Davidson, KitsonEl-Makkawi, AhmadSyed, Tabish

Executive Summary

Engineering, Procurement and Construction (EPC) business in Oil and Gas (O&G)

industry has become more competitive than ever. Therefore, effective proposal execution has

become vital for securing new business opportunities. Petrofac generates most revenues through

lumpsum EPC contracts of Onshore Engineering and Construction projects. Petrofac’s current

proposal execution process has been its critical successful factor in being awarded tenders.

However, there are a few inefficiencies built into the proposal execution method that can be

improved through implementation of an Enterprise Resource Planning (ERP) system. ERP is

getting popular among big organizations around the world due to its ability to reduce and

eliminate inefficiencies and redundancies in the working process. The purpose of this research

paper is to improve the efficiency of the proposal execution model at Petrofac through

implementation of an ERP system.

Firstly, this research includes company’s background and the current proposal execution

model. This will include the activities and the disciplines involved in the preparation of an EPC

proposal. Also, the loop holes in the execution model will be discussed briefly. Then, a brief

literature review of ERP and its implementation is included. Finally, the improvements that can

be made in the proposal execution model through implementation of ERP. This will also include

how to successfully implement ERP at Petrofac and the factors that could hinder its

implementation like organizational culture, resistance to change, time span and data migration.

~ 2 ~

Table of Contents

1. Company Overview..................................................................................................................5

1.1. Company’s Vision and Business Strategy...................................................................................5

1.2. Company’s Values.......................................................................................................................5

1.3. Company Background.................................................................................................................5

1.4. Business Structure.......................................................................................................................6

1.4.1. Onshore Engineering & Construction (OEC).........................................................................7

1.4.2. Offshore Projects & Operations (OPO).................................................................................7

1.4.3. Offshore Capital Projects (OCP)...........................................................................................7

1.4.4. Engineering & Consulting Services (ECS)..............................................................................7

1.4.5. Developments......................................................................................................................8

1.4.6. Production Solutions............................................................................................................8

1.4.7. Training Services..................................................................................................................8

2. Acronyms & Definitions..........................................................................................................9

2.1. Acronyms....................................................................................................................................9

2.2. Definitions...................................................................................................................................9

3. Proposal Execution Process....................................................................................................10

3.1. Bid Decision Process.................................................................................................................14

3.2. Proposal Planning Process.........................................................................................................15

3.3. TQ Clarification Process............................................................................................................16

3.4. Preparation and Submission of Bid Documents.........................................................................17

4. Issues in Proposal Execution methodology............................................................................21

5. ERP Literature Review...........................................................................................................23

6. ERP Implementation...............................................................................................................24

7. Improvements in the Proposal Process through ERP.............................................................28

8. Conclusion..............................................................................................................................31

~ 3 ~

9. ERP Literature Review...........................................................Error! Bookmark not defined.

10. Improvements in the proposal process through ERP..............Error! Bookmark not defined.

11. List of Figures.........................................................................................................................35

12. References...............................................................................Error! Bookmark not defined.

~ 4 ~

1. Company Overview

1.1. Company’s Vision and Business Strategy

“[Petrofac’s] aim is to be the world’s most admired oilfield service company”

(Petrofac.com, 2012).

Petrofac help customers develop their energy resources; bringing world class capabilities

and delivering it locally.  They promote commercial arrangements that are aligned to customers’

needs, allowing them to deliver more value to the customer while increasing the returns from

their most precious asset – people i.e. employee’s.

Their growing capabilities and expanding geographic reach in order to deliver their

financial target of doubling 2010 revenues by 2015.

1.2. Company’s Values

Petrofac’s key values include being safe, ethical, innovative, responsive, quality and cost

conscious and driven to deliver. These values are visible in their business structure and strategy.

1.3. Company Background

Petrofac is an Integrated Oilfield service provider company. Petrofac began in 1981 as an

engineering, fabrication and procurement firm based in Texas, catering to local as well as

international clients. Petrofac is renowned for fabricating infrastructures for the oil, gas plants as

well as refineries around the globe. In order to increase its customer base and further expand its

client base, Petrofac set up an office at the Emirate of Sharjah in the United Arab Emirates which

has become the engineering center of excellence. It caters to various oil producing countries

around the globe.

~ 5 ~

PETROFAC LTD.

Engineering, Construction, Operations & Maintenance (ECOM) Integrated Energy Services (IES)

Onshore Engineering & Construction (OEC)Offshore Projects & Operations (OPO)Offshore Capital Projects (OPO)Engineering & Consulting Services (ECS)

DevelopmentsProduction SolutionsTraining Services

The three main operations of Petrofac include designing and building oil & gas

infrastructure, operating, maintaining and managing assets and training personnel. Petrofac is a

very diverse company in terms of its operations and culture. It has seven operational centers in

Aberdeen, Sharjah, Woking, Chennai, Mumbai, Abu Dhabi and Kuala Lumpur and a further 24

offices and 14 training facilities worldwide.

1.4. Business Structure

Petrofac has divided its business in two main divisions and seven business units. Figure

1 below shows Petrofac’s business structure.

~ 6 ~

Figure 1: Petrofac Business Structure

Petrofac offers wide range of services through its various business units. These business

units are created to meet customer’s need and Petrofac’s vision. All business unit are interlinked

but operate independently under different leadership. Each business unit operates in a different

market segment. However, the purpose is to provide a one stop shop to its customers for all their

needs. Below is a brief description of each business unit.

1.4.1. Onshore Engineering & Construction (OEC)

OEC is a single business with highly effective resource allocation. OEC is the platform

which supports Petrofac’s regional approach to project management. It delivers a diverse range

of onshore engineering, procurement and construction projects. OEC is mostly involved in

green-field contracts which require building of new facilities and equipments. The key target

market for OEC business is middle-east.

1.4.2. Offshore Projects & Operations (OPO)

OPO focuses on brownfield projects and the provision of operations, maintenance and

engineering services worldwide, to both on and offshore projects. 

1.4.3. Offshore Capital Projects (OCP)

Offshore Capital Projects (OCP) focuses on acquiring and executing all of Petrodac’s

engineering, procurement, installation and completion (EPIC) projects.

1.4.4. Engineering & Consulting Services (ECS)

ECS provides consultancy, conceptual design, FEED and PMC across all sectors

including renewable and CCS from offices in Woking, UK, Houston, USA and three operating

~ 7 ~

centers in India; Mumbai, Chennai and Delhi. ECS is the centre of technical engineering and

excellence.

1.4.5. Developments

Developments business integrates engineering and project management capability to lead

the development of a customer’s asset working under commercial models which aligns Petrofac

with the resource holders' needs.

1.4.6. Production Solutions

Production Solutions provides customers with a wide range of services to help improve

production, profitability, operational efficiency, asset integrity and the ultimate recovery from

their reserves.

1.4.7. Training Services

The Global training business, which manages14 facilities in six countries, trains around

55,000 delegates annually. It operates on an integrated approach, working with customers to

assess capability needs and to build programs to develop competent, safe and efficient

workforces.

~ 8 ~

2. Acronyms & Definitions

2.1. Acronyms

OEC Onshore Engineering & ConstructionBMS Business Management SystemITB Invitation To BidITT Invitation to TenderITB Invitation to BidSPOC Single Point of ContactCEE Cost Estimation EngineerCBT Commercial Bid TabulationTCR Techno-Commercial OfferPER Project Execution ReviewIT Information TechnologyKOM Kick-Off MeetingMOU Memorandum Of UnderstandingBOQ Bill of QuantityMTO Material Take-offFEED Front End Engineering DesignMR Material RequisitionRFQ Request For QuotationTQ Technical QueryRAR Risk Assessment Review

EPC Engineering, Procurement & Construction

2.2. Definitions

Lumpsum Contract: It is type of contract in which the contractor bids a single price for entire

work process without requiring a cost break-down.

Man-hour: 1 hour of 1 person’s time. It is used to allocate resources i.e. man power and

scheduling based on the amount of man-hours required for a certain activity.

~ 9 ~

Brown field engineering: A Brown field project is defined as a project where in part or whole engineering, construction and commissioning activities for the project are to be performed in anexisting operating plant.

Green Field Engineering

3. Proposal Execution Process

The OEC business unit of Petrofac has been the key in generating revenues. Petrofac’s

strength lies in delivering successful Green field engineering EPC projects to customers all over

the world. EPC contracting market is becoming very competitive due to the global nature of the

business.

In an EPC contact the responsibility of Design, Procurement and Construction scope of

work lies with the contractor. The EPC contractor acts as a single point responsibility for

delivering the complete facility which includes extensive interfacing with client, sub-contractors

and suppliers. The EPC contractor has to guarantee that the completed facility is to be designed

as per the specification of the client, suitable for the intended use and free of defects and

malfunctions.

New EPC projects are achieved from clients through a competitive bidding process.

Petrofac among other global contractors are invited to bid through ITT or ITB. Therefore, the

proposal process is a very crucial process in securing new green field EPC projects as the project

is awarded to the lowest bidder with technical acceptance. The cost and resources required for

the project are estimated during the proposal stage and a lumpsum bid is submitted to the client.

What also makes the proposal stage very critical is that any missed cost for an item or an activity

or a risk that is unaccounted will be a loss to Company. Therefore, it is very important to capture

~ 10 ~

No Bid

Regret Letter

Bid

Receipt of ITT

Bid / No BidPrepare Proposal

Summary

Assign Proposal Manager

KOM

TCR PER RAR

Proposal Submission

Formation of Task Force

all commercial and technical aspects in the bid documents to as to minimize future risks and also

provide a competitive cost to the customer.

The proposal preparation and submission process for an OEC project of OPO division is

briefly summarized in figure 2 below.

Proposal engineering is the process of receiving, evaluating and preparing bid documents

for a received proposal. A proposal is received through an ITT or an ITB from a client. Proposal

department plays a key role in this process and determines the efficiency of the process. The

~ 11 ~

Figure 2: Process Flow Diagram

Client

Bid Decision & Signed TCR

Proposal

Task Force

Vendors

ITT

Technical Clarifications

RFQsVendor Offers

Final TQs

0

Proposal Engineering

TQs to Client

Formatted Clarifications

Material Estimates

ISL Reports & TQ Status Reports

Nominations & Manhour Budget & TQ Formats & Comments & Qualifications & Standard Cost Formats & RFQ Formats

proposal comes with a deadline for submission within which all the related activities i.e.

estimating cost, preparing deliverables and assessing risks for the bid submission must be

completed. The project cost consists of three parts; Engineering cost, Material cost and

Construction cost. Proposal preparation and submission includes following departments:

Engineering Department (consists of various disciplines like Electrical, Civil etc.)

Construction Department

Contracts Department

Procurement Department

Each department is responsible for providing specific inputs to the proposal department

as decided during the KOM. The proposal department gathers all the information, compiles the

documents and prepares the final bid submission documents. The proposal department acts a hub

for internal and external interfacing. The Context and the Level-0 DFD in figure 3 and 4

summarizes the proposal preparation process.

~ 12 ~Figure 3: Context Diagram - Proposal Execution

BID Decision1.0

Decide to Bid / No Bid

Nominations

2.0

Plan ProposalITTClient

BID Decision

Manhour Budget

Proposal Schedule

TQs to ClientFormatted Clarifications

Final TQs

TQ Status Reports

TQ Formats & Comments

TQ Clarifications

4.0

Prepare & Submit BID DocumentsFormatted Clarifications

Material Estimates

3.0

Issue TQs for Clarification

Task Force

Proposal

Signed TCR

Qualifications & Standard Cost Formats

RFQ Format

RFQs

Vendors

ISL Reports

LEVEL-0 DIAGRAM

Vendor Offers

Following is a brief description of activities and process involved at each stage of

proposal preparation.

~ 13 ~

Figure 4:Level-0 DFD

FEEDBID Decision

1.1

Announcing of Proposal

1.2

Appoint Proposal ManagerProject Info.

1.3

Decision for BiddingITT

Nominations

1.3

Prepare Proposal SummaryProposal Guidelines

LEVEL-1 DIAGRAM

3.1. Bid Decision Process

Upon receipt of ITT from client, the Head of Proposals appoints a Proposal Manager who

forms a proposal team and assigns proposal number for referencing in the administrative system.

The IT department will then create a proposal folder on company server wherein proposal

administrator uploads the ITT documents and provides access to the proposal task force.

The proposal manager issues a proposal summary with details such as general project

information, scope of work, contractual/commercial risk review, sales considerations and general

risk factors for BID/NO-BID decision.

The “BID/NO-BID” decision is taken by the top management and it advised to the

proposal manager. If “NO-BID” is decided then a regret letter is sent to client declining to bid.

Figure 5 summarizes the data flow in Bid decision making process.

If it is decided “TO-BID”, the proposal manager will then hold the overall responsibility

for completion and timely delivery of proposal to Client.

3.2. Proposal Planning Process

~ 14 ~

Figure 5: Level-1 DFD for Bid Decision Process

Proposal Summary

2.1

Proposal Planning

2.2

Kick of MeetingManhour Budget Proposal Schedule

BID DecisionLEVEL-1 DIAGRAM

Depending on the scope, size and complexity, the proposal manager provides an

estimated manhour budget for proposal preparation. The manhours are monitored by the

proposal manager on a weekly basis.

Within the first week from start of the proposal, the proposal manager will form a

proposal task force comprising of discipline engineers and commercial analysts. A KOM is

arranged for the proposal task force. The objective of KOM is to appraise the attendees on the

project scope and proposal preparation schedule including proposal key dates and critical internal

target dates for proposal deliverables. KOM is also a forum for the Task force to clarify their

concerns. The proposal department then issues a proposal preparation schedule with an activity

list, due dates and responsibility to the proposal task force. Figure 6 below indicates the data

flow during the planning process.

3.3. TQ Clarification Process

Engineering discipline leads will coordinate, review and control the deliverables of

respective engineering discipline. Each department reviews client requirements provided in ITT.

~ 15 ~

Figure 6: Level-1 DFD for Proposal Planning Process

They issue TQs to proposal department in the specified format to obtain missing/additional

information and clarify ambiguities/inconsistencies. The errors/inconsistencies found during

FEED verification are either raised as query to client or qualified as exceptions/clarifications in

the technical proposal. The queries are compiled in lots and further reviewed by proposal

department before forwarding it to Client for clarifications.

Proposal department also issues client communication such as client responses to

queries/clarifications, tender bulletins/addendums to the task force. Proposal Manager through

Proposal Administrator shall maintain a log of all queries issued and clarifications received from

client. Proposal Administrator will file in proposal folder all the aforesaid documents. Proposal

Manager will seek a confirmation on action taken by all disciplines/departments in reflecting the

requirements of TQ response, tender bulletins/addendums by either qualifying in technical

proposal or including the cost implication into the estimate. The data flow in the TQ clarification

process is summarized in Figure 6.

~ 16 ~

3.1

Prepare & Compile Queries

3.2

Review & Issue Queries

3.5

Receive and Distribute Responses

TQ Formats

Formatted TQs

Comments

Final TQs

TQ ClarificationsFormatted Clarifications

TQs & ClarificationsD1

3.4

Prepare TQ Status Reports

TQ Status

Final TQs TQ Status Reports

3.3

Update TQ Status Log

Clarifications Received

Updated TQ Log

TQs to ClientUpdated TQ Log

Proposal Schedule

LEVEL-1 DIAGRAM

3.4. Preparation and Submission Process of Bid Documents

Each engineering discipline is responsible for issuing of MRs to procurement for

receiving costs from vendors. Vendor offers are then reviewed to check their compliance to

proposal specifications and TQs are issued to vendor for clarification through procurement

department. After the review of vendor offers, Material Cost Estimate is prepared by all

engineering disciplines. All engineering disciplines should also issue MTOs and BOQs for

construction purpose. The deliverables for engineering disciplines also include preparation and

submission of FEED verification document to validate ITT information.

~ 17 ~

Figure 7: Level-1 DFD for TQ Clarification Process

Procurement department is responsible for preparing and issuing RFQs to vendors. They

also expedite vendor offers, update and maintain an inquiry status log (ISL). After receiving

vendor offers they distribute vendor offers to engineering disciplines. They are SPOC between

vendor and engineering disciplines. They communicate with vendors to issue TQs and on receipt

of TQ responses, they distribute vendor TQ responses and revised offer to concerned discipline.

Construction department will be responsible to visit site location for data collection and

prepare strategy for field works. They are also responsible for providing a construction cost and

manhour estimates to the BOQs/MTOs provided by engineering disciplines for Construction

Management. Also, logistics cost estimate are provided by construction department to the

proposal department.

Contracts department is responsible for preparing commercial qualifications /

exceptions / clarifications and contractual / commercial documents and provide it to the proposal

document.

In addition to these, proposal department also organizes various TCR, PER and RAR

with the concerned members of task force to identify any issues that would require higher

management intervention, identify key risks as early possible to allow participants suggest and

recommend mitigating actions. (Add note in DFD for not including risk reviews). All

departments shall participate in design review and risk review meetings to assess the technical

and executions risks involved in the project. For example, procurement department will provide

inputs on procurement related risks like price inflation, material shortages etc. and construction

department will provide inputs on construction related risks like site accessibility and conditions.

After receiving cost estimates and deliverables from all departments, Proposal

department compiles cost in Petrofac’s standard cost estimate formats and transfer them into

~ 18 ~

client price schedules, update and prepare the final bid documents. The complete cost,

MTOs/BOQs, qualifications/exceptions and risks are reviewed and discussed with concerned

departments by the proposal department. The cost is updated, if required, by the proposal

department based on the discussions.

Finally, the Bid it is submitted to the client after signatures from respective parities. The

bid to client is submitted in two parts being technical and commercial. The technical bid includes

the engineering documents and the commercial bid includes the price schedules and supporting

qualifications. Contractual details forms part of the commercial bid. Figure 8 gives a brief

overview about the complex data flow that occurs during the bid preparation and submission

process. Following Figure 8 is Figure 9 which is a Level-2 DFD for the interface with vendors on

receiving and evaluating vendor offers.

~ 19 ~

~ 20 ~

Figure 8: Level-1 DFD for Bid Preparation and Submission Process

4.4.3

Receive TQ Responses & Updated Offers

4.4.2

Issue Vendor TQsVendor TQs

Cost Estimate

TQ Response

4.4.4

Update BOQ & MTO

Vendor Offers 4.4.1

Review Vendor Offers

MRs

Inquiries Received

LEVEL-2 DIAGRAM

Revised Offers

4. Issues in Proposal Execution methodology

Although the complete proposal execution process seems immaculate, there are few

things which need improvement. Following is the list of process that can be improved through

implementation of better IS strategies and IT.

There is no client database that records the technical preferences, risks and contingencies

and other assumptions from previous proposals of the same client. Each proposal, even from the

same client, is started from scratch and all the same activities are performed again and again for

all proposals. There is storing of data in a company wide database so as to eliminate

redundancies from the proposal process and standardize certain tasks like issuing MRs and RFQs

to increase efficiency and reduce cost.

The process of raising RFQ and MR is done for each proposal that is received from

client. There is no process of storing these quotations in a database so that these costs can be

~ 21 ~

Figure 9: Level-2 DFD for Offer Evaluation Process

used in other proposals. This makes the process very inefficient as a lot of manhours are wasted

on preparing RFQ’s for every proposal. Also, since there is no storing process, there is no way of

validating the costs received from vendor.

In addition to the interface with Proposal department and Procurement Department, the

engineering disciplines also co-ordinate closely with each other to complete their deliverables.

For example, Electrical team depends on Instrumentation team for the electrical loads of

instruments so as to design and procure a power generator that meets the project needs. Another

example of inter-discipline dependency is when civil team request information about the details

of equipment sizes and weights from mechanical team and electrical team so as to finalize the

foundations details required for these packages and release the foundation drawings to the

proposal department to be incorporated in the technical bid. Most of this information exchange is

done through emails and files are stored on a proposal server for easy access.

This process of requesting and receiving information is very inefficient as sometimes the

mails are lost, people leave the company and the data is gone with them as it was stored in their

mail. Inter-disciple engineers chase each other for their required information as mails are

overlooked due to a tight and demanding schedule. There should be database that can store such

information and can be retrieved by anyone when required.

The problem of retaining information stays even after a proposal is converted to a project,

which is usually a process that takes several months. Also, the project execution team is often

different from the proposal task force . Therefore, the project execution team depends heavily on

the proposal team to provide them with the background information of the proposal. This

becomes a burden for the proposal task force to find and retrieve all the proposal information as

~ 22 ~

information gets misplaced due to storing data on personal computers and takes a long time to

locate. Basically, there is no proper handover of proposal information to the project execution

team. For every information that is wrong or is missing, proposal team is blamed and not the

system.

Even the inquiry requisitions that are used during proposal preparation are not used and

additional manhours are spent in preparing new requisitions.

5. ERP Literature Review

Information technology plays a vital role in the delivery of the proposal. Effective use of

IT solutions is the key to deliver an error free proposal, in a timely and cost effective manner.

Clients are more demanding than ever, and are asking contractors to take on more risk, compete

more aggressively on price while sustaining the highest quality and safety standards. (Halvorsen

M, 2009)

One of the most sought after solutions nowadays are ERP systems. ERP is getting

popular among big organizations around the world due to its ability to reduce and eliminate

inefficiencies and redundancies in the working process. Typically companies prefer to buy a

system rather than going through the tedious process of developing it from scratch. The most

commonly available software in the market are; SAP, Oracle, Sage group, PeopleSoft.

ERP is used to integrate the external processes of the organization with the internal

processes to improve the efficiency of all the processes in the company as a whole. (Bidgoli. H,

2004) ERP system was first introduced for manufacturing processes only, however, the

efficiency of the system was much in demand that it found its way into the management side of

~ 23 ~

the operations as well. (Spanw. N, 2010) The ERP system functions as a facilitator to the flow of

information between all departments within the company and with external parties. Robers

(2011) mentioned that an ERP is a software that combines both the inner and exterior operations

of information across the entire organization. ERP systems are integrated and do not require

periodic updating, since they operate in real time. They provide a database that is common, and

that supports customized list of applications. (Bidgoli. H, 2004) According to Pearlson and

Saunders (2003), ERP system is a useful tool that provides centralization of operations and

decision making.

5.1. ERP Implementation: Factors to Consider

The following section covers the critical points in which a company should be aware of

prior to implementing ERP;

The most important thing prior to any implementation is that all parties implementing the

ERP solution, both the buyer and seller, should have a deep understanding of the business

model. It is important “to achieve a high degree of fit and consonance between the

priorities and activities of the IS function and the strategic direction of the firm”

(Piccoli, 2007). Trying to implement a system without knowing a business model can be

very dangerous. A failed case that is often referred to is New York City (NYC) Vs. SAP.

NYC tried to implement an ERP system, which cost them about $600 million, where it was

originally budgeted for $10 million. They eventually had to sue SAP for bad consultancy.

Though SAP was charged as the guilty party, there was major negligence on NYC’s part as

they in the first place did not fully comprehend the consequences of implementing an ERP

~ 24 ~

system, and more importantly they did not have a clear understanding of their own business

model. (Kimberling E, 2012).

Another important aspect of ERP implementation is getting all affected employees involved

in the whole process of implementing ERP, as they will have a proper understanding of their

system, keeping them motivated and less resistant to the changes that will occur. According

to Spector (2010), employees resist change because they see it as a threat feeling that it will

aversely affect them. This can be eliminated by encouraging employee participation in the

changing process and informing them of the change so that they feel part of the process.

Normally, the organizations culture plays a big role in the rollouts of such systems, where

everyone get directly or indirectly affected. Old timers in the company tend to strongly resist

any change, since they are pleased with the results they are bringing in using the current

system, and do not want to have to learn and test with a new system. Hence, the involvement

of Senior Management of the company is essential as they will need to adopt the change, and

spread the awareness through all channels to all the employees of the benefits and results that

are expected from the new implementation.

There should always be a test rollout of the system on a small scale, to ensure that the system

is not lagging or is bugging. This reduces the risk of downtime when the system is first

launched, since it has been tested. (Refer border state industries)

One of the biggest challenges in an ERP system implementation is to migrate existing data

into the system. This will require a lot of resources dedicated to this task. However, this fixed

cost will pay off once all new proposals/projects/activities are directly inputted into ERP,

making the whole process automated.

~ 25 ~

Beyond the cost of the software package there are a lot of hidden costs that the company

should be aware of, such as training, customization, data conversion, data analysis,

consultants and maintenance costs. Moreover, there will always be opportunity cost, where

there will be a never ending debate on whether the funds used could have been put for

another project that could of brought in bigger revenues and more value to the company.

Hence, whenever a company budgets for ERP it should overestimate the budget required.

(Leon, A. 2008)

5.2. ERP Implementation: Steps

There are five general steps involved in the implementation of an ERP system. If these

steps are followed effectively with the above factors taken into consideration, then the

implementation down time can be reduced and the budget can be kept tight within limits.

(Spanw. N, 2010)

Planning and requirement analysis

Design (configuration)

Detailed design (customization)

Implementation

Maintenance

5.2.1. Planning and requirement analysis

This is the first step in the implementation of the ERP, where the company decides if they

have to implement ERP, who is going to implement it and how are they going to implement it.

~ 26 ~

The ERP team should understand the company’s business model, business strategy and

effectiveness of each process in the organization. (King, W. 2005). The team should then select

an ERP system that will help its organization. (Yusuf et. al, 2004)

5.2.2. Design (configuration):

This is the step where the consultant from the software company works with different

departments in the organization and understands the system. The consultant also tries to know

the best practices followed in the organization and tries to develop a framework for the

organization. (Spanw. N, 2010)

5.2.3. Detailed design (configuration):

This is the step wherein the consultants determine which processes in the organization

needs customization and which do not.

However customization has its own drawbacks like:

The amount of time taken for implementing ERP becomes longer. (Meg F, 2010)

The more we customize the system is, the more the company would be falling

back to its own legacy system which reduces the competitive advantage.

It also has its own benefits like:

~ 27 ~

Improved customer friendliness; employees can use the new system with relative

ease. (Meg F, 2010)

Competitive advantage by having exclusivity to the business flow.

5.2.4. Implementation:

After the detailed design phase is the implementation of the ERP. In this phase the

existing data is converted to the company’s new ERP system. (Spanw. N, 2010) The consultant

receives feedback from the organization and tries to reduce the bottle necks and fixes the errors

in the software and finally implements ERP.

5.2.5. Maintenance:

This phase is a never-ending phase where the organization is in constant touch with the

software provider for any customer service issue, and uses them for maintenance of the systems

in the organization. (Spanw. N, 2010)

6. Improvements in the Proposal Process through ERP

Due to the growing size of Petrofac and the need to take on more projects/proposals that

are bigger in size and complexity, the implementation of an ERP system has become a necessity,

rather than a luxury, to mitigate and control huge risks carried with such projects.

ERP is a viable solution to many (if not all) the problems/risks facing the Proposal

department which holds processes that are information-intensive. There are numerous benefits of

implementing an ERP system to manage the Proposal process. The Proposal department is the

~ 28 ~

blood line of Petrofac; if no proposals are awarded, the company will simply have to layoff

employees, and shrink to the extent of shutting down.

As seen in Section 3, there are several inefficiencies in the proposal execution process

that should be addressed. The areas that will certainly be positively affected, and have the most

favorable impact are: (Halvorsen M, 2009)

Materials management

Interfacing

Forecasting and projecting- accounting

Historical Data

Resource Requirement

Material management:

An EPC contractor requires procuring many packages/materials from different sources

and locations. The ERP system will ensure the proper monitoring of all the RFQ’s that are sent to

the vendors/suppliers of materials, which enables the Proposal manager to liaise the progress of

the Procurement department in receiving firm quotes for all the materials required in accordance

with the technical specification requested by the client. Moreover, the Procurement engineer will

be much more efficient since he/she will be able to access the database on the ERP system of

previous proposals worked on, and will be able to focus his/her communication on the right

suppliers for the material.

Moreover, the ERP system will reduce errors in the data. In the initial stage of the

proposal, the part numbers required are all inputted into the ERP system, which are then revealed

~ 29 ~

to all the relevant parties; to the Engineering department to initiate their designs and drawings,

and the Procurement department to send out RFQ’s and receive quotes, and the Proposal

department who monitor the progress.

The ERP system will create boundaries and structure to data. The ERP system will not

allow certain parameters to exceed a certain value, or be neglected when inputting the data. Such

conditions raise the quality assurance of the work in accordance with the Best Practices (BP).

Best Practices (BP) are the most effective ways in which a process is performed/executed. BP’s

are built-in into the ERP system in order to maintain the quality and integrity of the system. BP’s

are like the benchmark in which if the company operate on would lead to a reduction on time

consumed in project tasking, documentation, and execution. BP’s reduced risks affecting

companies by 71% when compared to other software implementations. (Martin S, 2004)

Interfacing

One of the biggest concerns of any department is the internal interfacing with other

departments. The ERP system records all communications between departments, where any

relevant party can access the information and communication, solving the frequent issue of

employees not being available, or employees going on leave or leaving the company taking all

their emails (which are the only channel of communication used) with them.

ERP will solve the issue of interfacing between the Proposal Team and the Project

Execution Team, where the system will hold all the information needed for a proper handover of

Proposal data to the Project Execution Team.

Forecasting and Project accounting:

The ERP system can be designed in such a way that it calculates a budget in the most

efficient way, as it is most likely that the lowest price bidder is awarded the project. The ERP

~ 30 ~

system should also have the feature of projecting the future performance of the project, giving an

insight based on historical data that is stored on the system. (Halvorsen M, 2009)

Historical Data

The ERP system will store all the previous proposals, where any person working on the

proposal can easily compare the deliverables of similar proposals, which leads to elimination of

duplicating the same work over and over again, and provides a sanity check for the values and

figures in case there are any discrepancies.

Resource Requirement

ERP’s implementation generally leads to some restructuring on a departmental level as

well as on an organizational level. It is likely that the system will lead to the reduction of

resources required to do the same activities, since it the entire process has become more or less

automated.

7. Conclusion

Like everything in technology, ERP has its pros and has its cons. The ERP will definitely

cost Petrofac a considerable amount of money, resources and time. The success rate of ERP

rollouts is as low as 49% in the industry (Gioia R 2001), hence, the number of contractors

implementing ERP systems is low.

Nevertheless, in today’s world of mega projects and enormous competition, a company

such as Petrofac would need to take all possible steps to gain advantage over it competition, and

at the same time reduce the risks in the liabilities that are carried by EPC contractors. A

milestone step that would certainly turn it all around for Petrofac is a properly constructed ERP

system. However, it does not stop there, as Petrofac will need to measure the gains of the ERP

~ 31 ~

solution against a set of Key Performance Indicators (KPI’s), in which there will be a before and

after comparison, since the ERP system can be modified as much as possible in order for the

company to reach its targets.

Nowadays, companies boast about their ERP systems, since ERP shows that the company

is serious about the quality of their products and services, and about reducing wastages. There

are certain clients which would not contract with a party that does not have an ERP system

implemented. Petrofac can reap the benefits of being one of the first movers in implementing

ERP, since it is evident that the whole industry will embrace such solutions in the near future.

~ 32 ~

8. References

Bidgoli, H. (2004). The Internet Encyclopedia, Volume 1, John Wiley & Sons, Inc. p. 707.

Spanw Newbie, (2010). ERP Implementation Steps - Planning, Design and Implementation. Referred from: http://sapnwnewbie.blogspot.com/2011/05/erp-implementation-steps-planning.html on July 2012.

Kimberling Eric (2012) The warning signs of ERP consulting Fraud; Panorama consulting solutions firm, Retrieved from : http://panorama-consulting.com/tag/erp-fraud/ on July 2012.

Alexis Leon, (2008). ERP implementation- the hidden cost. Enterprise resource planning, Tata McGraw- hill,

TechFAQ (2008). What is ERP? Retrieved from http://www.tech-faq.com/erp.html on July 2012

King. W. (2005), "Ensuring ERP implementation success," Information Systems Management,

Yusuf, Y., A. Gunasekaran, and M. Abthorpe (2004), "Enterprise Information Systems Project Implementation: A Case Study of ERP in Rolls-Royce," International Journal of Production Economics, 87(3).

Fryling, Meg (2010). Total Cost of Ownership, System Acceptance and Perceived Success of Enterprise Resource Planning Software: Simulating a Dynamic Feedback Perspective of ERP in the Higher Education Environment. ProQuest: Dissertations and Thesis database. pp. 403.

Fryling, Meg (2010). "Estimating the impact of enterprise resource planning project management decisions on post-implementation maintenance costs: a case study using simulation modelling". Enterprise Information Systems 4 (4): 391–421

Magne Halvorsen, (2009). Selecting ERP for Oil and Gas Industry contractors and vendors, IFS white paper. Retrieved from : www.ifsworld.com on July 2012.

Monk, Ellen and Wagner, Brett (2009)."Concepts in Enterprise Resource Planning" 3rd.ed.Course Technology Cengage Learning.Boston, Massachusetts. Retrieved from: http://en.wikipedia.org/wiki/Enterprise_resource_planning

Prof. Dr. Martin Selchert (2004) "Enhanced Project Success Through SAP Best Practices – International Benchmarking Study". ISBN 1-59229-031-0. Retrieved from: http://en.wikipedia.org/wiki/Enterprise_resource_planning

Robbins Gioia Survey 2001 – Failure Rate. Retrieved from http://www.it-cortex.com/Stat_Failure_Rate.htm#The%20Robbins-Gioia%20Survey%20(2001)

Pearlson, K. E., & Saunders, C. S. (2003). Managing and Using Information Systems: A Strategic Approach (2nd ed.). John Wiley and Sons.

~ 33 ~

Piccoli, G. (2007). Information Systems for Managers. United States of America: John Wiley & Sons.

Robers, D. (2011). Business Growth And The Role Of The ERP. Retrieved July 15, 2012, from http://www.sooperarticles.com/business-articles/erp-articles/business-growth-role-erp-553010.html

Spector, B. (2010). Implementing Organizational Change. (2nd ed.) United States of America: Pearson Prentice Hall.

~ 34 ~

9. List of Figures

~ 35 ~