JEDDAH – During the coming decade, the Middle East and North Africa (MENA) energy industry is expected to continue the massive investment program by executing projects worth approximately $1.1 trillion across the energy value chain. According to the International Energy Agency, the MENA region is expected to represent about 25 percent of global energy investments. Predictably, large resource holders such as Saudi Arabia, the UAE, Iraq, and Iran are expected to lead the way in spending, Booz & Company said Tuesday. "However, the next wave of capital projects will be larger and more complex, and will represent a significant capital outlay that needs to be carefully managed. History suggests that the region's companies have a mixed record of executing large capital projects. Cost overruns, schedule slippages, and inconsistent quality have become recurring concerns for senior management. Some of these problems come from market-related issues, such as a surge in commodity prices in the middle of the last decade", said Raed Kombargi, partner with Booz & Company. He added "many of these problems, however, arise from within the industry itself. In our experience, the root causes include inadequate engineering and project management (E&PM) strategies, a lack of clear governance, inadequate checks and balances, insufficient standardization, and a shortage of local capabilities." Today, MENA energy companies have a rare opportunity to fundamentally review the way they develop, manage, and execute capital projects. Specifically, the industry will need to master seven key habits to build world-class project delivery capabilities. These are: 1. Develop a clear E&PM strategy "MENA companies should develop a clear E&PM strategy to ensure that they are well-equipped to manage and execute their capital projects. This strategy will define which projects and activities will be performed by the company itself and which will be outsourced," said Alain Masuy, principal with Booz & Company. "To develop this strategy, companies should create a rigorous and transparent project classification framework. Projects are typically classified by risk, size, complexity, and nature." The process of project classification will help derive a tailored execution strategy for each project. Overall, three main types of strategies are available for a company: • Manage and execute the project in-house • Manage the project in-house and outsource project execution • Outsource both project management and project execution 2. Develop and implement a governance model with clear accountabilities and responsibilities. A well-developed governance model will clearly define accountabilities and establish the roles of the various entities in the project setup. "Generally, direct management responsibility for the project varies depending on where it is in its life cycle. The business owner will be more heavily involved during the initial two phases (identify and assess, and select), while E&PM will manage the next two phases (define and execute). Finally, once construction is complete, the project will revert back to the control of the business owner for operation," said Asheesh Sastry, principal with Booz & Company. To ensure seamless accountability and responsibility during these transitions, projects typically employ a single 'project steering committee' that remains the same throughout the entire process. This committee will make strategic decisions regarding marketing agreements, financing, technology, and other issues that might significantly affect the business case. 3. Establish best-practice processes including appropriate checks and balances. MENA companies should also establish best-in-class processes to master project development and execution. These processes can be split into three areas: core delivery, support, and checks and balances. 4. Develop in-house centers of excellence in key E&PM areas. Successful companies also need to establish an engineering and technology center of excellence (COE) to improve their performance. COEs can typically cover as many as five main mandates: • Achieve functional excellence by standardizing processes, and capturing and disseminating best practices • Provide expert and technical services to project teams as required • Identify, analyze, and disseminate new technologies • Manage talent development for technical staff • Manage relationships with technical/technological suppliers and, in some cases, coordinate research activities with academic and international institutions 5. Develop Strategic Alliances to Address Local Capability Gaps Although some engineering companies can be reluctant to share their know-how, recent success stories show that with the right incentives, major international engineering firms have willingly agreed to set up mutually beneficial strategic alliances with NOCs, IOCs, and regional companies. "Structured correctly, such an alliance can bring mutual profits to both partners, and speed up the development of the energy company's own capabilities," said Asheesh Sastry. "A good initial step is to develop a pilot project, which offers a training ground to assess how well the two companies work together and whether they are willing to share common benefits. The terms of the contract become relevant in this approach." 6. Establish dedicated project and commercial academies to improve learning and development. 7. Increase standardization levels across all areas. A key factor for successful project delivery is to establish internal engineering standards and increase standardization levels. These standards are an important asset for the company and will bring many benefits: • Increased business efficiency and overall cost reduction by simplifying design, controlling design options, and favoring interchangeability of equipment • Enhanced technical integrity • Increased health, safety, and environmental performance • Improved technical knowledge through technology transfer and best-practice sharing within the company as well as with other international companies "As a new wave of mega investments kicks in, now is the right time for MENA companies to fundamentally review the way they develop, manage, and execute their capital projects. They should master the seven key habits identified by Booz & Company to build world-class project delivery capabilities," Kombargi added. - SG
