- Problem Definition
An oil and gas company is reviewing the problems that leading to over budget and on-stream delay. They need to do pareto analysis for lesson learned for the next big project, on what problem that they need to be more focus on.
2. Identify the Feasible Alternative
Using 20 years data during the exploitation period, they found top 10 problems that contribute to the over budget and delay of the projects. They are:
- Insufficiently defined FEED
- Inaccurate prediction of oil and gas production profile
- Inaccurate cost estimates by the contractor due to inadequate FEED definition
- Ambiguity of the contract documents, leading to disputes over technical specification requirements
- Inadequate documentation to support positions and resolve issues that develop during the execution of the project or retrospectively when large claims develop at the end of the project.
- Multiple change orders are approved during the project or remain unresolved until the end of project
- Insufficient management of multiple prime contractor design and construction interfaces
- Owners often do not have a sufficient number of experienced personnel to manage the technical aspects of a project.
- Inadequate baseline schedule development and updating by contractors, leading to unreliable progress measurement, uncertain critical paths, and inability to mitigate delay.
- Owners do not develop a sufficient master project schedule that results from pulling together the work activities from multiple prime contractors.
3. Development of the Outcome for Alternative
A Pareto chart will be generated for analyzing what problems need first attention.
Pareto Analysis is a statistical technique in decision-making used for the selection of a limited number of tasks that produce significant overall effect. It uses the Pareto Principle (also known as the 80/20 rule) the idea that by doing 20% of the work you can generate 80% of the benefit of doing the entire job.
Here, they will identify the problems which have the greatest cumulative effect on project delays and over budget using Pareto chart as a vertical bar graph in which values are plotted in decreasing order of relative frequency from left to right.
Table 1. Top 10 problems that leading to delays and over budget in last 10 years
- Selection Criteria
The company prefer to focus only at 20% of the significant problems which will cover minimal 80% of the problem.
- Analysis and Comparison of the Alternative
Figure 1. Pareto chart analysis
Figure 1 shows that the most problems that causing cost overrun and company shall pay attention to is insufficiently defined FEED.
- Selection of the Preferred Alternative
According to figure 1, the company should focus only on top 5 below complaint categories:
If the company can handle the above top 5 problems, it means they have solved almost 80% of the overall problems.
- Performance Monitoring and the Post Evaluation of Result
After knowing the top 5 significant categories to focus on, the company needs to do several actions to solve the problems. Then they should monitor the result on quarterly basis whether a significant improvement has been achieved.
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- McDonough, Michele (2012). Creating Pareto Chart with Microsoft Excel. Retrieved from: http://www.brighthubpm.com/templates-forms/8708-creating-pareto-charts-with-microsoft-excel/
- Laksono, Andhy (AACE Kristal 2014). W16_AL_Pareto Chart. Retrieved from: https://kristalaace2014.wordpress.com/2014/06/17/w16_al_pareto-chart/
- Haughey, Duncan (2014). Pareto Analysis Step by Step. Retrieved from: https://www.projectsmart.co.uk/pareto-analysis-step-by-step.php