Capital Cost & Schedule Fundamentals for Process Plant Representatives (2020-09-11)


[Co-authored by J R (Ric) Massie, Jr., PE, PMP, & Gary Kennedy, P. Eng., PMP]


Further to our previous articles, negative issues can occur with capital projects in process plants when operations or maintenance capital project representatives do not adequately understand cost estimates and schedules. Even though the front line cost and scheduling team on the capital side is considered to have top notch expertise, at least some of the fundamentals need to be understood by the operations and maintenance representatives (Ops-Maint Reps).

The complexities of capital plant work, whether small, large, or mega-projects, has increased exponentially over the years. Additional internal reviews, external reviews, environmental impact statements, permitting for air, water, and site, to name a few, have extended the time required to move the project forward and obviously increased the cost. Ops-Maint Reps must understand their role in providing very important plant input into a project and the impact that they have on the success or failure of the project.

Project participation is essential at the plant operations and maintenance level. Good and honest communications between the project team and Ops-Maint Reps means using common language without a tremendous number of acronyms.

While the capital project team generally understands estimates and schedules, other personnel from the long-running plant may not. Such terms as allowances, takeoffs, unknowns and others conjure up different ideas by different people. Typically, the word “allowances” tends to be interpreted as “padding” the estimate; when in fact, it is usually designed to be funds associated with an activity that must be done but is not effectively described in terms of person-hours and materials. For example, an “allowance” for typical concrete spillage, testing, and slight formwork variations is not an option to drop as a “padded” amount. If this is not retained in the contractor’s estimate then somebody is going to be a few loads short of enough concrete after a long pour and may result in cold joints, magnified delivery problems, or other misfortune.

Here are various terms for cost and schedule topics that not only need definitions documented for the project, but should be repeatedly discussed and aligned between the front-line cost and scheduling subject matter experts (SMEs) and the remainder of the project and plant team. This includes, but not limited to:


Cost:

  • Allowances;

  • Takeoffs;

  • Unknowns;

  • Contingencies;

  • Risk funds;

  • Management reserve;

  • Local productivity factors;

  • Local labour rate factors;

  • Local equipment rate factors;

  • Procurement shipping cost factors;

  • Risk factored estimates;

Schedule:

  • Critical path;

  • Finish-to-start and finish-to-finish logic;

  • Schedule analysis;

  • Duration calculations and assumptions;

  • Direct person-hours (& indirect person-hours);

  • Field overheads (may include lunch facilities, restrooms, hand tools);

  • Procurement shipping time factors;

  • Local productivity factors;

  • Allowances;

  • Unknowns;

  • Risk factored schedules;

All members of the entire project team and plant team are not expected to know all of the technology or understand it. The Ops-Maint Reps should understand risk probabilities for alternate technologies which should be communicated to them by the project team who are the technical experts.

Understanding capital cost versus maintenance cost trade-offs is a critical aspect of projects, as well as operating cost versus capital cost. Guidelines for the development of projects must be made early on in regards to expected energy costs, raw material costs (yield impacts), and energy utilization. Project requirements identification (framing) should be done in the initial steps of the project, covering  aspects such as the life of the plant, operating and maintenance labor costs, automation, future upgrades, and other parameters.

(End of Article)

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