Reprinted from Petroleum Technology Quarterly Q1 2012 Cost estimating for turnarounds www.eptq.com Cost estimates for refinery turnarounds can lack accuracy, but lessons learned from capital project estimating could improve matters Gordon LawrenCe Asset Performance Networks urnarounds are major events turnaround cost estimates. Rather, it typically take place on a four-to-six for refineries and other petro- attempts to lay the groundwork for year cycle. The length of a typical T chemical facilities. They a discussion on how to improve cost turnaround execution phase (ie, the typically cost significant sums of estimating in process facility turna- period when the facility is shut operational expense (opex) and capi- rounds. It highlights the point that down and hydrocarbon free) is tal expense (capex) money to cost estimating in the turnaround usually around three-to-five weeks. execute. They cause lost opportunity world is currently not very accurate. The scope of a turnaround typi- cost through lost production while It then goes on to look at ideas on cally includes: the facility is shut down. If poorly how to improve cost estimate accu- • Inspection of equipment to managed, turnarounds offer signifi- racy, by looking at ideas that might company regulations or governmen- cant risk of accidents. If poorly be adapted from the capital project tal rules executed, they can also be the cause world. In particular, it looks at the • Inspection of pipework for corro- of significant production disruption stage gate approval system, the sion and erosion damage, both after startup, due to leaks and other development of scope and estimate internal (process weak points) and production trips. Hence, there is a bases for different levels of estimate external (corrosion under insulation, potential to save significant sums of accuracy, and at the development of or CUI) money, by ensuring turnarounds are allowances for “known unknowns” • Cleaning, repair and maintenance run correctly. and contingency for “unknown of equipment, pipework and instru- However, despite the large poten- unknowns”. Finally, it makes some mentation (pulling and cleaning heat tial for saving money, there has, suggestions for the next steps in exchanger tube bundles, repairing until recently, been very little focus developing better turnaround cost leaks in pipework or checking of in the turnaround world on making estimates. pressure relief valves) sure turnarounds are run cost effi- • Minor upgrades and modifications ciently or on finding ways to what is a process industry to the facilities (items controlled improve cost estimating and execu- turnaround? under the “management of change” tion skills. In the past seven to eight A turnaround (in the context of the [MoC] procedures) years, this attitude has begun to process industries) is defined by the • Tie-ins for capital projects. change and turnaround teams are American Petroleum Institute as “a beginning to look at how they can planned, periodic shutdown (total or Historically poor estimation and improve. One potentially rich source partial) of a... process unit or plant execution efficiency of ideas on how to improve is for to perform maintenance, overhaul Historically, there was a tendency the turnaround teams to examine and repair operations and to inspect, among operating companies to view how their capital project brethren test and replace process materials turnarounds as an inevitable and estimate and execute projects. In the and equipment”.1 Refineries and necessary evil, and to accept that capital project world, the potential other petrochemical facilities that they would “cost what they cost” for “leaving money on the table” run on a continuous rather than a and “take as long as they take”. due to poor project estimating and batch production cycle must, every However, in recent years, there has execution has meant that decades of few years, shut down operations to been a growing recognition that this time and effort have been spent, and provide access to the production attitude leaves “money on the table” continue to be spent, on developing units in order that essential mainte- in the form of the opportunity cost techniques to ensure that estimation nance, modification and inspection of lost production while the facility and execution is carried out work can be carried out that could is shut down for longer than neces- efficiently. not be done while the units are in sary; and unnecessarily excessive This article focuses on cost estima- operation. expenditure of money during the tion. It does not presume to provide Turnarounds are events that are turnaround, through running the all the answers on how to improve planned well in advance and turnaround inefficiently. www.eptq.com PTQ Q1 2012 33 In order to improve turnaround efficiency, there is a need to examine the estimation of costs for turna- rounds, the estimation of schedule time, and the efficiency of planning and execution of the turnaround. Figure 1 Expectation of accuracy in turnaround control estimates: vox populi This article focuses on the first of those three areas, the estimation of improve cost estimating accuracy in results in a ±50% accuracy estimate, costs. turnarounds. the following conceptual design stage results in a ±30% estimate, and accuracy of turnaround cost Comparing capital projects with the final basic design stage results in estimates turnarounds a ±10% estimate. Hence, the focus of A cost estimate needs to be accurate Cost estimating of capital projects in the stage is in developing a scope in order to provide management the process industries has gone basis to meet the estimate basis with the information needed to through a number of improvements requirements for the level of accu- decide how to proceed, to allow over the years. It may well be that racy intended cash flow planning and to aid in some of the lessons and devices • The project cannot proceed to the firm control of expenditure. used in capital projects can provide next stage without first going In a survey of conference partici- a basis from which to develop a through a stage gate review to check pants at the Turnaround Industry system for better turnaround whether it has achieved the required Networking Conference (TINC) — estimates. scope and estimate basis Europe, held in March 2011 in • Full funding of the project is Amsterdam, The Netherlands,2 83% Stage gates usually only received at the end of of respondents said that their turna- Capital projects the third, basic design phase. round control budget was intended In the capital project world, it is now The focus, therefore, in the capital to be a ±10% estimate (see Figure 1).3 generally accepted that front-end project world is on calculating “How The remaining 17% said that their definition is the key to a successful much money do we need in order to estimate was supposed to include project. In order to achieve good carry out this scope?”. sufficient contingency/reserve that front-end definition, capital project it was a “not to exceed” number. teams have largely moved toward a Turnarounds None said that their budget was stage gated approach, whereby the In the turnaround world, there has intended to be a ±30% estimate. design proceeds through three been a movement in recent years We then took a sample of 93 recent distinct stages of ever-improving towards a form of stage gated turnarounds and in each case scope definition.4 Key points are: approach, in an attempt to improve compared the total actual cost for • The length of each stage is a func- front-end definition. However, the the turnaround (including both capi- tion of the work required to be system is not yet as clearly defined tal and maintenance work) with the completed in that stage as in the capital project world. control budget. Figure 2 plots the • The culmination of each stage is a There are some key differences in over- or under-run of the actual cost estimate, with the estimates the way the approach is applied. costs, expressed as a percentage of getting more accurate with each The length of each stage is (more or the control budget. It shows the succeeding stage. Generally speak- less) fixed, based on the amount of mean (the horizontal bar) and 80% ing, the feasibility stage of a project time remaining until the turnaround confidence range (the vertical bar) of the results in our sample set and 170 compares it to the results we would 160 have expected if the cost estimates P90 truly were ±10%, or if they were 150 ±30%. 140 Based on the results shown in 130 Figure 2, we can say that turnaround 120 Mean cost budgets tend, on average, to 110 under-estimate the actual cost by 100 around 16% (the distance of the 90 P10 “mean” bar from the 100% point) N=93 and the budgets themselves show a 80 variability of closer to ±30% accu- 70 proportion of the budget, % proportion Actual turnaround costs as a Actual turnaround racy than their purported ±10% 60 accuracy (the vertical line shows the Theoretical range Theoretical range Turnaround 80% confidence range around the ±10% estimate ±30% estimate actual costs mean). Clearly, there is an opportunity to Figure 2 Accuracy of turnaround control estimates: expectation and reality www.eptq.com PTQ Q1 2012 35 starts. Generally, by about 14–12 months before the turnaround, the ±50% ROM ±30% ROM ±10% first review of status will be held. A estimate estimate control estimate second review may be held around nine-to-six months before and the General project data last review about three-to-two Project scope General Defined Defined months before. description The stages are not focused on Facility capacity Assumed Defined Defined scope definition for cost estimates of a given accuracy. Instead of the Facility location General Specific Specific issuance of an estimate marking the end of a stage, the ends of these Ground surveys None Defined Defined stages are delineated by their prox- Project imity to the start date of the None Defined Defined turnaround.