Hydrocarbon Processing - January 2021 - 10

Business Trends
Slim corporate structure implementation. If markets have

common demands and are stable, a central core organization
enhances savings. The corporate savings are usually found in
centralizing staff (e.g., human resources, finance, quality and
sales). If markets become less predictable, the best course will
be defined by those who are in close touch with those demands.
Technology-driven corporations have implemented a slim
corporate structure, pushing decisions toward units that make
products for specific markets. In addition, owners regroup to
improve decision making in market segments to create a better
focus on a single segment. Similarly sized corporations (5,000-
20,000 employees) exist that rely on local decision making,
while centralizing strategic functions. Therefore, detailed steps
define operations that fit regional market demand. With decentralized resources, and with a regional focus, the size must be
enough to include human resources, sales, standards/quality
and finance-an office with 1,000 employees can provide this.
Another aspect is that offices that are comparable in size
may still run a development portfolio and compete on performance and capabilities. Simultaneously, capital and strategy
remain corporate tasks, co-developed for each segment/region
with the office leadership. The corporate function would then
be limited to 1.25% of sales. Each organization has a simplified
task (one region, one set of projects). Savings is a result of coordination among offices being removed-this adds 1% profit
(i.e., 1% of sales).

More efficient engineering and lower failure risks. The

first step for increasing productivity is to check the division of
labor. This has been at the core of efforts to increase productivity. Reducing cost by incorporating new sets of tasks and
tools is a productivity gain.
The combinations of tasks are based on the lowest cost to execute (i.e., design), iterate (i.e., redo, an essential part of design)
and review. This distinction is a reminder that, apart from " execute " as a cost item, " iteration " and " review " are costs, as well.
Salary cost is a less flexible component, except for replacing person X with education A by a less salaried person Y with training
B. The other cost component is IT tooling. New task structures
should save 25%-50% in certain areas, adding up to 15%-20%
in savings. This will add 1%-2% to the profit margin.
Another step is to map the engineering process for each project onto the specific demand on that project, such as cost of engineering, lead time, innovation and quality. Often, choices to
fine-tune toward the project demands are informally addressed
(such as selecting a project manager and senior engineers with
proven records to keep costs low or to drive quality). Leadership should implement a structured way to create behavior
tuned to that demand. This can add 1% to profits.
The next step is an early warning and early correction approach to avoid cost increases later into the project. Several reports show that 30% of new projects end in failure. The costs
of these failures on average represent 2% of sales for EPC firms.
These firms have implemented preemptive risk strategies to reduce these losses. The author suggests using an early warning
and early correction approach that centers on weekly assessments of non-financial factors, such as iterations that depict the
quality of the functioning of the engineering process. Each factor
ensures performance that the project demands. This approach

10 JANUARY 2021 | HydrocarbonProcessing.com

achieves a 50% reduction of failures, which adds up to 1% profit.
The final step is to monetize new products that can be delivered by the EPC firm. With limited effort, the delivery of products
[e.g., the computer numerical control (CNC) code for fabrication
of structural parts] can be added. In LNG, this can save 1%-2%
on capital expenditure costs, which can add 0.5% of profit.
These steps are not the only ones that EPC firms can choose
to increase profit. Several others exist. Performance improvement practices-such as a lean set of practices to reduce organizational waste-are widely used.
Examples for Case EPC-2020. As previously discussed, the
steps are:
* Improve division of labor
* Mapping process onto demand project
* Early warning and correction.
Although the missions of these steps are identical (i.e., add
profit), the specifics for each vary, since each has a focus on a
set of projects-either downstream OGCP or only LSCSM
in one region. Possibilities to change the division of labor plus
mappings onto each project demand are only geared toward that
specific market segment. Each decentralized office will, in the
coming years, take steps to lower engineering costs. In addition,
a project demand may be innovation or flexibility.
Improve division of labor. In many sectors of industry outside of the hydrocarbon industry, IT has enabled the ability to revisit the division of labor. In the electronics industries, a very tight
integration between 3D modeling and production was implemented decades ago. This allowed for folding several functional
engineers into one new design function, thus enhancing productivity. That reduces efforts to coordinate between disciplines.
In EPC plant design, the division of labor is still high. The
reason is that resources can be easily swapped from project to
project. IT tools ease the integration of disciplinary functions.
This allows a search for areas where the productivity increases
substantially by using one 3D model. It also provides rules to
simplify decision making so that tasks can be further automated,
and to recreate one new function out of three. For example, in
LNG liquefaction, there are several functional sections in the
plant in which piping and structural works can be based on
design parameters across functional borders, where rules can
automate several design decisions (as in electronic design). In
those areas, a new task structure can be created that covers an
integrated area of piping, structural, and civil works and controls.
Another area is smaller projects where the services are limited and the decisions are clear, such as the replacement of
pump units with some piping and limited structural and civil
works. Here, a new integrated task structure can be created,
combining tasks so that one person can execute them. Savings
in scheduling, decision making and coordination more than
compensate for IT costs, as the productivity output in that area
will increase twofold.
Mapping process onto demand. What is informally accepted, but not addressed in a more structural way, is that the
demand on a project influences the way the engineering process
should be specifically handled, and the way that tasks should be
timed. It is understood that lead-time demands will require a
few more senior engineers (i.e., more resources). This is especially important during the first months of the project to create

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Hydrocarbon Processing - January 2021

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