Project Management for the Energy Industry

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Introduction

Energy industry management practices and principles are often closely associated with the in-depth analysis of the business environment of the sphere, and the business research. Considering the particularities of the energy industry project management, there is strong necessity to mention that all the researches will be associated not only with the standard parameters of the business project, such as Time, Quality and Cost, but these will also entail design and definition of the key measures, required for the evaluation of the project planning and implementation.

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Originally, one of the key aims of the paper is to prepare the outline for arranging the meeting with the major participants of the managerial team, who have the necessary skills and experience for delivering this project successfully. This will entail the discussion of the key requirements of the project, and the requirements, which the managerial team will face. Technical details may be discussed only from the perspective of the project implementation principles, as the technical side is within the responsibilities of the technical team.

Another aim is the preparation of the personal report, considering thoughts and guidance on the matters of project planning and implementation. This part of the paper will be associated with the personal experience in the sphere of project planning, and, probably the discussion of the considerations and aspects, which will not be discussed during the meeting of managers. Consequently, it should be emphasized that the traditional approaches towards project planning will be intervened with the innovative approaches and practices, aimed at analyzing the project implementation environment, and the energy industry in general.

Initial Project-Planning Meeting

The project planning in general is the process, aimed at analyzing the business and industrial environment, for deciding, whether the existing implementation plan is successful or requires essential improvements. The fact is that, the key aspects of the project implementation are closely associated with design of the project, and the definition of the key terms and requirements for the project implementation. Thus, the key requirements towards the implementation of the energy industry project will be closely associated with the matters of business analysis.

In accordance with the basics of project implementation principles, the completion of such large scale projects like gas plant an creation of the energetic infrastructure requires the solid grounding from the perspective of the construction time. Originally, this resource is the central and the most important in accordance with the managerial practices, and the terms should not be violated. Consequently, the key aim of the planning meeting is to define what should be done in order to avoid the violation of the terms. Thus, in accordance with Shojai (2001, p. 65):

Engineering, procurement and construction managers, owners, and operators must know how to manage complex collaboration involving internal and external teams of prospects, customers, suppliers, and partners from the onset of the project to commissioning so that the plant is constructed with superior quality, on time and on budget.

In the light of this statement, it should be emphasized that the project planning in general should consider the following aspects:

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  • Business environment
  • Risk management principles
  • Analysis of the business requirements from the perspective of measurable aims
  • Analysis of the current stage and perspectives of this stage
  • Analysis of the budget
  • Stakeholder analysis
  • Costs, tasks, deliverables, and schedule (MacMillan and McGrath, 2002)

The initial stage of the project management will entail the following steps:

  • Create the responsible and experienced team
  • Define the key and secondary objectives of the project
  • Outline the project scope
  • Create the initial plan
  • Consider costs and risks
  • Adjust the plan
  • Analyze the current status of the project implementation process
  • Monitor the progress (Frame, 2001)

Originally, this flow requires detailed analysis from the perspective of the particularities of energy industry. Thus, creation of the experienced team has not been completed, and the organizational planning meeting will first resolve, whether the team will stay the same, or some changes will be required. Considering all the difficulties, which the project implementation may challenge, the experience of every particular team member, and the abilities of decision making and problem solving should be estimated.

The key objects of the project are closely linked with the necessity to execute the project within designed scope, cost and schedule limits, and Review, analyze, and control proposed changes to the project plan or cost estimate, as well as approve proposed changes and alternatives. (Frame, 2002). Originally, as it is stated by Masters and Frazier (2007), this phase is the most important, as the value chain of the project defines the frames of the project implementation and possible risks and limits, which should be taken into consideration and properly proceeded. Thus, as Richman (2002, p. 181) claims:

The value chain of the project can concentrate critical resources on the most profitable projects while standardizing on business processes across the extended enterprise. Capital Project Management solution provides project pipeline dashboards management that gives real-time visibility into a project’s status in terms of schedule, resources, process, costs, and deliverable maturity. This collaborative project management solution dramatically increases the productivity of globally distributed users by executing projects and programs with real-time information that is updated automatically through direct links to business processes, tasks, documents, deliverables and other data sources.

From the perspective of this statement, the necessity to define possible secondary objectives strongly depend on the values of key aims. Thus, the participants of the organizational meeting should focus on the secondary objectives, which will possibly entail the risks and limits.

The project scope discussion is generally aimed at creating the Work Breakdown Structure, which is developed for the clear understanding of the possible risks and barriers of the project. Considering the natural environment and the business requirements of the project implementation process, it should be emphasized that the hostile natural environment will require additional costs, required for granting the necessary comfort level for the construction and managerial team, who will be engaged in the technical side of the project implementation.

Initial plan construction is required for outlining the beginning steps of the project (from the managerial point of view), and the general blueprint of the process as a whole. Thus, there is strong necessity to consider the possible process flow. In accordance with Stuckenbruck (2002), the general model is the following:

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Costs and risks are considered by the executive team. The possible risks entail weather, competitors, construction mistakes, calculation errors, low quality of the construction materials. Considering the fact, that additionally to the plant, and the subordinate energetic infrastructure, additional appliances should be built, including accommodation and landing strip, it should be stated that the selected locations may create essential barriers for the main construction. Consequently, there is strong necessity to coordinate the construction efforts. The key business risks will entail strategic faults and the possible dangers of weak market position. Originally, there are five elements of strategic risks, which should be discussed during the organizational meeting:

  • Customer risks (customer selection and value proposition)
  • Geo-political and brand risks (value capture and profit model)
  • Stagnation risks (organizational structure)
  • Transition risks (Strategic control)
  • Industry and project risks (scope of activities)

Additionally, possible countermeasures should be discussed. In accordance with Walde (20001, p. 561), the following statement should be emphasized:

Companies can develop accurate data on the true odds of success and invest in next-generation project management processes focused on large project risk, including a review of existing talent management strategies. Firms moving into the upstream sector should prepare an organizational plan focused not only on new capabilities, but also on ensuring that they have processes that can support the evolving organization and enable management oversight of critical investment and operating decisions.

Plan adjustment stage will start as soon as all the risks are defined. Consequently, it entails the corrections and amendments of the plan. It is required for the proper arrangement of the plan stages and the actions, aimed at coordinating the efforts by the team. Considering the fact that all the risks have been already defined, the plan adjustment phase will be required for the outlining of the management principles and strategic rules for the project. As it was stated by Russell (2009), the key requirement is the for this phase is the definition of the resource leveling. Thus, the longest sequence of resource supply and tasks, associated with it will be regarded as the critical chain. Originally, the large scale projects, which entail several aspects and dimensions, presuppose the across-project resource leveling, which means the allocation of the resources depending on the terms and tempos of project implementation.

By analyzing the received information, the control of the project implementation will be either effective and able to response quickly, or ineffective and useless. The meeting should discuss the possible measures of project implementation process monitoring and analysis for the proper control of the resources, prediction of the possible risks and avoiding of the failures, associated with hostile natural and business environment. In accordance with the statement by Frame (2001), the analysis of the incoming information is the necessary aspect of the project management, thus, the information collection system requires serious planning and the detailed consideration of the business environment and possible failures in various spheres of project implementation.

Progress monitoring may be regarded as the final stage of the implementation. Depending on the information collection and analysis, the monitoring principles of the project will vary. Independently on the aspects of risk management and resource allocation, monitoring of the entire process will be performed in accordance with task allocation, as every sphere should be controlled by a responsible person or a team.

Event Chain Methodology

Originally, it may be regarded as another method, aimed at completing the methodology of project implementation. This concept represents the set of tools, aimed at analyze the techniques and focuses of identifying the events and stages of project chain management. Additionally, it helps to mitigate the negative effects of possible biases, associated with risk management and environmental analysis. Thus, the following principles of event chain management should be considered:

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  • Analysis of risk moment from the probabilistic point of view. Considering the fact that any activity is not continuous, it should be stated that the tasks, aimed at accomplishing such activity, may be affected by any external event at any point of task accomplishment.
  • Event Chain. This tool presupposes the analysis of cause and effect principles, as performance of any event causes the appearing of additional circumstances and aspects of project implementation. Thus, quantitative analysis will be required for defining the actual effect of the event chain.
  • Critical analysis of the event chains. This action presupposes the analysis of the entire chain, with defining the critical events, that caused or will cause the most crucial changes in the project implementation.
  • Project tracking. This tool is generally applied for the final stage of the project execution. It is aimed at analysis of the data about the terms, costs, and events occurred. On the one hand it is a part of monitoring, on the other hand, it is closely associated with the aspects of controlling and refining the implementation.

Report

The individual repot will be required for the discussions, arranged during the organizational meeting. Originally, all the issues, which will be raised by the managerial team, are closely associated with the aspects of project implementation, the risks and benefits of the project. Consequently, there is strong necessity to analyze the environment of the project, define its weak and strong points, thus, analyze the internal and external risks, crucial for the project implementation, and give the brief outline of the risk management strategy.

Industry Review

In order to have the strong position in arguments, related to the industry in general, there is strong necessity to provide the solid analysis of the energetic industry in general, and the tendencies, associated with the risks and the sphere development in general. As it was stated in the research by Andersson, Chawla et.al.(2009), the energy sector is constantly developing, nevertheless, it is subjected to all the possible risks, which feature unstable and developing markets. Originally, these are the price variations, changes in ecological standards and requirements, technical imperfection of the equipment etc. The detailed outline of the risks, which are general for the energy industry is provided in the corresponding part of the organizational meeting planning. As Ellig and Kalt (2006, p. 134) emphasized:

The energy sector has experienced tremendous positive momentum during a very prosperous economic expansion. But even as energy companies make exceptional profits each quarter, they face new challenges, including peaking hydrocarbon prices, new competitors, rising costs that raise capital project hurdle rates, and requirements for bigger, riskier offshore, deep water, or pure exploration bets. As a result, it is more important than ever for energy executives to think about risk in a strategic context.

In the light of this perspective, the analysis of the environmental factors should be provided basing on the general information on the matters of energy industry business, and the risks, associated with the project implementation. All the environmental concerns and aspect, which may create barriers for the project implementation, may distract consumers, who are searching for a reliable supplier of energy. Originally, while the new tendencies are not clear, it should be emphasized that most companies tend to underinvest in newer extraction and transportation technologies. Consequently, there is an excellent opportunity to become the leaders of the energy market by proper implementation of the new technologies. (Gallick, 2003) These issues should be discussed in details during the organizational planning, nevertheless, it may cause budget increase, consequently, all the risks, associated with exceeding the budget should be taken into consideration. Originally, when the inflection point is observed, the business model should be subjected to corrections, as inflection often means the potential mistake and failure of the entire project. Moreover, as Herbert (2001) emphasized in the research, the consumer’s attraction and attitude strongly depends on the values of opportunities and guarantees, as the traditional aspect of successful performance is the strong brand position, which is defined by the success of business performance and reliability for customers. (Eigen, 2007)

Success in oil, gas and coal industry, in its turn, is closely associated with the managerial practices and capital flows of the company. In the light of this statement, the application of reliable strategies, associated with the project implementation will be required for avoiding risks at all costs. As Mattoon (2005, p. 19) emphasized:

Projects that bring the highest return on investment from the resources available must be pushed forward. Projects that drain resources and eat up the budget must be discarded. When a project is delivered on time, budgetary constraints and the business objectives met; it is a company success and a profitable investment.

From the perspective of this consideration, it should be emphasized that the traditional approaches towards risk management and control of financial flows should be included into strategic planning of the project implementation performance. Additionally, uncertainties and preparation for the further growth need to be considered.

Analysis

Executing of the project generally requires the strict flow of the actions, and the structuring of the aspects, associated with the proper implementation of the plan elements. Integration and interaction of the deliverables and outputs generally requires precise structure and responsibility system for the progress monitoring and execution flow. (Riberio, 2001) Additionally, managerial structure of the project structuring presupposes strict application of the following elements:

  • Integration
  • Communication
  • Quality
  • Procurement
  • Planning

The chart reveals the interaction of these components, and their hierarchy for the entire system. (Frame, 2001).

Consideration of the weak and strong points of the project may be regarded as the cornerstone of successful risk management and progressing of the decided plan.

Positive Negative
Internal Strength
  • Experienced team
  • Enormous reserves
  • Thorough planning
  • Strict costs, terms and quality control
  • Precise evaluation of the risks and limits
  • Progressive risk management system (Morse and Jaffe, 2001)
Weakness
  • Lack of effective monitoring system
  • Inability to affect the urgency of project implementation
  • Necessity to perform additional evaluation of the reserves
External Opportunity
  • Strong necessity in gas extraction (reliable customers’ base)
  • Opportunity to extend the managerial team
  • Weak competitive environment (Ford, 2006)
Threat
  • Hostile environment
  • Ineffective supply system and lack of reliable suppliers
  • Instable State economy (Flin, 2002)

Considering the possible weaknesses and threats, there is strong necessity to elaborate the effective monitoring system, which will be related with the strategic principles of the project implementation process. Originally, monitoring is one of the key aspects of business performance, if the key aim is development (or gradual project implementation as an alternative). However, the monitoring itself will not be helpful for accelerating the process. Thus, the team should be extended for increasing the ‘safety factor’, for keeping the necessary power and resource reserve, if there is a strong necessity to speed up.

Environmental Analysis

Political

The political environment on the African continent can not be regarded as stable. Originally, the political systems in developing countries do not focus on development of business environment, nevertheless, the most important legislations may be approved, which provide the required freedoms and security of business development. Considering the fact, that traditional approach towards business development presupposes the existence of property laws, the basis for the project implementation is sufficient. Nevertheless, there are no powers, seriously interested in business development. (Gattinger, 2005)

Economic

The growing and developing African economy provides the solid basis for the energy industry development. Originally, the economic system is rather unfavorable for the development of the industrial sphere, nevertheless, the growth of energetic sector will stabilize the growth and the market in general. (Feathers, 2001) On the other hand, the labor market is wide enough, nevertheless, the lack of qualified power is essential. The cost of the unqualified working power is very low; nevertheless, the experience of these workers will be low either. (Roth, 2006) The original value of economic environment is the possibility to resolve all the economic issues quickly and at a low cost, if these are resolved in Africa. Otherwise, the delivery of the necessary raw materials and equipment will be complex and rather costly. (Sawhilland Cotton, 2001)

Social

The problem of the working power has been already described. Originally, there is strong necessity to consider the fact, that poverty and criminality levels are rather high, thus, pillage is almost inevitable. It will cause additional safety costs. Moreover, some of the low qualified workers may be under eighteen, thus, there may be problems with human rights official bodies. (Simmons, 2006)

Technical

The technical aspect of the business environment is the most favorable, as the company will have to resort to imported equipment, which is more reliable. Additionally, there is an opportunity to employ experienced technical personnel for the implementation of the technical side of the project. (Herbert, 2001) Nevertheless, the hostile environment, associated with weather conditions may violate the proper work of the equipment and cause additional costs for the technical service. Thus, additional technical staff will be required, and the additional measures for technical maintenance and safety guarantee are inevitable.

Legislative

The legislative basis for business development is rather weak, as there are no political powers, able to lobby business development legislation on African Continent. Originally, there may be difficulties with official employment and land property, as well as social defense of the employees. (Russell, 2009)

Ecological

The ecological situation itself creates no barriers for the development of the energy extraction and consumption project. On the other hand, the energy industry is dangerous for the environment by polluting air with the toxic wastes. As it is emphasized in Quintanilla (2005, p. 22):

The energy industry generates a large amount of pollution, including the generation of toxic gases and greenhouse gases from fuel combustion, nuclear waste from nuclear power generation, and oil spillages in the petroleum industry. Government regulations to internalize these externalities form an increasing part of doing business, and the trading of carbon credits and pollution credits on the free market may also result in energy saving and pollution control measures are becoming even more important to energy companies.

Conclusion

Finally, it should be stated that the development of the energy industry project requires thorough planning and detailed discussion of the business plan, as well as the implementation practices. The fact is that, the entire project is associated with huge risks and limits, as the environment in general looks hostile, including weather, climate, business environment, political and social aspects, etc. In the light of this statement, all the risks may be rather numerous and serious, as risk management practices presuppose the consideration of every tiny risk, for avoiding the possible failures and breakdowns. The organizational meeting plan is aimed at defining these risks, and thinking over the implementation strategy, in order to avoid possible risks, or at least mitigate the consequences of these risks.

The report, intended to analyze the energy industry in general, and the business environment for the project implementation is required for deeper understanding of the possible risks, as well as reasons and consequences of the risks. Additionally, the analysis tools are required for providing the structured definition of the business environment aspects and the values of positive and negative aspects of analyzed business project.

References

Andersson, R., Chawla, S., & Khan, Z. 2009. Effects of Cutbacks in the Oil and Gas Industry on Employee Attitudes: an Empirical Study. International Journal of Management, 26(3), 400

Eigen, P. 2007. Fighting Corruption in a Global Economy: Transparency Initiatives in the Oil and Gas Industry. Houston Journal of International Law, 29(2), 327

Ellig, J. & Kalt, J. P. 2006. New Horizons in Natural Gas Deregulation. Westport, CT: Praeger.

Feathers, L. A. 2001. Economic Sanctions and Their Effect on the Energy Industry. International Law Journal, 36(1), 175

Flin, R., Stewart, K., & Slaven, G. 2002. Emergency Decision Making the Offshore Oil and Gas Industry. Human Factors, 38(2), 262

Ford, N. 2006. Turning Egyptian Fortunes Around: The Egyptian Gas Industry Is Thriving, with Exports Set to Double in the Next Six Years. The Middle East 50

Frame, J. D. 2001. Project Management Competence: Building Key Skills for Individuals, Teams, and Organizations. San Francisco: Jossey-Bass.

Frame, J. D. 2002. The New Project Management: Tools for an Age of Rapid Change, Complexity, and Other Business Realities. San Francisco: Jossey-Bass.

Gallick, E. C. 2003. Competition in the Natural Gas Pipeline Industry: An Economic Policy Analysis. Westport, CT: Praeger.

Gattinger, M. 2005. From Government to Governance in the Energy Sector: The States of the Canada-U.S. Energy Relationship. American Review, 35(2), 321

Herbert, J. H. 2001. Clean Cheap Heat: The Development of Residential Markets for Natural Gas. New York: Praeger Publishers.

MacMillan, I. C., & McGrath, R. G. 2002. Crafting R&d Project Portfolios. Research Technology Management, 45(5), 48

Masters, B., & Frazier, G. V. 2007. Project Quality Activities and Goal Setting in Project Performance Assessment. The Quality Management Journal, 14(3), 25

Mattoon, R. H. 2005. Energy Markets and the Midwest Economy. Economic Perspectives, 29(4), 19

Morse, E. L., & Jaffe, A. M. 2001. Strategic Energy Policy: Challenges for the 21st Century : Report of an Independent Task Force Cosponsored by the James A. Baker III Institute for Public Policy of Rice University and the Council on Foreign Relations. New York: Council on Foreign Relations Press.

Quintanilla, J. M., & Bauer, M. E. 2005. Oil and Energy Policy. Challenge, 38(3), 22

Riberio, M. R. 2001. The New Oil and Gas Industry in Africa: an Overview of the Main Legal Aspects. Management Quarterly, 36(1), 141

Richman, L. 2002. Project Management Step-by-Step. New York: AMACOM.

Roth, C. L. 2006. Fueling Ergonomics in the Oil and Gas Industry. Occupational Hazards, 68, 27

Russell, C. 2009. Simple Payback: The Wrong Tool for Energy Project Analysis?. Management Quarterly, 50(2), 16

Sawhill, J. C. & Cotton, R. (Eds.). 2001. Energy Conservation: Successes and Failures. Washington, DC: Brookings Institution Press.

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Simmons, M. 2006. Shock to the System: The Impending Global Energy Supply Crisis. Harvard International Review, 28(3), 62

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Walde, T. W. 2001. Managing the Risk of Sanctions in the Global Oil & Gas Industry: Corporate Response under Political, Legal and Commerical Pressures. Texas International Law Journal, 36(1), 183

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