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Episode 27 : Project Management Costs

  1. SAJJAD KHUDHUR ABBAS Chemical Engineering , Al-Muthanna University, Iraq Oil & Gas Safety and Health Professional – OSHACADEMY Trainer of Trainers (TOT) - Canadian Center of Human Development Episode 27 : Project Management Costs
  2. 1. In order to know about the profit possibilities, we need todetermine the manufacturing cost. Manufacturing cost Investment cost : • Non‐recurring procurement costof the plant. • Provided by bank orproject investor Operating cost : •Continuous arising cost necessary for keeping the plant in operation •Raw material cost, utility cost, labourcostand maintenance cost
  3. Costs Investment Cost 1. methods todetermine 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 replacementof theolder plant  new   old   I  C  Ci,oldi,new I Where C is thecapital costand I is the price index. Degression Method 1. It applies toan almostsimilarplant with highercapacity. m  old   X new  Ci,new  Ci,old X  Where m is called degression exponent and normally range from 0.32 to 0.87
  4. Costs Cost Method 1. If there is lack of information regarding theexisting plant, investment costcan be estimated by using cost factor. It requires theexistenceof a processconcept and the rough layoutof the main equipment in order todetermine thecostof the main processing unit. Operating Cost 1. Consists of (a) Cost of raw material (b) Utilitycost (c) Labourcost (d) Maintenancecost Utility Cost 1. It is quantity based and consisted of electricpower, steam and coolantconsumption, heating media such ascoal and otherenergysources like hydrogen.
  5. Costs Labour Cost 1. Depend on the sizeof the plant. The larger the plant, the smallerthe portion of the employment cost in relation to the manufacturing cost because large plant is usually highlyautomated. Maintenance Cost 1. Divided into 2 types : (a) Preventive maintenance (b) Failure ‐ oriented maintenance 2. Failure ‐ oriented maintenance : cost for upkeep and inspection do not arise, maintenance costonlyarise in caseof failures. Storekeeping of spare part is important. It might affect production since maintenance only being carried out in thecaseof failures 3. Preventive maintenance : provides moreoperational reliability. : if inspection strategy is applied  higher inspection cost : if exchange strategy is applied  higherrepaircost
  6. What is Tender Process?  an offer todowork orsupplygoodsata fixed price  Getting goodsorservices is also knownas 'procurement'. Types of Procurement • Works • Supplies • Services Types of Tenders • Open Tender • Restricted Tender • Direct Negotiation
  7. Decision Presentation Evaluation Tender Activities Preparation Advertisement Prepare Tender Specification Advertise Tender Technical Evaluation Compile evaluation(Tender Report) Present to Tender Board Decision on Successful Tenderer by Tender Board Costing Evaluation
  8. Tender: Guiding Principles  Crystal clear Specification – Match Functional Requirementswith Technical Specifications – Avoid ““Grey”areas  Be fairto tenderers - providesame info & sameopportunity toall  Not bias towardsany Brand/Tenderer  Specify Mandatory Requirements - useas criteria forevaluation  Do not reveal Budget  Observe Confidentiality  Allow reasonable time forTenderers to respond  Preference to Local CompaniesPreference
  9. RISK ANALYSIS 10 i)Customer  Paying Habits & Solvency  Debt ‐ ridden customerscertainly represent a higher risk than customerswithoutdebts  Somecustomersare famous for interfering in everything, thuscomplicating theexecution of the project forthe plant manufacturer  Customerprefers certain competing companies when awarding thecontract, possibly because he is holding a share in them
  10. RISK ANALYSIS ii)Customer specification: specifications often contain data and requirements that have a considerable impact on the costs iii)Location: legislation, infrastructure, working conditions, language difficulties political risks (terrorism, war risk, corruption) iv)Commercial part: High contractual penalties, liability claim for lost profit v) Deadline situation (specified rather short):  Low risk ‐ For project already been realized several times under similar condition  High Risk – New plant concept abroad
  11. RISK ANALYSIS vi) Processengineering:  New process engineering concepts – very high  Operatordemands corresponding process engineering guarantees regarding on quantityand qualityof products  Retrofitting‐ increase thecapacity and product  Rescission – Include refund of the paymentalready madeand expiry of purchase moneyclaims
  12. Process Development
  13. Process Development  Def: The process determines the kind and orderof the “ unit operations ”  Steps to find the ideal process for the manufacturing of a new product:  Laboratory development  Pilot plant station  Pilot plant  First large‐ scale plant  If a new process is finally found, thecompanywill protect itself against thecompetition by means of corresponding licenses
  14. 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 processas well as for thewholeplant Thiswill served in determining the raw material and energyconsumption. Within the plant, the BALANCES define the mass flow and their physical/chemical states. The resultsof the balancing are recorded in called MEDIA DATA SHEETS .
  15. Media Data Sheet for Saline Solution Thedivision 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 Theoperator is interested in a broad control range to beable to face the f luctuating demand withvariableproduction. 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 besufficient.
  16. Media Data Sheet for Low Pressure Steam Safety ‐R elevant Massdataareoften the basis for thedesign of apparatus. Data Concentration data together with thedesign temperatureare thedecisive parameters regarding corrosion Thedetermination of suchdatadoes not occur by means of process balancing, but by means of the safety ‐ related design of the plant. Here, not operated only the load case at can the plant is vary, but also the thermodynamic condition of the live steam due to f luctuations during the operation of the corresponding steam generatororpowerstation
  17. Materials Concept  Aspects to beconsidered in material selection  • compositionof the media, corrosionaspect  • design pressures and temperatures  • hydrodynamicaspects  • costs  • strength  • delivery times  • producibility  • weldability  • dimensions available  • production ‐ related aspects  • price f l uctuations  • guarantees  • f l exibility regarding modifi cations (e.g. laterfixing of nozzles)
  18. Design of Main Equipment/Appratus  Process design  Process f low diagram (PFD)  Technical data sheet  Mechanical design  Wall thickness  Mechanical drawing  Production design  details like fi xing devices, insulation fastener, eyeboltsetc.  The resultsare the productiondrawingsand the related bills of materials .
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  20. Depending on thestructureand available resourcesof the plant manufacturer thedesign steps described above can be carried out either in ‐ house or assigned to subcontractors. The process ‐ related design is usuallyup 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, forexample, heatexchangersorcolumns disposeof own design programs tocalculatethe required heatexchange surfaceor the numberof trays. The plant manufacturer ’ s task is then limited to the specifi cation of the technical task.
  21. Layout  For the projectplanning phase, usually layouts in the form of simple topviewsand sideviewsare sufficient.
  22. In order to provide thecustomerwith a better impression of thedesigned plant, graphicallyprocessed three ‐ dimensional views of the layoutscan be generated with suitable CAD systems Based on the layout, the space required for the plantcan bedetermined, which – forcost reasons – is to be minimized
  23. Quotation/Tender Document Comprise 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 supplyand 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
  24. 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 liability insurancesetc.) •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
  25. Theoperatoranalyzes the incoming quotations both technically and commercially. Depending on theanalysiscriteriasome competitors will already be ruled out here. Often 3 – 5 remaining suppliers will then be shortlisted. Theseplant manufacturers are invited to contract negotiations . Usually, a technical presentation of the plant manufacturerwill take place. Furthermore, commercial detailsand unsolved issuesarediscussed. After thesettlementof all technical and commercial aspects, thecontract negotiations are focussed on the purchaseprice and thedateof completion, whereat thedate of completion may beas important as the purchaseprice.
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