How to steer your shipbuilding projects to success

Watch the little things; a small leak will sink a great ship.

Benjamin Franklin
Steer your shipbuilding projects in the right direction with an integrated project management system

Unprecedented complexity

“Watch the little things; a small leak will sink a great ship,” said Benjamin Franklin. And a small oversight will sink a great shipbuilding project, one might add.

Building a product as complex as a ship, with its hundreds of thousands of parts, and its constellation of OEMs, design offices, suppliers and subcontractors is a challenging endeavor indeed. It takes an average of two years to build an offshore support vessel, and five to seven years to build an aircraft carrier. In comparison, it takes less than 3 months to build a Boeing 777 and 17 to 18 hours to make a Toyota. In addition, no two ships are ever the same. Even sister ships have differences, and these differences in design mean that each shipbuilding project is unique.

Recent years have seen a growing demand for high-tech and high value-added vessels. Navies are asking for adaptable, multirole vessels that can deal with military operations other than war, for example providing humanitarian relief and emergency medical care after natural disasters or establishing a helicopter platform for replenishment or evacuation. At the other end of the spectrum, the yachting and cruising industries demand versatile vessels that can operate in a wide range of conditions, from the Galapagos to Antarctica. Those vessels require high-tech equipment and systems onboard. They need more sensors, more cables, more automation, and more controls . This increased level of complexity translates into unprecedented risks in the design and build processes. If shipbuilders want to remain competitive in today’s saturated market, they must identify risks as early as possible in the project and find ways to keep those risks under control to deliver on time, on budget and on quality.

Costing: dilemma vs reality

In his M.Sc. Thesis – Marine Systems Design at The Department of Marine Technology at the Norwegian University of science and Technology (Trondheim), “Shipbuilding Cost Estimation”, Haakon Shetelig describes the shipbuilder’s dilemma as follows:

“The dilemma of the shipbuilder is to decide which starting point to choose to find the newbuilding price; the expected costs of a certain vessel or the expected market price for the same vessel. If a shipbuilder chooses to find the price for a newbuilding with bottom-up pricing [also called costing, is when the price is decided based on the costs], there is a risk for overpricing and then losing a contract. On the other hand, if a shipbuilder uses the market price as the basis [bottom-down pricing, or target costing], the main risk is that the price is too low to cover the expenses.”

The shipbuilder's dilemma: bottom-up pricing versus top-down pricing?
The shipbuilder’s dilemma – costing or pricing (Shetelig 2013)

Note: EBIT = earnings before interest and taxes

Bids must be both attractive and accurate – if the price is too high, the shipyard may lose business. If it is too low, it will lose money. As Haakon continues, there are a few other factors impacting the pricing, such as historic deals impacting the market price, supplier prices, etc. As a result, the shipbuilder’s reality is a combination of both approaches whereby the shipbuilder must find the sweet spot between pricing and costing to secure the highest possible profit margin.

The shipbuilder's reality: costing versus pricing
The shipbuilder’s reality – costing and pricing (Shetelig 2013)

Risks must be kept under control to maximize earnings, avoid schedule delays, and ensure that the customer’s requirements are met. Failure to deliver according to the contract terms may lead to penalties and, in some cases, damage the shipyard reputation.

Mitigating risks

The shipbuilder conundrum: finding the best trade-off between time, cost and quality.
The shipbuilder’s stress ball – showing the three imperatives in any shipbuilding project: money, time and quality. Pressure applied to one facet will impact the other facets too.
(Credit: Jan van Os )

The only way to manage those risks is to combine cost, schedule and technical requirements in a fully planned, resourced and budgeted end-to-end project management solution. This integrated solution must offer the three following features:

  1. Integrated planning: Typically, in Marine, the work breakdown structure (WBS) forms the basis of the shipbuilding process. At all times the WBS needs to be connected to the technical requirements set by the customer, so shipbuilders can keep track of how any change to the schedule will impact those requirements, and ensure that they are still able to comply with the contract. Having an integrated systems approach to planning and execution is critical for projects as complex as building a ship.
  2. Integrated bid & risk management: Requirements and risks must be connected from the very beginning of the shipbuilding project, when the shipyard is responding to an IFB (invitation for bids) or an RFP (request for proposals). This will ensure that risks are accurately assessed and clearly communicated to the customer during the bidding process.
  3. Closed-loop project management: Best practices and lessons learned need to be fed back into the work breakdown structure (WBS) so workflows and processes can be improved continuously.

Conclusion: introducing the IPPE octopus

To remain competitive in today’s uncertain market, a shipyard must deliver bids that are both attractive and accurate. To this end, having a fully planned, resourced and budgeted end-to-end project management solution has become critical. In the previous paragraph, we have highlighted three key features that a true integrated project planning and execution (IPPE) system should offer. However, the full picture looks a lot more like this:

An agile, integrated project planning and execution system is key to steer shipbuilding projects to successful completion.
The shipbuilder’s best friend – the IPPE octopus

And just like an octopus, your shipbuilding project management system should be robust, yet flexible and adaptable. If implemented correctly, it will enable you to steer your projects to successful completion, however complex they may be.

About the author: Dr Deborah Saban-Eppel is the Industry Marketing Leader for Marine at Siemens Digital Industries Software. A clean tech and new technologies enthusiast, Deborah came to Marine with an Aerospace background. She holds an MSc is Aerospace Engineering from ISAE-SUPAERO (France) and Cranfield University (UK), and a PhD in Flight Control System Design from Cranfield University. She spent the first 6 years of her career working as a technical marketing engineer at CD-adapco, where she became fascinated with the breadth and depth of the marine industry. Deborah became the Industry Marketing Leader for Marine at Siemens Digital Industries Software shortly after the acquisition of CD-adapco by Siemens in 2016.

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