<abstract xmlns="http://www.w3.org/1999/xhtml"><p>Engineering, procurement and construction (EPC) business in Europa is increasingly under pressure. Lack of productivity, low or negative profit margins for investors, and the lack of adopting necessary innovations and digitalization—from engineering activities through operations and maintenance to decommissioning—have caused significant deprivation of business and competitiveness compared to emerging providers in Asia. The quest for reducing capital expenditures (CAPEX) in EPC projects is intensifying. In May 2018, a research project was started to analyze the situation and key trends through desk research, to research how the challenges of the business could be tackled and to derive practical guidance for EPC contractors as well as for investors, owners, and operators (O/O). The project aimed to propose innovative ways of improving the EPC business model to reach the next level (“EPC 4.0”). In doing so, lessons learned from the automotive and aviation industry were considered. A key objective of the research project was to challenge statements of international EPC experts to cut CAPEX by 40–50% in EPC projects. With this statement in mind, the research focused on identifying measures with potential in six areas: (1) digitalization, (2) partnering, (3) flat supply chains, (4) flexible organizations, (5) core competences, and (6) the human factor. Summarizing the findings in these areas, the EPC 4.0 project came to a savings potential of up to 50% of the total budgeted project costs.</p></abstract>

Engineering, procurement and construction (EPC) business in Europa is increasingly under pressure. Lack of productivity, low or negative profit margins for investors, and the lack of adopting necessary innovations and digitalization—from engineering activities through operations and maintenance to decommissioning—have caused significant deprivation of business and competitiveness compared to emerging providers in Asia. The quest for reducing capital expenditures (CAPEX) in EPC projects is intensifying. In May 2018, a research project was started to analyze the situation and key trends through desk research, to research how the challenges of the business could be tackled and to derive practical guidance for EPC contractors as well as for investors, owners, and operators (O/O). The project aimed to propose innovative ways of improving the EPC business model to reach the next level (“EPC 4.0”). In doing so, lessons learned from the automotive and aviation industry were considered. A key objective of the research project was to challenge statements of international EPC experts to cut CAPEX by 40–50% in EPC projects. With this statement in mind, the research focused on identifying measures with potential in six areas: (1) digitalization, (2) partnering, (3) flat supply chains, (4) flexible organizations, (5) core competences, and (6) the human factor. Summarizing the findings in these areas, the EPC 4.0 project came to a savings potential of up to 50% of the total budgeted project costs.

EPC 4.0: The quest for reducing CAPEX in EPC projects

Tiba Managementberatung GmbH, Board of Directors

Organization, Technology and Management in Construction: an International Journal

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

{"article-title":"EPC 4.0: The quest for reducing CAPEX in EPC projects"}

Engineering, procurement and construction (EPC) business in Europa is increasingly under pressure. Lack of productivity, low or negative profit margins for...

Cost Element	Cost Breakdown before savings	Team integration	Productivity	Transaction costs	Schedule accel.	Total Savings	Cost Breakdown after savings
Owner	13	50%	30%		20%	72%	4
Project Management	6	50%	30%		20%	72%	2
Construction & Start-Up Management	8	50%	30%	10%	20%	73%	2
Engineering	14		30%	10%	20%	44%	8
Equipment	21		30%			37%	13
Bulk Materials	11			10%		10%	10
Construction Labor	12		30%	10%	20%	50%	6
Other Construction Costs (e.g. site logist.)	2			10%	20%	28%	1
Contingency	6			50%		50%	3
Special Costs (Legal, Travel etc)	7			80%		80%	1
	100						50

EPC 4.0: The quest for reducing CAPEX in EPC projects

Article Category: Technical Paper

Published Online: Jul 27, 2020

Page range: 2245 - 2255

Received: Dec 25, 2019

Accepted: May 08, 2020

DOI: https://doi.org/10.2478/otmcj-2020-0020

Keywords
EPC, CAPEX, competitiveness, productivity, digitalization, partnering, human factor

© 2020 Reinhard F. Wagner, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Fig. 1

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Fig. 3

Fig. 4

Fig. 5

Fig. 6

Example of the cost breakdown for an EPC project with potential savings

EPC 4.0: The quest for reducing CAPEX in EPC projects

Article Category: Technical Paper

Published Online: Jul 27, 2020

Page range: 2245 - 2255

Received: Dec 25, 2019

Accepted: May 08, 2020

DOI: https://doi.org/10.2478/otmcj-2020-0020

KeywordsEPC, CAPEX, competitiveness, productivity, digitalization, partnering, human factor

© 2020 Reinhard F. Wagner, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Fig. 1

Fig. 2

Fig. 3

Fig. 4

Fig. 5

Fig. 6

Example of the cost breakdown for an EPC project with potential savings

Keywords
EPC, CAPEX, competitiveness, productivity, digitalization, partnering, human factor