Excerpt from a new whitepaper published by Burns & McDonnell:
When developing and engineering an oil and gas project, it’s generally accepted that cost control may be difficult, or even impossible, if it’s on an aggressive schedule. Is that really true? Let’s take a look.
If the project’s primary objectives are lowest installed cost, due to market pressures, the team will need to spend more time during stage gates methodically exploring and eliminating options — de-risking the project as much as possible before construction crews mobilize to the job site.
However, if the owner wants to go fast for a speed-to-market opportunity, the engineering focus shifts. The design phase will explore fewer options with a goal of identifying critical paths that will lead to earlier decisions.
Whether the owner’s priority is speed or cost control, an integrated engineer-procure-construct (EPC) project delivery framework can provide the flexibility needed to minimize either-or scenarios. Under this framework, proper engineering analysis can still be done to mitigate some of the tradeoffs between cost control and speed to market and result in successful project outcomes.
Cost Control Under FEP 1, 2 and 3
Front-end planning (FEP), also sometimes called front-end engineering design (FEED), typically is when preliminary designs and plans are developed. If the goal for the project is optimizing costs and reducing the chances of an unpleasant cost overrun at the end, an FEP 1, 2 and 3 process is widely accepted as a best practice. It’s a deliberative approach that sets out specific stage gates at which deliverables and objectives must be met before proceeding to the next stage.
Though each project will have differences, these front-end stages are generally where engineering analysis and progressively more accurate estimates are developed in a carefully choreographed sequence. This is the foundation that helps define the scopes of various project phases.
Under the first phase — FEP 1 — the goal is to identify opportunities for the project to align with business goals and evaluate various technologies. A project may require use of cold service storage tanks or closed-loop refrigerant systems, for example, so the project team will evaluate the various technology options that would best meet those specifications. Once the full range of options are weighed, potential project costs begin to emerge, though these can range as much as 50% above or below actual installed costs.
For the FEP 2 phase, the process is generally aimed at drilling into the project details with greater intensity, developing a project scope defined by the commercial needs of the project. Many options considered under the FEP 1 phase will fall by the wayside during FEP 2.
For example, multiple feedstocks could have been under consideration for the project with varying process designs considered and priced. As those costs get compared with the commercial objectives, the most viable choice becomes apparent. FEP 2 is a progression from conceptual and theoretical design to actual, realistic design options, allowing the team to further refine cost estimates within a range of plus or minus 25% of total installed costs.
Finally, under the FEP 3 phase, a definitive project scope and schedule are developed. Cost estimates are tightened further to a high-or-low range of 10% of total installed cost. At this point the options have been thoroughly analyzed and the preferred one selected. More refined engineering drawings and other deliverables can then be produced in preparation for construction teams to mobilize to the site.
Going Fast Changes Things
Even if the primary objective is delivering a project faster, many of the same principles of FEP 1, 2 and 3 still apply. Project goals still need to be set, but the main difference is the team does not have the luxury of time to exhaustively analyze multiple options. The team must collaborate closely with the owner and attempt to pare down design options early to only those that will be most viable.
The benefits and flexibility of an integrated EPC approach can really shine under this scenario. In order to arrive at a definitive cost estimate, the project owner collaborates with the integrated engineering, construction and procurement teams to select the preferred technology as early as possible and begin the process of ordering long-lead-time equipment. The goal is to arrive at a formal authorization for expenditure (AFE), the stage at which capital expenditures begin.
There is greater risk under this approach because there is not quite as much focus on the granular details. This is a tradeoff that requires greater diligence from the owner and overall project manager to be sure everyone is on board when key decisions are made. Pursuing an aggressive schedule means that many decisions can’t be second-guessed and reversed once made. There may also be more significant variances in cost estimates under this approach.
The cost-benefit analysis should weigh the potential of increased profitability by getting a product to market first, versus the risk of unanticipated costs that may push the project over initial budget estimates. However, if a facility can generate significant revenue earlier by getting to market first, the brackets for tolerable risk of cost overruns may become a little wider.
Getting Past the Fear Factor
A highly qualified and experienced project team can be the right tonic to address any hesitation over accelerating project schedules. Though it requires more involvement between the owner and senior engineers, construction and procurement professionals, an experienced team conducting interactive project planning meetings (IPPM) during the FEP 2 or FEP 3 stages can quickly advance project objectives and define the critical paths forward.
These IPPM sessions are helpful in surfacing interactive milestones for pushes or pulls in the schedule. These sessions typically focus on when critical equipment needs to be purchased. How long will it take to be manufactured and when does it need to be delivered? When do engineers need to develop sizing and specifications for certain equipment? When are those deliverables needed in the field to support construction?
Answers to these questions will vary, of course, because all projects exist on a spectrum ranging between extreme complexity and those with fewer variables. Still, even less-complicated projects can present surprises and no two are alike. That’s why an experienced engineering team executing a well-defined process for preliminary engineering under the FEP 1, 2 and 3 stages can lead to successful project outcomes, whether the project needs to go fast or meet strict budget limitations.
Large volume storage tanks are generally constructed on a critical path to completion. Engineering design and other project elements must be awarded early to avoid later cost and schedule impacts.
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