The Art of the Deal: Capital Project Estimating

May 04, 2017

The largest global process industry players, spanning upstream oil, downstream oil and chemicals (and both owners and contractors) signaled last week, at OPTIMIZE™ 2017, their determination to change the equation on collaboration to improve industry competitiveness and profitability. On both sides, key players indicated they are open to, and in fact have already started to exchange estimating information on, large capital projects. This is made possible, they stated, by the comprehensive Aspen Capital Cost Estimator™ (ACCE) software, which enables electronic and transparent collaboration industry-wide.

A truly interesting group spawned this unexpectedly significant and meaningful discussion last week. There were about 60 people on hand, representing leading estimating teams from major industry players. So here’s a brief account, in hopes that the broader estimating community worldwide gets the benefit of the significant ideas laid out o that audience.

Six master estimators and capital project planners, representing six leadership companies in the process industries, took the stage in Houston last Wednesday morning.

This truly “blue ribbon” panel of experts was gathered in Houston, at AspenTech’s OPTIMIZE 2017. Representing ExxonMobil (Don Victory), Technip (Waymon Lofton), The Dow Chemical Company (Larry Roberts), KBR (Art Byram), Linde Engineering USA (Jason Stevens), these experts, along with Jim Leatherwood (formerly of LyondellBasell) all talked with and to an audience that included Saudi Aramco, Reliance Industries, Flint Hills, Jacobs Engineering and about 40 other leading companies.

The topic: better estimates, better projects, better collaboration, communication between owners and contractors. As the industry grapples with how to solve the perennial over-runs in large capital projects, communication during estimating between client and contractor is an important focus.

 The largest capital project sponsors are beginning to urge earlier, broader and more complete sharing of estimating data between owners and contractors — during bidding, during pre-FEED, during project execution. 

The benefits outweigh the pitfalls, these leading practitioners agreed last week during the lively panel session last week.

Here are some of the main insights these companies shared with the audience last week:

VALUE IN SHARING. Surprisingly, both sides uniformly see many benefits and few drawbacks in sharing estimates between the owner and contractor organizations. No one, including the audience, indicated any major barriers.

THE WIN-WIN EQUATION. The speakers pointed out that both owner and contractor have the same goal. Both organizations win if the project goes forward. To make the project go forward, the estimate needs to be right. For the estimate to be right, the organizations need to openly communicate. If the estimate is too high, the project economics won’t work, and projects will be postponed or cancelled. If the estimate is too low, the project will be in trouble, with the project leadership on both sides under fire. A good estimate will result from good agreement on scope and on the real costs.

TRANSPARENCY. All of the panels emphasized that transparency in the estimating tools is a key enabler of collaboration, so that all team members can see the basis for the scope and for the estimate itself. AspenTech’s ACCE system was lauded by the panelists as an ideal platform for collaboration, transparency, agreeing and understanding scope, and explaining an estimate to management.

THE ESTIMATE PLAN. There was a considerable discussion on the importance of communication among all parties (including owner and contractor) at the beginning, covering the importance of a written estimating plan to govern the work, expectations and collaboration. They emphasized the importance of setting the expectation with owners as to what costing and technology information is proprietary and what can be shared. On the owner side, ExxonMobil’s Don Victory emphasized that the owners respect the contractors and don’t want them to turn over any proprietary information; that’s not what’s needed for successful projects and collaboration. There was a lot of discussion of the challenge in getting people to read and follow a plan. 

PROTECTING INTELLECTUAL PROPERTY. Art Byram described the way in which a large Saudi mega-project was in development involving two owners and three contractors, where information was fully shared but each organization’s proprietary information was protected. He explained how the contractor can strip out their proprietary cost indexing and purchasing arrangements, while still very effectively conveying scope and costing approach within ACCE. This ability to completely protect a company’s estimating, costing and procurement “secret sauce,” while still effectively communicating scope, is a key benefit of both sides employing the ACCE system.

PEOPLE ARE A KEY COMPONENT. The six panelists, representing decades of estimating wisdom, emphasized that while the estimating software tools are fantastic enablers, people are a crucial component. They emphasized companies providing training of new estimators and project teams, ensuring that people understand the key parameters and decisions of the estimate. Senior executives who are exerting heavy pressure on estimators to find ways to reduce costs are often part of this people challenge.

THE TIME CRUNCH. The panelists discussed the “sword of Damocles” that the estimate deadline represents. As stated by Technip’s Waymon Lofton, the estimate deadline rarely moves. It is usually tied to a board of directors’ timetable or other senior management budgeting process. The estimators are often caught in the squeeze when engineering disciplines produce information later or inadequately. This is where the ability to communicate electronically between disciplines can help, though not substitute for good planning and execution.

THE STRATEGIC IMPORTANCE OF KEEPING MOMENTUM IN THIS AREA. After the formal presentation, several of the leadership of global owners present talked about their strategic commitment to this pathway. They also discussed the importance of engaging contractors in use of common systems for estimating and noted the key value of what was discussed in driving down industry CAPEX costs and improving project performance.

Find more related content on our Aspen Capital Cost Estimator page.

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