 4. Use tactics and strategies Strong strategies or tactics by themselves will not ensure project success. When strategies are strong and tactics are weak, there is a great potential for creating strong, well-intended projects that never get off the ground. Cost and schedule overruns are consequences of such projects. On the other hand, a project which starts off with a weak strategy and strong subsequent tactical organization has the likelihood of being successfully implemented, but solves the wrong problem. Strategy and tactics are not independent of each

other. Hence, developed strategy in the earliest stages of project, should be made known to all project team members. 5. Consciously plan for project team's transition from strategy to tactics The project team leader needs to actively monitor his or her project through its life cycle. An important method to manage the transition from strategy to tactics is to make efforts to continually communicate the challenging status of the project to the other members of the project team. The project team is kept aware of the specific stage in which the project resides as well as the degree of strategic versus tactical activities necessary to successfully sequence the project from its current stage to the next phase in its life cycle. Finally, communication helps the project manager keep track of the various activities performed by his or her project team, making it easier to verify that strategic vision is not lost in the later phases of tactical operation. Following the discussion, Pinto and Slevin's 10 factor model is selected as the base framework for research. Regarding the literature review. Pinto and Slevin,s Model brought a new horizon in project success factors area and after then this framework is known as a reference one. To identify and evaluate project success factors in MAPNA Group, a statistical and quantitative instrument was needed. It was created based on standard questionnaire of Pinto and Slevin. To evaluate these factors in power plants EPC projects, influential factors should be indetified among Pinto and Slevin mentioned factors and their relation with project success should be evaluated and assessed. In this selected theoretical framework, project success means project implementation within defined scope of time, quality that results into client acceptance. At first, through individual interviews with senior managers of MAPNA Group, factors reduced from 10 to 5. It is regarded to MAPNA Group's specific position as general contractor of power plant project in engineering, procurement and construction and meanwhile it is a major client to other sub-contractors. Standard questionnaire has 61 questions in 5-point scale of likert. Each success factor's concept is examined though 5 questions. The rest 11 questions is about the project success. Due to initial research in form of interviews with some managers and project teams, we find out that people usually do not answer this many number id questions in questionnaire. So five factors including top management support, project mission, project schedules, personnel and technical tasks were selected and theoretical framework wa s confined to these factors in order to access to reliable and real data. Figure 2 shows the proposed theoretical framework. In this paper we want to identify the mentioned five success factors in EPC energy projects context, in MAPNA Group's power plant projects and explain their relation with project success.

MAPNA Group MAPNA Group is established on March 1994 to develop power plants in Iran. Now, it owns more than 32 companies to manufacture the main equipments of power plants, manage EPC projects in power plants, oil and gas and railway industries. Since 2005, MAPNA grouped entered to oil and gas and railway industries to diversity its target markets base on its competitive knowledge in EPC projects management, manufacturing technology and investment vehicles. Most of MAPNA Group's projects has multi hundred million dollars costs such as $625 million Isfahan Refinery Package C project, $ 1 billion e-LNG project and $825 million engineering and procurement of 100 gas turbo compressors, Its projects especially in oil and gas division are consider as especially large projects.

Research Hypothesis Hypothesis 1: clear project mission affects project success. Hypothesis 2: top management support affects project success. Hypothesis 3: project schedule affects project success.

Hypothesis 4: personnel factor affects project success. Hypothesis 5: obvious technical tasks affects project success.

Research Domain Research domain is MAPNA MD1 Co, MAPNA MD2 Co, MAPNA MD3 Co companies of MAPNA Groups who are responsible for power plants EPC projects. 18 assessed projects which are finished or currently under management are the research population universe.

Reliability Based on test-retest method, Cronbach alpha was 0.9428. Which is a valid and acceptable. Table 5 shows calculated Cronbach alpha coefficients for different parts of questionnaire. Ta ble 5- Reliability test based on test-retest method Constructs All constructs Project mission Top management support Project schedules Personnel Technical tasks Project success Cronbach Alpha Coefficient 0.9428 0.7504 0.7751 0.7059 0.6371 0.7083 0.8441

Table 6, shows Cronbach Alpha based on Splits-Halves method. Ta ble 6- Reliability test based on Splits-Halves method Alpha for part 1 Alpha for part 2 0.8969 0.8957 Data Analysis Analysis is based on covariance matrixes between latent variables in Lisrel software. Table 7 shows this covariance matrix. Ta ble 7- Covariance matrixes between latent variables variable R M S P H T R 1 0.73 0.81 0.74 0.58 0.80 M 1 0.67 0.74 0.61 0.70 S P H T

1 0.78 0.63 0.68 1 0.68 0.75 1 0.68

As table 8 shows, all the relationships between variables are positive. Path analysis is used to identify the causal relationship bet ween independent variable (success factors) and dependent variable (project success). Ta ble 8- Exogenous latent variables effect on endogenous latent variables Standard Parameter Standard estimation t error From project mission 0.19 0.09 2.23 to project success From top 0.44 0.10 4.49 management support to project success From schedules to 0.06 0.10 0.59 project success From Personnel to 0.25 0.07 3.92 project success From technical tasks 0.42 0.10 4.24 to project success P < 0.05 Path

Table 9 shows endogenous latent variables variance. Ta ble 9- Endogenous latent variables variance Independent variables Dependent Variables R square Project mission, top Project success 0.79 management support, schedules, personnel, technical tasks Total variance of project success through predicting variables project mission, top management support, schedules, personnel and technical tasks was 0.79. Results In this research, based on 5 factor model derived from Pinto and Slevin framework and initial interviews with senior managers, influential factors on project success. In this research, a questionnaire consisting of 36 questions was distributed among 95 employees of vice presidents, managers and project managers of MAPNA MD1, MAPNA MD2 and MAPNA MD3 companies and 72 valid questionnaire was collected. Path analysis method was used for data analysis. After selecting the modified theoretical framework, reliability and validity tests was used. Tests results confirmed the model.

Hypothesis 1: clear project mission affects project success. Result of hypothesis 1 test shows that project mission has a direct and positive effect on project success. Indeed, with a clearer project mission for project manager and his or her team, project success could be improved. Project mission construct is regarded as conditions in which project goals not only is clear to the project team but also it is clear to all of the organization too. Project success mean doing the project in the defined scope of time, quality and cost resulting in client acceptance. (Pinto and Slevin,1986).

Comparing hypothesis 1 test result with researches of Martin (1976), Cleland and King (1983), Baker, Murphy and Fisher (1983), Pinto and Slevin (1986, 1988) and Morris and Hough (1987) which showed a direct and positive relation between project mission and project success, demonstrates that this hypothesis result is in accordance with the previous researches. Hypothesis 2: top management support affects project success. Project mission construct, points out to the type and degree of support a project manager expects from top management. Top management support could consist of sufficient resource allocation (financial, human resource, time ,..) or project manager being assured about support in critical situation. (Pinto & Slevin, 1986) Comparing hypothesis 2 test result with researches of Martin (1976) and Pinto and Slevin (1986, 1988) which showed a direct and positive relation between top management support and project success, demonstrates that this hypothesis result is in accordance with the previous researches.

Hypothesis 3: project schedule affects project success. Project schedules points to importance of creating a detailed schedule of required activities of project. (Pinto & Slevin, 1986). Comparing hypothesis 3 test result with researches of Cleland and King (1983),Baker, Morphy and fisher (1983) and Pinto and Slevin (1986, 1988) which showed a direct and positive relation between project schedules and project success, demonstrates that this hypothesis result is not in accordance with the previous researches. Limited population universe is one result of the hypothesis failure. If number of samples would be more (above 150) may be this hypothesis could be accepted. Pinto and Slevin used 400 samples of project manager in order to define their theoretical framework. Also, if it was possible to form a population consisting solely of project managers, vice presidents and senior managers, hypothesis mat be accepted. In the other hand, questions of project schedules construct mostly assessed containing contingency plans in critical situations which are not used often in MAPNA Group's projects planning. Also, the result may be shows that initial schedules in the implementation and execution phase of project life cycle vary. We suggest this issue needs further research to investigate in future.

Hypothesis 4: personnel factor affects project success. Personnel construct point out to recruitment, selection and training of human resource. In most of the cases, project team members are selected with less than required skills. ( Pinto & Slevin, 1986) Comparing hypothesis 4 test result with researches of Martin (1976), Cleland and King (1983) and Pinto and Slevin (1986, 1988) which showed a direct and positive relation between personnel and project success, demonstrates that this hypothesis result is in accordance with the previous researches.

Hypothesis 5: obvious technical tasks affect project success. Technical tasks, "refers to the necessity of not only having the necessary personnel for the implementation process, but ensuring that they possess the necessary technical skills and have adequate technology to perform their tasks." ( Pinto & Slevin, 1986) Comparing hypothesis 5 test result with researches of Cleland and King (1983) and Pinto and Slevin (1986, 1988) which showed a direct and positive relation between technical tasks and project success, demonstrates that this hypothesis result is in accordance with the previous researches.

Conclusion This paper aims to identify and assess the project success factors in EPC-based organizations using Pinto and Slevin classical framework, with MAPNA Group's projects case study. In EPC projects, contractor is responsible through all the project life cycle for engineering, procurement and construction activities according to the defined scope of work. Project success depends on the strong relationship between contractor and client, division of responsibilities for schedules, technical tasks, cost and time controls and final products acceptance by client. In initial interviews, five selected factors were assessed through questionnaire by project managers and project team members. Project mission, top management support, project schedules, personnel and technical tasks, were the assessed project success factors in this case study. Project schedule wa s not identified as a project success factor in this context. Initial schedules are done by client and defined in the contract so project managers and project team members of contractor do not consider it as a critical success factor.