USP&E EPC Risk Management

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EPC, Not quite familiar with the term?

Is this a familiar term to most people? Most likely not. Imagine the shock and horror on a person’s face if a highly demanding boss were to point their finger at a person and bark the instructions, “Do the EPC on this vital project,” when the person has no experience or even familiarity with this vital process for any specialized projects success. 

EPC is an acronym for “Engineering, Procurement, and Construction,” and refers to the following three phases of project development: 

• Engineering: The design/development phase of a project where the primary engineer or a team of engineers will draft technical schematics for the project. Project management will also consider the scope of work, dimensions, and specifications for each step, and develop systematic policies to complete the project according to set budget and quality standards.
• Procurement: The purchase of all the materials, components, and subsystems that will be needed to complete the scope of work specified within the schematics of the project.
• Construction: Erecting, building, and commissioning the designed plant contingent upon the previous two steps.  

What is EPC Like In Risk Management

EPC is likewise only used within a very particular context. Although one could argue that the term could be used to refer to numerous project types which require planning, designing, and building, the intended use of this term is about EPC conducted for Power station projects.

Each EPC project needs a special set of attention due to the complexity of the project being completed, and the necessity of this project functioning optimally. For example, companies such as USP&E Global have a large number of positive references from across the globe because of their extensive experience in the EPC, O&M, and consultation on many thermal power plant projects.

The essential requirement for communities and companies within the emerging industries is functional power. A reliable and load reactive energy systems that require management professionals who can swiftly take all necessary precautions toward positioning the project to a guaranteed success.

Are there risks involved in EPC?

A key part of understanding risks is understanding risks and where it can be pinpointed. A risk is any factor or force which can hinder the progress of a project, you essentially have a risk. Something that will cause regression in the completion phases of the EPC project and will expensively impact the company doing EPC.

What are the main areas which contribute risks to companies’ endeavors to complete an EPC project?

Experienced EPC contractors identify 4 primary types of risks that can impact a project.

1. Time risks. Any set backs or delays which affect the timeline of the project, which can cause large budget readjustments and other problems from the company policies.
2. Cost risks: Any surplus cost of financial problem which affects the companies ability to effectively complete the project which needs to be completed by the company.
3. Resource risks: Any risk that arises from the lack of resources or other problems which surround the materials or personal which is needed to complete a project.
4. Commercial or contract risks: Any risks arising from legal or commercial sanctions which binds the contractor.

Although each type of risk may not seem to carry a substantial impact on a particular project, the impact within each one can have a substantial, if not crippling, impact on a project.

Begging the question, how do we prevent EPC-related risks from becoming realities?

1. Forecast and Prepare.

It is critical to prepare for the possible risks before even taking the first step. An EPC project will inevitably have a large number of unidentified risks that must be properly defined before a contractor can begin work on the project.

To calculate the risks involved in a project, the EPC company must consider every risk and take the appropriate actions. After an overarching outline of risk factors have been identified, they can be grouped into 1 of three main areas per the below diagram.

External Environment Predictable Sources	Internal Environment	External Environment Unknown uncertainties
Political and Legal	Scope change, Time overrun, Cost Overrun	Leadership and organizational failure	Acts of God
Design and Specification	Technology Change	Resource Failure	Ecology
Financial and Economical	Quality and specification failure	Contractor Failure	Safety and Health

                Cited from “Risk management in EPC contract – Risk identification” pg.9 (Feb 2014).

2. Estimating and managing

The next vital phase of risk management is to estimate how to cost these risks. Effective EPC risk managers make use of charts like the above and below as guidelines to assess the risks that exist within the current projects available to the EPC contractor.

The possibility that each potential risk will materialize (Unlikely-Extremely likely) and moreover, the effect that each risk element will have on the project are identified and rated for each potential danger (minor-critical).

The combination of likelihood and impact scores equal the scope of the risk and are compiled into a risk measurement chart commonly referred to as a “risk matrix.” This serves as the most vital component of a companies strategy to counter any risk which could delay or destabilize the efforts to complete the project.

                           

3. Acquiring resources for risk management

Even after risk plans have been established to prevent EPC, project failure. It is ineffective to engage a risk management plan without having the necessary resources to implement this plan? In project terms, to prepare a plan without preparing the financial resources for this plan is the same as jumping out of a plane without a parachute.

After companies have created a summarised list of every risk involved in the EPC projects, it will become necessary to have a sufficient budget plan which can fund the approach to risks involved within the project.

One of the most effective methods is to ensure sufficient contingency funds are built into the project being planned. Companies like USP&E global will do their utmost to price themselves in a means which any possible risk can be paid for with the payment received from a client. If this is done properly, the contractor will never need to worry about losing funding on behalf of a project failing from an unbudgeted risk.

Although effective in optimizing project performance and the contractor’s profit, this strategy does have one disadvantage. The customer may be used against them by proposing a price markup that is significantly higher than is necessary for a contract that is fully funded if the client is unaware of the precise economic worth of each service and asset the EPC contractor might offer. As a result, this has lead to massive mistrust of a great deal of EPC companies all over the world.

USP&E’s Risk management System

Although problems of unjust pricing markups can cause significant harm to the integrity of EPC companies, methods of, however, are avoided through straightforward implementation of the following principle. Validate your proposals through precision preparation.

Since the resources and equipment required to complete projects are always changing, each EPC project may be exceedingly difficult to cost. The majority of an EPC contractor’s time spent planning for risks is spent estimating how much a customer will have to pay for the project’s specific parts, building materials, and other risks.

If this is done incorrectly, one of two problems begins pestering the project manager.

1. The price is extensively more expensive than a client expected and incurs loss from the project.
2. The price of completion is lower and creates financial loss for the contractor. 

Thus, how can we avoid these problems?

Key Estimator at USP&E John Bryant has decades of experience in successful EPC projects across Africa. After these numerous years of experience, he believes the best method to prepare for the worst, is to give the plan a giant pillar to protect it from the elements. As a result, the necessity of having the following to create a fair and effective pricing method is the only means of doing so.

Precise [EPC] cost estimations are directly proportionate to the available information.”

John Bryant Director of project management at USP&E global.

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Our Reputation

The policy which governs the entire cost estimation methos used at USP&E involves educating each respective area of ensuring that we can prepare for our costs is to justly and effectively know.

Our company has an excellent reputation as experienced Thermal Energy EPC . We have successfully completed a large array of highly complex projects all over the world. We have put extra work into making sure that every step of our process, including turnkey solutions, is well established and falls within our costings.. Providing every sufficient resource for a client’s power plants to run with optimum efficiency, and reserve everything needed to protect that project from failure.

Here at USP&E, we are about creating Excellence with speed and taking personal ownership of our work. As a result, we acknowledge each time we make any mistakes. We will do our utmost best to create the excellence we strive for.

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