Plugging the efficiency gap

Managing Pipeline integrity: Plugging the efficiency gap

If done correctly, benchmarking pipeline performance can provide clear, reliable results and become a basis for prioritising future operational improvements. The catch? A stringent structure is critical to avoiding inaccurate and misleading results, writes Hank Brolick.

In today’s economy, maintaining a pipeline’s per­formance and integrity is critical, and keeping ope­rations current and optimised requires continu­ous process improvements. Only by looking to peer com­panies can you develop strategies that balance desired operational advancements with the realities of cost efficiency.

In setting operational goals, it is vital to determine benchmarks—the points of reference that reveal the current state of pipeline performance and where it needs to be in the future. Many companies are beginning to realise this necessity of measuring reliability along with costs. But it can be difficult to measure up-to-date operating efficiencies against those of competitors, especially since new regulations and technologies change how operators run their pipelines and different compa­nies implement various practices.

Sufficient time and resources must be devoted to the benchmarking process as it involves gathering, analysing, and reporting complex data. The payoff, though, is an analysis that points to the next steps toward achieving company goals.

In pipeline operations, efficiency gaps tend to occur for three primary reasons:

1. Work practices at the operating facility are not equal to industry best practices
2. Inconsistent or inadequate execution of company business practices inhibit efficient operations
3. Minor limitations of equipment or infrastructure at the operating facility.

Not only do benchmarking results identify and qua­ntify gaps, they also help prioritise opportunities and provide the information needed to build a compe­lling case for action.

How Does It Work?
Business units selected for comparison must be definable with cost centres and encompass similar types of assets even though asset size may be very diverse among study participants.

Study participants must agree to standardise their company data and define their industry costs by activity. While the structure may not match precisely those used to track costs internally by each company, it is necessary for consistency in the reported data. And since it is common to find errors in the provided data, a third-party validation process should be implemented to keep each business unit accurate.

The number of participants in a comparison analysis also should represent a broad enough range of size and costs within the industry to provide a true representative sample and ensure accurate benchmarks. And, of course, all participants must be in the same business.

Even with a representative group of participants, many differences in their operating characteristics are seen. This diversity is normalised through an effective divisor.

All benchmarking studies rely on an appropriate divisor to compare operating costs. A proven method is the Pearson Coefficient Determination (r²), which deter­mines the reliability of a divisor and measures the quality of the correlation between cost drivers and actual costs of pipeline systems. Consider for example Solomon’s Equivalent Pipeline Complexity (EPC™) divisor. This patented divisor, developed with the Pearson method, enables a reliable comparison of operating costs between pipeline systems of all sizes and complexities.

The end-result report should include both peer and performance groups. Peer group comparisons are based on region of operation, size, throughput, and other common operating characteristics. These peer comp­arisons enable companies to draw meaningful conclusions from the results. Similarly, comparison with the perfor­mance groups measures cost gaps and the amount of improvement possible.

Getting the Results You Need

Reviewing reported results can be frustrating, as they can be influenced by any one interpretation and any one person can find some arcane metric to prove a supp­osition, whether it be correct or not. As such, finding the correct metrics and verifying results with peer group comparisons and other metrics is critical. The evaluation must be unbiased, definitive, and compelling.

Before reviewing the results of your benchmarking efforts in depth, consider a few questions:

• Does any data seem suspect or obviously incorrect?
• Do the costs seem likely for the facilities participating in the study?
• Are there significant non-recurring expenditures that make this an abnormal year?
• Are there real justifications for the pipeline business unit costs that are above and beyond the norm, such as local regulations or operating conditions?
• After these costs are quantified; what gaps remain?

Only with errors eliminated and non-recurring cost factors justified can a careful review of the remaining significant gaps begin. While many of these gaps may be targets for improvement, realistically you must quantify the impact of each of these items, and remember that pipelines throughout the world are regulated and ope­rated to accomplish the same outcomes. For a careful drill-down review, use must rely on the most reliable divisor, such as EPC.

Define Your Opportunities

The benchmarking process will help identify pote­ntial savings opportunities for both fixed and variable costs, as the analysis shows the difference between the best-performer averages and the performance of a given pipeline system.

When first compiling or receiving results, identify the largest cost gaps. Next, look at the overall perfor­mance gap and focus on the specific cost line items that comprise the majority of the gap. For example, if the largest gaps are in operations and maintenance (O&M), begin to isolate the most definitive cost line items in the study. Those line items might include:

• Operations

• Control room
• Field
• “Other”

• Maintenance

• Pipeline

1. Pipeline integrity
2. Other pipeline maintenance

• Pump and meter stations
• Intermediate storage
• “Other”

The second type of review breaks the O&M gaps into the following categories:
• Personnel costs

• Company
• Contractor

• Materials (installed)
• Non-personnel costs

The third type of review compares personnel costs and work-hour gaps. For personnel cost gaps, it can be determined whether the gaps are driven by work hours or cost per hour.

By analysing the line items, the potential for per­formance improvement can be defined in detail.

Prioritise the Gap

With the efficiency gaps identified, and compelling explanations made to confirm the gaps, it is now time to set goals for improvement. Plan incremental steps to­ward these goals, so that progress is achievable and measurable.

Those steps could look like these:
• Year 1: Implement quick hits and clearly identified changes—5% improvement in gap
• Year 2: Identify long- and short-term practices to change—10% improvement in gap
• Year 3: Implement changes that can be achieved at little to no cost—10% improvement in gap and reach second quartile
• Year 4: Continue change process and implement more difficult changes—10% improvement in gap
• Year 5: Complete capital projects required for the change process—10% improvement in gap and reach targeted performance

Each step is different, but the overall principles remain the same. Smaller improvements in well-defined areas can be accomplished in shorter time frames.

Now Close the Gaps

Once areas of improvement have been pinpointed, the next step is to conduct an on-site review of the appropriate work practices. That review should define the factors causing the performance gaps and determine the extent to which improving work practices can close the gaps. The company must decide which factors will be addressed in the improvement programme effort.

Improving work practices relies on changing beha­viours, so it can be challenging to convince employees of the need for change. People tend to be creatures of habit, so new practices must be implemented as part of a training programme to ensure they are followed— consis­tency and reliability are vital.

Employees can be even more resistant to change if they do not understand the reasoning. Be prepared to answer all questions, including:

• Why should we change?
• What is wrong with the way we do this?
• We have done it this way forever. Why change the process now?

Research has identified the four phases of change: Denial, Resistance, Exploration and Commitment.

Your programme must address each phase and move your personnel through their concerns to achieve the success desired. Benchmarking helps speed change by using examples for employees of performance improve­ments achieved by other companies. These examples and the facts determined through the benchmarking process should help move employees through the denial and resistance phases.

Navigating the Phases of Change

Solomon has found that a successful progression model for change follows these basic steps:

• Best practices review
• Recommendations
• Implementation

The best practices review is a powerful way to guide personnel through the resistance phase, because they begin to understand that there are better, more efficient ways of doing their work. This effort exposes the team to best practices, opens their minds, and can even lead to innovation.

The next step is to develop recommendations and specific actions to close work practice gaps. Following on-site workshops with facility and other personnel, rec­o­m­mendations can be reviewed, discussed and prioritised.

Implementation is the next, and clearly the most difficult, phase in the improvement process. It must begin with clear and visible support from management. Best practice teams, or small work groups, can be key to success. Appoint them as the primary change agents who are responsible for developing and executing the act­ion plans.

Implementing best practices and changing beha­viours within a company is difficult. However, when combined with strong management support, executing these straightforward steps has helped companies achi­eve up to a 50 per cent closure in gaps, sometimes even more.

Don’t Let the Competition Pass You By

It’s a constant balancing act for operators to ensure the highest levels of pipeline integrity while managing their costs. Using benchmarking techniques can help them learn and work to achieve the highest-possible levels of performance.

Despite the challenges, the anal­ysis process will help your facility to improve efficiency and advance its com­petitive position in the industry.

The author is Vice President at Dallas, Texas (US)-based Solomon Associates, where he oversees pipeline and terminal studies. Solomon Associates provides benchmarking—or Comparative Performance Analysis™—and performance improvement consulting services to the energy industry.