T

he current environment in Russia offers many new

challenges for project teams attempting to execute a
capital project.
The project management approach as we are familiar with in
the West typically focuses on three primary principles: per-
formance (scope and quality), planning and cost. This project
management approach is applied when the system or facility is
unique (outside normal operating activities) and has a finite
duration. However, Russias management methodology to proj-
ect development is significantly different. And this difference
can be attributed to its history and culture.
HISTORY
One significant historical aspect is that for centuries the
Russian State has striven to regiment the lives of its people,
often with rules and regulations that attempted to micro man-
age the population [3]. Also, the country suffered devastating
loses of its population because of World War I, the Russian
Revolution and the subsequent civil war between Red and
White Russians. By 1920, the country had lost 29 percent of its
male population. Then devastating famines hit the country in
the 1920s and early 1930s. The country could barely attempt
to recover before the outbreak of World War II in which the
country lost 28 million more people of which 19 million were
civilians [7]. Russia was also ruled for over 70 years under a
strict authoritarian and often ruthless regime. During the Stalin
era an additional 10 million people mostly males were tortured
and killed [8].
Russias past international relations with first world countries
during the Communist Era was one of isolation. And their past
economic experience was socialistic there by making them
unfamiliar with the following.
competitive aspects of capitalism;
measuring ways to improve; and
with taking risks.
One final aspect of history which influences the culture today
is that during the Communist era religious beliefs where sup-
pressed.
CULTURE
Russias history has formed the culture of its people today.
Burdened with untold and petty rules and regulations for over
100 years, todays citizens usually just follow rules when con-
venient [3]. Management within companies and politicians
often change rules or put a spin on existing rules for their own
benefit and as a means of power and control. With the suppres-
sion of religious beliefs, lying and cheating is looked at as
inventive, just fibbing or misleading: not looked at as deceitful
nor devious nor dishonorable [4.].
The Stalin era created a culture where information is viewed
as a means of power and security and therefore is only reluctant-
ly shared. Also, management of intimidation and fear is used so
that there is a strong fear factor among general employees and
very little initiative is taken (i.e., It is better to keep your head
down and say nothing.) And it is often stated that Here in
Russia the strong feed on the weak.
TODAY [1]
Today, the Russian Federation is the country with the largest
land mass in the world and a population of 143 million people.
The country has a very high literacy rate.
It is a country which is adapting to the change from a social-
istic economy to new capitalistic ideals with younger people
and particularly women embracing capitalism the quickest.
However, recent political and economic developments in the
past year appear to challenge the free enterprise system as large
companies come under state control and the country drifts back
toward a centrally government controlled economy.
Russias economy today is natural resource based with oil and
gas, metals and timber creating 80 percent of the countrys rev-
enues. And with 2005 and 2006 high oil prices has helped the
countrys foreign debt balance improve substantially from 90
percent of GDP to 31 percent of GDP. However, the country
still has a weak banking system and a poor business climate.
This poor business climate is largely attributed to significant
business corruption and the abuse of public office for private
gain among the countrys public officials and politicians. The
2005 Transparency International Corruption Perception Index
lists Russia as one of the worst for corruption in the world ..
126 out of 158 countries [6].
2007 AACE International Transactions
INT.06
The Russian Approach to Project Management in
the Oil Industry
Thomas J. Devine
INT.06.1
INT.06.2
2007 AACE International Transactions
PROJECT MANAGEMENT
IN THE RUSSIAN OIL INDUSTRY
With the history and culture of the country as background,
the remaining paper will focus on the following aspects of a
Russian oil field project:
planning philosophy;
scope definition approach;
project management checklist;
execution;
project controls;
contracting; and,
bureaucracy.
PLANNING PHILOSOPHY
The countrys approach to projects is both a narrow and short
term focus and that narrow focus is on just scope as defined by
well count and production (measured in tons per day) with a
short time span of just one or sometimes two years. Lost in this
short term focus are the other principles of a project: schedul-
ing, cost and quality. Why? Production and well count means
revenue. Companies are taking all revenue out of the company
at the end of each year in large dividend payments. Funds are
not left in the company for future investment. There is little
planning for support facilities and no pre-investment in infra-
structure. In other words, oil field development is very incre-
mental (i.e. build 2 more drill pads and access roads, add 20
more wells, add a 6th generator and a 3rd separator.) Detail
schedules are usually not created because that might create
accountability and be measurable and personnel fear of pun-
ishment for not achieving individual activity dates. To save
costs lowest cost contractor is selected on a lump sum basis
without prescreening of bidders for capability or economic via-
bility. This affects quality as sometimes contractors will install
used materials and equipment to save money or because of poor
planning. Quality also suffers as inexperienced craft are often
employed.
SCOPE DEFINITION APPROACH
Drilling and completion scope is usually well defined
because of the following.
well count and production are the primary focus, and
these scope components require government review and
approval.
However, facility scope often just resides in peoples minds.
On one particular project an engineering manager, project
manager, and operation manager all agreeing that the facility
scope was known without it being committed to paper (scope
documents and drawings). Each person had a different percep-
tion which was not recognized but which later caused delays as
these late differences had to be resolved. Another instance
occurred when scope conflicts were known but continued to be
debated/argued until a deadline date for documents to be
received by the Design Institute. Limited preliminary engineer-
ing is usually performed (for example P&IDs are not created)
leaving the Russian Design Institutes to create final drawings.
The Russian definition of and content of various project phas-
es also deviates from European and US norms. As can be seen
from the following graphic, Russian oil field projects do not go
through an Appraise and Select Phase. Rather, a business as
usual scope pattern is used with some technical economic eval-
uations being performed which has a heavy focus on number of
wells and production levels and little attention to facility and
infrastructure requirements. The bulk activities related to the
Define type phase focuses on government approvals.
PROJECT MANAGEMENT CHECKLIST
Successful projects share (perform) many common key tools
and techniques ( tasks, roles) as methods to manage their proj-
ects. These tools and techniques provide effective scope defini-
tion and management communication as well as efficient plan-
ning, cost management and turnover / completion.
Seven of these tools / techniques are listed below along with a
status of their application in the Russian Oil industry [5].
develop project charter Not used
develop preliminary scope Not used
statement
develop project management Prepared but not
plan followed
direct and manage project execution Yes
monitor and control project work Sometimes
integrate change control Seldom
close project Sometimes
EXECUTION
Project execution in Russia suffers for several reasons though
a few of the reasons are out of the projects control (i.e., govern-
ment bureaucracy and approval delays). However, for the most
part projects are run inefficiently because of the culture. There
is almost no delegation of authority and no project team struc-
ture. Operations management attempts to maintain control by
not setting up a separate project team but rather by using exist-
ing operating personnel. All approvals for any aspect of the proj-
ect must be approved by the performance unit manager or
leader from award of contracts to use of the company vehicles or
vacation. Delays often result when the central authority person
is out of town or on vacation because delegation of authority
rarely occurs.
Sometimes power struggles occur between various depart-
ments (engineering, construction or operations) within the
operations or performance unit. Cases have occurred where the
engineering manager is the most powerful person in the unit
and will manage the design and construction, with the construc-
tion manager being little more than an observer. On another
project the operations manager took charge of construction also
overriding the construction manager.
Because of the culture to maintain a central authority, lack of
dedicated personnel, ignoring the planning sequence, lack of
maintaining rules except when convenient and desire not to
perform work early because of the minimum of cash infusion,
most execution occurs in a reactive mode. This reactive mode
feeds well with the culture to use brute force to accomplish
work and not finesse.
PROJECT CONTROLS
The use of project controls is limited to annual spending and
maximizing dividend payments while minimum attention is
given to the total project cost. Funding authorizations usually
become very fragmented and the total cost for a project is usu-
ally lost in numerous funding authorizations over several years.
Total capital expenditures for a project that was originally con-
ceived are lost because of the lack of transparency. (i.e. lack of
composite budget reporting and lack of change control).
The following is a list of Project Control documents that are
used on well executed projects in the West and a status of how
they are applied in Russia.
DOCUMENTS STATUS
project execution plan sometimes prepared
statement of requirements sometimes prepared
creation of a WBS frequently
CPM schedule very seldom
creation of cost code structure sometimes
cost estimates often very well
developed
quantitative progress reporting very seldom
change (scope and trend) control not used
cashflow reporting frequently
productivity measurement never
Cost estimates are the one type of project controls document
that is well prepared. The estimates are very detailed and refer-
enced by historical data or indices though, while sometimes the
accuracies of the quantities are in question, the unit pricing and
unit worker hours are usually very accurate. Russian manage-
ment style and lack of trust results in managers often digging
into the estimate details which can involve reviews lasting for
days and some estimate recycle may occur. Management cost
summaries are usually not prepared. VAT (value added taxes)
are not part of the capital cost estimate. Also, well equipment
costs are not included in project costs but listed and treated sep-
arately.
CONTRACTING
Contracting is a difficult discipline with many regulations and
rules. However, company rules often have exceptions based on
perception or management preference. Also, contractor capa-
bility and economic viability is often over looked whether before
submitting RFQ packages or before award. With corruption lev-
els very high in the country often contractor favorites are award-
ed work. Sometimes after award it is discovered that work is not
being performed because the contractor does not have enough
funds to order sufficient materials to complete their work. It is
well into the project when such instances occur and monetary
advancements or additional funds must be paid.
Drilling contracts are usually awarded on either a unit rate or
a day rate. Engineering is usually awarded lump sum which can
cause the quality and degree of detail to fluctuate from contract
to contract. (i.e. Design until funds run out.) Construction con-
tracts are also lump sum and usually require that the low bidder
be awarded even if not the most favorable from a technical, per-
sonnel or financial perspective. Bulk materials are usually
included in the construction contractors bid. The Oil
Company (client) usually will purchase large equipment (i.e.
electric generators, export pumps, etc.) from their corporate
office with final awards and approvals occurring there. Regional
purchasing centers often exist in large companies which control
the purchase, receipt and inspection of small equipment items
(i.e. smaller pumps, valves and long lead pipe). The construc-
tion manager is very limited on his ability to purchase anything.
BUREAUCRACY
When western companies and a Russian company form a
joint venture attempts are made to form a project team.
However, these attempts become fruitless because of power,
manipulation and sometimes corruption. The person with the
greatest power in the organization controls a project. Often
times there is a project figure head but that figure head in the
organization structure may have little control.
Because Russian management must sign all documents by
Russian law, project teams if initiated, usually disappear or
become ineffective because they are not supported with
resources. Teams that do survive are ignored by management by
evasiveness (i.e. not showing up for meetings, just sitting on or
delaying approvals), changing requirements of the project,
changing funding requirements or creating a paper log jam then
later criticizing for ineptness when work is not completed. As a
result, operations will often work independently of the project
team creating a parallel universe with duplicated work and inef-
ficiencies. A quote of Winston Churchill summarizes this
bureaucracy, working with the Russians is like the fight of bull
dogs under the carpet.
POSITIVE NOTE
Despite all their cultural issues, built-in constraints, bureaucra-
cy and lack of western project management techniques, the
Russian oil companies accomplish/achieve many performance
objectives.
INT.06.3
2007 AACE International Transactions
INT.06.4
2007 AACE International Transactions
Figure 1Project Phasing
Figure 2Top Oil Producers (Data Through 2005 [2])
REFERENCES
1. CIA The World Factbook - - Russia, www.cia.gov
2. Global Fire Power,
www.globalfirepower.com/list_oil_prod_asp
3. Moscow Times, August 31, 2006, Why the Rules Dont
Rule.
4. Moscow Times, August 29, 2006, The Truth is Optional.
5. PMI Body of Knowledge.
6. Transparency International, 2005 Transparency
International Corruption Perception Index.
7. WWII: The casualties, http://web.jjay.cuny.edu/jobrien/ref-
erence/ob62.html.
8. www.gendercide.org.
Thomas J. Devine, Jr.
1 Arbat, 6C-20
Moscow, 119019, Russian Federation
Telephone: +7.985.364.4046
Email: tdevine@tnk-bp.com
INT.06.5
2007 AACE International Transactions