Utilizing Lean Design Methods to Reduce Overall Lifecycle Costs and Improve Return on Investment for Industrial Projects
Executing industrial capital projects has proven to be high risk in not meeting the project business objectives. As projects increase in their size and complexity, they will frequently experience the corresponding increase in cost and time to deliver and there is an uncertainty of the project achieving the desired performance objectives. In addition, due to the current economic situation, 83% of Capex investments are most likely going to be deferred or canceled as per the PwC survey published in May 2020.
Lean engineering and design methods have been implemented by facility owners as well as Engineering, Procurement and Construction (EPC) companies in several industries for the purpose of reducing the overall capital expenditures in order to allow projects to proceed past the funding gate. This would include improving the projects Net Present Value (NPV) or Internal Rate of Return (IRR). Application of Independent Project Analysis (IPA) Value improving practices (VIPs), Construction Industry Institute (CII) best practices and / or Lean Construction Institute (LCI) research have been adopted on projects. In many cases these strategies and methods have not been effectively developed and implemented to realize their full benefit in improving project performance.
What is Lean Engineering and Design?
What is Lean Engineering and Design?
Lean engineering and design utilize lean methodologies that develop a facility design in order to maximize the customers value proposition and ultimately meets the customer needs and has minimum waste. This method involves reviewing the “needs and wants” of a particular design by all stakeholders and only incorporates the needs into the design to ensure the design meets the required business objectives. There are tools that can be utilized to ensure you are incorporating a lean design into your project and will be discussed in the following sections. In order to have the right mindset on your project, you will need to ensure the project team are aligned with the project business objectives and embrace a lean thinking mindset.
Lean thinking is a business methodology that aims to provide a new way to think about how to organize human activities in order to deliver more benefits to society and value to individuals while eliminating waste. (Source: Lean Enterprise Institute)
The following sections will discuss the different methodologies that provide the basis for implementing a lean engineering and design on your project. These methods are meant to be completed during the early stages of the project life cycle. The value of the opportunity when implemented early in a project is greater then when implemented later in the project. This is due to the increased risk of change later in the project lifecycle as indicated in Figure 1.
Lean Engineering and Design Methods and Tools
The following sections will discuss twelve different lean engineering and design methodologies that can be used on your project to provide the most cost-effective design.
Business Case Alignment
Part of the programs or projects alignment process is to assure all stakeholders understand and agree on the business case which will drive the engineering and design. Historical reviews of projects have indicated that facility owners’ organizations are not internally aligned on the business case and key success factors which promotes a successful business outcome. In addition, internal organizations have conflicting objectives to the overall business objectives. CII and LCI recommend alignment are critical to the success of the project. The Business Case Alignment methodology is a structured approach for all stakeholders to align on the business case and drivers which should dictate the engineering and design strategies.
Class of Plant
Most owners have developed a design package in the front-end planning (FEL2) phase to support the FEED (FEL3) phase development. The design package normally includes the facility owners set of specifications and standards. These set of specifications and standards have been developed based on historical input from past project experience, operational and maintenance experience, the owner’s technical team input and recognized international technical organizations. Applying all these requirements may not meet the business objectives and could result in the project not meeting the NPV / IRR requirements. The first step is to establish the class of plant which supports the business case. Often what is enlightening to the stakeholders is the difference in the class of plant which the established specifications, standards and code requirements is compared to the class of plant that the business case supports.
The class of plant is categorized into six categories which measure the design requirements. The six categories are as follows:
- Reliability including loss prevention
- Operations and Maintenance
After the class of plant is determined (which support the business case), the engineering and design team can establish a design basis to support the required class of plant.
Process Value Engineering
Process value engineering is a systematic and focused team study of plant and system functions to creatively generate solutions that will satisfy the facility owners’ business case at the lowest life cycle cost. This activity is completed while remaining consistent with performance, reliability, quality and safety requirements. Typically, facility owners or EPC companies use a formal value engineering methodology using detailed function analysis techniques such as FAST (Function Analysis System Technique) combined with strategic option analyses (SOA) to assess design alternatives. An alternative to the time-consuming effort with utilizing the formal processes, DyCat Solutions has developed a process value engineering process that provides a more efficient methodology of reviewing the PFDs for functionality and can produce similar reliable and positive results in less time. This type of workshop can potentially lead to new design concepts and results in greater cost savings than those achieved through simple cost savings exercises.
High Impact Equipment Analysis
In the design of all industrial plant facilities, there is approximately 20% of the equipment which results in 80% of the cost which is classified as the high impact equipment. There is an opportunity to evaluate the high impact equipment to ensure the equipment meets the lean design principles, class of plant specifications and business case objectives. The High Impact Equipment Analysis is the method of evaluating the high impact equipment and make logical decisions on specification requirements to achieve a lean design basis and meet the business case objectives.
Plot Plan Optimization
Plot Plan Optimization is a structured methodology to optimize the plot layout by careful consideration of which equipment is located adjacent to one another and making sure to minimize runs of large diameter or expensive alloy piping. More compressed plot plans result in reduced total capital cost due to the bulk quantities (pipe rack steel, piping, wire, cables etc) being optimized. Care needs to be taken to make sure that plot compression / reduction is not at the expense of constructability, operability, and maintainability.
Material Handling Strategy
Material handling strategy is a structured approach to establish functional specifications for in site or portable handling equipment as well as the special transport devices needed to complete the various operations and maintenance tasks required after start-up. The Material Handling Strategy is a process and a tool which identifies methods to address operation and maintenance requirements for handling all equipment which requires servicing.
Life Cycle Cost Analysis
Life Cycle Analysis is a decision-making methodology to that decides among two or more alternatives based on the discounted cash flows of costs and for earnings associated with the alternatives. This approach systematically applies life cycle financial analyses to routine project design and component selection decisions. Most facility owners and EPC companies struggle with developing quick life cycle analysis for making decisions on adding or deleting scope to their projects. Life Cycle Analysis is a process and a tool which provides fast assessments on scope changes and their impact to the NPV or IRR on the program or project.
Lean Specifications and Standards
Most specifications and standards developed by facility owners and EPC companies have been developed and updated over the years based on internal experiences. These experiences are often based on an accumulation of single bad occurrences. The considerations from these one-off experiences has resulted in the development of “gold plated” specifications and standards which may not meet specific business cases objectives.
The Lean Specification and Standards process provides the methods and tools based on proven principles and practices which can assist with developing a set of program or project specifications and standards which provides a lean design and aligns with the business case. The class of plant and high impact system and equipment analysis will also assist with achieving lean specifications and standards
Fabricability and Constructability
Performing fabricability and constructability on a project requires the optimum use of fabrication and construction knowledge and experience in the planning, design, procurement, fabrication, assembly and field operations to achieve project business objectives. IPA, CII and I2PD recognize the value and this is a well-known practice in the industry. Experienced fabrication, assembly, construction, maintenance and operations personnel will be required to analyze the facility design with the objective of reducing costs or saving time in the fabrication, assembly and construction phases, during plant operations, and subsequent maintenance of the facility. Although considered a standard practice by most owners and EPC companies, fabricability and constructability reviews have proven to not be consistently performed.
Planning for Start-up
Planning for start-up addresses pre-start-up preparations beyond the EPC project and involves the application of detailed planning and development strategies earlier in the project lifecycle to ensure operational readiness of new facilities. Operational readiness refers to the preparation and/or development of Operations & Maintenance (O&M) policies, plans, systems, procedures, and resource requirements needed to operate the facility at designed performance requirements. Both CII and I2PD recognize the value with effective planning for start-up.
Facility standardization is the development and use of consistent designs and standards for repeatable projects within a program. Both CII and I2PD recognize the value with effective application of facility standardization. There is a varying level of standardization that can be applied to a facility. The more standardization that is applied to a program, the more benefits will be realized. DyCat Solutions has a facility standardization toolkit that contains guidelines and tools that address how to effectively and efficiently design and execute a standardized program.
Industrial Modularization has been proven on a global basis to reduce cost and provide cost and schedule certainty. Other benefits include reduced key material quantities, improved safety and quality and reduced labour risk. The objective of industrial modularization is to move site labour offsite to a controlled environment. This is achieved by locating the piping, electrical, instrumentation and controls on to modules that are contained within an approved transportation size. The modules are fabricated, assembled and pre-commissioned / commissioned and then transported to the final installation location at site. The application of modularization is more complicated than a traditional stick-built execution and requires a different mindset. DyCat Solutions has an industrial modularization toolkit that contains an entire suit of guidelines and tools that addresses how to implement a modular design and execution effectively and efficiently on a project.
It is important to provide the necessary governance on the project to ensure the project team implements the required lean engineering and design methods and tools they set out to implement in order to meet the business objectives. Governance is the continuous monitoring to ensure the effective implementation of the lean design and execution methods and tools. Governance is typically performed by a third-party reviewer or organization. Governance has been very difficult to complete on industrial projects since third party / independent reviewers are often not deployed to perform the reviews. The process begins when a validated project concept which has been identified during the business planning process and ends when the project has been completed and ready for start-up.
In order to be able to implement lean engineering and design methods on to your project to reduce overall life cycle cost and meet your projects business objectives, there will need to be approved guidelines, processes and tools developed to support the project. The project team will need to have an open mindset when implementing lean engineering and design methods as it is different from what has been done traditionally.
By incorporating these methods onto your project, you will be successful with reducing the projects overall lifecycle costs of up to 25% and meeting the projects NPV / IRR requirements.
If you want to know more about how to effectively incorporate the lean engineering and design methods on your project, please contact Dycat Solutions at email@example.com and/or visit our website at www.dycatsolutions.com.
PwC’s COVID-19 CFO Pulse – Insights from global finance leaders on the crisis and response — 11 May 2020 (www.pwc.com/gx/en/issues/crisis-solutions/covid-19/global-cfo-pulse/may-11.html)
Construction Industry Institute (CII) Best Practices and Knowledge Base (https://www.construction-institute.org/)
Independent Project Analysis (IPA) Value improving practices (VIPs) (https://www.ipaglobal.com/)