EPC firms spend additional money, time, and spoil relationships in many instances because their criteria for decision-making is always low cost. You might have come across the following discussions while making decisions in the office -

1. I will not pay an outside pump guy to drain out rainwater in two days instead I will buy a low horsepower pump myself and assign the internal team to drain out the water. It may take two weeks, but we would save on the overall cost and also develop an asset (pump), which we can use later. Here it can be seen that the loss due to each additional day the work was stopped is not considered. If that had been considered, definitely an external team would have been employed to remove the water.

2. I feel that a local subcontractor or team will steal money if I give them ownership to buy daily consumables. I will procure consumables from known contacts in another city at a cheaper rate & provide them via the store at the yard to have better control. The consumables may require some travel time, but the overall cost will be competitive for me. The problem with this decision was that the risks involved in transporting small items were not considered. In reality, the consumable items reached the yard after a delay of 3 weeks, which hampered the work at the site and also created a sense of mistrust with the subcontractor.

3. I am satisfied with hiring below market average salaried employees and subcontractors instead of hiring above market average salaried employees & subcontractors. They do not switch jobs easily and work long hours under pressure. Initially, the low salaried hires and subcontractors will join the firm with high hopes. Once they start working in the firm, they realize that their efforts are under-compensated. The cycle of demotivation & underperformance initiates which is not helpful for both individual and contractor firms. Either they leave the work or are removed from the job. The result is a delay in overall work.

4. I want to go with a small vendor who is giving me a few lacs cheaper material as compared to a well-established firm. Let us break our earlier commitment with a large firm and give orders to a small firm. This decision led to bad taste with a monopolist type of big firm whom we cannot rely on fulfilling future needs.

Usually, EPC owners use low cost as decision-making criteria for all their decisions but their overuse of cost-reducing strength many times leads to delay in projects which is one of the reasons for heavy losses they have to bear from customers at the later stage. Usually, the CEOs of the firm anticipate these losses because of saving small amounts in decision-making, but they find it very difficult to make owners change their thought process as they are unable to quantify the differences. So, to convince others gut feelings do not work instead a data-oriented approach works better. Ultimately CEOs give up and go along with the decision of owners. Our suggestion to EPC owners and CEOs is that they should do decisions making by considering the long-term impact on the overall project rather than just focusing on cost savings in a particular task under consideration. Developing a quick financial model helps in making a wise decision.

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