Capital efficiency meets Industry 4.0: the capital projects and infrastructure business case

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When it comes to digital transformations, it may feel like you are behind the curve, but Industry 4.0 hasn’t revolutionized capital projects and infrastructure just yet. Business cases for investment in digital solutions are multiplying, but the approval of these solutions are difficult due to the lack of available proven cost-benefit metrics to demonstrate the ROI of potential emerging technologies. By weighing costs against value-adds, increased revenue or potential savings, companies will need to develop fit-for-purpose evaluation criteria, to determine which combination of technologies might drive the most sustainable benefits for each of their unique capital project portfolios.

What Industry 4.0 means for CP&I

“Industry 4.0” refers to the fourth industrial revolution, which connects machines, people, and physical assets into an integrated digital ecosystem that seamlessly generates, analyzes and communicates data, and sometimes takes action based on that data without the need for human intervention. That can slash costs, drive efficiency, and help capital projects finish on time and on budget with fewer surprises, less disruption and increased predictability. In other words, Industry 4.0 can lead to much greater capital efficiency for engineering and construction (E&C) and other infrastructure companies.

Figure 1 shows Industry 4.0’s most important technologies and how they connect.

Within 10 years, full-scale digitization could lead to savings between $0.7-1.2 trillion (13- 21%) in the Design & Engineering and Construction phases and $0.3-0.5 trillion (10-17%) in the Operations phase. While this is significant, it barely scratches the surface of Industry 4.0’s potential.

There are good reasons why many E&C companies have held back to date, but there are even better reasons why now is the time to move forward.

The right way to invest in Industry 4.0

Repeatability and scalability are key for many Industry 4.0 technologies. The data you generate from a product is far more valuable if you can then apply it to another product, or better yet, another hundred thousand products.

But capital projects aren’t factories. Most have unique specifications, as well as different partners, customers, locations, specifications and schedules. So not every Industry 4.0 Digital strategy makes sense for CP&I right now, but many do. Many are already improving capital efficiency across the project lifecycle.

Sensors on equipment and materials, for example, are reducing construction waste, lost inventory, and unnecessary downtime. Sensors on people are enhancing compliance, enhancing safety, improving ‘time on tools’, and reducing congestion and trade stacking.

3D collaboration platforms and mobile workflow management are reducing paperwork, increasing turn-around time, slashing ‘windshield time’ and other wasted manpower hours by automating field tickets and bringing engineers to the workface, even if only in a digital sense. Drones are gathering data in every stage of the capital project lifecycle, then feeding it back to project management tools, topographic and 3-D models, all supported by automated reporting, inspections and advanced analytics.

With so much access to real-time data, video and information, supported by mobile workflows, field automation and mobile devices, going back and forth between the site to headquarters is becoming unnecessary, reducing overheads and indirect costs, while enhancing the effectiveness of the highly-skilled labor force and staff on the ground. These advances will help make up for the skilled labor shortage, of which many E&C companies are currently experiencing, in a very costly way. 

Figure 2 shows how the unique impact of different Industry 4.0 tools can be prioritized by cost, level of effort, and impact, to drive capital efficiency in CP&I projects through lower costs in your organization - either right now, or very soon.

Making a business case

Technologies come and go, but the fundamental E&C challenge remains: deliver high quality capital projects, safely, at a reasonable cost, on time and on budget. When deciding where and how fast to ramp up on Industry 4.0, companies need to define their goals and challenges, figure out which digital strategies could potentially meet those goals, then do a cost-benefit analysis, taking into account the ‘do nothing’ scenario, alongside the various potential options being considered. Through this process, it is possible to evaluate opportunities to:

  1. establish a budget for implementing each digital strategy on a pilot project basis
  2. track savings and measure an attractive return on the initial investment through lower cost of delivery, additional revenue, or greater efficiencies
  3. identify which strategies were most effective and repeatable, and scale up the initial investment to allow the benefits multiply

To find promising areas for Industry 4.0, start by cataloging and rationalizing applications. Then identify potential value adds and cost savings and map possible investments against your existing, best-in-class capabilities.

While it may take years to fully transform your core business, the initial results should be concrete, quantifiable business cases which, upon success, can start to drive deeper changes. Taking full advantage of Industry 4.0 will ultimately require new digital capabilities, standardized processes, and rationalized IT systems.

The good news about a slow start

I’m not in support of every E&C or capital intensive enterprise rushing headlong into a digital transformation. It’s sensible to move cautiously while crunching the numbers, prioritizing investments, identifying your digital change agents (who will ultimately be needed to scale the investment and set the groundwork for a larger digital transformation), tracking progress and managing risk.

There are many technologies that can drive capital efficiency on projects today, and there’s good news about the sector’s overall slow start.  Even if your company hasn’t moved forward yet, it’s not too late. With the right mix of planning and vision, there’s still time to become a digital E&C leader to drive efficiencies, higher profit margins and improved backlog through repeat business and customer intimacy. 

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Anthony Caletka

Principal, Capital Projects & Infrastructure Energy Leader, PwC US

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