- October 9, 2012
- Posted by: essay
- Category: Term paper writing
Today, the development of oil industry confronts numerous challenges and threats. In such a situation, oil companies, such as BP, need to expand their international market presence and develop new oil fields to meet the existing demand. At the same time, the development of new oil fields should be based on the accurate and effective project management. Hence, the development of the project should include the quantitative and qualitative analysis to assess adequately the current position of the company and its future prospects, in case of the successful implementation of the project.
Nature of the project
The development of modern business heavily relies on the development of an effective marketing strategy. At the same time, the ongoing progress of modern companies, such as BP, is grounded on the successful implementation of projects, companies develop in terms of their short-term and long-term strategies. In such a context, the project management becomes of the utmost importance for a successful marketing performance and implementation of the marketing strategies of companies. In this respect, such companies as BP are mainly concerned with the international market expansion since they have already overcome boundaries of national markets and entered the era of globalization. In such a context, projects aiming at the penetration new markets or development of new production facilities become crucial for such companies as BP.
To put it more precisely, BP operates in the oil industry. The development of this industry is accompanied by numerous challenges among which the problem of scarce resources is the major problem the company is currently facing. In fact, oil is steadily running out and the company needs to develop new projects to research new oil fields which can be used for the stable supply of oil to customers (Howard, 2000). In such a context, the role of project management can hardly be underestimated. At the same time, the development of new oil fields implies that the company needs to conduct a detailed research of the resources available to the company at the target region, the current socioeconomic and political environment, assess internal and external risks and threats, and elaborate a clear and effective plan of the development of the new oil field in the Gulf of Mexico along with the plan of the further supply of oil from the oil field toward petroleum plants and customers of the company.
Hence, the major objective of the project management in regard to the strategy of the international market expansion is development of new oil fields, including the research of their potential and environment. The research of the natural resources and socioeconomic and political environment allows the company to analyze the prospects of the project of development of a new oil field, its potential and investments the company should direct to support the project. At this point, it is important to balance potential risks associated with investments of the company into the project and potential revenues. In fact, it is important to get balanced revenues and avoid unreasonable risks. In other words, the project should exclude the possibility of investments in oil field, where the risk of losses of investments is too high, for instance, investments in unstable regions, where the military actions take place, for instance Iraq, where the situation is still uncertain (Mohrman, 1998). At the same time, the development of new oil fields should bring stable revenues to the company and the return on investments should cover the investments the company counts to make into the oil field. In such a way, the main goal of the project is the development of a balanced investment plan into the new oil field in the Gulf of Mexico, which allows BP to carry on its international markets expansion strategy.
Task involved and interdependencies
The development of the project management implies the fulfillment of tasks, which are strategically important to the overall success of the project. In this respect, it is important to lay emphasis on the fact that the project management concerning the development of new oil fields by BP should focus on the fulfillment of several tasks: the analysis of the potential of the oil field, i.e. the analysis of the natural resources the company can get; the analysis of socioeconomic environment to get information on the local labor force, qualification of employees, costs of production, etc.; the enterprise analysis to understand the potential of the company to develop a new oil field, including the analysis of potential risks and threats; portfolio analysis to get information on the potential of the oil field proper; to develop scoring model and assess its results; to analyze capital budgeting to clearly define the budget of the project, potential revenues of the company and return on investments (Breneman and Taylor, 1996).
In this respect, it should be said that the analysis of the potential of natural resources of the oil field is fundamental for the entire project because the company needs to get detailed information on the amount of oil it can sell after the development of a new oil field. Often, prospective oil field turn out to be poor in oil, while the extraction of oil turns to be too expensive because of the natural conditions and negative impact of environment, which makes the process of extraction non-profitable. At the same time, the analysis of the potential of natural resources allows the company to develop a long-run strategy of the use of a new oil field. In fact, the company should get information on how long the oil field can be exploited, how much oil should be sold annually to keep the oil field profitable for a possibly longer period of time. Moreover, the analysis of the natural resources allows the company to define the entire lifecycle of the oil field, although the company should also take into consideration its technical opportunities and profitability of the oil field in the future economic situation, because at certain point the function of the oil field can become economically unreasonable, if the costs of production outweigh benefits.
Hence, the analysis of the current socioeconomic as well as political situation is important and it should be one of the major tasks of the project management. In fact, the socioeconomic situation in the world is changing constantly, while in some regions, especially in developing countries, it is changing faster than in other regions, including developed countries. In addition, the socioeconomic situation is highly dependent on the political situation since political instability can provoke serious economic problems, including economic recession which can outgrow into a profound depression. In this regard, developing countries are particularly vulnerable to socioeconomic and political instability since economy and politics are closely intertwined and interdependent. To put it more precisely, the political instability can change the economic situation in a country consistently. At this point, it is possible to remind the nationalization of the oil industry in Venezuela. Consequently, BP should analyze potential risks and the current political and economic situation to develop and implement its project successfully. In fact, the company needs to research the current political and economic environment to identify existing and potential problems. On the ground of this analysis, the company can take decision whether to develop the project or not.
Furthermore, the enterprise analysis is essential because BP needs to clearly define its current potential and opportunities as well as problems and potential threats the implementation of the project may evoke. In addition, the company can have internal problems which can prevent it from the implementation of the project. For instance, the company can face a shortage of well-qualified employees who agree to transfer to the new oil field, while local employee do not have sufficient qualification to all the works the project counts for. Hence, the implementation could be very problematic if such threats are not taken into consideration beforehand.
The portfolio analysis is crucial for investments because it allows the company to choose the most prospective oil field. To put it more precisely, the company can analyze several portfolios of different oil fields. By means of comparative analysis, the company should assess potential risks and return on investments. On the basis of this analysis, the company should make a choice in favor of one oil field. At this point, it is worth mentioning the fact that it is highly recommendable to choose the oil field where risks and return on investments are balanced. In fact, high risks traditionally exorbitant revenues and return on investments, while low risks allow the company to take certain but low return on investments. In such a situation, the balanced choice of risk and return on investments is the most prospective because it allows taking a reasonable risk to get high profits.
In this respect, it is also possible to use scoring model. This means BP can elaborate basic criteria on the ground of which the target oil field is assessed. For instance, the company can use such criteria as the costs of production and transportation, costs of labor force, remoteness of the oil field, potential of the oil field, socioeconomic and political stability in the country, etc. On comparing several oil fields, the company chooses the one which scores the most since it is the most prospective oil field among those which have been analyzed.
Finally, the company should focus on the capital budgeting because the development and implementation of any project is impossible with the budget which covers expenditures of the company and ensures stable revenues after the implementation of the project. The capital budgeting implies the financial analysis of costs of the project and potential return on investments. At this point, it is obvious that basically the capital budgeting is based on the precise and accurate calculations of spending of the company to invest into the project, but the return on investments is quite uncertain because it is very difficult to assess precisely the return on investments, especially of socioeconomic and political environment is vulnerable to consistent changes.
In such a way, the company should meet all of the aforementioned tasks and take into consideration existing interdependences, such as interdependence between socioeconomic and political environment. In addition, it is important to understand that investments and effective use of funds are interdependent with the return on investments because the more effectively funds are used, the higher is the return on investments.
Resources/constraints and limitations
The development and implementation of the project heavily relies on the resources available to the company, but the company should also take into consideration potential constraints and limitations of the project and its practical implementation. In actuality, BP has huge financial and technical resources, but it does not necessarily mean that the company can tackle absolutely all problems it may face in the course of the implementation of the project. In this respect, it should be said that the financial resources and technologies available to the company open huge opportunities BP can realize successfully. To put it more precisely, the company can invest in the researches of new oil fields, which constitute an essential part of the strategic development of the company. Therefore, the company’s budget has sufficient funding for research projects.
At the same time, on the ground of the research the company can elaborate the plan of the development of a new oil field, which its specialists choose as the most prospective one. The technologies available to the company allow BP to work in the most difficult natural conditions. Therefore, the research turns out to be crucial for the implementation of the project because BP can implement the project as long as return on investments are higher than costs of the development of a new oil field in the Gulf of Mexico and the overall realization of the project.
On the other hand, it is obvious that the project can face unsurpassable barriers or consistent constraints, which could prevent it from the successful implementation and bring the company profits it counts for. In this respect, it is worth mentioning possible socioeconomic and political instability which can lead to the total failure of the entire project, if the situation similar to the nationalization of the oil industry in Venezuela repeats, for instance. In addition, it is important to remember about the current situation on international markets since the oil consumption has decreased substantially within recent months, while the current economic recession which affects practically the entire world, along with a consistent drop of oil prices make the development of new oil fields not always profitable.
Moreover, the elaboration of the project and its implementation can face purely technical problems. To put it more precisely, it is not always possible to collect accurate data concerning the potential of natural resources in the researched region. Therefore, results of the research of the target oil field may turn out to be erroneous or inaccurate. Secondly, it is difficult to foresee the development of socioeconomic situation and political situation in the country where the target oil field is located. At the same time, the company can face numerous internal and external problems (Gitlow, 1997). For instance, the development of a new oil field in the Gulf of Mexico implies the employment of new professionals. At this point the company is likely to employ local professionals whose qualification can be lower compared to the general standards established within the company, while professionals who are already working at the company can be not motivated to transfer to the new oil field. In addition, professionals may demand financial bonuses and additional stimuli to transfer to the new oil field in the Gulf of Mexico that will increase the costs of the development of the new oil field. The latter can put under a threat the profitability of the project.
As for external factors that can limit the implementation of the project, it is worth mentioning the problem of the growing competition on the oil market. The leading multinational corporations are competing for new oil fields and it gets to be more and more difficult to get new oil fields. In addition, many governments develop protectionist policies in regard to the national oil industry and oil fields located on the territory of certain countries are considered as strategically important territories which cannot belong to a foreign company. For instance, today, it is quite difficult to enter markets of the Gulf region, some Latin American countries, even in Russia BP faces consistent problems and is likely to lose its share in the oil industry of Russia. In such a way, the company confronts serious problems today, while in the future all these problems will aggravated along with exhaustion of natural resources (Ponzi and Koenig, 2002). The oil is a scarce resource and the company will need to invest more and more in the development of new oil fields. At the same time, financial problems may force the company to optimize the use of existing oil fields, instead of developing new ones. Such a decision will definitely put under a threat the future of the entire project because the development of a new oil field in the Gulf of Mexico will not meet strategic goals of the company, at least in a short-run perspective.
Obviously, the elaboration and implementation of the project concerning the research and development of a new oil field in the Gulf of Mexico involves a number of stake holders which are interested in its successful implementation and which can suffer from considerable economic losses in case of its failure. First of all, it is obvious that the company is the most interested in the development of the new oil field in the Gulf of Mexico that means that the management of the company as well as its employees are interested in a successful implementation of the project. At the same time, it is important to lay emphasis on the fact that the management of the company is highly responsible for the successful implementation of the project, because it is the management of the company that elaborates the project, conducts all essential researches and analysis and works out the plan and the strategy concerning the implementation of the project. On the other hand, employees are responsible for technical implementation of the project and this is exactly where the problem arises because it is not always possible to employ well qualified employs to carry out the project successfully since employees can be unwilling to transfer or to get employed in a new oil field in the Gulf of Mexico or their qualification can be low to implement the project successfully. Hence, the company needs to focus on the formation of a responsible team of managers and employees who can work on the project and who can take responsibility for its successful implementation.
Furthermore, the development of a new oil field in the Gulf of Mexico inevitably affects the local population and the country where the oil field is located. Therefore, the local government and population can also be viewed as stake holders. In fact, the local population can be employed by the company if the qualification of local employees meets requirements of BP. Local employees can decrease the cost of production if the price of the local labor force is lower compared to the average price of the labor force worldwide. As for the government, it is also interested in the implementation of the project because the development of a new oil field in the Gulf of Mexico will stimulate the development of the local economy. To put it more precisely, it will encourage the development of the local infrastructure, stimulate business activity in the region, and contribute to the faster development of petroleum industry.
It proves beyond a doubt that a successful elaboration and implementation of the project of the development of a new oil field in the Gulf of Mexico should be grounded on the profound analysis of the project and its prospects. In this respect, the use of quantitative tools of analysis is essential because oil industry heavily relies on accurate forecasts concerning the potential of oil fields and the future development of the oil market, including fluctuations of oil prices. Without the adequate quantitative analysis it is impossible to launch the project concerning the development of a new oil field.
First of all, it is necessary to start with the project appraisal. In fact, the project should take into consideration the local specificities of the oil field where the company supposes to start the project. To put it more precisely, the project appraisal will include the costs of the research of the natural resources and their potential; the marketing research to assess risks and threats along with opportunities and prospects of the development of a new oil field; the costs of the local labor force, which can comprise the core of the staff working at the new oil field; costs of transportation and development of infrastructure; remoteness of the oil field which may increase the costs spent on transportation and maintenance of the oil field (Cerza, 2004).
Secondly, it is necessary to apply the DCF approach which allows to value a project using the concept of the time value of money. In terms of this approach, all cash flows should be estimated and discounted to give their present values. In such a way, it will be possible to define the value of the project, including costs of the development of a new oil field in the Gulf of Mexico and make forecasts concerning potential returns on investments.
Furthermore, it is possible to use the IRR, which is a capital budget metric which the company can use to decide whether it should make investments or not. In actuality, the application of this quantitative tool will help BP to define which oil field is worth investing and basically this approach can be used to assess portfolio of different oil fields. The assessment of efficiency or quality of investments is crucial for the project because the high efficiency of investments naturally encourages the company to fund the project.
On the other hand, it is also necessary to take into consideration the NPV, which is the total present value of a time series of cash flows. Basically, this method is widely applied today to assess the time value of money. In fact, this tool can help to appraise the project in a long-run perspective. But it is important to remember about the possibility of unexpected changes that can be introduced into the project in the course of its implementation.
In such a context, it is important to adequately assess potential risks the company can face in terms of the project. In fact, it is important to avoid unreasonable risks, but the low risk also implies low return on investments. Therefore, using the portfolio theory it is necessary to define the optimal portfolio where risks and potential return on investments are balanced. Also the risk analysis should also take into consideration external factors, such as socioeconomic and political environment.
Furthermore, it is necessary to clearly define the timeline of the project. For this purpose it is possible to use Gnatt chart which allows to define the start and to finish dates of the terminal elements and summary elements of the project. In such a way, the company can elaborate concise plan of the implementation of the project throughout all of its stages from the beginning till the end.
However, the aforementioned quantitative tools alone are not enough for the adequate and accurate analysis of the project and its prospect. In actuality, it is necessary to use qualitative methods to back up quantitative ones. What is meant here is the fact that it is necessary to implement qualitative methods to analyze the qualitative characteristics of the project. In fact, quantitative methods provide the possibility for the analysis of quantitative data, but, in the contemporary business environment, it is important to take into consideration qualitative factors because they can influence substantially the overall performance of the company and the implementation of the project.
In fact, it is possible to apply a variety of qualitative tools, but it is important to remember about the overall goals of the project. In such a context, the qualitative analysis should focus on the future development of the oil industry since it will help to define whether BP does need a new oil field in the Gulf of Mexico or not. In this regard, the interview of leading specialists, economists and scientists working in the oil industry, can be helpful since the interviews will provide the company with the professional opinion concerning the future of the industry and, therefore, prospects of the project. In addition, it is important to interview local specialists to find out the socioeconomic and political situation in the country where the project is supposed to be implemented. The forecasts of local specialists are of the utmost importance because they know the actual socioeconomic and political situation in the country and can forecast with a relatively high degree of accuracy the future socioeconomic and political development of the country.
General management issues and challenges
The quantitative and qualitative analysis should be complemented with the adequate assessment of general management issues and challenges that will help to elaborate an effective management strategy to overcome possible problems and challenges the company can face while implementing the project. In this respect, it should be said that it is necessary to start with the formation of a team or teams which can work effectively on the project. It is possible to create several teams working on specific parts of the project, such as the research of natural resources, marketing research, construction of facilities and infrastructure, etc.
At the same time, the group work, being very effective, still needs a leadership since a leader can unite efforts of all professionals involved in the project and direct them toward the ultimate goal of the project leading subordinates to the overall success of the project (Benfari, 1999). In this regard, the leader should avoid conflicts with subordinates and develop positive interpersonal relationships with employees to gain their respect, loyalty and support, which are essential for a successful implementation of the project.
In such a context, the motivation of employees is crucial to gain their support and increase efficiency and productivity of their work. It is possible to use both material and non-material stimuli to keep employees motivated (Schein, 1999). On the other hand, it is important to establish an effective system of control over the implementation of the project. For this purpose, it is possible to use control officers who can control and evaluate the implementation of the project.
The main purpose of the project was to prepare the development of effective approaches to the implementation of the strategy of BP focused on the international market expansion. To put it more precisely, the project was focused on the development of a new oil field by BP in the Gulf of Mexico region. The necessity of the development of new oil fields is obvious in the context of the scarcity of oil resources in the world. At the same time, the project should develop effective approach to the analysis of the implementation of the plan of the development of a new oil field in the Gulf of Mexico. In this respect, the methods of analysis were particularly significant in terms of this project because it was important to select efficient methods to obtain reliable results in case of the development and implementation of the plan of the development of the new oil field. In actuality, BP is one of the leading companies in the world’s oil industry, but, today, it faces numerous problems provoked by the lack of new oil fields to develop and the current situation in the oil market. To put it more precisely, the economic crisis decreases the demand for oil worldwide, but the company still needs to develop oil fields to maintain the stable supply of oil to customers. Hence, the project should focus on the oil field which could be prospective and the socioeconomic and political situation in the region and country where the oil field is located stable. This is why the new oil field in the Gulf of Mexico was chosen.
In fact, the subject of the project was chosen on purpose because the oil industry is now one of the most profitable industries, but its future is unclear. Therefore, I decided to focus on the research of the possibilities the company working in the oil industry has to keep progressing in the time of scarce resources and uncertain demand for the oil along with dropping oil prices. The BP is one of the world’s leaders in the oil industry. This is why I believe that the company’s policy mirror global trends which are typical for all major players in the oil industry. At the same time, the focus on the development of a new oil field naturally derives from the available solutions to increase oil production by BP. In fact, the development of a new oil field does not necessarily mean the increase of the production by BP in global terms. In fact, as other oil fields get exhausted, the company naturally needs to develop new ones. Hence, the company needs to search for new regions where it can develop its oil fields. The Gulf of Mexico seems to be particularly prospective because it is located in the Caribbean region, which is close to the USA, one of the world’s leaders in the consumption of oil. At the same time, I believe that the development of business in Mexico can be effective because of the relatively low costs of the local labor force and availability of well-qualified professionals which can be transferred from or employed in the USA, if necessary.
At the same time, Mexico is a developing country and, in the project, I supposed to elaborate effective methods of analysis of the current situation and prospects of the development of the new oil field by BP in the Gulf of Mexico. This is why I focused on both quantitative and qualitative methods which can be used for the research of the current situation in Mexico and prospects of the company.
In addition, on analyzing literature and other researches concerning the oil industry and development of new oil fields, I have found out that many specialists (Peters, 2007, Pine and Gilmore, 2002) believe that the oil industry will keep develop new oil fields and leading companies will shift toward stable regions, such as the Gulf of Mexico. In such a way, they will be able to maintain their marketing performance and share of the market. This is why, my choice of the subject of the project was quite prospective.
At the same time, I specifically focused on possible problems the management of the project and the company can face. In fact, it is obvious that the company needs to use the results of the analysis retrieved with the help of methods suggested in the project, but it also needs to manage the project and the implementation of the plan of the development of a new oil field in the Gulf of Mexico effectively. For this purpose, I focused on specific threats and challenges the company can face and provided recommendations concerning their solutions.
The project proved to be very important for my professional development because I have acquired new experience and I have started to view the development of business globally, which is very important in the contemporary business environment. In addition, the project helped me to develop analytical and strategic thinking. At the same time, I believe that I could focus on the research of another problem, which is an alternative to the development of a new oil field, namely, on the increase of the efficiency of the use of existing oil fields.
Thus, I have learned that it is possible to apply effectively both quantitative and qualitative methods of analysis and, specifically I have learned the current situation in the oil industry and prospects of its future development. In addition, the work on the project helped me consistently to elaborate a system which I can use in the further research projects. Moreover, the work on the project contributed to the development of my analytical skills and abilities and problem solving.