I am sure that most people in this room will agree that project execution is an issue today. We have plotted in light blue the average delay for megaprojects (i.e. over one bn$). In 10 years, the average delay has been multiplied by 4, moving from 6 months to 1.8 years. The O&G industry is now performing far worse than other capital intensive industries. We have also plotted here the numbers of companies spending more than $5bn of CAPEX per annum, the bars. In the same period, we moved from a world where 4 companies were spending this kind of money, to a world where 32 companies are in this league. Nearly 5 times more.
When we asked for the reasons affecting project’s performance, the majority of companies reported that issues internal to the organizations constitute the main challenges First of all, lack of skills in project management and technical domains. Second, issues around governance of these mega projects: how to set targets and timing, how to approve budgets and improve decision-making quality? Third, supply chain issues, like engineering services and contracting & procurement. Obviously these depend also on the external market but decision on who to hire and how to contract is clearly under management control External issues are still there, but with much less weight than internal capabilities issues. In my mind, this summarizes well the industry issue today: we are facing major challenges to deliver and these challenges are ours, they are not externally driven. They are mainly under management control, and many times influenced by unrealistic expectations from senior management. So, what management should do?
(Exhibit 4) We heard this morning how other industries have profoundly transformed their approach to projects to survive.
As a result, they reduced costs, accelerated their developments and increased the quality of their designs.