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ACKNOWLEDGEMENT


For the tremendous support and interest I received in carrying out this dissertation
project, I would to extend my sincere and profound gratitude to all the participants those
who have actively participated and contributed in the completion of this research project
and its report which is prepared in partial fulfillment of Executive Masters in Business
Administration (EMBA)-Operations.

My particular thanks go to our Dean Dr. Balakrishna Grandhi and Prof. Krishnan
Navgath for extending their kind support. I would also like to thank Mr. Nihar Kumthekar
for providing valuable guidance.

I also take this opportunity to thank my Industry mentor at Dodsal E&C Pte. Ltd., Mr.
Garry Crighton (Executive Director- Corporate QHSE) who has been my constant
source of strength. He not only guided me at crucial times but was also was
instrumental in extracting from me the best possible work.

Mr. Naresh Rijhwani (Vice President- Engineering) at Dodsal E&C Pte. Ltd. and Mr.
Jinesh K. Shah (Project Management- Wood group PSN) were also a great source of
knowledge and information on the research project. I am thankful for their motivation
and contribution in spite of their busy schedules.

Last but not least, I also want to thank to my colleagues at Dodsal, classmates at S. P.
Jain and LinkedIn community members for actively participating in concluding the
research. I am confident that the outcomes of this research project will be of benefit to
EPC sector stakeholders with regards to the cost escalation issues for their projects.
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EXECUTIVE SUMMARY

For Project Managers and Project Sponsors, scope creep and the project cost over runs are
major concerns. The average cost escalation on industrial EPC projects exceeds 12 to 15
percent from the original estimates. Design deviations (changes, errors, and omissions) are
accounted for roughly 80 percent of the increased costs. The value stated above is only the tip
of the iceberg and the real cost escalation sometimes go up to 33 to 50 percent of the estimated
cost for the project. Earlier identification of design issues (preferably at engineering stage) is
easier to handle and have lesser impact on project health.
The research analyzed such cases, referred to various online case studies and gathered expert
opinion through focused group discussions, personal interviews and online survey, as a part of
this process.
As a result, the research could conclude on various aspects of root causes that contribute to the
cost escalation during the detail engineering stage of the project and interestingly the opinion
believed that the major cost escalations originate from the estimation stage or proposal stage of
the project.
Various factors like short bidding time, Bid selection criteria, Inaccurate FEED (Front End
engineering Design) are identified as few of major issues and are discussed in detail inside the
report. Similarly the cost escalation issues arising from during detail design activities like Gold
plating, lack of proper change management, poor implementation of project management
practices were identified and discussed.
Various research methodology tools and techniques and the knowledge areas learnt through
out EMBA course were used in arriving at a systematic understanding of root causes for cost
escalation issues.
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List of Abbreviations

CEO Chief Executive Officer
DCN Design Change Note
DD Detail Design
DE Detail Engineering
E&C Engineering and Construction
EMBA Executive- Masters of Business Administration
EPC Engineering, Procurement and Construction
EPCI Engineering, Procurement, Construction and Installation
FEED Front End Engineering Design
FGD Focused Group Discussion
FIDIC
FIDIC
Federation Internationale des Ingenieurs Conseils
International Federation of Consulting Engineers
FPSO floating production, storage and offloading
FWBS Functional Work Breakdown Structure
GT Gas Turbine
HAZOP Hazard And Operability Study
HR Human Resource
HSE Health, safety and Environment
IFC Issued For Construction
IT Information Technology
ITT Instruction To Tenderer
LSTK Lump Sum Turn Key
MTO Material Take-Off
P&ID Process and Instrumentation Diagram
PHO Project Home Office
PM Project Manager
PMBOK Project Management Body Of Knowledge
PMC Project Management Consultant
PMI Project Management Institute
PMO Project Management Office
PMT Project Management Team
PO Purchase Order
QHSE Quality, Health, Safety and Environment
QRA Quantitative Research Analysis
ROM Rough Order of Magnitude
SIL Safety Integrity Level
SOW Scope Of Work
SPJSGM S P Jain School of Global Management
SPPID Smart Plant P&ID
SWOT Strength, Weakness, Opportunity and Threats
TQ Technical Query
USD United states Dollar
VAT Value Added Tax
VDR Vendor Document Review
WBS Work Breakdown Structure

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TableofContents

1. INTRODUCTION................................................................................................................................3
2. INDUSTRYBACKGROUND................................................................................................................4
3. INTRODUCTIONTODODSAL............................................................................................................8
4. PROBLEMSTATEMENT.....................................................................................................................9
5. RESEARCHOBJECTIVE....................................................................................................................12
6. RESEARCHDESIGN.........................................................................................................................13
7. PROJECTSCOPE..............................................................................................................................18
8. FINDINGANDANALYSIS.................................................................................................................27
9. RECOMMENDATIONS....................................................................................................................36
10. MANAGERIALIMPLICATIONS.........................................................................................................45
11. THEWAYFORWARD......................................................................................................................48
12. CONCLUSION..................................................................................................................................51
13. BIBLIOGRAPHY...............................................................................................................................52

List of Appendix

Appendix01 InterviewTranscriptwithMr.JineshKShah
Appendix02 InterviewTranscriptwithMr.NareshRijhwani
Appendix03 TranscriptofFocusedGroupDiscussiononLinkedIn
Appendix04 SurveyForm
Appendix05 SurveyResults

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List of Figures

Figure 1 - Average Cost escalation/ Deviations ...................................................................................... 9

Figure 2 - Breakdown of Deviation ........................................................................................................ 10
Figure 3 - Deviation factor contribution % ............................................................................................. 10
Figure 4 - Factors Contributing to Design deviations ............................................................................ 11
Figure 5 - Major Cost Escalation Contributors ...................................................................................... 14
Figure 6 - Problem Area Graph ............................................................................................................. 28
Figure 7 - Problem Area Data ............................................................................................................... 28
Figure 8 - FGD Online Discussion Page on LinkedIn ........................................................................... 29
Figure 9 - Influential position at bidding stage for Cost Effectiveness .................................................. 31
Figure 11 - Top Influencer in Estimation stage ..................................................................................... 34

List of Tables

Table 1- Top 5 Global EPC Contractors ................................................................................................. 4
Table 2 Top Oil and Gas EPC contractors in Middle East. ..................................................................... 5
Table 3 - Cost Escalation Factors at bidding stage .............................................................................. 30
Table 4 - Influential position at bidding stage for Cost Effectiveness ................................................... 31
Table 5 - Top Factors at the Detail Design stage ................................................................................. 33
Table 6 - Most Pivotal (Influential) role at Detail Design Stage ............................................................ 34
Table 7 Top Parameters for improving cost escalation ........................................................................ 35

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INTRODUCTION
The Engineering, Procurement and Construction (EPC) sector plays an important role to
play in economic and infrastructure development. This industry is working in many
sectors such as Oil & Gas, Petrochemical, Infrastructure, and Energy etc. From few big
players to many medium and small companies that work as EPC contractors for major
projects around the world. EPC project contract value varies from few million to multi-
billion US dollars.
For EPC projects, the asset owner or the Client, after successful technical feasibility
study and commercial viability study, proposes to design, engineer and build a project
for practical business purposes. The basic design or the Front End Engineering Design
(FEED) is provided to technically qualified and experienced EPC contractors to propose
an estimate for the project.
In this region (GCC) the contracting strategy adopted that of Lump Sum Turn Key
(LSTK) where the successful bidder are who submitted the lowest price. More Often
than not the project schedules are tight. The fast track nature of this business results in
limited time, resources, Information and funds at the bidding stage does not allow a
Contractor performing due diligence of the tender.
The competitive environment in EPC sector is pushing EPC Contractors to win project
bids at cut-throat prices on Lump sum basis. While executing the project, a new team is
formed to carry out the detail design. There are many discrepancies between the
estimated and the actual design. As a result, escalation of cost and time are inevitable.
Cost escalation and scope creep are the top concerns of an EPC Project Manager or a
Project Sponsor since at the end of the day; he is responsible for maintaining the
bottom-line to green.
This research document studies and analyses the factors contributing to such cost
escalations for the EPC contractor during the detail design phase of the Oil and Gas
EPC project execution.
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INDUSTRY BACKGROUND
Engineering, Procurement and Construction (EPC) sector has grown with consistent
pace in last 5 to 6 decades. Initially dominated by Contractors from developed countries
like USA, Europe and Japan, the sector was highly profitable. Technological
advancement, research & development and methodological advancement in the sector
reached saturation in late 20
th
century. In past 20 years, the industry has grown from
few players to over 150 around the globe. At the same time large projects are sub
divided in smaller packages & sub-contracts, depending upon the value associated and
the complexity of the project.
EPC contracts are mainly in following sectors:
Infrastructure/Building Construction
Oil & Gas,
Power,
Chemicals & Petrochemicals and
Specialized Sectors
Following are Top 5 contractors of the time.
Table1Top5GlobalEPCContractors
RANK FIRM TOTAL 2012
REVENUE $MIL
2013 2012
1 1 Bechtel 29,436.0
2 2 Fluor 22,352.8
3 3 Kiewit 9,600.7
4 4 Turner Corp 9,084.9
5 6 PCL Construction 6,841.5
(https://enr.construction.com, 2013)
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Over the period there is growing concern on contractors capabilities and project
management skills. Projects contracting strategies have mostly transited from item rate
based contracts to LSTK based. By signing a Lump-sum contract, todays contractor is
deemed to have obtained all necessary information as to risks, contingencies and other
circumstances which may influence or affect the Works.
Table2TopOilandGasEPCcontractorsinMiddleEast.

RANK FIRM TOTAL 2012

REVENUE $MIL
2012

1 Petrofac 7006.3
2 Saipem 4245.0
3 Samsung Engineering 3130.0
4 Technip 7099.0
5 Flour 2291.0
31-50 Dodsal E&C Not Known
(Oil & Gas Middle East, 2012)
By signing the Contract, the Contractor accepts total responsibility for having foreseen
all difficulties and costs of successfully completing the Works; and the contract price
cannot be adjusted to take account of any unforeseen difficulties or costs.
As the majority of project risks are transferred to EPC contractors, the contractors risk
appetite and the financial capacity becomes increasingly significant. The burden of the
project management has shifted from the owner/developer to the Lump sum EPC
contractor. Consequently the risk of time and cost overruns are transferred to the EPC
contractors.
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The rise of China, India and Korea has stretched the competition even further. The rise
of unrest in middle-east has further changed the scenario where the localization is
mandated by the local governments and main works of EPC projects are expected to be
done by local contractors. Overall, the situation is high risk ownership, low profit
margins and cut-throat competition. On average if one contractor moves out, five new
payers enters the market.
Given this scenario, EPC contractors are bound to find new ways to improve operations
and re-engineer its processes to ensure that they survive in the market. With increasing
energy demands, desire for better life, Government investment to push growth model
and technological advancement in energy exploration will ensure that the sufficient
number of projects is created in next 10-20 years.
The major Types of EPC contracts are:
Fixed price (Lump Sum Turn Key)
Firm Fixed price (FFP)
Fixed price Incentive Fee (FPIF)
Fixed price with Economic price adjustment (FP_EPA) (Project
Management Institute,Inc., 2008)
Cost Reimbursable Contracts
Cost plus Fixed Fees (CPFF)
Cost plus incentive Fee (CPIF)
Cost Plus Award Fee (CPAF) (Project Management Institute,Inc., 2008)
Time and Material Contracts.
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For the Cost reimbursable type of contracts, the risk is shared between EPC Contractor
and the owner and the EPC Contractor is more protected for the risk.
For the Time & Material type contract the majority of the project risk remains with the
owners. Such contracts are exercised rarely and only when the result of the project is
unknown.
Majority of the contracts in the GCC region in Oil and Gas sector are LSTK bases.
Hence, the research in this project is mainly based on LSTK EPC contracts in Oil and
Gas sector projects.


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INTRODUCTION TO DODSAL
The Dodsal group of companies was founded in Mumbai, India, in 1948 by the Nandlal
Kilachand family as a trading company in partnership with a British trading company
(DODWEL) and Mr. Karsa Salem. Since then, Dodsal has transformed from a family
trading enterprise into a multi-billion dollar Organization.
Today, Dodsal is a Dubai based diversified multinational conglomerate which operates
in the areas of Engineering, Procurement and Construction; Trading and Distribution;
Exploration and Production; Casual Dining Restaurants; and Manufacturing.
ENGINEERING, PROCUREMENT AND CONSTRUCTION
Dodsal Engineering and Construction Pte. Limited, the holding company for the
Dodsals Engineering and Construction business is one of the leading EPC players in
the Energy, Industrial and Infrastructure sectors and has successfully implemented
projects in over 22 countries in the Middle East, Europe, Africa, the Indian Subcontinent
and South-East Asia.
Dodsal E&C Pte. Ltd. also carries out Infrastructure development and management
projects and has already completed on finance, build, operate and transfer basis,
pipeline projects in India and North Africa.
Engineering and Construction is the flagship business of the Dodsal that undertakes
Engineering, Procurement and Construction projects as well as large scale complex
Construction only Projects in the Energy, Industrial and Infrastructure sectors in the
Middle East, Asia, Africa and Europe.
On its projects, Dodsal deploys full time Project Management task forces comprising of
project personnel from all disciplines, including Project Management, Engineering,
Procurement, Construction, Commissioning and Project Support Services.
Dodsals Engineering and Construction teams have a proven track record of high safety
standards and the company has achieved Lost Time Injury Frequencies that are
consistently well below industry averages, receiving several letters of appreciation and
safety awards for their successful and timely project execution. (Dodsal E & C Pte. Ltd.,
2012)
You can find more details of company business at company website:
http:\\www.dodsal.com
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PROBLEM STATEMENT
Highly competitive Oil & Gas EPC market is yet another Red Ocean where the
contractors bid projects absorbing very high business risk. Oil & Gas Companies, taking
advantage of the market situation, pass on complete project risks to the EPC contractor
in the form of Lump-sum Turn Key (LSTK) contracts.
It is highly essential for the EPC to complete the project within Time, Cost and Quality
constraints, absorbing all the risks. The cost escalation during the project execution is
highly detrimental to the financial health of the project. For many contractors, it is a
matter of survival in the industry.
In spite of due care in project estimation process, the contractor encounters various
unforeseen cost escalations during the execution of an EPC project. Engineering phase
being most critical phase in deciding the desired project output; identifies many issues
that lead to the cost escalation for overall project.
The average cost escalation on industrial EPC projects exceeds 12 to 15 percent.

Figure 1 - Average Cost escalation/ Deviations

87.60%
12.40%
Basiccosts
Deviations
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RESEARCH OBJECTIVE
The objective of this research project is to identify and address the root causes
contributing to the cost escalation during engineering phase of EPC oil & Gas Project
execution. The project research shall not only focus on the root causes contributing to
the cost escalation but also to suggest recommendation to overcome the risk of Cost
escalation.
The research will be carried out based on Industry data; Web based case studies,
captured cost escalation cases (Within and outside Dodsal) and lessons learnt on
recent EPC projects executed by Dodsal in recent past.
The main research objectives are:
To study and identify the factors contributing to cost escalation during project
Engineering execution phase.
To study and identify the operational issues in engineering execution process
for EPC project.
To conform if the problems are company specific or across the EPC sector.
To gather information on the best practices adopted across the industry.
To apply Management knowledge area tools and techniques for identifying
remedies to the contributing factors.
To propose the improvements in current process to avoid the risk of cost
escalation.
To establish a well-rounded report and conclusion at the end of the study.
At the end of the research project, a comprehensive project report and Power point
presentation is prepared based on facts, findings and resultants of the qualitative and
quantitative research. The project reports not only focus on the root causes contributing
to the cost escalation but to suggest recommendation to overcome the risk of Cost
escalation. A brief power point presentation shall be conducted for the stake holders.
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RESEARCH DESIGN
The Research Design was combination of both Qualitative and Quantitative
methodology. The below paragraphs details the type of research data used for the
project. Both Secondary and Primary data research carried out as part of the project
work.
Secondary research data:
The Secondary research data in terms of Design change notes, Lessons learnt from
previous projects and web based literature was referred.
The Design change notes, lessons learnt with cost variation notes are captured and
stored from various recent projects within the company. Engineering failures and quality
non- conformance identified in past were reviewed and identified to prepare the
preliminary basis to start the project.
Web based research data, competitor data, and research work carried out in past were
cited for problem definition.
Primary research data:
Personnel interviews and web based Focused Group Discussions as primary research
was conducted for problem definition and inputs to generate the basis for quantitative
research.
Qualitative research in the initial stages of the survey, incorporating video calls,
Focused Group discussions and debates helped broaden our knowledge and
understanding of the problem providing an exploratory report.
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The qu
establish
related
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14|P
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Since there are various research instruments, a healthy mix of survey was selected for
great benefit to establish the desired results.
The steps and procedures was followed systematically and included:
Content Analysis.
Evaluation Research on the various triggers of cost Escalation.
Human Factors and psychology of the Team members.
Organizational analysis of different competitor industries.
Extensive Surveys
Sampling Methodology
There are various methods that can identify the frame of aspects contributing to the
cost escalation factors as understood by the stakeholders. However, the 2 methods
incorporated were:
Systematic sampling (75%)
Stratified sampling (25%)
Systematic sampling conducted by arranging a target population to which we
reached out to with the set questionnaire. A key study was drawn initially to ensure
that the target population selected was all of the similar experience levels with
similar industry sector. This was aimed to produce accurate results.
Stratified sampling was important to accurately draw a final conclusion. Here we
gathered a whole target population after which we divided them into individual strata.
Each Stratum was divided by the years of experience, positions held, Complexity
and performance on cost escalation sides. This method ignored irrelevant and
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incomplete data; targeting achievement of efficient results. It permitted greater

balancing of statistical power of tests of differences between the different strata and
sample equal numbers from the varying audience.
Systematic sampling technique used predominantly throughout the research. The
participants for personal interview and FGD were selected from the relevant groups
and organizations, based on their relevance to the subject, willingness to contribute
and experience level.
For Quantitative research, the online questionnaire was distributed through e-mail
and web based survey will be conducted.
Sample Size
The sample size for personal interview was 2.
One person within and one person outside company, within industry.
100+ responses collected for detailed questionnaire.
Target Respondent
The Qualitative research was planned in two parts, that is Personal interview and
Focused group discussions. Two detailed interviews conducted Mr. Naresh
Rijhwani from Dodsal and Mr. Jinesh K Shah from the similar EPC industry player.
The criteria for the selection of the personnel were on the basis of the participants
experience and his willingness to contribute for the cause. Their experience level
varies from 20 to 35 years in EPC industry having senior to top management level
position.
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Focused group discussion was conducted in EPC consultants group on LinkedIn

with more than 28000 professional and experts coming from various disciplines,
whose interests are linked with the project. Please refer appendix-03 for details of
the FGD opinions. Estimation, HR, HSEQ, Project Planning, Project controls are
few disciplines to name a few in the list with engineering discipline.
The representatives are 1-40 years of experience working in EPC sector similar to
Dodsal.
For quantitative research, a questionnaire was prepared on
www.surveymonkey.com and distributed through e-mail and website (LinkedIn)
connections. Please refer to the appendix-04 for details of the survey form.
At least 200 respondents working in various EPC contractor companies attended
the survey, out of which 100+ completed survey result were considered for further
analysis. Refer appendix-05 for survey results.
Web assistance of www.surveymonkey.com or www.linkedIn.com helped targeting
the right audience with higher number of respondents. A larger data collection
brought a good collection and the target respondents were found to be key stake
holders of EPC project execution.


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PROJECT SCOPE
The EPC project life cycle typically vary from 1 to 3 years and gets executed broadly in
3 phases as the name suggests- Engineering, Procurement and Construction. The
Engineering process during the project execution is generally called as Detail
Engineering Design. The research project will mainly focus on the Engineering part of
the EPC life cycle.
In addition, the estimation process involves limited amount of engineering (Pre-bid
Engineering) that leads to cost estimation of the project bid shall be covered in the
project scope. Though, the pre-bid engineering does not form the part of the project
execution, it defines the cost and schedule base lines for the project. Hence, it has a
considerable impact on project engineering execution. The research is mainly focusing
on the operational issues of the proposal stage and detail engineering design and will
not address the contractual and financial aspects of the project.
Though the explicit procurement and Construction phase cost escalation are not part of
the research, the research recommendations shall address the issues originating at
engineering phase.
The scope of the study will also cover the Human resource aspects like skill sets,
competency and soft issues essential for smooth project execution.
The project mainly focuses on the identification of cost escalation factors and proposes
possible check points to avoid such occurrence for few cases. The judgment for the
proposed check point is an expert opinion and shall be applied on case to case basis
specific to company. EPC sector is widely diversified in terms of geographical regions,
culture, complexity, and scales and hence the concepts discussed may not be used
directly- as is - but with tailoring to the operating context.
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Various cost escalation reports with company were reviewed and analyzed. The
relevant data are classified information and cannot be displayed in the report. However,
the leanings out of the cases were captured in the research project.
EXCLUSIONS
Any cost escalation arising explicitly related Procurement and Construction issues are
excluded from the scope of the research. However, any development or triggers
originating from engineering having major cost impact on the procurement and
construction activities of the project shall be studied and discussed in detail.
The research is mainly focusing on the operational issues of the proposal stage and
detail engineering design and will not address the contractual and financial aspects of
the project.

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LITERATURE REVIEW
The cost escalation in EPC sector is a matter of concern for all project holders. In order
to understand the EPC industry, we could find and review various online reports.
Pratap Vijay Padode, Editor-in-Chief, Infrastructure Today and Managing Director,
ASAPP Media Information Group say that delays in our development projects are
forcing more developers to go the EPC way. The new emphasis on EPC is also, sadly,
because investments are looking south. With a double-dip threat in the global economy,
the worst industrial growth in eight quarters in India and projects down to a trickle, EPC
is a stable option. (Ernst & Young Pvt. Ltd., 2011)
A decade ago, the EPC industry comprised a handful of large, complex projects and
multitude small packages and subcontracts. Today, there is no dearth of high value and
complex projects being executed by government and private players. The increasing
size and complexity of projects has, however, led to a growing reliance on contractors
capabilities and project management skills. (Ernst & Young Pvt. Ltd., 2011)
Contracts have evolved from item rate packages to lump sum fixed price binding
contracts. Slowly but steadily, the onus of project management has shifted from the
owner/developer to the contractor. Gradually, the risk of time and cost overruns has
been transferred to the contractor, along with the responsibility of designing,
procurement of materials and construction. Standard clauses and conditions prevailed,
but the EPC contract model has evolved to reflect the shift in balance of risk between
the owner/developer and the contractor. (Ernst & Young Pvt. Ltd., 2011)
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The problem of cost escalation, schedule escalation and scope creep in the fields of
project management are not new. Various online magazines line Engineering News
records, World Oil, offshore Engineers etc. shall be referred to identify the horizons the
problems in Industry. Websites related to EPC companies and market like MEED,
ZAWYA and PMI were explored to gather the secondary data for the project. Various
study books like PMBOK by PMI, were be referred to standardize the terminology and
learning area.
One recent example studied in the MEED was related to Saudi ARAMCO Wasit
offshore gas project. The project was awarded to Saipem with specified sulfur content in
the project specification. However, while executing the project, there was unexpectedly
high sulfur content. There was a difficult situation for both client and Contractor to
absorb the risk as the project estimated value was amounting to almost 6 Billion USD.
(MEED, 2012)
A recent news article reveals that the South Korean construction stocks have lost
almost 20 percent of their value, falling to levels last seen four years ago, after huge
losses at two firms sparked widespread fears of overseas projects going sour. After the
2008 financial crisis, South Korean builders such as Samsung Engineering Co Ltd and
GS Engineering & Construction Corp won a raft of foreign orders, particularly in the
Middle East. (http://au.news.yahoo.com, 2013)
Some of those contracts have turned into losers as fierce competition has driven down
prices, and inexperience in new areas has meant extra costs. Lack of understanding of
business conditions in new markets and risk arising from moving into new products
resulted in big cost increases in some projects, the firm said in a statement. Across the
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sector, the decision to chase foreign orders that have turned out to be unprofitable is
expected to hurt bottom lines. (http://au.news.yahoo.com, 2013)
There are various case studies and lesson learnt on the issue are available on web
based literature. At the same time, Dodsal has got vast experience carrying out projects
in different sectors, locations and at different timeline.
The Design change notes, lessons learnt with cost variation notes are captured and
stored from various recent projects. We have strong database within the company for
engineering failures and quality non- conformance identified in past. The same will be
identified and reviewed to prepare the preliminary basis to start the project.
Contract models play very important roles in EPC sector. For understanding of type of
contracts the PMBOK Guide was referred. (Project Management Institute,Inc., 2008)
Additionally the FIDIC guidelines for construction contracts were referred. (Savage,
2012)
Various sections of the FIDIC Contract recommendations were studied for
understanding of EPC contracts:
Red Book: Conditions of Contract for Construction for Building and
Engineering Works Designed by the Employer;
Yellow Book: Conditions of Contract for Plant and Design-Build;
Silver Book: Conditions of Contract for EPC/Turnkey Projects;
Green Book: Conditions of Short Form of Contract. (Savage, 2012)
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Aim is to understand the contractual obligations of the EPC contractor to serve the
client. Since we are studying the cost escalation, in many cases, I would say in majority
of cases, there is thin line between the change of scope and the contractual obligation.
Hence, as an EPC representative, one should clearly identify and discriminate the
activities which are out of project scope. Also, it is imperative that the cost claims are
put forward in legitimate formats and with legal arguments. (Savage, 2012)
When we identify the variations in the scope and not take up the claims in a correct
manner that the efforts may go in to vein. Hence, various recommendations from FIDIC
for handling the claims were studied and identified as pa part of the research. However,
there are no specific recommendations made in the report for the FIDIC literature review
as it is assumed that the professional project management practice includes the
contract management skills. (Savage, 2012)
It is important learning that the effective contracts management as a part of project
management is essential to ensure that the cost claims are protected. It is important to
write change orders and claims in clear and unequivocal terms. It is important to avoid t
hint or insinuate. Effective record keeping can assist EPC contractors to prove their
entitlements and enable to accurately ascertain their positions in the event that a
dispute arises. (www.out-law.com, 2011)
Various reports on the similar lines from the competitors companies will be requested
and reviewed. Research work related on similar problems carried out by some other
companies, consultants in different sector, region or industry shall be cited for preparing
the basis. As the problem related data within company is available in abundance; more
focus was given to it.
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Various online articles on the estimation process were searched on websites and
referred. In the PMI knowledge self Hrishikesh Karekar, PMP mentions that the Cost
and timeline overruns are typically associated with what are referred to as forecasting
errors or technical errors, such as imperfect techniques, inadequate data, honest
mistakes, inherent problems in predicting the future, lack of experience on the parts of
forecasters, and so forth. (Karekar, 2013)
These overruns can occur at any point in the project life cycle and for a variety of
reasons: incomplete requirements, poor design (lack of skills to manufacture the
design), and inadequate testing. These reasons are valid and the inadequacies caused
by these reasons can be mitigated by rigorously following many of the standard project
management methodologies and best practices across organizations and industries.
(Karekar, 2013)
Various suggestions are discussed in detail for addressing the gap in estimation
process. The recommendations were analyzed for its application in current scenario.
While accessing the existing scenario in EPC markets, various online magazines were
reviewed and the Project Vendor was one of them. There were interesting articles in the
magazine and one Enhancing the EPC Efficiency was very interesting.
Mr. P. P. Gupta, Managing Director- Techno Electric & Engineering Co. Ltd says that
challenges are inevitable in current EPC market scenario, but the approach to the
management of such problems will be the key to the continuous success. (Project
Vendor, 2010)
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Mr. Gupta further explains that the qualification criteria for project award are being
limited to competitive pricing, the new inexperienced players winning the project at
reduced Pricing escalates the project risk to the significant high. (Project Vendor, 2010)
According to Mr. Susnato Sen, Project Head (Infrastructure), Tata strategic
management group say that the major challenges to the EPC sector are:
1) Shortage of skilled manpower
2) Low Focus on Engineering as compared to procurement and Construction
3) In efficient sourcing
4) Lack of advanced Project management practice
5) Risk management practices are not yet developed
6) Burdened with less expected revenues and higher debt. (Project Vendor, 2010)
The article discusses various factors that can affect the positive outcomes of the project
or the prevailing threats to the projects success. The major one identified and
discussed is Cost escalation. (Project Vendor, 2010)
The article describes delay in starts and completion of the project, ambiguity in design,
wrong methodology, lack of coordination, frequent changes and socio-economic factors
as major influencers to the cost escalation of the project. Bad project management is
identified as major factor for cost escalation by experts in the article. (Project Vendor,
2010)
The article also suggests the professional project management approach such as
process design flow, material management, and risk assessment can significantly
address the major cost escalation issue of the EPC project. (Project Vendor, 2010)
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To eliminate challenges in EPC project execution, Mr. Susnato Sen expresses that that
best-in-class project management tools and techniques need to be adopted. He also
emphasizes on necessity to develop an in-house team of experienced professional
project management personnel and developing more understanding of expert
engineering design, particularly for complex technology EPC projects. One of the
important suggestions by Mr. Sen in this context is to set up internal project
management and Engineering Management teams and factor in required time along
with a need to create a risk assessment /management team for large EPC projects.
(Project Vendor, 2010)
It was important to indicate the quantitative figures and facts that can demonstrate the
negative impact on the project. Various online data and previous research projects were
reviewed to judge the quantitative aspects. It is important to note that no clear band can
be defined for cost escalations and experiences have taught us that the cost escalations
can go up to 50% of the original cost depending upon the nature of the project and EPC
execution capabilities. (The Construction Industry Institute)
The Power Engineering magazine was reviewed for various types of contracts for the
understanding of the risk distribution between the owner and the EPC contractor. The
article describes the various approaches in EPC contract award and its estimation
processes. The article clearly says that the lump sum turnkey EPC with Firm Fixed
Price could be the most costly contracting approach and the majority of the risk lies with
the EPC contractor. (Power Engineering)


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FINDING AND ANALYSIS

The design change notes and the cost variations reports are major issues that spoil the
day. Cost overruns are difficult to justify and when we analyze them, we understand that
the time has already passed to correct or reverse those mistakes. They mostly come as
result of some actions taken or not taken in to the project engineering stage. On the
same lines, I decided to go ahead with my dissertation project and determined to
capture those cost escalations during the detail design stage of the EPC project.
The research started with the understanding that the majority of the cost escalation
came from the detail engineering stage. As we started analyzing the past project data,
industry cases and discussing in the expert forum we came to learn an important
opinion about root causes of cost escalation issues, which was different than the basic
understanding. When analyzed in detail, the cost escalation issues for its root causes,
an important learning came out and that says, for many cases the roots of the cost
escalation lies with the estimation or the bidding stage of the project.
The project scope was extended for the bidding stage analysis as the cost escalations
arising at detail design stage cannot be seen in isolation. It was evident in personal
interviews and the Focused group discussions that the majority of industry expert
believe that major cost escalations come from the bidding stage. The complete research
work then was divided in to two areas,
1. Cost escalations originating from bidding stage.
2. Cost escalations origination from Detail design stage.
Result of the online survey reinforced our understanding that the majority of cost
escalations come from bidding stage.
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As a result of the online survey,

Inaccurate FEED,
Skills of Estimation Team and
Improper FEED verification
are identified as top 3 factors.
Table 3 - Cost Escalation Factors at bidding stage
Inaccurate FEED

3.86
Skills of Estimation Team

3.84
Improper FEED verification

3.72
Insufficient review of ITT documents

3.64
Selection of bid without evaluating its SWOT

3.63
Bidding completely new sector

3.62
In adequate Risk analysis

3.59
Short bidding time

3.57
Overoptimistic Feasibility Study

3.56
Absence of lessons learnt from previous projects

3.55
Ignoring and poor assuming of non-material costs

3.54
Improper bid coordination/management

3.40
Insufficient contingency reserve

3.31
Too many applicable standards

3.03

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cost
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Majority of the opinion said that the Estimation/Proposal Manager has the highest
influence over the cost escalation and the contracts manager has the lowest.
The key factors identified for the cost escalation during detail design stage of EPC
project are as listed below:
1. Improper change management
2. Poor Risk Management
3. Different team for estimation and detail design
4. Poor coordination between Lead engineers
5. Poor Coordination with Client/PMC
6. Realizing of unstated requirement in Bid
7. Improper multidisciplinary/internal review of documents
8. Engineers biased to high tech products
9. Over specifying (Gold plating)
10. Incapable project manager
11. Interference of client Operation/production team
12. Scope creep due to detail studies (Hazop/QRA etc.)
13. Client/PMC with highly wishful thinking
14. Client/PMC delaying disputes, decisions and reviews
15. Technically weak Client PMC team
16. Engineering subcontractor delays
17. Cost Insensitive Engineering Subcontractor
18. Manpower shortages
19. Frequent changes in Engineering team
20. Inexperienced engineering team
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As a result of the survey the top five factors identified are:

Inexperienced Engineering team
Incapable project manager
Improper change management
Client/PMC delaying disputes, decisions and reviews
Frequent changes in Engineering team
Table 5 - Top Factors at the Detail Design stage
Inexperienced engineering team

3.94
Incapable project manager

3.90
Improper change management

3.79
Client/PMC delaying disputes, decisions and reviews

3.79
Poor Coordination with Client/PMC

3.69
Frequent changes in Engineering team

3.69
Cost Insensitive Engineering Subcontractor

3.62
Improper multidisciplinary/internal review of documents

3.60
Engineering subcontractor delays

3.57
Scope creep due to detail studies (HAZOP/QRA etc.)

3.55
Poor Risk Management

3.54
Realizing of unstated requirement in Bid

3.54
Client/PMC with highly wishful thinking

3.51
Poor coordination between Lead engineers

3.46
Over specifying (Gold plating)

3.46
Interference of client Operation/production team

3.41
Manpower shortages

3.39
Technically weak Client PMC team

3.31
Different team for estimation and detail design

3.28
Engineers biased to high tech products

3.09

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in effective
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a g e
cost

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The majority believed that the Engineering Manager, Project Manager and Discipline
Leads are the key influencers to the cost escalations.
The research is intended for the resolution to the problem; hence it is import to judge
that what are the influential factors that contribute to effective cost management of
the project?
When asked- Please rate below parameter on the scale of 1-5 that can
improve/avoid cost escalation. (1 lowest, 5 highest)
Table 7 Top Parameters for improving cost escalation
Strict project design change management system

3.98
Implementation of proper Project management practices.

3.81
Careful Selection of Bid after proper evaluation.

3.76
Implementation of proper Risk management practices.

3.71
Cost/Budget awareness programs.

3.71
Focus on motivated Team to execute the Jobs.

3.71
Emphasis on learning from past projects.

3.68
Emphasis of capturing and review of lessons learnt.

3.63
Continuous focus on Learning and Growth.

3.46
Implementation of Award and Recognition program

3.22

The top 3 factors were
Strict project design change management system
Implementation of proper Project management practices.
Careful Selection of Bid after proper evaluation.
The least important factors were:
Continuous focus on Learning and Growth.
Implementation of Award and Recognition program
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The rep
project.
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on stage of
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rts. The ca
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eographic a
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the
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Preliminary review of the FEED content shall be carried out by the select team of
expertise from Contracts, estimation and Engineering for its completeness.
Comprehensive SWOT analysis needs to be done and shall form the basis of Go/ No
Go for the project.
Implementation of Risk Management Process at phase - 2 to 5
Proper Risk management practices shall be implemented in both bidding and detail
design phase of the project. In fact the process shall be extended for the entire project
life cycle. Qualitative and quantitative risk identification tools and techniques may be
included as per the nature of the project. All risks, may it be smallest and have lowest
impact shall be captured and evaluated for its avoidance, transfer, acceptance and
mitigation. A comprehensive risk register shall be a must requirement.
A proper Risk data quality assessment, risk categorization, risk urgency assessment
and continuous update of risk register shall be implemented. Identified risks and its
triggers shall be well documented. The ownership of the risk shall be distributed to
project personnel for continuous monitoring and update of the risk register.
Professional Project management approach for not only execution but to Bid
stage at phase - 2 to 5
There is no doubt that companies implementing professional project management
during project execution achieve higher rate of success. However, the bid estimation
stage is executed in traditional way. The bid estimation shall be considered as a project
itself. A complete project management practice shall be applied in carrying out the
project Bid. All five process groups and various processes as documented and guided
by PMBOK shall be considered with appropriate selection and tailoring of the project
management processes.
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Each phase of the estimation process and lessons learnt, assumptions shall be
captured and documented so that it can be passed on to the execution team for post bid
works. Clear-cut project baselines in terms of schedule, cost and quality shall be
defined and issued for execution.
Implementation of scope identification and scope definition with help of detailed FWBS
(Functional Work Breakdown Structure) shall be practiced and the bottom-up estimation
shall be used. Apart from above methods, tools like analogous estimation, parametric
estimation and reserve analysis shall be used to achieve correct rough order of
magnitude. It is important to remember that the estimation being short-time process
may not allow the estimation to be accurate to the extent of +/- 10%. Hence the reserve
analysis and cost of quality like tools shall be employed as required.
Use of software based estimation shall be considered to avoid manual errors.
Many organizations have different teams for estimation and execution processes. These
results in loss of information and knowledge gathered during the bidding process. Key
personnel for bidding team shall form the part of EPC execution and shall be made
responsible for capturing cost at early stage.
The company shall look in to the possibility to reduce the number of design changes by:
1. Comprehensive project scope definition.
2. Interdisciplinary reviews with affected stake holders and
3. Implementing processes to limit scope modifications. (Construction Industry
Institute, 2013)
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The rotation of few members of bidding team and EPC execution team has been found
to be a useful concept. By doing this as the knowledge of execution problems can be
well covered in both bidding and execution stage.
Development of Skilled Estimation team at phase - 1 & 2
Estimation being short time period process needs higher level of experience. A team of
experienced engineers mainly from detail engineering background shall be made lead
for engineering team.
Concepts of value engineering and innovative approach are must for acquiring the
competitive advantage over other bidders. An alternate bid with improved functionality
and reduced cost can outperform the competitors. Careful material selection, optimized
quantities, proper FEED endorsement, innovative construction methodology, optimized
man power deployment plan, effective scheduling techniques along with
detailed/improvised technical documentation at bid stage can reduce the cost escalation
risk for the EPC contractor.
Learning and development are important factors for skill development. Vendor
presentations, Technical seminars, new products, innovative hardware and construction
technology are important factors that can bring competitive edge in bidding process.
The report recommends following main action plans for the Detail design stage of the
project.
Implementation of Strict Change management system at phase - 3
While execution stage, most of the documents are developed based on the given FEED
documentation. Clear baselines in terms of scope, cost and schedule are inputs to the
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execution process. While developing the detail design it is important that any change is
identified and captured at the first/generation stage. All updates, changes, upgrades,
improvements, detail design, addition, reduction in whatever name it comes shall be
compared and identified as change and shall be registered in the change register.
Any change shall be evaluated for its necessity and impact on the project output. If the
change is agreed to be necessary or unavoidable, shall be routed through its implication
review. The ROM shall be made and determined if the change comes from the client or
as a result of detail design.
Only execute the change that is agreed and approved by project Change management
committee.
In the below section, the research process have tried to explain the proposed Change
management process that can be implemented in order to manage the project changes
effectively. The basis of the design is based on expert judgment and experience gained
in past.
Step-1
The change management process starts with the identification of change/deviation
event. This is broadly called as initiate change. The variation or the deviation shall be as
compared to baselines (Cost/scope and schedule)
Responsibility: Any project team member.
Time frame: 1 to 2 days
Output: Intimation to Project controls department.
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Step-2
Register the change description in to project change register/log or IT enabled Change
management system. Minimum assignments are change number and its Type.
The Change types can be classified as following:
Client initiated (scope/schedule and reimbursable cost escalation)
EPC in-house (value Engineering/ detail Development/ deviation/ baseline shift)
Output: intimation to Change control Board with change intimation form.
Step-3
The change control board shall take the decision on whether to proceed with the
deviation. It is important while analyzing such trends/changes that the project cost,
scope and cost baselines shall be evaluated for impact of changes.
If the decision is made in favor of the change, then the Rough order of magnitude
ROM estimate shall be prepared and all impact report shall be prepared. The
proposed changes shall be conveyed to the stakeholders including the client as
appropriate. Proceed to step-4.
If the change management board thinks that the change shall not be processed,
it will advise the project team to develop the mitigation plan. The Change register
shall be updated for the outcome and the concerned team members shall be
informed for rejection.


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Step-4
If the change is Client dependent or initiated by client requirement, then the change
approval shall be taken-up with client for approval for its impact on cost, schedule and
scope baselines. If not, then proceed as in-house change.
Detailed estimate on Cost, schedule and scope shall be prepared by project
controls with the help of project management team. The help of Engineering,
procurement, construction and estimation team may also be taken for arriving on
definitive estimate. The impact on the project based on definitive estimate shall
be evaluated for the feasibility and viability. If satisfactory, the Completed
definitive estimate irrespective of client originated or in-house changes shall be
submitted to client for final approval.
Step-5
The estimate, discussions and negotiations with Client and the project management
shall continue and shall be iterative until the agreement for approval or rejection is
reached.
If not agreed by client, appropriate mitigation plan shall be prepared by the
project team. The change register shall be updated for the outcome. Concerned
team members shall be informed.
If agreed by the client, and if the change is client initiated, official change order
shall be signed. The change register shall be updated for the outcome. Project
team shall be informed to execute the approved changes.
Only agreed change order shall be processed for execution. Reconcile the Cost,
scope and schedule baselines with execution plans.
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The potential Change Notice Form being first important step in the process, following
important fields shall be included in the form as minimum.
1. Project Change order number
2. Client name
3. Project name
4. Location
5. Project ID
6. Date initiated
7. Discipline engineer
8. Discipline Lead
9. Description of potential change notice
10. Possible Cost impact on Project (Yes/No)
11. Possible Scope impact on Project (Yes/No)
12. Possible Schedule Impact on Project. (Yes/No)
13. Requesting person
14. Reason for change
15. Other disciplines affected
16. Impact if the change is not implemented.
17. Source (Client change/ in-house change)
18. Approval (prepare ROM/ reject)
19. Comment note
20. Approval authority


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Human recourse plan for all Phases of project life cycle.

Companies relying on qualified personnel are more insulated from the risks.
Qualified and certified executives with right experience implementing the project can
drastically change the project outcomes. Researchers have found that the certified
project managers, Estimation managers and Engineering Managers are vital influencers
in avoiding the cost escalations
The process starts with the comprehensive human resource plancareful selection of
Qualified, certified and well experienced personnel is a first step in process
A comprehensive performance review and reward system needs to be developed in
order to retain the key people for the success of the project. There should be incentive
for Lead engineers to stay with company for specified period as the lead engineers
leaving in-between the project can significantly hamper the process.
Skill development for engineers and technocrats can be an important tool that can uplift
the talent pool for the company. Regular technical trainings and technical participations
can bring positive results.
Companies build on its expertise bay carrying the experiences and lessons learnt from
one project to the next. The right mix of young graduates and long-term employees play
major role in the process improvements and provide backbone for innovation in order to
achieve the strategic advantage over the competitors.
A comprehensive learning management concepts including, process mapping, goal
setting, balance score cards, 360 degree appraisal process, Team building and internal
customer satisfaction shall be inducted in to the system to achieve higher satisfaction
and morale of the team.
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MANAGERIAL IMPLICATIONS
The research identifies various factors contributing to the cost escalation in bidding
stage and the detail design stage of an EPC project. The key influencers identified in
the process of cost optimizing are Estimation Manager, Project Manager and
Engineering Manager.
The first step in the direction will be to form a task force to for identification and
application of researched data in to present organizational context. The task force
members shall be selected on the bases of Qualification, certification and expertise in
the EPC sector. Discipline engineers shall be involved. If required the external
consultant shall be appointed.
As a result, the company wide message can be given on emphasis on the cost
awareness. Management can achieve its goal only with help of the employees and the
team for the project. Concept of PMO is very important in this context. For consistency
across the projects and achieving long terms objectives the PMO can provide trained
project managers, processes and procedures. It can also help providing cultural
backbone for professional EPC project management.
The additional man hour costs for the above activities shall be tracked and mapped as
cost of Quality and cost of prevention. It is important to remember that above
recommendation increases the overhead expenses of the company. The cost of
prevention shall be much lower than the cost of defect repair.
The second step is to collect the organizational process maps. Identification of list of
important process maps shall be developed and compared with the existing processes.
If required the new process maps shall be drafted.
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It shall be ensured that all critical activities are cover by one or multiple process maps.
Each cost escalation factor identified in the research shall be applied to the existing
process/processes. Separate checklist based on the for Estimation, Project
management and Engineering management shall be prepared.
Cost awareness, tight project control and effective project management are more of
organizational culture and team work than the demonstration of individual skills. In the
process, it is important that decisions are taken in favor of companys stated interest of
effective EPC project execution efficiency based on procedures and not individual
capacity. The project management team needs continuous guidance from the
organizational process assets and even the lowest hierarchy of the project team is able
to take appropriate decisions based on the company guidelines, without waiting for
higher-ups.
As recommended, the strict project change control system shall be implemented so that
only the approved changes are implemented, Concerns are addressed, unnecessary
work and consequent rework can be avoided. The most important achievement of the
process is no surprise. All potential deviations and changes are identified at the initial
stage and not when the consequences are out of control. This will also avoid burden of
cost overrunning and budget constraints on project management team, increasing
morale.
The focus shall be
1. To identify any change at the earliest stage of the project.
2. Identified change shall be immediately reported to Change management system.
3. Thorough review and approval of Change.
4. Execution of approved changes only.
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It is assumed that the Risk management activities are carried out by the Project
Manager and Estimation Manager. If this is not the case, Risk manager shall be actively
involved in the project.
Specially, at the estimation stage, risk register shall be initiated with the inputs from all
concerned disciplines. Careful consolidation of risk register is important. Once the risks
are identified, logged and consolidated, adequate contingency reserves shall be
proposed in addition to project costs. The same risk register shall be handed over to the
project risk manager for tracking and further updating. The advantage is that the project
manager is aware in advance for envisaged and considered project risks and its
triggers. A very common scenario in the project execution time that the risk has realized
and there is no plan or contingency reserve provision for it can be avoided.
The Human resource management needs to be involved for devising the mechanism to
recruit, train and retain the project staff. The average cost salary of certified Project
manager or Risk Manger will be 10-15% more. The retaining costs of the qualified
people are also higher. However the value buy-in is in multifold.
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THE WAY FORWARD

From the analysis of secondary and primary research results I am able to identify and
analyze the list the cost escalation factors in EPC sector and especially for EPC
contractors.
The most important factors and influential parameters are identified in the research. A
proposed way of resolving the one of the major factors- Change management plan is
illustrated in the project report. The first thing that needs to be looked in is the existing
Change management process. The process needs to be reviewed for fulfillment of its
intended purpose. If required, needs to be updated or revised to the desired level. The
work shall be accomplished within 2 weeks time. Once approved by management, the
Change management process shall be mandated to all existing projects. A special
introduction of Change management plan through trainings, seminars and focused
Group shall be discussed among the project teams. Within 2 month the process shall be
operational. A careful monitoring shall be carried out specially for initiating the change
requests.
Parallel to above, based on the organizations present situation, the process maps
related to Estimation and Engineering processes needs to be revisited and the
adequate check points needs to be ensured in the process. This process takes around
4 to 8 weeks time or 4-8 months based on preparedness and maturity of the
organization for its process assets. If required separate checklists shall be prepared and
implemented across the projects. Since the estimation process is shorter in time as
compared to Detail design, a special care shall be taken in designing the checkpoints
ensuring that the check points do not make the process sluggish.
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Organizations which does not have formal process maps for those activities, may start
developing the check list as a quick tool to ensure that the cost escalation factors are
not ignored and in fact captured at the initial stage. Companies can look for IT based
solutions to reduce the human errors.
Strict implementation of professional project Management and Risk management
practices shall be emphasized. The recruitment process shall be updated for more
focus on right mix of Qualification and experience while selecting the project team.
A comprehensive skill development and rewards/recognition system to be initiated to
retain the talent pool of the organization.
The recommendations need strong management support for implementation.
The research work was primarily carried out for the Estimation/ bidding stage and detail
design stage of the EPC project. The EPC sector has two more major phases that
consumes majority of project budget. Though the activities carried out in procurement
and construction is based on specifications, drawings and guidelines generated from
the engineering stage, it has its own area where there is risk of the cost escalation. This
research being time bound and for academic purpose, limited its scope to Bidding and
Engineering stage only. Management may take the further decision to promote carrying
out further research in the area of procurement and Construction of the projects.



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The time line for implementation of the Implementation process is advised as below.
Activity
Responsible
Function
Key responsible
person
Duration
Review and update of existing
Change management system
PMO Head PMO
2 weeks

Implementation of Change
management system
Project
Management
Project Manager
1 month

Process mapping for Estimation
and Engineering processes
Engineering /
Estimation
Discipline
Manager
1 to 8 Months

Implementation of engineering
checklists
Engineering
Engineering
Manager
3 months to 1
Year.
Development of Skill
development program
Human Resources
HR Manager/
Discipline
Manager
3 moths
Development for reward and
recognition system
Human Resources HR Manager 3-4 months
Preparation and implementation
of Training calendar
Human Resources
HR Manager /
Discipline
Manager
6 Months
Start further research on
Procurement and construction
phase for identifying the cost
escalation issues
Management CEO 1 Year.

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CONCLUSION
The cost escalation issues can be effectively handled by EPC organizations at the early
stage of the EPC projects, mainly during the estimation and detail engineering stage by
implementing Professional Risk Management and Project Management practices. Early
identification and definition of cost triggers can be punched in project risk register and
actively monitored by the project management team during the project life cycle.

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Jinesh K
Associa
Wood G
Abu Dha
Industry
Interview
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1|Annex
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full bore valves Vs half bore valves, stainless steel v/s carbon steel) mainly procurement
cost is higher. Any combination of such possibilities will lead to cost escalation.
Some of the more important contributing factor for above to happen could be
a) Not careful review of the ITT documents
b) Shorter bidding time
c) Limited resources
d) No prior experience with client standards
e) FEED package not detailed enough
f) Owners strategy to not clarify at bidding stage
g) Contingency for known-unknown and unknown-unknown.
Such oversight help EPC contractors winning the bid sometimes - he informed in light
mood.
This was about so called missed cost which were inadvertently not built into proposal stage
cost estimate.
Basically perspective at bidding and execution (i.e. in case under discussion - detail design
stage) is altogether different. At bidding stage, team focus on wining the contract by offering
competitive bid and during execution stage, aim is to maximize bottom line without
compromising on quality and schedule.
Mr. Shah brings this important predecessor activity perspective to the subject discussion.
He analyzes cost escalation as not only detail engineering stage phenomenon however
bidding stage too, since for every contract; bidding phase is inevitable.
Then during detail engineering stage, there are different factors which would lead to cost
escalation. Scope creep, Gold plating, PMC Engineers strong preference for nice to have,
poor change management, interface requirement with other contractors or existing facilities
challenges could be numerous and it will differ from project to project case to case
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basis. There are no golden rules; no single best answer to your question, Nilesh - its all
specific to particular project and situation.
Mr. Shah also discussed on the factors that can be in the probable list of actions that can
avoid the cost escalation. On my Question- Can PM do anything about it? He replied-
Yes and No. It depends
Selection of a right team is very important and the amount of success team can achieve is
dependent upon the quality of resources and their can-do attitude while managing
relationship with client. Effective risk management, Value engineering, Out of the box
thinking, Knowledge about latest technological advancements could help in achieving goal
of minimizing cost. Continuation of bidding team for execution (or seamless transfer) would
also help to some extent.
A right PM with active support from Lead Engineers can offer the economic and optimized
solution to the client without deviating from the obligations of contract. The aim shall be to
offer more in terms of the functionality, operation and maintenance advantage, better
technology to end-user which would cost less to the contractor. It has to be win-win-win
situation for contractor-client-end user.
Over period of time; Owners preference for EPC Lump sum Fixed Price contract has grown
strong in the region and in competitive market EPC contractors are forced to accept
contract, largely one sided - protecting Owners interest.
Hence Contractors pro-active and agile engineering and project management could play
vital role in managing their costs.


Disclaimer:
The opinions described in the interview are personal views and for academic purpose only.
It has no relation with any person, group, company or the organizations with which the
respondent has been associated with at present or in past.
D
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1|A
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So what are other issues that generally an EPC contractor encounter while execution of
the project?
There are many issues we encounter during the execution which results in the cost
escalations- the main among all is a change in design parameters. Client changes the
design parameters while the project is in detail design phase. This results in a lot of
other changes in terms of material and efforts for the project. Unless taken up rightly
with the client, those cost due to changes are mostly born by the EPC contractor in
terms of the Lump sum Fixed price contract terms.
What role the client and PMC team plays in this regard?
Many changes are due to wishful thinking of Client and/or client PMC. There are many
wishes for the better and better project outcomes and the EPC contractor is not able to
resist the client pressures.
How about the Contractors own ability to control the situation? What are the factors in
the team that directly or indirectly influence the cost outcomes of the project?
Everyone tries and hopes to control. However, not everyone succeeds.
An incompetent engineering team can also be reason for such cost escalations...the
project team is formed (sometime hired) immediately after the award and many new
engineers are recruited/included in engineering team. The collective competency is
never known. The team is not able to control the design issues. This results in many
errors, rejections and eventually loss in terms of project cost.
Many tech savvy design engineers are obsessed with higher end technologies and to
show their capabilities provide the over design, uneconomical design. Sometime the
design is non-workable or sometimes the design impractical to implement.
We have discussed the Contractors internal issues which are far controllable it seems
with proper practices and check points in place. However, any influence in matter for
outside?
There are various issues related to the out sourcing part of engineering also. Many
Contractors does not have in-house engineering capability and the engineering work is
out sourced to the external sub contractor. Here the conflict of interest arises; the sub-
contractor has no obligation to the cost of EPC and is mainly interested in completing
the project deliverables. The cost of design part is highly ignored.
How can that be arrested?
The EPC contractor PMT plays important role here- of gatekeeper. A dedicated team of
experts can check the consistency of design for the incoming documents for gold
plating.
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At last the one of major issues is the movement in the team members. Many engineers
leave in the middle of the project. A consistent engineering team can give different
results.





















Disclaimer:
The opinions described in the interview are personal views and for academic purpose
only. It has no relation with any person, group, company or the organizations with which
the respondent has been associated with at present or in past.
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Appendix-03

Focused Group Discussion

In your opinion, what are the factors contributing towards cost escalation during Detail
engineering phase of an EPC project. From award to the completion of detail design phase.
This will help in my research design as a part of dissertation project at Management school.
Thanks for your contribution in advance.
Jis George
Factors that could contribute to cost escalation are:

1. Lack of Planning
2. Rework
3. Improper coordination
4. Communication gap
5. Client requirement that were not specified at the signing off of the contract. This could essentially
call for a change order. The concern here could be "what if the client does not pay you?"
6. Site requirement
7. Currency valuation


YOGESH JARIWALA

To avoid any cost escalation, we do work on proper system definition or functional requirement at
P&ID stage.

Nilesh Modi BE,MBA,PMP-PMI.
At this time our focus is on identifying the causes leading to the cost escalation. ..Yea the improper
P&ID reviews can lead to additional scope and may cost u extra...please elaborate more on yr
experience on other issues... Thanks Jis for yr contributions. ..I am sure you will recall issues more
technical in nature...for example sometimes the design engineers get obsessed to high end product
and over specify.

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Jis George
There are plus and minus on the projects. I also agree that the design engineers do get obsessed to
high end products and is beneficial for the project. The client will not raise an objection. However,
there has to be a balance between what is expected to be delivered and the financial impact of the
same. I would say that if the Project Manager (PM) communicates to his team well in advance as to
his and the clients expectation on the project, things are fine. You will appreciate that the PM will
have to toe the line of the contract. Now if the client comes up with a change from what was initially
agreed to, then it is a different ball game.
moha behnam
Factors that could contribute to cost escalation according to my experiences in different EPC projects
in gas/oil/power industry are:
1. Not clear cut SOW (Scope of Work) in the contract.
2. Not clear requirements /Standards at bid stage.
3. Interfering of Operation/production staff of Client at construction stage.
4. Non commitment of vendors of their time schedule and SOW and project specifications.
5. Delay of engineering subcontractor.
6. Delay of Client Consultant of review and responding to issued engineering documents.
7. Not having organized Meeting for Engineering progress and not sensitive against deviations.
8. Not strong team in Client side for fix and sort out the disputes and negotiation in engineering
deliverables.
9. Not accepting /respecting of Approved Vendors comments by Client side (Consultant).
10. Weak engineering team in Contractor side or lack of engineers in the team.
11. Site clashes especially for underground at construction stage.


Robert James, PE
In my opinion the number one reason for cost escalation during the detailed engineering phase of an
EPC project is inadequate baseline estimates due to overly optimistic and incomplete feasibility and
FEED phases.

John Gateley
I wholeheartedly agree with Robert and Moha. My last 2 jobs involved inexperienced Main
Contractors supplying grossly inaccurate FEED which had been accepted by Clients at face value
simply because the contractor was "reputable" in Oil and Gas but worse than useless for Bulk
Handling and Mining. Things will not improve in EPC...it isn't their money in the first place.

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EL HELMI
I see bid contracts as one big problem.
EPC firms having inexperience engineers doing design work and billing the clients like the ones they
mentioned in their bid package. Client not hiring independent XPM service firms to have oversight
over budget and design approval.

M.K. Vasudevan
Most of the comments are related to execution of projects. But planning stage is very important in cost
estimation / control. For example, the stake holder in the project is not just the client. All stake holders
such as, the Community, Government Agencies, Suppliers, Licensors, Company board, employers,
consultants need to be identified, their needs / goals need to be identified and communicated to them
on an ongoing basis. This exercise will greatly reduce major changes in project Scope of work and
thereby EPC cost escalation. Similar planning issues need to be addressed before project execution
is started.

John Gateley
The best made plans of mice and men.If the EPC and FEED Contractors do not know what they
are doing in the first place what is the benefit of superb planning. You're just making a cock-up
happen on time and within budget.

M.K. Vasudevan
One assumes that we are dealing with competent EPC contractor short listed based proper
qualification procedure. If the EPC contractor is incompetent there is no question of cost escalation
there is only resource wastage as project will not be completed or will not work as per requirements.
Planning and follow up can ensure savings in resource and time given that proper project
Management skills and resources (including human) resources are available. Only clients / owners
who do know what they are doing will employ incompetent EPC Contractors. And this is no laughing
matter!!!
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Nilesh Modi BE,MBA,PMP-PMI.
How about the contractors running behind winning contracts, without evaluating the risks involved...I
generally see that the bidding time provided is very less and the contract is with many conditions and
list of standards attached to it. Bid engineers really cannot verify the FEED with applicable
standards...and during detail design the PMC asks to follow all the related standards, expanding the
scope of supply which was never identified during bid...I must admit that all comments are adding
more dimensions...please write your opinion...It matters..

M.K. Vasudevan
True bidding time is getting shorter and this puts pressure on the EPC contractor. On the owner's side
team leaders are under pressure to cut costs and this might lead to selection of less qualified EPC
contractors; this particularly so when the business is up and many reputed contractors are busy with
projects. In such situations the risk is higher. Contractor can reduce risk by assessing if the Project
specifications have considered planning stage requirements. Lessons learned from previous projects
and that knowledge about the client company and the industry practice can help. Pre bid and post bid
meeting can be used to raise relevant questions to evaluate if critical planning stage procedures have
been followed. Bidding can never be exact science. Experience and forecasting tools, risk
assessment and mitigation, knowledge of industry and client, street smarts all have work in concert.

Homayoun Pourshayan
Very good comments I have noticed. But bear in mind, The Bid is not normally well estimated the
weight of project. It is just a pressurization of what the bidders is to do: The scope and figures are very
approximate, so it is either under / overestimated. Then the actual vendor will take an advantage of
this insufficient data to propose what is the best to profit more although they give the generous
discount. But still is too far my suggestion is that to make a joint venture with designer as well as the
vendors to reduce all cost and result in mutual benefits.

SUDHEER MEHTA
Frequent changes, time delays, inadequate risk identification & mitigation, poor planning, poor
communication. Well, I think if Risk Management is done diligently & regularly, project remains within
control without any surprises and leads to successful project deliverable.
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John Gateley
It says "...during Detail Engineering ...." That roughly means the period just before it gets made. A little
bit late to use risk management to put things right.

SUDHEER MEHTA
John, Risk Management is an ongoing process never stopping until closure. Changes bring new risks
in its wake. Any Project Manager who thinks that once the project is underway, he can forgo any new
risk identification is not a PM WHO MUST HAVE INBUILT alertness & agility and nose for troubles
and that is why project management is so exciting.

John Gateley
You seem to be suggesting that it is possible to unscrew a pregnant woman.

Robert James, PE
Were getting off the topic here. While inadequate feasibility study and FEED deliverables are a major
factor of cost escalation during the detailed engineering phase there are obviously many more
contributing factors as identified above. Risk management continues into all phases through design,
construction, commissioning and startup.

John Gateley
Topic says "...what are the factors contributing towards cost escalation during Detail Engineering
phase of an EPC project.??? Now it is being suggested that planning and risk management
contribute to cost escalation. Or what? Talk about shooting yourselves in the feet.
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Pankaj Mehrotra
There are many more factors which are the cause of cost escalation during detailed engineering:
Execution engineers if different that estimation engineers always feel that they are experts &
estimation is not done properly. In this process they try to improvise the process / systems to
prove that they are the most knowledgeable bunch which in terms adds to cost.
During execution the engineers try to use the best of the technology available without
bothering about the cost factor.
Change in the team composition during the execution as the new team members are not
aware of back ground & try to justify their contribution at the cost of project.
Estimation is done based on the basic P&IDs without clear definition of control system.
Estimation done for the new technology without understanding the Hazards involved in the
process which in turn adds to cost.
Engineering reviews delay
Desire of client to improvise the system while execution (detailed engineering)

I think there are many more reasons

M.K. Vasudevan
Pankaj you are absolutely right. Proper Planning and risk Management can (and should) identify
these factors ahead of time and minimize the impact of these factors on escalation of cost and
schedule.
M.K. Vasudevan
John, in your words, we cannot unscrew a pregnant woman, but can try to ensure a proper delivery
where the child (The Project) and the Mother (the Company) are alive and well (and can even go for
an abortion (god forbid) if the project is found to be not suitable.


Nilesh Modi BE,MBA,PMP-PMI.
May I add one soft factor that is HR....People made responsible for protecting the company
(Contractor) interest, do not perform their duty due to reasons- It may be poor pay, delaying things for
their own benefit -extension of work contract, they really are not interested in this project, planning to
change job....sometimes they are in short of the skills.
Nilesh Modi BE,MBA,PMP-PMI. Often, I have seen design engineers, accepting the applicable
standard as "something cannot be challenged or debated"....I have learnt that standards are written
for uniformity and generic purposes. Sometimes, they are written around some products available in
market. The reference clauses of applicable engineering standards shall be reviewed, discussed and
agreed in the best interest or specific requirement of the project and its conditions...not doing so may
result in higher costs...Experience says that if you have a logical PMC on other side, who is open to
listen to logical ideas, evaluate them and decide, a lot of financial waste can be avoided on the
project. After all, it is in the larger interest of the project and project owner.
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Jis George
MKV, I believe the developer will get onto the project after assessing all the risks involved. The
Project may be called off, (there are instances) if the cost probably escalates more than what was
planned for/or anticipated. If a developer gets on the project thinking that there could be no or less
risk involved, the company and the team involved has to be naive, which I do not think will be the
case. I agree with you that a proper planning and risk management will mitigate some of the cost
escalation factors. But, how will one come out with a solution if the client comes with a requirement for
latest technology and an EPC contractor did not consider this technology during the estimation
phase?
Also one need to understand that there is no free lunch. Technology comes at a price. Given the
current scenario, shorter bidding time, developer preferring to go with L1 bidders but wants the EPC
contractor to use the latest technology it could be sort of a catch 22 situation....

Vinay Kumar (Group Owner for EPC Consultants Professionals)
There is a good list of lessons learned above. Thanks to all the contributors... Cheers.

Nilesh Modi BE,MBA,PMP-PMI.
Really, the discussions are adding new dimensions...I had the ideas, biased with my own
experiences. However, I need to understand problem in totality with views from various people in
industry. Please share your experience...I am learning a lot from all the comments...I also appreciate
the emotions behind them...I know that it hurts, when 'my company' loses money...Any unnecessary
money spent on the project today, is paid by the society in total.

Himanshu Mohorikar
As can be seen mistakes done in the earlier phase of a project life cycle hurt the project the most.
One of the significant contributors could be poor definition of the concept or very less time spent in
conceptualizing whether the whole concept hangs together. If a significant flaw is identified at a later
date during FEED, detailed design or construction then as most of us have said will result in rework
delays etc. reasonable time and correct resources need to be provided upfront rather than rushing the
whole concept and pre-FEED phase to reduce risk of cost escalation.

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Homayoun Pourshayan
The vital factors in pricing policy in every project are depends upon the detailed scope of work and of
the projects duration. Such factors are declared by the client at the tendering stage. The pricing basis
regard in the following phases of the project I.e., Engineering, Procurement and Construction along
with the additional services requested by the Client.

The Engineering Cost estimation is extracted from the detailed scope of work in terms of required
engineering which are inclusive of: Man-hour, purchasing, and construction with the required Bill of
Materials as well as transportation and other related cost under normal circumstances. The total EPC
cost / price escalation of the project in addition to above cost the contingency factors, organization
overhead shall come into account .This is an delicate issue to be provided and implemented very
precisely and accurate to the extend without eliminating any essential factors. This is performed by
the Estimation group team that they considerably well experienced by expertise and the similar
products execution.
These parameters are very crucial to be considered:


Utility Consumption cost,
Electricity, water, Gas, fuel, Co2, and so on
Man-hour / overtime / overheads
Mobilization cost - foods, accommodations, camps, hotels expenses and so on
Purchased equipment and their depreciation value
Rental equipment
Safety devices and suits, office expenditures for this portion of the projects


Tax and legal fees like VAT, and other related fees
Transportation Cost
(In land / off land, Sea, Air, Land transportation) + overload truck, Taxi services and company cars
maintenance and fueling
Insurance cost
Banking charges
Training Cost
Spare parts
Contingency factors
Rupalkumar Buch
I believe, High valued and true comments have been received on this topic till now. I would like to add
on some:
1. Based on available feed docs proper risk review, design gap and constructability study to be
carried out during bidding stage. As many TQs as possible need to be raised to get clarity
about the scope and work to be done. There are various ways to look into it based on the
client requirement of feed. Some client ask for +/- 30% cost estimation/budget at the end of
the feed, if so, the job for EPC will be easy, i.e. the add on found during EPC phase will be
taken care by the client.

2. As we noticed a point in HAZOP discussion, the client should be ready to finance to make any
major design change from the HAZOP output.

3. Any pay revision of employees during the phase of the project sometimes affect a lot during
executing large size projects.

4. Normally for EPC companies, engineering cost is very less; say 5% of total cost. Hence, the
main controls are on construction side, it has its own measures for efficient operation.
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Sometimes insufficient time is available during Bidding, but then it can't help out, you have to suffer a
little or sometimes lot. Even Proposals should be analyzed by well experienced engineers particularly
worked in these areas (This point is already covered by above writers). Lessons learnt will help a lot, if
it's really considered so.
Before IFC, at least some of the pipe fittings, say size and type of valves selected should be available
in the market. It will also impact a lot right from revision in P & ID to MTO and PO issue.
Some companies worked in Basic engineering /FEED; usually provide "Hold list" and "EPC
Integration list" which will help a lot for EPC to manage the pending issues. Now-a-days SPPID is
widely used for P & ID development right from Feed stage, which is a very good software contains all
the information about pipes and fittings, Control valves and equipments, Specialty piping items. So,
use of SPPID should be promoted by client to go everything smooth and centralized.
Pankaj Mehrotra
Your view regarding HR angle is correct. Often we realize that a job requires much more efforts than
reflected in the cost sheet due to the fact that job was bagged at very low value due to various facts (
lack of jobs , job insecurity of the marketing lead, very tough targets set for marketing etc ).
As mentioned by Rupal even though the cost of engineering may be 5% or less but the cost of rework
/ delay in project completion is huge which need to be kept in mind. SP P&ID is definitely a good tool
which can control cost overrun but the advantage of SP PIDs can be taken more in case of repeat
type of jobs as there is always a time crunch for estimation stage. Definitely if FEED is done properly
in line with technology supplier we can limit the cost escalation to the great extent.

M.K. Vasudevan
Jis George, If the time for bidding is really short, and the scope is not clear, it might be better not to
submit a bid. Or if you know that the competition is going to definitely outbid you, it will prudent not to
waste your time (I know that many reputed EPCI from Europe and US do not bid for some projects in
middle east if some Korean companies are involved in the bidding process - One way to change this
situation maybe to subcontract to reputed Indian companies, who can provide cost and quality
advantage, like the one I am representing - anyone can write to me on that at mkvasu@yahoo.com).
Other bidding pitfalls to be avoided are mentioned above by Pankaj previously.

However, if the client insists on new technology not mentioned in the bid document, EPC should go in
for DCN (Design Change note) and related extra charges to be incurred. This type situation requires a
strong yet diplomatic Project Manager. Good knowledge of the Client Company, the team leader
involved and the previous experience with them may be useful indicators as well.

JOJAN JOS
Very good debate going on very useful!!!!!!!!!

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Nilesh Modi BE,MBA,PMP-PMI.
Please add more...I know that we are living with many problems around and they are so familiar to us
that we do not acknowledge them as problem....report them...even if it repeats...fine. This will enforce
the weight of the issue... To add one more...Engineering wastages...This does not mean the physical,
but the effort, rework and morale loss. In absence of good processes, late changes, improper
coordination between disciplines, resulting rework on design documents are a type of waste.
Example, the reviewer comes out with different comment every time...From preparation, review,
internal approval to formal submission of the document various procedural steps are involved and I
realize that many of the steps do not add value to the document. I am not against the systematic work
procedures, but those systems shall be reviewed and tested for each project requirement....We need
to tailor the processes for the project needs.
Rupalkumar Buch
1. Right man right job- applicable to everywhere, matters a lot.

2. Leaves/holidays time, like during Christmas, you need to consider 20 Dec to 10 Jan for
almost all the vendors working in Gulf/western countries, even some times client also become
irresponsive during these days.

3. Long lead items and it's delivery schedule, sometimes client prefers to complete engineering
for equipments at feed stage , so that no work on Equipments during DE(those will be free
issue), this can save time and delay in taking base decisions related to it.

4. Collection and Use of go-by documents at max, instead waiting for vendor's quotation- makes
sense to reduce time for proposal making and estimating cost by estimation group.

5. Communication- Mode of communication matters a lot as far as changes agreed and
comments received on deliverables from client

6. Receipt of Equipment VDR-/vendor offer- affects schedule- sometimes received in bunch at a
time delays schedule for proper review

7. Developing and maintaining a trustworthy Relationship with the client by the engineering
team- it's must, which is nowhere written in the books, but will definitely reduce reworks.

Mark Bambury
We find that many projects do not take into consideration the transportation of the product during
design phase, and thus causes an increase in re-design and delays and also high transport costs.
A good EPC team utilizes the external professional to assist with maintaining the development of the
transportation engineering. p.s. Contact www.MBM-consultancy.com for quotes on this service.
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Al Knapp
Time is the enemy when a project is bid to when it gets built. In todays market place it is difficult to
get firm pricing for more than a few days on many commodities and pieces of equipment. Therefore, if
a delay occurs between bidding and award or just the time required for Detail Engineering can cause
purchased prices of equipment and material to be higher than when bid. Design creep or Quantity
creep is another typical problem. Most EPC contractors I know will take the FEED and attempt to
quantify all commodities, concrete, steel, pipe etc. During the detail design phase it is common to see
those estimated quantities increase. These are the two biggest reasons for cost escalation during
detail design in the industrial sector.

EL HELMI
Almost projects that seen don't have the planning involved with the pre-design package is very weak
with no cost estimates or schedule contracts are designed by lawyers with no engineering input.

Patrick Baughman
Improper change management has become a real issue during detail design phase. As an engineer it
is our job to help the client understand the impact of the changes that they are making (monetary and
schedule impact). As EPC we are not only paid to "EPC" but also to manage the client.

All too often designers and engineers adding/designing items outside of scope throughout the life of a
project add up as well. This not only affects cost of engineering hours but affects procurement and
construction phase as well.


Homayoun Pourshayan

1. Change orders causes modification in design and new production devices

2. Late delivery time / Poor time management / Projects team are not fast and well
qualified / expedition crews are lagging.
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3. Increase of Freight Rate / Labor cost / unexpected charges in material and machinery
cost/ the taxation and other tolls incurred.
From Imagination to build; there exist a gap called capabilities
PS. There is a great saying by Holey Prophet Muhmmad (PBUH):

SEEK KNOWLEDGE FROM CRADLE TO TOMB
THIS IS PURE AND TRUE APPICATION OF THE KNOWLEDGE MANAGEMENT


Victor Dvornikov
Surprisingly enough, absolutely all top project managers consider the project cost overruns as a result
of a sloppy team work or lack of professionalism. The real problem is the obsolete information
technology in use.

ANKUR CHANDAK
There could be multiple reasons leading to the cost escalation from award to during detail engineering
phase:
A: Pre-bid assessment itself is wrong due to reasons like:
1. Misunderstanding of scope of work
2. Assessment with incompetent or unapproved vendor's low quote at the pre-bid stage.
3. Wrong assessment of quantities OR calculation error during the pre-bid stage.
4. Wrong assumption with respect to the project site OR improper site-survey reports.
5. Blind acceptance to all the commercial terms/conditions including firm price clause (
which sometimes become mandatory for participation in the tenders)
6. Lack of proper final review of the estimation and its basis.

B: If the pre-bid assessment is OK then post award the cost escalation can happen in detail
engineering due to reasons like :

1. Change in the scenario at project site or project working conditions, whereby design is
made to overcome that changed effect adding to cost.
2. Extra precaution towards operation safety and/or quality of the designed system.
3. Design based upon the costlier vendor's inputs leading to go for the costly items.
4. Design/drawings not correct in one go and reworking taking place eating up more man-
hours.
5. Delay in getting GTPs/design/drawings approval from the client which may either lead to
liquidated damages OR may lead to go for lesser lead time vendors(but higher cost) to
escape from liquidated damages

Each such case will have its own set of reasons for cost escalation.
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Ramesh Goel
Major factors contributing towards the cost during detailed Engineering:
Extent of engineering done at the time of preparing bid documents.
Assumptions adopted during engineering.
Expertise of the Engineering Team preparing the bid and understanding of scope of work.
Whether the scope of work is fully defined or not.
Time delay in carrying out the engineering.
Soil parameters/ pre-bid surveys particularly in offshore projects.
Change of site/location or site conditions.
Change orders due to additional jobs.
Change in Government policies on taxation.
A team approach from both the owner & contractor.

Bin Tang
Scope, Specification, Schedule, Change, Vendor information, Design review comments and Rework.

Nilesh Modi BE,MBA,PMP-PMI.
Yes indeed, a lot of learning and may more dimensions....
I am collecting all the opinions...as well digging up the secondary data available as lessons learnt...I
was reviewing cases related to cost escalations and found that some of the cost escalations have
roots to the budgeting process...missing quantities, no contingencies, missing risk provisions,
improper tools and techniques used in budgeting, gap in communication between technical, contract
and commercial departments (mistrust prevails).....on top of it, number of clarifications received from
client in short duration does not allow EPC contractor to properly evaluate, approve and incorporate in
cost estimation....

I encourage all the members to look at their experiences around, past and try to identify the root
causes of the problems...I am sure that we all do that...and capture in our minds.
Please recall them and share with the group, for the benefit of the society.
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Michalis Agrimakis
The method of TPM
Traditional Project management is the most common reason.
Dharmavir Jha
Many a times the unstated expectation of the owner from an EPC contractor towards managing the
risks contributes towards cost and time escalations e.g. issues of people

siva kumar
In my opinion the cost escalation during detailed engineering stage of an EPC project.
Improper Assessment of cycle times for individual elements of WBS
Increased Factor of safety while designing the plant
GAPS arising due to specifications requirements
Very limited project specific approved vendor list
Provision of contingency towards costs
Changes in site data (Barometric conditions, geotechnical etc., sometimes)
Weakness arising out of project team & unexpected event of team member leaving the
organization, leading to consumption of more time for the new member when taking things
forward or frequent changes in team members
Understanding the code requirements
statutory compliances
Design review stage - changes suggested considering the operational factors
Lack of cost benefit analysis from time to time (crashing project vis-a-vis normal run)
Selection of contractor and construction technology
Cost and time over runs due to lack of safety

Jayesh Bhave
Would like to add something - lack of experienced people in team, unforeseen factors such as
currency devaluation, unrealistic & imposed schedule leading to mistakes & rework, etc.

As a PM, we must take a proactive efforts for construction planning and prioritizing engineering which
is best suited for construction plan. This is help in identifying the problem areas and focus on concern
areas.
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Nilesh Modi BE,MBA,PMP-PMI.
In agreement with Jayesh....Have realized in past that the training needs are not identified at the start
of the project...it is realized only when the things get out of control....This is missing part on planning
part.

EL HELMI
Here are just some examples of EPC firms not knowing what they are doing or have no incentives to
know what to do in a timely manner.
S@C-L@@vlin- Four years past the deadline and $3B over budget and another $1B in lost revenue
at the N@ power upgrade project. J@@obs-Be@@tel Three years and counting and a min of
another $3B in cost overruns and at least that much in lost revenue at the M@@IVA Expansion
project.The already announced $21B in cost overruns and schedule delays on the G@@gon L@G
project. Angola LNG project already two years delayed. The list goes on and on. Nobody wants to
learn anything because there is no incentive to do so. No people, No or poor planning, bad design
decisions all add up to the cost and schedule overruns.
B.M DAS
Reasons of delay may be in pages. The issue shall be how to foresee the reasons and circumstances
which lead to the delay during the period and how parallel activities for utilizing the float. Already a
few specific points are mentioned.
Manjulata Agrawal
In my opinion, Market inflation of all inputs resources, Material, Services, Equipment, Wages and
salary including the indirect cost of management time and coordination etc. and any other resources,
required for completion of the project is contributing, towards cost escalation during the various
phases of project execution which is also include the Detail Engineering Phase of an EPC Project.
From award to the completion of detail design Phase. However, effected stake holders may be varied,
(it may be detail engineering consultant, execution contractor, and client or may be other stake
holders.)

Makrand Kulkarni +1800
In my opinion change in scope of work and sometimes even philosophy as well important factors like
SIL review or Process change can hamper entire Detail engineering effort. Also when you are relying
on your vendors or subcontractors to give timely information and engineering details curtails the plan.

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Manjulata Agrawal

Holding decisions from client end leads to time delay.
William Pezzulich
1. The Client.
2. The Client.
3. The Client.
4. Ditto

M.K. Vasudevan
Bill, I agree and this is exactly why it helps to study (including anticipate) the client's needs, the client,
client representative and client's stakeholders needs by the contractor, possibly at the bid stage itself.
No point in complaining about hospital bills after the care is given. One needs to know the cost
structure of hospitals and have sufficient insurance before getting admitted. Otherwise, it could ruin
one's lives and lives of one's family!!!

Nilesh Modi BE,MBA,PMP-PMI.
Mr. William believes that the client is the main reason. However, in absence of any particular
statement supporting it, I would like to put forward my thoughts.
Client has defined his requirement in Scope of Work and tender document. If client asks to fulfill the
requirement, its fine and justified.
I agree that some clients have a 'wish list', and those are not the obligations for contractor...If the
project manager has a healthy budget to cover the triple constraints (Time, Cost and scope) arising
from such wish, then he can take approval to carry out those change requests. I have experienced
that the contractor, is spite of knowing that he is gold plating the project, do such job in anticipation of
future business from the client.
Leonard Byrd
I'm assuming you're concerned about Project Cost and not specifically design cost but here are my
top picks for budget control in the Detailed Design (DD) document phase:
1. Coordinate budget reviews with each of the DD phase documents review efforts (30, 60, &
90) Show deviations between schematic budget and each of the DD Phase document
productions. Address budget reconciliation at each point.

2. Define expectations at each DD phase. List what you want to see at 30%, 60% & 90%. Make
sure at each phase you have enough data to perform a comprehensive review on some
portions of the job. Ex. At 30% I like to see foundations and site utilities - both dimensioned
drawings and specifications. This allows a thorough review and budget finalization for this
specific work thus fewer uncertainties for the ongoing design.
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3. Identify all lingering decisions from previous phases that have not yet been finalized. I find it
ironic how often design teams enter the DD phase without completing the schematic phase.
Things like building size, occupancy, utility loads, basic core & shell design..... are all in
varying stages of incompleteness. This is why I go back to my site utilities and foundation
design requirement for 30% - because without these conceptual and schematic design
decisions being complete its almost impossible to produce the foundation and utility service
drawings much less any other follow on drawings.

4. Make sure your design is concurrent with drawings, specifications and discipline coordination.
If you start a drawing, make sure you start the associated specifications and complete
discipline interface reviews at each DD Phase. I don't know how many electric rooms have
been undersized because of lack of understanding between the Architect, Civil and Electrical
engineer during the DD design phase - same with Mechanical Room. These disciplines need
to do serious space planning and you have to start it at the beginning of 30% DD - not at 90%
The DD phase of design is meant to produce the detailed design documents in a phased and orderly
manner - make sure you set it up as such so you can insure you can completely evaluate a phase of
design documents and budget sufficiently to set them aside as being substantially complete and only
focus with the remaining design going forward. More often than not we approach 90% reviews with
little of the drawing complete and few if any of the specification - thus we end up completing 90% of
the design in the last 10 - 40% of the document production phase and with little or no coordination of
specs or other design interface. This results in numerous changes, whit the majority occurring
because of drawings and specifications conflicts and space restrictions - these should be caught in
the DD Phase and not the Construction phase.

Makrand Kulkarni +1800
Yes, I agree with you Nilesh, also most of the times they come up with variation order by one or
another means to extract extra money from client.
Pradeep Pathak
Nilesh, with my experience in this field, I feel following points contribute the delay:
1. Number of people involved in decision making are more from client side and resultant is that it
delays the decision and further to arrive at exact requirement during approval.
2. Budget is estimated by one team while approval and erection is done by different team wherein
site changes are not anticipated.
3. Incompetent people available at contractor's end to make proper data collection and engineering.
4. Repair work called for due improper planning and subcontracting work
Rupalkumar Buch
I would like to add a bit more. When you are doing any Brownfield job, where you need to go for
revamp work, you need to go for looking at client's existing deliverables, which were developed a year
back, now safety criteria and other philosophies have vastly improved. So, to match with it will be very
difficult and the client should be agreeing at that time to take care of increased cost/ schedule.
Sometimes the documents provided by client are very old, which he also does not know its status with
As-built situation as during a long tenure there happened to be a lot of design changes/modification
carried out without modifying the related documents. It will be a big task for the design contractor for
validity of everything. It may increase construction time/cost, e.g. There are some underground
pipelines going on, which were not reflected any drawings/layouts, it will be a huge rework.
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Availability and true analysis of meteorological data- very important. Improper evaluation will lead to
huge cost.

So, to understand and thoroughly analyze scope of work is heavily demanding task, need to be
undertaken by competent seniors.
OMPRAKASH Agarwal
1. Selection of Construction Material, it is always recommended that the Material available
locally shall be accommodated while designing the various facilities of a given projects, this
may reduce the cost of projects substantially.
2. Technology: it is always recommended to select and utilize the indigenous technology for the
given precision of the final products.
3. Minimize the execution time to cut down the overall cost.
4. It is very common that the material / equipment / machines selected during the design stage
not available in the market which effects adversely.

Rahul Nandi
There could be many factors that influence the cost escalation during the design phases of a project.
But few of the most important ones I find are:
Unclear and incomplete SOW.
Lack of understanding of stakeholder requirements.
Incompetent designers.
Lack of good project managers to manage the time, cost and scope of the project.
Lack of technical support from material vendors.


SANTHIRAJ SATHANNA
From my experience, I recommend following:
1. EPC shall standardize Process Sub Units with accurate costing and shall strive to offer the total
system with a set of PSUs. So, EPCs can prepare properly priced offers without any
guesstimates or thumb rules.

2. For any project specific extra requirements, EPCs shall prepare add on modules pricing
individually.

3. By summing the above, accurate project proposals can be prepared.
Such practices are being followed by major corporations that manufacture GTs and Boiler Utilities.

EPCs that do not follow above such guidelines invariably dig their own graves!
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H.J. de Kleijn
In my experience, the most common factors that negatively impact detailed engineering cost are
changes and schedule delays (that can be converted to costs). The changes are predominantly
caused by poor stakeholder management in the previous phase, the schedule delays by a delayed
flow of information from the vendors- assuming the schedule is based on proper assumptions and not
a reflection of the clients or PM's wishful thinking.

Rakesh Gupta
I agree with Nilesh Modi and Rahul Nandi. During FEED, complete SOW is not defined and many
things are left for EPCC contractor like complete HSE studies (like FEA, BEVELDE etc) which have
great impact during detailed design and cost and completion schedule of the project. Client operation
team wish list during HAZOP and SIL workshop also impact the project cost and schedule. Client
imposes the Vendors who take you for ride during execution in not complying with all technical
requirements and delayed delivery of the deliverables.
Raja Ghosh
Very good discussion. However, let me add here that the crux of cost escalation is understanding of
responsibilities - say will it be a complete client managed design or a contractor managed design or a
mixture of both. What happens is the bid/contracts are entered into on certain division of
responsibilities but at the time of execution there may be increased interference from the client side
pushing schedules haywire and thereby the cost.
Expediting a project due to time limits pushed by inaccurate estimations of time is another cause for
cost escalation. Also risk perception on the part of the inexperienced EPC contractor may also cause
cost escalations. Finally the market regarding lead time items may vary in along gestatation project
may play havoc with prices.
It is therefore always beneficial to work on internationally accepted contract templates such as FIDIC
to avoid misunderstandings and disputes.
Girish Chander Maggon
Very good point, there are several factors which contribute to the cost escalation during the detailed
engineering like lack of clarity at the bidding stage, to make competitive bid at times risk is taken to
"manage" later, several safety studies add costs which are not foreseen at the bid stage, lack of
coordination amongst the team and so on.
Rupalkumar Buch
Big MNCs also sometimes bid for small jobs because of increasing competition, and to run the show
and sustain in that, it has to bid at a significantly lower price, even sometimes it has to bid in small
projects in which competitors are local engineering firms which are able to win the bid at lower cost,
will never be a profit making deal for the MNC.
Hence, MNC should stick to its standards, and can go on revising its standards time to time to face
the competition with equal size MNCs, never with a very small group. Hence, Bid-No Bid criteria
should be very clear for Big MNCs and should stick to it.
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Carl Pierce
In other words, not having a detailed spec at time of contract so the EPC can capture all of the
"change orders". Innocently allowing "customer" to initiate changes in scope of definition from the
original intent of the EPC's proposal; i.e.: capacity, scope/deliverables (hard and soft goods),
schedule, AML's, etc. are all contributors and can most often be hidden and/or not even captured or
even recognized as such in innocuous or otherwise innocent conversations/meetings.

Ghassan Al Salem
Presuming that the Project information document and preliminary design is clear cut and have
resolved all issues related to stakeholders, such as land acquisition cost, auxiliary services required to
start the plant( roads, services etc), and other factors affecting the design are not forgotten, I can think
of some factors affecting project cost during the detailed design:
Accuracy of preliminary data (soil reports, services, etc)
Designer lack of experience (may result in complicated or unfeasible design)
Overestimating contractors capabilities (technical and time wise)
Time in obtaining approvals on detailed design stages
Availability of material and resources proposed in the design at construction stage
Lack of coordination of different design disciplines by the designer
Other unforeseen risks (political and administrative issues related to client)

Phillip Corbin
Scope Creep!
Many times the client has not fully evaluated the Appropriation Request's Scope of Work.
The Appropriation Request Cost Estimate is quickly prepared.

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Eric Morey
Amazing discussion!
Last September, David Rosenberg from IPA gave a great speech at the Emerging FPSO Conference
in Galveston, TX. According to IPA research, the Oil & Gas EPC and Capital construction projects
(Specifically FPSOs) experience average 19% (If I remember correctly) cost growth.

Kishore Avn
Main reason for cost escalation are
1. Clarity in Scope
2. Not realizing "FEED" importance in the early stages of Project
3. Tracking and Mentoring
Joe Miller
It never fails to baffle me why the same problems surface on every project. The major contractor fails
to complete on time and on budget for the same reasons every time and yet nothing ever changes.
Always, every time, repeatedly, the bid is awarded to the lowest cost contractor with no regard give to
their previous track record. So, the job is done either poorly or not even completed as per spec and
requires months or years of cost overruns and revisions. This is mainly due to the client insisting on
the initial bid being the lowest possible, but is it so impossible to provide them with proof that you only
get what you pay for? Yes, I admit that hiring the most capable people to complete the project will
initially be more expensive, but considering the fact that the project will be completed as per spec the
first time, rather than require years of costly rework should by now make it obvious that if you pay to
have it done right the first time, you save time and money by not having to pay incompetents to do it
two or three times

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UdayKulkarni
Good question Nilesh. The following things are the main contributors -
1. How good is your original estimate - often times, due to lack of details original budget has many
assumptions that do not match with final design. This you can be look at from an "Information Theory"
standpoint and you get a good feel of what I am talking.
2. Accuracy of the Cost Accounting Database - many a times, the cost database on which estimate is
solely dependent on is not designed to support the estimation. It is primarily designed to support
financial accounting and taxation.
3. Change Management
4. Genuine factors that are not in your control - inflation, soil condition, etc ...
Cost Control is a very important function, but unfortunately, it is not looked at seriously enough by all
managements of the world.
I hope this helps. Feel free to ask any specific question.

AnupindiParthasarathy
A good question Nilesh. Cost cutting during bid stage will affect the detail engineering phase in view
of selection of materials. The material cost escalation and also importing option in-case of non
availability in the local market.






Disclaimer: The opinions described in this group discussion are personal views and for
academic purpose only. It has no relation with any person, group, company or the
organizations with which the respondent has been associated with at present or in past.
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Appendix- 04
(Survey Form)

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Page 1
<b style="text-decoration: underline;">Cost Escalation in EPC sector up <b style="text-decoration: underline;">Cost Escalation in EPC sector up <b style="text-decoration: underline;">Cost Escalation in EPC sector up <b style="text-decoration: underline;">Cost Escalation in EPC sector up
1. Are you working or associated with EPC {Engineering/procurement/construction}
industry?
2. You are associated with EPC sector/industry for how many years?
3. What explains your current role/area in EPC sector?
4. Which function you are mainly involved and presently working within EPC sector?
5. According to you which area contributes the most for EPC pro]ect cost escalation?
Please see any cost escalation from is's root cause point of view from where it
originates...
{Procurement and construction are not included as part of the survey}

Yes

No

1-10 years

11-20 years

20+ years

EPC contractor

Engineering Consultant

Client

PMC

Subcontractor

Other (please specify)

Engineering

Procurement/proposals

Construction

Project management

Financial Management

Risk Management

Other (please specify)

Proposal planning and execution

Detail design engineering

Other (please specify)

Cost Escalation in EPC sector up to Engineering stage
we are focusing on identifying cost escalation issues on EPC contract-mainly bidding stage and the
Detail Engineering design stage.
Procurement and construction issues are excluded from scope.
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<b style="text-decoration: underline;">Cost Escalation in EPC sector up <b style="text-decoration: underline;">Cost Escalation in EPC sector up <b style="text-decoration: underline;">Cost Escalation in EPC sector up <b style="text-decoration: underline;">Cost Escalation in EPC sector up
6. Please rate below parameter on the scale of 1-5 for cost escalation in
bidding/proposal process that is responsible for cost escalation. {1 lowest, 5 highest}

Lowest Mid High

Selection of bid without
evaluating its SWOT

Short bidding time
naccurate FEED
nsufficient review of TT
documents

Skills of Estimation Team
Bidding completely new
sector

Absence of lessons learnt
from previous projects

n adequate Risk analysis
nsufficient contingency
reserve

mproper bid
coordination/management

mproper FEED
verification

Overoptimistic Feasibility
Study

Too many applicable
standards

gnoring and poor
assuming of non-material
costs

Cost Escalation in EPC sector up to Engineering stage

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<b style="text-decoration: underline;">Cost Escalation in EPC sector up <b style="text-decoration: underline;">Cost Escalation in EPC sector up <b style="text-decoration: underline;">Cost Escalation in EPC sector up <b style="text-decoration: underline;">Cost Escalation in EPC sector up
7. Please rate below parameter on the scale of 1-5 for cost escalation in detail design
process. {1 lowest, 5 highest}

Lowest Med High

mproper change
management

Poor Risk Management
Different team for
estimation and detail
design

Poor coordination
between Lead engineers

Poor Coordination with
Client/PMC

Realising of unstated
requirement in Bid

mproper
multidisciplinary/internal
review of documents

Engineers biased to high
tech products

Over specifying (Gold
plating)

ncapable project
manager

nterference of client
Operation/production
team

Scope creep due to detail
studies (Hazop/QRA etc.)

Client/PMC with highly
wishful thinking

Client/PMC delaying
disputes, decisions and
reviews

Technically weak Client
PMC team

Engineering subcontractor
delays

Cost nsensitive
Engineering
Subcontractor

Manpower shortages
Frequent changes in
Engineering team

nexperienced
engineering team

Cost Escalation in EPC sector up to Engineering stage

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<b style="text-decoration: underline;">Cost Escalation in EPC sector up <b style="text-decoration: underline;">Cost Escalation in EPC sector up <b style="text-decoration: underline;">Cost Escalation in EPC sector up <b style="text-decoration: underline;">Cost Escalation in EPC sector up
8. Please rate below parameter on the scale of 1-5 that can improve/avoid cost
escalation.{1 lowest, 5 highest}
9. Which role do you think is the most pivotal {nfluential} in effective cost management
{avoid cost escalation} at the estimation stage?

Lowest Mid High

Careful Selection of Bid
after proper evaluation.

Emphasis on learning
from past projects.

mplementation of proper
Project management
practices.

mplementation of proper
Risk management
practices.

Cost/Budget awareness
programs.

Strict project design
change management
system

Focus on motivated Team
to execute the Jobs.

Continuous focus on
Learning and Growth.

Emphasis of capturing and
review of lessons learnt.

mplementation of Award
and Recognition program

Estimation/proposal manager

Engineering manager

Engineering Discipline Leads

Estimation leads

Contracts Manager

Business Develop Manager

Other (please specify)

Cost Escalation in EPC sector up to Engineering stage
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Page 5
<b style="text-decoration: underline;">Cost Escalation in EPC sector up <b style="text-decoration: underline;">Cost Escalation in EPC sector up <b style="text-decoration: underline;">Cost Escalation in EPC sector up <b style="text-decoration: underline;">Cost Escalation in EPC sector up
10. Which role do you think is the most pivotal {nfluential} in effective cost management
{avoid cost escalation} at the Detail Engineering stage?
Project Manager

Engineering manager

Project Controls manager

Risk manager

Engineering discipline Leads

PMC

Other (please specify)

Cost Escalation in EPC sector up to Engineering stage
Thank you for your participation
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Appendix- 05
(Survey Data)

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CostEscalationinEPCsectoruptoEngineeringstageWearefocusingonidentifyingcostescalation
1/15
97.54% 119
2.46% 3
Q1Areyouworkingorassociated
withEPC
(Engineering/procurement/constructi
on)industry?
Answered:122 Skipped:1
0% 20% 40% 60% 80% 100%
Yes
No
Yes
No
Total Total 122 122
AnswerChoices Responses
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CostEscalationinEPCsectoruptoEngineeringstageWearefocusingonidentifyingcostescalation
2/15
45.08% 55
34.43% 42
20.49% 25
Q2YouareassociatedwithEPC
sector/industryforhowmanyyears?
Answered:122 Skipped:1
0% 20% 40% 60% 80% 100%
1-10years
11-20years
20+years
1-10years
11-20years
20+years
Total Total 122 122
AnswerChoices Responses
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CostEscalationinEPCsectoruptoEngineeringstageWearefocusingonidentifyingcostescalation
3/15
40.34% 48
36.97% 44
10.08% 12
5.88% 7
6.72% 8
Q3Whatexplainsyourcurrent
role/areainEPCsector?
Answered:119 Skipped:4
0% 20% 40% 60% 80% 100%
EPC
contractor
Engineering
Consultant
Client
PMC
Subcontractor
EPCcontractor
EngineeringConsultant
Client
PMC
Subcontractor
Total Total 119 119
# Other(pleasespecify) Date
Therearenoresponses.
AnswerChoices Responses
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CostEscalationinEPCsectoruptoEngineeringstageWearefocusingonidentifyingcostescalation
4/15
50.41% 61
4.96% 6
6.61% 8
35.54% 43
0.83% 1
1.65% 2
Q4Whichfunctionyouaremainly
involvedandpresentlyworking
withinEPCsector?
Answered:121 Skipped:2
0% 20% 40% 60% 80% 100%
Engineering
Procurement/p
roposals
Construction
Project
management
Financial
Management
Risk
Management
Engineering
Procurement/proposals
Construction
Projectmanagement
FinancialManagement
RiskManagement
Total Total 121 121
# Other(pleasespecify) Date
Therearenoresponses.
AnswerChoices Responses
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CostEscalationinEPCsectoruptoEngineeringstageWearefocusingonidentifyingcostescalation
5/15
52.03% 64
47.97% 59
Q5Accordingtoyouwhicharea
contributesthemostforEPCproject
costescalation?Pleaseseeanycost
escalationfromis'srootcausepoint
ofviewfromwhereitoriginates...
(Procurementandconstructionare
notincludedaspartofthesurvey)
Answered:123 Skipped:0
Proposal
planningand
execution
Detaildesign
engineering
Proposalplanningandexecution
Detaildesignengineering
Total Total 123 123
# Other(pleasespecify) Date
Therearenoresponses.
AnswerChoices Responses
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CostEscalationinEPCsectoruptoEngineeringstageWearefocusingonidentifyingcostescalation
6/15
Q6Pleaseratebelowparameteron
thescaleof1-5forcostescalation
inbidding/proposalprocessthatis
responsibleforcostescalation.(1
lowest,5highest)
Answered:123 Skipped:0
0 1 2 3 4 5
Selectionof
bidwithout
evaluating...
Shortbidding
time
Inaccurate
FEED
Insufficient
reviewofITT
documents
Skillsof
Estimation
Team
Bidding
completely
newsector
Absenceof
lessons
learntfro...
Inadequate
Riskanalysis
Insufficient
contingency
reserve
Improperbid
coordination/
management
ImproperFEED
verification
Overoptimisti
cFeasibility
Study
Toomany
applicable
standards
Ignoringand
poorassuming
of...
3.63
3.57
3.86
3.64
3.84
3.62
3.55
3.59
3.31
3.40
3.72
3.56
3.03
3.54
Inaccurate
FEED
4.07%
5
4.88%
6
29.27%
36
24.39%
30
37.40%
46

123

3.86
Skillsof
Estimation
Team
2.44%
3
10.57%
13
21.14%
26
32.52%
40
33.33%
41

123

3.84
Improper
FEED
verification
2.44%
3
8.94%
11
27.64%
34
36.59%
45
24.39%
30

123

3.72
Lowest (nolabel) Mid (nolabel) High Total Average
Rating
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CostEscalationinEPCsectoruptoEngineeringstageWearefocusingonidentifyingcostescalation
7/15
Insufficient
reviewof
ITT
documents
3.25%
4
8.94%
11
30.08%
37
35.77%
44
21.95%
27

123

3.64
Selectionof
bidwithout
evaluating
itsSWOT
4.07%
5
6.50%
8
39.84%
49
21.95%
27
27.64%
34

123

3.63
Bidding
completely
newsector
3.25%
4
14.63%
18
32.52%
40
16.26%
20
33.33%
41

123

3.62
Inadequate
Risk
analysis
4.07%
5
6.50%
8
34.96%
43
35.77%
44
18.70%
23

123

3.59
Short
bidding
time
2.44%
3
9.76%
12
38.21%
47
27.64%
34
21.95%
27

123

3.57
Overoptimistic
Feasibility
Study
3.25%
4
10.57%
13
35.77%
44
27.64%
34
22.76%
28

123

3.56
Absenceof
lessons
learntfrom
previous
projects
4.88%
6
11.38%
14
30.89%
38
29.27%
36
23.58%
29

123

3.55
Ignoring
andpoor
assuming
ofnon-
material
costs
4.07%
5
7.32%
9
39.84%
49
27.64%
34
21.14%
26

123

3.54
Improper
bid
coordination/management
4.88%
6
14.63%
18
34.96%
43
26.83%
33
18.70%
23

123

3.40
Insufficient
contingency
reserve
1.63%
2
19.51%
24
39.84%
49
24.39%
30
14.63%
18

123

3.31
Toomany
applicable
standards
9.76%
12
24.39%
30
33.33%
41
17.89%
22
14.63%
18

123

3.03
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8/15
Q7Pleaseratebelowparameteron
thescaleof1-5forcostescalation
indetaildesignprocess.(1lowest,5
highest)
Answered:123 Skipped:0
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CostEscalationinEPCsectoruptoEngineeringstageWearefocusingonidentifyingcostescalation
9/15
0 1 2 3 4 5
Improper
change
management
PoorRisk
Management
Different
teamfor
estimation...
Poor
coordination
betweenLe...
Poor
Coordination
with...
Realisingof
unstated
requiremen...
Improper
multidiscipli
nary/inter...
Engineers
biasedto
hightech...
Over
specifying
(Gold...
Incapable
project
manager
Interference
ofclient
Operation/...
Scopecreep
duetodetail
studies...
Client/PMC
withhighly
wishful...
Client/PMC
delaying
disputes,...
Technically
weakClient
PMCteam
Engineering
subcontractor
delays
Cost
Insensitive
Engineerin...
Manpower
shortages
Frequent
changesin
Engineerin...
Inexperienced
engineering
team
Inexperienced
engineering
team
2.44%
3
8.13%
10
21.95%
27
27.64%
34
39.84%
49

123

3.94
Lowest (nolabel) Med (nolabel) High Total Average
Rating
D
R
A
F
T

C
O
P
Y
CostEscalationinEPCsectoruptoEngineeringstageWearefocusingonidentifyingcostescalation
10/15
Incapable
project
manager
1.63%
2
8.13%
10
24.39%
30
30.08%
37
35.77%
44

123

3.90
Improper
change
management
1.63%
2
8.13%
10
30.89%
38
28.46%
35
30.89%
38

123

3.79
Client/PMC
delaying
disputes,
decisions
and
reviews
0.81%
1
7.32%
9
31.71%
39
32.52%
40
27.64%
34

123

3.79
Poor
Coordination
with
Client/PMC
1.63%
2
9.76%
12
34.15%
42
26.83%
33
27.64%
34

123

3.69
Frequent
changesin
Engineering
team
3.25%
4
8.13%
10
30.08%
37
33.33%
41
25.20%
31

123

3.69
Cost
Insensitive
Engineering
Subcontractor
0%
0
6.50%
8
42.28%
52
34.15%
42
17.07%
21

123

3.62
Improper
multidisciplinary/internal
reviewof
documents
0.81%
1
10.57%
13
39.02%
48
26.83%
33
22.76%
28

123

3.60
Engineering
subcontractor
delays
0%
0
13.82%
17
33.33%
41
34.96%
43
17.89%
22

123

3.57
Scope
creepdue
todetail
studies
(Hazop/QRA
etc.)
1.63%
2
10.57%
13
38.21%
47
30.08%
37
19.51%
24

123

3.55
PoorRisk
Management
0.81%
1
8.94%
11
43.90%
54
27.64%
34
18.70%
23

123

3.54
Realisingof
unstated
requirement
inBid
2.44%
3
11.38%
14
36.59%
45
29.27%
36
20.33%
25

123

3.54
Client/PMC
withhighly
wishful
thinking
3.25%
4
12.20%
15
33.33%
41
32.52%
40
18.70%
23

123

3.51
Poor
coordination
between
Lead
engineers
4.88%
6
10.57%
13
35.77%
44
30.89%
38
17.89%
22

123

3.46
Over
specifying
(Gold
plating)
5.69%
7
14.63%
18
31.71%
39
24.39%
30
23.58%
29

123

3.46
Interference
ofclient
Operation/production
team
1.63%
2
16.26%
20
38.21%
47
26.83%
33
17.07%
21

123

3.41
Manpower
shortages
4.88%
6
13.01%
16
38.21%
47
26.02%
32
17.89%
22

123

3.39
Technically
weakClient
PMCteam
5.69%
7
21.14%
26
30.08%
37
22.76%
28
20.33%
25

123

3.31
D
R
A
F
T

C
O
P
Y
CostEscalationinEPCsectoruptoEngineeringstageWearefocusingonidentifyingcostescalation
11/15
Different
teamfor
estimation
anddetail
design
4.07%
5
21.14%
26
34.15%
42
24.39%
30
16.26%
20

123

3.28
Engineers
biasedto
hightech
products
8.94%
11
17.07%
21
40.65%
50
22.76%
28
10.57%
13

123

3.09
D
R
A
F
T

C
O
P
Y
CostEscalationinEPCsectoruptoEngineeringstageWearefocusingonidentifyingcostescalation
12/15
Q8Pleaseratebelowparameteron
thescaleof1-5thatcan
improve/avoidcostescalation.(1
lowest,5highest)
Answered:123 Skipped:0
0 1 2 3 4 5
Careful
Selectionof
Bidafter...
Emphasison
learningfrom
past...
Implementatio
nofproper
Project...
Implementatio
nofproper
Risk...
Cost/Budget
awareness
programs.
Strict
project
designcha...
Focuson
motivated
Teamto...
Continuous
focuson
Learninga...
Emphasisof
capturingand
reviewof...
Implementatio
nofAward
and...
Strict
project
design
change
management
system
2.44%
3
5.69%
7
27.64%
34
19.51%
24
44.72%
55

123

3.98
Implementation
ofproper
Project
management
practices.
3.25%
4
6.50%
8
27.64%
34
30.89%
38
31.71%
39

123

3.81
Careful
Selectionof
Bidafter
proper
evaluation.
5.69%
7
4.07%
5
29.27%
36
30.08%
37
30.89%
38

123

3.76
Implementation
ofproper
Risk
management
practices.
3.25%
4
5.69%
7
34.96%
43
29.27%
36
26.83%
33

123

3.71
Cost/Budget
awareness
programs.
2.44%
3
8.13%
10
28.46%
35
38.21%
47
22.76%
28

123

3.71
Lowest (nolabel) Mid (nolabel) High Total Average
Rating
D
R
A
F
T

C
O
P
Y
CostEscalationinEPCsectoruptoEngineeringstageWearefocusingonidentifyingcostescalation
13/15
Focuson
motivated
Teamto
executethe
Jobs.
2.44%
3
8.94%
11
28.46%
35
35.77%
44
24.39%
30

123

3.71
Emphasis
onlearning
frompast
projects.
3.25%
4
8.13%
10
27.64%
34
39.02%
48
21.95%
27

123

3.68
Emphasisof
capturing
andreview
oflessons
learnt.
5.69%
7
4.88%
6
34.15%
42
31.71%
39
23.58%
29

123

3.63
Continuous
focuson
Learning
and
Growth.
4.07%
5
8.94%
11
39.84%
49
30.89%
38
16.26%
20

123

3.46
Implementation
ofAward
and
Recognition
program
10.57%
13
11.38%
14
38.21%
47
25.20%
31
14.63%
18

123

3.22
D
R
A
F
T

C
O
P
Y
CostEscalationinEPCsectoruptoEngineeringstageWearefocusingonidentifyingcostescalation
14/15
39.02% 48
18.70% 23
17.07% 21
13.82% 17
7.32% 9
4.07% 5
Q9Whichroledoyouthinkisthe
mostpivotal(Influential)ineffective
costmanagement(avoidcost
escalation)attheestimationstage?
Answered:123 Skipped:0
0% 20% 40% 60% 80% 100%
Estimation/pr
oposal
manager
Engineering
manager
Engineering
Discipline
Leads
Estimation
leads
Contracts
Manager
Business
Develop
Manager
Estimation/proposalmanager
EngineeringDisciplineLeads
Estimationleads
Engineeringmanager
BusinessDevelopManager
ContractsManager
Total Total 123 123
# Other(pleasespecify) Date
Therearenoresponses.
AnswerChoices Responses
D
R
A
F
T

C
O
P
Y
CostEscalationinEPCsectoruptoEngineeringstageWearefocusingonidentifyingcostescalation
15/15
32.50% 39
27.50% 33
23.33% 28
10.83% 13
3.33% 4
2.50% 3
Q10Whichroledoyouthinkisthe
mostpivotal(Influential)ineffective
costmanagement(avoidcost
escalation)attheDetailEngineering
stage?
Answered:120 Skipped:3
0% 20% 40% 60% 80% 100%
Project
Manager
Engineering
manager
Project
Controls
manager
Riskmanager
Engineering
discipline
Leads
PMC
Engineeringmanager
ProjectManager
EngineeringdisciplineLeads
ProjectControlsmanager
PMC
Riskmanager
Total Total 120 120
# Other(pleasespecify) Date
Therearenoresponses.
AnswerChoices Responses