Mr. Le Dang Thuc made a research which main objective was to study the change order management in EPC Oil & Gas Projects. The other objectives of his research were to: (1) investigate the different kinds of change order in oil and gas project; (2) assess the impact of change order in terms of cost and time; (3) investigate the change order process in oil and gas project; and (4) recommend ways to improve change order management in oil and gas.
Conclusion
Administering impact of change order in EPC oil and gas project is very significant to reduce time and cost and guarantee the success of the project. In order to do that, management of cost and time attached special importance to invest and innovate. There are five key concepts to manage impact with cost such as design cost breakdown structure, cost estimating, setting contingency, cost monitoring & control. The setting of contingency in contract price is to cover the cost in order to reduce risk and the unforeseeable events. To manage change order in term of time, the baseline and progress must be updated and reported.
In this study, several cause of change order were identified: alteration to specification, alteration to scope of work, alteration to contract, alteration to schedule, in which activity is unsafe under certain conditions; activity does not meet legal or regulatory requirements and others (example weather, political climate, etc).
Impacts of change order
According to five case studies, the impacts of change order in terms of additional cost are alteration to Scope of Work, alteration to Specification, others (Bad weather, Crane broken), and activity is unsafe under certain conditions. While the impacts of change order in terms of time are alteration to scope of work and others (Bad weather, broken Crane). Frequent types of change order were also identified such as alteration to scope of work, alteration to specification; activity is unsafe under certain conditions, Others (Bad weather, broken Crane), and alteration to schedule.
Time and cost impacts play an important role to prevent more extra time and cost during the execution. In CNV cases, it showed that the cost impact in construction phase is almost always high, as it is related to changes in costs of materials, risks in construction, designing, under pressure of schedule progress, and labor requirements during certain times of year, etc. Contract management is very complex and involves many phases, especially in oil and gas projects. Factors such as time, cost and quality have been managed strictly and change order forms are core parts of contract administration.
After studying and analyzing five different case studies, it has been found that the main cause of change order is the alteration to scope of work (78%). This happens due to reason such as change decision, change basis of design, location, and lack of estimation of scope of work. Alteration to scope of work is also the most cautious change order. This should pay more attention in contract dealings and should avoid happening. If there are alterations to scope of work, it will affect so much to project in term of cost and scheduling of project. Alteration to scope of work should be reduced and become a lessons learned for future project.
Change Order Process
Change order procedure is very significant to manage changes. This thesis shows a procedure for oil and gas project with 3 scenarios:
1. Client Originated changes - In the event that the Client requests the Contractor to prepare an estimate for a potential change, it shall be made formally by an instruction in writing from the Client. After the review and data input including time and cost, cause of change, the contractor will send VR to client for approval within a time frame. The client will check the VR with their requirement and issue a Variation order to execute project.
2. Contractor originated changes - Contractor identifies the change. They check the change in terms of time and cost, the relation with Client account, and then send to Client for review and approval. Within reasonable time, Client shall endorse the VR and return to Contractor. Client will follow this up with the issuance of VO.
3. Subcontract related changes - When changes occur, Subcontractor may consider giving rise to a claim for additional costs. The Subcontractor will immediately notify the Contractor via official communication. The Contractor responds by reviewing and approves the SVR.
These procedures will help company to be ready to cope with the change, as well as support for smooth execution of the project. To implement this procedure, all member need to understand and each step must be clear. To improve change order, system should be audited many times and innovated after seeing the mistake of sequence. The Project manager responds to guide all parties and all member of project team for clear and ready application.
Recommendation
In order to reduce change order, the project management system should be improved and include the following factors:
His thesis abstract is copied and posted.
Abstract
Oil and gas projects are very complex with huge budget therefore they are easy to raise change during execution of project. A lot of factors affect the project during execution of the project. Many problems could happen unforeseeably to the upcoming part of the project. Engineering Procurement Construction (EPC) process is complex and related to a large variety of variables therefore occurrence of changes in the scope of work is almost inevitable. Many factors such as financing, definition of work and regulatory matters also insert a certain degree of uncertainty into the project. The management of the change is very significant to prevent the impact of change order. Management system and identification cause of change should be play important role. The finding out what is repetitive causes will help Project team has a focal point to manage change order.
The causes of change are classified into 7 types which are based on the various parameters such as specification, scope of work, contract, schedule, etc. All of these changes are defined and analyzed.
In order to know how they administer in term of time and cost impact, this research has been assessed the 5 case studies and analysis is based on the cost estimate system, cost control, planning. Control research refers to the change order management system as per historical data of projects to identify the cause and the impact of change order. After studying and analyzing five different case studies, it has been found that the repetitive cause of change orders are alteration to scope of work. This happens due to the poor project management systems as estimation system, change decision, change basis of design, location, lack of estimation of scope of work and change order procedures.
Change order in oil and gas sector require leaders who can balance budgets and launch schedules and stay on task, because if a project is deemed too costly or late, it can delay the whole mission for months. Cost impact in construction phase is very high; therefore it is needed to pay attention during this period. To reduce change order, the scope of work should be clear. Cost estimates system use contingency in estimating a budget to cover rick, labor, project management system use responsibility break down, select expert vendor to supply material.
Time Impact in design phase is highest because of the following lack of communication, many deviations in design, change location and change design basis.
It is necessary to establish a change order procedure system to ensure effective project execution. A change management system will help a company to be ready to cope with changes and support smooth execution of projects.
