W10_Syahril_ COImpact


Problem Recognition, Definition, and Evaluation

To assess the potential cost saving, an analysis is performed based on the change orders from previous project execution. There are 4 (four) major changes recorded with the following cost ratio (relative to total change order costs) impact:

Table 1. Cause analysis for change orders and cost increase in project execution

No

Description

Case(s)

Cost ratio %

1

Change for additional unit (material)

5

40 %

2

Change of specification and design

4

20 %

3

Change of scope

6

23 %

4

Change/additional of activities

5

17 %

From the above breakdown, change of scope cases were recorded the highest; however, changes involving additional unit/material give the highest cost impact and to be addressed as the real problem.

Development of the feasible alternatives

Several alternative solutions are recommended to improve the current sub causes of the problem.

Table 2. Problems alternative recommendations towards the sub-causes

Code

Sub causes

Alternative recommendation

A

Uncontrolled new findings beyond plan Prepare force majeure clause in contract

B

Lack of synchronized planning Perform clear stage gate planning (FEL)

C

Improper project monitoring and control Intensify the critical path and milestone   monitoring

D

Failed fast track project Perform an overall project analysis when   performing fast track

E

No risk register tracking Assign a special risk supervisor

F

Wrong contract strategy Cross reference contracting strategy with the   planning level of confidence

The sub causes noted found to be not specific for the change of scope causing additional unit, therefore it may potentially be used to address other type of change orders as explained earlier.

Development of the outcomes and cash flows for each alternative

In general, the expected outcome for all alternatives is similar, which is to minimize the potential change orders and cost growth from the planned budget. Especially since the changes in a major project may affect the cash flow of the company.

Selection of a criterion (or criteria)

To select the criteria, based on table 2., the interrelationship diagram (ID) approach is taken. The index (x/y) represents the amount of incoming and outgoing arrows. The arrow itself shows which alternative would act as a driver or have influence towards other alternatives.

W10_Syahril

Figure 1. Interrelationship Diagram of contracting problem alternatives criteria

Based on Fig.1, the highest incoming arrows falls to alternative D; failed project fast tracking, representing the key important outcome, which can become a performance success control later on.

However, the root cause or main drivers are seen from the highest number of outgoing arrow, which is B, the lack of synchronized planning, followed with D which relates to the no risk register tracking. To further analyze the relationship strength, a matrix analysis is needed.

Analysis and comparison of the alternatives

Using the ID-Matrix format, each alternatives are required to be connected with a certain level of relationship (9= strong, 3= medium, 1=low). We found that B, lack of synchronized planning, as the highest amount of cause/driver arrow, followed with E, no risk register tracking.

W10_Syahril_2

Figure 2. ID-Matrix diagram of contracting problem alternatives criteria

When we cross reference with result of ID approach, based on the total weights, we notice that between B and D, the stronger effect was given by D which has the higher number. Another strong effect observed is alternative A, the uncontrolled new findings beyond plan, which is also become the second performance success criteria.

However, based on the number of cause/driver, alternative B remains to contribute the highest cause factor.

Selection of the preferred alternative

Alternative B is preferred as the root cause which is the priority for improvement action. This result is re-emphasizing the importance of having a definitive planning, which in best practices is known as Front End Loading as explained by the Independent Project Analysis Institute, with the potential cost growth of 25% from the project value.

Nevertheless, one thing we should note is that such approach is only recommended for conventional development projects, since there are some believes that unconventional gas development project may need to emphasize more in the continuous improvement.

Performance monitoring and post evaluation of results

The two parameters for performance monitoring are; A, the uncontrolled new findings beyond plan, and D, the failed project fast tracking. However, the monitoring and evaluation for both could only be confirmed once the project is finished.

Therefore the recommended monitoring scheme is through a regular project risk and cost evaluation, which will be considered in the contracts.

References

  1. Peterson R., Mulholland J., (2012). The State of Oil and Gas Capital Projects, Retrieved from: http://www.oilgasmonitor.com/state-oil-gas-capital-projects/2932/
  2. Merrow, E. W., (2012). Oil and Gas Industry Megaprojects: Our recent track record, Independent Project Analysis, Retrieved from: http://ipaglobal.com//getattachment/a5829440-4ac0-4b80-aaf7-2c0e26a882e3/Oil-and-Gas-Industry-Megaprojects–Our-Recent-Trac;;aspx
  3. Brassard M., Ritter D. (2010). Chapter Force Field Analysis. In The Memory Jogger™ pp. 101-106, 2 second edition, GOAL/QPC.
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1 Response to W10_Syahril_ COImpact

  1. drpdg says:

    Excellent case study, Pak Syahril and you did a nice job of analyzing it. To challenge you further,why not include a Pareto Analysis as well? You have the basis for a Pareto Analysis with the ratio of change orders and their sub causes…….

    Bottom line- nice case study and I hope you can do a bit more with it using other tools/techniques….

    BR,
    Dr. PDG, Jakarta

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