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Facing Project Cost Exposure during Front End Loading (FEL) Implementation

FEATURED PAPER 

By Trian Hendro Asmoro, CCP, PMP

Jakarta, Indonesia

Aberdeen, Scotland

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Abstract

The planning of a project is the most critical phase, since all project definitions and requirements should be completed in this phase. Of all project variables, cost is the most sensitive one especially for project that has a limited range of return on investment. Thus, the project cost and planning team has to have a better planning process as well as incorporating the external commercial factors in the project cost.

Meanwhile, Front End Loading (FEL) stages used to evaluate a completed project have limitations in observing the project cost. The cost estimation level is developed and improved in accordance with three FEL stages; Appraise (FEL1), Select (FEL2) and Define (FEL3), prior to the execution phase. Although the actual cost will be realized after execution, the projective project cost needs to be confirmed at the end of FEL 3.

This paper concludes that the characteristics of cost exposure during the planning of an oil and gas project in the FEL stages must be identified and understood by the company. The company is therefore able to foresee the project risk, particularly regarding the project cost.

Keywords: Front End Loading (FEL), Project Planning, Project Cost.

1.       Introduction

Project cost overrun has become a major issue for project management practices in recent years. Research related to project performance has shown that some negative indicators have arisen when projects are being executed. According to a 2009 survey conducted by Price Waterhouse Coopers (Westney 2012), the number of major projects that could be defined as successful was only 2.5%, an astonishingly low number. In 2009 the Standish group reported average cost overruns of 89% on 8300 IT projects, while research by US Census Bureau project in 2009 revealed average cost overruns of 80% (Halligan, 2012).

The data above indicate significant problems during the project planning phase. An improved approach and analysis in planning a megaproject has therefore been implemented. Front End Loading (FEL) and similar systems have become a valuable method adopted by many oil and gas companies to execute their megaprojects.

2.       Front End Loading (FEL) Practices

Given the high capital requirements for oil and gas and associated process industries, most owner companies have adopted a formal, stage-gated process to develop business ideas into working capital assets and plants (Ogilvie, 2012). Figure 1 depicts a generic project life cycle, front-end loading, and decision gate consisting of initiate, select, define, execute and operate. At the end of each stage, decision gate is available to evaluate and ensure that all deliverables and criteria have been met. In most cases, the first three (generically termed as appraise, select and define) consist of project definition (pre-authorization) or Front-End Loading (FEL) stage.

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About the Author

pmwj26-sep2014-Asmoro-AUTHORTrian Hendro Asmoro flag-indonesiaflag-uk

Jakarta, Indonesia

Trian Hendro Asmoro is oil and gas professional with more than 7 years experiences in project management and cost engineering areas from conceptual to executing projects as planning & cost engineer, pipeline project leader, project site engineer, and project coordinator. He is currently a senior cost engineer at PT Medco E&P Indonesia. Trian holds a bachelor degree in Industrial Engineering from Institute of Technology Bandung (ITB). Trian is a Certified Cost Engineer/Professional (CCE/CCP) and Project Management Professional (PMP), driven by passion to share contribution in oil & gas sector. He has published several professional papers and journals covered topics of project management, cost engineering and petroleum economics. He is now living in Aberdeen, Scotland, United Kingdom for master study in Petroleum, Energy Economics and Finance supported by Indonesia Endowment Fund for Education (LPDP scholarship) of Indonesian Government. He can be contacted at [email protected]

To view other works by Trian Asmoro, visit his author showcase page in the PM World Library at http://pmworldlibrary.net/authors/trian-hendro-asmoro/