An independent oil and gas producer wanted to improve planning and execution of central facilities capital projects. The yearly facilities budget had been overspent by over 150 percent. In addition, recently constructed facilities exhibited significant cost overruns and poor reliability and safety performance.
The yearly facilities budget had been overspent by over 150 percent. In addition, recently constructed facilities exhibited significant cost overruns and poor reliability and safety performance.
- Analyzed capital budget performance. Overspend of more than 150 percent due to inaccurate cost forecasting, poor project management and inadequate cost tracking and cost management.
- Compiled a list of projects being pursued, of which two- thirds were being considered “Priority 1.”
- Determined that prioritization was done individually, without comparison to other projects or organization goals.
- Examined central facility projects, finding inadequate facility design, reliability issues and cost overruns.
- Evaluated the project development/design/execution processes – finding unclear roles, a lack of decision gates, inadequate cross-functional communication and alignment, and a lack of cost controls.
- Developed a business case showing capital savings through the implementation of planning processes, project development/design/execution processes, and cost tracking/management capabilities.
- Implement a project portfolio prioritization process tied to business objectives.
- Install tools to quantify resources requirements and processes to appropriately allocate resources and resolve constraints.
- Develop and install cross-functional capital project processes spanning project scope generation through design and project execution.
- Define roles and responsibilities, establish appropriate process gates and decision points, improve cross-functional alignment and clarify work scope and project end-points.
- Increase visibility to cost drivers by implementing a cost code structure appropriate to facilities spending.
- Improve cost management capabilities through cost forecasting tools and expectations, reports and processes to track and manage project-level and budget-level costs.
- Implement EHS design review processes.
Over eight months we developed and implemented a capital project process with defined gates and roles; a cross-functional project portfolio prioritization, planning and management process; and a cost management structure to monitor and control project-level and overall budget-level capital spending.
Financial and business impact:
- Facilities capital budget overspend was reduced by 85 percent vs. the prior year.
- The percent of “Priority 1” projects was cut in half, thereby preventing spending on items that were not required to meet business objectives.
- A single shared list of prioritized capital projects – with vetted scopes, and priorities and timing requirements aligned with business objectives – resulted in improved resource allocation and cross-functional alignment.
- Resource requirements and constraint identification enabled better business support and staffing planning.
- Projects following the installed processes delivered more reliable facilities, minimizing the risk of future revenue loss and/or maintenance/retrofit spending.
- Project cost forecasts were improved, during project development and throughout project execution.
- Cost management was improved through a robust process to manage project-level and budget-level spending.
- Improved visibility on spending drivers was achieved through a more appropriate cost code structure.
- A project close-out process was implemented, preventing project spending from continuing indefinitely.