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The oil industry requires planning to consider the macro business environment. There is a need to look at assumptions about the industry about the region where an oil project is taking place. Insights give priorities for the project and provide the right expectations for a company and its shareholders.
The macro business environment derives its stability from the major world economies and their growth prospects. The fluctuations in demand and supply of oil depend mainly on the economic growth of the main consuming markets like the United States and China. If there is high volatility, then projects with a short period and high scalability will be viable. Besides, there is a cost of capital for short-term and long-term projects that affect the ability to keep projects on schedule. A risk that oil companies face is that their cost of capital can change midway through a project, thereby causing increases in the overall cost that can threaten the viability of a project.
Political risks also increase project complexities. Oil firms usually operate in more than one country to leverage economies of scale and serve customer needs. International and local politics affect other aspects of business, such as access to production areas, interest rates, and bureaucracy, which the project execution time. Political risks mainly introduce relationship complexities in an oil business by having more stakeholders and communication partners that need to be satisfied in the course of the project execution (Jepsen & Eskerool 2009).
Overall, inflation overall the cost of raw materials, the wages paid to workers, and the returns gained by a company. High inflation is risky; however, inflation can only be predicted and discounted by several financial buffers, but it remains unavoidable (Meredith & Mantel 2012).
Within the organization, complexities in the planning process arise due to language problems and cultural processes. If a subsidiary located in a host country has to coordinate development efforts with the head office in another country, cultural conflicts will likely affect the communication of objectives, goals, opportunities, and priorities for dealing with any identified challenges. For example, a significant oil drilling and processing company in the United States could have oil-prospecting projects in Uganda, where it is employing local staff. Uncertainty avoidance, power distance, and aspects of individualism will play a part in the interpersonal communication of the American and Ugandan workers. When handled poorly, they can lead to mistakes in the planning process that can spread to the rest of the project. This can be an internal relationship project affecting internal stakeholders. It can cause work to stretch beyond project plans.
In another example, the hiring of skilled staff is an issue that is affected by internal and external environments. A company with a clear staffing strategy still has to deal with labor market shortcomings that are only certain at the time of hiring. To remedy the problems, firms rely on talent management programs that include education so that they have sufficient skilled personnel to deploy to new projects (Tullow Oil Plc 2015).
Reference List
Jepsen, AL & Eskerool, P 2009, ‘Stakeholders analysis in projects: Challenges in using guidelines in the real world’, International Journal of Project Management, vol 27, no. 4, pp. 335-343.
Meredith, JR & Mantel, SJ 2012, Project management: A managerial approach, 8th edn, John Wiley & Sons, Hoboken, NJ.
Tullow Oil Plc 2015, Tullow Oil Plc overview presentation. Web.
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