The value of project controls during economic uncertainty
Companies in the energy sector have been hurtled into a whole new world by a force that is breathtaking in its speed and scale.
In an industry that is all too familiar with cyclical ups and downs, slow-moving trends and occasional geopolitical anomalies, COVID-19 hit like a global wrecking ball. The pandemic has shattered nearly every economic assumption in almost every part of the world, and it happened practically overnight.
Successful energy companies meticulously develop their capital investment and asset maintenance plans to expand their markets (or enter new ones), improve efficiency and ensure regulatory compliance, all while maximizing return on their invested capital. But suddenly the economic models that underpin that process – honed from decades of fine-tuning – are now more likely to raise questions than provide answers.
At best those models need massive, but perhaps only temporary, corrections. At worst they are completely useless. As office buildings sit empty, manufacturing plants run at reduced levels and airlines continue to cut capacity, forecasting demand for power, oil and gas is tricky. Will the world’s demand for energy return to normal or will there be a “new normal” at the end of the current situation? And in either eventuality, how long will it take to get there?
While the experts attempt to answer those questions, it’s a good time for energy companies to evaluate the current state of capital planning and project management processes relative to the construction of new assets, as well as maintenance of existing facilities. The current reduction in demand may open near-term opportunities to address upgrades to existing assets with less impact on supply. In this context, there are three key areas to explore.
Fund the right projects
First, revisit the capital planning process itself. It’s more important than ever to make sure you’re choosing the right projects to move forward through the pipeline. With economic assumptions changing rapidly, it’s critical to continually review and monitor your organization’s strategic initiatives to ensure they still make sense, and that they’re well-aligned with the capital and maintenance projects that support them. That includes reassessing previously approved projects, even if they are already underway. As strategic goals change, the ability to rapidly identify the right mix of projects to fund can make a significant difference in ROI. In the current environment, agility matters more than ever.
Focus on overall project risk
Second, increase the focus on project-level risk assessment, which starts with scope. Getting the scope right is the most critical factor within the owner’s control to ensure predictable costs and schedules for capital and maintenance projects. It’s true that hiring the right engineers and contractors can make or break a project, but those firms will (rightfully) manage their own risk. While contract mechanisms can be used to spread cost and schedule risk across the various project stakeholders, it’s the owner party who feels the strategic impact of an unsuccessful project the most. For that reason, identifying and managing overall project risk is fully within the owner’s domain.
It’s a good time to look at commercially available software tools that help identify and quantify project risk. Software vendors have started to make highly sophisticated risk assessment technology available in the cloud as part of end-to-end project management solutions. These solutions combine artificial intelligence, actual experience from prior projects and human input to help evaluate risks on current and future projects. With a proper risk assessment in place for each project before – and during – construction, energy owner/operators can properly align funding sources and maximize return.
Keep all parties in sync
Third, for both new construction and large maintenance projects, including shut-downs and turn-arounds, look for ways to be an active member of the construction team. Again, good contractors will manage the risks associated with their contract, which can minimize your cost exposure as the owner. But even so, the impacts felt by the owner from a project gone awry extend far beyond the cost of the project itself. There is an opportunity loss relative to the resources (financial and otherwise) that were dedicated to the project, and a loss of the expected benefits from that project, such as new revenue, increased profit or other strategic goals. Staying involved at a detail level during the construction stage is the owner’s responsibility in order to mitigate this risk.
Implementing a systematic and proven work planning process can pay huge dividends in this area. Advanced Work Packaging (AWP) is one such approach that has become quite common in the oil and gas sector, but is now spreading to other types of projects, and for very good reason. The AWP process ensures owner, engineer and contractor are all in sync, and that engineering, procurement and construction work are well orchestrated to drive better field productivity and project certainty. This is another area of functionality we’re starting to see included in construction project management solutions.
Plan, measure and adjust in real-time
Fortunately, if your goal is to be an active member of the construction team, today’s cloud-based project management systems make it easier than ever. With minimal (or no) IT involvement required for setup, all the major stakeholders in a project can collaborate in real-time and actively participate in time-critical workflows. Such systems provide everyone with a common repository of project scope and design documents, which minimizes mistakes and re-work. They also provide current work progress status and visibility into issues as they surface to minimize delays, inefficiencies and miscommunications.
With the uncertainty ahead as the world deals with the unknown pace of recovery from the pandemic, owner/operators in the energy sector face new complexities when it comes to selecting, planning and executing construction projects. The good news is that the profession of project controls is already trained to deal with these complexities, with its inherent mantra of 'plan, measure and adjust'. These principles have arguably been applied more successfully in the energy industry than in any other sector. Combined with today’s powerful construction project management systems, which are easier than ever to implement and access thanks to the cloud, energy owners can successfully navigate through the most challenging economic climate.
This article was contributed by Brad Barth, Chief Product Officer, InEight.
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