AspenTech : Engineering & Construction
  • Updated on November 9, 2016
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  • Ron Beck

Organizational Excellence and Estimating Risk: Drive for Lower CAPEX

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Owner operators are driving for lower CAPEX, from small maintenance projects to mega projects. How do contractors manage risk in this environment? There is intense pressure to understand estimating uncertainty and deliver better designs and lower bids. The pressure falls on the estimating department. Executives making bid decisions expect estimating to deliver them faster bids and at the same time more transparency into the levels of risk and uncertainty associated with the estimate.

Owners and several leading EPCs have turned their focus on improved designs and better construction strategies to achieve lower cost.

Organizations need to take their heads out of the sand and tie together process engineering with estimating, to achieve agility in the bid and feasibility study processes! 

DRIVE FOR EFFICIENCY

The drive to execute projects at lower cost has focused heavily on efficiency of project execution. This has exhibited itself through increased use of “low cost engineering centers” and “global delivery centers.” However, owners and several leading EPCs have turned their focus on improved designs and better construction strategies to achieve lower cost. Modular design is one of those aspects. 

OVERRELIANCE ON SPREADSHEETS

To engineering practitioners, spreadsheets are like cocaine. They can’t stay away from them. So many things can be done by an individual engineer with a spreadsheet and the calculations that can be built in and hidden away within them. 

A director of major projects at a large process industry EPC told me recently that he had audited a recent project and found an alarming artifact of the project. Over 40,000 separate spreadsheets had been used in the development of that engineering project. This was a cause for significant alarm. As helpful and powerful as a spreadsheet is to an organization, it is a weak link in a large multi-year, multi-step engineering project, or even, truth be told, in a small plant improvement project. There is little ability to control or provide oversight of changes, information copying, versioning, spreadsheet interdependence, hidden changes made in formulas by individuals, and the like.


NEED FOR AGILITY

The CAPEX decision process becomes ever more dynamic and fluid. The owner wants to explore more options. The operator’s business leaders must change top-level project parameters as the external economics shift.  

This calls for close collaboration and agile handovers between process engineering and estimating.

PROBLEMS IN THE ESTIMATING WORLD 

In the midst of this pressure, and the agility imperative, the estimating world is under siege. Spreadsheets, and spreadsheet-like software are creating huge bottlenecks. Recopying information, merging spreadsheets, filling in tables of numbers, these are all the antithesis of agility and speed.  

In a survey of 161 estimating teams this summer, over 50% said they are NOT satisfied with their current estimating systems.

These same estimators usually tell me that they “have no problems” with their current estimating processes.  But we have discovered a surprising truth.  In a survey of 161 estimating teams this summer, over 50% said they are NOT satisfied with their current estimating systems. Many of these organizations that are not satisfied are the same ones that are today using spreadsheets. 


THE KEY PROCESS-TO-ESTIMATING WORK PROCESS

The enabling of very close collaboration between process and estimating is an absolute key opportunity during bidding. Improving bids and reducing risk cannot be solved by estimating in an island. It is a joint result of looking at the process, predicting reliability and operability, and understanding the costs concurrently. 

This is why AspenTech has focused heavily on tying process very closely together with capital costs and the cost estimating model and with operating costs and the energy and utility model, as discussed in this whitepaper.


THE RIGHT DETAILS AT THE RIGHT TIME

Also crucial is making estimating more strategic and efficient in the bid process. Executive need better visibility. Estimators need better way of prioritizing the work of their scare experienced resources on the most important parts of the problem.  Ability to focus the estimating team on the most critical issues is enabled by model based estimating that is uniquely available within the Aspen Capital Cost Estimator system. Read our white paper on model-based-estimating here.  

Because the engineering knowledge models within AspenTech’s estimating system build the estimate in an automated, accurate way from the project scope, the estimator is freed up to spend time looking at those details, and only those details, central to cost and risk. More details are available in our white paper, “The Right Details at the Right Time.”

 

BECOME A BELIEVER

I attended a presentation a few years ago presented by Black and Veatch’s senior estimator on how to use AspenTech’s estimating system (ACCE) to reduce uncertainty, risk, and over-runs on power generation projects.

I was interested in the presentation and was paying close attention, because our estimating system hadn’t been used much previously for power plant capital projects; but this guy showed clearly and convincingly how adaptable the ACCE system is to the power domain, how Black and Veatch was using it, and how much agility and accuracy it brought to bear on these projects. That was interesting. 

But what really stuck in my mind were his remarks about estimators themselves and how to get an estimating organization fully expert in the use of this versatile, powerful and agile estimating system.  I thought he was going to show some flow charts or implementation plans.

No.

The speaker talked compellingly about “believers” in the system. And the best strategy for converting the “non-believers.” Those involved in complex engineering software systems talk quite a bit about “religious” commitments that people and groups have to certain software.  What are people really talking about here, and how do you use that in your development of a project team?   It is the challenge of getting expert users of software to look beyond their daily tasks and seeing the vision and value of an innovative and better way.  Embracing change, as an individual engineer and as an organization, is about conservatism, resistance to change, hesitation to investing the time to learn new ways of doing things, and fear of the unknown – fear of letting go of the crutches of today’s methods for the jet powered skis of a better way.

Estimators, the group of engineers I’m taking about today, are extremely conservative. They work with large amounts of capital cost, millions, hundreds of millions or even billions of dollars, and must assess material capital risk to projects and companies.

But in today’s stressed business environment, that conservatism is not affordable. These estimating teams need to take their heads out of the sand.

It is even more important to get past those in-built points of friction and conservatism; and look to improve and optimize business processes and business performance in the estimating arena.

Become a believer by looking at these measurable benefits achieved with AspenTech’s estimating solution across the lifecycle.

Have more ideas or questions? I'd love to hear from you; comment here or feel free to email me at ron.beck@aspentech.com.

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