Introduction and EPC Business Don McKenzie - Janaka Ruwanpura

ENCI 693 Project Engineering Management Session #1 Introduction / EPC Business 2011
ENCI 693 Project Engineering Management

Session #1 Introduction / EPC Business
Janaka Ruwanpura and Don McKenzie Winter 2011
Page 2
Agenda
1. Introduction
1. 2. 3. 4. 5. 6. Ground Rules Course Outline (see handout) Teaching Assistants Course Context Project Development and Execution Process Importance of Engineering Management to Project Success 7. Discussion
2. 3. 4. 5.
The EPC Business Typical Industrial Project EPC Company Resources Commercial and Contractual Considerations
2
Page 3
Ground Rules
1. Participation is key
Share your experience!
Introduction EPC Business Typical Project Company Resources Commercial Considerations
1. Relate learning to your scenario

Challenge the instructor! Disagree with respect!
2. Expect good quality of work 3. Open to your concerns 4. Return promptly from breaks 5. Cell phone off during class
3
Page 4
Course Outline
z z z z
Learning Outcomes Final Grade Determination Timetable, topics and the instructors Workload
Quizzes Individual Case Studies Final Group Project and Presentations
Page 5
Teaching Assistants
z
Ph.D. Candidates with several years of professional experience

Fereshteh Khoramshahi (fereshte.k@gmail.com) Reza Dehghan (rdehghan74@yahoo.com)
They are responsible to mark your quizzes
Page 6
Course Context
1. Project Engineering Management from a Balanced Perspective Owners and Contractors viewpoints 2. Methods of dividing and executing projects will vary: Owner needs Nature of project Location of project Level of industrial activity 3. Owners view of project span: Recognition of need Project Execution Corrections of shortcomings Ongoing operations 4. Contractors view: Limited to specific responsibilities assigned to contractor
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Project Development & Execution Process Chevron

PHASE 1
IDENTIFY & Assess Opportunities
PHASE 2
SELECT from Alternatives
PHASE 3
DEVELOP Preferred Alternative
PHASE 4
EXECUTE (Detail EPC)
PHASE 5
OPERATE & Evaluate
Determine Project Feasibility and Alignment with Business Strategy
Select the Preferred Project Development Option
Finalize Project Scope, Cost and Schedule and Get the Project Funded
Produce an Operating Asset Consistent with Scope, Cost and Schedule
Evaluate Asset to Ensure Performance to Specifications and Maximum Return to the Shareholders
Need discipline to follow process by all project stakeholders
Page 8
Importance of Engineering Management to Project Success
1. Project Schedule
Engineering critical to specification and award of long delivery equipment Engineering deliverables needed for construction
2. Project Cost
Most of our ability to influence / control project costs is during the early part of the project
a. Scope definition b. Engineering c. Equipment selection
Page 9
Introduction Discussion
z
Questions Comments
Page 10
The EPC Engineering Business Project Engineering Management Course
University of Calgary
Winter 2011
10
Page 11
Types of Engineering Firms

1. 2. 3. 4. 5. 6. 7. 8. 9. Engineering Consultants Engineering Design & Drafting Engineering-Procurement Firms EPC/CM Firms EPC Firms Engineered-Equipment Companies Specialized Technology Companies Technology-Midstream Operators Engineering Joint Ventures
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Page 12
EPC Versus Consultant

Normal Characteristics
EPC Company
z Can Engineer, Procure and Construct * complete projects
Consulting Company
z Provide Engineering, Procurement or Construction services only
z Specialized by facility type or industry (e.g. tank farms, power industry)
z Specialized by technical competency (e.g. civil engineering, international logistics)
z Many large firms, few small
z Few large, many small
All EPCs subcontract some construction work Some EPCMs subcontract all construction work to multiple construction contractors.
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Page 13
What is an EPC Company?

Company which provides integrated Engineering, Procurement and Construction Services to deliver completed facilities (project) to multiple clients
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Page 14
The Need for Engineering Firms

1. Owners job is to produce and sell product 2. Projects result from:
1. 2. 3. 4. 1. 2. 3. 4. 5. Change in Feedstock (raw materials) New products Expansion Modernization (new technology) Market trends New resources Technology changes Environmental legislation Politics
3. Project justification influenced by:
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Why are there EPC companies?

1. 2. 3. 4. 5. 6. EPC is not core business for owners Specialists in project execution Specialists in Technologies Access to large resource levels Access to diverse resources (Internationally) Access to fluctuating resource levels
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EPC Engineering Defined

1. Engineering design, in all project phases 2. Engineering design systems and tools 3. Procurement of commodity and fabricated materials 4. Construction planning 5. Integrated EPC planning and scheduling 6. As-built technical definition of the completed project (Regulatory)
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A Typical Project Description

z The typical project that we will refer to for the remainder of the course will be a grassroots 100k BBL/day Atmospheric and Vacuum (A&V) Unit. We have chosen this project for the following reasons: Is core competency type project for your instructional team Grassroots, because it has minimal outside influences Relevant to the Alberta Oil Sands economy while being a common type unit found in many other refineries around the world Is NOT a Mega-Project Requires an execution strategy which employs resource utilization (Time, Money, People, Material) on a world-wide basis for Engineering, Procurement, Fabrication and Construction Has a schedule which runs typically 36 to 48 months, Concept Inception through Commissioning
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Typical A & V Unit
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Page 19
Typical A & V Units are Extensively Modularized!
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Page 20
Typical A & V Unit

Material
Pieces of Major Equipment Earthwork Concrete Structural Steel Piping Electrical Instruments
Quantity
150 100,000 m3 12,000 m3 4,000 Te 70,000 m 350,000 m 1,800
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Page 21
Typical Project Cost Structure

TOTAL CAPITAL COST $ Millions
Mechanical Equipment Bulk Materials (Structural Steel, Piping, etc.) Construction (Module Assembly, Site) Engineering Cost Owners Cost Contingency TOTAL PROJECT 75 85
Manhours
175
200,000 Field Non-Manual Non1,800,000 Craft 500,000 Home Office
50 40 75 500
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Page 22
Typical Project Personnel Resources
Resources
(2,000 People)
EP
(300 People)
Project Phase
FEL 1
FEL 2
FEL 3
EP
Start-up & Commissioning
EPC Personnel & Sub-Contractors Owner Personnel

22
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Project Team (EPCM) - Example

Project Director /Manager & Functional Team Leads
Engineering Manager Process Civil Structural Mechanical Electrical I&C Materials Drafting
Sr. Project Engineer Project Admin Cost Estimators Cost Controls Scheduling Doc Management
Supply Chain Manager Contracts Purchasing Expediting Materials Management QA/Vendor Inspection Logistics
Construction Manager Superintendents Labour Relations Field Inspection Quantity Survey Constructability Site Safety
HSE & Regulatory Team Lead Environmental OH&S Permits Regulatory -
Corporate Human Resources Recruiting Benefits Employee Relations Training
Corporate Business Services Accounting Payroll Finance Tax Legal IT
23
Page 24
Engineering Team (EPCM) - Example

Process Engineering Team Lead CivilCivil-Structural Engineering Team Lead Civil Foundations Structural Architectural Specs, Datasheets, MTOs Mechanical Engineering Team Lead Mech Equip Design Piping design Specs, Datasheets, MTOs
Engineering Manager & Team Leads

Electrical Engineering Team Lead Elect Equip Design Power systems & distribution Motor control centre El.heat tracing design Specs, Datasheets, MTOs Instrumentation & Controls Team Lead Controls Systems Instruments Cabling ESD Logic Specs, Datasheets, MTOs Materials Engineering Team Lead Metallurgy& Corrosion Coatings & Materials Specs & Datasheets Drafting
Team Lead Piping drafting Electrical drafting 3D Modeling Operating Manuals
Technology licensing Process Design Heat Integration Material Balances Emissions Operability StartStart-Up & erfm Testing
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Page 25
EPC Corporate Organization Chart
25
Page 26
Corporate Departments
ENGINEERING PROCUREMENT CONSTRUCTION (H.O.) QUALITY HEALTH, SAFETY & ENVIRONMENTAL BUSINESS DEVELOPMENT Design, Etc. Managing The Supply Chain Buying Expediting Inspecting Logistics Contract Formation Contract Administration Construction Strategy Development Construction Planning Construction Scheduling Procedural Auditing Continuous Improvement Value-improving Processes (Vips) Workplace, Environmental Compliance and Improvement Strategic Marketing Management Prime Contract Administration Sales Sales Proposals
26
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Engineering Disciplines & Specialties

PROJECT ENGINEERING TECHNICAL CO-ORDINATION COWORK PLANNING SCOPE (OF WORK) CONTROL COST & PROGRESS MONITORING MATERIAL REQUISITIONING CONSTRUCTION PACKAGE DEFINITION (EWP: CWP) CIVIL/STRUCTURAL/ARCHITECTURAL ENGINEERING CIVIL ENGINEERING (AND DESIGN)* DESIGN)* STRUCTURAL ENGINEERING* ENGINEERING* MATERIAL SPECIFICATION* SPECIFICATION* BUILDING, SIZING / SPECIFICATION* SPECIFICATION*
PROCESS ENGINEERING TECHNOLOGY SPECIALISTS UNIT OPERATIONS PROCESS SIMULATION SYSTEM FLOWSHEET DEVELOPMENT* DEVELOPMENT*
PROCESS CONTROL SYSTEMS ENGINEERING FIELD INSTRUMENTATION SELECTION ELECTRONIC INSTRUMENTATION SYSTEM DESIGN* DESIGN* AUTOMATION SPECIFICATION AUTOMATION DESIGN
MECHANICAL ENGINEERING EQUIPMENT SPECIFICATION AND DESIGN EQUIPMENT TYPE SPECIALISTS* SPECIALISTS* (ROTATING MACHINERY, PRESSURE VESSELS, ETC.) METALLURGY SELECTION* SELECTION* SAFETY SYSTEM MANAGEMENT (LOSS CONTROL)* CONTROL)*
ELECTRICAL ENGINEERING POWER SYSTEM DESIGN EQUIPMENT SPECIFICATION* SPECIFICATION* POWER DISTRIBUTION DESIGN (WIRING) INSTRUMENTATION DISTRIBUTION DESIGN
PIPING ENGINEERING OVERALL PLANT LAYOUT (3D-MODEL) (3DPIPING MATERIAL SELECTION (BY CLASSIFICATION)* CLASSIFICATION)* PIPING LAYOUT DESIGN PIPING STRESS ANALYSIS* ANALYSIS* PIPING MATERIAL TRACKING / CONTROL
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Technology Resources
Proprietary process technologies (licenses) Work procedures:- single discipline Work procedures:- multi discipline Work procedures: - multi department (EPC) Work procedures:- multi company (technical co-ordination) Company specific computer programs Information technology infrastructure Resource allocation systems
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EPC Company Headcount

Office Permanent Staff Specialists/ Consultants (A) Agency/ Contractors (B) Total Employee s 3 321 193 520 328 301 272 132 181 179 18 42 183 11 90 6 19 10 169 108 26 109 3,221 Located Outside Offices 0 8 1 6 2 14 9 19 10 161 18 4 11 0 2 0 1 2 2 4 7 0 281
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Engineering 014 Engineering Management 021 Process 023 Mechanical 024 Piping and Layout 025 Civil / Structural 026 Control Systems 027 Electrical 029 Project Engineering Procurement 050 Procurement Construction 070 Construction (Field) 080 Field Client Support Project Management 016 Project Management 030 Project Controls Other 010 Corporate 012 Administration Support 013 Business Development 015 Quality Management 017 Health, Safety and Environmental 020 Document Management 028 Information Systems Technology 040 Construction (Home) 060 Corporate Services Totals
3 280 130 226 207 226 179 125 162 128 17 37 158 11 81 5 19 6 159 95 25 100 2,379
3 20 6 14 7 5 1
38 43 288 107 68 88 6 19
50 1 5 25
2 1
2 7 2 71
4 8 6 1 7 771
Page 30
Why are Personnel Resources Important?

1. Typical (large) project requires 300 personnel at peak 2. No more than 50% of an office / company dedicated to a single project (rule of thumb) 3. Small project ($50 million?) requires 50 100 personnel at peak 4. Difficult to be full service company under 200 personnel
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Page 31
Manpower Resource (Back log) Curve

Showing timelines for major projects

4,500
Proposed New Project

4,000
3,500 3200 Employees
Project #3-Oilsands Mine Project #2-Bitumen SAGD
3,000
2,500
Project #1-Bitumen Upgrader

2,000
Non Project Personnel

1,500
1,000
500
M ar -0 M 7 ay -0 7 Ju l-0 7 Se p07 No v07 Ja n08 M ar -0 M 8 ay -0 8 Ju l-0 8 Se p08 No v08 Ja n09 M ar -0 M 9 ay -0 9 Ju l-0 9 Se p09 No v09 Ja n10 M ar -1 M 0 ay -1 0 Ju l-1 0 Se p10 No v10 Ja n11 M ar -1 M 1 ay -1 1 Ju l-1 1 Se p11 No v11
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MarkMark-Ups and Fees

1. 2. 3. 4. Poorly defined in the industry Sometimes a fee is total engineering price Overhead is a matter of opinion! Analysis of all-in rate per manhour of allproduction effort is required
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EPC Contractors Cost Structure

(Home office services only)
PROJECT AVERAGE $ / HR PROJECT PERSONNEL (85%) - SALARIES - BENEFITS (30%) - TOTAL PAYROLL
50 15 65
PROJECT SPECIFIC SERVICES - AUTOMATION - REPRODUCTION - COMMUNICATION - BUSINESS TRAVEL
6 1 1 2
PROJECT DIRECT COST OVERHEAD ALLOCATION - FLOOR SPACE - BUSINESS DEVELOPMENT, OPERATIONS & OTHER EMPLOYEE COMPENSATION
75
5 15
PREPRE-TAX PROFIT TOTAL BILLING PRICE (ALL-IN RATE) (RANGE $85 - $125) (ALL-
5 100
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Commercial Proposal
Definition of client project and services required (scope of work) Company capability Technology Personnel Project execution plan Organization (key personnel) Resources requirements Schedule of activities Estimated cost of services Price structure for services proposed Proposed form of contract
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Page 35
Joint Ventures and Sub-Contracts Sub Contractors form a joint Entity for specific ventures Joint Venture shares scope/ risk among multiple contractors Sub-Contractors have no contract with the Owner Sub-
35
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Types of Commercial Contracts

Lump Sum Fixed price; fixed work scope Limited commitment to schedule High risk /opportunity to contractor Unit Rate Fixed price per unit of production Well defined units of measure Limited commitment to schedule Moderate risk / opportunity to contractor Cost Reimbursable Direct costs are reimbursed at cost Profit and overhead charged separately Lower risk / opportunity to contractor Variations and Combinations of the Above
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Typical Contracting Arrangements

Owner EPC Contractor P E
Suppliers of Materials Start-Up & Commissioning Start-Up & Commissioning
37
C
CM Self Perform Construction
Construction SubContractor
Owner EPC Contractor P E

Suppliers of Materials
C CM
Construction SubContractor
Contractual Relationship
Page 38
z Questions
z Discussion
z Comments
EPC Business
38
Page 39
Thank You Thank You
39

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ENCI 693 Project Engineering Management Session #1 Introduction / EPC Business 2011

ENCI 693 Project Engineering Management

Introduction EPC Business Typical Project Company Resources Commercial Considerations

1. Relate learning to your scenario

Introduction EPC Business Typical Project Company Resources Commercial Considerations

Introduction EPC Business Typical Project Company Resources Commercial Considerations

Ph.D. Candidates with several years of professional experience

They are responsible to mark your quizzes

Introduction EPC Business Typical Project Company Resources Commercial Considerations

Introduction EPC Business Typical Project Company Resources Commercial Considerations

Project Development & Execution Process Chevron

Determine Project Feasibility and Alignment with Business Strategy

Select the Preferred Project Development Option

Produce an Operating Asset Consistent with Scope, Cost and Schedule

Need discipline to follow process by all project stakeholders

Importance of Engineering Management to Project Success

Introduction EPC Business Typical Project Company Resources Commercial Considerations

Introduction EPC Business Typical Project Company Resources Commercial Considerations

The EPC Engineering Business Project Engineering Management Course

Introduction EPC Business Typical Project Company Resources Commercial Considerations

Types of Engineering Firms

Introduction EPC Business Typical Project Company Resources Commercial Considerations

EPC Versus Consultant

Introduction EPC Business Typical Project Company Resources Commercial Considerations

z Specialized by facility type or industry (e.g. tank farms, power industry)

z Specialized by technical competency (e.g. civil engineering, international logistics)

z Many large firms, few small

z Few large, many small

What is an EPC Company?

Introduction EPC Business Typical Project Company Resources Commercial Considerations

The Need for Engineering Firms

Introduction EPC Business Typical Project Company Resources Commercial Considerations

3. Project justification influenced by:

Why are there EPC companies?

Introduction EPC Business Typical Project Company Resources Commercial Considerations

EPC Engineering Defined

Introduction EPC Business Typical Project Company Resources Commercial Considerations

A Typical Project Description

Introduction EPC Business Typical Project Company Resources Commercial Considerations

Typical A & V Unit

Introduction EPC Business Typical Project Company Resources Commercial Considerations

Typical A & V Units are Extensively Modularized!

Introduction EPC Business Typical Project Company Resources Commercial Considerations

Typical A & V Unit

Introduction EPC Business Typical Project Company Resources Commercial Considerations

Typical Project Cost Structure

Introduction EPC Business Typical Project Company Resources Commercial Considerations

200,000 Field Non-Manual Non1,800,000 Craft 500,000 Home Office

Typical Project Personnel Resources

Introduction EPC Business Typical Project Company Resources Commercial Considerations

Start-up & Commissioning

EPC Personnel & Sub-Contractors Owner Personnel

Project Team (EPCM) - Example

Introduction EPC Business Typical Project Company Resources Commercial Considerations

HSE & Regulatory Team Lead Environmental OH&S Permits Regulatory -

Corporate Human Resources Recruiting Benefits Employee Relations Training

Corporate Business Services Accounting Payroll Finance Tax Legal IT

Engineering Team (EPCM) - Example

Introduction EPC Business Typical Project Company Resources Commercial Considerations

Engineering Manager & Team Leads

Team Lead Piping drafting Electrical drafting 3D Modeling Operating Manuals

EPC Corporate Organization Chart