vs International “Best-Tested and Proven” Practices – A Benchmarking Study
FEATURED PAPER
By Joko Wisnugroho
Jakarta, Indonesia
ABSTRACT
The cost estimation process for the downstream oil and gas industry in Indonesia by the company have not been effective and accurate. The purpose of this paper is to choose the appropriate best tested and proven standards and references in the cost estimating process. In the analysis, various standards are benchmarked against the GAO Cost Estimating & Assessment Guide. A scoring model developed using Multi-Attributes Decision Making (MADM) non-compensatory and compensatory method with GAO as the basis. The results found that GAO Cost Estimating & Assessment Guide is superior to the others. GAO can be adopted to prepare a credible and accurate cost estimate for the company. The company is recommended to improve its cost estimating method using the 80/20 rule and then re-assess against the GAO. The process is carried out continuously until management is satisfied with the results.
Key words: Downstream Oil & Gas, Cost Estimate, Best-Tested and Proven in Cost Estimating, GAO Cost Estimating & Assessment Guide
INTRODUCTION
Data from AT Kearney (2017)[1], 6 out of 10 projects experienced over-budget and behind schedule, including 100 major global companies in the oil and gas, chemicals, metals and mining, and utility industries. Leading companies have measured and realized this underperformance. Then commitment to finding the best forms and methods for embedded best practices and disciplined execution for the success of the project. In addition, it also shows that 60% of capital projects experience a 10% cost and schedule overrun, and around 30% experience cost and schedule overrun up to 25%. Developing a credible cost estimate is challenging due to many factors. In downstream oil & gas, the cost estimates are out of range due to various reasons.
Figure 1 – Factors causing inaccuracy of estimates[2],[3]
In this paper, the author tried to build awareness to the owners about the best tested & proven practices which to be followed in developing cost estimates. There are many references available for cost estimating in that GAO Cost Estimating & Assessment Guide seems the best to compare the owner cost estimates with the best practices and adopt for the owner developing cost estimates. Ten projects have been selected for the assessment with the GAO Cost Estimating & Assessment Guide.
Good best practices should be followed if accurate and credible cost estimates are to be developed. By following the overall process of cost estimating stated in best practices such as established, repeatable methods, comprehensive, accurate, replicated and updated to produce accurate and credible estimates. In this paper, GAO’s were chosen as a reference for the selection of the best -practices that would be recommended for companies.
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How to cite this paper: Wisnugroho, J. (2020). Indonesia Oil & Gas Cost Estimating vs International “Best-Tested and Proven” Practices – A Benchmarking Study; PM World Journal, Vol. IX, Issue II, February. Available online at https://pmworldlibrary.net/wp-content/uploads/2020/02/pmwj90-Feb2020-Wisnugroho-benchmarking-indonesia-og-cost-estimating-vs-international3.pdf
About the Author
Joko Visnugroho
Jakarta, Indonesia
Joko Wisnugroho is a project engineer with six years of professional experience in the oil and gas sectors. Currently, he works as an engineer at the national oil company of Indonesia. Several projects have been completed, such as fuel terminal, LPG terminal, pipeline, and other downstream projects. He holds a bachelor’s degree in Mechanical Engineering from Bandung Institute of Technology (ITB) and currently completing his master’s degree in project management at the University of Indonesia. He is attending a distance learning mentoring course, under the tutorage of Dr. Paul D. Giammalvo, CDT, CCE, MScPM, MRICS, GPM-m Senior Technical Advisor, PT Mitrata Citragraha, to attain Certified Cost Professional certification from AACE International.
Joko lives in Jakarta, Indonesia and can be contacted at jokowisnu@me.com
[1] A T Kearney. (2017). Excellence in Capital Projects: A Goal Yet to be Achieved.
[2] RAND Corporation. (2011). Root Cause Analysis of Nunn-Mccurdy Breaches.
[3] Butts, G. (2010, February). Mega Projects Estimate – A History of Denial.
