A Different Way to Execute Projects using a Product-based Approach

 In General

The application of mega complex projects in the heavy industrial sector have been growing globally for the last ten years. Given there is growth of mega complex projects, the failure rate of these types of projects has also increased. According the EY (who have analyzed 500 completed mega projects from the previous five years), they mention: “Of the projects analyzed, 60% experienced schedule delays, and 38% had cost overruns.” [1] In addition, according to IPA the “67 percent of megaprojects in IPA’s database are assessed as Failures”. [2] A project failure is defined as one or more of the following:

  • 25% over budget
  • 25% behind schedule
  • Not able to meet business objectives within one year of the facility start date

Based on the construction industry institutes’ (CII) research RT-315, a mega project consists of a total installed cost greater than $1 billion dollars with the following complex criteria:

  • A significant number of stakeholders
  • A large number of interfaces
  • A challenging project location
  • An inadequate supply of resources
  • Unfamiliar technology
  • Difficult regulatory constraints
  • Extensive infrastructure requirements
  • Geographically dispersed teams
  • Significant political, economic, environmental, or social influence [3]

Mega projects typically take up to five years to complete and given the current economic environment (due to the global pandemic) and the uncertainty of the future, companies are looking to reduce the business risk for future projects. Based on research performed by Mckinsey & Company [4], the construction industry needs to change to become more productive and as the industry changes it will look very different five to tens years from now. These changes will only be accelerated by the current COVID-19 pandemic. One solution is the application of smaller standard modular plants or trains that can be designed and constructed quicker and more efficiently.

Smaller to medium sized projects are typically more successful in meeting the company’s business case more so than larger projects as they are more agile and are not as complex. They can also meet timelines per market demands as the timeline to finish smaller projects is much less compared to mega projects.

Modular design and execution’s focus is to move labour offsite into a more controlled environment and has been utilized on projects for decades. Utilizing this practice will reduce project risk, and when combined with facility standardization, will further reduce the project risk and also will reduce the time to market. Think of it as looking at your project in smaller standard modular pieces and then combining the pieces to create a larger end result over time.

In an article written by McKinsey & Company called the “The Next Normal in Construction”, they state that one of the emerging disruptors that will cause change in the construction industry is Industrialization. Industrialization, as defined by McKinsey & Company, is Modularization, off-site production automation, and on-site assembly automation. This enables industrialization to be an off-site, product-based approach. The shift toward a more controlled environment will be even more valuable as the COVID-19 pandemic further unfolds and even more so when it ends. The next step in the transition to efficient off-site manufacturing involves integrating the automated production systems and essentially making construction more like automotive manufacturing.

In addition to the change to industrialization, one of the nine industry shifts will be to a more “Product-based Approach”. This methodology will lead to more of a manufacturing style approach to not only improve productivity but to reduce overall lifecycle costs and schedules and improve overall quality and safety. Further, in times of economic uncertainty, it will reduce the business risk for the project as the business can break the project down into “bite-sized pieces”. This process will be similar to what is used in car manufacturing as well as ship building.

The intent is to divide the project up into smaller projects or trains that can be modularized and standardized and installed like building blocks. The building blocks can be installed over a period of time in order to get to an end plant capacity goal. When looking at this approach the design will need to be able to be repeatable for multiple trains or projects and you will want to consider if the design is to be utilized to build facilities in other locations. This is a new methodology and therefore companies will need to change their mindset and look outside the traditional ways to execute industrial projects in order to be successful.

Global adoption of modularization is increasing, however there in still a long way to go as companies still struggle on how to execute and design modular projects. In addition, facility standardization is a newer methodology in the industrial industry and companies have to learn how to adjust to not only customize each project, but to understand how they can standardize their requirements and designs.

An example of a product-based approach is the small and micro-LNG plants that DyCat Solutions is a part of in developing. In order to have LNG available to inland customers, we are in the process of developing an initiative with our partner companies OTC and Saiyl. This initiative isa small standard modular 60 ktpa LNG plant as well as a standard 5ktpa LNG plant. These can be installed in any location. If something larger is required such as a   120 ktpa LNG plant, then we would simply install two 60 ktpa plants side by side.

Companies will need to be innovative in order to be competitive and have a positive return on investment on their future programs and projects. In the current and future economic environment, an innovative way to execute projects is to utilize a product-based approach as discussed in this blog. If you would like anymore information about developing and implementing a product-based approach on your current or future project, please contact DyCat Solutions at info@dycatsolutions.com or visit our website www.dycatsolutions.com.

Sources:

  1. Ernst & Young Global Limited – How to unlock value in oil and gas capital projects in any environment (Sep 2020) – John Hartung EY Global Oil & Gas Strategy and Transactions Leader and Energy Market Leader https://www.ey.com/en_gl/oil-gas-digital-skills-survey/how-to-unlock-value-in-oil-and-gas-capital-projects-in-any-environment
  2. Sizewell C Project Workshop Summary of IPA Presentation: Understanding the Nature of Industrial Megaproject Outcomes (March 2020) – Ed Merrow, Independent Project Analysis, Inc. https://www.niauk.org/wp-content/uploads/2020/09/Ref-Industrial-Megaprojects-Ed-Merrow.pdf
  3. Construction Industry Institute (CII) RT-315 – Successful Delivery of Mega-projects https://www.construction-institute.org/resources/knowledgebase/knowledge-areas/business-and-project-processes/topics/rt-315
  4. McKinsey & Company – The Next Normal in Construction – June 2020 https://www.mckinsey.com/~/media/McKinsey/Industries/Capital%20Projects%20and%20Infrastructure/Our%20Insights/The%20next%20normal%20in%20construction/The-next-normal-in-construction.pdf