Cost Estimation & Control

BEC

BEC: A Key Metric in Oil & Gas Cost Management

BEC, which stands for "Budget at Completion", is a crucial term in the Oil & Gas industry, especially when dealing with project management and cost control. It refers to the total estimated cost of a project, including all expenses incurred up to the point of completion. BEC plays a vital role in several aspects of Oil & Gas operations, enabling informed decision-making and efficient project execution.

Understanding BEC in the Oil & Gas Context:

  • Project Planning: BEC is established during the initial stages of project planning. It involves a thorough assessment of all potential costs, including:
    • Material and equipment expenses
    • Labor costs
    • Engineering and design fees
    • Permits and licenses
    • Contingency reserves for unforeseen challenges
  • Cost Tracking and Management: Throughout the project lifecycle, BEC acts as a benchmark against which actual costs are measured. This allows project managers to monitor progress and identify any potential overruns or cost deviations.
  • Financial Reporting: BEC is an essential component of financial reporting for Oil & Gas projects. It provides investors and stakeholders with a clear picture of the project's overall financial health and expected final cost.
  • Decision Making: BEC is used to make informed decisions regarding project scope, resource allocation, and risk mitigation strategies. Any significant deviation from the BEC can trigger adjustments to the project plan to ensure successful and cost-effective completion.

Key Relationships with Other Oil & Gas Terms:

  • EAC (Estimated at Completion): EAC is an estimate of the total project cost at completion, taking into account the actual costs incurred so far and the anticipated remaining costs. EAC can be used to adjust the BEC based on project progress and unforeseen circumstances.
  • ACWP (Actual Cost of Work Performed): This represents the actual costs incurred for the work completed on a project. Comparing ACWP to the budgeted cost for the work completed helps determine project performance and efficiency.
  • BCWP (Budgeted Cost of Work Performed): This refers to the budgeted cost for the work completed on a project. BCWP can be used to assess the progress of the project and identify any areas where work is falling behind schedule.
  • EV (Earned Value): EV is a performance measurement tool that calculates the value of the work completed based on the budget. It helps assess the project's overall performance and identify potential risks or issues.

Summary:

BEC is an indispensable tool in Oil & Gas project management, providing a comprehensive understanding of the anticipated project costs. It facilitates efficient cost tracking, informed decision-making, and effective project execution. By establishing and maintaining a clear BEC, Oil & Gas companies can manage costs effectively and ensure the financial success of their projects.

Test Your Knowledge

BEC Quiz:

Instructions: Choose the best answer for each question.

1. What does BEC stand for in the Oil & Gas industry? a) Budget at Completion b) Budget for Completion c) Budget Estimate Completion d) Best Estimated Cost

Answer

a) Budget at Completion

2. When is BEC typically established in a project lifecycle? a) During the execution phase b) During the planning phase c) After project completion d) During the closure phase

Answer

b) During the planning phase

3. Which of the following is NOT typically included in the calculation of BEC? a) Material and equipment costs b) Labor costs c) Profit margins d) Marketing and advertising expenses

Answer

d) Marketing and advertising expenses

4. How does BEC assist in cost management? a) It provides a benchmark for comparing actual costs b) It helps identify potential cost overruns c) It allows for adjustments to project plans d) All of the above

Answer

d) All of the above

5. What is the relationship between BEC and EAC (Estimated at Completion)? a) EAC is always higher than BEC b) EAC is always lower than BEC c) EAC can be higher or lower than BEC, depending on project progress and unforeseen circumstances d) BEC and EAC are always identical

Answer

c) EAC can be higher or lower than BEC, depending on project progress and unforeseen circumstances

BEC Exercise:

Scenario:

You are a project manager for an Oil & Gas company. Your team is working on a new drilling project with an initial BEC of $10 million. During the project execution, the following events occurred:

  • Event 1: Due to unexpected geological conditions, additional drilling equipment is required, adding $1.5 million to the project cost.
  • Event 2: The project team successfully negotiated a lower labor rate, resulting in a cost savings of $500,000.
  • Event 3: The project experienced a delay due to weather conditions, causing additional overhead costs of $200,000.

Task:

Calculate the new BEC for the project after considering these events. Explain your calculations and how the BEC has been impacted by the events.

Exercice Correction

Here's how to calculate the new BEC:

1. **Start with the initial BEC:** $10 million

2. **Add the cost of additional equipment:** $10 million + $1.5 million = $11.5 million

3. **Subtract the labor cost savings:** $11.5 million - $500,000 = $11 million

4. **Add the additional overhead costs:** $11 million + $200,000 = $11.2 million

Therefore, the new BEC for the project is **$11.2 million**. The events have impacted the BEC by increasing it by $1.2 million. This increase is due to the unforeseen costs associated with geological conditions and weather delays, which were not accounted for in the initial estimate. While the labor cost savings helped offset some of the increase, it was not enough to fully compensate for the additional expenses.

Books

  • Project Management for Oil and Gas: A Guide to Best Practices by Stephen C. Lewis: Provides a comprehensive overview of project management in the oil and gas industry, including budgeting and cost control.
  • Cost Estimating for Oil and Gas Projects: A Practical Guide by Michael J. DeHaan: Covers various aspects of cost estimation, including BEC, for oil and gas projects.
  • Oil and Gas Project Management: A Guide to Successful Development and Execution by Alan J. Thompson: Addresses project management practices in the oil and gas sector, including cost management and BEC.

Articles

  • "Budget at Completion (BAC) and Estimated at Completion (EAC): A Guide to Project Cost Management" by Project Management Institute: Explains the concepts of BAC and EAC, highlighting their importance in project cost management.
  • "Cost Management in the Oil and Gas Industry: A Practical Approach" by Society of Petroleum Engineers: Discusses cost management techniques, including BEC, within the context of oil and gas projects.
  • "Managing Project Costs: A Framework for Success" by Forbes: Offers insights into effective cost management strategies, including the role of BEC in project planning and execution.

Online Resources

  • Project Management Institute (PMI): https://www.pmi.org/ This website offers resources and articles related to project management, including cost management and budgeting.
  • Society of Petroleum Engineers (SPE): https://www.spe.org/ Provides access to technical papers, articles, and resources relevant to the oil and gas industry, including cost management techniques.
  • Energy Information Administration (EIA): https://www.eia.gov/ Offers data and analysis on energy markets, including cost trends in the oil and gas industry.

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