Project Management in the Oil and Gas Industry

Table 4.1 Cost estimate procedure.
What
The function of the estimate is to forecast a cost for a specified scope of 
work to allow an accurate budget to be assembled for the business. 
Cost estimating in its definition is uncertain and the different 
classes of estimates give improved levels of accuracy as more project 
scope detail is defined.
A work breakdown structure (WBS) should be built from which 
estimates, schedules, and cost control can be derived.
Formal documents are produced for all levels of estimate.
Appraise: Order of Magnitude (OOM) accuracy range of +/ 50%
Select: Class 3 accuracy range of +/ 30%
Define: Class 2 accuracy range of +/ 15–20%
Class 1 is +/ 10% (rarely used).
Why
This is done to indicate to the business the predicted cost of the 
project, so that the project is financially viable and can be 
established.
How
The project leader and the asset development engineer develop a WBS 
from the SOR. This is then discussed with the project team to allow 
the relevant discipline engineers to have input in the estimate. An 
OOM estimate will normally be factored with estimates based on 
the known high-level scope and equipment definition. Class 3 esti-
mates will be factored based on a developed scope and equipment 
definition, including indirect costs. Class 2 estimates will be built up 
from the developed scope of the project and will be fit for purpose 
to give the accuracy range.
When All projects must have a Class 2 at the end of Define for business sanc-
tion. An estimate will be produced at the end of each development 
stage. The accuracy of the estimate will reflect that particular stage.
Who
The project leader is responsible and is supported by the estima-
tor, discipline engineers, SPA, construction engineers, and the 
commissioning engineer.

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Project Management in the Oil and Gas Industry
side, the contractor will calculate the cost of construction in order to 
enter the tender and for this the contractor performs his calculation to 
qualify him to win the bidding. The third way is the control cost esti-
mate, which is used by the owner to control costs, which will be dis-
cussed later.
The initial cost estimate is made after the preliminary studies of the proj-
ect with an initial identification of industrial facilities, such as the number 
of pumps, air pumps, and compressors and the size of pipes and lines in 
diameter, and so on.
The cost is determined at this stage on the basis of previous experience 
of similar projects. For example, calculating the cost is as follows:
The calculation of the concrete price is calculated after determining 
the type of concrete. The cost of reinforced concrete can be calculated by 
obtaining the following information:
• Quantity of steel per concrete cubic meter and the price of 
steel per ton
• Quantity of cement in concrete mix and the price of 
cement ton