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Methodical Errors behind most Budget Overruns!                                                                                              A daunting number of industrial development projects around the world run into budgetary problems. No region is spared. Why? Most criticisms in the aftermath of disaster projects put the blame on bad project management. In the nineteen-nineties thirty multi billion dollar projects on the Norwegian Continental Shelf (NCS) were hit hard. Did the international oil business – including the world’s foremost engineering and construction companies - really manned all their NCS projects with an unqualified staff - simultaneously?  Certainly not. Naturally there are several causes to budget overruns, but there is one predominant methodical error which is clearly visible in nearly all disaster projects.  

                         Source: Norwegian Official Analysis NOU 11 1999    

 The curves in the graph above show how the unit-cost of historic offshore production facilities decreases remarkably with increasing facility size!  Some readers have seen this before, others have not. To both groups;   if this downward trend is true - and we can assure you that it is - how do you provide for this in your budget?  Certainly you will agree that for the relationship;                                   Budget estimate = Cost at completion                                                                                             to be true, either side of the equation must behave identically?  So which items in your budget estimate decrease with increasing job size? And how does contract size come into this? Thirty years of experience show that failing to comply with this ‘law of nature’ is the prime reason for cost overruns in projects internationally!  This is THE major methodical error in project cost control. Plot a few data from your own historic projects and see for yourself.                                                              CERA Databank statistical tools and estimating algorithms have complied with this law of nature for more than twenty years. The technique has been described in the most reputable PM journals. CERA Databank is low cost and flexible. Modify the system for your own needs and install on your own server.

Lessons Learnt from more than Thirty Years in Upstream Oil and Gas Project Management:             Lesson # 1:  The majority of cost overruns are the direct result of malpractices in budgeting work and fundamental misinterpretations of statistical (historical) data. Continue....                                                                                       Lesson # 2: The correlation between field economy and size and type of development concept is either not fully understood, or the tools required to investigate this correlation to its full extent are not available. As a result the optimum development option is often overlooked.  Continue....                                                                                                                              Lesson # 3:  Misinterpretations of statistical data also lead to the misconception that productivity varies more between companies (or countries ) than is really the case. Continue....                                                                                      Lesson # 4: Winning a construction contract is seldom proof of a higher competitiveness. Continue....                           Lesson # 5: The most ambiguous explanation to cost overruns is that the project is unique and very complex compared to other projects. Continue....                                                                                                                                    

  To new users: This site is designed to be a convenient project cost, weight and manhour reference for board members, company managers, project managers and capital cost professionals. Several thousand data items have been collected from a wide range of international projects and condensed into comprehensive and easy to use formulas and algorithms. This state of the art technology has been described in refereed articles published by the worlds leading project management journals including Project Management Journal (PMI), Project Management Network (PMI) and Cost Engineer (AACEI). New users please select 'Press here for examples' and 'Information for new users' below. To register press 'I am a new user'.  

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