The Good, Bad, and Ugly of Stage-Gate Project Management Process as Applied in the Oil and Gas Industry

Abstract

Abstract Management teams across the globe have and will continue to bet on major capital projects to drive their companies' performance. Capital committed to these mega-projects has increased at a compounded average growth rate of over 12% over the last decade, and this trend is expected to continue over the next decade. To manage the shareholder value at risk in these projects, almost every major oil and gas company has invested heavily in a formal stage-gate project management process. Yet the performance of major projects has not appreciably improved, and significant project failures---both technical and economic---continue to occur. We have investigated how the application of these state-of-the-art processes has gone astray in the oil and gas industry. We identify the key organizational and technical shortcomings that are diminishing project performance and suggest the top-ten actions management can take to gain significant competitive advantage. Introduction Mega-projects in the oil and gas industry are truly "mega." Spending in excess of US$2 billion over five years for a single project would raise no eyebrows. Most players have adopted a stage-gate project management process (PMP) to manage these projects. While cosmetic differences may exist, our experience has been that there is much more similarity than difference among different companies' PMPs. For this paper, we use the process and nomenclature shown in Figure 1. An overview of each phase in the PMP is presented below. (More detail on PMP can be found elsewhere. 1-3) The authors have played many roles on projects with a formal PMP for different companies all over the world. Combined, we have worked on over 70 projects as team members, team leaders, management consultants, and decision review board members for more than 15 firms on projects in over 20 countries. While some primary and secondary data are used, conclusions are based principally on this real-world experience. The conclusions are the opinion of the authors and not necessarily of their current companies. The focus is on the first three phases of the PMP because they are most relevant to petroleum engineers. PMP Overview A PMP is meant to create greater shareholder value from major projects while simultaneously protecting people and the environment. Figure 2 is a model of how shareholder value is created, beginning with value identification and ending with value delivery. The role of a PMP in this value creation cycle is to improve value identification through improved decision quality and to improve value delivery through improved project execution. Most companies believe that management's greatest influence on value is early, during value identification (Figure 2). A company would rather have identified a great project, chosen a world-class way to develop it, and have had mediocre execution of the development plans than to have had a mediocre asset with a marginal development plan that was executed in a world-class manner. The PMP that has evolved from companies' beliefs about shareholder value creation and management's ability to influence it is the five-stage-gate process (Figure 1). Three of the five PMP stages are focused on value identification, and frequently they collectively are referred to as front-end loading (FEL). Each phase has a specific goal and ends with a decision to move the project to the next phase, redo the current or prior phase, or drop the project altogether. The exception is that the final phase, Operations, has no terminal stage-gate decision.