Maximizing the Potential of Your Capital Management Plans – Part 2
Author: Duncan McDonald, Vice President – Products and Markets, 3esi-Enersight
In our last blog, I walked through some of the problems upstream operators are experiencing with capital management and budgeting today. Now I want to talk about some of the best practices these companies could employ to maximize the potential of their capital management plans.
From my experience there are 5 key components (or best practices) for capital management done right:
- In-year plan is tied to your long range plan
- 3-way integration
- Efficient use of all resources
- Standardization, flexibility, and repeatability
- Distributed Responsibility
1.Tying the in-year plan to your long range plan
Tying your in-year plan to your long range plan ensures that the near-term plan is consistent with corporate objectives and priorities. When management requests a change, teams can leverage the work that has already been done instead of “starting over.” The long range plan can in turn be seamlessly updated from the results of budget execution, allowing the planners to monitor and adjust the LRP as needed.
2. 3 – way integration
Integration is key, and I see this as being 3-fold:
- Integration with Source Data. The source data, such as AFE Actuals and AFE Field Estimates, living in separate systems should be brought together to allow people to manage their capital projects as a whole.
- Integrating workflows. By bringing together disparate workflows such as activity readiness and AFE approval, organizations gain great efficiency, transparency, and ultimately trust in the data. All of the workflows related to capital management should live in a central repository.
- Integration with Corporate Reporting and Other Systems throughout the Organization. Most companies rely on several applications to plan even a single well. For most employees, the thought of importing data from one system to another triggers frustration. Employees need the ability to quickly feed other applications or processes such as LRP with the data resulting from your capital management process.
3. Efficient use of all resources
Computers are great at moving data around and performing calculations, but not so good at analyzing the results – that’s where people come into play! By allowing computer software to do a lot of the heavy living, you are putting time back in the hands of your highly skilled analysts to actually analyze the data, leading to better proactive and reactive decisions.
4. Standardization, flexibility, and repeatability
The capital management solution in place must be flexible enough to model your business and really drive corporate standards. This is about putting the ownership of data and processes in the hands of the organization, and making it easier to transition people into new roles, and move between Business Units/Assets. The goal is to provide a uniform approach that gives management confidence in the method, and trust in the numbers
5. Distributed Responsibility
The person with the most and best information about the project should be the one updating the forecast. This shouldn’t be a cumbersome activity; all of the right information should be readily available to allow them to monitor and adjust projects as required. By making updates easier to complete, projects are better managed and higher quality reporting becomes a by-product of that.
When these 5 components are in action, companies see great returns. In our next installment on February 27th, I will take you through a case study of effective capital management in action.
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