Parametric Cost Estimating

Parametric Cost Estimating in Oil & Gas: A Key to Efficient Project Management

Parametric cost estimating, a widely used technique in various industries, plays a crucial role in the oil and gas sector, where large-scale projects are commonplace. This method involves leveraging data from similar projects to forecast the cost of a new venture. By analyzing key parameters, such as weight, power, line-of-code, and other system characteristics, it allows for a quick and relatively accurate estimate of development costs and schedules.

How does Parametric Cost Estimating work in Oil & Gas?

1. Parameter Selection: Identifying relevant parameters is crucial. In oil and gas, common parameters include:

   • Project Size: Measured by factors like reservoir size, well count, or pipeline length.
   • Technology Complexity: Incorporating factors like the type of drilling equipment, well completion techniques, or processing technologies.
   • Geographical Location: Considering factors like remote location, challenging terrain, and environmental regulations.
   • Regulatory Environment: Analyzing the impact of government regulations and permitting processes.

2. Historical Data Collection: Gathering data from similar projects becomes essential. This includes cost breakdowns, project timelines, and performance metrics.

3. Regression Analysis: This statistical method helps establish a relationship between the parameters and the associated costs. This generates a cost model that can predict costs based on the specific characteristics of the new project.

4. Cost Estimation: Applying the cost model to the new project, using its unique parameters, results in a preliminary cost estimate.

Advantages of Parametric Cost Estimating:

• Speed & Efficiency: Provides a fast and cost-effective way to estimate project costs in the early stages.
• Early Budget Planning: Allows for better budget allocation and financial planning.
• Risk Identification & Mitigation: Helps identify potential cost overruns and allows for proactive risk management.
• Improved Communication: Provides a common language for communication between project stakeholders, ensuring everyone understands the cost implications.

Challenges of Parametric Cost Estimating:

• Data Availability: Access to accurate and reliable data from similar projects is essential for the method's accuracy.
• Parameter Selection: Choosing the right parameters to represent the project's complexities is crucial.
• Unique Project Characteristics: Every project is unique, and relying solely on historical data may not account for all specific aspects.

Beyond Parameters: Factors Influencing Costs

While parameters are essential, other factors significantly impact project costs. These include:

• System Complexity: Highly complex projects require more specialized expertise and resources, potentially leading to higher costs.
• Team Maturity: Experienced teams can execute projects efficiently, while inexperienced teams might encounter more challenges and delays.
• Market Conditions: Fluctuating material costs, labor availability, and competitive pressures can influence project costs.

Conclusion

Parametric cost estimating is a valuable tool for oil and gas companies. By leveraging historical data and considering relevant parameters, it enables efficient cost forecasting and aids in early budget planning. However, understanding the limitations and incorporating additional factors like project complexity and team maturity is crucial for achieving accurate and reliable cost estimates. As the industry evolves and new technologies emerge, the use of parametric cost estimating will continue to be crucial for managing costs and achieving project success.