From North American Downstream Market Outlook and Insights 2019 | p.75-77
Download the full report here.
Insights and Establishing a Long-Range Strategy
with Shawn Hansen, AP-Networks
With budgets and labor hours in the millions, and risks into the billions, shutdowns and turnarounds present enormous management and budgeting challenges for the energy sector.
Turnarounds are critical to the bottom line of refinery and chemical companies. These can be major events impacting a company’s profits for every day of lost production, and potential harm to plant reliability if the turnaround is performed poorly. Safety and environmental risks are also a hazard.
Optimization for timetables of turnarounds is more important now than ever before, according to analysts at AP-Networks. Long-range planning done well with effective strategy and scope can level staffing needs and risks, improve budgets and schedules.
Five-Year Plans May Not Be Long Enough for Making Strategic Decisions
The turnaround work process is often focused very heavily on two years out as a kick off to turnarounds. But the long-range plan is focused on five to 10 years out, and many are pushing this out even further now, AP-Networks said.
“To understand the next five years, we have to understand what’s happening beyond the next couple of years,” said Shawn Hansen AP-Networks Vice President, Research, Data Analytics, and Benchmarking. “Five-year plans may not be long enough for making strategic decisions, key decisions that may impact subsequent turnarounds.”
The five-to-ten-year considers: turnaround cycles, turnarounds and catalyst changes; capital projects, known and anticipated; inspections and safety programs; and plant and corporate initiatives.
The long-term plan is reviewed regularly and has multiple stakeholders including operations, maintenance, and commercial engagement.
Changing Start Date-Failure Risk
The refining industry has struggled to execute large, highly complex turnarounds on budget and on schedule. AP-Networks data indicate that more than two-thirds of turnarounds exceed their planned cost and schedule by 10% or have a trip after startup. 40% of turnarounds experience a cost over-run or schedule delay of more than 30%.
One of the key findings in AP-Networks research is that almost 50% of turnarounds change their start date at least once. This is now correlated to turnaround failure and risk.
Reasons for changing the start date are varied: mechanical issues, labor, supplies, environmental, or changing business conditions. AP-Networks notes that in some cases, facilities are changing these turnaround start dates multiple times, as much as four times or higher.
“Changing a turnaround start date is a leading indicator of failure. It substantially increases the risk that you are going to overrun on costs and schedule. It’s one of the components that goes into our risk register,” Hansen said.
Scope Done Wrong
The turnaround work scope is the most critical item related to performance outcomes, as it is the foundation for cost, schedule, and plant reliability.
Minimizing the amount of scope and the level of scope growth during the turnaround execution window is the primary driver of competitiveness. Yet, despite the importance of turnaround scope, historically there have been several challenges with scopes in turnaround planning.
Top Challenges with Scopes in Turnaround Planning include:
- The Long-Range Plan is used for budgeting. Often lacking relationship between scope and budget – Striving for a top quartile budget regardless of scope – Are the 75% of turnarounds outside the top quartile successful?
- Turnaround teams are not involved in setting long-range cost and schedule targets and understanding of risks.
- Trade-offs between Lost Profit Opportunity (LPO) and risk are difficult to understand.
- The Turnaround Work Process is fast and focused on single events.
Some of the common issues out there is that the long-range planning is used for budgeting, but it often lacks relationship between budget and scope.
“Often, the budget is established by some other target and we are striving for a top quartile budget, we want to be in the top 25%. The number one way that we overrun our turnaround costs and schedules is by having unrealistic targets,” Hansen said. “What this is saying is without having the scope defined we are trying to be in the top quarter. This means 75% of us are not going to be successful. And this is not going to have a scope that is going to drive success and reliability either.”
Another challenge is that turnaround teams are often not involved in setting the long-range cost and schedule targets and developing the understanding of the risks. As a result, these long-range plans are established by commercial teams who may not understand complexities of the turnaround and the risks involved. A risk profile is never created as thoroughly as it could be done.
Scope Supports Budgets, Staff and Risks
A baseline scope supports budgeting, staffing, and risk management. The scope can be used to develop conceptual cost and schedule estimates. Conceptual estimates can be used to investigate alternatives to optimize business value and risk trade-off.
Scope relates to cost, schedule, and risk. A baseline scope supports budgeting, staffing, and risk management. Scope can be used to develop conceptual cost and schedule estimates, Hansen points out.
Preliminary Scope numbers help set expectations. Numbers will include turnaround interval, the scope selection process, inspection programs and risk-based inspections. A preliminary worklist might include: Reactors, Vessels, Towers, Rotating Equipment, Fired Heaters, Exchangers; as well as conceptual numbers for piping, valves, instruments, and electrical. Conceptual estimates can be used to investigate alternatives to optimize business value and risk trade-off.
Optimizing scope selection helps companies reduce spending by minimizing the scope, keeping scope at manageable levels, and enabling more effective turnaround execution by eliminating the typical industry scope ‘churn.’