Steven Kratsis highlights how operational excellence is not just about physical plant assets – it is also about people
A weak workforce in a weak economy leaves engineering and construction companies (E&Cs) vulnerable to stronger competition. The key to long-term sustainability in the oil and gas sector is balancing operational strategy with market demand and reliance on the ‘grey matter’. Best-in-class operations require best-in-class minds. Companies need to ensure that their strategies include investment in cutting-edge technologies, brain power and skills to give their businesses a clear advantage in a turbulent marketplace.
The current dearth of oil and gas projects is matched by the scarcity of knowledge across key areas of the business. From upstream initiatives through midstream and downstream operational activities, the talent pipeline is the vital ingredient to providing companies with the expertise needed to tackle today’s business challenges. In addition, the platform for tomorrow’s generation of engineers is optimising the big asset – people.
Many E&Cs recognise that helping owner-operators achieve operational excellence is no longer an option – it is a commercial imperative. However, for this to happen, it is equally important to see talent and expert skills nurtured as an integral component of their business plan to achieve long-term success. Effective engineering across the asset lifecycle includes making vital operational decisions on a daily basis. Without the best people and tools, it is difficult to remain efficient and competitive.
Understanding the issue
The E&C industry is complex and fragmented, covering a range of disciplines, including design and planning, cost estimating, civil engineering, maintenance and refurbishment. The sector employs millions of workers worldwide with varied roles and responsibilities. Many skilled workers are hired by established E&Cs. Yet, they are often only on short-term contracts. This instability means that specialist skills are hard to find. Another barrier to stability is that project bids still tend to be won on a cheapest or fixed price basis, forcing companies to work towards the lowest common denominator. When margins are tight the E&C often faces the biggest risk.
Recently, E&Cs have reduced staffing levels and consequently lost valuable engineering know-how and experience. A 2014 report by the UK’s Chartered Institute of Building and the Construction Industry Training Board stated, “The downturn in the economy had a devastating effect on construction, with 400,000 job losses and one of the highest redundancy rates of any sector. The impact was particularly felt on recruitment of young people, where apprenticeships have plummeted."
Addressing the pain points of clients efficiently and being able to demonstrate expertise is essential for E&Cs. Tackling capital project uncertainties, for example, involves knowing which projects are forthcoming and having sufficient engineering resources to handle them. At the same time, the ability to demonstrate to clients you can save time, money and maintain quality standards are key to winning contracts and securing client confidence. The big risk is that commercial pressures are forcing E&Cs to take short-term measures, which can damage the skills supply. Talent forced to leave the construction industry today may never return and could migrate to other industries, such as finance and IT. In some cases, veterans with specialist skills are being encouraged to not retire and work part-time to help retain their knowledge and ensure successful project continuity.
What the experts say
Back in 2011, EY Oil & Gas Risk & Opportunity reported: “22% of oil & gas respondents indicated a lack of qualified personnel was already impacting their operations”. However, just four years on and a 2015 Skills & Demand in Industry report by the Institution of Engineering and Technology (IET) reveals that “53% of employers are having difficulty recruiting adequately skilled staff”. The report also highlights “that almost 70% of employers have reported a lack of available graduates while 66% voiced their concerns that the education system will struggle to keep up with the skills required for technological change.”
So, why is industry not learning its lessons? The turbulent economy has clearly forced many E&Cs and owner-operators to cut resources or invest capital elsewhere. However, irrespective of market forces, stronger collaboration between employers and academic institutions is needed to plug gaps and build a sustainable talent pipeline. Ultimately, operational excellence can only be attained with a highly-skilled workforce. Clearly-defined roles and targets are needed in order to control, maintain and sustain the business to short and long-term success.
At a recent European Energy Forum in London, David Brown, CEO, IChemE highlighted: “Skills supply, the human infrastructure of our industries, is not something that you can plan or deal with on a scale of months or years. Like some of the major infrastructure in which we invest, it is something to be planned on a scale more like decades. Enthusing a young person with a career in engineering through to becoming fully qualified, chartered and achieving ‘time to autonomy’ might take up to 15 years.”
In view of the cycle time to nurture skills, having the right integrated software tools to help perform effective designs means E&Cs can reach better planning and capital decisions faster. In essence, critical knowledge and skills drive behaviour and dramatically improve results from the plant floor to the boardroom.
History tells us many companies struggle in a growing market after a slump because they are not ready to compete and fulfil customer demands. Forward thinking E&Cs have decided to redeploy skills to other areas of their business, which ensures they retain the expertise. For example, if the upstream industry sees a downturn and the downstream industry experiences an upturn, smart engineering companies will have safeguarded their skilled workforce to be well placed to competitively ‘bid-to-win’ and successfully fulfil projects. Companies need to be ready and equipped – tooled up and talent rich. The oil and gas industry is asset intensive and needs to be efficiently maintained, so people need continuous improvement through quality training and investment.
Invest and innovate
Those E&Cs that have a diverse portfolio supported by expertise and advanced software will capitalise on the opportunities ranging from LNG, exploration and production, power generation, petrochemicals, refining and more. With the increasing use of global project teams, most international E&Cs operate with centres of excellence to attain better business processes, communication and integrated systems.
Many E&Cs have standardised on AspenTech’s aspenONE Engineering software suite, which incorporates an integrated engineering lifecycle approach to design best practice for implementing solutions that will help their business address the need to achieve flexibility, streamlined processes, global execution, global collaboration and capital cost efficiency. Users have achieved improvements in project performance and cycle time in all aspects of the workflow. In addition, by empowering engineers with AspenTech’s tools, E&C majors have measured a 30% improvement on FEED project performance and streamlined their workflow across global offices.
Technology should be seen as a competitive differentiator, not simply a cost of business. Integrated engineering software includes leading products that satisfy an engineer’s needs within every stage of the value chain, such as for conceptual engineering, cost estimation, analysis and understanding the engineering workflow. The results are consistent decisions and improved engineering efficiency delivering benefits of 10-30% in capital and operating costs and 30% in engineering efficiency. In addition, benefits of 2-8% in operating cost reduction can be obtained by reusing engineering models during manufacturing and supply chain phases.
Productivity is a process whereby people, processes and technology can extract the maximum value from a manufacturing asset, which will result in increased E&C performance and profit. As an ageing workforce reaches retirement and diminishing operational expertise takes its toll, retaining talent is a priority. Whilst many E&Cs face a market slump, those companies that do not plan for the market uplift or get the green light to invest in cutting-edge software will suffer from an inability to meet future growth.
Operational excellence is not just about physical plant assets – it is also about people. Automating best practice enables more engineers to add value on owner-operator projects. From young engineers to seasoned veterans, technology successfully helps address complex problems that support better decision-making. As smart E&Cs are using their grey matter to invest in software and differentiate their businesses in the market, now is the time to start thinking ahead.
Steven Kratsis is Vice President, Engineering and Construction, AspenTech