Don’t Overlook IT Infrastructure During Acquisition Integration

When planning mergers and acquisitions, it’s easy to forget about IT because most executives are focused on financial reporting and operations. It’s easy to take email access, working phone lines and software applications for granted. However, without diligent planning and project management, merging IT infrastructure can cause huge disruptions in daily business. An organization undertaking an acquisition can ensure that critical business processes continue uninterrupted by adhering to these four principles:

1. Network cutovers must adhere to a timeline. The network is the core of office communication. It is the way field employees and data communicate with the corporate office, whether it’s sending an email or transmitting production data. For example, if a foreman is trying to upload well data into ProCount, but has no Internet connection, production data cannot be reported. Without up-to-date production data, the corporate office can’t report well revenue and costs in an accurate or timely manner.

Network equipment like routers, switches and circuits, must be available and installed before the cutover can take place. The network architecture must be finalized before critical business processes, such as turning up SCADA, can happen. At this stage, it is crucial to review resource availability, internally and with vendors, to adhere to a firm deadline.

2. SCADA transfers happen in parallel with the network cutover. SCADA data, or automated production data, is some of the most important company data. Replication servers, usually found in data centers, function as a backup and must be reconfigured and tested to ensure they’re communicating with onsite servers. SCADA must be communicating with the new network before the old network is cut off. If this order gets reversed, there’s a risk of losing important data.

In an ideal SCADA world, the whole company would be on a standard SCADA system with identical system architecture and equipment between sites. It’s important that an internal resource has functional experience with the SCADA system and has the working knowledge to support and troubleshoot it.

3. Hardware updates affect the physical equipment employees will be using. Merging offices will require upsetting people’s daily routines to establish new ones. Computers need to be reimaged with new company standards, covering everything from desktop images and printer drivers to software applications like WellView and ProCount. When possible, use remote login to take inventory of applications in use at field offices. This will help determine what applications will be used going forward and if there is additional software that must be added to the company portfolio.

4. Testing is the final step in cutting over an office. Bring internal resources to branch offices to check each user’s ability to connect to the Internet, place a call and connect to printers. Face-to-face service builds relationships between IT staff and remote office employees. Onsite internal resources give employees access to immediate help should issues arise with opening or submitting data through new applications. It’s also an opportunity to provide one-on-one end user training and reference materials to employees.

Once it has been confirmed that all new systems are functioning and everyone can complete their daily activities, the office has successfully been cut over to the new network. While it may seem like small potatoes in relation to the operational and financial integration that takes place during a merger, IT integration is the foundation for bringing new employees and data into an organization. There are many moving parts in an office cutover that need to be addressed; Trenegy help organizations navigate all aspects of acquisition integration.

A Successful Cybersecurity Strategy

By: Matias Fefer and Peter Purcell

Boards are being pressured to ensure companies have developed and deployed robust cybersecurity strategies. Government oversight is increasing with the recent passage of HR 1770 by the Energy and Commerce Committee, which encourages companies to share details of all computer breaches with the U.S. government and affected parties. Many feel that HR 1770 is a precursor to supplementing Sarbanes-Oxley Sections 404 and 409 to hold board members and senior executives accountable for cybersecurity lapses.

Companies addressing cybersecurity threats face two immutable facts:

Fact #1: The IT environment will be hacked no matter how much money or effort is put into preventing cyberattacks.

Fact #2: The only way to prevent hacking is to disconnect computers from the network, disable all external ports, and prevent access by end users.

A company cannot perform business effectively on a day-to-day basis if computers are not networked. Emails need to be sent to clients, electronic orders need to be processed, and critical operational and financial information needs to be shared in a timely and accurate manner.

Companies who have successfully addressed cybersecurity concerns leverage a balanced, four-pronged strategy.

Prevention: Companies need to proactively identify and prioritize critical data or real-time control systems that need protection against unauthorized access. Penetration testing of priority areas will help determine gaps to be addressed with a combination of training, software and hardware upgrades, and security solutions.

Realistic prioritization of vulnerabilities is critical to ensure cost effective solutions are implemented. A recent study by an Ivy League college shows the most successful way to address breaches revolves around training and awareness. Cybersecurity experts say that more than 90% of breaches are a result of employees clicking links in phishing emails, infected emails from friends or cloned web sites. The remainder of breaches come through vulnerabilities in computing environments that have not been updated.

Detection: No amount of prevention will change the fact that networked computer systems will be hacked. Employees make mistakes. Companies need the right tools and resources to identify when a system has been hacked. Software tools and internal resources can be used to monitor networks and user accounts on a day-to-day basis.

Developing a relationship with a third-party cybersecurity firm is critical. Leverage the firm on a regular basis to test the computing environment and address hidden infections. Update training and end user communication based on results.

 Mitigation: A realistic cybersecurity strategy includes contingency plans to quickly address inevitable breaches. It is not cost effective for IT departments to acquire all the tools and resources needed to recover from specific cyberattacks. Hackers continually change their methods, making it nearly impossible for an internal IT department to keep up.

Work with a third-party cybersecurity firm to develop and deploy clear protocols and service level agreements for addressing cybersecurity threats. Develop and deploy a clear communication strategy with end users. End users need to know what to do and expect in the event of a cyberattack.

Transfer: A cyberattack creates significant risk given the sophistication and aggressiveness of hackers combined with the increasing reliance on computer systems. Procure insurance or migrate to a hosted environment to transfer risk. Cybersecurity insurance helps pay for the cost of mitigation and impact on all affected parties.

Using external hosting for key systems places the responsibility of mitigation on the service provider, as long as a company employee did not cause the cyberattack. The hosting provider is responsible for ensuring the core computing environment is properly updated and protected.

There are a significant number of technological solutions to address cybersecurity concerns. Many are very expensive and can limit employees’ ability to perform their day-to-day activities efficiently and effectively. However, the most effective software solution lies between employees’ ears. Strong leadership, change management, and training are critical to helping companies teach employees how to prevent cybersecurity lapses.

Matias Fefer is the Director of Information Technology for Atwood Oceanics and a leading cybersecurity strategist in oilfield services. Matias heads an offshore services consortium tackling cybersecurity issues with critical computing and equipment suppliers. He can be reached at

ERP Implementation: 4 Reasons You Need Outside Help

Type the phrase “ERP Implementation” into Google’s search bar and “ERP Implementation Failures” automatically pops up. Unfortunately for companies investing in ERP systems, this is indicative of the challenges ahead. A system implementation requires changes in multiple business processes, an overhaul of data management and reporting functionality, and an enormous change management effort.

While systems integrators are good at configuring software, additional consulting help will be required to ensure that ERP go-live is on time, the project is on budget, business requirements are met and your team is properly trained and supported to move forward in a new environment. When making an ERP investment, change management and ERP expertise are critical to project success.

The right consultant will guide an organization to ERP success by amplifying:

1. Capacity

A successful ERP implementation requires dedicated resources. Resources can be full- or part-time, but there can be no mistake as to their priorities. If workload distribution is mismanaged, project responsibilities can easily overwhelm staff and lead to burnout of key personnel.

At the outset of a system implementation, all master data must be validated and organized. Data accuracy is a critical and non-negotiable step in preparing for configuration. The cleanup process begins with defining and documenting the data model. Weeks of work go into confirming the data structure for vendor and employee files, charts of account and bin locations.

Major errors are prone to occur during cleansing and validating of master data, especially when the master data comes from systems that are not integrated. Merging master data requires experienced oversight and coordination–especially when different business functions own the systems being merged.

A good consulting firm will augment capacity the right way—combining their ERP-specific expertise with the project team’s company knowledge to execute a comprehensive implementation plan.

2. Capability

A common misconception is that a system integrator (SI) is capable of setting up an ERP that is technically sound and meets an organization’s business requirements. This misconception stems from the belief that a technically correct system is the always the right one. In reality, the two are often quite different.

The proper third party helps close the gap between a system’s base configuration and an organization’s desired future state. Third party consultants define requirements so the system is tailored to the organization, not vice versa. Consultants will guide implementation teams through a series of testing cycles designed to conform the system configuration to process changes.

SI’s have a tendency to solve issues in a silo. However, changes in one area often have far-reaching impacts on reports and add-ons. An experienced third party will understand the end-to-end process and ask important questions about the effects of system alterations. Without proper oversight, changes to the configuration can result in inadequate reports and difficulty integrating add-ons.

The ideal consulting firm works with many systems and configurations. Extensive knowledge of technical capabilities and limitations helps organizations prioritize additional work.

3. Change Management

A new, fully functional ERP system is only as effective as the people using it. Change management and training are crucial to a successful ERP implementation.

Employees will be concerned about how a new system impacts their roles. They may not like the resulting changes in their jobs. Effective training will bridge the gap between how things are done today and how they will be done in the future.

Expert change management consultants will create training specifically designed for the organization. Standard technical documentation isn’t enough; it will leave employees confused and frustrated. Third party consultants who make communication a priority will work side-by-side with struggling employees and develop a network of subject matter experts who can be used as long-term support.

4. Return On Investment

Without expert help in selection, planning and execution, an ERP project can easily exceed budget targets by 50-80% or overrun projected completion dates by months.

Installing a new system is not enough. People must embrace the new processes and tools in order to work more efficiently and use data more effectively. Third party consultants should decrease the time required to realize your investment. Effective consultants will provide short-term support to ensure long-term success.

Trenegy is management consulting firm with extensive experience in change management and ERP projects. We help companies plan and prepare thoroughly so ERP implementation is successful the first time. Read more in Boiling the Frog: How ERP Implementations Go Wrong!

Streamline Financial Planning With the ERP Solution

Forecasting financial data is an important process, as it allows management to review an organization’s current financial state through the fiscal year’s actual and projected financial data. In this process, financial planning gathers the current fiscal year’s actual data, analyzes the outcomes, and forecasts the remaining fiscal year. Therefore, the resulting forecast is only as reliable as the actual data gathered and the quality of analysis.

Gathering the actual data and analyzing variances is often burdensome and shifts focus away from financial planning’s primary role: forecasting. To streamline these phases of the forecasting process, organizations should begin with the ERP system. Organizations can design an ERP that aligns how data is forecasted and recorded, configure the actuals to flow seamlessly into the financial planning model, and provide financial planning ERP training for variance explanations. All of these steps further improve the forecasting process by shifting financial planning’s focus back to forecasting.

System Design and Reporting Requirements

An ERP system is an invaluable tool to many functions within an organization. Other functions, like financial planning, may view the ERP as inadequate because the accounting data extracted does not meet forecasting requirements. Whether the financial data is too detailed or not detailed enough, both scenarios require financial planning to dedicate time to manipulating data rather than analyzing and forecasting financials.

The ERP may not meet the needs of financial planning because financial planning’s requirements were never expressed during the ERP design. The design phase is a critical phase in an ERP implementation wherein future-state data and reporting requirements are documented. Including the needs of financial planning not only streamlines the process for retrieving historical data, but it also determines the level of detail that needs to be recorded in the first place, unless GAAP requirements specify otherwise.

Data Retrieval

The means by which financial planning receives historical financial data can also cause problems in the forecasting process. Manually retrieving and uploading data into the financial planning tool can lead to errors or outdated data in the forecast model. By investing in an Extract, Transfer, Load (ETL) tool, financial data automatically flows from the ERP system to the financial planning tool. A translation can bridge the gap if the ERP design was not tailored to financial planning’s requirements but can be translated logically.

This allows financial planning to receive and utilize up-to-date and accurate information for forecasting, without having to manually touch the data. Not only does this significantly decrease the risk of invalid data in forecasting models, but it also allows financial planning to shift their focus from validating manually manipulated data to forecasting financial data.

If the organization does not have a financial planning tool, ensure the ERP data extracts are set up to financial planning’s exact specifications so they can flow seamlessly through the financial model.

Knowledge and Training

Part of the financial planning process is to analyze and explain variances between forecast and actual data. Usually, financial planning must search the organization for the appropriate resource to explain the variances. However, if financial planning has access to the ERP system and receives training on the overall layout and reporting capabilities, variances can first be researched in the source system. If further explanation is required for some account variances, financial planning can use the ERP to identify specifically which transactions need explanation and who is responsible for these transactions.

On the other hand, some financial variances occur due to coding or rollup changes that accounting enforced for their reporting needs. With training on the ERP layout, financial planning can articulate how ERP changes will adversely affect the forecasting process and reporting requirements. Conversely, if management requests changes in the forecasting layout, financial planning can work with accounting to realign how data is recorded with how management requests analysis and forecasts.

Align actuals and forecast through ERP design, integrate the ERP and financial planning tool, and train financial planning on the ERP layout to streamline the financial planning process. These steps prevent financial planning from dedicating resources to manipulate data to align with the forecast, reformat data extracts to flow into the forecast model, and search blindly for variance explanations. By streamlining the first two phases of the forecasting process, financial planning can concentrate on projecting a more reliable forecast with quality data and strong analysis.

Trenegy helps companies successfully implement financial processes and systems to support growth and change. Read more about maintaining healthy budget and forecast reports in The Corporate Financial Planning Owner’s Manual.

Top 5 Causes of Communication Failure

In a world where unread emails abound, effectively communicating to colleagues, employees and customers is getting more and more difficult. Communication fails for many reasons, and both the message sender and receiver contribute to the breakdown. The effects of communication failure range from losing sight of group goals to more immediate problems like safety hazards and regulatory issues.

Communication most often fails for the following reasons:

1. Using technical jargon. When conversations turn technical, anyone without the referenced expertise will tune out. The same way most people throw away user manuals or automatically check “I have read the Terms and Conditions” boxes, readers will disregard communication they don’t understand.

Talking about IP addresses to a user who is unable to open his or her accounting application frustrates everyone. Explain technical terms if necessary, but for the most part, use common language when addressing a broad audience.

2. Overloading the audience. More written words don’t always translate to high importance information. Most people won’t take the time to read digital information that requires scrolling through multiple pages.

Layouts with bold titles, differentiated subtitles and bullet points help readers visually organize information. Create documents that are visually appealing by:

  • Using descriptive headlines so the audience can scan a document and walk away with a grasp of the main points.
  • Limiting emails to 4-5 bullet points with relevant information.
  • Using graphs and visuals to explain complicated details or highlight important instructions.

In face-to-face communication, the same principles apply. Start with a clear meeting agenda, invite only the people who need to be there, and set a goal for what the group will accomplish.

3. Assuming foreknowledge or relationships. At the start of a meeting, ask a few simple yes-or-no questions in order to gauge how familiar the audience is with the information. This will prohibit too much or too little information being shared.

Quickly review key decisions from previous meetings if necessary, but make sure that the discussion is relevant to the current audience.  Prior to each meeting, send links to important background information.

Make introductions as soon as new parties get involved. If a team member is replaced, update contact lists right away. Bring new people up to speed in one-on-one meetings—don’t use group time to review unless new decisions need to be made.

4. Using the wrong delivery channel. Communication doesn’t always have to be via email. There are alternative ways to get information across effectively. Use slide share programs, meetings, and information posted in highly trafficked places to disseminate information.

Graphics and interactive videos are good for demonstrating software features or new processes. Visuals can easily depict step-by-step instructions. Consider making side-by-side comparisons of changes so the audience can see what is different.

5. Sending irrelevant information. The best way to approach communication is by starting with the audience. Be clear about what the email/graphic/video/presentation should accomplish and convey the information truthfully. If the audience needs to take action, make sure they know what and why. Finally, let the users know how the message impacts them—what do they get out of knowing the information or taking the requested action?

In the case of multiple audience groups, create multiple messages. Ask, why does this group of people need to know this? How will this message impact this audience? What is the best way to deliver the information? Make sure that the message is simple and concisely delivers the relevant information.

Communication is critical for all change management activities. Trenegy helps organizations implement change programs for ERP selection, ERP implementation and acquisition integration. Read about how to execute an effective change management program in The North Wind and The Sun Change Management Approach.


Resolving Issues After ERP Go-Live

Issue resolution is a critical aspect of ERP go-live success. When an employee using a new system finds a technical glitch or an error in the process, there must be a way to address and resolve it quickly and efficiently. The first week of go-live sets a precedent for the rest of the company. If issues are not addressed promptly and resolved accurately, end users will work around the system. Work-arounds make it difficult to ensure employees follow new and more efficient processes, eliminating one of the key benefits of a new ERP.

Successful companies assemble an issue resolution team with clearly defined roles and responsibilities and a resolution process to address immediate post-go-live activities. The following steps are critical to address and resolve problems in a timely manner.

Create an issue resolution process. An issue resolution strategy should be developed in advance of an ERP implementation go-live date.

  • Create a way for all issues to be funneled and documented in one common location. The issue resolution team should add every incoming issue to an online database, document the problem and send the issue to the person who can address it technically.
  • Set up multiple ways for users to communicate issues to the resolution team. A phone number and email address are two requisite platforms for issue submission. Additionally, missed calls and voicemails can be recorded and forwarded to the database through an email attachment.
  • Identify the point person, or person the issue is assigned to, for different types of problems. It is important that the issue resolution team conduct practice runs to test the process and become familiar with potential types of issues. In most instances, there will be one point person assigned to each department, but there will be circumstances that require multiple departments to work together.
  • Include the issue submission process plan and contact information (email address, phone number, etc.) in the all go-live communication.

Systematize Communication. Communication among all parties involved in an ERP implementation is critical for a successful issue resolution process. The most critical parties include: the end user identifying the issue, the point person working to resolve it, and the team receiving and tracking the issues. The issue resolution team should contact the issue identifier when the issue is submitted, resolved and ready for testing.

As issues filter through the resolution process, take note of specific trends in issues submitted in order to gather future requirements for process improvements. Patterns need to be identified by issue type, which can lead to resolving several issues with one solution. It is critical to verify with the end user that the issue was in fact resolved.  End users will be more responsive and patient when kept in the communication loop.

Plan for technical support. Bring the ERP vendors on-site to aid the project team and provide technical support. These technical experts are critical when specific situations arise that weren’t covered in-depth during training. The specialists can quickly assess and resolve complex issues. Typically, ERP vendors will support the go-live effort for a month, and in most cases this is only via phone. Instead, keep the additional help on-site for at least a month and again during major financial closing dates, for example, month-, quarter-, and year-end closing. This will ease the end user through the day-to-day and closing process transition.

The initial high pressure of an ERP implementation will dwindle after a couple of weeks, and issues progressively tend to fall through the cracks. In most instances, the project team will transition back to their permanent roles after the initial go-live date. Be sure not to lose sight of the issue resolution process. Continue to communicate and follow up with technical experts.

Trenegy helps companies successfully manage ERP implementations using a proprietary project management methodology all the way through go-live support. We help our clients get value of out their new system quickly and relatively painlessly. Read how to properly prepare an E&P company for implementation in our recent publication: E&P Company Systems: 4 ERP Implementation Land Mines to Avoid.

Signs the Corporate Culture Needs an Overhaul

Never shout “fire” in a crowded theatre. Surroundings dictate whether certain comments are acceptable or deemed inappropriate.  Likewise, in the corporate world, comments acceptable in one organization might be considered blasphemy in another.

The line between inappropriate versus appropriate commentary is a barometer of a company’s cultural health. Healthy corporate culture is a strong predictor of healthy financial performance. In an unhealthy culture, much of the corporate vernacular sounds like finger pointing or justification for poor performance.

Look out for this type of language when evaluating company culture:

“Nobody told me I was supposed to do that” could be an indication employees wait to be told what to do. It may reveal an unhealthy authoritative culture where people are not given reasonable responsibility and fear making mistakes.

In healthy cultures, employees take ownership of their work and accountability for performance is expected from every level of the organization.

I did not receive enough training on the new system” is an indication employees may not be initiating learning and do not feel empowered to figure things out. In a culture where management spoon-feeds employees, innovation is probably absent. If enough employees bring up lack of training as an issue, management may not be putting enough emphasis on innovation and accountability.

In an innovative culture, employees are constantly learning. While leadership provides training opportunities, employees also seek out development opportunities. Information sharing between colleagues is prevalent and staff are eager help one another learn new systems.

“I am so confused” is a defensive mechanism people use to either avoid admitting they have no clue about expectations or avoid admitting they think their co-worker or supervisor is an idiot. This type of language is indicative of a passive-aggressive culture where people are afraid to speak up and ask questions. Instead, disapproval and irritation is expressed through biting comments and negative behavior.

In a corporate culture where leadership sets a good example, employees at all levels are able to express opinions assertively, not aggressively or passive-aggressively.

“Could you come in on Saturday?” Employees should be aware of their deadlines and should not have to be told whether or not to work on Saturday. A culture where supervisors feel they must tell their employees when to work on a weekend is either an indication of poor planning or employees who are not taking ownership of their jobs.

There are busy weeks or months in every organization. There will be times when an extra push is needed and employees come in on weekends to get work done. In a healthy organization, staff knows when this is necessary and gets the work done.

My previous company allowed me to…” quickly generates negative comparisons and can lead to cynicism. If continued, these sentiments can provoke gossip and complaining.

In organizations with healthy corporate cultures, employees are enthusiastic about their work, appreciate the organization’s strengths and have the best interest of the company in mind.

“This is the way I have always done it” typically means that there is no concrete reason for how work is performed or the employee is not aware of the purpose of the work. Neither excuse is good. In an organization where this answer is acceptable, innovation and drive for improvement are typically lacking.

In high-performing organizations, employees understand the logic behind their work and consistently question how it can be done better.

People working in healthy company cultures don’t consider these comments acceptable. In many cases, the unwritten rules of acceptable behavior are a direct reflection of a company’s cultural health.

7 Tips for Effective Training

Two generally accepted approaches to learning—passive and active—drive most training activity. Passive learning is reading, seeing and hearing, while active learning is saying, writing and doing. Studies show that retention rates are 20 to 40 percent higher in active learning. Unfortunately, the passive approach is taken all-too-often via streaming videos, death by PowerPoint, long-winded lectures and e-learning. Once the thunder and lightning is over, employees quickly revert to the old way of doing things because none of the training resonated with the audience.

Developing a training strategy that will facilitate learning and truly change how employees do their jobs on a daily basis is not an easy feat. By following a few simple steps that leverage active learning techniques, an organization can ensure that trainees are armed with everything they need to be successful.

  1. Allay fears. Fear is the biggest driver of the “this won’t work!” mentality. It is normal for trainees to feel concerned or confused. Change, no matter how little, can make life more difficult at first. Do not pretend like it does not exist or minimize trainee feelings. Instead, work together to understand and eliminate those feelings by gathering individuals or small groups to discuss specific ways day-to-day tasks will change. Link the change to tangible end goals with desirable outcomes. Lastly, provide support so trainees have a direct lifeline when they need it.
  2. Read between the lines. Often, a trainee’s concern is not what is being directly stated. “This won’t work for me” could mean, “I have no clue as to what is going on,” or “I’m really afraid that my job is going to change for the worse.” Address these concerns immediately. Try to get the root of the issue and find answers. Even if the issue cannot be resolved completely, take the time to investigate and follow up. It will go a long way in calming anxiety and building trust.
  3.  Leverage Subject Matter Experts. Subject matter experts (SMEs) are the people who know their areas of the organization inside and out. The SMEs know their purpose in the organization and how their jobs fit into the bigger picture. Find these people early—at least one for every function within the organization. Do what it takes to enable the SME to become a champion for change. SMEs will know their people and processes well and can help develop the best strategy for training. Because of their comprehensive knowledge, SMEs can also predict where disconnects or trouble may arise.
  4. Get to hands-on training as fast as possible. Hands-on training can be done in groups or in a one-on-one setting. What works for one person might not work for everyone. Regardless of how it is done, the faster trainees can practice real-life scenarios, the faster they will learn. Even if trainees don’t fully understand the changes that will be taking place, allow them access to the new way of doing things and give them time to understand the concepts while at the helm. Don’t rely on pre-made, step-by-step lists. Instead, devote more time to hands-on training where users can build their own lists in their own language.
  5. Highlight the positive, but don’t gloss over the negative. There will be a number of differences in how work is performed in the future. For example, documents may be handled differently, or there may be more approvals (a.k.a. red tape) because there were no controls in the old process. Focus on the desirable end goals and the big picture, not on how perfect everything will be as a result of the change. Be realistic. Acknowledge that processes might take longer than before, but explain why.
  6. Bridge the gap. Asking trainees, “How did this process work before?” can be an extremely powerful tool. Understand how he or she worked before and then map out the new process in terms of the old, pointing out what has changed and how the new process handles each step. This will not only dispel fears, but it will also help trainees make individual connections to the process.
  7. Teach employees how to problem solve. There is no way that every scenario or situation can be covered in training. Instead, training should focus on critical elements and common scenarios. Trainees should be given time to fundamentally understand their new work. Arm trainees with all the back up they need through training materials and a lifeline. If trainees understand what they are doing, why they are doing it and where they can find more information, they will be better equipped to handle a problem if it arises.

Change is hard on an organization and its people. Pushing change down to employees without proper preparation will most likely lead to failure and disconnects. Trenegy helps companies address change head-on. We design training strategies that help employees move past their fears and become a part of the organization’s future.

Creating a Disciplined AFE Process: 4 Key Practices for Midstream Companies

Although acquisitions are a quick way to expand midstream operations, midstream companies are also presented with opportunities to grow organically. Organic growth requires disciplined engineering, construction project management, commercial operations and processes. The glue that ties the process together is a disciplined Authorization for Expenditure (AFE) process. The commercial modeling of projected revenue from producers, engineering estimates for construction, and project management must be linked throughout the AFE process. 

The ultimate goal of the AFE process is to minimize the variation between the budget and actual value-add curve. Create a disciplined and streamlined AFE process to minimize value-add variation:

Make the AFE Central: The AFE should not be viewed as merely the document used to obtain approval for beginning the planning and construction process. The AFE should extend across the budget, forecast, commitments and spend. The AFE should be connected to the GIS, land, accounting, procurement and forecasting systems. For example, we helped a client build an AFE process linked to each of these systems. Any recorded changes to the land right of way (ROW) and GIS data are connected to the AFE. Purchase commitments, forecasts and actual spend is recorded against the appropriate AFE line items. The AFE system is part of a hub that provides one place for reporting and analysis of midstream value-add projects.

Capture Initial Assumptions: The initial assumptions used to budget the construction project should be captured and recorded as a part of the AFE. Key considerations such as ROW costs, pipe cost per foot, and compression requirements should be documented. Inevitably, a variation will occur. The ability to look back at engineering assumptions to improve projections over time is key to continuous process improvement. When the project is complete, you will have information to perform a thorough analysis of budget versus actual assumptions.

Measure Accountability: Project Managers leading a construction process are accountable for completing the project on time and within budget, and managing cash flow requirements is vital to maintaining investor confidence. Therefore, project managers should be accountable for accurately projecting cash flow requirements. The projection of cash commitment timing and estimated cost to complete should be tied into the AFE forecast and possibly an updated budget. One of our midstream clients monitored their project managers’ forecasting accuracy on a sliding scale. Forecasting accuracy expectations were set at certain thresholds based upon time horizons.

Involve the Project Manager Early: The project manager should be assigned as soon as a commercial opportunity is identified. Often, commercial terms are set based upon expectations of the project manager’s ability to meet cost, quality and time commitments. The project manager should be a part of these discussions and provide input to the terms of the agreements with producers. For example, the project managers have intimate knowledge of availability of materials, labor and equipment.  A labor shortage in a particular basin will impact delivery and cut overtime.

Trenegy encourages our clients to use the AFE process as a mechanism for ensuring cost, quality and time targets are met for all construction projects. Trenegy specializes in helping companies design and implement AFE solutions to manage the entire construction lifecycle.