This is the third contribution in the series of articles on various aspects of value engineering and/or value management. Each article will be independent, but linked by the association with value engineering. This article deals with modularisation in the process industry. Is this an opportunity for further savings or does it add cost?
By Jurie Steyn & Freek van Heerden
A module is a transportable pre-assembly of process plant components, designed to minimise site installation and labour costs. Module construction involves building part of a complete facility in an off-site location where specialised resources are readily available and then transporting the module to site for installation. This allows for much improved construction productivity. In this article we consider the matter of modularisation in the process industry. Modularisation has been identified as a significant factor with the potential to substantially reduce the cost of a plant. Module development has reached the 3rd generation, which implies totally self-contained process modules.
Value engineering is a systematic, creative and organised approach to provide the necessary functions in a project at the lowest cost. The requirements of a project are analysed during value engineering for the purpose of achieving the essential functions at the lowest total costs (capital, staffing, energy, maintenance) over the life of the project. It focuses on the functions of various components and materials, rather than their physical attributes.
Modular fabrication is the process of building and constructing equipment off-site in a fabrication facility. The completed product (module) can then be delivered to the worksite and quickly installed and integrated into new or existing field operations. This differs from on-site construction in which the equipment or system is fully built at the worksite.
Modularisation is the process of designing a processing facility in such a manner that it can be constructed in a number of separate, but logical units or modules at a distant construction yard and transported to the factory site. Ideally modules should have as few as possible interfaces with the connecting modules to reduce site work to a minimum.
Classes of modules
Depending on where in the industry one is active, the nomenclature for different classes of modules also differs. For instance, in the construction industry, those involved talk of pre-assembled racks (PAR’s), pre-assembled units (PAU’s), vendor assembled racks and units (VAR’s and VAU’s) and remote instrument buildings (RIB’S). Effectively, this means three classes of modules, namely racks, units and buildings, all pre-assembled. Ignoring the buildings for a moment, we thus only have two types or classes of modules. An example of a PAR is shown in Figure 1. Figure 1: A PAR being installed Fluor has done sterling work in moving more of the field construction work into modular facility construction workshops. They currently talk of their third generation modules (Chandler, 2013). However, for those who insure large modules during the transportation thereof, we’ve seen mention of fourth generation plant modules, although this seems to refer to very large third generation modules.
Three generations of modules
To achieve a better understanding of Fluor’s three generations of modules, each will be discussed in turn: First generation modules have been constructed since the early ‘90s and were limited to main pipe racks with the main piping pre-installed, or PAR’s. Second generation modules were built from early 2000. This involved the installation of piping and main equipment in the modules, primarily all steel equipment. This approach reduced the field work by approximately 30 to 40%. An example of a typical second generation module being transported to site is shown in Figure 2. Figure 2: Second generation module Third generation modules take the concept further to describe modularised process blocks. These process blocks contain 95% of steel work, up to 85% of the electrical installation and up to 95% of the instrumentation. This enables loop checking to be done in the module yard. Third generation modules effectively relocate 90% of the field work to the module yard. The approach is one of minimising the interconnections between modules. An example of a third generation module is shown in Figure 3. Fluor’s Fred Haney and his team patented the concept of the modular processing facility, their third generation approach, in 2012 (Haney et al, 2012). In 2015, Fluor’s Third Generation Modular Execution approach won the bronze award for innovation from the distinguished Edison Awards™ organisation (Fluor Corporation, 2015). The awards, inspired by Thomas Edison’s inventiveness, recognise innovation, creativity, and ingenuity around four criteria: concept, value, delivery, and impact. Figure 3: Third generation module
When and why to opt for modularisation
When modularisation should be considered
The decision-making process when selecting between conventional stick-build techniques or modular construction is complex and based on a number of factors. The modular construction technique is applicable to almost any project. Under certain conditions, modularisation has specific advantages. These conditions include:
- Severe weather conditions: Extreme heat, cold, rain, snow and frozen ground can make conventional construction difficult, expensive and slow;
- Limited plot space: Space limitations can preclude conventional construction techniques. Modular construction typically requires less space and does not require site construction yards;
- Difficult labour conditions: A militant labour force at the plant site can lead to strikes and sit-ins, resulting in serious delays and possibly even injuries and equipment damage;
- High labour cost: High labour cost at the plant site steers the decision towards modularisation, especially if the site labour productivity <80% of shop productivity;
- Shortage of skills: A shortage of suitably qualified construction workers at the site may lead to delays, sub-standard work and low productivity. All these have cost and schedule impacts;
- Repeatability: If there is a high probability that a specific plant design will be duplicated, at the present site or elsewhere, a repeatable modular design takes preference;
- Extensive acceptance testing: A modular approach is indicated when the client demands extensive factory acceptance testing and the plant construction schedule is tight;
- Transportation conditions: Do shipping limits allow module transportation? Can large modules be transported over the access roads? Is crane capacity available and economical?
- Fabrication capacity: The availability of suitable fabrication houses for the modules must be confirmed. Non availability means that schedule benefits will not be obtained by using a modular approach, and;
- Site permits: Permits, environmental or other, required for starting site construction work may be late or difficult to obtain. Modularisation allows the early start of construction work in supplier workshops;
Benefits of modularisation
Modularisation in the process industry offers numerous benefits which can be grouped under three categories, namely cost reduction, schedule reduction and risk reduction, as follows:
- Possible to reuse existing engineering designs during basic engineering and FEED, detail engineering, manufacturing and construction;
- For multi-unit projects, maximum capital efficiency is achieved by designing once and building exact duplicates;
- Lower capital and labour costs are achieved through efficient use of material and a smaller field crew. Requires less material than traditional stick-built operations due to shorter pipe runs;
- Highly trained and experienced assembly and fabrication technicians are already employed by the modular system provider, ensuring consistent work and worker availability;
- High quality module assembly & fabrication reduces rework and saves time and money, as well as reducing start-up risks, and;
- No extra construction yard space is required on-site as the modules are constructed off-site. Site construction infrastructure and housing is also much reduced.
- Modular skid mounted systems construction occurs in parallel with site civil and facilities work in-plant;
- Weather delays are eliminated during fabrication as modules are completed inside the module construction yards;
- Start-up time is minimised since modules are shipped fully assembled and pre-checked;
- Highly trained and experienced fabrication technicians operate at significantly higher productivity, with schedule and cost benefits, and;
- Module construction companies need to get involved early on. Long-term partnering with engineering and supply companies is recommended to ensure involvement during the front-end loading phase.
- Off-site construction of modular systems does not interrupt or shut-down pre-existing operations;
- Welding, pipe-fitting and other fabrication processes are performed under ideal conditions, resulting in a better quality product;
- Systems undergo full process system testing and checkout prior to shipment providing faster and safer start-up;
- Safety risks are reduced for plant personnel with fewer onsite OSHA exposure hours and smaller crew sizes;
- Safety risks are reduced because process module construction happens in ideal plant conditions, and;
- Proprietary process technology is better protected as module fabrication typically occurs behind closed doors.
Should the business needs change to such an extent that relocation of the facility is considered, process modules provide for relatively easy relocation. For instance, product transportation costs can be lowered by placing modules in locations that are closer to end-users.
Disadvantages of modularisation
Although there are some disadvantages to modularisation, these are normally overshadowed by the benefits. The disadvantages include:
- Early decision on level of modularisation: The decision regarding the level of modularisation that is desired has to be taken during the basic engineering phase of front-end loading. The owner company may not be ready to make such a decision because of unfamiliarity with modular plants.
- Higher engineering cost: It is estimated that the additional engineering required for a modular design accounts for an increase of 10 to 15% for engineering. When a modular and standardised design is duplicated, the engineering cost drops significantly.
- Need for additional steel: Additional steel is typically required for larger and more structural members and bracing for transport. A more compact plant layout and shorter pipe runs compensate for this.
- Reduced adaptability to design changes: Modular construction increases the interdependency of construction activities. Any design changes can thus disrupt a wide variety of inter-related process and construction activities.
Modularisation is considered to be a practical and economical construction technique for process systems in the chemical, petrochemical, gas processing, and oil refining industry. Modularisation saves cost by removing labour off site to lower cost, more productive, module manufacturing yards. This will decrease site interference delays, reduce safety risks and lead to a more harmonious labour environment. Modularisation savings are realised from the first plant onwards.
Chandler, G., 2013, Smaller, better, faster – Fred Haney’s vision turns modern construction theory on its head, Oilsands Review. Fluor Corporation, 2015, 3rd gen modular executionsm, Available from http://www.fluor.com/about_fluor/corporate_information/technologies/Pages/technology-info.aspx?tid=9&bsl=Construction. Accessed on 18 October 2015 Haney, F., Donovan, G., Roth, T., Lowrie, A., Morlidge, G., Lucchini, S. & Halvorsen, S., 2012, Patents EP2516759A1, Modular processing facility, Google Patents. Available from http://www.google.com/patents/EP2516759A1?cl=en. Accessed on 17 October 2015.
We are publishing a series of articles on various aspects of value assurance, specifically during the front-end loading phase of a project. Each article will be independent, but linked by the association with value assurance.
This second article in the series deals with the gate decision review process in value assurance.
By Herman van Heerden
Globally skilled human capital is in short supply, impacting the quality, cost and scheduling of project delivery. This situation is exacerbated as experienced personnel retire, while projects become ever more complex. The end result for some organisations can be the inability of their projects to meet the delivery expectations set out in the business case, which directly impacts the financial and reputational health of the business concerned. It is, therefore, important to have the appropriate gate keeping process in place, with supporting tools, processes and resources to protect against these increasing levels of risk and assist in enhancing project performance.
When the term ‘gates’ is used in a typical project stage-gate model, Wikipedia (2015a) describes it as follows: “Gates provide various points during the process where an assessment of the quality of an idea is undertaken”. ‘Quality of an idea’ comprises three main issues:
- Quality of execution: Checks whether the previous step is executed in a quality fashion.
- Business rationale: Does the project continue to look like an attractive idea from an economic and business perspective?
- Action plan: Is the proposed action plan and the requested resources reasonable and sound?
Gates have a common structure and consist of three main elements:
- Deliverables: What the project manager and team deliver to the decision point. These deliverables are decided at the output of the previous gate, and are based on a standard menu of deliverables for each gate.
- Criteria: Questions or metrics on which the project is judged in order to determine a result (go/kill/hold/recycle) and make a prioritisation decision.
- Outputs: Results of the gate review—a decision (go/kill/hold/recycle), along with an approved action plan for the next gate, and a list of deliverables and date for the next gate.
Value assurance (VA) on capital projects can be seen as the process of checking that projects make the right commitments to the business and then deliver on these objectives. Assurance provides an independent, objective view of project delivery with the goal of identifying issues early in a stage before they become major problems. When deployed at the right time, by the right people, using the right methods, value assurance gives confidence to project and business stakeholders that the right decisions are being made, and that projects are being delivered safely, on time and to budget.
The front-end loading (FEL) phase is when the owner needs to ensure that the opportunity that he wants to capitalise on is fully defined and specified and still remains viable (be it economically or whatever other measure is used). As the work progresses through the FEL stages, the owner project team needs to ensure that the project that is being developed stays focused on meeting the business intent and that the definitions/specifications produced are complete. If the project proves to be no longer viable, it should be stopped.
During the FEL stages it is expected from the owner project team to consider all alternatives, risks, internal and external influences, as well as all stakeholder requirements. This is required to ensure that by the end of FEL, an optimised proposal with acceptable risk is presented and approved by all stakeholders.
Failure to achieve approval leaves the project open to very costly delays and rework during the execution stage.
Gate keeping process
The purpose of the gate keeping process is to provide a final recommendation at the conclusion of a stage, such that an informed decision can be made by the mandated decision making body to continue with the project or not. If the decision is to continue, then under what conditions, and to agree on whether more resources should be allocated to the project for a next stage. The first four steps in the gate keeping process are shown in Figure 1.
Figure 1: Gate keeping process
Each of these is discussed in more detail below.
The main purpose of the consistency review is to ensure that the business case accurately reflects viability and economics. It ensures consistency of assumptions and approach across all projects of a company, in terms of the business case, technical and execution aspects, such that project portfolio optimisation can be done correctly.
The gate review process cannot proceed until is has been agreed that the basis of the business case is sound.
The stage deliverables are reviewed to ensure that they meet the required quality as per the stage definition requirements. The quality reviews should precede the gate deliverable readiness assessment.
Conformance to the quality requirements are indicated in the Value Assurance Report.
For the purpose of the quality review two main types of deliverables are recognised:
- Functional deliverables produced by the project team like the business plan, the operations plan, the engineering package and the project execution plan.
- Critical decisions made include for example site selection, technology selection, contracting strategy selection.
The required quality reviews would have been agreed as part of the framing and alignment process at the start of the stage.
Portfolio optimisation helps to strategically manage the project portfolio. It contributes to making the right investment decisions, optimising the value of the portfolio, and optimally allocating resources.
Gate Decision Readiness
Once the above three steps have been completed, the Gate Decision Readiness assessment can be done. The typical sequence is shown in Figure 2.
The review team considers the level of development against the agreed norms, any gaps and therefore risks associated with incomplete work, the quality of the final proposal and viability of the project to recommend whether the project can proceed, be put on hold, be recycled, stopped or changed.
Figure 2: Sequence of the gate keeping process
Value Assurance Report
The Value Assurance (VA) Report is the final step and consolidates and summarises the findings and conclusions from the four steps in the gate keeping process for the particular stage (refer Figure 1). The focus areas differ from stage to stage. In the prefeasibility stage the focus is on the appraisal of the business case; in the feasibility stage the focus is on the selection of the technology option and in the planning stage the focus is on defining the project execution plan.
VA Report Framework
The findings, conclusions and recommendations of the different VA sub-processes will be considered and covered in the value assurance report framework as per the following index:
- The gate review executive summary should reflect a clear, final recommendation by the VA review team whether the project should go ahead or not. In addition, the review team should express their opinion on the viability of the business case, technical case and project execution approach. The review team should give a high level dashboard summary of the soundness of all the processes carried out in the gate keeping process. Finally a list of the key project gaps, risks and issues emanating from the gate keeping process should be shown.
- The background to the project should at least contain a project overview and brief description of business objectives, project objectives and review objectives.
- More detail can be shown in the appendices of the report to substantiate the major findings of the review team.
Value assurance in the context of a project stage-gate process takes the form of structured assessments prior to key stage gates. The focus of assurance changes throughout the project life cycle, but its underlying purpose is to determine whether projects are delivering on their objectives at each stage for gate keeping purposes. The gate keeping process ensures that decisions are supported by risk management controls, and subsequently suggesting remedial steps, where necessary, to address the risks identified during the value assurance process.
Note that gates are not merely project review points, status reports or information updates. Rather, they are tough decision meetings, where the critical go/kill and prioritisation decisions are made on projects. Thus the gates become the quality control checkpoints in the process, ensuring that you do the right projects and also do the projects right. (Wikipedia 2015b)
Gates must have clear and visible criteria so that senior managers can make go/kill and prioritisation decisions objectively.
Wikipedia, 2015a, Phase-gate model – 3: Gates. Available on https://en.wikipedia.org/wiki/Phase-gate model Accessed on 15 June 2015.
Wikipedia, 2015b, Phase- gate model – 5: Effective Gating. Available on https://en.wikipedia.org/wiki/Phase-gate model. Accessed on 28 September 2015.
Modern day projects and more specific mega projects are complex, involve multiple parties, take long and require many multi skilled resources. Project stakeholders desire projects to be successful, requiring project teams to deliver high performing projects. The question is how can both these parties assure that their aspirations of success are met?
The answer is value assurance, a structured process aimed at ensuring value is delivered throughout the project life-cycle. Value assurance support the project owner’s gate keepers, sponsor and project team with the necessary processes and tools. The purpose of this is to ensure quality work is done in a specific stage of the project and quality decision information is made during the stage. The gate keepers will be advised at the end of the stage on the continuation of the project, considering the economics and gate decision information generated in the value assurance process.
Owner Team Consult offers a practical guideline on a Value Assurance Process and is busy putting supportive tools in place to effectively facilitate the process.
The question to owner companies, investing billions of dollars and expecting return on investment, what is your expectation from Value Assurance?
Questions? Suggestions on how we can improve this article? Comments? Please leave your thoughts below.