Economic evaluation fixed costs

To evaluate design options and carry out preliminary process optimization, simple economic criteria are required. What happens to the revenue from product sales after the process has been commissioned The sales revenue first pays for fixed costs which are independent of the rate of production. Variable costs, which do depend on the rate of production, also must be met. After this, taxes are deducted to leave the net profit. 

Cost Calculation. The main elements determining production cost are identical for fine chemicals and commodities (see Economic evaluation), a breakdown of production cost is given in Table 2. In multipurpose plants, where different fine chemicals occupying the equipment to different extents are produced during the year, a fair allocation of costs is a more difficult task. The allocation of the product-related costs, such as raw material and utiHties, is relatively easy. It is much more difficult to allocate for capital cost, labor, and maintenance. A simplistic approach is to define a daily rent by dividing the total yearly fixed cost of the plant by the number of production days. But that approach penalizes the simple products using only part of the equipment. 

The scope of the economic evaluation includes estimation of capital cost figures for a nitric add plant producing 280 tonnes/day of a 60% product. Following this capital cost estimation the total annual operating costs are estimated, both variable and fixed components being considered. Also considered is the cost of providing finance for the initial capital outlay at 25% interest per annum. 

The only evaluation method that unifies the contributions of these optimization goals is the total separation cost. The position of the optimum after a cost optimization depends heavily on the magnitude of each contribution relative to each other. If the price of adsorbent or fixed costs (maintenance and capital cost) is a dominant factor, then the cost optimum will coincide with the maximum productivity. For separation problems with low solubility of the components and/or very high eluent price, the cost optimum is approximately equal to the minimum of eluent consumption (i.e. very high number of stages). In other words, only the optimization of total separation cost leads to the real (economically) optimum of the separation problem (Fig. 7.15). 

A thorough presentation of fundamentals of an economic analysis for process design can be found in the classical book of Peters and Timmerhaus (1991). In addition this book contains detailed information about the cost of chemical equipment. A concise but useful treatment can be found in Coulson Richardson volume 6 (1993). The part on economics in Douglas (1987) is particularly well written from the viewpoint of a designer. The chapter written by Holland Wilkinson for Perry s Handbook 7 edition (1997) contains an extended description of the modem concepts of profitability, a comprehensive estimation of manufacturing and fixed-capital costs, as well as an introduction in the accounting and cost control concepts. The economic evaluation of projects from the perspective of the Institution of Chemical Engineers-UK may be found in Allen (1991). 

Economic evaluation - one main challenge is to bring MES out of the laboratory to technical application. At the early stage of the development, a rough calculation should at least include the assessment of needed productivities at the given fixed and variable costs (e.g., for reactor, electrodes, membranes, reaction medium, pretreatment of the gas). The volumetric productivities (space-time yields), final product concentrations, and total process times determine the overall process performance. These parameters should be used to define operational windows for the production of bulk chemicals. Furthermore, this theoretical approach allows the identification of limiting process parameters. 

SuperPro Designer estimates equipment cost using built-in cost correlations that are based on data derived from a number of vendors and literature sources. In addition, users have the flexibility to enter their own data and correlations for equipment cost estimation. The fixed capital investment is estimated based on equipment cost using various multipliers, some of which are equipment specific (e.g., installation cost) while others are plant specific (e.g., cost of piping, buildings, etc.). This approach is described in detail in the literatrue [6,142]. The rest of this section provides a summary of the cost analysis results for this example process. Table 15.2 shows the key economic evaluation results for this project. Key assumptions for the economic evaluations include 1) a new production suite will be built and dedicated to the manufacturing of this product 2) the entire direct fixed capital is depreciated linearly over a period of twelve years 3) the project lifetime is 15 years, and 4) 27,000 kg of final product is produced per year. 

Recommendations that are strictly for the protection of the fixed property and business interruption can be easily evaluated against the potential economic loss that will be suffered. Since it is already assumed that the probability of the risk is high, since a recommendation has been made, it is simply a matter to determine if the cost to implement the recommendation would exceed the cost to rebuild and economic loss of sales. This value may be further reduced if insurance coverages would alleviate some of the burden of the projected loss. If the cost to implement the recommendation approaches the rebuild and business interruption loss, it not justified and therefore impractical. 

Process variants are to be modeled mathematically to evaluate them quantitatively. For this purpose a process is modeled by process elements and by their interlinks as they appear due to flows of energy and mass. The mathematical evaliration of the process model for ary given instance is denoted simulation of the process. Process simulations allow for assessment of the fixed and variable costs, the design of process equipment, of the necessary utihties, and thus for the assessment of the economic viability of the process variants. 

The economics of the four basic compound fertilizer production processes (bulk blending, compaction granulation, steam/water granulation, and chemical granulation) are compared in terms of (1) required fixed captal investment, (2) conversion cost (not including raw materials), and (3) production cost (conversion cost plus raw material cost). The premises and assumptions used in this evaluation and a discussion of the main economic characteristics of the processes follow. 

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