A University of South Australia doctoral thesis by Eric C. Honour found that the optimum amount of systems engineering cost for a single system development project should be 14% of the overall project cost.
Does this mean a drilling contractor should spend $105MM on systems engineering for a new $750MM rig (.14 x $750MM = $105MM)? Not necessarily. In theory, these costs should already be factored into shipyard and OEM costs and the drilling contractor should be doing some systems integration as well. But in our experience, this isn’t always the case, as evidenced by the high costs and delays in getting rigs out of shipyards.
We’re convinced that not enough companies throughout the oil and gas supply chain do systems engineering adequately, if at all. Consider that the same research also indicated that if a company currently does zero systems engineering, they should expect an average cost overrun of 53% on the project. However, if they start doing some amount of system engineering work, they should enjoy a 7:1 return on that investment. In other words, for every dollar spent on systems engineering and “doing it right the first time”, the project will save 7 dollars.
But don’t go too crazy … the research also found that there really can be “too much of a good thing” when it comes to systems engineering. Companies that spend more than 14% of total project cost on systems engineering end up with negative ROIs and these projects stand the risk of cost overruns.
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