Reducing capital cost risk

Understanding the full scope of projects and acting upon the right engineering choices reduces capital risk


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Article Summary

Whether a project is for new plants, revamps or expansion projects, early and accurate cost estimates are vital for engineering, procurement and construction companies (EPCs) and owner-operators to reduce uncertainty and avoid unanticipated overruns.

However, estimating is not just about enumerating items, obtaining quotes and applying factors. Using powerful and intelligent economic evaluation software, EPCs can be more strategic, with more informed bidding, rapid reactions to client changes, transparency during scope and cost discussions, adoption of collaborative work processes, better capital project planning, change orders and supporting more effective decision-making. Standardised cost data can be calibrated and benchmarked to a company’s specific matrix and a model based approach can be adopted across the entire estimating lifecycle to generate both conceptual and detailed estimates for process plant capital projects in the oil and gas, refining, chemicals and mining industries. Based on highly scalable engineering models of process equipment, the software tools accurately model equipment costs, as well as the total installed costs for process equipment and associated bulk items. Essentially, the software mobilises engineering and estimating know-how into a powerful and flexible estimating engine.

Time is critical
Global competition in the energy industries puts increasing pressure on the profitability of assets. For owner-operators, time-to-market, capital efficiency and operational integrity are paramount. While commercial pressures remain in today’s turbulent market, it is vital that there is alignment between the EPCs and owner-operators and that the project scope is clearly defined for efficient overall management of project capital expenditures.

Ineffective bidding strategies resulting from lack of data confidence and project misalignment can often put EPCs at risk. A major cause is the lack of convergence on the project scope during the FEED stage. With the majority of large projects going over budget or behind schedule, engineering is moving towards modularisation and standardisation. However, mergers and acquisitions in the industry have created larger companies with less agility and many still suffer from a shortfall of resources, constraining projects still further.

The process flow diagram (PFD) is an important communication point between the engineer and client. Often changes in owner-
operators’ project criteria result in the need for the conceptual design to be amended and the PFD altered. At this stage, financial, business, schedule and engineering resource pressures can cause engineering teams to begin detailed design before the FEED has been completed or the scope truly defined. This results in wasted engineering and time delays.

Best practice
Projects that typically achieve superior cost results generally have specific characteristics:
• Better predictability and accuracy during FEED to reduce risk
• Greater alignment and standardisation between EPC estimators 
and owner-operators’ project representatives
• The adoption of scalable, intelligent estimating and FEED software that captures knowledge during each phase of the project lifecycle
• Capability for estimators to ‘tune or calibrate’ estimates by self-
improvements and benchmarking data, giving the EPC intellectual property and competitive advantage
• Saving time and money with faster estimates overcoming resource shortages.

Capital cost estimates are needed early in the business planning and feasibility assessment stages of a project to evaluate viability and compare the economics of alternative processes and operating conditions being considered for the plant. Typically, there is limited information about a new plant at this stage, but more accurate cost estimates are vital to prevent incorrect decisions being made. This could be the difference between whether or not a capital investment is deemed economically viable.

By using one economic evaluation software platform throughout the entire engineering cycle, the EPC can progress the estimate from feasibility to conceptual to detailed cost estimates. 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 spend time enumerating bulk quantities at the FEED stage (a point at which those quantities are not known accurately anyway). Model based estimates grow more detailed and precise as project engineering advances. The costs are based on data specific to the project as the information is developed. This helps ensure that project managers base all project decisions on consistent economic and engineering assumptions while streamlining the transparent sharing of information among enterprise and business partners. Also, when the same software is used transparently by both engineer and owner-operator, communication on project scope and control is much clearer and more consistent.

There is a level of uncertainty in any cost estimate. Capital projects are subject to change. Therefore, the more detailed and flexible the information available to estimators, the more accuracy is built into the project scope, which will enhance the economic analysis of the process, improve the agility to analyse changes and dramatically reduce errors.

Calculation engine
Many EPCs have adopted AspenTech’s aspenONE Engineer-ing, which has the ability to improve bid estimates and complete proposals quickly, with relatively few man-hours. Aspen Economic Evaluation (formerly known as Icarus) enables companies to assess capital investment projects throughout the lifecycle of a project, from conceptual, basic and detailed design, to construction, operations and revamps. This group of products contains built-in engineering and cost content to produce comprehensive, accurate conceptual estimates. Based upon volumetric models that capture engineering standards, knowledge and rules and fabrication methods, the bid and project team will, at the outset and then throughout the project, understand the economic implications of engineering decisions and effectively manage and control the project. Each Aspen Economic Evaluation tool shares the same data, modelling and calculation engine to ensure consistency throughout the process lifecycle.

The software provides flexibility and power in developing estimates on large projects. Aspen Capital Cost Estimator (ACCE) is a model based estimating system, tested and proven on estimates for the largest and most complex projects (including LNG, brownfield and greenfield projects, such as the world’s largest petrochemical complex). ACCE handles multiple contractor cost structures, subcontractors, multiple estimating teams, modular construction, easily accounts for regional cost factors and generates AACE Class IV through Class II estimates for capital projects in the refining and chemicals industries.

Benefits include:
•    Delivers accurate and predictable cost estimates within 10-15% of actual costs
•    Spans process engineering through detailed design
•    Achieves estimating consistency
•    Models and analyses project execution strategies to determine the most effective combinations
•    Up to 5:1 estimating productivity improvement
•    Highly configurable system to handle a wide range of challenges
•    Collaborate with engineering disciplines
•    Easily manages change orders during all project phases
•    Transparent system.

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