Digital transformation is the driver for change in EPC

Even before we started to see the impact of the current COVID-19 crisis, prospects for EPC (engineering procurement and construction) industry were not universally positive, says Paul Donnelly, Industry Director, Aspen Technology, Inc.

As the year 2020 dawned, the future for many players in this space looked neutral at best. The market was mixed with some firms performing well while others lagged behind in their wake. Factors weighing on the industry included inconsistent financial results from fixed bid projects; difficulties finding experienced engineers and ongoing cost pressures.


The economic recovery across the sector could accurately be termed “fragile.” While backlogs were expanding and work was becoming more diversified across green, chemicals and energy projects, many operators across the industry were continuing to struggle with weak balance sheets, an excess of debt and worryingly low net margins.

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Now, with most owner-operators announcing significant cutbacks in capital spending programmes for next year, we are likely to see an outsized impact on the engineering firms that do most of the process industry’s project work.

Before the global pandemic struck, most EPCs were either starting or contemplating beginning digital transformation projects that executives viewed as essential to improving productivity and reducing risk. So what happens to those initiatives now? It remains to be seen if they move forward positively, or if they are curtailed or set aside altogether in favour of near-term responses aimed at surviving yet another shock to the system.

Crucial to this effort is the ability to find and re-use data across the business

We have seen digital transformation initiatives well under way across the owner-operator arena for several years now, but for EPCs, similar projects were just getting started prior to the pandemic. It’s only really been over the past 12 months or so that we’ve started to witness organisations being restructured, staff reassigned and budgets adjusted in line with these new plans.

We have witnessed many instances of owner-operator driven digital transformation, often focused on moving nearer to the concept of an autonomous plant. But what does digital transformation typically look like for an EPC?

Based on responses to a recent AspenTech survey, EPC digital transformation activities are, at least in part, being undertaken with the aim of increasing productivity, achieving cost savings and enhancing customer satisfaction. And, in engaging with customers across all parts of the world, the top priority area to be addressed under digital transformation is consolidation of software and technology portfolios, followed by digitalisation of remaining applications and business processes, ranging from administration to project delivery.

Crucial to this effort is the ability to find and re-use data across the business, and eventually also across their entire ecosystem of consultants, sub-contractors and vendors. Other areas of focus include improved management of risk, diversification into new revenue sources and attracting new talent.

As an example, one North American EPC has started the process of reducing their engineering software and technology portfolio from over 160 distinct products down to fewer than 30. The remaining pieces will be connected, with data flows automated. Their objectives are to better support project delivery across multiple domestic offices and one international office, be more responsive to customers and reduce costs.

More broadly, we are seeing a real enthusiasm across digital transformation teams and executives to move forward with digitalisation initiatives.  Among customers and prospects we have seen approaches to digital transformation that were thorough and comprehensive and were supported by a willingness to break things down and re-build, rather than simply papering over the cracks.

Nobody really knows how long this current period will last

It seems more than that we’re about to enter yet another really challenging period for EPC firms. There is a great deal of uncertainty in the marketplace. Nobody really knows how long this current period will last or how long it may take for current levels of economic mobility and activity generally to rebound to pre-coronavirus levels. Meanwhile, the data points we do have, in the form of announced CAPEX reductions by owners, will inevitably take their toll on the beleaguered engineering and construction sector. Expect some initiatives to be paused or even cancelled, along with increasing competition and yet another round of consolidation.

Having spoken with multiple EPC customers that are forecasting productivity increases in the neighbourhood of 30-50% from digitalising their design and engineering workflows, the urgency around digital transformation can be expected to increase. Ultimately those that have not yet started or are planning to stall these initiatives due to the current situation do so at a high risk of not being able to compete effectively against those focused on more aggressively going after the end goal of digital transformation.

Paul Donnelly, Industry Director, Aspen Technology, Inc.