Project Management in the Oil and Gas Industry

4.2.4 Cost Estimate to Project Control
The cost estimate will be calculated to follow up the project during execu-
tion. The cost estimate can be obtained from the following information:

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• Approximate 
budget
• The budget value after contract and before construction
• Estimated cost during construction
Both the owner and the contractor must have a baseline by which to 
control costs during project execution. The calculation of the detailed cost 
estimates is often used to determine an estimate of construction where the 
balance is sufficient to identify the elements of the entire project as a whole.
The contractor price, which was submitted by the tender with the time 
schedule, is determined by the estimated budget and is used to control 
costs during the implementation of the project.
The estimated cost of the budget will be updated periodically during the 
execution of the project to follow-up the cash flows along the project time 
period in an appropriate manner.
4.3 Economic Analysis to Project Cost
The project cost consists of two parts: direct and indirect cost. The direct 
cost is the cost of implementing the activities of the project set forth in 
the drawings and project documents. The cost of resources to be provided 
for the implementation of these activities are employment, raw materials, 
equipment, contractor fees, and other costs.
These costs do not enter the expenses related to the supervision of the 
implementation work. Indirect costs are expenses that cannot be avoided 
to supervise the works and facilitate the implementation and can also relate 
to the term “administrative and general expenses,” which are usually fixed 
during the period of implementation of the project.
4.3.1 Work Breakdown Structure (WBS)
Most of the projects aim to achieve a certain degree of specific quality. This 
objective can be divided into a set of components that reflect the entire 
project. If the desired goal is to construct a gas plant, five main components 
can be identified, namely the following:
1. Public works site
2. Concrete structure
3. Mechanical
4. Electrical
5. Finishing works

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Project Management in the Oil and Gas Industry
After identifying the first level of the project, elements can consequently 
divide each of these components to a subset of components and can con-
tinue to divide the structure of the implementation of the work on successive 
levels of detail to achieve the level of the basic elements of project imple-
mentation. Therefore, importance is attached to the breakdown structure in 
making sure that all elements of the project have been taken into account.
The time spent in the preparation and processing of the WBS is, in 
return, its benefit, as it will be the main tool to avoid the forgetting or 
deleting of one of the important elements of the implementation of the 
project.
After determining the WBS, the work must be put in a particular method 
to identify the elements with a coding system.