This article attempts to increase understanding of best practice in decision-making in strategic project management, as applied to the upstream oil and gas sector. It describes what is meant by strategic project management in that context, outlines the wide range of techniques that can be applied to managing strategic projects, and explores the elements (or dimensions) of the strategic project management process, and the appropriateness of techniques in facilitating strategic project management. It seeks to improve managerial understanding of strategic project management, by proposing a set of multidisciplinary elements framed by the balanced scorecard’s (BSC) rationale, and investigating the extent to which techniques address the proposed set of elements.
It is widely accepted that the business environment is changeable, uncertain and complex (Partington, 2000). Major changes have occurred as a result of the growth of industrialised economies, the advent of privatisation programmes and deregulation trends, the reinforcement of shareholder power and the development of new information technologies (Oyon and Mooraj, 1999).
In this context, strategic projects are essential, novel and long-term investments. They are required when a firm wants to achieve, sustain and renew its long-term objectives and prosperity. ‘Strategic projects are the vehicles through which a sound vision gets implemented and realised’ (Schoemaker, 1992). Strategic projects represent the core of corporate growth, change and wealth creation. They are major investments, often involving high uncertainty, they comprise intangible benefits and promise attractive long-term financial outcomes (Buckley, 1998). Strategic projects also motivate the creation, acquisition and development of competencies (Foss, 1997) and comprise a collection of diverse options (Amram and Kulatilaka, 1999).
Strategic project management consists of two main stages: evaluation and control (Amram and Kulatilaka, 1999). Evaluation involves framing (i.e. drawing up a strategic project after its inception), planning and valuing a strategic project; evaluation ends with the authorisation of the project. Control comprises the management, review and redesign of a strategic project through to its completion. Strategic projects are considered to be managed successfully if they are successfully completed, are financially successful and are successful for strategic (i.e. non-financial) reasons.
This article aims to move towards best practice concerning decision-making in strategic project management, as applied to the upstream oil and gas sector, i.e. the research, exploration and production of crude oil and natural gas. It will explore the concept of strategic project management, the elements (or dimensions of the process) involved in the strategic project management process, and the role of techniques in facilitating strategic project management.
In this article, elements are classified into three categories — context elements and content elements that describe the strategic project management process, and outputs that describe the results of the process. Elements are placed within the four perspectives proposed by the Balanced Scorecard (financial, external environment, internal business, and learning and innovation). In addition, techniques applied to managing strategic projects are separated, for simplification, into evaluation and control techniques.
This article begins with a description of the techniques applied to managing strategic projects. The research methodology for the study is then introduced, before describing the results of the interviews under a number of headings (defining strategy and strategic projects; evaluating and controlling strategic projects; elements for evaluation and control; and a balanced set of elements). Techniques and elements involved in strategic project management are then matched. The last section presents the conclusions and future research directions.
A wide array of techniques is available to support the strategic project management process, ranging from the traditional such as NPV and risk analysis, to the contemporary such as real options and economic value added. The strategic project management process is a complex, value creating process aimed at assuring long-term corporate success. Through a set of interviews carried out with a diverse group of managers in the upstream oil and gas sector, the strategic project management process is described. In addition, 50 elements (or dimensions of the process) are identified, and these are shown to be supported by previous research and theory related to the strategic project management field.
According to the interviews, strategic projects are considered to be crucial to capture a strategic opportunity, and have an impact on the company in the long run. Strategic projects are perceived as high-risk projects, and interviewees suggested bridging the financial perspective with other perspectives. The process of evaluating a strategic project includes the allocation of a company’s best resources and capabilities to realise the planned actions in order to create and acquire a competitive advantage. The process of controlling a strategic project aims to check whether goals are attained, actions are performed as planned and results are successfully achieved. However, a reactive control is not sufficient. A company must have a proactive attitude to transform its future through managerial involvement, change in organisational routines, and continuous training.
Elements involved in strategic project management are categorised by context, content and output. Ideas from the balanced scorecard are transferred from performance measurement, to test the balance of the strategic project management process.
In the final section of the paper, techniques are mapped onto the elements to describe the extent to which techniques address these elements. It is shown that there is not a one-to-one match between techniques and elements, and individual or a small number of techniques can only lend partial support to the strategic project management process. It can thus be conjectured that the richness of the process demands the deployment of a rich array of techniques. The proposed set of techniques for managing strategic projects include financially oriented techniques such as NPV, process oriented ones such as scenario analysis, prescriptive ones such as capital rationing and financial performance monitoring, and descriptive techniques such as the balanced scorecard.
The tentative conclusions outlined here raise further questions around which techniques have proved their worth in practice, and whether all the elements are equally important within the strategic project management process, or whether a subset of elements can be identified as critical to successful strategic project management. A further question would be whether management recognise and focus on the critical elements, and finally which techniques can support the key elements and thus facilitate successful strategic project management. These questions are the subject of further research.
