Responding to $50 oil

With oil prices at their lowest since 2004, Oil and Gas operators and service companies are looking at ways to reduce expenditure in 2009 and 2010. Whilst no one wishes to repeat the mistakes of the late 1990's when investment virtually ceased and left the industry vulnerable during the upswing, most operating units and functions are targeting project and programme spend as a means to reduce Opex and Capex.

So, how do we as managers responsible for a programme or project respond positively to the challenge and deliver savings?

Here are three lessons that we’ve learned: ‘Deep Dive’ the business case before looking at scope and schedule; Get radical with scope, schedule and resources; and Prepare to Stop! (or pause…).

1. 'Deep Dive' the business case before looking at scope and schedule.

The business case is typically prepared at the start of a project and refined through the initial phase gates. Once in execution however, it often sits untouched unless there is a major scope change. Beyond rebaselining and checking the overall economics still stand up to a P50 of $50, it is worthwhile putting the underlying assumptions and sources of value under scrutiny. The aim, here, is to identify the project deliverables and work streams that are really driving the value. The result will offer up options for scope and schedule changes that will deliver cost savings and ensure the project team and business sponsors understand exactly what the project will do and how value will be delivered.

Reviewing the aggregate business case for a programme will also give insight into the relative value of each project in the portfolio and offer up options.

2. Get radical with scope, schedule and resources.

It's a common fault with many of us that once our schedule is baselined we get locked into thinking that it is the only way to deliver the outcomes. Once the route is plotted on the map it's difficult to change course. Tinkering with the schedule and plan is likely to yield only incremental changes so don't be afraid to take a fresh look at different routes or making radical adjustments to scope and timing. Suggesting to your executive team that extending the duration of a three year project to five might sound crazy but once the cost savings of doing less activity now and next year are factored in it might be warmly received.

Resources and materials offer considerable scope for reducing costs but rather than simply demanding a scope reduction or discount on rates or materials from suppliers, open negotiations will often yield a mutually beneficial outcome. Risk and reward can be shared equitably.

Identify synergies with other projects underway to achieve economies of scale. Rather than competing for scarce funding, look out for opportunities to take advantage of common resources.

3. Prepare to Stop! (or pause….)

Stopping is always more difficult than starting. It goes against our nature as people and professionals to bring something to a premature close, especially when whatever we are responsible for is sometimes described as 'your project'.

Exploring the options and implications for stopping or pausing before it's imposed will generate ideas for radical scope and schedule changes, energise stakeholders and also ensure you are adequately prepared to do it professionally in the event that it becomes the only option.