Digital Pathway to a More Profitable Future for E&C

12019 01 - EC status and outlook_vF.pptx
January 2019
Engineering &
Construction 4.0 –
A Digital pathway
to a more
profitable future

Management summary
The Engineering & Construction industry is under increasing pressure from the clients
leading to significant transfer of scope and risk coupled with intense cost pressure
In response, the E&C players have thus far adopted the traditional measures e.g. M&A to
expand scope and standardization to better control costs.
However, significantly more effort is required to control cost and scope and ensure timely
execution to plan
Digitization is a crucial approach which could aid E&C players achieve these objectives and its
benefits are widely recognized
However, E&C industry is a laggard when it comes to adopting and deploying digitization
In this paper we outline how a holistic and integrated Digital landscape unifies both the Off-site
and on-site activities enabling true seamless collaboration and illustrate proven use cases which
could aid E&C players in their Digital journey

E&C players are forced to deliver wider scope and deal with higher
risks at curtailed monetary upside due to customer pressure
State of the industry and challenges
New or increased capabilities required to deliver
wider scope
> Higher risk for taking E&C contracts
> Higher degree of specialization from estimation to execution
> Predictable project scoping and costing
> Specialized risk management capabilities needed
Control over cost and scope required, with better
execution to plan
> Closer and continuous interaction with all stakeholders
> Full transparency on costs, progress and quality in real time
> Managing projects with reduced staff
> Higher automation of on-site and off-site activities
> Higher quality with lower reworks and changes
> Faster and more specialized support for site activities
> Shift of customer requirements towards lump sum
turnkey contracts
> Increasing risk for E&C contractors
Industry shirking risk to E&C Players Implications for E&C Companies

Customers are transferring greater risks to E&C contractors while
stifling compensation through lump sum turnkey contracting
Source : Saudi Aramco press release, Reuters, Linde, Roland Berger
Customer examples showing shift towards lump sum turnkey contracting
Risk transfer to E&C players
Trend towards lump sum
turnkey contracts
Rationalized by:
Move towards turnkey collaboration with major oil field
service providers
> In China developers (civil, O&G, Nuclear) of all sectors are nowadays only
willing to pay turnkey project management fees for EPC contractors
> Therefore management fees are being cut down, thus EPC companies
have to cut staff and shift risk further down the value chain – Importance of
digital tool to improve efficiency
Increasing
operational
excellence
1
Control over
expenditure2
Service providers
have more incentives
to drive efficiency
3
> Initiated two tenders for the work on the South Ghawar field
> More LSTK tender planned for Abu Hadriya, Fadhili and Khursaniyah
fields
> Aramco operates about 25 LTSK contracts with the goal to go up to 32 as
of Oct. 2017
Chinese developers only pay lump sum turnkey fees for EPC

OEMs are also de-risking their balance sheets and shifting E&C
contracting business to specialized players
Source : ABB Annual Report 2017, quote from ABB website (https://new.abb.com/news/detail/3084/abb-completes-epc-business-model-change)
Restructuring of Engineering, Procurement and Construction business
We are taking decisive actions to
complete our EPC business
model change as we end our
transition year. These actions
are in line with our strategy to
shift our center of gravity
towards strengthened
competitiveness, higher growth
segments and lower risk."
Timo Ihamuotila, CFO ABB
Group
Power grids & Energy systems
> Joint Venture with SNC Lavalin for electrical substation EPC projects
> Strategic partnership with fluor to execute large turnkey EPC projects for
electrical substations of all kind of power plants
> Handing over EPC tasks within offshore wind sector to Aibel – ABB focus
on high voltage technologies
Industrial Automation
> Joint Venture in the Oil & Gas EPC Business with Arkad Engineering and
Construction Ltd.
Robotics & Motion
> Winding down of turnkey full train retrofit business, beyond meeting the
current contractual commitments
OEM example: ABB is downscaling its EPC business
Risk transfer to E&C players

The E&C players have used the traditional means to respond to this ..
Adaptation by Engineering & Construction companies to this reality
Mergers & Acquisition
Standardization &
Modularization
a
b
Adaptation by Engineering &
Construction companies to this reality
Expand capacities and capabilities through M&A as measure for
risk reduction and increased delivery capabilities
e.g AMEC Foster Wheeler, SNC Lavalin and WS Atkins
Better control over scope and costs
Greater ability to remotely manage operations providing ability to
overcome labor and skill shortages in remote locations
e.g. Fluor , Jacobs
Response of E&C Players

E&C players tackle increased margin and efficiency pressure by
expanding capacities and capabilities through M&A
Response of E&C Players – M&A expansion
Mergers & Acquisition of major E&C players
> Enhance capabilities by increasing
reach
> Enable synergies by creating broad
service companies
> Diversification and risk reduction
> Meet increased shareholder pressure
for growth
> Increase bargaining power of
contractors
> Broaden product portfolio
> Acquisition of talent, technology and
knowledge
Wood &
AMECFW
Source: Wood, AMECFW, Roland Berger
SNC Lavalin &
Atkins
Expansion of capacities and
capabilities through M&A as
measure for risk reduction and
increased delivery capabilities

Particulary challenging E&C projects in developing markets rely on
standardization, modularization and off-site production
Challenges of managing E&C project in developing markets
Challenges in developing markets
Solution / way to go
> Standardization
> Modularization
> Off-site production
Response of E&C Players – Modularization
Example
> FLOUR China investing sizeable
resources to develop and procure
modelized equipment for FLOUR's global
projects
> Leveraging this know-how to provide
Engineering service and procurement
service to Chinese EPC companies
which develop projects in One-Belt One-
Road countries
> Unable to find enough qualified workers on local labor market
> Unable to develop qualified local suppliers which meet global QA, i.e.,
ASME
> Local governments are reluctant to issue enough working visa to EPC
company's staff – particularly problematic in China

Implementing modularization concepts in operational processes –
Used by E&C player to tackle increased margin and efficiency pressure
Application, examples and benefits of modularization processes
> Reducing bulk material quantities through
a more compact plant layout
> Transfer of labor hours from low-efficiency,
high-cost construction sites to more
efficient and lower cost plants
> Reducing time and risk for completing on-
site work
> Reducing footprint required for the project,
thus optimizing capital costs and
environmental effect
> Construction cost and time savings for
clients
> Higher labor efficiency in plants
Fluor – 3rd Gen Modular
Execution Services
> Barge/Ship mounted modules
> Hybrid modules: partially completed at fabrication
yard, assembly on-site
> Pipe rack modules
> Skid-mounted equipment module
> Small/truckable modules, Interm.
(60-100 tonnes) & very large modules (>600
tonnes)
> Jacobs took a modularization approach to meet
client's time schedule restrictions
> Modularizing the process area, while using a
stick construction for administrative buildings
allowed for simultaneous construction
Source : Jacobs press release, Fluor press releases, Roland Berger
Response of E&C Players – Modularization
Jacobs – Genentech
LUCENTIS
Modularization
makes sense if…
Benefits for clientsIndustry applications and examples
> Remote site location exist
> Adverse weather
condition appear
> Short supply of local
skilled craft labor
> Greater labor efficiency
available at an off-site
fabrication yard
> Suitable transportation,
receiving and handling
facilities available

Digitalization can help E&C companies leap frog the competition and
ensure sustained competitive advantage while overcoming challenges
Reduction of
construction cost5-10%
Time savings -
Accelerated project
completion due to
schedule compression
5-10%
Reduction in reportable
safety accidents~5-7%
Efficiency
improvement
in resource and
material planning
15-25%
Value creation
Performance increase
Margin improvement
> Higher customer centricity
complemented by more flexible
offerings leading to improved bid-win
ratio and market share
> Higher quality and precision of activities
at site and remote driving customer
satisfaction and sustained competitive
advantage
> Shorter lead times to answer RFPs
> Less wait time due to analytics driven
optimized and adaptive planning
> Better monitoring, higher transparency
enabling tighter budget and progress
control
> Increased safety of on-site workers
> Analytics and AI driven better
estimation and pricing
> Smaller, cohesive and skill optimized
workforce
> Higher on time, in-budget performance
> Lower lost time due to accidents

However, the E&C industry remains a laggard vis-a-vis other sectors in
leveraging Digitalization despite recognizing ist benefits
Digital transformation of the construction industry
Emergence of
digital tech-
nologies
Source : Harvard Business Review, Roland Berger
Industry digital
adaption
Engin. & Construction
Digital spending
Business
processes
Digitalization
of work Overall
Advanced manufacturing
Oil & gas utilities
Chemicals & pharma
High Medium Low
76
1
5
10
56
233 2
4
15
4
1 2
5
23
5
After sales/ end-
customer marketing
Marketing/
Sales
Production/
Construction
ProcurementLogistics
ConnectivityAutomationDigital AccessDigital Data
93% of industry
players agree that
digitalization will
affect every
process step of
their organization
Construction
industry as a
technology
laggard
Which areas have the most to gain from Digitalization?
Digitalization needed within E&C companies for lean, safe and efficient processes throughout the entire value chain

RB E&C 4.0 framework – A holistic and integrated Digital landscape
unifying the Off-site and on-site activities with seamless collaboration
Source: Roland Berger
BIM
cloud
Digital On-SiteDigital Off-site
Smart Materials
Wearables
UAV/Drones
Augmented reality
Mobile
Advanced imaging
e.g. LIDAR
RFID
Construction
robots
Autonomous
vehicles
3D printers
Connected worker with real
time information availability
and connectivity to
command center
Highly automated construction cells
Automated
construction cells
Technical and commercial
queries from site
Real time site information
Project plan updates
Expert support
Remote operation instructions
Digitally enabled site activities
Autonomous/automated
cells operable from site or
remote, with more off-site
manufacture
Connected construction
workers/site surveillance
Remote inspections & troubleshooting
Remote operations
Expert SWAT teams
Multi-project steering & control
Remote Command Center
Evaluation of plans vs. actual to
provide better forecasts and optimize
manpower and resource planning
Data analytics
Labor intensive activities e.g.
CAD/CAM, Engineering, changes,
reporting
Back-end support
Remote Center of Excellence in LCCs

E&C 4.0 can transform the entire scope E&C activities – Project
steering, on-site, off-site and back-office
Digitalization in E&C : Key operational benefits
1
Overall project steering – BIM:
Stronger client engagement from concept phase
throughout the life-cycle of an asset
Off-site/Backoffice operations RPA/ AI to
Improve speed, efficiency and effectiveness
of back-office operations while reducing workforce3
On-site Project execution improving efficiency,
precision and safety on site (construction &
commissioning, maintenance & overhauls),
while reducing overall site workforce
2

142019 01 - EC status and outlook_vF.pptxSource: Roland Berger
BIM enables intensive and effective near-real-time client collaboration
from concept phase throughout the life-cycle of an asset
BIM enables an intensive and effective near-real-time collaboration sharing all physical (3D),
technical and commercial data of project objects with the client and all involved parties from concept
phase throughout the life-cycle of an asset
Cloud based
collaboration
platform
Site
management
Utility
E&C contractor
Engineering
sub-contractor
Contract and
commercial
department
OEM/ Tier 1
supplier
Building information modeling (BIM) mode of operation
Material
supplier
Key features
Offers a single source of
truth for all stakeholders,
Enables more robust project
governance and control and
stronger client engagement
in real-time
Parallel (vs. iterative) and
robust designing becomes
possible
Higher accuracy in
estimations and planning
due to greater transparency,
simulation and drill-down
detailing capabilities
Front loading of efforts:
Lower costs for changes and
high impact on planning
BIM object library
… more than 280 companies
in Europe alone offer BIM
software solutions
Digitalization – Overall project steering
> Architects illustrate designs to clients
using virtual reality
> VR enables simple illustration of
plans to on-site workers
> Allows models for 3D-printed
materials to be integrated into
designs
> New technologies (drones, 3D
surveillance lasers) can feed data to
BIM models
> Robotics and sensors can support
maintenance of objects
Use Cases

152019 01 - EC status and outlook_vF.pptxSource: Press research; Company information; Roland Berger
Increasing workplace safety using AI
> Collect and connect data related to onsite work from over
4000 facilities to improve safety and productivity
> Drones and cameras will act as AI platform for analysis and
visualization and assess rapidly changing conditions in
real-time to e.g. instruct workers
> Instead of shutting down facilities for inspections the usage
of drones can limit facility shutdown time and
additionally:
> reduce employee risk
> access hard-to-reach locations
> increase inspection accuracy
Inspection of Gas terminal flare stacks
Monitoring and real-time tracking of site activities
> Usage of pipeline integrity management tool and data
science to increase efficiency and enhance speed of
construction projects
> Replace traditional paper plans using wearables and IoT
> Virtual Reality to simulate and practice workers behavior
in difficult situations/tasks in order to reduce risk and
increase work-place safety
3D modeling of Oil & Gas plants
> BMI enables to digitally model 150 gas field and 90 oil
field facilities/plants and therefore increase efficiency
and safe costs
> Airscope was hired to provide a 3D digital print of the
plant using drones
> combined usage of 3D laser scanning with 3D
photogrammetry
On-site surveillance data using the latest gadgets enables performance
maximization and risk reduction throughout various applications
Overview of on site activities and corresponding use cases
Digitalization – On-site activities

Site activities can be accurately monitored and tracked in realtime
using digital tools enabling higher speed at lower risk
Source : Bechtel press releases, Forbes, Roland Berger
Use case: Lean project site teams – Bechtel's EPC digital fields
> Use an Ipad camera
> Connect to digital
blueprint and
compare with actual
> Digital tracking &
auditing
> Replace paperwork
1
Augmented
Reality App
> Map sites and
create digital
models
> Track E&C progress
> Reach risky areas
4 UAV
> Materials equipped
with RFID tags (e.g.
heat or intactness
control)
> Enable smart
buildings and plants
3
Smart
materials2 RFID
> Gas plant in
Australia
> 60'000 electronic
tags used to monitor
movement of
materials and
vehicles
Advantages
Increase efficiency
and decrease cost
Enhance speed of
construction
projects
Reduce risk and
increase work-
place safety
Digitalization – On-site activities
Pipeline integrity
management tool
Integrate pipeline data, Geographic
Information Systems (GIS) and
data-science
Connected worksite
using wearables
and IoT
Gain efficiency by replacing
traditional paper plans
High risk training via VR
Simulate dangerous or intensive
procedures via virtual reality
applications in employee trainings

172019 01 - EC status and outlook_vF.pptxSource: Press research; Company information; Roland Berger
Automated
claims processing
> Automated import of
data from claims in
database
1st level Tech. support
> "Amelia" learns how to
respond to customer
questions through
observing dialogues
> e.g. >60% of calls for
an tech. service desk
Predictive
maintenance
> Prediction of future
maintenance
requirements and
troubleshooting support
Automatic Invoice
matching
> Automatic matching of
payments and invoices
to decrease clearing
time and save costs
> Pay invoice via SAP or
forward to human
1) Acronym for Contract Intelligence 2) Purchase-to-pay
Recruiting process
automation
> Automated candidate
search and
prequalification
Finance process
automation
> Automated checking of
several thousand
accounts daily without
any changes to legacy
IT
> Reduction of process
cost >50%
Automated email
processing
> Automated
categorization of emails
incl. recognition of key
data
P2P2) effective
procurement
> Purchase-to-pay
automation incl. on-click
ordering from
catalogues, invoice
automation or purchase
order automation
> New software COIN1
reads and interprets
commercial loan
agreements in seconds
replaces over 360,000
lawyer hours p.a.
Legal document
analysis
Scheduling of
meetings
> X.ai is a personal
assistance bot that
schedules meetings
> "Amy" has even been
sent gifts as people
thought they were
speaking to a real
person
Several proven applications can be readily applied across the back-
office activities of E&C players bringing rapid improvements
Overview of selected AI/RPA use cases
Digitalization – Off-site/ Back Office activities

~270 use cases based on project experience across
omni-channel management, customer service and
support, big data and customer analytics, operations
efficiency and risk management
RB's extended ecosystem of AI partners (system
developers, world experts, investors, incubators…)
AI applications can augment back office processes across functions –
We are leading its global deployment jointly with ecosystem of partners
Proven RPA & AI application areas in middle and
back office
Finance: Accounts receivables, accounts payables, general
ledger, invoicing, invoice matching, P2P1) automation,
automated account checking
Procurement: Spend analysis, supplier identification, quote
comparisons
Human Resources: Payroll, hiring candidate management,
candidate search and pre-qualification
Technical support: First level technical support, predictive
maintenance
Commercial: Smart contracts, legal document analysis
Artificial intelligence
for unstructured and
complex data
Robotic process
automation
for structured data
Overview of selected AI/RPA application areas and RB AI partners
1) Purchase-to-pay
Source: Press research; Company information; Roland Berger
Digitalization – Off-site/ Back Office activities

> "In Data We Trust" – leading
publication on big data
> Numerous Think:Act booklets
on social media and digital
marketing
Publication on challenges
and opportunities on
platform economics in
mechanical engineering
Published in May 2018
Focus study trends and
cornerstones to capture
the value of predictive
maintenance
Published in July 2018
Focus study on future
developments in
procurement
Published in July 2018
Focus study on key
tendencies and courses
of action for SC planning
Published in February 2018
We are thought leaders of the Digital Transformation – Our award-
winning publications set trends among leading decision makers
Predictive
Maintenance
Procurement
Endgame
Supply Chain
Planning 4.0
Recent publications
Platform
Economics

Your contacts at Roland Berger
Sven Siepen Akio Ito
Partner
Zurich, Switzerland
Partner
Munich, Germany
+41 43 336 8670
Sven.Siepen@rolandberger.com
+49 89 9230 8583
Akio.Ito@rolandberger.com

Digital Pathway to a More Profitable Future for E&C

Digital Pathway to a More Profitable Future for E&C

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