Page 295 - Chemical engineering design

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CHEMICAL ENGINEERING
Fixed costs:
5. Maintenance, take as 5% of fixed capital D 445,000 ð 0.05 D £22,250
6. Operating labour, allow one extra man on days. It is unlikely
that one extra man per shift would be needed to operate
this small plant, and one extra per shift would give
a disproportionately high labour cost.
Say, £30,000 per year, allowing for overheads D £30,000
7. Supervision, no additional supervision would be needed
8. Plant overheads, take as 50% of operating labour D £15,000
9. Laboratory, take as 30% of operating labour D £ 9000
10. Capital charges, 6% of fixed capital (bank rate 4%) £26,700
11. Insurance, 1% of fixed capital £ 4450
12. Local taxes neglect
13. Royalties not applicable
Fixed cost D £107,400
Direct production costs D 17,396 C 107,400 D £124,796

14. Sales expense not applicable
15. General overheads not applicable
16. Research and development not applicable
Annual operating cost, rounded D £125,000

6.10. ECONOMIC EVALUATION OF PROJECTS
As the purpose of investing money in chemical plant is to earn money, some means of
comparing the economic performance of projects is needed.
For small projects, and for simple choices between alternative processing schemes and
equipment, the decisions can usually be made by comparing the capital and operating
costs. More sophisticated evaluation techniques and economic criteria are needed when
decisions have to be made between large, complex projects, particularly when the projects
differ widely in scope, time scale and type of product. Some of the more commonly used
techniques of economic evaluation and the criteria used to judge economic performance
are outlined in this section. For a full discussion of the subject one of the many specialist
texts that have been published should be consulted; Brennan (1998), Chauvel et al. (2003)
and Vale-Riestra (1983). The booklet published by the Institution of Chemical Engineers,
Allen (1991), is particularly recommended to students.
Making major investment decisions in the face of the uncertainties that will undoubtedly
exist about plant performance, costs, the market, government policy, and the world
economic situation, is a difficult and complex task (if not an impossible task) and in
a large design organisation the evaluation would be done by a specialist group.

6.10.1. Cash flow and cash-flow diagrams
The flow of cash is the life blood of any commercial organisation. The cash flows
in a manufacturing company can be likened to the material flows in a process plant.