As per one school of thought, a conceptual estimate in the early stages of any project, is a very high-level number, and can thus be based on very conservative design assumptions and considerations. This approach invariably makes the initial project cost estimate very high, which in turn could jeopardise the business case altogether as it would not be good value for the client’s money.
Some design teams might think that this gives a more robust technical solution during concept work, but if the project does not go ahead for this reason, then the whole exercise is futile in my opinion.
The obvious alternative could be to base the initial design on slightly more optimistic assumptions and considerations. This could then be followed up with design sensitivities for more onerous requirements and / or considerations. This approach then helps the estimating team to come up with a range of estimates during the concept stage with various degree of confidence in the proposed design solutions. This then gives the management a fighting chance to present the business case for the project with varying technical requirements and constraints.
It is quite understandable that the design team would not want to compromise on robustness of design simply to cut costs. That is not what I am suggesting here. I propose a more collaborative and cost-aware approach so that cost-effective but fully defensible designs are proposed at the concept stage with an offer of add-ons for more robust options.
Some possible places to optimise:
- Total flowrate/ capacity required (during initial stages of any project, even the client’s team members would not be sure what total capacity would be most appropriate. The requirement could be interpreted differently by different parties, for example this can be due to the aspiration of some team members to build in additional capacity for the future. However, this may not have been discussed with the higher management and might require separate funding or sanctioning. In my opinion, it is best to present various capacity cases during concept)
- Efficiency of rotating equipment (newer motors, pumps, turbines and compressors are more efficient than sometimes assumed in design calculations based on old project experience and old technology)
- Design margins for sizing of individual equipment (sometimes the assumptions are conservative)
- Understanding of available technology for specialist equipment items (there could be alternative technologies in the market which could be more efficient, requiring less utilities & accessories and cost effective to the overall plant design. Depends on the experience of the individual design team members)
- Material selection (there is sometimes a range of possible materials that could be suitable for a requirement, and the material selection made could be conservative based on more onerous service envisaged in the future)
- Different and / or simpler designs for specific areas (like utilities, control & automation, protection philosophy, etc.)
- Possible multi-use of specific equipment (e.g. combining firewater and wash water into a single tank instead of 2 separate tanks)
- Design life of equipment and overall plant (the client might not initially require a long design life of individual high-cost specialist equipment and could agree to a complete refurbishment or replacement half way through the plant life to help reduce the initial CAPEX spend)
- Sparing philosophy requirement (client might not need excessive spares to start with and might want to postpone the purchase of the spares during operations)
- Any assumed pre-investment for future requirements included in the base design (generally in utilities, additional land clearance areas etc.)
Note that these examples are not actually scope related but more to do with basic design assumption made by specific concept design teams. In these examples, the design team might assume what the client needs, without actually giving the client a chance to really opt for the more onerous design requirements. Depending on the choices made, the above examples could together easily add nearly 20-30% cost to the design or sometimes even more.
If the estimator works closely with the design team and understands the various assumptions and quantifies any alternatives, then they should be able to help the team develop a more optimised estimate and present it as a base case. Add-on numbers could then be presented for the various onerous design requirements. This will better help the decision-making process as everybody would then understand what additional technical features they would get if they choose to spend more money.
The estimator has the right skills to act as an interpreter between the design team and the financial decision-makers and can take on the bigger responsibility during the early stages of any project to work closely with the design development team and present the estimate in a way that is more transparent to help the project being better understood and agreed during any stage gate reviews.
Note: These suggestions are based on my own experience and style of working and could be beneficial to other estimating professionals if they choose. Also note that the examples suggested here are very generic and not specific to any industry, and the fundamental concept discussed should be relevant to any industry and project.
This article was published as an opinion piece in May-2019, in the Project Control Professional which is the journal of The Association of Cost Engineers.