How to Optimize the AFE Process
Published May 11th, 2015 by Marsha Vigil
In my last blog post, I made the case that now was the ideal time to optimize your AFE processes. Given that tighter budgets require the most accurate assessment of spending, you need to ensure your Approval for Expenditure process is optimized to meet that need. But how do you do that?
The Logic of Lean
In Lean, you pursue the ideal state of perfect processes and performance. You seek to understand the sources and root out the causes of waste.
Lean means less of many things – less waste, shorter cycle times, less manual entry, less effort, less steps (literally). No more walking AFEs around the office using the sneaker net. But Lean also means more – more employee knowledge and empowerment, more organization agility and capability, more productivity, more collaboration, more satisfied executives, and more long-term success.
Applying the Logic of Lean to your AFE process will help you optimize by following these five steps:
1. Identify Value
The first step in the Lean process is to specify value from the standpoint of the end customer. In the AFE process, the end customers are the executives responsible for approving and monitoring capital expenditures. The starting point is to recognize that only a small fraction of the total time and effort in any organization actually adds value for the end customer, so by clearly defining value for a specific product or service from the end customer’s perspective, all the non-value activities (waste) can be targeted for removal.
Identify Value – Value vs. Non-Value
For the AFE process, value and non-value activities can be broken as such:
|Value Added||Non-Value Added (Waste)|
|Central Repository||Paper AFEs|
|Accessible by any device||Routing Slips|
|Customizable workflows||Manual routing|
|Real-time reporting||Manual Data Extraction/Reporting|
|Automated notifications||Manual partner AFE packaging|
|Dashboards||Manually entering AFE|
|Instant visibility into capital expenditure forecast||Duplicate entry into multiple systems|
|System integration||Searching for AFEs|
2. Map the Value Stream
After you’ve identified the value added and non-value added parts of your AFE processes, the next step is to identify all value streams. A value stream is the entire set of activities across all parts of the organization. To do so, map each identified AFE workflow process end-to-end. Once you understand what the business needs/wants, you can identify how to deliver.
Examples of AFE Workflows include:
- Operated vs. Non-Operated
- Budgeted vs. Non-Budgeted
- Regional (Rockies vs. Permian)
- Drilling, Completion, Workovers, Plug & Abandon
- Multiple Well AFEs (Facilities)
- AFE Master / Sub AFEs
- Pad AFEs
- G&A, IT
- Substitute AFEs, Preliminary AFEs
3. Create Flow by Eliminating Waste
At this point in your evaluation:
- Value has been precisely specified
- Value Streams fully mapped by the enterprise
- Wasteful steps eliminated
It’s time to make the remaining steps flow!
4. Establish Pull
Pull is about understanding the business demand for your service and then creating your process to respond to this. In other words, this means producing what the business wants when the business wants it.
The end customer needs to know real-time where the company stands with their AFE capital expenditures. What did we budget, what have we spent, what are we forecasted to spend? The pull is providing a single system to allow visibility into company capital in order to manage spending and prevent overspending. Do you have the systems in place for instant visibility?
5. Pursue Perfection
The final part of using the Logic of Lean to optimize your AFE processes is the realization that Lean is a never-ending journey. Continuous improvement is key if you want to remain optimized. Technology, organizational changes, oil prices, and budgets all can change the AFE process. So you must always ask yourself, how can I be more efficient and more effective as process needs change?