Modern project management in large oil and gas engineering projects

Published in: Engineering
Modern project management in large oil and gas engineering projects
June 16, 2017

Oil and gas engineering companies.

Today, large projects in the oil and gas industry face daunting challenges as they become increasingly complex and technologically demanding. As activity ramps up and more oil and gas production moves to frontier and unconventional resource areas, projects are becoming larger and more complex. Schedules and budgets are tight, safety is crucial and every oil and gas engineering project faces a network of stakeholders concerned about its impact on the environment and communities.

Even so, many project managers still rely on broadly consolidated management concepts: work breakdown plans, design-to-cost and make-or-buy decisions.

As the oil and gas industry embarks on a new generation of major projects, project managers will need to rely on coherent, consistent reference frameworks that guide their decisions and engage the most competent talent they can find in order to keep pace. While best practices and experienced talent are essential, they are not enough. Successful managers of large oil and gas engineeering projects follow a coherent, consistent reference framework that guides their decisions and processes.

These frameworks include:

Formalized project phases and checkpoints:

Decision checkpoints, or stage gates, mark the end of formal project phases. To move from one stage to the next, managers have to decide if they are ready to move on.

To keep these stage gates relevant, leading oil and gas companies and the contractors who work with them continuously revise their stage-gate frameworks to align them with evolving market conditions. They anticipate the needs of key stakeholders as they plan the steps toward completion. For example, it may make sense to define local content requirements well ahead of front-end engineering design.

Continuous review to measure project value and monitor risk

Successful organizations assess projects continually, not only at formal checkpoints and stage gates, to ensure they are on track to add value. Ideally, senior managers who are not part of the project team give a “cold eye” review, monitoring projects and reporting cost and progress. They report to decision makers their consulting on the project’s state of readiness and suggest helpful ways to improve value or cut costs. Comparing the project with others in the portfolio helps prioritize resources in line with company goals. Sometimes the reviewer’s analysis will lead the organization to modify a project development or change its delivery date.

Clear accountabilities within an integrated project team

Successful oil and gas engineering projects require effective decision making. Projects that run late or over budget finds the top reason is “not making good decisions with the right people and not making them happen”. This may include failing to invite technical input at the concept phase, disregarding stakeholders or misaligning decision makers’ incentives and project goals. An integrated project team with strong management, clear roles and responsibilities, as long as a shared interest in the project’s objectives, helps ensure accountability. In organizations where decisions and accountability are not clearly allocated to project teams, functional experts may wind up making key decisions. That can create bottlenecks and delays, as decisions percolate up to functional managers with wide-ranging agendas.

Checks and balances between central functions and project teams

Following a robust project reference framework can help avoid cost and schedule overruns. Leading energy companies gather technical input early, incorporating it into the project’s framework to make sure it aligns with the organization’s larger business goals. They also engage stakeholders throughout the life of the project, from architecture and design through execution. Corporate functions empower project teams by staffing the best people, defining processes and ensuring control of managerial and technical activities. In turn, project teams must be able to make the decisions for the projects’ deliverables. Projects are more likely to succeed when the functional experts have a consulting an advisory rather than a decision-making role in assurance, control and steering activities.

Why are oil and gas companies so important in energy production?

Successful oil and gas companies continuously improve their general project management skills, as well as skills specific to crude oil and natural gas drilling. As a generation of experienced engineers retire, a predicted shortage of technical talent in the industry complicates the problem, where companies cannot afford to bring second-rate talent to the game.

In oil and gas industry, some skills areas are particularly important:

Local content

Local content requirements, which encourage and sometimes obly large project owners to source some goods and services from the host country, are critical in oil and gas projects. Project managers must understand the most critical point in development and plan accordingly, taking into account the relevant risks. In some cases, services are not available from local sources, or local providers are not able to deliver against objectives. Failing to plan for these contingencies can delay a project and send it over budget. Successful project managers seek to understand the host country’s goals. They offer jobs in oil and gas and engage policy makers to create long-term strategies that go far beyond their immediate supplier needs, promoting best practices that help local industries meet global standards. A local network of robust suppliers not only benefits the project, but also the local economy.

Engineering

Over-engineering can contribute to unnecessary complexity in major oil and gas projects, while simplicity in design can ensure efficient and competitive solutions. International Oil Companies (IOCs) and oil field service companies are building up their internal engineering capabilities to ensure quality among their contractors. This enables them to better manage projects for National Oil Companies (NOCs) and other resource holders.

Procurement

Many oil companies are rationalizing their procurement relationships, moving from many shallow relationships to fewer but deeper ones. For example, some IOCs are trying to spend half their procurement budget with their top 40 vendors, whereas a few years ago that share might have gone to more than 250 companies. Taken as a whole, these improvements could return 5% on cost efficiencies. Procurement trends follow cycles, however, and the push for local content requirements could fragment the procurement pool again. If local content efforts are to succeed over the long term, NOCs and other oil and gas companies will have to work with local suppliers to build a strong foundation of support services.

Risk and opportunity

Managing risk and opportunity in oil and gas industry is a continuous process that requires companies to consider unexpected events along with the most common risks. In the oil and gas industry, it’s never been more important to manage health, safety and environmental risks, given the rising complexity of operations and the close scrutiny by regulators and stakeholders. Risk identification and insights evaluation is a continuous process throughout a project’s life cycle and across the project portfolio, taking a systemic perspective that considers projects, their phases and relevant risks. Leading companies work with contractors to determine how risk and opportunity will be shared. This can forge a much closer relationship than simply trying to transfer risk to contractors while reducing cost and risk for the managing organization.

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