Professional Documents
Culture Documents
Executive Summary
The capital projects market is intensely
competitive for EPCs as we enter 2015.
Owners, especially in the exploration and
production arena, are concerned with
improving lifecycle project economics
and are consequently putting
pressure on the EPC community
to sharpen their pencils. How
does an EPC adapt itself to win
in this competitive market? In the
midst of uncertainty, there is strong
opportunity for those EPC organizations
who are positioned to be agile, flexible and
creative. In particular, several breakthrough
software technologies present a key opportunity
to power the agile and flexible organization
towards a competitive edge.
One strategic software area is advanced
estimating software. Model-based estimating
leads to increased estimate accuracy,
consistency and productivity. The productivity
gains are attributable to the engineering knowhow, methods and automation contained in the
software system, as well as with a more effective
work flow that it enables. This contributes to
success through increased ability to achieve
speed, efficiency and quality on the bidding
and proposal side and also to controlling and
managing costs throughout project execution.
Also, highly integrated software offers significant
opportunities to redefine the timeframes and
work processes during proposals, feasibility
studies and conceptual design. More efficient
work processes will enable optimizing designs
during the proposal phase to save the client
CAPEX and OPEX and give a proposal team an
edge over competitive bids. But it will require
lateral thinking for an EPCs leadership to make
the organizational and work style changes
that are an essential component to seizing this
opportunity and becoming one of the leaders and
success stories in this uncertain environment.
75%
this topic was extensively discussed. In a midconference audience poll, involving an even split
of executives representing owners and EPCs,
lack of communication regarding project scope
during bidding and FEED, was identified as a
key issue. A Fall 2014 EY report (1) provided an
analysis that conveyed contributing issues such
as over-optimistic capital estimates, lack of
agreement on project scope during Front End
Loading (FEL), rushed Front End Design (FEED),
and proceeding with detailed design without
full access to FEED deliverables (see Figure 1).
During the winter of 2014 15, individual global
EPCs confirmed with AspenTech that these
issues are all recognized as key concerns.
Project
Development
Project
Delivery
Regulatory
Challenges
Geopolitical
Challenges
JV Conflictand
Relationship Challenges
Inadequate
Planning Overly
Aggressive Forecast
Ineffective P
roject
Management
Diplomatic and
Security Issues
Access to F unding
PoorProcurement
of Contractors
JV Conflict
and Relationship
Challenges
Regulatory D
elay And
PolicyUncertainty
Poor Portfolio
Management and
hanging Risk Appetite
C
AggressiveEstimates
and Optimism Bias
JV Conflict and
RelationshipChallenges
Inadequate
Infrastructure
INTERNAL FACTORS
EXTERNAL FACTORS
Project Scope
What Do We Mean When We Say Align on Project Scope?
It is generally agreed that the process flow diagram (PFD) and the associated supporting items,
the utilities flow diagram (UFD) and materials selection diagram (MSD), are at the core of
understanding, reviewing and agreeing on project scope. These documents both serve as a key
handover point between the process engineering function and other engineering disciplines, and as
a key communication point between the lead designers, the project managers, the estimators, and
the clients. Complementing this key deliverable are equipment lists and line lists. The equipment
list represents the key designed elements at enough detail to fully represent what the process
engineer has in mind, allowing the estimator to turn the concept into a deliverable, costable plant.
The equipment list is also a key communication point between the estimator and the engineering
disciplines to reach agreement on the estimated scope and also should be the key communication
point between the EPC and the owner.
It is generally agreed that the process flow diagram (PFD) and associated
supporting items, the utilities flow diagram (UFD) and materials selection
diagram (MSD) are at the core of understanding, reviewing and agreeing
on project scope.
The issues typically arise in the alignment on project scope when time,
resource constraints (availability of key experts at the right time) and
organizational barriers are put into the equation. Some of the key
issues that the industry is grappling with are:
Process Engineering, Modeling and PFDs: Process Engineers who develop the
conceptual design, including the process model and the process schema, are typically
averse to drafting. They need to be able to quickly and effectively produce, and most
importantly change and modify, a PFD under the deadlines of bid and proposal work and early
conceptual design, but without the right tools they are often delegating this PFD task to a drafter.
This causes delays in PFD production, especially when changes are made, and the availability of a
final PFD at times of discussion and negotiations with owners.
Dynamic Owner Requirements: With the dynamic economic, business and even political
conditions impacting project goals and definitions, owner requirements are frequently
changing. This requires the process engineering team to make frequent changes and
modifications, which has cascading impacts on deliverables such as PFDs, equipment lists, and
estimates, squeezing timeframes and impacting rigor and quality. The frequent solution, which is to
rush through FEED, is to keep the project schedules intact, which has a negative impact on project
changes during detailed design and ultimately on project cost and schedule. In this environment,
structured and collaborative FEED solutions such as Aspen Basic Engineering are a key tool.
Shortages of Key Experts at Crucial Times: Across the process industry, short supply of
experienced technical experts is a growing issue. During the bidding and project definition
phases, experienced process designers and estimators are a critical component on both
the EPC and owner side. Especially with the dynamic nature of projects, with frequent changes,
experienced generalists who can quickly and effectively review the scope, resourcing risk,
constructability, operability and ultimate risk of a project are keys to success. Software tools and
methods, such as Aspen HYSYS and Aspen Plus, Increase the productivity and effectiveness of
these experts and are crucial resources for reducing project risk.
Transparency and Owner Review: Due to the size and complexity of many current process
industry projects, it is essential that the owners fully understand the project definition, scope,
constraints, cost estimate, and cost risks. This requires complete transparency between the
owner and the EPC concerning the project scope and estimate, as well as software tools that will
enable the owners reviewer to understand at a detailed project and discipline level what is contained
in the estimate. A crucial tool for owners to successfully manage their contractor relationships and
projects is a transparent and flexible estimating system, such as the Aspen Capital Cost Estimator
model-based system, which looks at the scope and total installed cost.
Traditional
Traditional estimating processes, namely bottoms up, spreadsheet-based approaches and factorbased or parametric approaches present an organization with some serious deficiencies in light of
the project challenges discussed above. These approaches are highly dependent on assembling a
large team of estimators who are making calls, counting and entering information; are
dependent on the responsiveness and understanding of vendors in supplying cost
quotes, and are also dependent on the ability to reasonably extrapolate from
historical cost files.
Also, as projects become more dynamic, projects become larger in scale
and complexity and contracting structures become more involved. It is
increasingly difficult for one estimating manager or project manager to
visualize, assess, analyze and understand the entirety of the data set,
especially if it is a huge spreadsheet or series of spreadsheets.
Inherently, these methods require a higher percentage of the engineering to be
completed to achieve the requisite accuracy.
Model Based
The model-based estimating approach addresses all of these issues by building up a total-installed
cost estimate from engineer-in-a-box engineering first-principles models, which perform extremely
well when scaling a design, but are not dependent. The model automates the process of applying the
correct engineering standards, factors, sizing rules, and provisions.
Aspen Capital Cost Estimator (ACCE) (originally introduced into the market as ICARUS) is the
leading commercially developed, model-based system on the market. It contains a comprehensive
and broad library of equipment and component models, which include all related engineering rules,
material and fabrication costs, and construction resources required to specify and estimate the total
installed cost of that component. Simply by specifying an equipment type, size and materials of
construction, and location, the model will simulate construction of the equipment, and will identify
all associated bulks, instrumentation, civil, electrical, structural, indirects, and construction resources
required (see Figure 2).
Figure 2: From a column to a complete installed cost for the column using model approach
Model Fabrication
Equipment Costs
Contracting
Strategy
Complete Scope
Power Distribution
Control Systems
Site Development
Indirects
Proof Points
Over a sustained period of time, the results
demonstrating the value of the ACCE modelbased estimating, have been reported by several
global organizations. PEMEX benchmarked
30 major refinery capital projects estimated
using ACCE. Over those 30 projects, PEMEXs
estimating organization achieved accuracy at
a consistent level of approximately 21% for
Class IV estimates and approximately 8 to 16
% for Class III estimates. ConocoPhillips, a
downstream organization (now Phillips66),
benchmarked their estimating results over a
five-year period during which they switched
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References
(1) EY (October, 2014) (Ernst and Young), Spotlight on Oil and Gas Megaprojects
(2) Robertson, Elliott (May 24, 2011), Burns and McDonnell, FEL-2 Optimization of Capital Cost
of an NGL Revamp Facility, Public Webinar
(3) R
ichison, Rick (May, 2008), S&B Engineers & Constructors, LTD, Using ACCE to Cut Estimate
Preparation Costs
(4) ECC Global Forum (2014), can be referenced online at www.ecc-conference.org
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AspenTech is a leading supplier of software that optimizes process manufacturingfor energy, chemicals, engineering and
construction, and other industries that manufacture and produce products from a chemical process. With integrated aspenONE
solutions, process manufacturers can implement best practices for optimizing their engineering, manufacturing, and supply chain
operations. As a result, AspenTech customers are better able to increase capacity, improve margins, reduce costs, and become
more energy efficient. To see how the worlds leading process manufacturers rely on AspenTech to achieve their operational
excellence goals, visit www.aspentech.com.
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