# Evaluating the Cost Efficiency of Systems Engineering in Oil and Gas Projects
## 2 Materials and Methods
Thus, the topmost branch shows that, according to statistics, 22% of the projects carried out without using SE are successful--that is, they fit into the planned time and budget of the project. The lower offsets from this branch show the share of unsuccessful projects--27% of the projects went beyond the budget, 22% went beyond the deadlines, and 29% of the projects failed both in terms of deadlines and budget overruns. For each outcome--i.e., each branch in the decision tree--the Net Present Value (NPV) must be calculated by discounting all future cash flows (both incoming and outgoing) arising from the investment project at a given discount rate and then adding them together. NPV is calculated using the formula [31]:  
\[\text{NPV}=\sum_{\text{t}=0}^{\text{N}}\frac{\text{CF}_{\text{t}}}{\left(1+ \text{r}\right)^{\text{t}}}, \tag{1}\]  
where:  
NPV is the net present value;  
CF is the cash flow;  
r is the discount rate; \begin{table}
\begin{tabular}{c c c c} \hline \hline  & **Success \$, t** & **Unsuccess (\$)** & **Unsuccess (\$)** \\ \hline Projects without system engineering (IPA, 2012; Standish Group, 2015) & 22\% & 56\% & 51\% \\ \hline Projects with system engineering (Norwegian & & & \\ University of Science and Technology & 50.4\% & 20\% & 37\% \\ (NTNU), 2016) & & & \\ \hline Source: Data from IPA [25]; Norwegian University of Science and Technology (NTNU) [26]; Standish Group [27]. & & \\ \end{tabular}
\end{table} 
Table 1: Global statistics on successful and unsuccessful projects. N is the number of periods, which the project must be estimated at;  
t is the length of time, which the Net Present Value must be calculated for. The calculation of the Net Present Value includes several intermediate parameters that can be divided into two groups: income and expenses. The profitable part consists of the revenue from the realization of hydrocarbons by the netback costs (the cost of oil on the world market minus the transportation costs and export duties). The cost part includes capital (CAPEX) and operating expenses (OPEX), tax payments, and depreciation charges. Capital investments include the costs of production wells, as well as the costs of the construction of field facilities, including:  
* equipment for oil production;
* equipment for the gathering and transport of products;
* power supply facilities;
* objects of the technological preparation of hydrocarbons;
* arrangement of cluster sites;
* construction of infield roads;
* other expenses for the development of the field. Operating expenses are formed from the costs of raising, preparing, and transporting products (Lifting Cost), the costs of servicing and repairing wells (Reverx), and other expenses. Amortization for wells and other fixed assets was calculated by the linear method, which is characterized by a uniform transfer of the cost of fixed assets to the expenses of the organization. The useful life when calculating amortization is accepted for 10 years. Tax payments paid to the federal budget are made up of the export duty, the oil and gas production tax, property tax, income tax, and other taxes. The oil and gas production tax in the tax structure accounts for the largest share of deductions. The costs of systems engineering in the appropriate scenario options can be calculated in two ways, the choice of which will depend on completeness of the input information and the requirements for calculation accuracy. The first method involves calculating SE costs as a percentage of the project costs, which correlates with the percentage of cost overruns and schedule slips derived from the studied  
Figure 1: Decision tree for calculating the effect of using SE. projects. For example, if SE financing takes 8% of investments, a budget overrun by 15%, a deviation from the schedule by 20% in scenarios using systems engineering is expected. The optimal amount of system engineering effort to develop a successful system is 14.4% of the total program cost [14].