Transforming the capital projects industry
Is it time for a disruptive change in how the downstream construction industry executes projects? This question was proposed during the Rice Global Engineering & Construction Forum (RGF) roundtable. Held monthly on the Rice University campus in Houston, Texas, the RGF roundtable discusses the latest challenges and opportunities facing the contracting side of the global engineering and construction industry.
This month’s luncheon speaker featured Stephan Cabano, President, Pathfinder, and Chair of the 2019 Construction Industry Institute (CII). His presentation focused on the challenges facing the execution of capital project in the oil and gas industry and the latest advancements of the CII’s capital projects platform—Operating System 2.0.
“The majority of today’s major- to mega-capital projects do not meet cost and schedule expectations,” said Cabano, “nor do they meet their business expectations.” Statistics from the CII, NTNU and Bechtel show that nearly 95% of projects do not meet one or more of their business objectives, 70% of projects are not completed within 10% of budgeted cost and schedule, 98% of megaprojects experience cost overruns that average 80% over budget and 20 months late, and approximately 40% of capital is “wasted” on transactions.
Perhaps a new business model is needed? “At the end of the day, the owner basis his profit on the asset—selling product,” said Cabano, “the contractor makes its money on the project itself. At present, those are opposing incentives. We have got to get those closer together.” Cabano went on to discuss how the downstream construction industry is ripe for a change in project execution. Many industries have gone through disrupted changes—using Uber for transportation, renting hotels/homes through apps/websites, etc. A technology that could aide in a change for the construction industry could be Operating System 2.0.
A collaboration between the CII and the Construction Users Roundtable (CURT), Operating System 2.0 aims to redesign industry procedures and standards with current technological advances in mind. The hope is that Operating System 2.0 will make capital projects more financially viable and sustainable. This includes a dramatic reduction in time for planning, selecting, engaging, integrating and executing capital projects.
According to CII and CURT, Operating System 2.0 is based on seven elements:
- Corporate governance—Moves away from the time-consuming and costly stage-gate approach, integrates SBU and corporate processes and blends capital and operating expenditures, etc.
- Commercial model—Encourages creative tension between shareholders, which drives innovation and eliminates non-value-added activities.
- Design—Driving more production into a manufacturing environment. This includes capitalizing on moving digital designs into digital fabrication, utilizing modularization, etc.
- Production systems—Create end-to-end product lifecycle requirements that eliminate waste and estimating requirements, purchase orders and wasted transactional costs related to inventories, etc.
- Technology and systems—Utilizes the technological advances of suppliers to optimize project designs and manufacture products
- Human resources—Focus on recruiting and retaining employees with excellent skills, along with creating new training and enculturation methods
- Creating research and development joint ventures.
Utilizing the technologies and skills of collaborative platforms, such as Operating System 2.0, can help reduce waste and streamline capital projects in the downstream construction sector.
The RGF is held monthly at Rice University in Houston, Texas. For more information on the organization’s August roundtable, visit http://forum.rice.edu/.
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