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A Study on the Use of Cost Control Procedures in the Oil and Gas Industry

FEATURED PAPER

Eugene McGrath, BSc CCP

Ireland
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Abstract

The purpose of undertaking this project was to define what a cost control procedure is and the reasons for using such a procedure in the context of the construction of an oil and gas facility. The study was split between a literature review of existing research and a questionnaire based study of industry opinions on the subject. The literature review consists of an appraisal of available articles and research within the oil & gas and similar heavy industrial industries to review how procedures are formulated and applied. Also in the literature review, three existing procedures in the industry were evaluated.

This was to compare and contrast each section of the procedure and assess the advantages and disadvantages of each procedure manual. The questionnaire will consist of a number of questions to cost professionals within the industry, which will focus more on the application of procedures rather than their preparation. The main aim of the project is to draw conclusions on problems faced in the compilation of procedures and problems faced when trying to implement them. The major conclusions of the project were that, while procedures are in place and documented, there remains a lack of awareness and training in how they are to function properly. Due to this fact many in the industry feel that the procedures are not fully implemented. 

Introduction

Due to the nature of the oil and gas industry, project risks are always prevalent. These risks can either be external or internal hazards to the successful completion of the project. Possible internal risks to a project are poor design, inadequate project organisation and inadequate tendering (Van Thuyet et al, 2007). These are classed as risks within the project which the contractors and project sponsors have a level of control over. External risks, such as bureaucratic interference, long project approval procedure and insufficient laws on project complexity, are outside the organizations control but can have an equally destructive bearing on the project goals (Merrow, 1983).

To aid in mitigating against these risks, companies and project use procedures to control, forecast and report on all the cost issues which affect a specific project. The reason for using a procedure is to devise a system to best manage the cost control of a project. This paper focused on the problems that users of such procedures encountered in applying them. 

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About the Author

pmwj25-aug2014-McGrath-AUTHOR IMAGEEugene McGrathflag-ireland

Ireland

Eugene McGrath is currently working as a Contracts Engineer for Shell E&P Ireland. He has more six years’ experience in the oil and gas industry working on both onshore and offshore projects, both in Ireland and the UK. He holds a BSc in Quantity Surveying from the College of Estate Management, Reading – achieved by distance learning. He is also a member of the AACEI (Association for the Advancement of Cost Engineering International), certified as a CCP. He is currently undertaking an Assessment of Professional Competency, with the intention of joining the Royal Institute of Chartered Surveyors (RICS). Eugene can be contacted at [email protected].