Major Oil and Gas Company

A major oil and gas company, with six refineries in the United States, sought a
new project cost management system, which would bring together their different
sources of data and help them standardize a new process across their
organization. The new system would provide them with the flexibility of
configuration and reporting while matching their processes and terminology. It
would also provide flexibility and speed of integration with their homegrown
systems, Oracle Primavera P6 for scheduling, a general ledger system, and others.

They sought a system that would work with their portfolio of capital projects, as
well as within a shutdowns and turnaround (STO) environment. When shutting
down a refinery for repairs, maintenance, or other purposes, it is essential for the
organization to work extremely efficiently, minimizing the downtime and revenue
lost during every hour the facility is inactive. For them, the need to control costs
and assisting with a speedy return to production was a big factor in choosing their
controls systems.

For these turnaround projects, a key objective is to track the project's productivity
on a daily basis. They also needed to be able to automate and define rules for
reporting so that highly paid analysts would not be forced to manually apply
business rules, a necessary but rote activity, if the system can do the task for
them. Extensive performance reporting is also an important factor for these
projects. Organizations should be able to outline elements such as direct/indirect
costs by vendor, unit, craft/discipline, work order, and phase. What this oil and
gas company was looking for was for the ability to have these reports delivered
automatically and instantaneously.

The organization was also looking for the ability to control the changes of a project
through their system and be able to be report on those discretely from the original
budget. At the portfolio level, they wanted the ability to standardize views on the
cost side, as well as match their system's labeling and descriptions to their internal
terminology to make it a user-friendly system for their employees.

What they developed was a common process and a common system that managed
forecast, how much they achieved or earned, their expenditures, the estimates,
and management of contingency/drawdown. They were able to achieve
daily/weekly time phasing; integration with Oracle Primavera P6 for progress
measurement; and integration on a daily basis with time and
attendance/contractor billing.

Nuclear Power Contractor/Joint Venture

Another case study involves a joint venture between two major nuclear power
contractors.

The joint venture (JV) was standardized on SAP and P6 and sought to bring
together the data from each system. They deployed enterprise management
system EcoSys EPC to import data from both systems and deliver integrated
performance management, reporting, and controls. Additionally, one side of the
venture used SAP for timekeeping, while the other had its own timesheet system.
Both systems needed to be integrated for effective reporting.

The Integration Approach for the Nuclear Power Contractor/Joint Venture

Exhibit 1: The Integration Approach for the Nuclear Power Contractor/Joint
Venture

This is a common example of a challenge in cost controls where the mission is to

create a unified, standard process or system out of disparate data sources for
financials, schedules, timesheets, and the multitude of details tied to each. P6
housed the WBS, which was then pushed to SAP via EcoSys, which served as the
basis for its WBS. This approach is unique because the status of the project is also
reported to SAP. This means someone from the P6 perspective allowed a certain
WBS element or element of work within the project to pass to SAP so that the
financial system had that optimization.

As the project was in process, forecasts and percent completes were maintained in
the schedule, with actual costs and commitments data coming in from SAP. EcoSys
was able to map codes between the general ledger system, the timesheet system
and schedule system for consolidated reporting. EPC provided earned value;
project cost reporting; reviews on budget, cost, forecasts, commitments; actuals
and set up to support revenue; change management details in the same
repository; and historical snapshots on all of the data collected.

Highlights of this Approach

One of the requirements for this project was the ability to use different earned
value techniques, for different elements of the project. The organization needed
the ability to define engineering work directly in the schedule. Progress was
measured by drawing from the percent complete in the schedule. However, the
overhead and other direct costs were developed in EcoSys EPC and therefore, the
organization was able to track earned value for those items as well.

There was a full time-phased history of their earned value by month. These
measures could be looked at from an hourly or cost point of view. They also had
the ability to review performance analysis by month, year, and project life.

Within this project, change and trend management was integrated directly into the
current budget and current forecast. Therefore, they were able to see various
types of changes, whether a negative trend, variation, or scope change. They
could review those elements side by side with the original budget and understand
exactly what went into the current budget and current forecast. The system also
gave them the ability to run their performance against the current forecast.

A key element in this project was their ability to analyze performance by different
breakdowns. For example, the WBS is used by schedulers, but the project may
require a drill down and performance analysis by discipline, by organizational
breakdown structure (OBS) or by cost type, such as labor, material, and other
direct costs. The implementation of EcoSys EPC gave them this ability.

Drilldown of WBS and OBS in Cost Controls System, EcoSys EPC

Exhibit 2: Drilldown of WBS and OBS in Cost Controls System, EcoSys EPC

As an example of defining standard processes through the project controls system,

the JV decided to integrate data in the schedule (P6) accounting for the different
financial periods of each JV partner. This created a level of complexity where data
had to be obtained based on each contractor's close dates and consolidate into an
easy-to-understand report. By setting up a standard process that could be
automated within the system, project owners were provided a sense of security
that tasks were being completed on time.

Energy Contractor
This final case study will focus on a world leader in project management and
engineering & construction in the energy industry. The company operates in 48
countries with revenues of €6 billion annually.

In this case, they used Primavera P6 as their scheduling tool and Oracle E-
Business as their financial system. They were looking to develop and define a
common work process globally across their firm. These are the key areas for
control: budgeting; forecasting; tracking change and types of change; ensuring
that forecasts were updated according to various contract rules; tracking contract
commitment; and providing standardized reporting.

The organization requested that they be able to report not only by their cost
structures but also have the ability to quickly present to the same information to
clients according to the client's requested format. For this firm, it was a strategic
need they wished to develop. It would allow them to demonstrate a level of
professionalism that differentiated them from their competitors.

As part of the common work process definition, they selected EcoSys EPC as their
global project cost controls system, which was piloted first in the United States.

In building their business case to implement this cost controls system, the energy
contractor conducted a study where they identified that nearly two thirds of their
cost analyst's time was spent on “wasteful” activities (Exhibit 3). They also
conducted an analysis where they identified how much efficiency would increase if
their cost analysts spent less of their time troubleshooting (Exhibit 4).

“Wasteful” Activities, Study Results

Exhibit 3: “Wasteful” Activities, Study Results

Cost Analyst Target Utilization, Study Results

Exhibit 4: Cost Analyst Target Utilization, Study Results

They also designed the system so that the lower levels of the cost breakdown
structure (CBS) provided flexibility, especially to the different regions around the
world. Those regions had their own definition of how they wanted to understand
their cost: by different cost type, different disciplines, etc., which are often broken
down by: material codes, construction codes, financial/accounting codes.

The project now had the flexibility of a WBS but they were also able to view it by
the standardized corporate code. They developed budgets at a high level, but a
forecast might have been created at an extremely detailed level, while the actuals
were in the middle. Therefore, while the level of data entry varied, they still had
the ability to consolidate and roll up actual hours, actual costs, budgets, forecasts,
commitments, etc. across various levels.

Beyond the System—Managing the Organizational Change:

One of the key lessons learned was the need for a carefully conceived and
executed implementation plan for rolling out a global system across such a large
and geographically diverse firm. The organization spent time strategizing how the
cost controls system would expand from the initial U.S. implementation and across
different projects, etc. They identified and empowered influential decision-makers
within the organization to drive the initiative and paid close attention to
communicating the benefits of this system throughout the organization, ensuring
them that the new system would ease workloads. They spent time defining the
common work process and they carefully managed the implementation of the new
processes in conjunction with the system implementation. They developed an
organization within the firm that could sustain this process and enforced the
process going forward so that it could be responsive to needs and changes that
evolve in a growing business.

With the implementation of their new cost controls system, this firm was able to
achieve these: common work process and system for client and internal reporting;
the ability to demonstrate increased professionalism and responsiveness to
customers; and increases in efficiency, accuracy, and visibility within the project.

Conclusion
Answering fundamental cost controls questions is often difficult. Challenges include
insufficient resources, a reliance on manual consolidation, systems that fail to
share data, different perspectives and data structures, and an insufficient change
management process.

The case studies have demonstrated common themes that are emerging in cost
controls organizations to address these challenges:

Organizations are moving towards standardization of cost controls processes while

allowing flexibility at the project level if is required.
That the process should be supported and enforced through an integrated cost
controls system. Through integration, reporting becomes more automated and
eliminates many of the challenges presented.
A well-planned strategy for achieving this process can position an organization for
success.
By implementing a cost controls system that can provide the flexibility an
organization needs, while also allowing for the standardization of processes,
project performance can be more visible, thus allowing the organization to provide
more accurate reporting within their organization and if needed, for their clients.

Bibliography
Bergerud, C. (2012, February). Top challenges to effective cost controls [Video
webcast]. Rye Brook, NY.

This material has been reproduced with the permission of the copyright owner.
Unauthorized reproduction of this material is strictly prohibited. For permission to
reproduce this material, please contact PMI or any listed author.
© 2012, Christen Bergerud
Originally published as a part of 2012 PMI Global Congress Proceedings –
Vancouver, B.C.

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