The facts are staggering. Worldwide, 76% of all oil and gas projects run over budget, with an average budget overrun at 52%! Additionally, 55% of all projects are not finished on time, and the average schedule overrun is 37% of the original allotted time.
The costs are astronomical, inspiring the World Economic Forum (WEF) to get involved with the International Association of Oil and Gas Producers (IOGP) to find a solution that lies in standardization.
The benefits of standardization are demonstrated well when looking at something as humble as an electrical plug. When you travel around the world, you experience the difficulties presented by the many kinds of plugs that are used in each country.
Those same problems and added costs are experienced by oil and gas companies and their suppliers as the various requirements across countries and companies make it nearly impossible to satisfy them on time and on budget.
Within a particular organization, especially assembly lines, standardization means that each step in a process is done exactly the same way across the organization. That means getting the same output every time no matter WHO does the task.
By standardizing the process, less planning is required after the initial decision is made and procedure is put in place. Once this is done, it is easier to plan better, increase efficiencies and improve customer service and costs. This also makes it easier to train people because there is only one way to do things, and it is then possible to see how improvements can be made. Some major industries have capitalized on standardization and have reaped enormous savings.
The need to standardize and streamline projects and production became particularly important to the oil and gas industry when the world economic crisis of 2008 highlighted the waste of time and resources experienced in this sector.
WEF and IOGP
The World Economic Forum is an international organization, the stated purpose of which is for public-private cooperation committed to improving the state of the world. WEF commissioned a 2010 to 2014 study of the oil and gas sector, which revealed the cost and budget overruns mentioned above.
WEF recognized that the solution to the problem required worldwide consensus, so they went to the International Association of Oil and Gas Producers, members of which produce 40% of the world’s oil and gas, to address the situation.
Together they created the Joint Industry Project (JIP 33). The stated objective of this project is to drive a structural reduction in project costs and schedule improvement with a focus on industry-wide, non-competitive collaboration and standardization.
The vision is to standardize specifications for procurement for equipment and packages, facilitating improved standardization of major projects across the globe. The premise is that standardization is the key lever to help save 10 to 20% on capital projects.
At present, because each company has its own standards, manufacturers must manage more than 450 different customer specifications. However, with JIP33, the ideal is to get a simplified set of minimum requirements.
For project managers and end users, standardizing and instituting JIP33 should create a mutually-beneficial outcome for the oil and gas industry by addressing safety, cost, schedule, quality and reliability.
Safety can be enhanced because users will become more familiar with standardized designs over time, and over projects. Costs should be lower because it will save time writing specs and establishing minimum standards. This would also enable rapid procurement and a reduction in lead time by 25 to 40% or more, cutting drastically the schedule overruns that are so prevalent in the current situation.
Because the requirements are standardized, it should also increase quality by encouraging continuous improvement and more innovative designs. Because inconsistences in performance should also be eliminated with these standards, products should also become more reliable.
For suppliers, standardization means there are less hoops to jump through, so they may be able to focus more on quality and be able to plan better for manufacturing. It should also make the bidding and proposal process easier by providing a standard bid template and clarification process with fewer questions to answer and less requests for deviation. That should allow manufacturers to respond more quickly and get decisions from project managers more quickly, saving time, resources and costs.
Also, by having certainty about requirements, designing and engineering should be more streamlined and it should be easier and faster to get approvals. It should also mean fewer last-minute changes and inspection hold points.
Because there is consistency, that also leaves room for continuous improvement against those constant requirements, enhancing efficiency and the quality of supply of components.
For installation and commissioning, streamlined equipment reduces the amount of wiring, testing, tools and spare parts required. There should also be fewer items on secondary punch list and a condensed commissioning time.
All the different member companies are to come together and set out specifications, but there must be supporting technical reasons for the requirements. They are also trying to standardize the documentation requirements, so you always know what you must provide in terms of documentation for each component.
At the bottom is the specifications for equipment and bulk material, then goes up to packages and systems.
JIP33 has gone through Phase 1, the “Pilot” program. Fifteen oil companies got together and set out specifications. Four equipment standards were developed to prove the concept.
The specifications for quality requirements for components will be set and standardized by IOGP, which is now ramping up to Phase 2, to include planning and execution.
Only once there is evidence of process success will the project be scaled up for full implementation.
For More Information
The IOGP JIP33 communications team and engineering leadership teams are currently rolling out this initiative through a paper for Cultural Change and driving full consensus, adoption, implementation and procurement of equipment to these IOGP Equipment Procurement Standards. For more information go to www.IOGP.org.