Avoiding the "Money Pit"

 I recently wrote a paper around the subject of managing cost and schedule overruns on industrial mega-projects.  I was focussing within the oil and gas business, and specifically analyzing the drilling facility, and I thought I would share a brief overview.  I wrote the paper with 4 industry colleagues, combining almost 100 years of drilling rig construction experience, together our experience represented the role of the drilling contractor, engineering house, shipyard and equipment supplier.  The outcome has developed the conversation in to a proposed new path ahead.  The aim of the paper was to suggest that we revert to lessons from the drilling platforms built in the mid 1990’s, and to identify how we might restore the "elimination of complexity" practices developed at that time, as well as to learn more from the recent success of producing mobile offshore drilling units (MODU’s) over the last decade.

 Highly engineered, custom-built offshore platform designs begin with a simple plan to succeed, based on the principals of managing complexity and risk.  In analysis of the outcomes we found that ultimately the majority failed to meet the delivery, budgetary, and performance expectations that were identified at the beginning of the project. A significant amount of the Oil & Gas industry’s largest facility undertakings were also discovered to fail in one, if not all, of these areas. Over the past decade or more, the cost of offshore complex platform projects has escalated significantly. The elevated price of oil masked the increases, but this issue is now clear as it becomes a barrier to project approval.

 We decided to look at the underlying causes of this phenomena and identify patterns of execution and best practices for succeeding in an inherently complex construction environment. The focus of our research was put on the area of drilling facilities including drilling equipment package design, purchasing, and operational performance of the systems.

 We looked at this in two ways: managing complexity and eliminating complexity.

 When focusing on a project and how to manage the complexity, Edward W. Merrow discovered in his book “Industrial Megaprojects” that the project cost and schedule performance over-ran by 30-40% and 75% of projects failed to deliver expected business results. A study of past experiences without identifying the specific players involved helped us try to understand what practices add to and erode the management of our industrial megaprojects to help us correct our path going forward.

 As part of our research we looked at projects in the mid to late 1990s that focused on eliminating the complexity rather than just managing it. We initially reviewed projects that were built on a driller and supplier model. The first two projects studied had well-defined relationships and outcomes and the third project suffered due to attempts to eliminate costs and a dysfunctional relationship between the driller, shipyards, and operator. All three projects were ultimate successes for the oil company; however, we found that when working with a design, bid, evaluate and purchase model everyone became focused on their own gain rather than the success of the overall project. All targets were met, but the total cost and time was excessive when compared to earlier examples. We also found that the evolving model was abandoned on platforms and transported to the U.S. Land Rig and Mobile Offshore Drilling Unit (MODU) arena.

We were then led to analyze further the current contracting model and introduced lessons learned from the recent build out of the MODU fleet that used a shipyard and supplier model. The astounding success of the lessons learned from the late 1990s were found to be full of value. Looking at the MODU fleet specifically helped us realize how we as an industry could still take advantage of the current crisis of cost management in the low price environment. By focusing the theme of industrialization into the developing MODU fleet, better performance was quickly established, which eliminated significant complexity in the construction process. This same logic is believed to bring value in advancing the drilling platform facilities of future platform rigs.

 As shown in the above images, just like with the MODU fleet design there are striking drilling performance similarities between jackups and platforms that we should be able to easily leverage to help improve how these projects are built, ultimately eliminating complexity. Keppel FELS reported that for the 81 MODU megaproject units built from 2008 – 2015, that they had 0.5% change orders, 100% on time / on budget, and 60% of the projects were early. These wins began immediately on the first rig and costs and delivery stabilized on the third production rig, slowly improving from that point over time.

 We know that managing complexity can work, but we have seen now how eliminating complexity DOES work. It is time for us as an industry to take a leap and focus on how we can start eliminating complexity in order to better manage our industrial megaprojects moving forward.

 You can download the full technical paper to read more about our research and findings by visiting: https://dx.doi.org/10.2118/178902-MS