The Victorian Desalination Project and Its Impact on Melbourne

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Executive Summary

The Victorian water desalination project is a significant water supply project for Melbourne. The project is part of the state’s effort to complement Melbourne’s water supply. This paper shows that its success lies in the continued partnership and collaboration between the project’s public and private partners. Indeed, the guaranteed support of all the private parties and the oversight role of the state form the main supportive framework for the project’s success. It is however too early to determine the success of the project but so far, the project complies with best practices in project management. Moreover, the project’s plans augur well with the provisions of PMBOK. Therefore, the citizens of Melbourne and its environs should reap immense benefits from this project.

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Project Overview

The Victorian desalination project is among the largest seawater desalination projects in Australia. Its capacity transcends other water desalination plants in the region because its huge capacity will supply a maximum of 150 gigaliters of water to Melbourne and its surrounding areas (Mitchell 2008). Comprehensively, the project will complement about a third of Melbourne’s water supply. Considering most of Melbourne’s water supply comes from rainwater, the additional water supply from the project is vital to the region (Victoria State Government 2012).

This paper presents an analysis of the project, from its inception in June 2007 to date (according to best practices in project management). The specific focus areas for this paper will be procurement, project scope, cost management, risk management, integration management, time management, and communication management. The framework for this analysis stems from the Project Management Book of Knowledge (PMBOK). This framework includes initiating, planning, executing, monitoring and controlling, and closing process groups

Initiating

Procurement

The main procurement process for the Victorian desalination project was public-private procurement. In a period where most global economies are riling from the effects of a global recession, the Victorian desalination project stands to be among the world’s best private-public partnership projects. Primary funding comes from private partners while the government is the lender of last resort. Since 2007, the project’s progress has proved that sourcing foreign investments can occur through robust private-public partnerships.

Nonetheless, the project’s procurement process complies with state and commonwealth approvals. All the project approvals were subject to several acts, including the Environment Protection Act (1970), Environment Effects Act (1978), Planning and Environment Act (1978), Coastal Management Act (1995), Aboriginal Heritage Act (2006) and the Water Act (1989). The procurement process was a product of a competitive bidding process that selected the best private sector party to oversee the project (Department of Sustainability and Environment 2009). Several subcommittees (that complemented the work of the main subcommittees) governed the procurement process. Schwalbe (2006) praises the inclusion of subcommittees to govern the procurement process as a thorough and articulate way to source best services. Indeed, good project services hail from a thorough procurement process.

Planning

Scope

The scope of the Victorian desalination project covers five aspects – construction of the plant, protection of the marine life, construction of transport pipelines, construction of power supply, and the use of renewable energy (Victoria State Government 2012, p. 1). The protection of marine life is a component of the project’s environmental sensitivity plan. So far, the Melbourne Department of Sustainability and Environment has assessed the project’s marine plan and acknowledged that the initial project plan needs to undergo more changes (Department of Sustainability and Environment 2009).

To improve its usability and efficiency, the construction of the desalination plant uses state-of-the-art technology. For example, there will be a lot of emphasis on green building technology (such as the development of a “living” green roof to prevent corrosion). The scope of the project also includes the development of an underground 84-kilometre pipeline to transport water from the plant to Melbourne. It is estimated that 90MW of power will be used to operate the Victorian water desalination plant (renewable energy facilities are expected to offset this power consumption) (Department of Sustainability and Environment 2009). Comprehensively, the scope of the project covers the project’s aims. Indeed, considering the activities stipulated above, the Victorian water project would provide Melbourne with a reliable source of water, allow future project expansion, guarantee the project’s water supply meets state standards, retain water flexibility for maximum supply, and ensure the state continues to maintain control of Melbourne’s water supply. To this extent, the scope of the project meets PMBOK standards.

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Time Management

Effective time management (in project management) aims to ensure the project ends within the stipulated period. Specifically, PMBOK identifies five phases, which are crucial for time management. They include activity definition, activity sequencing, activity duration estimating, schedule development and schedule control (Ghioca 2012). So far, the timeline for the Victorian water desalination project has been on course. Indeed, the project has covered many milestones including the closure of the contract, closure of the financial agreement, commercial acceptance of water delivery and the completion of reliability testing process. The expiry of the contract date is set to happen in September 2039 (Department of Sustainability and Environment 2009). In addition, the Victoria State Government (2012) affirms that most of the civil work was complete in January 2012. Going with this trend, the project may meet its time schedule. Comprehensively, there is good progress made to ensure the project is on course.

Monitoring and controlling

Cost Management

Senior commercial debt, mezzanine debt, state-supported debt, and third party equity investments act as the main sources of funding for the Victorian water desalination project (Department of Sustainability and Environment 2009). Since there are many uncertainties regarding the aftermath of the global financial crisis (and other financial concerns that may affect the project), the state has decided to offer limited and specific support to the project. The financial contribution of the state occurs in three phases. The first phase involves the participation of the state in refinancing losses that may accrue from financial losses (the state is entitled to share any proceeds that may accrue from the refinancing). The second phase involves sharing market risks with private parties and finally, the state acts as a last resort when the financers express unwillingness to refinance the initial debt (Department of Sustainability and Environment 2009). The distribution of cost measures is a balanced way of ensuring equal responsibilities between the private and public sectors. Similarly, the plan covers most financial risks. To this extent, the project’s cost management plan is effective.

Risk Management

PMBOK defines the risk management process as a key knowledge area in project management (Stackpole 2012). These risks may be either foreseen or unforeseen but the threshold for identifying such risks lie in their probability to interfere with the project schedule (positively or negatively). Assessing the impact and probability of this risk is vital for the overall sustainability of the project because there are some risks that may shutdown the entire project. The risk management plan for the Victorian desalination project divides into two groups. The first group entails risks covered by the state while the second group entail risks covered by Aquasure (the contractor).

The Department of Sustainability and Environment (2009) confirms that the most significant risk profiles for the project includes site risks, scope risks, construction and commissioning risks, operational risks, industrial relations risk, asset risks, change in law risks, and finance risks. These risks have sub-risks that either the state or the contractor covers. For example, the contractor covers most of the operational and asset risks while the state covers most of the site risks. Even though the best practices in project management emphasise the need to show how these risks will be minimised, there is little information currently provided by the contractor or the state to ensure the minimisation of these risks. However, the compliance to state laws and project requirements signify a good start to the minimisation of these risks (albeit legally).

Execution

Integration Management

According to PMBOK, the integration management process can be difficult for project managers (Bowen 2009, p. 1). However, the book defines seven steps as the main components of project integration management. These steps include the development of the project charter, development of the preliminary scope statement, development of the project plan, directing and monitoring project execution, monitoring and controlling project work, controlling integrated change, and closing the project (sequentially) (Felix 2002, p. 1). According to the Victorian desalination project, the state and the contractor outline the main players in the integration management process. For example, the state and the contractor countercheck each other’s activities as part of the control and monitoring process. According to the requirements of the state, the contractor designs the project charter and project scope as the state reviews these plans to ensure they meet state guidelines. Similarly, the process of controlling integrated change occurs through the provision of modification requests (from the state or the contractor). Comprehensively, the collaboration between the state and the contractor articulate the unification, coordination, and consolidation of the project (Blokdijk 2008). This integration manifests under the contractual agreement between the state and the contractor. For example, the risk management process identifies the state and contractor risks while the cost management plan identifies the costs covered by the state and private financiers. However, some overlaps in the role of the state and the private parties exist, but largely; both parties complement each other’s work.

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Communications Management

According to Dow (2010) the communication management process needs to identify five factors – information that needs to flow in and out of the project, the information recipients, when information should be availed, the format of the information conveyed, and who will be responsible for transmitting the information. The Victorian water desalination project has set out a communication and stakeholder relations team, which is required to transmit information to all the stakeholders. According to the Department of Sustainability and Environment (2009), the primary purpose of this communication team is to collect information from community members, councils, government agencies (as feedback), and relay the same information to relevant parties. The government and the contractor are the main recipients of the information. These recipients are required to receive the information immediately. To this extent, the project’s communications management plan complies with best practices in project management.

Closing Process Groups

According to PMBOK, a project’s closing process outlines activities that end before the completion of the main project (Francis 2003). According to the outline of the Victorian water desalination project, after the expiry of the contract, the state has the right to receive the completed project at no additional cost from the construction company. In addition, on completion of the project, the state and the contractors are required to undertake an inspection of the pant to determine if it meets the handover standards. The construction company guarantees any repair or maintenance costs within this period. Furthermore, at the end of the project, the state or the construction company may undertake modifications to the plant. If the state wishes to initiate any modifications to the plant, the construction company is required to provide an assessment of the implications of such modifications (including the estimated costs and time implications). The state incurs the cost of such modifications, but it solely gains from any benefits that may accrue from such modifications. However, if the construction company initiates any changes, it needs to seek the state’s approval and share the proceeds (if any) with the state (Department of Sustainability and Environment 2009). Through such closing provisions, the construction company should propose variables that ultimately reduce the cost of the entire project.

Finally, even though modern technologies constructed the desalination plant, newer technology may still be required to increase the plant’s efficiency or reduce operational costs in the end. Before undertaking technological changes on the plant, it will be crucial to weigh the cost and benefits of adopting new technology. Existing project best practices outline the need for the construction company to use up-to-date technology that meets initial project specifications. If the state initiates the adoption of new technology, it will have to incur such costs (but still benefit from the same undertaking). However, if the construction company initiates any technological changes, it will have to share the costs and benefits of the process with the state.

Summary

The Victorian Water Desalination project is an ambitious project that will improve Melbourne’s water supply system. According to the project’s analysis, most processes are on course and so far, there are no significant challenges hindering the execution of the project. However, throughout the analysis of this report, a strategic collaboration between the state and private parties emerge. This partnership covers most contentious issues arising from the project. Indeed, this collaboration ensures a fair allocation of duties and responsibilities between the partners (with major implications on the risk management and cost management plans). The integration management plan and communication strategy also ensure a seamless collaboration between the activities of the state and private parties. To this extent, the project execution will be effective. However, it is still too early to know if the objectives of the project will be met but a lot of care needs to be taken to ensure the state and the private stakeholders continue to work together to realise maximum earned value from the project.

References

Blokdijk, G 2008, PMP/PMBOK 100 Success Secrets, Lulu.com, New York.

Bowen, R 2009, A Summary of PMBOK Practices – Project Integration Management, Web.

Department of Sustainability and Environment 2009, Victorian Desalination Project, Web.

Dow, W 2010, Project Management Communications Bible, John Wiley & Sons, London.

Felix, D 2002, Managing Project Integration, Management Concepts, London.

Francis, D 2003, Pmp Exam Cram 2, Que Publishing, New York.

Ghioca, T 2012, Time Management in Project Management, Web.

Mitchell, K 2008, Victorian Desalination Project Environment Effects Statement, Web.

Schwalbe, K 2006, Introduction to Project Management, Cengage Learning, London.

Stackpole, C 2012, A User’s Manual to the PMBOK Guide, John Wiley & Sons, London.

Victoria State Government 2012, Project Scope, Web.

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