Effectively delivering energy capital projects
By Rachel Kaufman
Over the next two decades, the Americas will see $7.5 trillion in investment in new energy supply infrastructure, the International Energy Agency forecasts. But all that investment in new projects comes with challenges: rising costs, talent shortages, and heightened regulation.
"Delays...have become the rule, rather than the exception," according a 2012 report from Accenture.
A majority of energy companies surveyed (85 percent) say they miss their internal targets for delivering on schedule, and 60 percent say they overshoot their budget targets by more than 25 percent.
Yet, projects are getting larger and more complex even as regulations are tightening in many parts of the world. With so much on the line, how can a company keep projects on schedule and on budget? A number of ways, but it all comes back to planning ahead.
Look before you leap
It goes without saying that managing a capital project -- whether it's smart meter installation, a coal plant or a wind turbine project -- is going to take planning, forethought, and the input of many, many stakeholders.
"The companies that do it well get their legal advisors, their technical team and financial advisors together as early in the process as possible, so those groups can get up to speed, so everyone's on the same page," said Gabe Procaccini, a lawyer with Akin Gump.
It's much easier to keep a complex project on track with a philosophy known as Front-End Engineering and Design, or FEED, according to Mike Matthews, energy director with PwC US, who has a master's in civil engineering and eight years of experience advising energy companies after almost two decades in the industry.
"FEED is very, very important. We develop what we call a master plan for the overall project and you begin to sequence all of those into a single schedule," he said. "In addition to looking at site selection, plant layout, some of the design work...[on] all these megaprojects, there's large pieces of equipment that may take two years to get fabricated. So [you are] able to have all schedules together, and you see the sequence of things and if something slips, what's the impact of that.
"That level of scheduling wasn't really common until closer to construction, and now with that front-end loading concept, you're bringing that scheduling work up to the front of the project," Matthews said.
In the past, front-end planning might have taken a chunk of time and budget in the single digits, but now spending 10 or 15 percent of a project's budget on pre-planning is not uncommon.
Matthews said: "Even 20 years ago, there was not so much focus on...investing up front. It was, 'Go, go, get out in the field as quick as you can and start turning dirt.'"
According to the Accenture report, leading performers in capital project delivery make "significantly" fewer changes to a project during the construction phase. And "insufficient detail during the planning stage" was cited as the top reason project schedules change, tied for first at 47 percent with new or unconsidered regulatory requirements.
That's another consequence of poor planning, but also just par for the course, Procaccini said.
"The parties can't anticipate all the hurdles from day one," he said. "As everyone starts to focus on the project, new issues will arise that no one anticipated."
Clearly, taking some time to plan a project in detail -- while it seems like common sense -- is crucial for a successful project.
Not inches, but boxes
That front-end planning care should extend to building a document management system and interface management system upfront, as well.
"Being able to manage [capital projects] efficiently has to do with the ability to keep everyone on the same page," said Jill Feblowitz, vice president of IDC Energy Insights. "We've found that being able to manage your documents is a key part of that. You need a kind of hierarchy to be able to index that documentation so you can get at it easily."
Think reams and reams of paperwork (or gigabytes of data, for the "paperless office" folks).
"You're not talking inches [of paper]," said Matthews. "You're talking boxes."
In fact, said Matthews, "a document control plan is one of the key control plans for successful projects."
The control is even more important because of the type of information a project typically uses.
Forms, records, plans, contracts and the other paperwork associated with a project are what's called "unstructured data," Feblowitz said, making the data more difficult to access than, say, pulling up numbers from a database.
Companies should tag documents appropriately in their document management system "as you procure things and receive them onsite," Matthews said.
Document taxonomy should be planned not just to benefit the design-build contractor but also the entity that will maintain and operate the asset once it's completed.
A majority of energy companies surveyed say the transition from project to operation is a choke point, according to the results of the Accenture report.
"The earlier operations is involved, the better chance of building assets that can be operated as planned," the report says. That means making sure a plant is actually operable (Matthews says he's seen valves meant to be adjusted by hand positioned eight feet off the floor) but also structuring documentation so operations teams can find what they need.
"We're pushing this now because we would see, historically, the project goes along and [the company] is controlling documents and collecting things to support the needs of building the project, without really thinking about, 'Well, what does the operator need?'" Matthews said. "[These documents are on] large hard drives, full of folders and subfolders, and they just hand them over and say, 'OK, here's your stuff, guys,' and walk away."
Needless to say, that approach creates a mess and extra work for the employees ultimately managing the asset. Matthews said he's had a team spend three or four months "reconfiguring and recoding" documents for clients, so "it is worth the effort to design it up front so you're doing it right."
And, of course, documentation isn't just good to have around because it looks pretty.
"You want to have everything together so that when you go into operations and maintenance, you know you're dealing with what actually got built as opposed to what got designed," Feblowitz said. "If you're sending someone out to do maintenance on an asset that's been built on a large capital project, say a turbine or a boiler, you [need] the latest documentation available to you as to what's been installed. Ideally, you want to be able to carry that documentation throughout the course of that asset to the point of decommissioning."
Historically, the engineering, procurement and construction (EPC) industries have been slow to move to digital, but keeping important documents in the cloud could go a long way toward making sure every stakeholder has the most up-to-date copies.
"For one drawing, there could be eight revisions…," said Matthews.
Front-end loading can't anticipate all problems. Matthews cited a liquid natural gas project in Australia that is "significantly over budget.
"It's not because of the design and execution, it's just the difficulty in the environment they have," he said. Since the plant is so remote, all supplies and labor needs to be brought in, and that's contributed to cost overruns.
Similarly, Feblowitz said, she worked on training for Boston's "Big Dig" tunnel in the 1980s before transitioning to the energy industry.
"It seemed like there was a tremendous amount of planning that went into it," she said. And yet the tunnel is famously the most expensive highway project in the United States, almost 200 percent over budget after it finally was completed in 2007.
But that's not a reason not to plan ahead.
"In the upfront stages, you have very vague ideas about what things are going to be, but your ability to influence the outcome is highest," said Matthews. "By the time you start construction, your ability to affect the cost and schedule is deflated...it's sometimes around 30 percent (meaning that more than two-thirds of the project is more or less set in stone). By the time you're heavy into construction, it's even lower than that."
So get your plans and control systems in line.
"These projects are huge, there's a lot at risk, there's a lot of money riding on the project," said Feblowitz. "There's a lot of permits and other documents associated with this that you have to pay attention to."