Best practices in program and project management

Welcom, a Houston-based project management software company, recently initiated a study of the practices and procedures used by project controls in the upstream. The purpose was to identify areas where current toolsets are sufficient and expose those areas where additional technology might be applied to improve project delivery.

Profit Solutions, a Houston-based consulting firm, was retained to conduct interviews and provide an unbiased assessment of the findings. Companies representing development and production, engineering, and manufacturing participated in interviews conducted between October 2004 and February 2005. Questions covered practices and procedures, costs, risk management, prioritization, and the effects, if any, of the Sarbanes-Oxley (SOX) act. The results were presented at a roundtable in late February.

Project controls have three primary business objectives: maintain the schedule, mitigate the risks, and control costs. The priority can vary depending on whether a company is a producer or an engineer. From a producer’s standpoint, one objective is to maintain the schedule due to the high value of the product stream. This is because the net present value of the project is more sensitive to changes in schedule vs. increases in cost, up to a point. Most respondents believe that current scheduling tools support these efforts, with only an improvement in processes needed.

However, risks are pervasive as the target is thousands of feet below the surface. Risks that jeopardize the schedule - geology, weather, people, equipment or tool availability, safety, etc., must be managed, so just maintaining the schedule is not enough. Proper risk management must be done to support the schedule. The need for identifying and managing actual risks, not just contingency, appears to be an area where the addition of a qualitative risk tool can improve schedule adherence.

From an engineering standpoint, cost control is the main area where improvements can yield the most return. Not surprisingly, change management was the biggest problem, since designs are often 60 to 70% complete upon start of construction. Managing and applying changes is a problem, with toolsets ranging from paper forms to telephone calls to emails. Controlling change orders in a partnership with the owner, engineer, and fabricator should yield substantial savings, improve schedule adherence, and increase margins.

While all respondents have accounting systems or spreadsheets for outlining and capturing expenditures, few are using software for forecasting how successful a project is in terms of its budget and schedule - during the project. A time-phased approach to project budgeting, costing, and forecasting, what some industries call value of work done or earned value (EV), is needed.

EV is a methodology that measures the physical progress of a project, taking into account the work completed, the time taken, and the forecast costs needed to finish. EV helps you evaluate and control risk by measuring progress in monetary terms, answering questions like: “I’m under budget, but am I on schedule? My schedule is on target, but will I make a profit? Where is my break-even point? What is my cash flow and do I have enough to fund the project?”

Several respondents said that this is an area where they are having difficulty integrating their accounting systems, spreadsheets, and schedules. In reality, neither the accounting systems nor the scheduling tools are appropriate for this kind of cost tracking, since costs are entered as lump sums and after-the-fact. A tool that can incorporate the schedule and cost data and report it in a time-phased manner is needed. An added benefit is that such a tool will have security that logs changes to scope, and this will help you pass an SOX audit; spreadsheets will not. An Internet search for “earned value software” can provide more information.

Agility is an essential part of upstream business strategy. Since most projects are fasttracked, communicating timely data to all participants is crucial. This work environment has implications for software since it must be able to effectively manage and communicate live schedule and cost data quickly and easily.

Most respondents maintain good project data. Problems arise because that data is stored in several systems, sometimes in several geographic locations. Both producers and engineers ranked collaboration and the sharing of critical data as important. A centrally located data set that is accessed by all team members needs to be implemented to aid in decision-making and increase agility. Additionally, the “graying” of the work force requires that data be accessible by new project teams and accessible for future use, rather than be stored in file cabinets at project end. Too much data is leaving as people retire.

A recent release by the International Energy Agency says that world demand for oil is on the greatest rise since 1998, as economic growth and consumption surge. Producer strategies will continue to focus on high-return growth projects, and huge investments in deepwater will continue, with their associated cost and schedule risks. As one respondent said, “There have been way too many surprises on recent projects.” Improved processes with properly implemented software can help reduce these surprises and bring projects in on time and within budget.

Steve Cook is president and cofounder of Welcom, a Houston-based company specializing in software solutions for project control. He can be contacted at [email protected].