January 2020

Trends and Resources

Business Trends: EPC 2030: Five vital characteristics that will define the EPC firm of tomorrow

The state of the global engineering, procurement and construction (EPC) industry can accurately be described as “challenging.” Operating in an environment of volatile, uncertain, complex and ambiguous conditions, EPC firms are facing unsustainable levels of stress.

The state of the global engineering, procurement and construction (EPC) industry can accurately be described as “challenging.” Operating in an environment of volatile, uncertain, complex and ambiguous conditions, EPC firms are facing unsustainable levels of stress.

From onerous contracting models that discourage collaboration, to unpredictable commodity prices that undermine the attractiveness of the sector as an employer, the reasons are many and complex. Combined, these stressors are the forces that will reshape the industry over the next decade.

Where does that leave the innovators—the next generation of ambitious engineers and executives who want to drive change and improve performance within their firms and across the industry? The author’s company has identified five characteristics that will define the successful EPC firms of the future. These key traits will help companies effectively guide investment and spur innovation throughout the digital transformation journey. Striving to embody these qualities will drive positive changes in careers, companies and the industry, making the EPC segment of 2030 stronger, more innovative and increasingly profitable.

FIVE CHARACTERICSTICS THAT WILL DEFINE THE EPC FIRMS OF THE FUTURE

According to conferences and various media, the digital revolution is largely underway. However, many EPC executives say that their companies have experimented with digital initiatives, but they are still deliberating on where they will place their “big bets.” With that in mind, the characteristics that can help shape how and where EPC firms will invest for a brighter future are listed here. The future’s leading EPC firms will be:

1. Focused on design outcomes
2. Agile, high-velocity businesses
3. Talent magnets
4. Economically savvy at all levels of the organization
5. Relentlessly collaborative.

Characteristic 1: Focused on design outcomes

The single biggest differentiator for an EPC firm is the quality of its work. Quality manifests through lower required capital expenditures (CAPEX), accurate and complete engineering data that helps the contractor avoid problems during construction, designs that meet production targets while consuming less energy and emitting less pollution, and plants that safely exceed targeted uptime.

Leading EPC firms in 2030 will play a critical role in designing the plants of the future by having technology, processes and cultural mindsets that make the delivery of high-quality work product their top priority.

While today’s designs are often “finished” when the EPC firm runs out of time or budget, the designs of 2030 will be efficiently and rapidly optimized around a broader array of potential operating cases. This will be accomplished by running thousands of simulations to find the most optimized configuration, size, type and model of equipment that can come together to operate as an efficient plant system.

Rapid design exploration. Depending on the complexity of a project, the engineering team may run several or a couple dozen design cases—each one requiring engineering cycles and personnel hours—to fully understand the operating characteristics of a process plant. On the simple end of the spectrum, engineers will consider startup, shutdown, turnup, turndown, steady-state, summer and winter cases to configure, size and rate plant equipment.

By 2030, software and high-performance computing will be used to consider thousands of potential cases from a wider range of ambient temperatures to more complex variations in the chemical makeup of crude oil and other feedstocks.

Leveraging machine-learning and high-performance computing, and setting up and running these cases to define global optimums for design parameters, will be done quickly within a single interface—and without undue time spent on the mechanics of comparing a vast number of potential cases and operating conditions.

Getting there. The following hurdles and recommendations include:

• Hurdles to overcome: Available technology for determining the optimal number of cases needed for a given set of desired outcomes and constraints, and for quickly considering thousands of cases in a reasonable amount of time.
• Recommendations. EPC firms should invest in personnel and technology to stay at the forefront of this looming advancement in process engineering. Software providers must invest in the applications and infrastructure to facilitate multi-case engineering and high-performance computing.

Probability analysis for early design making—optioneering. A design team’s ability to impact final costs, in addition to the functional capabilities of a process plant, decreases rapidly with time. Early decisions—such as how many trains will be used, how much buffer capacity is needed, or how much redundancy to build into critical components—lock in the design approach and limit subsequent alternatives. Too often, these critical early decisions are made based on strong opinions, emotional positions or the experiences of one or more influential members of the design team.

Also problematic is the speed at which these decisions are made. Uncertainty can slow down key decisions, holding up the project, impeding the progress of those relying on preceding steps to complete their work, and causing the schedule to slip.

In 2030, EPC firms and owners will utilize a more rigorous and data-driven approach to optioneering as part of their standard design processes. For example, thousands of Monte Carlo simulations will be leveraged to simulate the results of alternative design scenarios to evaluate the likelihood of different outcomes, and to quickly enable decisions that will improve cost, uptime and return on investment (ROI) metrics.

Getting there. The following hurdles and recommendations include:

• Hurdles to overcome: Acquisition of historical data to inform simulators; decision-making based on emotional and anecdotal experience, rather than on using comprehensive data.
• Recommendations: EPC firms must build probability-based simulation into their early design processes. Software providers should include decision-support tools in their estimating and engineering software.

Combining model types to improve design and operations. The use of first-principle models for defining and predicting performance and outcomes is standard in the process industries. However, some processes are more difficult to predict, such as polymerization, catalyst degradation, bioprocesses and crystallization. These processes are often managed through less precise techniques, such as operator experience or rules of thumb, resulting in sub-optimal performance.

By 2030, leaders will embrace next-generation capabilities to more accurately model complex, real-world behaviors. Hybrid models combining output from first-principle models; operating models augmented by machine-learning; and black box models will be easier to build, maintain and deploy. Actual operating data, along with data from lab experiments and pilot plants, will be leveraged in these more precise models to improve predictive power and better optimize everything from catalyst replacement intervals in reactors to separation efficiencies in columns.

Getting there. The following hurdles and recommendations include:

• Hurdles to overcome: Barriers and lack of incentives for sharing data between owners and EPC firms.
• Recommendations: Owners and licensors can provide EPC firms with samples of operating data, lab data or data from pilot plants that can be used to refine designs and to more precisely size and rate equipment. During operations, owners can leverage EPC firms to bring together theoretical models with actual operating data to troubleshoot equipment, optimize feedrates, refine maintenance intervals and avoid unanticipated conditions and events.

Characteristic 2: Agile, high-velocity businesses

According to a 2018 industry survey,¹ two-thirds of EPC firms were undertaking, or planning to undertake, a major initiative to improve their productivity, speed and agility. Some industry executives are targeting productivity improvements of at least 30% (measured in work hours and dollars), and are striving to be more responsive to customers, from bidding through project handover. The next section describes where those improvements can be found.

A shift from documents to data. Instead of engineering data being stored, distributed and otherwise managed in documents, it will be stored, managed and accessed from multiple project databases, on premise and/or in the cloud. Data aggregation, rationalization and cleansing will be done through a central enterprise data insights tool, with links to operating systems; design and engineering systems; and corporate information technology (IT) systems, such as enterprise resource planning (ERP) software. Data will then be available to feed other systems or to inform decisions via customizable dashboards, with live links to the original sources of the data.

Data created during feasibility and conceptual engineering will be shared with the front-end engineering design (FEED) contractor. Likewise, the FEED data will be available electronically to the contractor performing detailed design and construction. This digitization of engineering data across disciplines and project phases will boost productivity by avoiding rework, re-entry of data, errors, omissions, and time and effort required to keep up with the inevitable changes, while enabling faster turnaround times on bids, design options and project deliverables.

Getting there. The following hurdles and recommendations include:

• Hurdles to overcome: Contractual and cultural norms, along with misaligned incentives, that discourage data-sharing; the use of documents as the primary vehicle for certifying engineering work.
• Recommendations: As part of their digital journeys, EPC firms should plan on digitizing and automating the flow of data across their organizations and across most of their internal systems. They should also prepare to extend the sharing of data with external parties, such as suppliers and customers. Software and technology providers must work together to smooth interfaces and the flow of data between engineering and business software applications, as well as to make their data more easily available for data aggregation, integration and dashboarding tools.

Streamlining software and technology. It is not uncommon for the engineering function to buy, support and maintain 100–200 different engineering software applications and technology platforms, most of which are distinct, incompatible islands of information. This is unwieldy and expensive, and acts as a barrier to speed and collaboration. By 2030, leaders will have undertaken a major rationalization of their technology platforms and providers. Chief information officers (CIOs) will shrink their portfolios to 20% of what they are at present, and will make strategic investments in a few key suppliers that offer broader solution coverage and make it easier to move data around. This will dramatically lower costs, foster collaboration and speed up projects.

Getting there. The following hurdles and recommendations include:

• Hurdles to overcome: Customer requirements for deliverability in specific file formats, and incompatibility of software products and data formats.
• Recommendations: Engineering and IT departments should join forces to catalog and assess each of their applications, and to develop a plan for portfolio rationalization, with a goal of consolidating to the few core suppliers that provide the largest value and portfolio. Software and technology suppliers must acquire technology and form partnerships that span workflows, functional areas and file formats, and that create links to adjacent systems, such as ERP.

Characteristic 3: Talent magnets

The oil and gas industry is at the forefront of engineering, science and technology innovations on a scale that is dazzling, albeit mostly hidden from the general public. Despite the Herculean feats being accomplished daily, the energy and chemicals industries have been on the receiving end of a steady stream of negative media coverage that has affected the perception and attractiveness of these sectors as employers. Coupled with the cyclical nature of commodity prices and the resultant impact on employment, the ability to attract and retain talent in both engineering and in the trades has suffered.

By 2030, EPC firms, driven by cost pressures, skilled labor shortages and the need for productivity enhancements, will have automated many routine tasks. In addition, knowledge automation enabled by the combination of operational data, artificial intelligence (AI), domain expertise, guidelines, best practices, local codes and previous designs will help guide engineers to more optimal design decisions faster. This will free up engineers to focus on more compelling and higher-value engineering tasks, resulting in greater job satisfaction and higher retention.

As the industry pushes deeper into finding new solutions for reducing energy consumption, preventing unplanned emissions, and making the energy and chemicals industry safer and more efficient, more young people will see the vast opportunities that these segments offer for making meaningful and lasting impacts on society.

Automation knowledge work and cognitive design guidance. Talented and highly trained engineers are spending too much time on mundane tasks, such as looking for information in multiple places, working from outdated information and manually entering data into multiple systems—only to have to re-enter the data when something changes.

By 2030, leaders will empower employees with more intelligent solutions that automate mundane and error-prone processes, and provide actionable insights and guidance, leveraging embedded AI and machine-learning, high-speed computing, domain experience and historical data. Data will be centralized in fewer systems, and updates can be made centrally and then propagated across project participants. Revision management will be standard, so that there is traceability and accountability for engineering information, without having to rely on documents.

Software enhanced with embedded AI will aid engineers by guiding them to more optimal decisions—and by leveraging design rules, historical and existing performance data, Monte Carlo simulations, and firm-specific knowledge and standards. AI will alert engineers when they are deviating from previous projects, sound engineering principles or firm standards. Actual operating data from similar designs will be analyzed, and design changes will be suggested.

Getting there. The following hurdles and recommendations include:

• Hurdles to overcome: Engineering software that is a “system for experts,” rather than being an “expert system”—and access to previous design data and data from operating plants.
• Recommendations: EPC firms should invest in automating interfaces and eliminating manual data handoffs. Engineering software providers must make their products easier to learn and use, enabling newer engineers to get up to speed and be productive in months instead of years. Owners need to recognize the value of their operating data to inform future plant technology and designs, and to share more data with their EPC partners.

Characteristic 4: Economically savvy at all levels of the organization

When an owner is evaluating the feasibility of a potential project, the focus is on developing a sound economic assessment, albeit based on limited engineering data. As the project proceeds through conceptual and basic design, if the estimating and engineering departments get out of sync, the result is a less reliable estimate and a potential for unpleasant financial surprises down the road.

By 2030, engineering and estimating functions will become more integrated. EPC firms will leverage estimating systems that are connected to engineering systems throughout the project, so that the estimate keeps pace with design progress and any changes in scope. Furthermore, the estimate will be connected to the project controls system, so the plan vs. actual data is readily available for use in managing projects more efficiently to a profitable and timely outcome.

Integrated project economics. In 2030, leaders will incorporate better cost- and risk-based decision-making into their operations, earlier in the process. Project controls systems will be fed directly from the estimating system, and estimating systems will get “smarter” by using actual project data. Companies will share project data more broadly within their firms, and rules and AI will assist with normalizing historical data for use on new projects.

Integration of current and past project engineering and economic data will be available via customizable dashboards for use throughout the firm. Estimators will use this data for beginning new estimates, engineers will use the data for faster project kickoffs, and executives will use the data to better manage projects to a profitable conclusion and to inform future project and portfolio decisions.

Getting there. The following hurdles and recommendations include:

• Hurdles to overcome: Internal functional silos and over-reliance on already constrained estimators.
• Recommendations: Engineering firms must invest in software that brings economic and engineering data together, while bringing their estimating, engineering and project controls teams closer together.

Characteristic 5: Relentlessly collaborative

A tremendous amount of collaboration occurs on a typical project between technology licensors, multiple EPC firms, engineers from many disciplines, estimators, project managers, owners, subcontractors, consultants and regulators. The problem is that much of this collaboration is happening through brute force and is rife with problems and limitations. Emailing spreadsheets that are soon out of date, conference calls where key people are missing due to conflicts, and changes in scope or schedule that are not distributed in a timely manner result in thousands of wasted work hours every year.

By 2030, leaders will break down silos across the value chain to accelerate the velocity of their business. Technology will have made inroads toward addressing and automating many of these pain points, but technology alone will not solve these challenges. If not accompanied by changes in policy and mindset, initiatives aimed at improvements will fail.

Business relationships evolve to better align objectives and incentives. In 2030, owners and contractors will have evolved their approach to contracting toward fostering more open and collaborative relationships, with better alignment across parties toward a good outcome for the project overall, not just individual participants. Incentives will be realigned to motivate all parties toward a set of common objectives that will drive successful project outcomes.

Owners will be incentivized to share more data with their contractors—and contractors and subcontractors will be willing to surface potential problems sooner, instead of trying to cover them up. Working together with aligned objectives and incentives, the parties will find better solutions to problems faster, thus reducing the need for change orders and avoiding costly litigation at the conclusion of the project.

Getting there. The following hurdles and recommendations include:

• Hurdles to overcome: Owners transferring undue risk to engineering firms that are not structured to accommodate significant risk; EPC firms that underbid projects, counting on change orders to break even or deliver a meager profit.
• Recommendations: Industry organizations—such as the Construction Industry Institute (CII) and the Engineering and Construction Contracting (ECC) Association—need to continue their research and put forward reasonable and practical proposals for improving contracting models. Large owners must take a leadership role in pioneering new ways of organizing the parties involved and aligning them toward common objectives and appropriate allocations of risk.

Owners should view contractors as experts in means and methods for sound, safe and efficient engineering and construction of facilities that will perform as designed—and not as commoditized service providers that can be manipulated into unfairly bearing an undue portion
of the project risk.

From dashboards to workflow assistants. Project data abounds in multiple databases; dozens of software applications; thousands of spreadsheets; and in the minds, desktops and notebooks of countless project participants. Unfortunately, little of this data is available for filtering, analysis and decision-making across the team and up through multiple levels of management.

By 2030, new contractual relationships and incentive structures will encourage transparency and trust, backed by the availability and reliability of project data. However, to be truly useful, the data must be augmented by domain knowledge and business or project context, and to be provided on live, role-specific dashboards that can be easily reconfigured as needs change. The software will provide additional value through workflow assistants that can initiate, monitor and report on actions driven by analytics and insights.

Getting there. The following hurdles and recommendations include:

• Hurdles to overcome: Lack of cross-functional executive ownership of project data.
• Recommendations: Engineering firms need to invest in software that brings economic and engineering data together, while bringing their estimating, engineering and project controls teams closer together. Users and managers need to augment dashboards with workflow automation tools to quickly act on opportunities for improvement.

Continued globalization. With the many retirements, reorganizations and mergers, coupled with an industry-wide hiring gap from 2014–2017, it is almost a given that projects will need support from multiple locations. By 2030, this multi-office collaboration will be standard operating procedure at EPC firms, and even at smaller regional firms. While begun as a cost-cutting measure, firms will find that the main benefit to global work sharing is more about speed and access to talent.

Firms will also more aggressively seek out partners that can expand their geographical reach or that have core competencies outside of their own. These core competencies may be in the area of technologies, such as offshore, new business lines (e.g., operations and maintenance), or business operations (e.g., the ability to profitably bid and execute lump-sum work).

Globalization will also play a greater role in the area of modularization—in terms of both design and fabrication. By 2030, increased standardization of design elements, coupled with advantages in the areas of cost and skilled labor availability, will have shifted even more fabrication to Asia. This will require increasingly sophisticated digital twins for use in design, fabrication and installation.

Getting there. The following hurdles and recommendations include:

• Hurdles to overcome: The top three challenges are sharing engineering models, consistency in deliverables and dealing with changes.¹
• Recommendations: The shortage of experienced engineers in many locations is likely to continue. Being able to tap into talent wherever it is located will become a differentiator for firms with the ability to open and productively operate high-value engineering centers in places like India and the Philippines. Engineering firms must seek out and deploy technology solutions that connect the engineering teams, wherever they are, to ensure that their data remains coordinated and consistent as the design matures and encounters the inevitable changes in scope.

Takeaway

The winds of change have been blowing in the EPC industry since 2014. If there is one thing of which we can be certain, it is that the pace of change will only accelerate over the next decade.

Much of the discussion about the future is focused on new technologies and digitalization. Certainly, employing technology to better manage processes and data is a prerequisite for advancement. However, while the past decade has been more focused on data acquisition and optimization within silos, the next will be focused on connecting data threads across parties, databases and project phases—and leveraging that data to optimize overall outcomes for a project.

Untapped value will force a change in the nature of the relationship between owners and EPC firms toward one that is more collaborative. The result will be better designs and facilities, and a more comprehensive understanding of project economics across the lifecycle, with fewer surprises for all parties.

Finally, by 2030, young, pragmatic engineers will see the potential to help achieve substantive and necessary change in an industry that embraces technology, innovation and collaboration to help society meet its energy and material needs in a way that is more sustainable for future generations. HP

 

NOTES

¹ AspenTech’s Concurrent Process Engineering Survey, February 2018.

The Author

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