Welcome to the first podcast in a series that focuses on the business challenges facing today’s Energy & Materials (E&M) industry.
In our first E&M podcast, Dassault Systèmes Senior Director Simon Huffeteau discusses his experience in the nuclear industry as an engineer and a project manager, as well as his more recent consulting work with E&M companies on the challenges and potential solutions related to multi-year capital projects.
Once you have implemented the right technology, then you have the right tool sets around standardization, around modularity, around having a better integration of how you control your projects and how you develop your plants – Simon Huffeteau
Enjoy the podcast with Simon Huffeteau and Howie Markson
Digitally Transforming Capital Projects
Best Practices for Successful Capital Projects
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Howie: Hi, welcome to Dassault Systèmes podcast series on Digitally Transforming Capital Projects in the Energy Process and Utilities Industries. In this podcast entitled Best Practices for Successful Capital Projects, we discuss how to address the challenges associated with multi-year projects. I’m your host, Howie Markson and with me is my colleague Simon Huffeteau, a Dassault Systèmes industry consultant. Simon brings to the discussion his experience in the nuclear industry as an engineer and project manager and more recently working directly with EPU companies on issues related to capital projects. Welcome Simon. Let’s get started. First, can you describe the types of projects we are talking about?
Simon: The type of projects that we are talking about when we refer to capital projects are very large industrial assets and we can take examples. It can be refineries, can be chemical plants, power plants, nuclear power plants and hydropower plants for instance, but it can be as well what we call linear assets, can be pipeline or transmission lines in the EDI fit power industry so that the scope of what we are talking about when we speak about capital projects.
Howie: So what are the typical challenges that companies face during these projects and what factors make capital projects so much more challenging in the EPU industry?
Simon: There is a famous study that was done a couple of years ago, by the OECD and it compares how productivity in the manufacturing industry has changed as compared to productivity in the construction industry, and the changes are very, very significant. If you take 1995 as a starting point for this study, you can see that the manufacturing productivity has increased by roughly 90 percent, almost doubled. Whereas, during the same period of time in the construction industry has increased by something like 10 percent. So in one case, over the last 20 years, manufacturing has doubled and construction that has remained more or less constant, and that tells you the productivity gap that construction workers have as compared to manufacturing workers. And obviously this has nothing to do or very little to do with the workers themselves and it has everything to do or almost everything to do about how people work, processes and what has been developed in the manufacturing industry and that has not been developed in the construction industry and there are many elements we can bring to explain that specific change. One of them being the adoption of digital technologies. There as well, challenges that are really specific for the capital projects themselves. One of them is, for instance, the nature of the health and safety risks that are faced by the workers during these projects. Another one, is as well around the regulation. Some of these projects can be highly regulated and the interfaces and the work that has to be done with the regulators and the third party bodies that may interact and control these construction activities and these large projects can actually be very time consuming.
Howie: So that was very fascinating about the difference in productivity between manufacturing and construction. What are some of the factors that make capital projects so much more challenging than in the EPU industry?
Simon: There are many, many reasons that can explain these challenges. For example, when we are dealing with these complex projects, we are dealing with one-off activities on one-off projects. There are no twins of refineries. Each refinery is unique by itself. It’s very rare to have two exactly identical nuclear power plants. Very often you have differences. So there is a uniqueness of the objects that are being built and the tasks on the field are themselves very unique. So when someone has to pour concrete to build a reinforced concrete wall, then this task is going to be, in a given way, unique and will not be exactly the one that will be done maybe three days or two weeks later on for pouring another concrete wall. So the uniqueness is a big factor to explain the lack of productivity increase and obviously everything evolves in a very complex world. The objects are complex and the organizations are complex.
Howie: Thanks Simon, I can now understand why projects in this industry are so challenging. Can you pinpoint the common reasons so many capital projects in EPU result in cost overruns and delays.
Simon: One of them is the nature of the relation between stakeholders. You have in this industry, traditional ways of contracting, doing the contracts between organizations. And in this approach, you have walls that prevent one company to talk in a free manner to another organization and that prevents, let’s say, this upstream collaboration that can help to facilitate a good understanding of a given projects. An organization may have, as a result of that, different purposes. And it is difficult to elevate the success of the capital project itself as the key success criteria for all the organizations working on the capital projects. Companies and organizations will see their own the world in the framework of the contracts they have. So finding a way to maybe change some of these contract structure and at the same time, providing new ways of collaboration can really create this momentum for companies to share this common purpose of success.
Howie: Technology adoption in EPU seems to lag behind the other industries such as transportation and aerospace. Why is that?
Simon: Obviously the people in engineering already are using a lot of technology and there is less improvements maybe to expect in comparison to where the manufacturing industry is. But obviously for the execution itself, there are a lot of differences. And I would like to mention here a study by McKinsey, which is called Reinventing Construction Through Productivity, Increase or Productivity Revolution, something like that. And I think they mentioned in the paper that’s about one third of the productivity increase that can be expected overall for the capital projects industry actually comes from technology and the rest, the two thirds are coming from various smaller topics, changing business processes around procurements, change on business processes, on execution, on sites and so on. The main elements that can drive this productivity increase is technology adoption. The reason why I think your question was why is there a difference between these industries? And we’ll come back again on what we discussed earlier on the one-off type of challenges. The fact is the car is not a plant. A lot of the productivity increase that we have seen in the traditional manufacturing industries comes from the standardization and it’s very hard to bring standardization and modularity in construction. And that’s, I think one of the core reasons.
Howie: You mentioned collaboration earlier. How important is it to success that the different disciplines involved in a capital project share information in a timely way?
Simon: It’s very critical, and maybe I can take a real life example for that. So it’s a sequence of events that happens on a capital project. And so you have activities: welding activities that are taking place on the field and there is the main contractor who is making a review of what the welders are currently doing. They see that there is a deviation and that’s this deviation in the welding activity is going to require to have some repairs. So basically they will need to redo some of the welding activity that was done during that day. Obviously that information is super important, the review is done and there is some notes taken on paper by the main contractor. And when he goes back in his office, he puts the paper in some kind of a bin to be analyzed later. All the time that he spent by these paper just after the inspection and just after the review is actually time lost that will not be leveraged by the other teams to schedule the pairs or schedule other activities that depends on the readiness of this, of this welding activity. And if you can find a way to get earlier the feedback that the welding activity was wrong, then you have better chances to reschedule other activities that depends on it. On the engineering side, it’s critical as well. Typical example, is if you decide that a given standard needs to be used, when you purchase a typical, let’s say a typical pump, the choice that you make as an engineering organization to go for a given standard needs to be communicated as soon as possible to other organizations that will be using a standards of that nature and it will be critical for the purchasing activity. And if you do not communicate fast enough then there is even a risk that an equipment might be procured on the wrong standard.
Howie: Those are two really good examples of why it’s important to be able to share that information quickly. It seems that much of best practices can be utilized from project to project. How are these best practices captured to ensure they’re leveraged on the different projects and what are some of the challenges in capturing those?
Simon: You’re right. I mentioned before that many of the projects are one-off and they are one-off because the objects themselves, so the plants themselves, are unique and because the nature of the activity is actually very unique as well. But when you take a step back and when you look in a breakdown between people, process technology, you’ll realize that you are going to need typical sets of skills that you are going to need a similar processes from one project to the next and maybe you are going to need similar technology from one project to the next. So maybe it’s very hard today to do a standardization of the design, which is by the way, something that industry should work on. But today, without addressing directly this topic, they are actually methodologies and best practices that can be enforced and can be replicated from one project to the next. Of course, a lot of that is around ways of collaborating. There are similar business processes that can be put in place, leveraging digital technologies that can bring back lots of the productivity we mentioned before. Once you have implemented the right technology, then you have the right tool sets around standardization, around modularity, around having a better integration of how you control your projects and how you develop your plants. All these higher-level challenges can be addressed when you have built the foundation on how people process and technology can work better together.
Howie: Were you describing some of the ways Dassault Systèmes can help EPU companies in your last answer?
Simon: Dassault Systèmes is really here to help build a foundation, build how people process and technology can work together in order to address the capital project challenges and make sure that we put in place the foundation to capture the description of these capital projects and to capture as well how people can work on them.
Howie: That was great Simon. Thank you and thanks to everyone listening today. Remember, by adopting best practices on your capital projects, you better manage complexity and risk to deliver on time and on budget. To find out more how Dassault Systèmes is helping Energy Process and Utilities companies digitally transform, go to ifwe.3ds.com/energy-process-utilities. Please enjoy listening to the other podcasts in our series on Digitally Transforming Capital Projects in the Energy Process and Utilities Industries.