Project Management in the Oil and Gas Industry

4.4.2 Impact on Increasing Cost
Sometimes the cost increases during the execution and there are many 
reasons for that. The most common cause is an increase in the price of 
materials from what was estimated before. There has been an increase in 
the foreign exchange rate, which often occurs in the machines that are 
imported from abroad. Another factor that increases cost is a difference in 
the quantities that have been executed and the quantities calculated from 
the drawings. An example that is common during excavation is that one 
can find different soil characteristics than what are in the soil report or 
the existence of problems in the soil were not taken into account, which 
requires restudying the soil and foundations with a change in the founda-
tions design, which often causes an increase in costs. All of the above are 
project risks and if they occur they will eventually lead to an increase in 
project costs.
Figure (4.7) presents the impact of increases in the project cost with 
respect to the owner. From this figure, one can find that the period of time 
to start the profit gain from the project is at the start of positive cash flow. 
Moreover, the total income from the project at the end of the project life-
time is less than in the case of executing the project within the budget.
4.4.3 Project Late Impact
In the case of a project delay rather than a delay in the time schedule of the 
project, which occurs with poor project management, the planner and the 
Figure 4.7 Effect of an increased cost on the whole project.
Time
Increase cost
Cost, $
+
–
Maintenance
& rehabilitation
Operation
Engineering
phase
Construction
phase 
Start up

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138 
Project Management in the Oil and Gas Industry
owner are often experienced in these matters and, therefore, those consid-
erations are taken into account.
A delay may also occur because of a bad choice made by the supplier or 
the delay could be beyond their control.
No matter, the result is the same, and it is a delay in cash flow, as shown 
in Figure (4.8), resulting in an increased time period for the return. It is 
often the case that projects draw loans from banks as a result of this delay 
and increase the benefits. We find that the impact on profitability in end of 
the project lifetime may be more than in the case of only increased costs, 
as shown in Figure (4.8).