Evonik Cuts Project Costs by Adopting New Execution Methodology
Investment in chemical plant has to be competitive – the plant operator can survive in the marketplace with the products produced in the plant only if the budget, completion date, and quality of execution are on target. Yet trouble may frequently hit one of these project goals because planning was simply unrealistic from the very start. At Evonik between 2012 and 2015 some 10% of projects with an investment volume in excess of €5m failed to meet the originally approved time and cost budget. In some of the projects it only became apparent after the basic planning stage that they could no longer be pursued. By that time 10% of the project budget had already been spent on conceptual design and basic engineering.
Objective: 15% Reduction in Investment Costs
What may at first sound like a relatively high failure rate can actually be regarded as a good average in the chemical industry. Yet Evonik’s engineers were not prepared to accept such a situation. They set themselves the goal of improving project execution on the one hand, and of making the company’s investments more competitive on the other. Every year the specialty chemicals company invests more than €1bn in new plant – usually based on its own proprietary technology. “We have resolved to reduce the specific investment costs by 10 to 15% in a two-step optimisation project”, Dr. Wilhelm Otten, Head of Process Technology & Engineering reported at the 5th Engineering Summit.
The first step was to redesign the project execution, in order to optimise variations in the relative investment costs. The second step, with the leitmotif “more cost-effective investment”, had the goal of generally reducing investment costs for the investing business divisions. “Up until 2014 the focus of project management was largely on the execution phase”, Otten reported – yet cost-relevant decisions are usually made in the conceptual design phase. Analysis of the distressed projects showed that these were sometimes incompletely defined and the associated risks insufficiently evaluated. “At the end of the conceptual design phase the plant concept has to fit the business case – if it does not, there is then little hope of a miracle happening in the basic planning phase”, is the firm persuasion of Wilhelm Otten.
Greater Focus on Project Definition and Risks
In the redesign of project execution it was therefore decided that not only risk assessment but also the project definition should be an obligatory prerequisite for projects – the investment guideline was amended to include additional aspects such as the definition of the project team and mandatory technical discussions. Moreover, responsibilities were more clearly assigned and competence profiles drawn up for the project participants. Close and systematic communication with the ordering parties from the business- or product line was recognised as a crucial success factor. “The trick was to develop a common understanding throughout the entire company as to how we want to execute investment projects in the future”, said Otten. The success of the measures shows the project participants to be right: Almost without exception, all recently completed and ongoing projects having a volume in excess of €10m are today within the given budget; just a single project ran into delays.
The second step of the optimisation project was undertaken to effect a general cost reduction for investment projects – and in so doing the previous approach was turned upside down: Whereas the size of the facilities was formerly defined by the business division and usually defined too large or with too many expansion options, business and engineering now have to jointly define mandatory and optional requirements to be placed on the plant. The starting point is then a basic plant which merely fulfils the minimum requirements of the business division. Additional options are incorporated into the project only if they demonstrably add value. “In this way the size of the project is systematically minimised”, said Otten.
High Two-digit Million Amount Saved in Five Projects
The approach pays off: As early as in the pilot phase (five projects, each with a volume in excess of €10 million) the project participants at Evonik could already see cost-saving opportunities amounting to a high two-digit million sum. Since 2017 the approach, known as the “Evonik Best Business Solution”, has become obligatory for all large projects and a modified version will in future also come into use for smaller projects.
In addition to the engineering and construction phases, planners at the specialty chemicals company also see further potential unfolding: Since the chemical processes are largely based on the company’s proprietary technology, process development and engineering should be undertaken as a coherent process. Adoption of modern concepts should significantly shorten process development. The relevant keywords are “modularity”, “internet of things”, and “data integration over the entire asset lifecycle”. The experts are currently working on a model which is based on the “Data Exchange in Process Industry – Dexpi” data model and is seen as the future standard for the process industry – with the goal of establishing future interoperability between the systems used.
“I am sure that in 20 years’ time we shall have platforms for our core processes which are made up of modules. We shall then only have to configure our plants but no longer engineer them”, is how Otten summarises the vision of Evonik’s engineers. This approach is already being implemented for pilot plants.