An increasingly competitive marketplace challenges distilleries to plan new distillation facilities, or upgrade existing ones, with more careful attention to the three components of every project: scope creep, budget overrun and schedule slips. Any of these evil triplets can appear when the team lacks the foresight usually associated with seasoned leadership.
Using a gated process like Front-End Loading (FEL) methodology for conceptual planning early in the project, and subsequent refinement of the project through successive phases of the FEL process, teams can define, optimize and manage their project costs and scope with confidence. Front-End Loading refers to an execution method for capital projects, involving distinct phases of work and increasing levels of project definition, that allows team members and project stakeholders multiple opportunities to review scope, cost and schedule. Stakeholders can make informed decisions on the project viability during each of these phases, with validated agreement on scope, cost and schedule, avoiding issues later in the project.
Viability + Understanding
The earliest phase of the FEL process (FEL-1) focuses on definition of the project scope required to satisfy the business case and intent of the project. The project team will meet with stakeholders and lay out clear goals early in the project. The work during this phase is meant to deliver a “quick look,” so stakeholders can make an informed go/no-go decision on the viability of the project. The project team will commonly develop conceptual layouts, block flow diagrams, a high-level (-10% to +30%) cost estimate and a project execution plan that identifies project milestones, cash flows and any assumptions, risks and exclusions that impact cost and scope. The result is a documented understanding of the project by all stakeholders, allowing an informed decision on additional spending to move the project on to the next phase.
Optimizing Cost & Scope
With approval at FEL-1, the team moves into preliminary engineering (FEL-2). The purpose of this phase is to lock in the project scope and project execution plan. For a process project like a distillery, this means the Piping and Instrumentation Drawings (P&IDs) are well established and preferably approved. These drawings are the cornerstone engineering documents. FEL-2 produces a more detailed understanding of the process systems and facilities scope with completion of engineering calculations, preliminary layouts of equipment, power, steam and water distribution, warehouse areas and in-process storage racking. Some of the initial assumptions may need to be revised as a result of discoveries made during this engineering phase. The conceptual scope may, for example, have budgeted for a facility expansion based on four bays for palletizers, but it turns out that six bays are actually needed because of the way the conveyor accumulation, personnel and material flow must be laid out.
The ultimate goal of this phase is to validate the business case and justify the capital project. Plant, engineering and key stakeholders are provided the opportunity to review the scope and provide their final input. The project team generates a refined cost estimate (-10% to +20%) with a more detailed look at capital and expense associated with the project execution.
Cost Precision + Structuring Execution
Moving into the detail design phase (FEL-3), the team will work to develop drawings and details to flesh out each of the project elements. This is a perfect time to pull the plant and corporate stakeholders, engineering team members and construction managers into an interactive planning session to fully vet the project execution strategies. These sessions take a hard look at not just what needs to be accomplished, but also how and when. The end result is an execution strategy with definition of the number and types of design packages that will be released to contractors, project phasing details and a master project schedule.
This higher level of detail is used to refine the project cost estimate with even more accuracy (-10% to +10%). Proper execution in the first two phases promotes accurate assessments in the third. This is the estimate that will typically be used for final approval by the board. The intent of the FEL process is to have a final estimate that falls within the bounds established by the first two estimates.
What to do if things go awry? If the board’s expectation is a $50-million project, and the FEL-3 estimate comes in at $60 million, the team and the owner must work together to identify $10 million in project savings. The first things to go are the “nice-to-haves,” those elements of the project that are not essential to the project business case. That new cafeteria requested by employees may need a second look.
Savings can also be achieved through design changes discovered through a formal value-engineering session. Sometimes a change in one component, such as a realignment of a new building on the site, can lead to a cascade of savings on a chain of dependent components like roads, parking areas and landscaping. Evaluate the design to make sure that value engineering has found the lowest cost before attacking any primary scope items. Ancillary features might need to be scaled back.
Capital is spent to purchase equipment, materials and services on a project. There are strategies to reduce the cost based on how those purchases are executed. A procurement plan documents those strategies, typically in FEL-2 or FEL-3.
The interdependencies of scope, cost and schedule constitute a triangular logic that applies to any methodology of construction. What the FEL process adds to this logic is to optimize each component with a structured approach. It performs a detailed analysis of scope, cost and schedule as well as providing many checks and balances on the execution process. The process maintains a strong and ongoing consensus among the stakeholders on the definition of scope, schedule and cost so that the managers know what they are managing from beginning to end.
Using a process like FEL for successful project execution will ensure that there are no big surprises in the budget, scope or schedule. Stage gates are designed with prerequisites so that nothing is omitted or unexamined. Experienced leaders know what to look for and what questions to ask to help the project run smoothly and the team stick to the agreed-upon scope and budget. Careful planning is critical to achieve these goals so that nothing slips through the cracks. Assembling project team members savvy in sophisticated project execution who can bring their experience to each project stage is one of the best ways to optimize project cost with foresight.