Episode 27 : Project Management Costs

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Post on 15-Apr-2017




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SAJJAD KHUDHUR ABBASChemical Engineering , Al-Muthanna University, IraqOil & Gas Safety and Health Professional OSHACADEMYTrainer of Trainers (TOT) - Canadian Center of Human Development Episode 27 : Project Management Costs

1.In order to know about the profit possibilities, we need to determine the manufacturing cost.

Manufacturing cost

Investment cost :Nonrecurring procurement cost of the plant.Provided by bank or project investor

Operating cost :Continuous arising cost necessary for keeping the plant in operationRaw material cost, utility cost, labour cost and maintenance cost


Investment Cost

methods to determine the investment cost : (a) Index MethodDegression MethodCost Factors

Index Method

1.This method is used when the new plant is a replacement of the older plant

new old IC Ci,oldi,newIWhere C is the capital cost and I is the price index.

Degression Method

1.It applies to an almost similar plant with higher capacity.

mold X new Ci,new Ci,oldXWhere m is called degression exponent and normally range from 0.32 to 0.87


Cost Method1.If there is lack of information regarding the existing plant, investment cost can be estimated by using cost factor. It requires the existence of a process concept and the rough layout of the main equipment in order to determine the cost of the main processing unit.

Operating Cost

Consists of (a) Cost of raw materialUtility costLabour costMaintenance cost

Utility Cost

1.It is quantity based and consisted of electric power, steam and coolant consumption, heating media such as coal and other energy sources like hydrogen.


Labour Cost

1.Depend on the size of the plant. The larger the plant, the smaller the portion of the employment cost in relation to the manufacturing cost because large plant is usually highly automated.

Maintenance Cost1.Divided into 2 types :Preventive maintenanceFailure oriented maintenanceFailure oriented maintenance : cost for upkeep and inspection do not arise,maintenance cost only arise in case of failures. Storekeeping of spare part is important.It might affect production since maintenance only being carried out in the case of failures

Preventive maintenance : provides more operational reliability.: if inspection strategy is applied higher inspection cost: if exchange strategy is applied higher repair cost

What is Tender Process?an offer to do work or supply goods at a fixed priceGetting goods or services is also known as 'procurement'.Types of ProcurementWorksSuppliesServicesTypes of TendersOpen TenderRestricted TenderDirect Negotiation




Tender ActivitiesPreparationAdvertisement

Prepare Tender Specification

Advertise Tender

Technical Evaluation

Compile evaluation(Tender Report)

Present to Tender Board

Decision on Successful Tenderer by Tender Board

Costing Evaluation

Tender: Guiding PrinciplesCrystal clear SpecificationMatch Functional Requirements with Technical SpecificationsAvoid GreyareasBe fair to tenderers- provide same info & same opportunity to allNot bias towards any Brand/TendererSpecify Mandatory Requirements- use as criteria for evaluationDo not reveal BudgetObserve ConfidentialityAllow reasonable time for Tenderers to respondPreference to Local CompaniesPreference

RISK ANALYSIS10i) CustomerPaying Habits & SolvencyDebt ridden customers certainly represent a higher risk than customers without debtsSome customers are famous for interfering in everything, thus complicating the execution of the project for the plant manufacturerCustomer prefers certain competing companies when awarding the contract, possibly because he is holding a share in them

RISK ANALYSISCustomer specification: specifications often contain data and requirements that have a considerable impact on the costsLocation: legislation, infrastructure, working conditions, language difficulties, political risks (terrorism, war risk, corruption)Commercial part: High contractual penalties, liability claim for lost profitDeadline situation (specified rather short):Low risk For project already been realized several times under similar conditionHigh Risk New plant concept abroad

RISK ANALYSISvi)Process engineering:New process engineering concepts very highOperator demands corresponding process engineering guarantees regarding on quantity and quality of productsRetrofitting increase the capacity and productRescission Include refund of the payment already made and expiry of purchase money claims

Process Development

Process DevelopmentDef: The process determines the kind and order of the unitoperations Steps to find the ideal process for the manufacturing of a new product:LaboratorydevelopmentPilotplantstationPilotplantFirst large scaleplantIf a new process is finally found, the company will protect itself against the competition by means of corresponding licenses


The designing of the plant in a way that investment and operating costs for the inquired plant are minimized, while the required product features with regard to quantity and quality are complied with. Only then will the plant be marketable.


Defined the MASS AND ENTHALPY BALANCES for individual process as well as for the whole plant This will served in determining the raw material and energy consumption.Within the plant, the BALANCES define the mass flow and their physical/chemical states.The results of the balancing are recorded in called MEDIA DATA SHEETS .

Media Data Sheet for Saline Solution

The division of the load cases resulting from the balancing

often even physical and chemical data like temperature, pressure and the composition of the mass flow.

indication of material and quantityy.

The minimum and maximum load cases should be balanced, since not only do the mass flows depend on the load case, butThe operator is interested in a broad control range to be able to face the fluctuating demand with variable production.

With continuously low demand the production will have to be cut back as well some time or other, since otherwise the store capacity for the product will not be sufficient.

Media Data Sheet for Low Pressure Steam

Safety Relevant

Mass data are often the basis for the design of apparatus.


Concentration data togetherwith the design temperature are the decisive parameters regarding corrosion

The determination of such data does not occur by means of process balancing, but bymeans of the safety related design of the plant.

Here,not operatedonlytheloadcase atcantheplantisvary,butalsothethermodynamic condition of the live steam due to fluctuations during the operation of the corresponding steam generator or power station

Materials ConceptAspects to be considered in material selection composition of the media, corrosion aspect design pressures and temperatures hydrodynamic aspects costs strength delivery times producibility weldability dimensions available production related aspects price fl uctuations guarantees fl exibility regarding modifi cations (e.g. later fixing of nozzles)

Design of Main Equipment/AppratusProcess designProcess flow diagram (PFD)Technical data sheetMechanical designWall thicknessMechanical drawingProduction designdetails like fi xing devices, insulation fastener, eyebolts etc.The results are the production drawings and the related bills of materials .


Depending on the structure and available resources of the plant manufacturer the design steps described above can be carried out either in house or assigned to subcontractors. The process related design is usually up to the plant manufacturer, since here his special know how is required. In individual cases, however, the process related design can be passed on to the subcontractor. Manufacturers of, for example, heat exchangers or columns dispose of own design programs to calculate the required heat exchange surface or the number of trays. The plant manufacturer s task is then limited to the specifi cation of the technical task.

LayoutFor the project planning phase, usually layouts in the form of simple top views and side views are sufficient.

In order to provide the customer with a better impression of the designed plant, graphically processed three dimensional views of the layouts can be generated with suitable CAD systems

Based on the layout, the space required for the plant can be determined, which for cost reasons is to be minimized

Quotation/Tender DocumentComprise of:General part : introduction to the project, indication of benchmark data such as project name, location etc.Basic fl ow diagramProcess fl ow diagram : often with so called mass fl ux bars, containing data on volume fl ow, parameters etc. for the main mass fl ux of the plant.LayoutDocumented procedure : verbal description of function and operating method of the plantIndication of products and residualsConsumption of operating resources : e nergy, live steam, chemicals etc.Scope of supplyScope of servicesOptions : additional supply and servicesSupply schedule : technical data as e.g. main dimensions, weights, operating data, insulation, power input etc. of the main componentsCommercial part : commercial dataFramework time schedulingPricesPrice maintenance

Cost to be considered for quotation purpose

Main equipment Civil works

engineeringtransport costsassemblycommissioningexpert services

travel expenses (particularly in case of projects abroad)insurance costs (e.g. transport, site, planning and liabilityinsurances etc.)hedging costs (for the coverage of currency risks)guarantees (costs for bank guarantees)overheads (internal costs of the company)

fittingspipesmeasurement instrumentationcontrol and communication systems

Quote price = Profit margin + total cost

The operator analyzes the incoming quotations both technically and commercially. Depending on the analysis criteria some competitors will already be ruled out here. Often 3 5 remaining suppliers will then be shortlisted. These plant manufacturers are invited to contract negotiations . Usually, a technical presentation of the plant manufacturer will take place. Furthermore, commercial details and unsolved issues are discussed. After the settlement of all technical and commercial aspects, the contract negotiations are focussed on the purchase price and the date of completion, whereat the date of completion may be as important as the purchase price.

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