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 :• Non‐recurring

procurement cost of the plant.• Provided by bank or

project investor

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

CostsInvestment Cost

1. methods to determine the investment cost : (a) Index Method(b)Degression Method(c) Cost Factors

Index Method

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

new

old I C

Ci,oldi,new I

Where C is the capital cost and I is the price index.

Degression Method

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

old

X new C i,new C i ,oldX

Where m is called degression exponent and normally range from 0.32 to 0.87

CostsCost Method

1. 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

1. Consists of (a) Cost of raw material(b)Utility cost(c) Labour cost(d)Maintenance 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.

CostsLabour 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 Cost

1. Divided into 2 types :

(a)Preventive maintenance(b)Failure ‐ oriented

maintenance2. Failure ‐ 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

3. 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 price

Getting goods or services is also known as 'procurement'.

Types of Procurement• Works• Supplies• ServicesTypes of Tenders• Open Tender• Restricted Tender• Direct Negotiation

Decision

Presentation

Evaluation

Tender Activities

PreparationAdvertisement

Prepare Tender Specification

Advertise Tender

Technical Evaluation

Compile evaluation(Ten

der Report)

Present to Tender Board

Decision on Successful

Tenderer by Tender Board

Costing Evaluation

Tender: Guiding Principles Crystal clear Specification

– Match Functional Requirements with Technical Specifications

– Avoid ““Grey”areas Be fair to tenderers

- provide same info & same opportunity to all Not bias towards any Brand/TendererSpecify Mandatory Requirements

- use as criteria for evaluation Do not reveal BudgetObserve ConfidentialityAllow reasonable time for Tenderers to respondPreference to Local CompaniesPreference

RISK ANALYSIS

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i) Customer Paying Habits & Solvency Debt ‐ ridden customers certainly represent

a higher risk than customers without debts Some customers are famous for

interfering in everything, thus complicating the execution of the project for the plant manufacturer

Customer prefers certain competing companies when awarding the contract, possibly because he is holding a share in them

RISK ANALYSISii)Customer specification: specifications often contain data and

requirements that have a considerable impact on the costsiii)Location: legislation, infrastructure, working conditions, language

difficulties, political risks (terrorism, war risk, corruption)iv)Commercial part: High contractual penalties, liability claim for

lost profitv)Deadline situation (specified rather short): Low risk ‐ For project already been realized several times under

similar condition High Risk – New plant concept abroad

RISK ANALYSISvi) Process engineering: New process engineering concepts – very

high Operator demands corresponding process

engineering guarantees regarding on quantity and quality of products

Retrofitting‐ increase the capacity and product

Rescission – 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:

Laboratory development Pilot plantstation Pilot plant First large‐ scaleplantIf a new process is finally found, the company

will protect itself against the competition by means of corresponding licenses

CENTRAL TASK OF A PROCESS ENGINEER

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.

BALANCING

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, but

The 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 ‐R

elevant

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

Data

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 by

means of the safety ‐ related design of the plant.

Here,not operated

only theload

case atcan

the plantisvar

y,but alsothethermodynamic 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 design

Process flow diagram (PFD)Technical data sheet

Mechanical designWall thicknessMechanical drawing

Production designdetails like fi xing devices, insulation fastener,

eyebolts etc.The results are the production drawings and the

related bills of materials .

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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 diagram Process 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. Layout Documented procedure : verbal description of function and operating method

of the plant Indication of products and residuals Consumption of operating resources : e nergy, live steam, chemicals etc. Scope of supply Scope of services Options : additional supply and services Supply schedule : technical data as e.g. main dimensions, weights, operating data,

insulation, power input etc. of the main components Commercial part : commercial data Framework time scheduling Prices Price maintenance

Cost to be considered

for quotation purpose

Main equipment Civil works

•engineering•transport costs•assembly•commissioning•expert 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)

•fittings•pipes•measurement instrumentation

•control 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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