Value Engineering in Project A HPL Perspective Rabin

Value Engineering in Project A HPL Perspective Rabin Mukhopadhyay National Seminar on Project Management __ Jun 2017

Agenda 1. Value Engineering – An Understanding 2. A Case Study on Value Engineering in HPL – Introduction – Project Brief – Major Opportunities for Value Engineering – Value Engineering Approach – Value Re-engineering & Benefits

Value Engineering: An Understanding • Value and Price are different, even though misunderstood as “Synonyms” • We often compare alternatives and evaluate “what we pay” for “what we get”. • “What we get” is known as “Value” and embodies ‘functions’, such as, performance, reliability, maintainability, etc. • Value Engineering (VE) is a management technique that seeks the best functional balance between cost, reliability and performance of a project or product development. • VE process succeeds due to its ability to identify opportunities to remove unnecessary costs with regard to the functions.

Value Engineering in Project is a systematic approach to: i. Identify items in project configuration which increases project cost without commensurate benefit i. e. incremental costs are higher than incremental benefits. ii. Identify alternate engineering solutions to achieve the project objective at lower costs Alternatively, Value engineering is an approach to maximize project benefits at marginal cost increase i. e. incremental benefits are higher than incremental costs

Projects for Value Engineering Projects which benefit most through Value Engineering are: i. Costly Projects: Cost saving - > 5 to 10% ii. Complex Projects: Secondary opinion from members independent of executing team iii. Projects with Restricted Budgets: Elimination of ‘unnecessary costs’ iv. Projects with Compressed Design Programs: VE activity well coordinated with design programs

Why Value Engineering Helps ? Value engineering helps in cost optimization by facilitating: i. ‘Out-of-the-box’ thinking, which is often missed out due to schedule and cost pressure or ‘fear of failure’ while trying new options ii. By bridging ‘Knowledge gap’ through collaborative approach to problem solving iii. Elimination of ‘unnecessary cost items’, which often creeps into the ‘bottom-up’ approach to identification of project requirement

Steps in Value Engineering General steps in Value Engineering are: i. Information Collection: Functional analysis of each cost item and derived benefits to identify “least worthy items” ii. Generation of Ideas: Identify alternative ways of meeting desired requirements at lower costs iii. Analysis: Analysis of each idea wrt cost and value perspective and long term impact iv. Evaluation: To identify the best idea v. Presentation & Review: To review and seek management approval vi. Implementation of Idea

Value Engineering in HPL A Case Study

Introduction • Naphtha based integrated petrochemical plant strategically located to serve 500 million population • IOCL Locations – Manufacturing Unit: Haldia GAIL – Corporate Office & Research Center: Kolkata RIL 00 1, 0 KM Application HPL – Township (HREL) : Haldia • : 700 KTA Ethylene • KTA: ‘ 000 Tonne per annum Capacity Total Investment: : ~ 2 bn $ • Area (HPL + HREL) : ~ 1, 350 Acres

Project Brief: Butene-1 C 4 -Raffinate 126 KTA Methanol KTA 35. 6 Butene-1 Plant Butene-1 30. 2 KTA MTBE KTA 98. 6 Balance C 4 KTA 33. 3 • Butene-1 & Py-gas Desulfurization (PGDS) projects were conceived to add value to HPL chemical streams. • Licensor: Axens, France • EPCM Contractor: M/s Technip • Project Cost: 298 Rs. Cr. • Project Zero Date: 7 th Oct 2016 • Target Completion Date: • Actual quotes were found significantly higher than the budgeted costs for contract ietms. Jul 2018.

Value Engineering Approach @ HPL • Formation of Team • Identification of Scope • Brain-storming • Solution Identification • Validation and Cost Benefit Analysis

Barricade Reduction • Present Consideration : A barricade needs to be build-up to segregate construction area from rest of the plant which is under operation. Certain operating personnel mentioned that the height needs to be 14 meter as perceived by him. • Implication : Increased number of piles, Civil foundation and barricading material, all these added to the cost. • Value Engineering Options: A cross functional team visited the site. Barricading height was determined in each location based on the surrounding hazard potential. Thus the total barricading height was rationalized and it was much lower that 14 m. • Risk and Mitigation – Barricade reduction in Tank Farm : No risk as other structures >40 m away – Barricade reduction in plant adjacent area: Slightly elevated, it was also decided to improve risk mitigation through improved supervision and careful planning of welding job. • Benefits – Reduction in Civil Foundation cost – Reduction in Structural Steel supply and erection cost

Structural Steel Quantity • Present Consideration: There are few slender column (L/D > 25) in the project. Those columns needed to be supported with structural column, as per design norm. Height of the supporting structure would depend on L/D ratio. • Implication : It was found that the weight of the structural steel required was more than double of the weight of the column. Cascading effect of increase in cost of structural steel, foundation, fireproofing, painting and erection expenses. • Value Engineering Options: Reduce the length to improve L/D and thereby eliminate structural steel requirement. This would mean breaking down the column with reduction height. One extra pump would be required but cost of additional pump is insignificant compared to the reduction in steel and associated cost. • Risks – Slight increase in Capex for Columns – Increase in re-engineering cost • Benefits – Reduction in structural steel supply and erection – Reduction in foundation cost – Reduction in schedule

Rationalization of Equipment One example of equipment rationalization is given as below: • Butene-1 product transfers have been considered through pumps even though upstream pressure is sufficient to push fluid to storage. As per normal even the pump was given standby. • Implication: Extra pump cost and cascading effect of engineering and associated piping, instrumentation, civil and electrical. • Value Engineering Options : Elimination of pump requirement where upstream pressure is sufficient to transfer the process fluid. In some cases where it was necessary fat the time of de-inventory one pump was provided not the standby. • Benefits: Reduction in pump cost, its engineering and all other associated cost. Similarly there was reduction of redundant equipment as well as costly instruments.

Sub-Station Building • Present Consideration : Sub-stations specified as blast proof. With no other detail mentioned, EPCM designed the same with default values. This required high concrete and structural requirement, • Implication: Huge cost of Structural steel and concrete. Moreover the schedule of construction also increased enormously. • Value Engineering Options: The risk characteristics of the proposed plant was check with the existing plant and it was observed that the risk characteristics remained unaltered. Hence, the sub-station building was built was the specification of the existing substation. • Benefits : Reduction in cost and schedule.

Rationalization of Civil Pavements • Present Consideration: Very high specification was applied in all pavement job at plant considering heavy crane movement all over. • Implication : High cost on civil • Value Engineering Options : Careful analysis of paving requirement was done. Crane movement roads (maintenance as well as construction) were identified. Only the crane movement roads were made concrete with high specification. Lower specification was applied to rest of the plant area and its surrounding road. • Benefits : There was substantial reduction in the pavement and covil cost.

Thank You Manufacturing Unit Haldia Petrochemicals Limited Post Box # 12, Durgachak Haldia, Purba Medinipur WB 721602 India Corporate Office Haldia Petrochemicals Limited Bengal Eco Intelligent Park (Techna) Block EM, Plot No 3 Sector V, Salt Lake Kolkata 700091, India http: //www/ Application Research & Development Center Haldia Petrochemicals Limited 54/A/1, Block DN, Sector V Saltlake, Kolkata , 700 091