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The most important variable in Table 10.1 is sales volume, with the price of product and raw material
being a close second. Clearly, if market forces were such that we were able to sell (and hence produce)
only 50% of the originally estimated amount of product, then profitability would be affected greatly.
Indeed, the process would quite possibly be unprofitable. The problem is that projections of how the
variables will vary over the life of the plant are difficult (and sometime impossible) to estimate.
Nevertheless, experienced cost estimators often have a feel for the variability of some of these
parameters. In addition, marketing and financial specialists within large companies have expertise in
forecasting trends in product demand, product price, and raw material costs. In the next section, the effect
that supply and demand have on the sales price of a product is investigated. Following this, methods to
quantify risk and to predict the range of profitability that can be expected from a process, when
uncertainty exists in some of the profitability parameters listed in Table 10.1, will be discussed.
10.7.1 Forecasting Uncertainty in Chemical Processes
In order to be able to predict the way in which the factors in Table 10.1 vary, it is necessary to take
historical data along with information about new developments to formulate a model to predict trends in
key economic parameters over the projected life of a process. This prediction process is often referred to
as forecasting and is, in general, a very inexact science. The purpose of this section is to introduce some
concepts that must be considered when quantifying economic projections. A detailed description of the art
of economic forecasting is way beyond the scope of this text. Instead, the basic concepts and factors
influencing economic parameters are introduced.
Supply and Demand Concepts in Chemical Markets. Economists use microeconomic theory [2] to
describe how changes in the supply of and demand for a given product are affected by changes in the
market. Only the most basic supply and demand curves, shown in Figure 10.7, are considered here.
Figure 10.7 Simple Supply and Demand Curves for Product X