Project Management How to gain Control over Project Costs
When projects run out of costs, it's hard to know what to do. Learn from our author, how to gain control over project costs and risk through better conceptual estimates during FEED.
Tight oil and gas discoveries, in North America and worldwide, have launched a major realignment of oil and gas supply dynamics, decoupling of oil and gas prices, and a resulting growing demand for major capital assets.
This is creating an increase in E&C backlogs worldwide and a bright outlook for the E&C industry (1). One of the biggest factors that may disrupt these capital projects is a chronic escalation of project capital costs (2).
Two of the highest profile projects that have over-run their estimated costs are the Gorgon and Wheatstone LNG mega projects in Australia. However, those are only two of the highest profile examples. New thinking is required to overcome the project cost and execution challenges.
Early and accurate cost estimates are vital to reducing project risk to both E&Cs and owner-operators. Alignment on the project scope and estimate are crucial to overall management of project capital expenditures. How can this be achieved?
One of the earliest and most important areas of communication between the E&C and the owner- operator is around the project scope. This year’s Engineering and Construction Contracting (ECC) Conference identified misalignment regarding project scope as one of 2014’s key industry challenges.