Appraisal costs

Appraisal costs - Costs which include inspection and the checking of goods and materials on arrival. Whilst an element of inspection and testing is necessary and justified, it should be kept to a minimum as it does not add any value to the project. 

Appraisal costs - cost incurred in detecting failures, such as reviews, assessments, inspections, audits, tests including test and diagnostic equipment... 

Prevention and appraisal costs are the costs of assuring quality, and internal and external costs are the failure and scrap costs. Added together, these produce the total costs. 

Cost must be understood in the context of quahty. If quahty means conformance to requirements, then quality costs must be understood in terms of costs of conformance and costs of nonconformance, , as illustrated in Figure 19-1. In industrial terms, costs of conformance are divided into prevention costs and appraisal costs. Costs of nonconformance consist of internal and external failure costs. For a laboratory testing process, calibration is a good example of a cost incurred to prevent problems. Lhcewise, quality control is a cost for appraising performance, a repeat run is an internal failure cost for poor analytical performance, and repeat requests for tests because of poor analytical quality are an external failure cost. 

Prevention costs Appraisal costs Internal failure costs External failure costs... 

Appraisal costs refer to ongoing efforts to maintain and demonstrate quality levels. 

Appraisal costs are those incurred for tracking and control the quality level and. 

The sum of prevention and appraisal costs is inversely proportional to costs of failure, because it is supposed that investment in P+A will (Juran, 1962) reduce failures and damages. 

The value of P-l-A quality costs in Spain (Amat, 1995) is on average 2.1% and 2.4% for the failure cost. Although these values are not taking into account the intangible costs, that they can increment the mean value to the 30% on the whole (Juran, 1990) (Dale Plunkett, 1991) depending on company and sector. To summarize, (Crosby, 1979)themeasurementofquality is the price of nonperformance therefore maintenance contributes with its activities directly to prevention plus appraisal costs and indirectly to failure costs. 

Appraisal costs Surveillance and monitoring of services and elements, used resources and tools for evaluation, measurements of relation to customer satisfaction, evaluation of personnel opinion. 

Ten years ago most firms were just beginning continuous quality improvement, and they could make rapid quality improvement by improving their control of their own process without involving suppliers. But, as their internal processes improved, firms began to identify problems caused by defects in their raw material. Often, when firms first realized the costs of poor supplier quality, they reacted by increasing their inspections of incoming material in an effort to improve quality. This immediately improved quality, but it also increased quality appraisal costs. To improve quality and decrease costs simultaneously, companies then initiated supplier development programs. 

Appraisal costs are associated with measurement and evaluation of data quality. This includes the measurement and evaluation of materials, equipment, and processes used to obtain quality data. 

Introduction and Commercial Application JUe objective of performing appraisal activities on discovered accumulations is to reduce the uncertainty in the description of the hydrocarbon reservoir, and to provide information with which to make a decision on the next action. The next action may be, for example, to undertake more appraisal, to commence development, to stop activities, or to sell the prospect. In any case, the appraisal activity should lead to a decision which yields a greater value than the outcome of a decision made in the absence of the information from the appraisal. The improvement in the value of the action, given the appraisal information, should be greater than the cost of the appraisal activities, otherwise the appraisal effort is not worthwhile. 

This section will consider the role of appraisal in the field life cycle, the main sources uncertainty in the description of the reservoir, and the appraisal techniques used to reduce this uncertainty. The value of the appraisal activity will be compared with its cost to determine whether such activity is justified. 

Appraisal activity, if performed, is the step in the field life cycle between the discovery of a hydrocarbon accumulation and its development. The role of appraisal is to provide cost-effective information with which the subsequent decision can be made. Cost effective means that the value of the decision with the appraisal information is greater than the value of the decision without the information. If the appraisal activity does not add more value than its cost, then it is not worth doing. This can be represented by a simple flow diagram, in which the cost of appraisal is A, the profit (net present value) of the development with the appraisal information is (D2-A), and the profit of the development without the appraisal information is D1. 

In other words, the cost of the appraisal must be less than the improvement in the value of the development which it provides. It is often necessary to assume outcomes of the appraisal In order to estimate the value of the development with these outcomes. 

In this example it would therefore be justifiable to spend up to 22 million on appraisal activity which would distinguish between the high, medium, and low STOMP cases. If it would cost more than 22 million to determine this, then it would be better to go ahead without the appraisal. The decision tree has therefore been used to place a value on the appraisal activity, and to indicate when it is no longer worthwhile to appraise. 

The fiscal regime (or tax system) in some countries allows the cost of exploration and appraisal (E A) activity to be offset against existing income as a fiscal allowance before the taxable income is calculated. For a taxpaying company, the real cost of appraisal is therefore reduced, and this should be recognised in performing the cost-benefit calculations. 

In addition to the cost-benefit aspects of appraisal activities, there are frequently other practical considerations which affect appraisal planning, such as... 

Typically, the contractor carries the cost of exploration, appraisal and development, later claiming these costs form a tranche of the produced oil or gas ( cost oil ). If the cost oil allowance is insufficient to cover the annual costs (capex and opex), excess costs are usually deferred to the following year. After the deduction of royalty (if applicable) the remaining volume of production (called profit oil ) is then split between the contractor and the host government. The contractor will usually pay tax on the contractor s share of the profit oil. In diagrammatic form the split of production for a typical PSC is shown in Figure 13.11. 

Approach to Equilibrium As equilibrium is approached the rate of reaction falls off, and the reactor size requireci to achieve a specified conversion goes up. At some point, the cost of increased reactor size will outweigh the cost of discarded or recycled unconverted material. No simple rule for an economic appraisal is really possible, but sometimes a basis of 95 percent of equilibrium conver-... 

In the absence of a rislc allowance the cost of capital becomes a technical financial computation based on sources of funds and company policy. As such it will usually be presented as a figure specified For use in a particular appraisal and is therefore of little concern to the projec t assessor. However, the following resume indicates the lands of Factors to be considered. 

R. Pilcber (Appraisal and Control of Project Costs, McGraw-Hill, Maidenhead, England, 1973, p. 233) stated the main purposes of a cost control system to be ... 

Up to 90% of the total quality cost is due to failure, both internal and external, with around 50% being the average (Crosby, 1969 Russell and Taylor, 1995 Smith, 1993). A survey of UK manufacturing companies in 1994 found that failure under the various categories was responsible for 40% of the total cost of quality, followed by appraisal at 25%, and then prevention costs at 18%. This is shown in Figure 1.6. Of the companies surveyed, 17% were unsure where their quality costs originated, but indicated that these costs could be attributable to failure, either internally or externally. 

Although the costs of poor quality are specifically required, a more accurate presentation of trends is provided when prevention, appraisal, and failure costs are reported together. 

Costs of poor quality were addressed under Management review and in order to provide adequate data for review, the prevention, appraisal, and failure costs need to be collected. Graphs showing the trend in quality costs for the plants, products, and processes would satisfy this requirement. 

Costs incurred because failure is possible. The actual cost of producing an entity is the no-failure cost plus the quality costs. The no-failure cost is the cost of doing the right things right first time. The quality costs are the prevention, appraisal, and failure costs. 

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