Sie sind auf Seite 1von 13

WHITE PAPER

Ways to Improve the Bid and


FEED Phases of Capital Projects
by Ron Beck, Industry Marketing Director, Aspen Technology, Inc.

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.

significant opportunities for improvement in


the engineering workflow and deliverables
processes. Overbudget and behind schedule
projects can frequently have their difficulties
traced back to lack of definition of scope during
Front End Loading (FEL), rushed Front End Design
(FEED), and proceeding with detailed design
without full access to FEED deliverables. (1)
Integrated process engineering workflows have
already achieved proven benefits to leading E&C
organizations. Burns and McDonnell saved one
owner 20% CAPEX on a gas-to-liquids (GTL)
plant expansion, by reducing capital equipment
counts by 75% (2). Model-based-estimating has
also gained several organizations a competitive
edge. S&B Engineers have achieved a 5:1
productivity gain on estimating during the FEL1
and 2 phases through adoption of model-based
estimating (3). On the SADARA Petro Chemical
Mega Project, preFEED estimates were able to
be completed nine months faster than expected
and the project, currently under construction, is
tracking on budget relative to the FEED estimate.
Rigorous feed delivery solutions have benefitted
project execution, saving Technip Stone &
Webster Process Technology 10% time on
repeatable design projects. A profitability model
developed by AspenTech suggests that the
available benefits across the industry are in the
tens of billions of dollars and the positive impact
on project risk is even greater.

FEED execution tools are a third key enabler.


On the project execution side, there are

Ways to Improve the Bid and FEED Phases of Capital Projects

Burns and McDonnell saved one


owner 20% CAPEX on a
gas-to-liquids (GTL) plant expansion,
by reducing capital equipment
counts by

75%

2015 Aspen Technology Inc. 11-7047-0715

Alignment on Project Scope and Risk


While a number of factors have driven many
recent capital projects to run overbudget
and behind schedule, lets focus on one of
the current issues that is most frequently
discussed, namely project scope definition.
EPCs are broadly concerned about their ability
to gain alignment, with respect to project
scope, with their clients; and at the same time
with the level of corporate risk imposed by the
owners pressure to bid lower, perform more
engineering during bidding, and towards lump
sum contracting. Owners also recognize this
issue. The September 2014 ECC (Engineering
Construction Contractors) Forum, consequently,
had as a theme, Aligning the Stars, (4) in which

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.

Figure 1: EY analyzes reasons for overruns on 365 $1 Billion-plus projects

Portfolio and Project


Commercial Context

Project
Development

Project
Delivery

Regulatory
Challenges

Geopolitical
Challenges

JV Conflictand
Relationship Challenges

Inadequate
Planning Overly
Aggressive Forecast

Ineffective P
 roject
Management

HSE Risk and Local


Content

Diplomatic and
Security Issues

Access to F unding

PoorProcurement
of Contractors

JV Conflict
and Relationship
Challenges

Regulatory D
 elay And
PolicyUncertainty

Financial and Supplier


Market Uncertainty

Poor Portfolio
Management and
 hanging Risk Appetite
C

AggressiveEstimates
and Optimism Bias

JV Conflict and
RelationshipChallenges

Inadequate
Infrastructure

Civil andWork Force


Disruption

INTERNAL FACTORS

Ways to Improve the Bid and FEED Phases of Capital Projects

EXTERNAL FACTORS

2015 Aspen Technology Inc. 11-7047-0715

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.

Ways to Improve the Bid and FEED Phases of Capital Projects

2015 Aspen Technology Inc. 11-7047-0715

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.

Ways to Improve the Bid and FEED Phases of Capital Projects

2015 Aspen Technology Inc. 11-7047-0715

Getting a Handle on the Estimating Process


With the estimate being a critical communication tool, lets explore the processes typically
employed, the new technologies available, and the improvements that can be achieved. First,
lets look at the traditional approach and its issues, followed by examples of new approaches and
strategies and how to arrive at them.

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.

Ways to Improve the Bid and FEED Phases of Capital Projects

2015 Aspen Technology Inc. 11-7047-0715

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

Conceptual Equipment Design


Shell Thickness
Weight
Nozzles

Project & Site

Model Fabrication
Equipment Costs

Contracting
Strategy

Ways to Improve the Bid and FEED Phases of Capital Projects

Model Installation and Construction


Piping
Instrumentation
Foundations
Structures
Electrical

Complete Scope
Power Distribution
Control Systems
Site Development
Indirects

2015 Aspen Technology Inc. 11-7047-0715

Time and Consistency are Key Benefits of the Model-Based Approach


The estimating team and the executive
confidence in the estimator and their numbers
are a crucial lynchpin in the bidding process.
Experienced estimators are among the scarcest
resources in the process industry today. When
time is not a critical factor, an E&C can partially
substitute manual estimation for experience,
but this usually only masks the importance and
value of estimating experience. At the bidding
and early engineering phases of a project,
time is a gating factor, and additionally the
judgement and ability to consider contingencies
of an experienced estimator are crucial.
The model-based approach frees up the
experienced estimators time to analyze the
overall project and anticipate issues and risk
factors.
A concept that Mike Monteith, founder
of Strategic Estimating Systems (SES),
has discussed extensively is that of,
The right detail at the right time. It is
a thought process, but interestingly the
selection of the right software systems
can be critical in engendering the
success of this approach. The temptation
of an estimating group, when put under
pressure, is to enumerate quantities,
filling in, very large supercharged
spreadsheets. Many of the assumptions are
hidden in formulas in the spreadsheet, and the
overwhelming size of these pages of data keeps
increasing. The difficulty with this enumeration
approach is that the full project scope is not at
all transparent, that it is a challenge to separate
the important cost determinators from the
less important detail, and that the flexibility to
explore scope and process alternatives is lost.
The much more sophisticated and transparent
approach represented by ACCE is fortunately
available. Instead of focusing on enumerating

details (which are never correct or important


very early in the proposal process), the user of
ACCE focuses instead on getting the project
scope correct and aligning the project scope
with the process definition. This will then place
the focus on getting major equipment items
and metallurgy correct from a process intent
point of view, and determining the bulk details
through statistical and experienced-based
engineering approaches, built into the software.

This approach has been demonstrated to


improve overall predictability and variance of
estimates, greatly reducing required estimating
manpower, and improving the transparency
of the estimate in communicating between
estimators and the executive team and
proposal manager.

Ways to Improve the Bid and FEED Phases of Capital Projects

2015 Aspen Technology Inc. 11-7047-0715

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

from using a factor-based estimating approach


to using ACCE. Phillips66 reduced their capital
estimating variance (at the FEL 3 stage) from a
40% variance with factor-based estimating to
a 12% variance with ACCE. They concurrently
were able to improve the productivity of their
estimators by a 10:1 ratio. The estimating
group at S&B Engineers have used ACCE on a
sustained basis for bidding and project work,
and have measured a 5:1 estimating productivity
gain during FEL 1 and 2 and a 2.5:1 productivity
gain on FEL 3 estimates.

Structured and Collaborative FEED Processes


Projects have increased in size and complexity.
Resource shortages and other factors have
driven up project costs. Owners have responded
by squeezing the FEED stage of projects, which
has led to corresponding misunderstandings
regarding project scope and further introduced
mid-project fluidity.
Global E&Cs have responded by getting bigger,
both through acquisition and organically. But, as
Chiyodas executive chairman, Takashi Kubota
remarked during a talk at Rice University
in September 2014, We need the size, but
does bigger mean better? We are not sure.
E&Cs have further responded by bidding
more aggressively in a highly competitive
environment.
Coupled with these factors, global work sharing
and value-engineering centers have challenged
project coordination and communication.

and estimates are prepared with the same


realistic basis that the owner is requesting
and expecting. This also creates the basis for
the owner and E&C to confront the areas of
uncertainty and risk in the proposed project,
required resources, and realism in the execution
plan; and make the appropriate decisions
early enough in the project planning and
development process. A system of this nature,
such as Aspen Basic Engineering, can be a bid
and project game changer.
Collaborative FEED (Aspen Basic Engineering)
further automates the FEED engineering
change process, as well as the development
of deliverables, especially when designs can
be standardized or modularized. This adds
engineering accuracy and quality efficiency.
The challenge when adopting this approach
and achieving the available benefit, is to change
ingrained, traditional silo approaches to a
collaborative team approach.

During the FEL and FEED phases of projects,


a strong front-end-design collaboration
system can make a true and accurate process
flow diagram (PFD) and key equipment lists
available to the proposal (and project) team
and the owner. This forms the basis for a
transparent communication and discussion
of project scope, to make sure that bids

Ways to Improve the Bid and FEED Phases of Capital Projects

2015 Aspen Technology Inc. 11-7047-0715

Breaking Down Business Process Barriers to Effectively


Manage Change and Complexity
The highly structured business processes that are standard within large E&C organizations have not
undergone much change over the past several decades. As global work-sharing and the size and
scope of projects has increased, managers have become paradoxically reticent to change, taking
the conservative position that engineering and approval processes that have worked to achieve
well-functioning plants do not require change. To meaningfully address both the bidding and project
execution challenges and risks in an increasingly global business, these business processes need to
be evaluated and evolve. The powerful capabilities of underlying systems together with wholesale
changes in the engineering workforce presents
the opportunity to conceive, develop, and
execute projects in new ways.
Specifically, during the bidding process, the
opportunity to tie together process modeling
systems, systems to rate major equipment
items, front end deliverable collaboration
solutions, estimating, and formal risk analysis
can and will lead to a competitive advantage
and overall better company and project
performance for those organizations that
embrace it.

To meaningfully address both the bidding


and project execution challenges and risks
in an increasingly global business, these
business processes need to be evaluated
and changed.

10

Ways to Improve the Bid and FEED Phases of Capital Projects

2015 Aspen Technology Inc. 11-7047-0715

Incorporating the Concepts of Standardized


and Modular Design
Another key trend thats driven by oil and gas exploration, production, and midstream organizations,
is the standardization and reuse of designs. The one-of-a-kind engineering approaches, which have
been a given in the process industry for decades, are increasingly being looked at as a problem in a
marketplace where spiralling capital project costs can create significant friction in the global energy
market. Energy firms are looking for E&Cs to lead the way in proposing standardized rather than the
gold-plated design.
Using the same integrated solutions, as described above, an engineering team can capture standard
repeatable (or modular) design components as building blocks for projects that can be designed and
engineered more efficiently, and at higher quality. Marcel Eijkenboom of Maturus Optimi (a previous
key estimator in the DSM biochemistry company) has made a compelling case as to how he was
able to effectively capture design building blocks that he was able to rapidly assemble into complete
processes. Accompanying these with accurate preliminary costs and economics, he was able to
credibly use this modular approach with business owners to evaluate the commercial viability of new
chemical and bio products being considered for investment and commercialization. These methods
are based fully on software available commercially today.
E&C companies that adopt integrated, project-modeling techniques and build flexibility into their
risk management or project changes will help oil and gas companies. In doing so, this can provide
enormous value to their clients and support large scale projects more effectively. When an E&C firm
helps reduce the cycle time of an oil and gas well development project by a significant amount (i.e.
20 30%), it can help their client deliver results far more quickly.

Software consistency drives project transparency


between owner-operator and E&C
Use of the same software between the owner-operator and E&C, especially when employed with
a transparent software system, allows for clear communication between owner-operator and
E&C on the scope and resource requirements. The owner uses this to evaluate bids on a like for
like basis and ensures that all requested scope is included. Owners, such as ConocoPhilips, have
demonstrated improvement in project timetables, capital predictability, and EPC oversight through
the transparent use of the same model-based software system by contractor and owner.

11

Ways to Improve the Bid and FEED Phases of Capital Projects

2015 Aspen Technology Inc. 11-7047-0715

Next Step: Effective Decision-Making

For effective bidding, many companies have


successfully implemented the aspenONE
software suite to help E&Cs deliver project
proposals faster and with less man-hours to
achieve superior process designs. Solutions
from AspenTech significantly improve the ability
to accurately estimate project costs early, bid
faster, achieve better communication between
E&Cs and owner-operators, apportion risk, and
improve project workflows.

cycle will help to capitalize on project


opportunities. By providing cost estimators and
project managers with the right tools, project
uncertainty and risk can be reduced and
capability is enhanced for effective
decision-making to control
industry capital costs. In the
quest for bid-to-win contracts,
better and faster designs mean
better value for customers,
which underpin a successful
strategy for E&Cs to survive and
thrive in a rapidly developing market.

Customer demands are on the increase,


and being able to adapt strategy and equip
engineering expertise with a cutting-edge
economic evaluation and collaborative FEED
software platforms throughout the engineering

AspenTech is currently working with


several global E&C, EPC, EPCM, and owner
organizations who have intiatives in place
to gain competitive advantage from the
approaches described in this paper.

The E&C industry is rapidly changing, as is the


nature of complexity within the business.

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

12

Ways to Improve the Bid and FEED Phases of Capital Projects

2015 Aspen Technology Inc. 11-7047-0715

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.
Worldwide Headquarters
Aspen Technology, Inc.
20 Crosby Drive | Bedford, MA 01730 | United States
phone: +1-781-221-6400 | fax: +1-781-221-6410 | info@aspentech.com
Regional Headquarters
Houston, TX | United States
phone: +1-281-584-1000
So Paulo | Brazil
phone: +55-11-3443-6261
Reading | United Kingdom
phone: +44-(0)-1189-226400
Singapore | Republic of Singapore
phone: +65-6395-3900
Manama | Bahrain
phone: +973-13606-400
For a complete list of offices, please visit www.aspentech.com/locations

13

Ways to Improve the Bid and FEED Phases of Capital Projects

2015 Aspen Technology Inc. 11-7047-0715