TK-4103 Evaluasi Ekonomi Pabrik Kimia

OPERATING COST ESTIMATION

A. Detailed Estimate Approach Along with plant cost, operating cost will determine the projected cash flow of a production plant project For a more accurate cost estimate, a detailed approach is necessary. Table 4-1 in Garrett provides a partial checklist for operating costs. These costs are classified into: Variable costs - which can be controlled by the management to some degree Fixed costs - which have been fixed by the plant design Variable costs (controllable) Raw materials, additives, catalysts Utilities Labor: operating, supervision, maintenance, technical service, engineering, safety, environmental, laboratory, clerical, accounting, legal, security, etc. Indirect labor charges (fringe benefits): health insurance, retirement, social security, disability insurance, vacation, holidays, sick leave pay, payroll taxes, overtime, bonuses, etc. Maintenance: material, services, contract maintenance General: office, plant, safety, lab supplies, books, subscriptions, dues, memberships, outside legal, accounting, consultants, travel, meetings, environmental, miscellaneous Transportation, freight Distribution, packaging, storage & sales expenses Donations, public relations Research & development Fixed costs Depreciation Taxes, business & licensing fees, insurance General & administrative expenses, corporate overhead Patents & royalties
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 Interest

On-Stream Efficiency Any plant cannot be run 365 days per year A plant (or part of a plant) will undergo periods of shutdown: o scheduled shutdown: periodic maintenance, cleaning, production allocation o unscheduled shutdown: power disruption, mechanical breakdown, shortage of raw materials, etc.

Preliminary plant design usually assumes an optimistic estimate of 330-345 days of uptime per year All operating expenses that depend on the actual production throughput have to be multiplied by the on-stream efficiency

Raw Materials Various information sources for the prices of chemical commodities are available: Chemical Marketing Reporter Indochemical Indocommercial trading sites in the Internet etc. Prices are determined by various factors: grade, purity, quantity of purchase, price basis (FOB, CIF etc.), and others

Utilities Utility requirements have to be calculated from the process flow sheet, heat & materials balance This is the operating cost component that can often be reduced by improving the process design (e.g. better heat integration) Some utilities have prices that are readily available Operating Labor
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 This is the part of the plant workforce that is directly responsible for the daily operation of the plant Operating labor does not include: o maintenance, supervision, analytical, clerical & others The number of operators may be estimated based on the number of major pieces of equipment or sections of the process flow diagram The level of instrumentation in a plant greatly influences the number of required operators o A rough estimate for a non-centrally instrumented plants is 1 operator per major equipment or section Another rough estimate can be obtained from Figure 4-1 in Garrett Normally, a continuous plant operation requires 3 shifts per day: o day shift, swing shift, & night / graveyard shift To fully staff the shifts and still providing break time for each shift, the continuous operation needs 4-5 crews / teams o 4-team arrangement: 3 on duty, 1 off o 5-team arrangement: 3 on duty, 2 off Example of 4-team and 5-team shift scheduling can be viewed in Fig.4-2 & 4-3 in Garrett Number of operators x number of teams = total number of operating labor Homework: a. Find the price of electric power and fuel utilities for industries in Indonesia; describe briefly the applicability of these prices, and the source of your information. b. Find the minimum labor wage in Indonesia !

B. FACTORING METHOD FOR OPERATING COST ESTIMATION Several components have to be itemized (= calculated in detail) Raw materials Utilities Operating labor
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 Interest on loan Estimating factors to estimate operating expenses are listed in Table 4-4 in Garrett: 1. Raw materials 2. Utilities 3. Operating labor 4. Interest on loan 5. Labor-related costs: A. Payroll overhead B. Supervisory, miscellaneous labor C. Laboratory charges D. Total 6. Capital-related costs: A. Maintenance B. Operating supplies C. Environmental D. Depreciation E. Local taxes, insurances F. Plant overhead costs G. Total 7. Sales-related costs: A. Patents & royalties B. Packaging, storage C. Administrative costs D. Distribution & sales E. R&D F. Total itemize itemize itemize itemize 22-45% of operating labor 10-30% 10-20% 42-95% 2-10% of FCI 0.5-3 % 0.5-5 % 5-10% 3-5 % 1-5 % 12-38 % 0-5 % 0-7 % 2-10 % 2-10 % 0.5-4 % 4.5-37 %

Payroll overhead: Also known as fringe benefits (you also need to consider this in your job search) Social security, healt & disability insurance, retirement funds, and other welfare (=kesejahteraan) programs Holidays (= THR), vacation, paid sick leave Supervisory & other labor:
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These are support labor necessary for plant operation, such as supervisors (= mandor), staff & contract engineers & technical support, clerical, etc. Maintenance: Funds needed for maintenance depends on: operating environment, age of the plant / facility, commitment for preventive maintenance, initial cost vs. durability of the original plant design Trend in maintenance: preventive maintenance Strictly managed by Operations Dept. Focus on fixing / repairing troubled equipment Curative (re-active) Dedicated department Focus on equipment reliability & preventive maintenance Preventive (pro-active)

Preventive maintenance increases the maintenance cost component in the factoring method, but it decreases the actual expenses due to unscheduled shutdowns (expenses that cannot be predicted at the project development phase) Operating Supplies, Laboratory Charges, Royalties Operating supplies: cleaning chemicals, office supplies, household supplies, computer supplies, etc. Laboratory charges: lab supplies, laboratory & QA/QC employees Royalties: included as opex if not paid as a lump sum at the beginning of the project

Packaging & Storage These expense components do not include the packaging plant facility, but only materials included with the product as its packaging, & storage & handling expenses Where the products are entirely bulk, this cost can be very small. In other cases, these must be detailed since they are major components in the product selling price (example ?)

Environmental Included in this component are expenses associated with the management of safety, health and environmental (SHE) aspects of the plant operation These expenses include salary for SHE personnel, enforcement of SHE programs, environmental impact analysis, emergency response expenses, trainings, safety drills, inspections, public relations, corporate social responsibility (CSR), etc. Current trend is for these expenses to increase significantly

Depreciation Depreciation is a hypothetical "expense" that a company may deduct from its gross income, as a fund to allow replacement of obsolete equipment The basis of the depreciation calculation is the FCI. Land is not allowed to be included as a depreciable item. Government institutions regulate the allowable depreciation formulas, the salvage value of the plant / equipment, and the depreciation period (or life) of the equipment (1) Straight line depreciation ( )

(2) Double declining balance depreciation

(3) Sum-of-years digits depreciation The numbers for each year of the plant life are totaled (e.g. for 10 years life, 1 + 2 + 3 + .... + 10 = 55) Depreciation for each year: 1st year = 10/55 x original plant cost 2nd year = 9/55 x original plant cost 3rd year = 8/55 x original plant cost ....etc.

In project feasibility evaluation, the straight-line depreciation is almost always the preferred formula. The remaining value of an asset (equipment or the whole plant) after a fraction of its original value has been deducted by depreciation is called the book value

Local Taxes, Fees, Insurance, Interest Local taxes: property taxes (Pajak Bumi & Bangunan), advertisement taxes, etc. Fees: business permits, Insurance: property damages, fires, etc. Interest: almost all process plant project are funded partially or entirely from borrowed money; in this case, interest paid on the loan must be detailed in the operating expense calculation