IMPROVING PERFORMANCE

Operational Excellence in Production

8. ANNUAL PLANNING AND

BUDGETING
Operational Excellence Delivering Continuous Performance Improvement

VOLUME

Restricted
SR.12.10221
Restricted SR.12.10221

Operational Excellence in Production - Volume 4

8. Annual Planning and Budgeting

Reviewed by: Vice-President Upstream Production

Approved by: Production Leadership Team
Date of issue: August 2012
ECCN number: Not subject to EAR - No US content

This document is classified as Restricted. Access is allowed to Shell personnel, designated Associate Companies and Contractors
working on Shell projects who have signed a confidentiality agreement with a Shell Group Company.
‘Shell Personnel’ includes all staff with a personal contract with a Shell Group Company. Issuance of this document is restricted
to staff employed by a Shell Group Company. Neither the whole nor any part of this document may be disclosed to Non-Shell
Personnel without the prior written consent of the copyright owners.

Copyright 2012 SIEP B.V.

SHELL INTERNATIONAL EXPLORATION AND PRODUCTION B.V., RIJSWIJK

Further electronic copies can be obtained from the Global Information Centre.
Annual Planning and Budgeting

Contents

INTRODUCTION ............................................................................................................................................................. 3

ANNUAL PLANNING AND BUDGETING ........................................................................................................................... 5

Top level statement.................................................................................................................................................... 5
Impact on business performance.................................................................................................................................. 5
Tools ...................................................................................................................................................................... 5
Topics .................................................................................................................................................................... 5
Key measures .......................................................................................................................................................... 5
Operational Excellence Review – Questions, range statements and evidence ....................................................................... 5
Annual planning ....................................................................................................................................................... 8
Business planning ................................................................................................................................................. 8
The Functions’ Planning and Delivery Process ............................................................................................................. 9
Project and integrated services contractor plans.......................................................................................................... 9
Functions’ rolling two-year plan ............................................................................................................................... 9
Activity Based Cost Modelling .................................................................................................................................... 9
Gather data ........................................................................................................................................................ 9
Analyse and validate data ..................................................................................................................................... 9
Create model and forecast..................................................................................................................................... 9
Update, validate and release forecast ...................................................................................................................... 9
Budgeting ............................................................................................................................................................... 9
Daily cost tracking ...............................................................................................................................................11

SR.12.10221 Restricted 1
Annual Planning and Budgeting

Introduction

This document is designed as an aid to carrying out Annual TOOLS

Planning and Budgeting Operational Excellence activities. This section describes the tools available in each blade to help
Range statements and evidence for Annual Planning and deliver Upstream Production activities.
Budgeting are included along with an explanation of how to
reach those levels of performance. There are separate books TOPICS
for the other 27 blades. Each of the blades has the same The topics list the main content of each document.
format as follows.
■ Overview of the blade KEY MEASURES
■ Top level statement These are the key measures relevant to each blade and are
■ Impact on business performance required evidence of effective performance.
■ Tools
■ Topics QUESTIONS, RANGE STATEMENTS AND EVIDENCE
■ Key measures Questions and range statements for the Operational Excellence
■ Questions, range statements and evidence Review are included along with the evidence that will be
■ Content required during the review, i.e. M - measures; D - documents;
O - observations. Range 1 is considered ineffective performance,
OVERVIEW OF THE BLADE range 3 is effective performance and range 5 is best in class
The overview provides an introduction to the content contained (an example is shown below). Where relevant, range statements
in the document. apply to all facilities, pipelines, wells, structures on the surface
and sub-sea and offshore loading systems up to and including
TOP LEVEL STATEMENT the vessel connection.
The top level statement shows the objectives of the blade.
Some of the range statements also specify a Minimum
IMPACT ON BUSINESS PERFORMANCE Requirement. All assets must achieve these Minimum
There are five business drivers that have an impact on business Requirements, which are the minimum needed to comply with
performance, one or more of which relates to each blade. Group and Upstream standards and manuals in Upstream
■ Deliver effective competent people - activities to deliver Production. They represent the minimum level of control that is
competent and capable people to execute activities in the expected on an asset and are mandatory where the risk is
other value streams. present. Where applicable, range statement 3 is equivalent to
■ Deliver asset availability - activities to eliminate or reduce the the Minimum Requirement. Range 5 statements build on range
lows and offs in production capacity. 3 statements, i.e. it is not possible to reach range 5 unless all
■ Add/modify asset capability - activities to steer and then range 3 requirements are in place.
implement the future strategic direction of the facilities.
■ Produce hydrocarbons - activities to deliver smooth operation CONTENT
of the plan each day. The remainder of the document covers the major points
■ Reserves and recovery - activities to optimise recovery specified in the range statements and evidence.
of reserves.

This section describes the impact the blade has on business

performance in one of these value streams.

Range 1 Range 3 Range

ngee5
INEFFECTIVE PERFORMANCE EFFECTIVE PERFORMANCE ST IN CLASS
BEST
XX.01 HBA scope: How is the TOR scope for a specific HBA defined and
d agreed?
fficient scope selected
Insuffi sele for annual Hardware Managerr approved scope for asset
Minimum Requirement: Asset Manag All
A facilities within the asset
asse
arrier Assessments (HBAs) i.e.:
Barrier Hardware Barrier Assessment (HBA), where:
here: can
c demonstrate
■ not all hardware barriers sampled
ampled ■ all HBAs sample test all eight hardw
hardware
re barriers compliance
co ance to the
■ insufficient SCE Gr Groups selected
elected and/or ■ a number of SCE Groups per hardwhardware
re barrier have been se
selected mandatory
ma criteria such that
Insufficient justification for selection on basis of risk on the basis of risk only minimum annual HBA
■ insuffi
nsufficient SCE Equipm
Equipment nt sampled
sampled. ■ within those SCE Groups, SCE Equi Equipment
ment is sa
is sampled. activities are required.
Evidence
D - HBA TOR scopes

SR.12.10221 Restricted 3
 Operational Excellence in Production - Volume 4

OVERVIEW OF PROCESS BLADES adversely changed without appropriate mitigation. The

There are nine process blades of Operational Excellence. Management of Change processes capture, review, agree
Here is a brief introduction to them. The word ‘process’ can be and action technical and organisational changes.
defined as “a particular course of action intended to achieve a
result”. Processes tell us what we are meant to be doing and A significant proportion of Upstream Production activities are
how to do it. carried out by service contractors and equipment is purchased
from external suppliers. Category and Contract Management
The aim of Annual Planning and Budgeting is to ensure that requires the selection of an appropriate contract strategy and
the asset produces and manages plans and budgets that equipment, backed up by robust management of the contract
enable it to maximise production at competitive cost whilst over its life cycle, to ensure that contractor performance and
safeguarding asset integrity. This will include a contribution equipment visibly contributes to the overall business objectives
from all functions on the asset including Upstream Production. of the Company and its assets.
Integrated Activity Planning is the integration and
rationalisation of plans provided by different functions or For work to be executed there is a requirement for the safe,
departments to achieve the most efficient use of resources, to effective and efficient flow of people, materials, equipment
avoid clashes and ensure attainment of company objectives. and waste by road, rail, air and water transport. Logistics aims
This blade also includes turnarounds. Work Preparation, to achieve this through a proactive and comprehensive
Scheduling and Execution aims to identify, prepare and approach by their customers and their service providers.
schedule jobs to enable effective and efficient execution
of work. Furthermore, effective Materials and Inventory Management
will ensure that the right materials arrive at the right time in the
Making decisions about activities is made easier if there are right condition and are adequately stored until required for
efficient processes for Information Management, gathering, Upstream Production activities.
analysing and using accurate and up to date data and
information. This data and information can then also be used
to improve processes.

The safeguarding of Asset Integrity is paramount and Safety

Critical Elements and performance standards are used as the
basis for managing a major accident hazard. Managing them
effectively provides an accurate line of sight of the Technical
Integrity status of each asset, and supports the goal of “Our
assets are safe and we know it”.

Where any work involves a change then this change must be

managed carefully to ensure that new risks are not
unknowingly incurred or the prevailing risk profile is not

01. Leadership and Strategic Planning 15. Logistics

N 28 1
02. Upstream Production Organisation 16. Materials and Inventory Management
IO 27 2
CT 26 3 03. Operational Excellence Teamwork 17. Risk and Reliability Management
PE
U
OD

25
OP

4 04. Competence and Skills 18. Inspection and Condition-based Maintenance

PR

LE

24 5
05. Performance Management 19. Overall Equipment Condition
23
T INTEGR
6 06. Continuous Improvement 20. Total Cost of Ownership
SE
22 07. Communication 21. Unscheduled Deferment, ORIP and RCA
ITY

7
AS

Operational
Excellence
21 8 08. Annual Planning and Budgeting 22. Hydrocarbon Prod. Inform. Mgnt
AN E
D H SS
20 9 09. Integrated Activity Planning 23. Programming
19 10 10. Work Preparation, Scheduling and Execution 24. Field Operations (Operating Integrity)
SS
CE

18 11 11. Information Management 25. Real Time Operations

O
PR

17 12 12. SCEs and Performance Standards 26. Forecasting

PL

A
N 16 13
T 15 14
13. Management of Change 27. Well, Reservoir and Facility Management
14. Category and Contract Management 28. Chemicals Management

4 Be the best at delivering safe and efficient production every day Restricted
Annual Planning and Budgeting

Annual Planning and Budgeting

The aim of annual planning and budgeting is to ensure that ■ the annual budget book regrets listing of any activities that
resources are applied in the most efficient manner to ensure cannot be executed is reviewed and authorised by the
that short and medium-term organisational objectives for Asset technical authorities and relevant mitigation documented
Integrity, production, and cost are met. ■ costs are tracked on a daily, weekly and monthly basis.

In order to provide repeatable and transparent measures TOOLS

against top quartile in the future, it is important to have ■ EP 2007-9006 Annual Budgeting Process Guide
consistent budget guidelines and cost structures across assets ■ EP 2008-9014 Operating Expenditure Estimating
and regions. Process Guide
■ ABCM (OPE$T)
TOP LEVEL STATEMENT ■ Planning Standards
Create and maintain effective annual planning and budgeting
that supports the organisation in maximising production at TOPICS
competitive cost while safeguarding Asset Integrity by: The main topics covered in this document are:
■ producing and maintaining functional plans and Annual ■ Annual planning
Business Plans – Business planning
■ preparing and managing budgets – The Functions’ Planning and Delivery Process
■ tracking costs regularly – Project and integrated services contractor plans
■ evaluating the effectiveness of the planning and – Functions’ rolling two-year plan
budgeting process. ■ Activity Based Cost Modelling
– Gather data
IMPACT ON BUSINESS PERFORMANCE – Analyse and validate data
The aim of this blade is to contribute to the production of – Create model and forecast
hydrocarbons. In order to do this, the leadership should – Update, validate and release forecast
ensure that: ■ Budgeting
■ the ARP, five-year plan and annual plan are aligned – Daily cost tracking
■ the budget contains all necessary costs and activities to
maintain the facilities with no degradation of integrity or
loss of production

KEY MEASURES

MEASURE SHELL UPSTREAM AVERAGE TOP QUARTILE TRACKING FREQUENCY

Budget variance (actual vs planned cost) +/- 15% +/- 5% Monthly

OPERATIONAL EXCELLENCE REVIEW – QUESTIONS, RANGE STATEMENTS AND EVIDENCE

Range 1 Range 3 Range 5

INEFFECTIVE PERFORMANCE EFFECTIVE PERFORMANCE BEST IN CLASS
8.01 Functional plans: What is the level of compliance to the two-year rolling activity plans?
Two-year rolling plans exist All Upstream Production functions have rolling Clear ownership authority levels and
for some functions but there two-year plans in place derived from their long accountabilities take account of business priorities
is no clear linkage to their term plans. Clear ownership authority levels and and resource constraints: POB, availability of
long-term plans, MT IAP or accountabilities have been defined and enforced. cranes, logistics, etc.
the Business Plan. The plans are used as the input to MT IAP and the The plans are used to enable cross-functional
Existing plans are updated on business plan and updated quarterly. alignment in order to firm up execution windows
an ad-hoc basis. 50-75% of planned functional activities executed and form the basis of the function’s submission to
within current approved business planning year. the business plan and budget.
>75% of planned functional activities executed
within current approved business planning year.
Evidence
D - Functional two-year rolling plan signed off authorised by functional manager/lead;
D - Minutes of Quarterly Functional Planning Meeting

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 Operational Excellence in Production - Volume 4

Range 1 Range 3 Range 5

INEFFECTIVE PERFORMANCE EFFECTIVE PERFORMANCE BEST IN CLASS
8.02 Asset activity plans: To what extent does the asset activity plan incorporate functional plans, including those of contractors,
and agreed opportunities?
Detailed activity plans are The content and data requirements for all functional The data requirements are used to allow a more
generally not in place for all plans including those of contractors are defined, detailed level of planning, including production
activities. Contractors have agreed jointly between the asset and the functions impact with quantification and optimisation in the
not set up appropriate and adhered to, e.g. activity start dates, duration, ST IAP. They are also used to demonstrate readiness
planning structures, aligned activity execution details, production impact, for execution in line with the agreed timing.
with company standards and scaffolding requirements, resourcing, logistics, Planning structures and timelines for contractor
planning calendar. POB, IT, HSSE. Planning structures and timelines for plans have been defined and are aligned with
contractor plans have been defined and there is function planning standards which include
some alignment with function planning standards. schedules, procedures, controls and authorisation.
Evidence
D - Functional two-year rolling plan; D - Contractor plans approved by functions; D - Agreed standards and procedures
8.03 Improvements: How is the asset improvement plan reflected in the MT IAP and the annual business plan?
Improvements are not found Resources and costs have been calculated and All benefits (cost reduction, production gain, HSSE
in the MT IAP and annual included in the Business Plan. All relevant activities improvement) have been included in the Business
Business Plan. can be found in the MT IAP. Plan on a risked basis.
Evidence
D - Asset improvement plan; D - MT IAP; D - Annual business plan
8.04 Planning premises: What planning premises do you use for annual planning?
Planning premises not The asset has valid planning premises for the Premises monitored versus actuals and fed through
reviewed each year. business environment, which are used for annual to following year plans.
planning. For example, inflation rate, contract rate
pressures, production demand.
Evidence
D - Planning premises
8.05 Activity Based Cost Model: How current and detailed is the asset operating cost estimate?
No Activity Based Cost Minimum Requirement: Activity Based Cost Model Activity Based Cost Model is updated with the latest
Model is used. is updated annually including current activity and market factors (reference to Operating Expenditure
cost data with planning assumptions and deviations. Estimating Process Guide EP 2008-9014).
Annual updates of costs are made for No Further
Activity (NFA), current base case Opex life cycle
activities and cost drivers. It takes into consideration
key cost elements associated with enhanced and
secondary recovery, e.g. water injection.
Evidence
D - Activity Based Cost Model
8.06 Budget preparation: How robust is the budget preparation process?
No structured process for Minimum Requirement: Designated budget owner Assumptions are documented, and are consistent
budget preparation. and budget coordinator are appointed. The budget with ARP and planning assumptions.
book exists. A review of performance of against previous
All costs are categorised at least in the following year’s budget is used to inform budget build.
categories: Asset Integrity (Process Safety), revenue All stakeholders involved in the budget process
protection and value enhancement. are identified.
There is a clearly documented regrets list which is Gap analysis carried out to compare prediction
signed off by the Asset Manager and Production with previous year’s performance and the root
Director. causes of any variance identified and removed.
Evidence
D - Budget stakeholder map and minutes of meeting budget; D - Budget Book; D - Regrets List

6 Be the best at delivering safe and efficient production every day Restricted
Annual Planning and Budgeting

Range 1 Range 3 Range 5

INEFFECTIVE PERFORMANCE EFFECTIVE PERFORMANCE BEST IN CLASS
8.07 Budget review and approval: How effective is the review and approval process of the budget for the asset?
No structured budget There are budget challenge sessions with Upon completion of the budget cycle an after
challenge sessions. stakeholders and regrets are managed through a action review is carried out and an action plan is
formal process, which has an auditable trail with formulated for improvements to the process.
all changes signed off. Budget is approved by
asset leadership and JV partners. The documented
regrets list including impact on Asset Integrity and
Process Safety activities is known. The final budget
book and regrets list are signed off by the Asset
Manager and Production Director.
Approved budget for Technical Integrity and
Process Safety is uploaded in CMMS.
Evidence
D - Regrets List; D - Budget Book; D - After Action Budget Review and Action Plan
8.08 External approval: How well has the Upstream Production part of the annual business plan been modified to take account of
changes specified as part of the external process to approve the business plan?
The asset planning and the Plan is updated and released when funding is Regrets and deferrals resulting from the update are
business planning processes obtained for all activities levels including functions, quantified at least in the following categories: Asset
are not linked. service, technology and improvement plans. Integrity (Process Safety), revenue protection and
Regrets and deferrals resulting from the update are value enhancement. These regrets and deferrals
captured and approved by the Asset Manager. are signed off by the Asset Manager.
Evidence
D - Approved asset business plan; D - Regret/Deferral List; D - Function, Service Technology and Improvement plans
8.09 Latest estimates: To what extent are latest estimates based on actual rather than planned phasing of activities?
Latest estimates are inaccurate Latest estimates are updated manually to reflect Latest estimates are updated automatically from IAP.
and/or are not available prior actual activity phasing. This is done prior to budget
to budget review meetings. review meetings.
Evidence
D - Latest estimates
8.10 Expenditure against plan: To what extent is actual expenditure of the annual plan reviewed against the budget?
No budget reviews are Monthly Business Performance Reviews take place. Deviation from budget (actual vs planned cost)
carried out. Cost summary reports that compare actual is within 5%.
expenditure and budget. Deviation from budget Latest estimates are updated monthly and budget
(actual vs planned cost) is within 15%. reviews are against latest estimate as well as budget.
There is a monthly review meeting that addresses
variances, actions are identified and followed up
in a timely manner.
Evidence
D - Monthly cost summary reports; D - Minutes of Budget Review Meeting; M - Budget variance
8.11 Cost data availability: How soon after they are incurred are the costs of activities available?
Costs are available more than Transactional costs are available within 3 days of Transactional costs are available within 24 hours of
3 days after they are incurred. the cost being incurred. the cost being incurred.
Evidence
D - Daily cost tracker
8.12 Cost data review: How soon after they are incurred are the costs of activities reviewed?
Costs are reviewed more than Costs are reviewed within 3 days of when they are Costs are reviewed within 24 hours of being made
3 days after they are available. made available. available by the person who commits the
expenditure, e.g. Daily Cost Tracker (DCT), and are
used to make interventions that lead to cost
improvements.
Evidence
D - Daily Cost Tracker

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 Operational Excellence in Production - Volume 4

ANNUAL PLANNING Whilst the Asset Reference Plan looks at the business over the
The objective to ‘optimise short-term cash flow without whole life cycle, the Annual Business Plan sets out an asset’s
compromising the long-term future of the company’, requires the production over the next two years (one year fixed and one
integration of many processes within the corporate business rolling) and should define and manage its direct costs. The
planning cycle. In order to perform effectively within this planning process involves screening and prioritising all
framework, personnel must have a clear understanding of production, core and incremental activities and field resources,
these processes and must be aware of the importance of these e.g. flotels and personnel.
processes, their role in and contribution to them, and the
overall objectives. The objective of screening and prioritising activities is for the
Regional Vice-President Production, the asset managers and the
Business planning functional heads to be able to compare the added value of all
A Business Plan is produced annually and contains the the activities in their area of responsibility. They can then be
programmes of functions’ Opex, Capex, Expex and Abex confident that the activities under their control are optimised.
activities and the associated derivatives of production and Any regrets and deferrals should be captured and approved by
capacity. The asset must have valid planning premises for the the Asset Manager and the Production Director. They should
business environment, which are used for annual planning. For be quantified at least in the following categories: Asset Integrity
example, inflation rate, contract rate pressures, production (Process Safety), revenue protection and value enhancement.
demand. To have confidence in the plan, it needs to be
supported by an MT IAP, which in turn needs to be supported The designated planning personnel (planners and schedulers)
by the functions’ two-year rolling plans and the ARP. The timing provide an enabling service for management and safeguard
of the activities in these plans will determine the cost and the planning process. They should play a key role in the
phasing (budgets) and the base and build up elements of successful coordination and optimisation of plans, both
production forecasts. These plans should also include any offshore and onshore by contributing their experience.
improvements that have been signed off by asset leadership
as covered in Blade 1 - Leadership and Strategic Planning. The Annual Business Plan should be issued yearly and
reviewed at least quarterly. Progress against the plan should
Application of this process provides assurance that the be regularly communicated to all Upstream Production
execution timings of functions’ activities, and hence their personnel though the use of a variety of communication
cost phasings, are viable and that the associated impact on channels including notice boards, team meetings, e-bulletins
production forecasts are consistent and have been taken and individual briefings and it should form the basis of the
into account. regular Asset Team meetings throughout the year.

Functions' planning and delivery

Register
and Level 1/2 Functional planning Level 3/4
screen

Define
and rank
Develop
and plan
Prepare
work
High level, Low level,
Execute
conceptual fully defined
scope and scope and
timing timing

Long-term Medium-term Short-term

Business priorities

Manage integrated activity plan

Figure 1: IAP and the Functions’ Planning and Delivery Process

8 Be the best at delivering safe and efficient production every day Restricted
Annual Planning and Budgeting

The Functions’ Planning and Delivery Process ACTIVITY BASED COST MODELLING
Functional plans form the backbone of the Annual Business Activity Based Cost Modelling (ABCM) is a structured
Plan. All functions must hold rolling two-year plans derived approach using the activities performed on an asset as a basis
from their long-term plans such as the Maintenance Reference for building up its costs. It is a bottom up approach that starts
Plan. They must be used to test future activities and for the with defining activities, identifying resources to execute each
preparation of asset integrated activity plans. The rolling activity and then determining the associated cost. Activities are
two-year plan shall reflect the agreed activity execution defined at different levels of the asset hierarchy – the more
windows taking account of business and asset priorities and activities that are defined at lower levels, then the more
overall resource constraints and should form the basis of the accurate the cost model. In Shell Upstream, the OPE$T
function’s submission to the Business Plan and shall be updated application (the OPE$T application of IHS Energy) has been
at least quarterly. mandated for use in creating ABCM for greenfield assets and
specified as a Minimum Requirement for brownfield assets.
The specific steps of the functions’ planning and delivery
process are: Key steps for ABCM are described below.
■ register and screen
■ define and rank Gather data
■ prepare work The objective of the activities in this section is to collect the
■ execute. asset, activity and resource cost data. It is important that this
dataset is based on the latest information available for the
These are shown in Figure 1 along with their links to the IAP resource quantities and rates for undertaking the activities. The
process. Integration takes place within the context of the dataset collected at the end of this section is considered to be
individual functions’ planning and delivery process. Throughout the unvalidated raw data.
these steps, the functions must plan their work effectively at the
high level in the long-term plans through to the lowest detail Analyse and validate data
required for execution, and provide this as input to the ARP The objective of the activities in this section is to analyse the
update cycle and the medium-term, short-term and very dataset and verify whether the data is good enough to be
short-term IAPs. used. After analysis, it should be validated for use under the
new context of the project.
Project and integrated services contractor plans
Activity plans prepared outside the assets by projects or Create model and forecast
contractors, that directly affect the preparation of the business The objective of the activities in this section is to create the
plan and integrated activity plans, must be controlled at the model and prepare the Opex forecast in order to provide input
appropriate level by the relevant function. Their format, the types to the economics and commercial processes if applicable.
of data they contain and how they will be integrated into the IAP
must be agreed up front and these plans must be appropriately Update, validate and release forecast
transferred into the integrated planning application. The objective of the activities in this section is to validate the
model assumptions and to peer review the dataset. After
Functions’ rolling two-year plan reviewing the model, it should be updated and released. Full
Each function expands the first two years of its long-term plan details of this process can be found in the Operating
with additional detail as the work scopes mature and more Expenditure Estimating Process Guide - EP 2008-9014.
detailed requirements are identified.
BUDGETING
The rolling plan, which should be updated quarterly as a The budget owner is usually the asset holder (or delegate) and
minimum, enables the function to plan and allocate its is the leader for budget development and approvals for the
resources, establish execution timing and duration as well as operating budget. In the case of Asset Integrity-related budgets
underpinning the first year of the business plan submission and and spend, it is a recognised ‘best practice’ that the corporate
functions’ budget. Asset Integrity Manager is accountable for ensuring sufficient
funds are budgeted on Asset Integrity related activities. The
It also enables the asset to confirm the agreed windows for budget coordinator is nominated by the budget owner to
these activities through optimising the MT IAP, e.g. aligning represent the asset throughout the budget process and the
production impacting events, minimising the number of coordinator liaises with the stakeholders and should prepare
production outages (shutdowns) and their durations. the budget documentation for the asset.

SR.12.10221 Restricted 9
 Operational Excellence in Production - Volume 4

The budget stakeholders are those parties who have The process, as shown in Figure 2 can take any time from 20
ownership and accountability for a particular cost area of the weeks to less than 4 weeks to complete and depends largely
budget. The stakeholders could be direct asset staff working in on the maturity of the process, corporate timetable and
the field or office, support staff or service providers. Service urgency. Normally, the process should start around April and
providers could be in direct support such as functional be ready for corporate submission by July, with SAP uploads of
organisations, or services shared by a number of assets such final numbers around November after approvals are complete.
as logistics, etc. Normally the key spend contributors such as The milestone plan, shown in Figure 3, should be used as a
the Maintenance and Integrity team leaders, Production team guide to when activities should be complete and updated in
coordinators, Wells, Logistics and Materials, and Engineering line with corporate requirements.
team leads would be engaged throughout the process. If there
is large capital engineering expenditure planned in the The cost categories used are the upstream benchmarking cost
forthcoming budget period, Engineering will be a key categories derived from the UP Basic Building Block website.
contributor to the Opex budget process. Support services, such Direct costs are those costs such as direct field expenses,
as catering, hotel management, materials and logistics may be materials, tools, etc. Indirect costs are those costs such as
equally apportioned based on Opex and/or Capex activities. direct work support, field supervision, field support staff,
overheads, etc.
The operating company corporate timetable normally dictates
the timeline for the budget preparation at the asset and Prior to the budget commencing, it is important that the
functional level. The budget coordinator prepares the timetable budget stakeholders have an understanding of the asset and its
and milestones for the asset based on the corporate timetable. associated costs. This information can be obtained from data

Apply
Develop Prepare Review and Carry out
strategic cost
budget detailed approve post-budget
leadership
strategy budget budget activities
process

Year end

Figure 2: The annual budgeting process

MILESTONE AVERAGE BY CALENDAR

PLAN TIMELINE MONTH

Develop Verify Budget Owner, Coordinator and Stakeholders T -12 April

Budget Prepare Budget Milestones linked to corporate timetable T -12 April
Strategy
Complete budget pre-work T -10 April
Conduct Stakeholder Meeting T -10 April
Prepare List all budget activities and calculate resource requirements and costs for each activity T -10 April
Detailed Conduct meetings between Budget Coordinator and Stakeholders T -8 May
Budget
Consolidate budget at asset level - activities and categories and prepare variance analysis T -8 May
Conduct initial ‘regrets’ identification and submit draft budget to AM and Stakeholders for review T -6 June
Review and Carry out budget challenge session T -4 June
Approve Submit regrets through MoC process and gain TA approval T -4 June
Budget
Authorise and submit for approval T July
Prepare ‘Budget Book’ and upload SAP T +10 October
Carry Out Attend budget close-out meeting T +2 July
Post-Budget Document lessons learned and prepare close-out report T +4 August
Activities
Update ARP T +4 August

Figure 3: The milestone plan

10 Be the best at delivering safe and efficient production every day Restricted
Annual Planning and Budgeting

that has already been published in previous submissions and The processing of actual versus budget information is key to the
this will reduce the time taken to prepare the detailed budget interactive development of the organisation’s forecasting
and improve the integrity of the output. capabilities. A detailed analysis of each line item needs to be
Each stakeholder should prepare high-level narrative carried out to agree whether there needs to be any ongoing
assumptions for each respective cost area prior to the revision to the original approved annual budget. As a standard, it
stakeholders meeting containing: is suggested that a monthly detailed business performance review
■ previous year actual versus forecast is carried out that will lead to quarterly revisions to the annual
■ current year actual versus forecast (current period) budget. These revisions have the effect of removing exceptional
■ key assumptions for forthcoming year and any major variances that may occur on a month by month basis.
additional activities.
Ideally, latest estimates should be updated automatically from
Stakeholder meetings are conducted throughout the the IAP to reflect actual activity phasing. This is done prior to
preparation process on at least a bi-weekly basis. The output budget review meetings. Budget reviews should be against
of the stakeholder meeting is an agreed milestone plan with latest estimates as well as the budget.
stakeholders’ responsibilities and accountabilities known and
understood. Actions and action parties should be documented The performance of the asset against the budget should be
and recorded with action compliance measured at communicated to all managers and supervisors, who are then
future meetings. required to pass this information on to all employees in the
scheduled monthly meetings.
Any budgeted and scheduled activity on a safety critical
element that requires to be deferred to the next budgeting During the monthly and quarterly Business Performance Review
period due to inadequate or insufficient funds, should be (BPR) sessions, every asset/function reviews its Actuals costs
clearly documented as a ‘regret’ and managed through the versus Business Plan and latest estimates. Based on the
Management of Change (MoC) process. A regret may also outcome of the discussions with the asset and function leads
be caused by operational reasons (e.g. shutdown timing, on the various Organisational or asset levels, corrective actions
access, etc.), resource constraints or material availability (long are taken, if needed.
lead items, etc.). The concept of managing regrets
appropriately and transparently is vitally important to ensure Rolling up from the lowest level of accountability, costs are
that a ‘bow wave’ of required work is not deferred until eventually reported at VP level with the clear benefits of:
sometime in the future. This can lead to a degradation of Asset ■ consistency
Integrity over time and at some point in the future, more money ■ clear accountabilities
will have to be spent to recover the Asset Integrity position by ■ same numbers in the same formats.
carrying out remedial works.
Daily cost tracking
One of the most important tools to enable a business to The Daily Cost Tracker (DCT) tool is available to all Regions/
improve forecasting is the setting up of a regular review of OUs on SAP Blueprint and is part of a larger suite of UP Cost
what was expected against what actually happened. The Reporting solutions which facilitate budget holder cost
implementation of a formal, visible and measurable budget reporting on a weekly, monthly or quarterly basis. It enables a
process is key to developing a cost conscious and responsible very detailed cost drill down, for example, on daily man-hours
culture. Once the annual budget is approved, there needs to and materials per maintenance job done by contractors. This
be an agreed timetable of measurement on actual allows expenditure to be challenged, overspends corrected,
performance as follows. individuals and teams taking accountability for their costs at all
levels and challenging others who spend their money.
Actuals versus budget comparison - measure actual
performance and agree if future budgets need to be amended In theory, this is simple. Costs are reviewed on a regular basis,
in line with actual information now received. interventions made where necessary and everyone learns to
■ Variance analysis and/or analysis of deviations - these manage their costs more effectively over the long term. In
should be categorised and acted on accordingly (bear in reality, it requires the behaviours of discipline, rigour and
mind the process will expect to identify ‘errors’ in the original commitment to regularly review and manage costs. Success
budget that were the result of assumptions made in good requires a number of pre-requisites.
faith that did not actually translate into real events). ■ Finance hierarchies must be correctly set up in SAP ECR.
■ Forecast information - identify any and all changes in ■ Maintenance must have a robust process to create work
the current climate that were not apparent at the original orders and network orders for the purpose of reviewing and
budget compilation. monitoring their business. This ensures the right request for
■ Performance indicators - review performance against man-hours, materials and services, and cost estimate for the
expected KPIs and reported industry standards. work. Good quality data must be available in the CMMS.

SR.12.10221 Restricted 11
 Operational Excellence in Production - Volume 4

■ Contracting and Procurement must work with vendors and

service providers to increase the frequency of service entry
approval and invoicing to ensure that costs are visible and
available after the execution of the work. Ideally, service
entries and goods receipts should be available daily with the
vendors and service contractors fully involved with the process.
■ Daily Time writing for operations staff is important in order to
obtain the necessary detail on costs for effective work
management and cost visibility.
■ Cross Functional Yesterday, Today and Tomorrow (YTT)
meetings involve the use of the DCT so that costs become a
regular feature of operational discussions.
■ Operations, Contracting and Procurement and Finance meet
on a regular basis. This reinforces how dependent they are on
each other and how to work more effectively as a team fully
leveraging the system capabilities and their various expertise.

To support the management of the budget it is essential that

cost data becomes available and is reviewed promptly thus
allowing interventions that lead to cost improvements. The day
to day spend is reported via the DCT (Actuals versus Working
Plan and Commitments).

Use of the DCT provides a direct link between the BPRs and
latest estimates view and the day to day work order activity
level. Using a common tool set allows members of the asset
team with different budgetary responsibilities to view the same
cost data at different levels. Allowing budget holders to access
cost reports directly can the change the focus of costs
discussions from one of trying to understand what a specific
cost is to one of challenging why the money has been spent.

12 Be the best at delivering safe and efficient production every day Restricted
Shell International Exploration & Production B.V.
Kessler Park 1,
2288 GS Rijswijk (ZH)
The Netherlands.

The copyright in this document is vested in Shell International Exploration and

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SR.12.10221