W2_Oge Aniagboso_Cost & Schedule Growth in Projects

W2_Oge Aniagboso_Cost & Schedule Growth in Projects

Problem Statement

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. 

Alternative Solutions

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

Selection Criteria

Two of the methods listed above (the last two bullets) 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 to see which of the methods would be more reliable in estimating the cost and schedule for mega projects in the oil and gas industries.  Other criteria that may be highlighted are the simplicity and ease of application for each of the methods.

Conclusion

The fact that mega projects in the oil and gas industries continue to experience significant cost and schedule overrun implies that the right solution is yet to be applied to those projects.  However, identifying such workable solution(s) is one thing and the willingness of the industry to accept and apply the solution(s) is another thing. My technical paper will explore the two options and make a recommendation for the oil and gas industry.

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