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Oman Oil and Gas Cost Estimating vs the GAO’s Best Practices in Capital Budgeting- a Benchmarking Study

FEATURED PAPER

By Musallam Al-Awaid

Sultanate of Oman
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Abstract

CAPEX projects, ending over-budgeted or extremely under-budgeted, is considered as real issue in many of industrial companies as it leads to bad control on the overall budget for such projects. Hence, the importance of accurate estimate of project budget becomes very high. Here, the GAO’s model “Best Practices in Capital Budgeting” is being discussed and used benchmarking procedures followed by existing petrochemical company. Recommendations are extracted based on the case study discussed.

Key Words: Budget Estimate, Real Cost, Estimated Cost, Work Breakdown Structure, Key Cost Drivers. 

Introduction

When plants are commissioned and handed over to the client, small and major issues emerge which require rectification and modification. Of course, all of those changes talk the language of money. Those changes are referred to as CAPITAL EXPENDITURE PROJECTS, subjected to the amount of money spent and size of change. Therefore, shareholders allocate quite big budget for CAPEX projects as those projects are expected to enhance the productivity, facility reliability, employee welfare and reduce operation expenditure.

Unfortunately, that money is not well utilized in many cases as it is spent on projects which do not pay back in any measures. Moreover, some titled ‘’CAPEX’’ projects cannot be evaluated on any criteria as their selection is not based on solid technical basis.

Hence, Budget estimate is very critical element in the process of any project. Accuracy verification has been done through well-established technical methods and procedures. One of them is illustrated in the figure below and that method is adapted from GAO’s “Best Practices in Capital Budgeting”. This process is mainly four stages, initiation and research, assessment, analysis and presentation. Each one of these stages are detailed in coming sections and practical case study of Existing Petrochemical Company is used, by being benchmarked against this standard process to extract recommendations to improve further on existing procedures.

As this is a benchmarking research, the following question(s) are going to be explored and answers sought. Specifically-

Does Company follow the best practices as defined by the GAO?

And if NO, then what improvements to be made to Company processes? 

More…

To read entire paper (click here)

About the Author

pmwj26-sep2014-Al-Awaid-AUTHORMusallam Amer Al-Awaidflag-muscat-oman

Salalah, Sultanate of Oman

Musallam Amer Al-Awaid is a senior process engineer working in a petrochemical company located in Salalah, South of Oman, TUV certified functional safety engineer, Certified Professional Chemical engineer PE by NCEES in the U.S.A, HAZOP leader by PrimaTech, BEng with honour in chemical engineer from Nottingham University in the U.K and Part-time lecturer in Chemical Engineering in Salalah College of Technology. He is specialized in process safety elements, such as HAZOP, SIL, PSR, PHA, PSSR, MOC and ALARM SYSTEM MANAGEMENT. He is excellent in process optimization and trouble shooting, as he saved his company around fifth million US$ once by implementation of only a simple but innovative optimization. He has excelled in equipment performance evaluation and sizing. His favorite area of chemical engineering is design and has fair knowledge on API codes. He has good knowledge on project life cycle stages of Petrochemical Plants, such as FEED, EPC, Pre-Commissioning, Commissioning and Operation. He has very good skills in communication, leadership, teaching, training and presentation. Musallam can be contacted through [email protected] or [email protected].