Design to Cost

Test Your Knowledge

Design to Cost Quiz

Instructions: Choose the best answer for each question.

1. What is the primary focus of Design to Cost (DTC)?

(a) Minimizing initial capital expenditure at all costs. (b) Achieving the lowest possible price for materials and labor. (c) Optimizing design to balance cost, performance, and schedule. (d) Implementing strict cost-cutting measures throughout the project.

2. Which of the following is NOT a key principle of DTC?

(a) Early cost estimation. (b) Cost-driven design. (c) Prioritizing cost over performance. (d) Cross-functional collaboration.

3. What is the benefit of continuous monitoring and evaluation in DTC?

(a) Identifying cost overruns early and making adjustments. (b) Ensuring all costs are kept below budget. (c) Eliminating the need for project updates. (d) Simplifying project management processes.

4. Which of the following is NOT a benefit of implementing DTC in the oil and gas industry?

(a) Increased project feasibility. (b) Reduced risk of project delays. (c) Elimination of all potential cost overruns. (d) Enhanced performance and efficiency.

5. Which of the following is an essential step in implementing DTC?

(a) Establishing rigid budget constraints. (b) Prioritizing cost over all other factors. (c) Training teams in cost estimation and value engineering. (d) Limiting communication between different project teams.

Design to Cost Exercise

Scenario: You are part of a team designing a new offshore oil platform. The project has a budget constraint of $1 billion.

Task:

1. Identify three key design elements that could significantly impact project cost.
2. For each element, propose two alternative design approaches, one focused on cost reduction and the other focused on performance enhancement.
3. Explain how you would use DTC principles to evaluate and choose the best design approach for each element.

Example:

• Element: Foundation Structure
• Cost-reduction approach: Using cheaper materials like concrete instead of steel.
• Performance-enhancement approach: Utilizing advanced steel structures that improve stability and withstand harsher weather conditions.
• DTC evaluation: Analyze the trade-off between cost savings and potential risks associated with each approach, considering the project's overall lifespan, environmental impact, and potential maintenance costs.

Techniques

Design to Cost in Oil & Gas: A Comprehensive Guide

Chapter 1: Techniques

Design to Cost (DTC) in oil and gas necessitates a range of techniques to effectively manage costs throughout the project lifecycle. These techniques fall broadly into two categories: cost estimation and cost reduction.

Cost Estimation Techniques:

• Parametric Estimating: This involves using historical data and statistical models to predict costs based on project parameters like size, complexity, and location. This is particularly useful in the early stages when detailed design information is limited.
• Bottom-Up Estimating: This method involves breaking down the project into smaller components and estimating the cost of each individually. While more time-consuming, it provides greater accuracy.
• Analogous Estimating: This technique uses the cost data from similar past projects as a basis for estimating the current project's cost. It's quick but requires careful selection of comparable projects.
• Three-Point Estimating: This technique incorporates optimistic, pessimistic, and most likely cost estimates to provide a more robust prediction, accounting for uncertainty.
• Life-Cycle Costing (LCC): This crucial aspect of DTC goes beyond initial capital expenditure to encompass operational costs, maintenance, decommissioning, and other long-term expenses. Accurate LCC analysis is fundamental to informed decision-making.

Cost Reduction Techniques:

• Value Engineering: This systematic approach identifies cost-effective alternatives without sacrificing performance or safety. It involves analyzing each design element to determine its value and exploring ways to achieve the same functionality at a lower cost.
• Design Simplification: This involves streamlining designs to remove unnecessary complexity and features, thereby reducing costs and improving efficiency.
• Material Substitution: Exploring alternative materials that offer comparable performance at a lower cost can significantly reduce overall project expenses.
• Modularization and Standardization: Utilizing prefabricated modules and standardized components can reduce construction time, labor costs, and material waste.
• Optimization Algorithms: Advanced software tools can employ optimization algorithms to explore multiple design options and identify the most cost-effective solutions while satisfying all performance criteria.

Chapter 2: Models

Several models facilitate the implementation and analysis of DTC strategies in oil and gas projects. These models help quantify the impact of design decisions on overall costs and performance.

• Cost-Benefit Analysis (CBA): This classic model compares the costs and benefits of different design options to determine the most economically viable solution. It’s crucial for justifying DTC-driven design choices.
• Sensitivity Analysis: This technique assesses the impact of uncertainties in cost estimates on the overall project economics. By identifying sensitive parameters, project managers can focus efforts on refining those estimates.
• Monte Carlo Simulation: This probabilistic model incorporates uncertainties in multiple cost parameters to generate a range of possible project costs, providing a more realistic assessment of risk.
• Target Costing Model: This model sets a predetermined target cost for the project and then works backward to design a solution that meets this target.
• Earned Value Management (EVM): This project management technique integrates cost, schedule, and scope to provide real-time tracking and control of project performance and cost. It's vital for monitoring progress against the DTC target.

Chapter 3: Software

A variety of software tools support the implementation of DTC in oil and gas projects. These range from specialized cost estimation software to integrated project management platforms.

• Cost Estimation Software: These tools automate various cost estimation techniques, providing detailed breakdowns of project costs and facilitating "what-if" scenarios. Examples include Primavera P6, Microsoft Project, and specialized cost engineering software.
• CAD and BIM Software: Computer-Aided Design (CAD) and Building Information Modeling (BIM) software allow for detailed design visualization and analysis, enabling early identification of cost-saving opportunities.
• Data Analytics and Visualization Tools: Tools such as Tableau and Power BI can be used to visualize and analyze cost data, facilitating better understanding and decision-making.
• Project Management Software: Integrated project management platforms, including those mentioned above, provide a central repository for project data, facilitating cost tracking and control throughout the lifecycle.
• Simulation Software: Specialized simulation software can model various aspects of the project, such as fluid flow or structural integrity, helping to identify potential cost-saving opportunities related to design optimization.

Chapter 4: Best Practices

Effective DTC implementation requires adherence to several key best practices.

• Early and Continuous Involvement of Cost Engineers: Integrate cost engineers into the design process from the outset to ensure cost considerations are embedded in every decision.
• Establish Clear Cost Targets and Metrics: Define specific, measurable, achievable, relevant, and time-bound (SMART) cost targets for each phase of the project.
• Foster a Culture of Cost Consciousness: Encourage open communication about cost throughout the organization, and reward cost-effective solutions.
• Regular Cost Reviews and Audits: Conduct regular reviews and audits to monitor progress against targets and identify potential issues early on.
• Leverage Lessons Learned from Past Projects: Analyze past projects to identify areas for improvement and refine DTC processes.
• Utilize Technology Effectively: Leverage available software and tools to improve efficiency and accuracy of cost estimation and tracking.
• Maintain Open Communication and Collaboration: Ensure effective collaboration among all stakeholders, including designers, engineers, procurement, and operations teams.

Chapter 5: Case Studies

(This chapter would require specific examples of oil and gas projects where DTC was successfully implemented. The case studies should detail the specific techniques used, the challenges overcome, and the resulting cost savings and benefits. Examples might include cost reductions achieved through value engineering, optimized designs leading to reduced operational expenses, or successful implementation of a target costing model.) For example:

• Case Study 1: A deepwater platform project where value engineering led to a 15% reduction in capital expenditure without compromising safety or performance.
• Case Study 2: An onshore refinery expansion project where modularization and standardization reduced construction time and labor costs by 10%.
• Case Study 3: A pipeline project where a detailed LCC analysis helped to optimize the pipeline’s design and materials, resulting in long-term cost savings on maintenance and operation.

Each case study should clearly outline the project goals, the DTC approach used, the results achieved, and the lessons learned. This section would showcase the tangible benefits of DTC in real-world scenarios.