Uncovering the Hidden Profit for EPC Companies

Vivek Upadhyay & Dr. Shelja Jose Kuruvilla

Engineering Procurement and Construction (EPC) companies engaged in development of power infrastructure networks, very often find that their realized margin at the end of a project is significantly lower than the budgeted margin envisaged at project initiation. Organizations are increasingly coming to realize that this is mostly due to execution delays and the associated cost overruns. So, companies have been dedicating efforts to reduce execution lead time.

Consequently, some companies in recent years have been successful in timely delivery of projects1. Ideally, this should have resulted in their realizing almost all of the budgeted margins. On the contrary, they still fall short; albeit by a smaller quantum — i.e. ~2-5% as compared ~8-10% in grossly delayed projects. However, even a loss of 2% is not small for infrastructure businesses — not when these projects only have gross margins in the range of 5-10%!

It is evident that while focusing on timely completion of projects, it is not sufficient to protect all of the project’s margins — reducing lead time is only a battle half won!