Evaluating Percentage Cost Volume of Engineering, Procurement & Construction to Add Value in EPC Petrochemical Projects

Abstract

Abstract This research analyzes a real-time data extracted from multiple Mega EPC projects (min 50 Million US Dollars) in petrochemical industry. The data pertains to the distribution of overall project cost in to three major segments in a typical petrochemical project which are engineering, procurement and construction. By knowing the percentage volume of cost in each of the three major segments in a petrochemical EPC lump sum project, improved efforts can be made to dedicate adequate resources & save significant cost in the relevant segment and in the overall EPC project. Method used was that twelve (12) completed EPC lump sum petrochemical projects were selected for cost data analysis. Out of these twelve projects, cost for hundreds of line items segmented into engineering, procurement & construction was tabulated in the cost model spreadsheet. Against each line item, its corresponding cost estimated by Owner / End-user and all bidders (on average five bidders were taken) for each project was listed. Average cost of all 6 organizations (Owner and five bidders) was calculated and analyzed to a minute detail ignoring any outliers. The data was buildup from a single line item in a project to the complete level cost of engineering, procurement & construction for the particular EPC project. Following criteria for the selection of data & projects was adopted for the purpose of this research: Petrochemical industry projects onlyProjects considered with individual overall cost of minimum 50 Million US Dollars (USD)Revamp and grass root projects As the cost of engineering, procurement and construction was segmented for each project, it is concluded that average cost of engineering is approximately 9% of the overall EPC project cost (however engineering is driving procurement and construction which combine consumes approximately 91% of the overall project cost). Cost of procurement on average came out to be approximately 52% of overall EPC lump sum petrochemical project therefore it is most important that while preparing cost estimates of an EPC project, co-ordinated efforts by each of three disciplines that is engineering, procurement and construction are required to develop accurate cost estimates. As procurement corresponds to major percentage of an EPC lump sum project therefore investment in right resources in procurement & supply-chain can result in major cost savings for the organizations.