ISO 15663-3:2001

INTERNATIONAL ISO
STANDARD 15663-3
First edition
2001-08-15
Petroleum and natural gas industries —
Life-cycle costing —
Part 3:
Implementation guidelines
Industries du pétrole et du gaz naturel — Estimation des coûts globaux de
production et de traitement —
Partie 3: Lignes directrices sur la mise en oeuvre
Reference number
ISO 15663-3:2001(E)
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ISO 15663-3:2001(E)
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ISO 15663-3:2001(E)
Contents Page
1 Scope . 1
2 Terms, definitions and abbreviated terms . 1
3 Life-cycle costing within the asset life-cycle . 3
3.1 General . 3
3.2 Concept selection . 3
3.3 Outline design/FEED . 5
3.4 Detailed design . 6
3.5 Construction, hook-up and commissioning . 7
3.6 Operation and maintenance . 8
3.7 Disposal . 9
4 Common implementation issues . 9
4.1 Summary . 9
4.2 The life-cycle costing coordinator . 10
4.3 Training and competence . 12
4.4 Preparation of a common and consistent source of data and assumptions . 12
4.5 The contract . 13
4.6 Data and uncertainty/new technology . 16
5 The operator perspective . 16
5.1 General . 16
5.2 Commitment to life-cycle costing . 17
5.3 Life-cycle costing — A focal point . 18
5.4 Risk . 20
5.5 The contractual framework . 20
6 The contractor perspective . 21
6.1 General . 21
6.2 Developing and organizing a capability . 22
6.3 Risk — A contractual perspective . 22
7 The vendor perspective . 23
7.1 General . 23
7.2 The application of life-cycle costing for the vendor . 23
7.3 Profitability potential for vendors . 25
7.4 Communication . 26
7.5 Contracts . 28
7.6 Internal competence . 29
Bibliography. 31
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ISO 15663-3:2001(E)
Foreword
ISO (the International Organization for Standardization) is a worldwide federation of national standards bodies (ISO
member bodies). The work of preparing International Standards is normally carried out through ISO technical
committees. Each member body interested in a subject for which a technical committee has been established has
the right to be represented on that committee. International organizations, governmental and non-governmental, in
liaison with ISO, also take part in the work. ISO collaborates closely with the International Electrotechnical
Commission (IEC) on all matters of electrotechnical standardization.
International Standards are drafted in accordance with the rules given in the ISO/IEC Directives, Part 3.
Draft International Standards adopted by the technical committees are circulated to the member bodies for voting.
Publication as an International Standard requires approval by at least 75 % of the member bodies casting a vote.
Attention is drawn to the possibility that some of the elements of this part of ISO 15663 may be the subject of patent
rights. ISO shall not be held responsible for identifying any or all such patent rights.
International Standard ISO 15663-3 was prepared by Technical Committee ISO/TC 67, Materials, equipment and
offshore structures for petroleum and natural gas industries.
ISO 15663 consists of the following parts, under the general title Petroleum and natural gas industries — Life-cycle
costing:
— Part 1: Methodology
— Part 2: Guidance on application of methodology and calculation methods
— Part 3: Implementation guidelines
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ISO 15663-3:2001(E)
Introduction
The principle objective of ISO 15663 is to speed up the adoption of a common and consistent approach to life-cycle
costing within the oil industry. This will happen faster and more effectively if a common approach is agreed
internationally.
Life-cycle costing is the systematic consideration of all relevant costs and revenues associated with the acquisition
and ownership of an asset. It is an iterative process of estimating, planning and monitoring costs and revenues
throughout an asset's life. It is used to support the decision making process by evaluating alternative options and
performing trade-off studies. While it is normally used in the early project stages evaluating major procurement
options, it is equally applicable to all stages of the life-cycle, and at many levels of detail.
This part of ISO 15663 has been produced to provide guidance on practical steps that can be taken to introduce the
organizational and functional aspects of life-cycle costing into the offshore oil and gas business. It focuses on the
implementation issues identified by the industry, both those common to all and those specific to each participant. Key
issues addressed are
— life-cycle costing within the organization:
how it should be organized, coordinated and managed;
— the contract:
the procedural elements of incorporating life-cycle costing within pre-qualification, tender and responses;
— risk and uncertainty:
primarily viewed from the contractual standpoint within risk sharing or risk transfer frameworks (such as
alliances);
— communication:
across the supplier chain (operator <----> contractor <----> vendor), how it can be achieved and configuration
control or an audit trail maintained.
Experience has demonstrated that
— for the operator, life-cycle costing integrates readily with existing appraisal techniques, can quantify and
optimize costs and revenues over the total life of a field development, thereby reducing uncertainty,
— for the contractor, life-cycle costing provides techniques to support the extension of his role into areas such as
maintenance management, integrated service provision, engineering services contracts and life-cycle costing
consultancy,
— for the vendor, life-cycle costing provides a common and consistent basis for demonstrating improved service
and quality, thereby extending his role beyond technical compliance and lowest price.
There are opportunities and challenges for all parties within the oil production industry to benefit from the introduction
and use of life-cycle costing techniques.
The aim of this part of ISO 15663 is to provide practical guidance to operators, contractors and vendors in the
introduction and role of life-cycle costing techniques. It seeks to address the issues associated with life-cycle costing
within evolving industry custom and practice. This is illustrated in Figure 1 which shows the evolving situation.
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ISO 15663-3:2001(E)
From Figure 1 it can be seen that
— vendors are often involved in early project stages such as FEED, during which they can add value in the area of
system design,
— contractors and vendors are playing an increasing role in conceptual design and operations support.
Figure 1 — The traditional role of participants is evolving and becoming less distinct
For a life-cycle costing implementation strategy, two key components emerge. These are the interface issues (the
relationships between participants at the boundaries) and the internal business processes required to support the
management and presentation of the information flowing across the interfaces.
In practical terms, these translate into the need for a non-prescriptive life-cycle costing implementation strategy that
provides a basic framework to assist in the development and introduction of an engineering and design strategy and
support strategy at all levels, together with its translation into a contract.
It should be noted that, whilst the provision of plant and equipment which has been optimized for whole life cost
(WLC) performance may require its selling price to be increased, the integration of WLC/life-cycle costing principles
into an equipment manufacturer's business should enable this optimum performance to be achieved without a
significant increase in selling prices.
Equipment vendors and purchasers therefore need to work towards ensuring that wherever possible value, and not
price, is increased by the life-cycle costing process.
This part of ISO 15663 is structured into the following sections:
— the project or field life-cycle;
implementation issues specific to the different phases of the life-cycle.
— common issues;
a variety of concerns common to all participants, the key one being the need for a focal point, or coordinator,
within each organization.
— the operator;
— the contractor;
— the vendor.
The three last-mentioned sections addressing the implementation issues are considered important to each
participant.
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ISO 15663-3:2001(E)
Recognizing that there are cultural and procedural differences across different companies in the industry, this part of
ISO 15663 does not set out to be prescriptive, but to isolate and amplify the issues under a series of headings. The
guiding principle is that the life-cycle costing discipline does not stand in isolation, but should be integrated within
existing support functions to extend their capability.
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INTERNATIONAL STANDARD ISO 15663-3:2001(E)
Petroleum and natural gas industries — Life-cycle costing —
Part 3:
Implementation guidelines
1 Scope
This part of ISO 15663 provides guidelines for the implementation of life-cycle costing for the development and
operation of the facilities for drilling, production and pipeline transportation within the petroleum and natural gas
industries. This part of ISO 15663 is applicable when making decisions on any option which has cost implications for
more than one cost element or project phase. The process can be applied to a wide range of options, particularly
when decisions are being considered on the following:
— the process concept;
— equipment location;
— project execution strategies;
— health, safety and environment;
— system concept and sizing;
— equipment type;
— equipment configuration;
—layout;
— maintenance and logistic support strategies;
— manning strategy;
— manning levels;
— operation strategies;
— facility modifications;
— spares and support strategy;
— reuse and/or disposal.
This part of ISO 15663 is applicable to all project decisions, but the extent of planning and management of the
process will depend on the magnitude of the costs involved and the potential value that can be created.
The guidelines will be of value when decisions are taken relating to new investments in projects or during normal
operation to optimize revenue.
2 Terms, definitions and abbreviated terms
For the purposes of this part of ISO 15663, the following terms, definitions and abbreviated terms apply.
2.1 Terms and definitions
2.1.1
benefit
creation of a capital asset, earning of revenue or improvement of a project environment
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2.1.2
budget
estimate approved by management or the client as the cost control mechanism for a project
2.1.3
capital expenditure
money used to purchase, install and commission a capital asset
2.1.4
constraint
limit imposed externally or internally by the project which rules out the selection of an option if it is exceeded
2.1.5
cost breakdown structure
structure which relates to the methods that an organization will employ to record and report costs
2.1.6
cost driver
major cost element which, if changed, will have a major impact on the life-cycle cost of an option
2.1.7
cost element
identifiable part of the life-cycle cost of an option which can be attributed to an activity
2.1.8
life-cycle
cycle which comprises all development stages, from commencement of the study up to and including disposal of an
item of equipment or function
2.1.9
life-cycle cost
discounted cumulative total of all costs incurred by a specified function or item of equipment over its life-cycle
2.1.10
life-cycle costing
process of evaluating the difference between the life-cycle costs of two or more alternative options
2.1.11
net present value
sum of the total discounted costs and revenues
2.1.12
operating expenditure
money used to operate and maintain, including associated costs such as logistics and spares
2.1.13
sensitivity analysis
process of testing the outcome of a life-cycle costing so as to establish if the final conclusion is sensitive to changes
in assumptions
2.2 Abbreviated terms
CAPEX capital expenditure
EPIC engineer, procure, install and commission
FEED front-end engineering design
FMEA failure mode and effects analysis
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ISO 15663-3:2001(E)
FMECA failure mode, effects and criticality analysis
NPV net present value
OPEX operating expenditure
®
OREDA offshore reliability database
RCM reliability centred maintenance
WLC whole life cost
3 Life-cycle costing within the asset life-cycle
3.1 General
The primary purpose of life-cycle costing is to assist in the delivery of the highest possible added value, i.e. profit,
within a field development or project. It achieves this by extending profit improvement opportunities through a
process of progressive optimization. The greatest benefit is realized when life-cycle costing is integrated across the
entire life-cycle. While the life-cycle costing principles are identical across all phases, the organization in each phase
differs in terms of
— the actions that need to be taken;
— the contribution each participant can make.
Figure 2 shows the “standard” field or project life-cycle together with some of the technical decisions taken at each
stage, which may be the subject of life-cycle cost studies.
The technical processes in Figure 2 apply to both the original field development and subsequent changes made to
the design.
Time scales, from concept to conclusion of commissioning, have been considerably shortened in recent years due to
business pressures from the operators. Contractor and vendor selection is happening earlier in the life-cycle, with
increased emphasis on their capability and performance. Contracting strategies are evolving in parallel, with a variety
of partnering, alliance and framework agreements being established. It is in this context that the life-cycle is
discussed.
3.2 Concept selection
3.2.1 Scope of this stage
The scope of this stage normally includes gross comparisons of the major technical options. Processing and delivery
are considered as well as procurement options (lease or buy) and the options for operation and support. The work
normally includes examining and comparing alternative technical solutions. The focus is on the major cost and
revenue trade-offs with minimum detail.
3.2.2 Contributions
This stage is normally undertaken by the operator in conjunction with a contractor who will help evaluate concepts
within an accelerated procurement programme or within an alliance framework. Vendor contributions are likely to be
limited to advice on major packages.
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ISO 15663-3:2001(E)
Figure 2 — Technical processes
3.2.3 Life-cycle costing activities
At the start of concept, a coordinator should be appointed with responsibility for developing the life-cycle costing
strategy for the overall programme. In the majority of instances, the coordinator would come from the operator.
Considerations in developing the strategy include ensuring that life-cycle costing contributes towards the
development of the engineering and design, support and contract strategies; in practice this requires discussion and
agreement from other internal functions and partners to achieve buy-in.
Consideration should also be given to generating a plan for conducting the work in detail for the system concept and
in outline for later stages.
This plan should include
— resource requirements: to establish a budget for internal and external resources,
— who should undertake the work: potentially a team comprising operator, contractor, vendor and consultant
personnel,
— how the work will be conducted: assessment criteria, constraints, options to be appraised and potential
sources of data (internal and external),
— training needs: both general (to raise awareness for all team members) and specific (for those who will
undertake the work),
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ISO 15663-3:2001(E)
— life-cycle costing deliverables on completion of concept: covering the contribution towards decision-making,
establishing an audit trail for future phases and the inclusion of life-cycle costing within any future competitions
(requirements specification and tender assessment),
— the methodology to be used: this should be the methodology detailed in ISO 15663-1:2000, Figure 1 [2], or an
alternative methodology together with a justification as to why the standard methodology cannot be used,
— the reporting relationships of those involved in undertaking the work: particularly the reporting relationship
with the manager accountable for delivering asset value,
— the audit requirements, in particular any requirements for independent assessment of work carried out at each
life-cycle stage.
Potentially, the work can be undertaken by a team supplemented by contractors, vendors and consultants. The value
in their contribution is in supplementing the operators' expertise so that either a broader range of concepts can be
examined, or information provided that allows concepts to be compared at the same level of definition. This is likely
to be particularly true where new or novel concepts are proposed; input from contractors and vendors may reduce
uncertainty for these options.
At this stage in the programme, external support should be selected on the basis of capability, competence and track
record.
Where a number of contractors have been asked to make proposals for the most suitable concept for a specified
development as part of a design competition, it may be appropriate to specify that any bid be supported by life-cycle
cost information. The cost headings can be specified together with the data sources and estimating process to be
used. The aim should be to ensure bids can be compared on an equal basis and all important costs have been
included.
3.3 Outline design/FEED
3.3.1 Scope of this stage
The scope of this stage includes the identification and examination of the technical options for facilities, processes
and delivery leading to the definition of a preferred technical solution. Sizing and scoping the required utilities (power
generation, accommodation, water supply, logistic support, etc.) and examining the cost trade-offs between
facilities/processes and utilities are also within the scope of this stage. Life-cycle costing activity stops when a
preferred solution is identified, it does not attempt to optimize the solution. Overall layout, weight and dimensions are
normally fixed on completion of outline design.
3.3.2 Contributions
This stage is normally undertaken by the operator in conjunction with a contractor who will evaluate the technical
options. Vendors’ contributions are likely to add significant value with their specialist knowledge of the cost and
performance of alternative options.
3.3.3 Life-cycle costing activities
The life-cycle costing work undertaken during concept selection will include the identification of a preferred option
together with a corresponding outline engineering and design, support and contracting strategy, all culminating in a
requirement specification. This will define the content of the life-cycle costing programme during this stage. It is at the
beginning of this phase that the process of making decisions on competing equipment options normally starts.
For life-cycle costing the principal objective in this phase is to evaluate alternative methods of meeting specific
functional requirements and not to optimize the defined system solution. The most important feature of the life-cycle
costing activities in this phase is knowing when to stop work. For example, if life-cycle costing analysis at concept
identified the provision of water to the platform as an issue (either a risk item or cost driver), then work in outline
design concludes when waste heat evaporation is identified as the solution. It will then be the objective of life-cycle
costing activities during detailed design to develop and optimize the waste heat evaporation solution.
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ISO 15663-3:2001(E)
The work will require input from operator, contractor and vendor, irrespective of the contractual arrangements. The
operator's contribution is in the provision of operating and support experience and data. It is likely that the contractor
will undertake the majority of the work, and the vendor can assist in the definition and evaluation of specific systems
within his area of expertise.
3.4 Detailed design
3.4.1 Scope of work
The scope of work at this stage will include system and equipment optimization within constraints defined during
outline design.
3.4.2 Contributions
The contractor's role should be to provide the system definition, maintain the overall facility configuration and deal
with integration issues. The vendor is often best placed to undertake the majority of life-cycle costing activity at this
stage and will need to respond to functional specifications provided by the contractor.
3.4.3 Life-cycle costing activities
During detailed design, life-cycle costing is concerned with optimization of the system solutions selected at outline
design. Outline design will also have ranked the different processes and systems required by their contribution to life-
cycle costs. It is probable that the majority of life-cycle costs will arise from a small number of processes and this is
where effort should be concentrated. It is these processes that offer the greatest potential for added value in detailed
design.
The same approach is applicable to the system optimization work; it is likely that the greatest opportunity for cost
reduction lies in the major cost drivers at system level.
The vendor should be best placed for this system optimization work, with assistance from the contractor. The
contractor's primary focus should be integration issues at the facility level including operations and maintenance
strategy. There is a mutual dependence between the contractor and vendor at the system boundaries.
The vendor contribution to life-cycle costing activities is dependent on their life-cycle costing capability and the
contractor may need to supply life-cycle costing assistance in some cases. Vendors of critical systems are likely to
have been involved in earlier phases. Where appropriate, life-cycle costing expertise should be one of the criteria
used in vendor selection.
During this phase it is strongly urged that consideration be given to carefully evaluating the selection of items which
may have a low unit cost and would typically be considered as “bulk” items. Due to their prevalence and potential
impact on maintenance loading, many of these items could contribute significantly to the life-cycle cost of maintaining
an asset and in many cases also contribute to lost production costs.
Vendors can often provide information regarding the potential impact of their products on life-cycle costs. Items for
further consideration are
— compression fittings,
— gaskets,
— gas detectors,
— instrumentation valves,
— tube and pipe supports.
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ISO 15663-3:2001(E)
One method of addressing this situation is to develop three lists as shown below. The lists can then be used to make
judgements on how many items on each list are to be subjected to life-cycle costing studies.
Number
Equipment Value Equipment Equipment Criticality
installed
Development of such tables will focus attention on the equipment where life-cycle costing studies are likely to have
most benefit. Where equipme
...