Engineering firms face immense price pressure for their work. There’s a constant threat of losing business to a lower bidder or an offshore design outfit, and of course clients are always looking for ways to reduce their project costs. In addition, low commodity prices and economic instability frequently throw a wrench into the works.
For all of these reasons, nearly two-thirds of engineering and construction (E&C) CEOs say they face more challenges today than they did just three years ago.
So, how can firms compete and keep costs down? In this post, we’ll look at some common, but wrong, ways to tackle this problem, as well as how companies can do it better.
The wrong ways
When firms think about cutting costs, there are some standard strategies that immediately come to mind. Unfortunately, while these measures may save money in the short term (e.g., on a specific project), they can often end up costing much more in the long run. Let’s look at a few of these “wrong” ways companies often approach decreasing project costs.
Engineering departments and projects are frequently understaffed. In fact, engineers say that understaffing is one of the top design challenges they face.
In a previous article, we identified several reasons understaffing is a false economy. The bottom line is that while it may seem like hiring fewer people is a sure-fire way to reduce costs, the truth is that in the long run you will spend much more on mistakes and rework, not to mention the cost of replacing unhappy employees.
Skimping on safety
As engineers, we have an ethical responsibility for safety. Companies want to keep project costs down. Sometimes, these two objectives can come into conflict.
But they shouldn’t have to. As Exxon, BP, and many other companies have learned the hard way, choosing lower upfront costs over safety is another false economy. If and when a problem occurs (and, eventually, one will), the direct and indirect costs of fixing it will be much higher than the cost of getting safety right from the beginning.
And an untarnished reputation for safety? Priceless.
The right ways
If cutting staff and only meeting minimum safety requirements aren’t the best ways to approach cost-cutting, what is?
Let’s look at some more effective ways organizations can save money on engineering projects.
Decreasing the number of changes to reduce rework
Design changes can happen at any stage of a project. And the later they happen, the more they cost, mostly because of the rework that’s required to implement them.
While changes at some point in a project are pretty much unavoidable, many of the change requests that currently plague engineering projects can be eliminated through proper planning. This article outlines some useful principles of engineering change order management that, if followed, can drastically reduce the time and money spent dealing with changes.
Standardizing projects with predefined modules
McKinsey research has shown that modular standardization can save companies up to 15% on direct project costs and speed project delivery by as much as 20%.
So, what exactly is it?
Modular standardization essentially means not reinventing the wheel every time you design a new plant. Instead, you design the plant using a modular architecture, and then reuse those modules for future plants. According to McKinsey, “it’s possible to standardize at least one-third of all modules or submodules for even the most complex equipment. For some types of projects (for example, those with little variation, it’s possible to standardize up to two-thirds.”
Take a moment to imagine the savings if two-thirds of your project was complete before you started.
McKinsey notes that organizations that have successfully implemented a modularization approach “have a library of modules built with cross-functional input (engineering, commercial, and procurement) and use design software that provides access to approved modules and equipment lists covered by supplier purchasing agreements.”
Which brings us to…
Using the right software
Earlier, we wrote that understaffing and skimping on safety were the examples of strategies that seem like savings, but turn out to be very expensive in the long run.
Software is the exact opposite. Many engineering organizations view technology as an expense, when in fact it can confer huge savings in both the short and the long term.
The reason is because software supports other effective cost-saving measures. Software that supports cross-disciplinary collaboration and communication can help you keep change orders to a minimum. Design software that allows you to reuse modules across project supports modular standardization. Engineering Base does both.
Saving money on engineering projects doesn’t have to mean overworking your staff or overlooking opportunities to improve safety. With the right approach, and the right tools, you can meet all of your cost-lowering goals while still providing the high-quality work you’re known for.