How do we identify capital savings for major projects?

SOLUTION EMPLOYED

Capital Projects

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SERVICE EMPLOYED

Advanced Benchmarking Methodology (ABM)

Challenge

A team was tasked with delivering a $100 million refinery modification project requiring turnaround execution. The project team was preparing for gate review, but lacked reliable benchmarks for assessing cost and schedule risk. Traditional benchmarking techniques, such as cost ratio analysis, were not appropriate for the project. Without reliable tools to assess the estimate, the project team did not know how their targets compared to Industry competitors, or whether their current estimate presented cost risks.

Approach

The team turned to AP-Networks’ Advanced Benchmarking Methodology (ABM) for a comprehensive, granular analysis of the project estimate. ABM is especially reliable and insightful for benchmarking “brownfield” modification projects. AP-Networks’ associates collected project data and detailed cost estimate data, and used this data to benchmark:

• Capital project costs, such as:
  • Engineering
  • Project management
  • Direct Field Labor
  • Construction management
  • Construction equipment
  • Other construction Iindirects
• Overall Direct Field Labor (DFL) hours
  • DFL hours for key disciplines:
    • Piping
    • Concrete
    • Steel
    • Electrical
    • Instrumentation
• Indirect hours
  • Detailed design hours
  • Construction management hours
  • Project management hours
  • And more

These benchmarks provided insight into the project estimate, including an understanding of how labor hour targets influenced cost benchmarks. AP-Networks’ associates worked with the project team to translate these benchmarks into practical actions to achieve cost and schedule savings.

Results

$5 Million USD in Cost Savings

The ABM analysis found that the project team’s labor hour estimate was very conservative, and that the blended engineering wage rate was comparable to Industry average. The project team worked with AP-Networks to determine that many of the hours were associated with a scope of work that could be turned into a lump sum engineering and procurement contract at a lower cost. The team awarded the work to a highly qualified bidder for $5 million USD less than estimated.

Mitigated Turnaround Execution Cost Risk

The ABM analysis found that the project team had an overly aggressive target for the turnaround overheads. AP-Networks’ recommendations helped the team develop a detailed agreement for the turnaround overheads by working with the turnaround team. Implementing the recommendations ensured that the project team was aligned with the turnaround team on shared turnaround and project costs, and mitigated the chance of a project cost overrun.

Mitigated Labor Productivity Risk

The ABM analysis accounted for turnaround labor productivity. It found that the piping hours were reasonable outside of turnaround execution, but that the piping hours within turnaround execution were aggressive. AP-Networks’ associates helped the project team set an aggressive target for the turnaround piping hours, as well as set aside a “contingency” to be allocated or released with the final turnaround estimate.