Added Value of Rapid Conceptual Design
A White Paper by Ulf Strom, Design Power, Inc.
Conceptual design should facilitate accurate technical, schedule and economic projections using the very limited information that is available in the early stages of a project. Ideal conceptual design provides, in the allotted time and starting from minimal process flow information, a final physical design of the plant inclusive of all needed information in sufficient detail for accurate and concurrent time and cost estimates. Separating conceptual design and estimating is bad practice as cost then becomes just a consequence of a concept and does not properly influence its design. Automation enables the integration of estimating with rapid concept iteration that is needed to optimize the layout and design of a plant. This white paper discusses the reasons why solution suppliers shun conceptual design and why there still exists large untapped value within organizations that engineer and design process plants. It furthermore discusses how automation unlocks this value.
Improving the 80/20 rule
Most of the cost of a project is determined by decisions made early in a project. Usually the 80/20 rule is referenced, stating that 80% of the cost is determined by decisions made within the first 20% of the project effort. This really means that after 20% of the effort is expended there still exists a 20% cost uncertainty. It then sounds like high stakes gambling to offer turnkey capital projects that average only 3 % to 4% margin and often carry significant delay penalties. Huge project failures are repeatedly reported in the press. These failures have pulled down many reputable companies (e.g., Raytheon Engineering, Stone and Webster). So why not change the 80/20 rule to a 95/5 rule or even a 98/2 rule. The latter means that cost and schedule of a plant project is estimated to within 2% of the actual values.
The Value of Rapid "What If" Analyses
The only way to achieve a 95/5 or 98/2 situation is to rapidly and accurately model both the end result and the process required to get there and then to combine this modeling capability with a rapid-response "what-if" capability. This capability provides accurate estimates of cost and time and ensures rapid convergence to a design that can be built within time and cost constraints and is optimal. The value of having such capability is significant but at the same time hard to assess. The primary value comes from minimizing costly mistakes. It is hard to assess the cost of mistakes not made. This cost is a combination of the likelihood that mistakes are made, and the cost of each mistake made. It is a cost that can only be properly appreciated by very experienced business people that have had their fair share of failures, and learned from them. The cost of mistakes made can be measured but it takes a visionary to see that design automation will reduce these mistakes in the future.
Conceptual Design Provides Real Value
The following is an example from the plant design field provided by Bayer, A.G. of Leverkusen, Germany, and reported in Chemical Online, March 2000, on how a conceptual plant design automation system, PlantWise, saved 4% in a $36 million dollar project catching mistakes in already created designs. The results reported were:
"Using a front-end three-dimensional (3D) design tool created specifically for plant concept design, Bayer AG (Leverkusen, Germany) dramatically reduced the cost and time of developing a $36 million methyl chloride project...
"In testing the software on ... [this plant] ... already designed using traditional computer-aided design (CAD) tools, Bayer found that PlantWise:
- Reduced project costs by 4-10%.
- Cut construction time 2-4 months.
- Reduced the time needed to create a 3D model of the full facility, which contains 80 pieces of equipment to 7 effort-days (with pipelines), from 90 effort-day (without pipelines)"
These are the stated reasons for the savings:
"After defining the steel structure [designs for which Bayer had already sent to the fabricator] as fixed, it used PlantWise to evaluate the model for space utilization, operability, maintenance and safety. Bayer designers also used the software to automatically route the first 150 major process pipelines of the plant's 1100 pipes.
"PlantWise discovered unresolvable interferences in a variety of plant areas that indicated that the original concept could not be built as designed. Modifications to the plant concept produced changes to equipment, installation and even the steel structure. Without PlantWise, Bayer engineers would not have discovered the problems until the later stages of detail design or during construction. Early detection avoided costly rework and project delays."
This is a prime example of mistakes avoided. The value could, in this case, be accurately assessed because the mistakes had already been made and were caught at a phase at which the consequences could be avoided. Today Bayer uses this conceptual design automation system as an insurance against similar mistakes.
The Difficulty in Measuring the Value of Conceptual Design
Companies measure and report project margins, but not lost margins of lost projects. They also bitterly measure losses of below cost priced projects. These are measurements of completed projects, i.e., history. However, no attempts are made to compare actual results with "best" results, which is a measure of lost opportunity. So-called back charges, i.e., field construction fixes are measured, but not the cost of pre-construction fixes, i.e., re-design of "work-in-process". Those cost are considered part of normal business.
It is easy to measure what has been designed but it is very hard to measure what has not been designed. Similarly mistakes that are avoided are hard to measure. Therefore the value of a tool or process that improves the final design is hard to judge.
The only way to get a handle of the value is to actually measure the cost of past mistakes as well as optimize past projects to estimate the value of lost opportunities. These represent real and significant opportunities for better decision making in the design process.
The Value of Best vs. Correct vs. Wrong Decisions
There are two aspects to correct decisions. A "correct" decision is a decision that will work and a "best" decision one that will save time and money over and beyond the "correct" decision. Then there are the "wrong" decisions that cost money and time to rectify. Doing a wrong decision usually causes the largest cost.
The biggest decision in any business, the decision on how to price a product or project, is done up front. The worst outcome is to price under final cost which, when winning the award leads to a loss. Unintentional below-cost pricing is a direct consequence of lack of information (often quoted as "unforeseen" circumstances). Overpricing a project lessens the likelihood of winning the award. Overpricing may be caused by too much safety built into estimates because of lack of information, or the inability to envision the "best" solution. Loosing a project means loosing the entire profit margin that hovers around 3% to 4% in the EPC industry. Winning a losing project may be significantly costlier.
Conceptual design automation optimizes and minimizes risks of an entire project. They are thus important business decision-making solutions. In contrast, detail design systems make single engineers more productive in performing small subtasks of the project. Even if detail design systems in aggregate may produce significant savings the potential saving per licensed system copy is minute in comparison with those achievable with effective conceptual design systems.
Why Isn't Proper Conceptual Design Done in the First Place?
Proper conceptual design using traditional CAD tools requires significant effort. Even so, effective conceptual design is very valuable and saves both time and money even without automation. But it is in the human nature not to waste time on tasks that are not directly contributing to the end result. Conceptual design is viewed as something that eats up time while the "real designers" are twiddling their thumbs. The perception is that delivery will be delayed, and the value of spending significant time on something that may not (but in reality likely will) be valuable is questioned. It is safer for a project manager to do it "the conventional way" where "I did my best" rather than to risk being late with a clear delay in the start of the project for others to point to. The anxiety level rises too fast and too high to allow sufficient time for proper conceptual design. Making significantly accelerated conceptual design possible, e.g. through automation, remedies this situation.
Why Software Industry Shuns Conceptual Design
Looking at the software market it is clear that very little exists for conceptual design in any domain. There are two primary reasons for this: lack of demand and low potential number of licenses. The reasons for lack of demand are several:
- The market does not properly appreciate the value of conceptual design.
- The lack of understanding by end-clients (e.g., owner/operators in the EPC industries) of what constitutes "good design".
- The perception of how software should be valued vs. the cost of creating software for conceptual design.
The Market for Conceptual Design Tools
Conceptual design operates on limited information, has to happen quickly, often has to be done pre-award and thus cannot cost too much. Large projects are few and far apart. Compared to detail design only a limited number of people are available for conceptual design. Conceptual design also requires personnel with the highest level of expertise. These are of limited supply. Consequently the market in number copies of conceptual design automation systems is significantly smaller than the market for detail design systems where every engineer may be a user. To be effective conceptual design tools have to incorporate significant intellectual property. This leads to high cost spread over a limited market. On the other hand conceptual design automation solutions are business tools that may have significant business impact
The Lack of Understanding "Good Design"
In the plant design domain most owner/operators have abdicated the ultimate responsibility for solution quality to engineering companies. They have replaced in-house expertise with contract language. In selecting an EPC contractor for a job clients review the project costs as well as the EPC's reputation and past performance to judge the quality of the end deliverable. The quality is assumed but cannot be demonstrated. After placing an order the customer expects that the supplier will supply the best result he can. He does not expect more. A customer cannot easily judge how changes in the suppliers engineering and design process may benefit him. A supplier that can demonstrate the quality of a proposed design has a tremendous competitive advantage. This advantage can be converted to more business if properly used.
The Cost of Automating Conceptual Design
Automating conceptual design means creating a system that takes the limited information available early in a project and maps it into a model of the end result at the desired accuracy. This requires mimicking the entire design process in the automation system. To make this feasible requires simplification by eliminating all non-essential details. The effort is still very large and requires a very clear focus on separating the essential from the non-essential. Attempts to do so often fails because this very task is often left to software programmers who lack expertise in the specific domain.
Conclusions
In summary the market for conceptual design solutions (i.e., license seats sold) is small, but the intellectual content is large, and the potential value huge albeit hard to quantify. The small market and high content of intellectual property requires a high price to cover development and marketing costs. Such high prices are easy to defend in light of the significant business impact these tools may have. It is the experience of the author that only business leaders with broad experience in the domain recognize this potential value and take advantage of it.
