World Expro: Have project management strategies in the oil and gas sector evolved to address the more complex and challenging jobs the industry now has to tackle?

Majid Y Mugla: Over the past few years, projects in the oil and gas sectors have become larger and more ambitious. Nowhere is this truer than at Saudi Aramco.

As the project management arm of Saudi Aramco, our role is key. We are expected to safely deliver a high-quality, environmentally sensitive project to a committed schedule and budget.

These characteristics – safety, quality, environmental sensitivity, cost and schedule – are fundamental to project management and remain so regardless of project scale or complexity. Successfully managing these factors is more challenging on larger, more complicated projects and this is particularly the case during a huge construction boom like we’ve experienced the past few years.

And, though I wouldn’t say our project management strategies have changed, we have improved on our strategies and we continually adjust them so that they are in tune with changing market realities.

You will hear me say this over and over: in today’s project management world, communication is absolutely key to being successful. In the current market environment, we’ve realised that it’s more important than ever to communicate with our potential stakeholders in the engineering, manufacturing and construction communities.

It is critically important to make these stakeholders aware of our anticipated workload so they can plan accordingly and be in a position to support our work as projects come to fruition. Essentially, this is supply chain management taken to the next level.

We want our stakeholders to be aware of what type of demands we will be making on them in one year, three years and five years. So we make every effort to communicate frequently and as openly as possible with these stakeholders.

While this isn’t a major strategic change for us, it’s the type of improvement that encourages stakeholder commitment and helps lead us to project success.

“In today’s project management world, communication is absolutely key to being successful.”

What are the key challenges for project managers that arise from the kind of mega-projects in which Saudi Aramco is involved?

As I mentioned earlier, size and complexity complicate project management processes.

At Saudi Aramco, we’re not just building mega-projects, we’re building mega-programmes of multiple, interdependent mega-projects.

To execute projects of this scale, our project management teams must coordinate the efforts of multiple contractors in the field, multiple engineering offices around the globe, and material and equipment suppliers worldwide. Managing the logistics is quite challenging, but managing the interfaces among these disparate players is one of the key challenges for a project manager and one that takes a substantial amount of time and talent.

Talent development is another key challenge for the project management community, particularly in the heavy construction industry. Many of the most experienced people in our profession are reaching retirement age and, while the influx of young professionals will be an asset in years to come, finding creative and effective ways to accelerate their development is a key challenge that we are tackling.

What examples of best practice in project management can you identify from recent or ongoing projects at Saudi Aramco?

One of our most commended best practice approaches recently is our world-class “lessons learned knowledge base”, which we have taken to the next level during 2009 by developing what we call our pitfall prevention tool.

We conduct workshops using this tool to help project teams identify possible pitfalls and develop plans for how they will avoid them. The tool meshes well with our risk management approach and helps our teams flesh out risk matrices for their projects.

We have been invited to the 2009 Construction Industry Institute Conference to showcase this innovative approach, since there is nothing similar in the industry. We use best practices from various industry sources, and in this case we are giving back and contributing to the sharing of best practice knowledge throughout our industry.

What new practices in project management define the ways in which resources are integrated around such large projects?

One practice that has had a positive impact on our execution of mega projects is the use of integrated project teams. In our case, these comprise participants from corporate customer organisations and company subject matter experts, in addition to our dedicated project management personnel.

Each representative brings specialised expertise to the team and represents their organisation to ensure that the project has what it needs for success. This approach also ensures that the stakeholding organisations take a sense of ownership in the success of the project.

Then, as a cohesive team, we execute detailed, meticulous planning, considered use of lessons learned and value practices, continuous risk management, and IT-leveraged solutions. By teaming-up in this manner, we are prepared to effectively tackle project challenges as they arise. Building a high-performance team is the value-adding practice.

How are these practices and strategies changing your approach to contracts and materials procurement?

The global economic meltdown has had a profound effect on everyone’s way of doing business, ours included. We’ve adjusted our capital programme execution strategies to meet these new challenges by becoming more flexible, particularly in the contracting and procurement areas, by relaxing contractors’ financial constraints and by helping to promote supply chain stability during volatile market conditions.

Our situation is somewhat different from most in that Saudi Aramco is the primary source of work for our local contractor community. It’s important to us that this local community remains viable and retains its vital skilled personnel.

We know the markets will eventually recover, and we want our contractors and ourselves to be prepared with the best people. This ensures we will be in the best position to execute the company’s capital programme.

Flexible execution strategies include a range of contracting options that include cost-reimbursable, limited converted lump sum turn key (LSTK) and incorporation of commodity price indexing. We are also relaxing schedules where possible, to allow our partners to level their resource requirements as much as practical.

We’ve supported our partners by relaxing contractors’ financial constraints and including provisions in contracts for optional advance payments and optimising progress measurement systems towards a neutral cash flow. We are looking at ways to make Saudi Aramco’s corporate procurement agreements available for use by our lump sum contractors, in order to support our contractors’ supply chain stability.

“We’re not just building mega-projects, we’re building mega-programmes of multiple, interdependent mega-projects.”

How can the diverse relationships with partners and suppliers in a key project be managed to ensure optimal collaboration, efficiency and progress?

As mentioned previously, Saudi Aramco is currently in the midst of the largest expansion programme in its history. As you can imagine, we could never be successful with a workload of such magnitude were it not for effective, mutually beneficial working relationships with stakeholders from all corners of the globe.

In project management, we consider our ability to manage these stakeholders to be one of our key strengths.

Stakeholder management is absolutely critical to the success of any project and the larger and more complex the project, the more critical it becomes. To successfully complete a large project to an aggressive schedule requires a commitment from everyone involved, and that commitment has the added benefit of establishing a sense of teamwork and enhancing morale.

Stakeholder commitment begins with a well-articulated vision and clearly communicated expectations from the project management team. The more clarity the project management team adds to the vision and expectations, the more likely it is that your partners will satisfy your requirements.

It’s not enough simply to state your expectations. You also have to make certain that your expectations are heard, understood and acknowledged by everyone who is affected.

This is the vital step where your partners and suppliers can add tremendous value. As your vision is more clearly understood, everyone involved has the opportunity to offer new solutions and spot risk areas that might have gone unnoticed without their support.

This is one of the primary benefits of an “involved partner” relationship, but these benefits are lost if the vision and expectations are not discussed and negotiated in an open and transparent way. You will notice that I use the word “negotiated”, implying a two-way process, and that is exactly what is needed if we want to achieve success.

Establishing expectations is a negotiated process aimed at ensuring that everyone’s expectations are realistic and can actually be met.

Finally, a good project management team realises that expectations work in all directions. Just as we have expectations of our partners and suppliers, they have expectations of us and of one another.

It is the responsibility of a good team to ensure that effective communications take place between all stakeholders. Good communications smooth interfaces and help everyone remain alert for problems before they arise.

In short, clear, articulated expectations and open and effective channels of communication are the most effective ways to ensure optimal collaboration and efficiency among stakeholders.

How important is it to manage the expectations of stakeholders during a big project? How can this be done in the most effective way?

As the project management arm of Saudi Aramco, our role is to bring to reality the company’s capital projects to support production targets and product mix. As I mentioned above, stakeholder management is critical and, in particular, managing the expectations of our corporate customers is paramount.

Managing corporate customer expectations is even more important in a world economic environment such as we have experienced in recent times. With the boom in construction projects and the need to rapidly get product to market, “go” decisions are often made based on a functional outline of a project.

When this is done, the corporation relies on project management to be even more vigilant as the unbiased arbiter of the detailed scope, and as the strict fiscal custodian of the budget. In this important role, the project management team has to successfully bring into alignment the expectations of customers who frequently have different, often competing objectives.

To be successful in doing this, it is imperative that customers at all levels of the organisation are aware of the decisions being made, the logic behind those decisions, and the implications for their own expectations. The ability to listen to customers and clearly understand what their expectations are, and then to discuss openly which, if any, of their expectations may be at odds with the final deliverable, is absolutely essential to successful delivery of a quality project.

Once again, open and active communications channels are the most effective tool in managing those expectations.

What are the key challenges that will define how approaches to project management will evolve?

I think the continuing trend toward globalisation will be a major factor in defining how projects are managed. Project teams and stakeholders are more dispersed than ever before and this situation is likely to continue.

Effectively managing the efforts of scattered stakeholders already requires talented project managers and this will become even more important moving forward. Carefully planned and managed communications skills, backed up by cutting-edge integrated IT solutions, will be key factors in coordinating all the players on a project.

In the heavy construction industry in particular, I think you will see an increasing focus on environmental issues and the need for our projects to be environmentally friendly or environmentally neutral. These factors are already a part of our project management considerations, but I expect that focus on them will play an increasingly great part in project risk management considerations.

Most importantly, one of the real challenges that I see in our industry is the development and retention of talent, not only in project management but within the engineering and construction communities on which we rely. During market downturns, like the one we are currently experiencing, the natural tendency is to reduce payrolls and cut investment in human capital development.

With reduced payrolls, young people don’t see an attractive prospect for employment in our industry, and embark on different career paths. As a result, when we do enter a new period of growth, we struggle to find experienced people to effectively achieve our goals.

This is one of the reasons that we want to communicate our long-term plans to our partners. If they can be assured of a healthy long-term outlook, they will be comfortable in making the investment in human capital that our industry inevitably requires.