Korean energy firms urged to adopt cost culture

By Kim Yoo-chul

With oil prices down, Korean energy companies need to adopt the so-called "cost-culture" to manage their projects for greater capital productivity, a leading research firm says.

AlixPartners, a top-tier business advisory consulting firm, produced a study that included a survey of 250 senior-level executives in oil and energy industries.

It showed that 30 percent of respondents said their companies had explicit return-on-capital targets for projects before the crash in oil prices.

"Strong energy prices in recent years have allowed companies to delay putting an emphasis on project management, as they focused instead on the urgent need of achieving greater throughput,” AlixPartners managing director Dennis Cassidy said on Tuesday.

“But that was then and this is now. In the current environment of falling prices, plus increasing geologic and technical challenges, a new focus on building a 'cost culture' into each and every project is mandatory.”

The study also delves into the reasons behind suboptimal project management to date.

According to the survey, 34 percent of respondents said they “agree” or “strongly agree” that project management is executed at the “company level” across all projects, suggesting that many projects are not benefitting from economies of scale.

Only 39 percent of respondents said they have a strong series of checks and balances to ensure projects stay on track.

"The results also suggest that as projects grow more complex, many companies have attempted to boost returns, not by tightly controlling costs internally, but by looking outward, toward such things as developing partnerships,” the study found.

The survey showed that leaders in those business sectors view the creation of an overall cost culture in their companies as a powerful generator of returns in the year ahead.

“The good news is that creating a true, soup-to-nuts cost culture cannot only yield significant returns, if implemented properly, it can be the approach that offers a lower degree of social impact, which of course can be of use once markets change yet again,” Cassidy said.