Design to Cost

Design to Cost: Optimizing Oil & Gas Projects for Success

The oil and gas industry, known for its complex and capital-intensive projects, faces constant pressure to deliver projects on time, within budget, and with optimal performance. One key strategy to achieve this balance is Design to Cost (DTC). DTC is a powerful concept that transcends mere cost-cutting. It's a proactive approach that integrates cost considerations into every stage of a project's lifecycle, from design to operation.

Understanding Design to Cost in Oil & Gas:

DTC isn't about sacrificing quality or performance. Instead, it's about optimizing the design to achieve the best balance between three critical elements:

Life-cycle cost: Considering not just initial capital expenditure but also operational costs, maintenance, and decommissioning throughout the project's lifespan.
Acceptable performance: Ensuring the project meets its intended functionality and meets all technical requirements.
Schedule: Maintaining a realistic timeline for development, construction, and deployment.

By integrating these factors into the design phase, DTC helps identify potential cost overruns early on and enables teams to make informed decisions that minimize risks and maximize value.

Key Principles of Design to Cost:

Early Cost Estimation: Accurate and detailed cost estimations are crucial from the outset. This involves thorough analysis of potential costs throughout the lifecycle, considering factors like materials, labor, logistics, and regulatory compliance.
Cost-Driven Design: Cost considerations drive every design decision. Teams evaluate different design options, identifying cost-effective alternatives without compromising performance or safety.
Cross-Functional Collaboration: Open communication and collaboration between design, engineering, procurement, and operations teams are essential. This ensures a shared understanding of cost constraints and facilitates informed decision-making.
Continuous Monitoring and Evaluation: Regular monitoring and evaluation of actual costs against projected budgets are essential. This allows for adjustments and optimization throughout the project lifecycle.

Benefits of Design to Cost in Oil & Gas:

Cost Reduction: DTC helps achieve significant cost savings by identifying and eliminating unnecessary expenses during the design phase.
Improved Project Feasibility: By considering cost constraints early on, projects are more likely to be feasible and commercially viable.
Enhanced Performance: Focusing on value engineering and cost-effective design choices can lead to improved performance and efficiency.
Reduced Risk: Early identification and mitigation of cost-related risks improve overall project success and reduce the likelihood of delays or budget overruns.
Increased Competitiveness: Companies that effectively implement DTC gain a competitive advantage by delivering projects on time and within budget, enhancing their profitability and reputation.

Implementing Design to Cost:

Successful implementation of DTC requires a dedicated commitment from leadership, along with a culture that values cost consciousness and continuous improvement. It involves:

Training and Development: Equip teams with the necessary knowledge and skills in cost estimation, value engineering, and design optimization techniques.
Establishing Clear Cost Targets: Define specific and achievable cost targets for each project phase.
Utilizing Cost Management Tools: Leverage software and analytical tools for detailed cost tracking, modeling, and optimization.
Continuous Improvement: Implement a culture of continuous learning and improvement by analyzing past projects, identifying areas for optimization, and adopting best practices.

Conclusion:

Design to Cost is a valuable tool for navigating the complexities of the oil and gas industry. By embracing DTC principles, companies can enhance project feasibility, reduce costs, improve performance, and increase their competitive edge in this demanding and ever-evolving industry.

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.

Answer

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.

Answer

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.

Answer

(a) Identifying cost overruns early and making adjustments.

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.

Answer

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.

Answer

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:

Identify three key design elements that could significantly impact project cost.
For each element, propose two alternative design approaches, one focused on cost reduction and the other focused on performance enhancement.
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.

Exercice Correction

Here's an example of possible answers, remember there can be several approaches depending on your chosen elements and design focus:

**1. Key Design Elements:**

**Production Equipment:** The type and size of production equipment will directly impact initial capital expenditure and operational costs.
**Platform Structure:** The platform design will influence the construction cost, stability in challenging weather conditions, and ease of maintenance.
**Pipelines and Flowlines:** The complexity and length of pipelines will impact material costs, installation time, and potential maintenance needs.

**2. Design Approaches:**

**Production Equipment:**
- **Cost-reduction:** Utilizing standard, readily available equipment that might have lower performance but is more cost-effective initially.
- **Performance-enhancement:** Implementing advanced, high-efficiency equipment with longer lifespan and potentially lower operational costs over time.
**Platform Structure:**
- **Cost-reduction:** Utilizing a simpler platform design with fewer support structures, potentially reducing initial construction cost but might compromise stability.
- **Performance-enhancement:** Employing a robust platform design with advanced materials and engineering solutions, enhancing stability and resilience against extreme weather conditions.
**Pipelines and Flowlines:**
- **Cost-reduction:** Utilizing shorter pipelines and minimizing complexity where possible, potentially reducing material and installation costs but might impact efficiency.
- **Performance-enhancement:** Employing advanced pipeline technology and materials that minimize corrosion and require less maintenance, increasing longevity and reducing operational costs.

**3. DTC Evaluation:**

**Life-cycle cost analysis:** Estimate the total cost of each approach over the platform's expected lifespan, considering initial investment, operational expenses, maintenance costs, and potential decommissioning costs.
**Performance evaluation:** Analyze the performance of each approach in terms of production capacity, safety, environmental impact, and potential risks.
**Schedule consideration:** Assess the impact of each approach on the overall project schedule, considering construction time, installation challenges, and potential delays.
**Cross-functional collaboration:** Involve engineering, procurement, operations, and finance teams in the evaluation process to ensure a holistic understanding of costs, performance, and schedule implications.
**Value engineering:** Explore alternative design solutions that offer similar performance at lower cost, considering innovative technologies or alternative materials.

By combining the information from the life-cycle cost analysis, performance evaluation, and schedule consideration, the team can utilize DTC principles to make informed decisions that optimize the project's overall value while adhering to the budget constraints.

Books

Value Engineering: A Practical Guide for Engineers by Michael D. Ettlie, David R. Baxter, and Larry E. Moore: A comprehensive guide to value engineering principles, including DTC, with real-world applications.
Project Management in Oil & Gas by G. S. Sangwan: Provides a thorough overview of project management in the oil and gas industry, including chapters on cost control and optimization methods.
The Design to Cost Handbook: Cost-Effective Product Design for Manufacturing by J.K. Harston: Focuses on the application of DTC in manufacturing, but provides valuable insights on cost-driven design principles applicable to oil & gas projects.

Articles

Design to Cost for Oil & Gas Projects by World Pipelines (2016): Discusses the implementation of DTC for pipeline projects, highlighting cost optimization and risk mitigation benefits.
Design to Cost: A Critical Success Factor for Oil & Gas Projects by Oil & Gas Journal (2018): Examines the importance of DTC in addressing cost overruns and improving project delivery in the industry.
The Value of Design to Cost for Oil & Gas Projects by Upstream (2020): A case study demonstrating the effectiveness of DTC in achieving cost savings and project success for offshore oil & gas development.

Online Resources

Society of Value Engineers (SOVE): Provides resources, publications, and events related to value engineering and DTC.
Design for Cost (DfC): An online resource offering articles, case studies, and tools for implementing DTC in various industries, including oil & gas.
Project Management Institute (PMI): Provides information and resources on project management best practices, including cost management and optimization.

Search Tips

Use specific search terms like "Design to Cost oil and gas", "DTC in oil & gas projects", "cost optimization oil & gas" to narrow your search results.
Explore academic databases like JSTOR and ScienceDirect using keywords like "Design to Cost", "Cost Engineering", "Oil & Gas Project Management".
Look for industry-specific publications like Oil & Gas Journal, Upstream, and World Pipelines for articles and case studies on DTC in the sector.