‘Powerful estimating engine reduces capital cost risk’

AspenTech Ron BeckUnderstanding the full scope of projects and acting upon the right engineering choices reduces capital risk, according to provider of manufacturing and supply chain management software and services for the process industries AspenTech

AspenTech engineering director Ron Beck said that the ability to predict installed costs faster with greater accuracy empowers estimators to analyse project execution strategies and maximise profitability.

Last year, the Dubai government said that the Expo 2020 master plan was on track with a target date for completion of all major construction activities on site by October 2019, allowing for a full year of readiness testing across networks, systems and technologies. Whether a project is for new plants, revamps or expansion projects, early, accurate cost estimates are vital for engineering, procurement and construction companies (EPCs) and owner-operators to reduce uncertainty and avoid unanticipated overruns.

Using powerful, intelligent economic evaluation software, EPCs can also be more strategic, including 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 estimating lifecycle to generate 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 and installed costs for process equipment and associated bulks.

Essentially, the software mobilises engineering and estimating know how into a powerful and flexible estimating engine, delivering vital business decision-making analysis.

Time is critical

Global competition in the energy industries puts increasing pressure on asset profitability. For owner-operators, time-to-market, capital efficiency and operational integrity are paramount. It is vital 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 can often put EPCs at risk. A major cause is the lack of convergence on the project scope during the FEED stage. With most large projects going over budget or behind, engineering is moving towards modularisation and standardisation. However, mergers and acquisitions have created larger companies with less agility, many suffering from a shortfall of resources further constraining projects.

The process flow diagram (PFD) is an important communication point between the engineer and client. Often changes in owner-operator’s project criteria results 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 defined, resulting 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 ‘out-of-the-box’ estimating and FEED software that captures knowledge during each project lifecycle phase

• 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 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. This could be the difference between whether or not a CAPEX 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. 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.

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.

Powerful calculation engine

With the aim to increase the project win percentage, many EPCs have adopted solutions, such as AspenTech’s Aspen Economic Evaluation product family, which has proven ability to improve bid estimates, complete proposals faster and with fewer man-hours, and more effectively leverage expertise around the globe. The software tools enable companies to rapidly and confidently assess capital investment projects throughout the lifecycle of a project. This group of products uniquely contains built-in engineering and cost content to produce comprehensive, accurate conceptual estimates. The software provides a high level of flexibility and power in developing estimates on large projects.

Aspen Capital Cost Estimator is a model-based estimating system, tested and proven on estimates for the world’s largest and most complex mega projects. The tool easily 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 oil and gas, refining and chemicals industries. Key benefits include delivering accurate and predictable cost estimates within 10 – 15 per cent of actual costs, spanning process engineering through detailed design, providing up to 5:1 estimating productivity improvement and easily managing change orders during all project phases.

By being able to analyse investment options during conceptual engineering, estimators can use powerful software to optimise control, power and piping, as well as support project relocation and scaling based on plant size. Costs automatically update as engineering specifications change, which provides clear visibility of how changing assumptions affect project economics. This helps maximise return on investment and reduce the risk involved in making decisions. An EPC can estimate with minimal input in a fraction of the time required compared to traditional methods, reduce estimation variability and achieve a faster, consistent estimating methodology. This gives their clients faster and better results.

Make better decisions

Determining the capital cost of a plant is complex. It defines whether a construction project is feasible dependent upon all financial constraints. Project change is inevitable, so estimators need to establish robust capital cost estimations that provide the most accurate forecasts to enable effective decision-making. EPCs face intense competition in the proposals and bidding phase. Hence, turning around proposals faster and being more assertive in the bidding process will increase the chances of winning projects. Above all, executives need to have total confidence in the consistency of the cost data and risk envelope being presented to them.

For EPCs that provide strategic ways to reduce capital costs and use the same transparent software as the owner-operator, communication on project scope and control is much clearer and consistent. A model-based approach allows the estimator to focus on equipment items that contribute significantly to costs. Using one economic evaluation software platform manages engineering throughout the project lifecycle reducing capital and operating costs, increasing engineering efficiency and quality, and accelerating time-to-market with faster payback.

Alain Charles Publishing, University House, 11-13 Lower Grosvenor Place, London, SW1W 0EX, UK
T: +44 20 7834 7676, F: +44 20 7973 0076, W: www.alaincharles.com

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