Project owners use lean methods, reverse-phase schedules to cut risk

Petrochemical owners can reduce the volatility of the current business environment on the scope of their projects by maximizing their front-end planning (FEP) and implementing lean principles in engineering and construction, according to a panel of experts from BASF and the Dow Chemical Company.

Speaking at a Petrochemical Update webinar on March 23, Steve Troxell, global construction & EHS director at Dow Chemical, and Scott Brandenburg, P.E., vice president Engineering and Maintenance at BASF, discussed their companies’ strategies to reduce project costs and risks, and change their project execution culture.

A recent Ernst & Young (EY) study of the performance of 365 oil and gas megaprojects globally found that 64% are facing cost overruns and 73% are reporting schedule delays.

At the same time, almost two thirds of the major capital projects in the United States do not meet their budgets and schedules, and most industry executives are not happy with the performance of their systems, according to data and analysis by consulting firm AP-Networks, which services oil, chemical and energy companies in the Americas, Asia, Europe and the Middle East.

The most common challenges to delivering well-functioning projects safely, on time and on budget are closely inter-related and much more devastating for large projects, according to interviews Petrochemical Update has conducted in 2016 with petrochemical industry experts.

Lack of clear project objectives across all interfaces, incomplete or inadequate FEED execution and FEL discipline prior to sanction, difficulties freezing the project scope definition before engineering and construction, mismanagement of resources, and difficulties matching project goals with an optimal contracting arrangement are among the most common pitfalls in petrochemical and refining capital projects.

Front-end planning lessons from BASF

BASF’s statistics show that most failures on large capital projects date back to rushing through the early planning phases and shifting the risk further down the schedule, according to Brandenburg.

“Speed can kill. Speed really hurts the project,” he said.

Effective FEP, on the other hand, can mitigate project risks through the development of detailed scope definition and the subsequent efficient use of project resources.

BASF has focused in the last few years on thoroughly vetting its capital-intensive projects during the process development phase before starting on the detailed design.

Lessons learned from earlier projects have prompted the company to take more time upfront, developing the project scope with regards to the process and the technology, whether it is an improvement to an existing technology or a brand-new technology that is still in the R&D phase, Brandenburg said.

Involving the maintenance and operations teams early in the project life cycle has also helped BASF better align plant reliability needs with the long-term business goals, he added.

Lean principles from Dow

To improve its capital projects, Dow Chemical is also working to change its project execution culture and adopt a construction-driven, rather than an engineering-driven. mind-set, Troxell said.

Since field labor typically accounts for about 20% of a project’s total investment cost (TIC), Dow is changing the way it designs and procures for projects in order to improve the construction productivity and O&M performance of its assets.

The company now prioritizes finding the safest and most cost-effective construction design using lean principles and reverse-phase scheduling.

To do so, it is going to the back-end of its work process to first help the engineering teams understand the needs of the O&M teams, and then moves up the project supply chain to understand the processes that construction needs to build, any additional materials it needs to buy, as well as any out-standing deliverables engineering needs in order to accomplish the design.

Dow Chemical is currently doing road shows and has launched a construction technology center to help drive the shift to construction-driven project execution.

Focusing on TIC rather than on the component cost, looking at the sequence of deliverables, preventing float and contingency in design and procurement, and adhering to the key path and milestones along the way are critical to making reverse phase work, Troxell said.

The shift in focus on TIC, in particular, prevents sub-optimization from setting goals that don’t align with the overall project strategy, even if it means spending more resources upfront to get vendor items shipped in time for the project deadline.

“If you take the business needs and then you work backwards, you can see how much float you have, how much time do you have to build the project, and you can identify where the critical items are,” Troxell said.

Applying reverse-phase scheduling during a major capital project in the past, for example, helped Dow determine that using its typical execution process would not get the main vessel on order on time to get the plant started according to the business needs.

Using lean management principles, the project team calculated the diameter, thickness and length of the material that was needed upfront, ordered the material and managed to get the vessel according to schedule.

During another project, the team managed to save a lot of time and effort by replacing its normal drawings review and routing time with a "drawing blitzes” lean approach, where all team members locked themselves in a room until they had reviewed the drawings.

For more insights on how to control project costs and risks, listen to the full recording of the webinar here.