AspenTech : Engineering & Construction
  • Updated on August 8, 2016
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  • Ron Beck

Breakthroughs in the 5th D: Capital Costing

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4D, where time is the fourth dimension, is passé. What is just emerging now is 5D. Cost is the fifth dimension. More specifically, capital costs. The expenditure of capital costs over time, where and when they are incurred, while the capital asset is constructed.

Asset profitability is all about the costs.

What asset owners, construction managers, and engineers need to know are the costs associated with their designs, fabrication work and construction activity, how those costs trend over time, how costs are trending vis-à-vis the original estimate, and, when possible, early warning signs that costs need to be changed. And of course, even better, if the implications can be modeled so that process changes can be made extremely early in the design cycle, before anything is procured or committed.

This is where AspenTech’s Economic Evaluation products and their integrated workflow fit into the asset creation and optimization picture. At the end of the day, asset profitability is all about the costs. The more we know about costs earlier in a project, the more that risks and uncertainties can be understood and managed, and the better that designs and the finished asset can be optimized for both CAPEX and OPEX.

There are several aspects to achieving better project performance and meeting objectives for on budget and on time delivery of assets.

Two closely related elements are the level of accuracy and confidence in the very early conceptual estimate and in the ability of the client, the asset owner, to understand and communicate effectively with the contractor with respect to scope, process decisions, and estimate.

I’m going to reference an analogy from a slightly different arena—the design and construction of buildings and infrastructure. In the book, Broken Buildings, Busted Budgets, Barry LePatner, who acts as an owner's representative, chronicles how out of control project construction and project costs often stems from lack of expertise on the owner's side to understand the information that the contractor is presenting to him. This often results in a cascade of problems, involving misunderstandings about project scope and what has been estimated.

A key step forward made by leading process plant owner-operators is to rebuild the estimating function that many of them abandoned some years ago.

A key step forward made by leading process plant owner-operators is to rebuild the estimating function that many of them abandoned some years ago, and establish a technology standard (most often AspenTech’s Aspen Capital Cost Estimator) to provide communication and transparency between the client and contractor—so that cost, the “fifth D,” can be tracked, understood, predicted and better communicated.

This leads to projects that perform much better. Some owner operators who have begun operating in this manner include Saudi Aramco, Reliance Industries, Flint Hills Resources and Nova Chemicals, to name a few.

To learn more about transparency and communication in the estimating arena, and the technologies and practices that make this possible, download my new white paper below, "Keep Projects on Track: Improve Communication During Estimating."

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