12 Ways to reduce cost in energy - Project Control

1. Have a diverse mix of experience on your team

Your team is the key to reducing costs in the energy sector, and diversity is invaluable. There is nothing worse than over reliance on a single “rockstar” Project Manager/Engineer—stress levels skyrocket for a busy executive whenever this key person is unavailable. Thinking long term is essential (good luck in this business!!) so try to have 2 or 3 younger professionals on staff at all times. Mentor these people by having them execute small projects using the disciplined steps mentioned herein.

As their confidence grows, add more projects… and then more, with increasing complexity. Some positive results of this include:

  • Accomplishing more work
  • Getting young PMs comfortable with all the necessary project steps by working as a sole project manager
  • Teaching the young PM how to deal with difficult situations and complex problems
  • Reducing the risk of burn-out for your seasoned veterans
  • This is far and away the best method to train young Project Managers/Engineers. Although the alternative method of having young PMs act as “assistants” can also be effective, it cannot offer this invaluable sense of ownership.

2. Embrace the “diamond in the rough” veterans

It is rare to find good PMs or engineers with the stereotypical crocodile smile and pinstripe suit. Good engineers are focused on solving whatever technical issues preventing maximum profitability, not on appearances. This practical focus is diametrically opposed to a “Mr. Congeniality” persona. Although we want to encourage professionalism, we need to strive for balance while understanding that we may often find ourselves off balance.

3. Encourage the mix of young blood and seasoned vets in your EPCM

Encourage this mix of youth and experience through your Engineering Procurement and Construction Manager (EPCM) as well. Explain that rather than simply paying for engineering, you are investing in future successful projects by carefully selecting your teams for today’s tasks. Try to get a devoted, “been-there-done-that” veteran with some young talent working beneath him. Then make sure you keep enough work for this EPCM to ensure the talent you’re nurturing cannot be lured away by other clients. Keep these key people with you from project to project.

4. Avoid interpersonal politics

Surround yourself with people who are passionate about success, and listen to what they have to say. Give them goals and monitor the energy spent achieving them—if your people are too busy, they cannot achieve your goals. Encourage people to improve your ideas and tell you when you are wrong. The most difficult—yet vital—task is to monitor the constantly shifting balance that gives each individual the best chance at success.

5. Freeze the scope

One of the most challenging tasks when coming up with design basis for a field development or facility projects is minimizing the changes; there are many variables in determining the scope of a project, and these change throughout the design, procurement, and construction phases. However, this foresight is essential, because building a project that is fundamentally flawed for financial or technical reasons is the worst thing that can happen. An effective manager must understand that the key to any project’s success is minimizing the necessary changes after kicking off a detailed design. Even changes amounting to as little as 20% of the original scope will result in chaos, because key assumptions including equipment sizing, infrastructure requirements, procurement, and construction execution must be rechecked or, even worse, recalculated entirely.

This is where you as a manager must understand the key assumptions that contribute to the initial design and/or financial model. Sign off on every key document, such as the drilling or completion program, process flow, and design basis. This understanding allows you to make decisions regarding which assumptions should change and how that might affect the design or necessary design changes whenever any of those key assumptions comes under stress. To ensure as little modification as possible, devote maximum energy during the critical up-front scoping period.

6. Involve the field early

Time and again, the business drivers of a project necessitate design changes, but the expected start-up date never changes. Field consultations all too often happen when we show up, drawings in hand, the day before construction begins. However, the field staff will improve your projects’ performance on many levels if you give them the opportunity. This requires involving them at the scoping process both in face-to-face meetings and in sign-offs on the facility process design and design basis, even before detailed design begins. This allows them to be thinking the entire period of the detailed design and how it should operate. Send the detailed drawings out to the field so they have enough time to look them over; then have another face-to-face meeting. This is the minimum appropriate review for the maximum operability with the fewest costly changes, and it adds the benefit of enhancing key relationships in the field.

7. Create a cost-conscious culture

Culture must be created from the top down, so cost-consciousness must begin with you. Many EPCMs tend to load projects with hours that simply need a place to be booked, regardless of the amount of time actually spent on your projects. Closely monitor this and challenge it when appropriate. Beyond the initial benefit of saving a few immediate dollars, the intangible benefit will impact all your projects as this becomes a catalyst for creating a cost-conscious culture. There is no more effective way to impact EPCMs with your concern for costs than challenging their own paychecks.

8. AFE any project over $20K

All projects, whether capital or operational, must compete for dollars. This is the only way to ensure that dollars are deployed in a manner that improves the bottom line, because if a project does not deliver the financial performance predicted, other projects that could have been executed to improve the bottom line must be deferred. This is extra work, but it pays off.

9. Treat all projects the same … sort of

It is essential to execute a fit-for-purpose level of the standard steps for every project, no matter the size. In addition to ensuring the completion of steps and avoidance of errors, these processes function as a “security blanket,” allowing busy professionals to march themselves out of the fog when workload and stress pile up. It also serves as a foundation for team leadership when managers know their staff are following the standard steps, even when these are scaled down as required by the specific project.

10. Construction execution

Consider your contract structure based on your design. Consider a lump sum bid if a tight set of drawings with minimal expected changes can be produced, but remember that changes from the original bid beyond 20% in cost make these contract structures difficult. Alternate contracting strategies such as cost-plus-fixed-percentage or cost-plus-fixed-fee can be excellent if the scope cannot be nailed down or design drawings are difficult to produce. In both cases, changes can occur with reduced pressure. The contractor is not worried about losing money, but he is still motivated to prevent the project from going indefinitely. An aggressive owner/operator can utilize these strategies with a good EPCM and contractor to execute a program of projects quickly. Every stakeholder wins in this scenario.

11. Embrace Technology

The marriage of fit-for-purpose technology with fit-for-purpose processes is the key to long-term success. You must build a culture that emphasizes working smart over working hard—this is long lasting, rewarding, and enjoyable. When times are slow, smart companies encourage people to spend their extra energy re-evaluating processes, adopting technology where appropriate, and using the extra time to get it all up and running before things get busy again. In fact, the slow times should be the busiest times because of the energy involved with such changes.

12. Use effective project controls

Handling data can be frustrating and exhausting, especially for office staff trying endlessly to consolidate data (before invoices) from field reports in order to understand commitments versus budget. Due to data corruption, email confusion, and key field inspectors’ discomfort with Excel, endless emails of Excel spreadsheets are not effective. What is the best solution for project control of field costs? The best solution is CommittedCost.com, an online, pay-as-you-go tool born of this frustration. With no up-front costs or software to install, it provides effective project control by allowing all stakeholders to report progress and track committed costs. Estimated final costs can be built up item by item to make accurate predictions and account for overages, and these committed costs can be rolled into budgets so that a commitment can always be tracked against a budget.