W2.1_Oge Aniagboso_Cost & Schedule Growth in Projects
(Note: I do not have access yet to Engineering Economies hence I could not read the recommended chapters)
Problem Recognition, Definition and Evaluation
Over the years significant cost and schedule overruns have become a recurring decimal in the Upstream Mega Oil and Gas projects across the globe. The fact that this problem has remained from decades to decades clearly indicates that whatever approaches and/or strategies adopted by the Oil and Gas industry towards achieving a realistic cost and schedule estimates have not yielded the desired benefits hence the need to explore other alternative solutions.
Development of Feasible Alternatives
According to Butts and Linton (2009), two key variables must be dealt with if we hope to achieve reliable estimates for these mega projects. These variables are factors are the estimating factor of optimism bias, and determining what stage the project sits on the project lifecycle. Bias can be defined as “any consistent tendency based on human perspective for estimates to be lower or higher than actual cost outcomes” (Butts and Linton, 2009, p. 10). Optimism bias therefore, is “a measure of the extent to which actual project costs (both capital and operating) and actual project duration, or the time it takes from contract award to benefit delivery, exceed the estimated cost and time data” (Butts and Linton, 2009, p. 10).
Some of the different approaches or solutions that have been applied by estimators in a bid to achieve reliable estimates include;
· The Program Evaluation and Review Technique (PERT)
· Status Quo (Expert Judgment Method)
· Friedman (Economist) Method
· Expand the High Cost Method
· Quantify Everything Method
· Lichtenberg’s Nine Basic Rules and Eight-Step Procedure
· Butts & Linton’s Joint Confidence Level - Probability Calculator (JCL-PC) Method
Development of the outcomes and cash flows for each alternatives
Two of the methods listed above (Lichtenberg’s Nine Basic Rules and Eight-Step Procedure, and Butts & Linton’s Joint Confidence Level - Probability Calculator (JCL-PC) Method) will be compared using data from a completed Mega Project in the Oil and Gas Industry. The data to be used from a completed project are the planned (approved) cost and duration estimates and the actual (as-built) cost and duration. Both the Eight-Step Procedure and the JCL-PC method will be applied to the planned (approved) data set and the results for each method will be compared to the actual (as-built) data set.
Selection Criteria
The result of each the two methods under consideration will be the primary selection criterion. Other secondary criteria that may be considered are the simplicity and ease of application for each of the methods.
Analysis and comparison of the alternatives
Each result will be compared to the actual (as-built) data set to see which of the methods will yield a closer match to the actual data.
Selection of Preferred alternative
The method with the best-fit result would hence be more reliable in estimating the cost and schedule for mega projects in the oil and gas industries. The technical paper will explore the two options and - based on the outcome of the analyses and comparisons - make a recommendation to the oil and gas industry.
Performance Monitoring & Post Evaluation of Result
If the recommendation is accepted by management, the selected method will be applied to the next mega project which will then be monitored using the Earned Value Management approach. At completion, it will be seen how correct the estimation of both cost and schedule has been in comparison to the actual (as-built) cost.
References
Butts, G., Linton, K. (2009, April 28) The Joint Confidence Level Paradox: a history of denials, NASA Cost Symposium. Retrieved from http://www.build-project-management-competency.com/wp-content/uploads/2009/12/NASA-Cost-Schedule-Report.pdf
Lichtenberg, S. (2005, October) How to avoid overruns and delays successfully – nine basic rules and an associated operable procedure. Retrieved from http://www.icoste.org/Roundup0406/Lichtenberg.pdf
Oge...... You are doing better and I will accept this posting, but you are jumping too soon to decide to use Butts and Lichtenberg. Before you can come to that conclusion, you must first look at ALL of the options and using Affinity Diagram or Force Field Analysis (from Memory Jogger 2) you need to come up with SOME valid or rational reason why these two were selected. So for your W3 blog, I would like to see you step back and identify ALL the different methods or approaches and talk about their strenghts and weaknesses.
ReplyDeleteThen I want to see some sort of Root Cause Analysis that identifies WHY your specific cost estimates are being exceeded (another possible blog posting topic) Maybe include a Pareto Analysis (also found in Memory Jogger 2) to help you focus on the two that offer the most opportunity.
Lastly (another possible blog posting topic)Look at Glenn Butt's 2010 presentation. Scroll down to page 10. Aren't these root cause problems? Or how about pages 10-12? Don't those contain something important you should be analyzing as part of your paper? While you are there, continue scrolling down to pages 20-21. Then to close out, read over pages 31-32.
Assuming you want to write a world class paper, that will help you build a reputation as a world class professional, then you need to do more than just write the same old shit. You need to use the truths Glenn Butts is willing to share and THEN you can make the argument for using Lichtenberg or JCL-PC or any of the other methods. But I don't want to see you jumping into the comparison without setting a solid background first.
Understand what I am looking for? If not, catch up with me on Skype and we can discuss it some.
BR,
Dr. PDG, Singapore