Contractors are the key and major work force in all projects in the Oil & Gas sector. The challenges in this sector are tremendous (fluctuation of energy prices, environmental specifications, political pressure) and in order to continue growth and transformation companies need to ensure their ability for renewal.
It is therefore appropriate to rethink the way of conducting industrial investment (mega-) projects to prepare for the rebound (oil, …) and sustaining growth (new energies,…). In this context “tailor-made” and “customized” solutions no longer have their place and need to give way to management methods that focus on unifying, “transversilizing”, streamlining and rationalizing. Growth and competitiveness of many companies in the Oil & Gas sector are linked to the success of their industrial investment projects. These projects, absorbing sums exceeding billions of dollars and involving numerous stakeholders (including contractors) have essential strategic value for the market leaders.
Successful industrial investment projects and contractor management go far beyond traditional project management and implementing the right tools and processes will ensure successful management and control, and will secure contractual financial and operational aspects as well as the relationship between the client, the EPC (Engineering, Procurement and Construction) and its contractors. These are features that standard project management tools do not cover.
Still today, the measures taken to manage industrial investment projects and their contractors (and project teams in general) are very often relying on rudimentary tools and informal processes causing additional costs, quality issues and constant re-appropriation of documentation.
Our assessment of current Contract Management tool sets is that they are mainly focused on the scheduling, resources, risks and quality management areas found in project management tools.
Currently, the tool sets to handle contractors and industrial investment projects in general still lack effectiveness and consistency at each stage of the project. The result has three main negative impacts:
- It sends negative signals to analysts and investors, which affects market value and company reputation
- There is a resulting loss of revenue due to delays in ramp-up and lower production capacity
- Costs increase due to insufficient management of changes, contracts, and costs throughout project execution
Organizations therefore express the need for an integrated and unified system dedicated to optimizing the execution of their industrial projects. Still very few implement this industrialization / “processization” of the execution of megaprojects, which is nevertheless an effective remedy when following the rules. A unified project execution and delivery management system ensures covering the entire project lifecycle.
The limits of the current management methods of industrial investment projects
The methods and current megaprojects management tools have their limits: delays, additional costs, lack of quality … Thus, over 70% of major mining development projects do not reach their goals and do not generate the expected profitability calculated by their sponsor when launched. Despite good project management tools, megaprojects managers are faced with problems of a different nature and of greater magnitude. During the execution phase, the lack of standardization and compliance with processes within different workflows slow down the completion of various tasks, whether technical or managerial. Lack of procedures have the tendency to disempower the actors. When processes exist, they are poorly defined and are a source of disputes and opportunistic behavior (date changes, design changes, unjustified expenditures …) causing implementation errors and additional costs. Insufficient traceability of exchanges, of the budget and of the decisions taken, further complicate the resolution of these claims. Thus, poor industrial investment claims management can have severe repercussions (disagreement between stakeholders that have to continue working together, financial risk for all stakeholders, additional costs for settlement …). It is necessary to industrialize and “processize” to secure the implementation of megaprojects.
Due to the complexity of industrial investment projects, traditional project management needs to be strengthened and the right tools to be implemented to better trace key information and facilitate anticipation thanks to improved projection capabilities.
There are a number of best practices:
- Due to the complex ecosystem of stakeholders and the sensibility of a megaproject to changes in the environment, technologies etc. it is essential to effectively share information in real time, with all players and give everyone the means to properly support its perimeter (empowerment principle).
- To improve efficiency and traceability, define and implement structured processes while leaving some room for flexibility. This structuring effort must be accompanied by vigilance in respecting its implementation.
- The size of the budget and the frequency of changes call for a more accurate management of financial information (costs, financing …) via simulations, traceability, their justification and adapted approval loops. Sharing an evolving synthesis thus facilitates control. Similarly, contractual obligations must be clearly defined and shared, with each stakeholder the challenge being to minimize the risk of claims. However, it is necessary to anticipate this issue and ensure robust mechanisms to limit the claims: traceability of the exchanges (changes, complaints …), analysis of the connection and impacts of changes.
This post is a fragment of the white paper “Perspectives on Contractor Management” written by Alfa Consulting in collaboration with other members of the Cordence Worldwide Alliance.To view the entire white paper and all of our Cordence Partner perspectives, click here to download the file.