Dec-2021

Value engineering: a continuous front-end process (ERTC)

The concept of front-end loading of projects is not new, where robust planning and design early in a project’s lifecycle helps to influence changes in design at an early stage and minimise the cost of implementing those changes.

Tom Johnston
Insite Technical Services

Article Summary

However, it is important to consider the early phases of a project as a journey rather than focus on the end point, in order to obtain the best value from front-end loading.

Meaning of the term “value”
Just as risk ≠ hazard, value ≠ cost. Having a basic knowledge of macro-economics, the term “utility” is used to define how much satisfaction a consumer obtains from a good or service, which is dependent on the consumer as well as the service.

In the same way, the term “value” is a thing’s importance, worth or usefulness. This is also dependent on a number of factors, and will be specific to each project, depending on its objectives:

- In the case of a fast-track, time-dependent project, the real value is obtained in helping reduce the schedule. As an example, expending sufficient thought in the options study may help to minimise project scope, or allow project staging, rather than pushing the first idea forward as fast as possible and committing to a large scope in a short time period.
- In the case of a safety/regulatory driven project, real value is obtained by understanding the risk fully, so that the mitigation meets all the requirements, but does not introduce additional risks. If the mitigation scope is minimised through detailed analysis, this also adds significant value.

In the examples above, engineering cost as a percentage of the total project cost may be increased, but the total project cost can be significantly reduced.

Early project phasing
Project phasing definitions and decision points vary between different organisations. However, for the early phases of a project in the downstream sector, they are dominated by process engineering and typically progress as shown in Table 1.

This is a standard rigorous approach to front-end loading. Frequently, phases and decision points are skipped for expediency, on the understanding that this introduces risk.

However, even with a rigorous approach, there is the potential to focus on the end point, rather than the journey to get there:
- All the alternative options have to be explored at a high level before deciding which one to progress
- The project basis needs to be fully defined and properly reviewed with all the key client stakeholders before developing deliverables
- Design risks need to be resolved before progressing to the next phase, not just added to the risk register

In order to provide real value, sufficient time, effort and expertise need to be expended in each phase to properly evaluate and define the project, and the biggest value can be obtained in the options phase.

Additionally, it is important to review the early phases at a high level before getting stuck into the detail. A good term to think of is “engage brain before engaging calculator”.

Holds, or risk register items need to be carefully considered. Carrying over significant items into the next phase introduces a risk in itself. In some cases, it may be better to package these up at the end of a phase, as a small scope of work to resolve either before formally progressing to the next phase, or in the inter-phase (decision point) period. This also helps to keep the project team fully engaged through the project.

Project Management and Leadership
Projects need to be managed properly in order to be a success, both by the client and by the engineering design contractor. But project management is not enough to maximise value. Strong leadership is also needed, with a clear focus on the objectives. Leadership is not just by the project manager, it is from the whole project team, taking ownership of the project to make it a success. This is best achieved through working collaboratively as one project  team.

In recent years, client resources, especially for projects, are stretched thin. It is therefore the duty of the engineering design contractor to lead the project. In this case, good leadership includes utilising the clients’ resources to achieve best value, providing potential solutions not just problems, as well as ensuring their team has (or has access to) operational experience and expertise, to offload the client.

Regular good communication is essential throughout each phase (and in between) to raise, discuss and resolve issues and developments as they occur, avoid scope creep and rework, while ensuring that risks are understood and resolved.

It is also important for the client and the engineering design contractor to recognise each other’s strengths and weaknesses. The client won’t always recognise the full impact of what has been written on a TQ, unless it is followed up with good communication from the contractor. The contractor cannot always be expected to know the current operating problems on the plant. Having an engineering contractor with experience and expertise asking the right questions and taking ownership of the project will help to avoid these problems.
the Contract Basis is Important

It is clear from this discussion that in order to obtain best value for the whole project, the front-end phases should be contracted on a target reimbursable basis, and not a fixed (lowest) cost basis. Additionally, each phase should be considered as discrete contracts. This minimises cost exposure for the client, but also allows sufficient freedom for the engineering contractor and the client to add real value by exploring the options as they develop, to the right level of definition. With good communication and leadership, the client remains in control and the project managers can focus on the project objectives and on adding value and avoid contractual aspects dominating.

In Summary
Putting all the above into practice is not easy, but, if done well, the team can improve the outcome of the overall project by a combination of structured thinking and creativity during the early phases.

For more information contact: tom.johnston@insitetechnical.com

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This short article originally appeared in the 2021 ERTC Newspapers, produced by PTQ / DigitalRefining.

You can view the Day 1 Newspaper HERE
You can view the Day 2 Newspaper HERE