 "Gain control over project costs and risk through better conceptual estimates during FEED")
Tight oil and gas discoveries, in North America and worldwide, have launched a major realignment of oil and gas supply dynamics, decoupling of oil and gas prices, and a resulting growing demand for major capital assets. This is creating an increase in engineering & construction (E&C) backlogs worldwide and a bright outlook for the E&C industry. One of the biggest factors that may disrupt these capital projects is a chronic escalation of project capital costs. Two of the highest profile projects that have over-run their estimated costs are the Gorgon and Wheatstone LNG mega projects in Australia. However, those are only two of the highest profile examples. New thinking is required to overcome the project cost and execution challenges.
Early and accurate cost estimates are vital to reducing project risk to both E&C contractors and owner-operators. Alignment on the project scope and estimate are crucial to overall management of project capital expenditures. How can this be achieved?
One of the earliest and most important areas of communication between the E&C company and the owner-operator is around the project scope. The Engineering and Construction Contracting (ECC) Conference 2014 identified misalignment regarding project scope as one of 2014’s key industry challenges.
The process flow diagram (PFD) is a key point of communication between the engineer and client, which is one of the key deliverables produced during Front End Engineering Design (FEED). When the owner’s project criteria and objectives change, conceptual design changes occur and the PFD is altered.
One of the challenges at this stage of a project is the financial, business and resource pressure which causes engineering teams to begin detailed design before FEED has been completed and before the scope has been locked down. This causes wasted engineering effort on one hand and project cost fluidity on the other. More focus on higher quality FEED at this stage of a project will pay off in many ways.
Another challenge is the dependence of traditional estimating groups on enumeration of bulk quantities, which usually comes out of detailed design activities, such as P&ID and 3D model development. The modern estimating group must decouple these concepts. It is completely possible today to achieve an accurate FEED (+/- 15%) estimate with only 20 percent of the engineering work completed and mainly based on the list of major equipment items.
The use of cutting-edge economic estimation and FEED deliverables software dramatically improves engineering projects by improving scope of communication early in the project, providing flexibility to contend with conceptual engineering changes and by reducing project risk and uncertainty. Based on engineering model scope definitions of process, these software tools can accurately predict total installed costs of a project within a 10-15 percent envelope, easily evaluate additions or subtractions of scope, compare costs based on project relocation and assess alternatives, such as onsite fabrication version modular remote construction. The software provides a consistent cost basis to add detail progressively from pre-feasibility through construction within one system.
Adopting best practice
Projects that have achieved superior cost results generally have a number of characteristics:
The value of effective decision-making
An informed understanding of the economics associated with engineering alternatives improves the conceptual design process. These include important choices about technology, yield, configuration, energy use, feedstocks and project timing. The impact of conceptual design choices on plant economics is long-lasting.
By using one economic evaluation software platform throughout the engineering cycle, the E&C progresses the estimate from feasibility to conceptual to detailed cost estimates over the project lifecycle. The value of the model-based approach is that the estimator can focus on the major equipment items that contribute significantly to the costs rather than spending time enumerating bulk quantities at the FEED stage. When the same software is used transparently by both the owner and the engineer, communication on project scope and control is much clearer and consistent.
Broader understanding and adoption of this advanced estimating approach will enable project decision-makers to rapidly and confidently evaluate capital investment projects early in the design process. Reducing project uncertainty and risk can be achieved by providing project managers with the tools and capability to better hold industry capital costs in check.
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Ron Beck is engineering director at AspenTech
Sunil Patil is director, business consultant (engineering) – Asia Pacific, at AspenTech
Early and accurate cost estimates are vital to reducing project risk to both E&C contractors and owner-operators. Alignment on the project scope and estimate are crucial to overall management of project capital expenditures. How can this be achieved?
One of the earliest and most important areas of communication between the E&C company and the owner-operator is around the project scope. The Engineering and Construction Contracting (ECC) Conference 2014 identified misalignment regarding project scope as one of 2014’s key industry challenges.
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One of the challenges at this stage of a project is the financial, business and resource pressure which causes engineering teams to begin detailed design before FEED has been completed and before the scope has been locked down. This causes wasted engineering effort on one hand and project cost fluidity on the other. More focus on higher quality FEED at this stage of a project will pay off in many ways.
Another challenge is the dependence of traditional estimating groups on enumeration of bulk quantities, which usually comes out of detailed design activities, such as P&ID and 3D model development. The modern estimating group must decouple these concepts. It is completely possible today to achieve an accurate FEED (+/- 15%) estimate with only 20 percent of the engineering work completed and mainly based on the list of major equipment items.
The use of cutting-edge economic estimation and FEED deliverables software dramatically improves engineering projects by improving scope of communication early in the project, providing flexibility to contend with conceptual engineering changes and by reducing project risk and uncertainty. Based on engineering model scope definitions of process, these software tools can accurately predict total installed costs of a project within a 10-15 percent envelope, easily evaluate additions or subtractions of scope, compare costs based on project relocation and assess alternatives, such as onsite fabrication version modular remote construction. The software provides a consistent cost basis to add detail progressively from pre-feasibility through construction within one system.
Adopting best practice
Projects that have achieved superior cost results generally have a number of characteristics:
- Use of the same software between the owner-operator and E&C, especially when employed with a transparent software system, the scope and resource requirements are clearly communicated between owner-operator and E&C. The owner uses this to evaluate bids on an ‘apples to apples’ basis and ensures that all requested scope is included
- Employ an estimating system that can be integrated with the process modeling environment and FEED deliverables software. This approach enables rapidly re-evaluating the estimate based on conceptual engineering changes, ensuring project change management consistency
- Employ the same estimating platform from pre-feasibility through detailed estimating. This approach can help improve the estimator’s productivity by up to 80 percent
The value of effective decision-making
An informed understanding of the economics associated with engineering alternatives improves the conceptual design process. These include important choices about technology, yield, configuration, energy use, feedstocks and project timing. The impact of conceptual design choices on plant economics is long-lasting.
By using one economic evaluation software platform throughout the engineering cycle, the E&C progresses the estimate from feasibility to conceptual to detailed cost estimates over the project lifecycle. The value of the model-based approach is that the estimator can focus on the major equipment items that contribute significantly to the costs rather than spending time enumerating bulk quantities at the FEED stage. When the same software is used transparently by both the owner and the engineer, communication on project scope and control is much clearer and consistent.
Broader understanding and adoption of this advanced estimating approach will enable project decision-makers to rapidly and confidently evaluate capital investment projects early in the design process. Reducing project uncertainty and risk can be achieved by providing project managers with the tools and capability to better hold industry capital costs in check.
____________________________________________________________________________________________________
Ron Beck is engineering director at AspenTech
Sunil Patil is director, business consultant (engineering) – Asia Pacific, at AspenTech