the rush towards the new digital epc

BRUXELLES, DECEMBER 3RD

Federico Colombara - Partner & Associate Director, Milan

The Rush towards the New Digital EPC- Critical drivers to succeed -

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Digitalization in EPC value chain: a perspective

Key success factors in EPC digital transformation

Need for Change in EPC competitive modelAgenda

The Rush towards the New Digital EPC

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Productivity flatness in Construction industry: digital as accelerator in improving processes?

90

100

110

120

130

140

150

160

170

180

20051995 2000

Construction

2010

Business Services

2015

Manufacturing

Others

+74.2%

Digital can be the lever to embed

innovation in a seamless way and

drive productivity increase

Digitalization should aim at

critically reviewing internal

processes while simplifying them

1. Productivity calculated as output in Gross Value Added (GVA) divided by Labor Input (hours worked)Source: Organization for Economic Co-operation and Development (OECD), October 2016, BCG analysis

Productivity flatness (work hrs, base 1995) Digital to bridge the gap

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Digital to support EPC's aim to increase top&bottom line but also owner's loyalty against other players potential threats

OEMs and

technological players

are moving towards

more advanced and

"integrated" digital

solutions and a 360°

support in operations

EPC ecosystems

EPC contractors core

business

OEMs core business

Technological player

core business

Owners/Operators core business

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10-20%

Expected gross margin increase+3-8%

~ 80% Refining&Petchem players launching

or working on Digital Transformation

Efficiency / costs expected

benefits on target processes

Source: BCG

Clients have high expectations from EPC Digital Transformations

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Digital transformation... Not an easy ride & not a free meal

75%of large-scale Digital Transformation efforts

have failed to meet expectations1

1. More than 300 companies in different industries for more than 5 yearsSource: BCG Henderson Institute; BCG analysis

What does it take to go beyond the "myths"

of digital transformation and succeed?

"Digital Transformation's

success is based mostly on

the adoption of new

technologies"

"A structured ICT/technology-

driven delivery machine is

sufficient to ensure the

transformation success"

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rved.Digital

Transformation

success factors

3+

Attract digital talents to complement strong internal capabilities

• Selective hiring to boost capability building &

adoption of new ways of working

Structured processes of digital delivery / innovation

• Value driven business cases, replication of

successful approaches

Focus on "pervasive" engagement and change in the organization...

• Development of internal digital talents, "viral"

mechanisms of communication

... and beyond, across the entire EPC value chainFocus in

next

slides

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Focus on people & culture pays off in digital transformation

0

50

100

Companies that focused on

people /

culture change explicitly2

% of overall companies

with sustained financial performance after a digital transformation

Companies that

neglected culture change

5x

1. Breakthrough financial performance is TSR above 3rd quartile average for at last three years after 2nd year from starting of digital transformation 2. Companies with selection, incentivations mechanisms to identify and support digital talent Source: BCG – It's not a digital transformation without a digital culture

5x higher breakthrough

financials for

companies that focused

on people / culture1 in

their digital transform.

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EPC contractor to upgrade to orchestrator of the full value chain

Supply

ecosystem

Unbiased EPC contractor

("orchestrator")

Client / Plant owner

OEM

EngineeringSuppliers

Logistic

PartnersSubCo's

Other 3rd

parties

Procurement Construction Commissioning OperationsTendering Engineering

1

2

1 Single digital interface for client

2 Guidance for supply ecosystem

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Projects facing cost

overruns

60+%Projects reporting

schedule delays

70+%

Project failures

due to people

and governance

80+%Part linked to

contracting and

procurement

20+%

O&G projects worldwide still showing

critical pain points

How can the EPC contractor create value across value chain with digital?

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Inc.

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Long list of EPC digital use cases along the value chain

Low

com

ple

xit

y

Mediu

m

com

ple

xit

y

Hig

h

com

ple

xit

y

Not exhaustive

Tendering Procurement Construction

Quality check,

Commissioning & Life

cycle support

Engineering

SANITIZED

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Output

Technology

Cluster description

Inputs BIM Platform

Data maturity Degree

Ex. Engineering: BIM as a collaborative platform

Common 3D model, where all the disciplines, vendors can model plant, with

custom functionalities (e.g. automatic production of 2Ds, approval and tracking

of changes, commenting, etc.)

Eng, 3rd party Eng. &

vendors model plants

Eng. & clients comment

and approve models

2Ds & P&Is

• Unique platform

• Engineering integrated

workflow

• Daily update of 3D

model

• Open platform with

vendors

Real-time platform for

single information sharing

(cross disciplines)

Automatic production

of 2Ds

Baseline Bucket

• Engineering personnel

• Procurement personnel

• Construction supervision

• Construction erection

• 3D model integration platform

Benefits

ReworkReduction

Time reduction for document

mgmt

Optimization of cost/ benefits

for change

Examples – not exhaustive

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Output

Technology

Cluster description

Inputs DB for data gathering

and simulation

Simulation of "k" risk

coefficient to

evaluate "TCO costs"

Ex. Procurement: Sourcing intelligence platform

Sourcing intelligence tool provides a real-time assessment of vendors, alerting if a

vendor is below acceptance threshold (need of re-qualification). Besides, the tool

provides a quantified coefficient to evaluate risk of vendor under performance vs

pure price-related performance (bid vs peers)

• Vendors performance

predictive analysis

Real-time visualization

Dashboards

Automatic alert on

rating / performance

threshold

Baseline Bucket

Procurement personnel

Material supply

Transportation

Custom machine learning algorithm to

derivate pattern, correlation and KPIs

User friendly dashboard to interrogate

tools playing several parameters

Benefits

Reduction of vendor qualification costs

Reduction of Risk of vendor

underperformance

Vendors evaluation ratings

(also from market/peers)

Feedbacks from all value

chain (from Commercial to

Commissioning)

Performance @ Post Order

Present projects data:

Vendors current and

forecast workload

Vendors current delays

Material needs (quantity..)


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Ex. Construction: reducing effort in no value-adding activities

Benefits

Enabling factors

Technology maturity

Use case description

High: several solutions on the market and

applications already tested in construction

• Error-proof solution

• Improved project check and quality

• Improved service towards owner

• Use advanced software solutions for punch-list management to improved

project quality and service towards owners

• Digital punch list integrate data from construction phase to ensure a

proper quality check is conducted

• Data integration within the software

adopted

• Integration within IT architecture

• Adoption by the entire construction

team

Digital cloud-based punch

list available by everyone

in real-time to keep track

of open points

Digital cloud-based solution

including: field

observations, completion

lists, punch list


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End-2-End digital journey to unlock full potential (i/ii)

Time

Feasi

bilit

y

Hig

hLow

...

...

Spend analysis tool for purchase

decision making

...

...

...

...

Example: digital initiatives in

procurement and sourcing mapped

(illustratively) by time horizon and

degree of feasibility

SANITIZED

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End-2-End digital journey to unlock full potential (ii/ii)

Time

Feasi

bilit

y

Hig

hLow

...

...

Digital Permitto Work

...

...

...

...

Example: digital initiatives in

Construction & SubCo Mngmt mapped

(illustratively) by time horizon and

degree of feasibility

SANITIZED

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A digital EPC contractor can unlock material value for greenfield assets,leveraging...

... Deep know-how of the asset, not as

self-standing but as an integrated object

... Awareness of most critical equipment

from process perspective and its best setting

to make digital solutions work smoothly

... Capability to enable & create the layers

of "data" since day-1, based on know-how

of overall automation architecture & sensors

Ability to orchestrate/ select the best

suppliers for each digital solution,

depending on specific equipment and

peculiarities

... To enable a

different level of

efficiency in

Plant Operations

& Maintenance

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Value creation up to "Life Cycle Support" - if starting in T.0...

Digital project execution

Digital plant operations

Digital initiatives development • ...

• ...

• ...

Digital initiatives

enable Digital Ops

Tendering Procurement Construction

Quality check,

Commissioning &

Life cycle support

EngineeringT. 0

SANITIZED

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25-35%

10-15%

50-65%

…and unlock material value for greenfield assets

Relevant Project experience:

Leading EPC player able to deliver ~ xx pp in Contribution Margin @ client, via multiple digital levers

Illustrative

Connected field

operations:

• ...

Gain in EBITDA

from digital

initiatives

Digital levers (incl.

specific solutions)People productivity:

• ...

Plant productivity:

• ...

SANITIZED

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EPC 4.0 (R)evolution: will lead to change of paradigm in the market – also in contract management?

Transparency &

co-creation

Value offering

strengthening

TCO optimization

Enabler for more

collaborative

contract schemes

+

Client engagement

EPC 4.0 capabilities

22

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