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At a Glance
  • Companies in the oil and gas sector experience a common issue of cost and time overruns
  • They can reduce overruns by implementing modularization and standardization approaches already existing in other sectors.
  • Modular standardization entails dividing the plant into modules which are standardized individually and reused multiple times.
  • Companies must make changes in two areas: project design and organizational processes.
  • The implementation of this approach encounters two challenges: resistance from managers in adopting common practices as they view their projects as unique, and failure to convince engineers on benefits of standard design.
  • These challenges can be resolved by focusing on four areas: engineering and design – employing standard design specifications, project management – plant or module design reuse to minimize change, procurement – involving purchasing personnel in decision-making from early stages, and staffing – devising policies and incentive to motive same people to work on projects together.

Many industries and sectors can efficaciously complete major projects through the employment of a modular methodology and oil and gas sector should follow the same path.

Oil and gas sector projects are characterized by budget and duration exceeding the planned limits. Most, if not all, projects suffer from these issues and the result is a cost increment so substantial that companies’ ability to earn reasonable profits is greatly compromised. Obviously, the situation is highly undesirable as ultimately companies need to yield reasonable returns. The scenario can be fixed or at least drastically improved by cost saving and project timeline acceleration. And that could be achieved by adopting innovative modularization and standardization models already in used in other industries.

There are numerous oil companies that operate on the assumption that their processes are thoroughly regulated. However, that is not the complete fact. Their approach to standardization is superficial and hence they are losing on potential prospects to achieve a competitive benefit. In order to reap full advantages, these organizations must adopt the most effective and largely perfected approaches from other sectors and modify them according to the requirement of their major projects. Modular standardization is a methodology that operates on separating the plant into regulated sections or modules for multiple reutilization.

The implementation of this approach in few oil and gas projects has shown reasonable cost reduction and completion time acceleration. As equipment used are standard, safety is enhanced through information sharing about potential failures and defects. Additionally, the efficiency of technical staff is improved as they focus their expertise on complex functions and value creation. Modular standardization is successfully implemented already in sectors that have large scale operations and higher level of complication in processes, such as steel-mill companies.

Implementing Modular Standardization Approach

In order to shift to modular standardization, companies operating in the oil and gas sector needs to modify two key functions – project design and organizational process. In terms of project design, companies need to establish a modular structure and reutilize the standardized components across multiple plants. In terms of organization, the typical approach in the oil and gas sector is to set up separate projects tailored to the geological surroundings. They need to adopt the re-use of existing modules as standard practice.

The most productive approach for oil and gas organizations is to develop a modular structure to divide the work into consistent segments and to identify the appropriate degree of standardization individually. There should be definite guidelines to decide which modules are suited for standardization and which require customization. As a result, each module will have its own specific standardization strategy with an indistinguishable design and a variety of distinct options for complete customization.

Generally speaking, 30% of modules can be standardized for highly complex equipment. For projects with a lower degree of complexity, the standardization percentage can extend to 60%. The suitable degree of standardization for a module depends on the utilization frequency, nature and intricacy. The decision-making process should be grounded in precise business vision for each individual module. The advantages of modulization augments with the size of company’s portfolio – higher number of components means large effect on the overall output.

There is no argument that modularization and standardization entail many advantages for oil and gas companies. However, there are two major problems. Firstly, there is a considerable friction among different project managers that companies must work out as each manager view their own project to be distinct and can therefore be unconvinced about standard methods. Secondly, it is difficult to convince engineers that the advantages of standardization go beyond the disadvantages of limited design. These two issues can be solved through changes in four organizational areas..

In terms of design and engineering, organizations with successful modular standardization implementation use standard specifications and procedures for different types of projects. In these companies, there is an extensive database of modules developed with contribution from all functions. They utilize design software to access specific modules and supplier approved equipment.

In relation to project management expertise, organizations have expanded the requirements of stage-gate-review to include the re-use of module and/or plant design so that design modifications can be limited. Some of them have metrics in place to monitor the extent of reuse.

In the area of procurement, purchasing teams are included in the decision-making process from the beginning with the engineering teams. Procurement experts, within organizations, receive input from the feasibility phase. They also utilize the suppliers’ knowledge base from early stages.

Lastly, in the staffing department, companies develop strategies and incentives to allow the same composition of teams to work on projects of a similar nature. The technical employees are considered Module Owners and are responsible for maintaining the accessibility of their Module for each project. These organizations nurture a culture suitable for encouraging standardization through tools such as standard training and ability enhancement schemes. They also develop incentives to motivate engineers to reutilize modules and work on various projects.

Companies in the oil and gas sector can promote standardization by pursing modular design and organizational changes to meet client requirements. They can achieve considerable cost savings and reduction in project duration. It is important that they can capitalize on this opportunity to remain competitive.