EPC 4.0: The quest for reducing CAPEX in EPC projects

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.

Keywords

• epc
• capex
• competitiveness
• productivity
• digitalization
• partnering
• human factor