The paper should at a minimum include the following ( with clearly marked bold h

Question

The paper should at a minimum include the following (with clearly marked bold headers for each section below):

Overview of a formal project estimating process with professional estimators (what is it and how does it work)

Advantages from a business and project management perspective – why should this oil drilling company implement a formal project estimating process with professional estimators on all of their projects?

Concerns/Issues from a business and project management perspective – what problems might occur if this oil drilling company implements a formal project estimating process with professional estimators on all of their projects?

Your recommendation for the oil drilling company – should they implement a formal project estimating process with professional estimators? Why or why not?

Explanation / Answer

Project management is the discipline of initiating, planning, executing, controlling, and closing the work of a team to achieve specific goals and meet specific success criteria. A project is a temporary endeavor designed to produce a unique product, service or result with a defined beginning and end (usually time-constrained, and often constrained by funding or deliverables) undertaken to meet unique goals and objectives, typically to bring about beneficial change or added value.

The temporary nature of projects stands in contrast with business as usual (or operations) which are repetitive, permanent, or semi-permanent functional activities to produce products or services.

Estimating is defined as an informed assessment of an uncertain event. For project managers, accurate estimates are the foundation for effective project planning and execution. There are many processes that have been developed to assist in the estimation process.

Without proper estimating of project duration, cost, resources, risks and other parameters, it is impossible to implement proper alternatives and ultimately make timely and sound decisions.

Project Estimation should consider validation of project performance as measured against the plan for purposes of evaluating estimate accuracy and ensuring proper methodology is utilized. Metrics based on comparison of project estimates and corresponding actuals should also be utilized when making decisions regarding estimates of remaining or future work.

A sound risk management program should also be implemented and should capture risk occurrence for current and future reference. Estimates should include applicable adjustments relative to risk management policies where necessary. Proper incorporation of Risk management into the estimating process will reduce project uncertainties and will enable better estimates.

Some areas of consideration for estimation are:

Experience with Similar Projects:
The less experience you have with similar projects, the greater the uncertainty. If you've managed similar projects, you will be able to better estimate the costs of the project.

Planning Horizon:
The longer the planning horizon, the greater the uncertainty. The planning horizon you are considering may be the whole project or just a certain phase. Either way, you will be able to better estimate costs for the time periods that are closer to the present.

Project Duration:
The longer the project, the greater the uncertainty. This is similar to planning horizon in the sense that if a project is of a shorter duration you are more likely to account for most of the costs.

People:
The quantity of people and their skill will be a huge factor in estimating their costs. Early in the project, you may not even know the specific people that will be on the project. That will increase the uncertainty of your cost estimates.

Expert judgment uses the experience and knowledge of experts to estimate the cost of the project. This technique can take into account unique factors specific to the project. However, it can also be biased.

Analogous estimating uses historical data from similar projects as a basis for the cost estimate. The estimate can be adjusted for known differences between the projects. This type of estimate is usually used in the early phases of a project and is less accurate than other methods.

Parametric estimating uses statistical modeling to develop a cost estimate. It uses historical data of key cost drivers to calculate an estimate for different parameters such as cost and duration. For example, square footage is used in some construction projects.

The workforce for the construction can be specialists such as engineers, constructors, technical staff, and social science professionals. It will also include non-qualified workers that work in excavation, cleaning, etc. These can be the people from the local community. Lastly, semi-qualified workers will be required - generally a type of worker between qualified and non-qualified.

This will depend on the work activity. Other capital costs will be related to management of the project, administration, direction, coordination, logistic, transportation, communications, office costs, private executors and control of quality, and any other unassigned cost of the project. Contingency costs are an amount or percentage of the total capital costs included in a project account to allow for adverse conditions that will add to the basic costs.

A cost which will often be encountered that should be seen as part of the capital costs will be the acquisition of land that might be required for components of the system e.g. the site for the treatment facility, land covered by water when a surface source such as a stream or river is impounded.

Factor estimating is used because of several reasons, amongst which:

Parametric estimating

Parametric estimating entails the analysis of cost, programmatic and technical data to identify cost drivers and develop cost models. The approach essentially correlates cost and manpower information with parameters describing the item to be costed. This process results in sets of formulae known as “Cost Estimation Relationships” (CERS), which are applied to produce cost outputs for different elements of an estimate. Parametric Method generally involves the use of a regression analysis (linear and nonlinear) to determine the best algorithms for a model.

Equipment factored estimating

An equipment factored estimate is produced by taking the cost of individual types of process equipment, and multiplying it by an "installation factor" to arrive at the total costs. In practice, this has proven to be quite a useful method since a substantial part of total project costs are made up of equipment. As a result, it’s the basis for many factor estimating methods.

The installation factor, or total installed cost factor, includes subcontracted costs, associated direct labor costs and materials needed for installation of equipment.

Advantages and disadvantages factor estimating

Advantages:

Disadvantages:

Implementation Execution Plan recommended the following areas:

· Purchasing policies and practices

· Material control policies and systems

· Cataloging and spare parts policies

· Materials supply interfaces with project management

· Materials supply interfaces with drilling

· Equipment standardization policy

Recognize the benefits to be gained by expanding the definitions to include the entire resource base, including those quantities of petroleum contained in known accumulations that are not currently commercial and quantities that are yet to be discovered

• provide insight into the practical application of price averaging and the stabilizing impact this would have on project economics and reserves

• give guidance on the application of the probabilistic methodology to the evaluation of petroleum reserves and resources, as well as the influence that proper aggregation could have on a company’s asset base

• present common industry practices for reporting gas volumes, including fuel and flare usage, transfer of injection volumes between projects, conversions from gas volumes to oil equivalents, and booking practices for international fiscal systems such as production sharing and service contracts

• highlight the varying international regulations that play a critical role in the evaluation and reporting of petroleum reserves and resources on a worldwide basis

The Implementation Execution project implemented the recommendations resulting from the Implementation Engineering.

The Plan included work to benchmark the company against a known leader in materials management and logistics. The company they partnered with was also an oil company in a remote, harsh environment that had exceptional supply and logistics considerations.

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