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

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

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

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.

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

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

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

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

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

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

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

Process Development

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

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 .

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.

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

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)

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 .

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.

Layout
 For the projectplanning phase, usually layouts in the
form of simple topviewsand sideviewsare sufficient.

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

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

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

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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