BP refines £4.7bn operational efficiency plan

Oil giant BP is aiming to remove a total of $7 billion (£4.7 billion) from annual operational costs, aided by a huge overhaul of IT, processes and project management.

Under a strategy taking place over a total of five years, the company began by successfully removing $4 billion (£2.7 billion) from operational costs since 2008, a spokesperson confirmed today. BP has now said it will now target a further $3 billion (£2 billion) removal of costs “over the next two to three years”.

Extensive changes to back office operations, including IT, have played a significant role in the cost cutting so far. Last August, BP cut ties with 35 application development providers and signed £1.5 billion worth of deals to outsource to IBM, Accenture, Wipro, Infosys, and Tata Consultancy Services. In December, it outsourced global communications to T-Systems and Siemens in another bid to reduce the number of suppliers it works with.

Job losses have played a significant part in the cost cuts, with a net loss of 8,000 staff in the last two years – some 22,000 left the company and 14,000 joined. Among these, over 150 executives and 1,500 permanent contractors at its office locations have left their roles.

BP’s acquisitions of oil firms Amoco and Arco, in 1998 and 2000 respectively, also brought in a range of legacy IT systems, leading BP to undertake a major IT standardisation project in recent years.

The oil giant uses the Oracle Primavera P6 project portfolio management software to standardise scheduling and planning, and improve handling of hundreds of routine work orders daily at each refinery. It also runs Oracle Crystal Ball business intelligence systems, to help with forecasting time and costs needed on large exploration projects.

Other key software the company has standardised on includes SAP financials and IBM Maximo asset management. It also runs an in-house Operating Management System, which is implemented at all major sites and aims to help design and manage processes tightly.

Tony Hayward, chief executive at BP, last week told financial analysts the company had made “great progress” in reducing costs. While the company’s oil business was performing strongly, he said, “our financial performance has yet fully to reflect this”. The changes would be “unrelenting”, Hayward said, adding: “We believe we have made a good start, but it's only a start.”

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